Document

BEHAVIORAL RESEARCH IN ACCOUNTING American Accounting Association
Vol. 26, No. 2 DOI: 10.2308/bria-50755

2014
pp. 1–34
Managerial Influence in Performance

Measurement System Design:
A Recipe for Failure?
Anne-Marie Kruis
Nyenrode Business Universiteit
Sally K. Widener
Clemson University
ABSTRACT: Extant literature holds that business unit (BU) managers’ influence in the
design of their performance measurement system (PMS) is beneficial; however,
empirical evidence is mixed. Using survey data from 293 BU managers, we study their
perception that the PMS fails to support their decision-making. The findings indicate that,
on average, managerial influence in PMS design decreases the perception of PMS
failure and hence indeed seems to be beneficial. However, importantly, the effect differs
depending on the situation. For instance, when there are higher levels of information
asymmetry between managers and superiors, lower levels of interdependencies, or
lower levels of information asymmetry between employees and managers, managerial
influence in PMS design decreases failure. To the contrary, when there are lower levels
of information asymmetry between managers and superiors, higher levels of
interdependencies, or higher levels of information asymmetry between employees and
managers, influence in PMS design increases PMS failure.
Keywords: manager inﬂuence; performance measurement systems; failure; design;

status congruence theory.
INTRODUCTION
G
enerally, participation in system design is thought to increase desired outcomes such as
system satisfaction and reduce undesired outcomes such as cognitive dissonance (e.g.,
Wouters and Wilderom 2008; Doll and Torkzadeh 1989). However, the empirical findings
are inconclusive (e.g., Ives and Olsen 1984; Eldenburg, Soderstrom, Willis, and Wu 2010). Some
studies have attempted to shed insights on the inconclusive findings by examining different types of
users (e.g., Eldenburg et al. 2010), while other have tried to improve on research design (e.g.,
We appreciate helpful discussions with Henri Dekker, Karen Sedatole, Steve Salterio, Roland Speklé, and Michael
Williamson. Comments from workshop participants at Texas Tech University, Twente University, and Monash
University, and participants of the 2011 GMARS Conference, 2012 MAS Conference, and 2013 Performance
Measurement Conference are greatly appreciated.
Mandy M. Cheng, Accepting Editor.
Published Online: March 2014
1
2 Kruis and Widener
Hunton and Gibson 1999). Still others argue that inconclusive findings arise because the relation
between user participation and positive outcomes is conditional on such factors as desired
involvement (Doll and Torkzadeh 1989, 1991). This study examines this last reason by identifying
three different environmental contexts, which we argue, have different levels of desired
involvement.1 This study investigates whether the benefits for the decision-facilitating role of the
performance measurement system (PMS) received from business unit (BU) managers’ influence in
the design of the PMS vary across these contexts. This examination is consistent with Shields and
Shields (1998) who state that theoretical differences primarily drive the inconclusive empirical
results as opposed to differences in research methods.
The discrepancy model of user participation holds that a positive outcome of participation is
dependent on the discrepancy between users’ desired and actual levels of involvement (e.g., Doll
and Torkzadeh 1989). Empirical evidence supports the significant relation between the congruence
of users’ desired and actual participation with user system satisfaction (Doll and Torkzadeh 1991;
Hunton and Gibson 1999). However, these findings do not provide insight on contexts that may or
may not result in such congruence. To identify such contexts, this study draws on Status
Congruence Theory (SCT), which holds that the breadth and depth of functional expertise BU
managers possess drives the level of desired involvement (Saleem 1996; Bunderson and Sutcliffe
2002). Functional expertise is having the necessary knowledge and skills to apply that knowledge
to a particular activity or function. In this study, the particular activity is the design of the content of
the PMS. This study posits that in certain situations BU managers may (or may not) possess
sufficient functional expertise necessary for the design of performance measurement information
useful for decision-making and hence may desire more (or less) involvement.
Consistent with extant literature, this study assumes that the BU PMS is imposed top-down
on the BU; however, superiors can give BU managers varying levels of influence in the design
process (e.g., Dossi and Patelli 2008). Thus, BU managers may be able to ‘‘affect’’ the design of
the PMS they use to manage their unit (e.g., Nørreklit 2000). BU managers may perceive that
they have minimal influence when their superior primarily imposes the PMS or BU managers
may perceive that they have more influence when they have more latitude to change measures in
their PMS. In sum, BU managers may have more or less influence in the design of their PMS.
‘‘Influence in the PMS design’’ is defined as the extent BU managers are involved in the design of
the existing PMS (e.g., make incremental changes) and not an implementation of a new PMS
initiative.
As depicted in Figure 1, this setting contains three common business contingencies that capture
critical intra-organizational relationships between BU managers and (1) other BUs, (2) superiors,
and (3) their employees. First, interdependencies may exist between BUs. Second, BU managers
may possess information unknown to their superior. Third, BU employees may possess information
unknown to their BU managers. The next section develops arguments that BU managers’ functional
expertise will differ in each situation, thus affecting the desired level of influence as well as the
outcomes of influence.
To provide a nuanced understanding of these outcomes, this study examines when the PMS
fails the BU manager. BU managers perceive that the PMS fails when it does not contain adequate
information to support them in decision-making. The focus is on the BU because the multi-business
unit form of organization ‘‘is widely acknowledged to have been one of the most significant
organizational innovations’’ (Martin and Eisenhardt 2010, 265). This study examines BU
1
Different literatures use ‘‘participation,’’ ‘‘involvement,’’ and ‘‘influence.’’ J. Shields and M. Shields (1998, 49)
define participation as ‘‘a process in which a manager is involved with, and has influence on.’’ Our examination
is specifically about influence; however, the terms are used somewhat interchangeably.
Behavioral Research In Accounting

Volume 26, Number 2, 2014
Managerial Influence in Performance Measurement System Design: A Recipe for Failure? 3
FIGURE 1
Representation of Structure
managers’ perception2 that the PMS fails to facilitate their decision-making and management of the
unit since perceptions reflect reality, thus influencing behaviors and decision-making (Van der
Stede, Young, and Chen 2005; Link and Oldendick 2000). We do not assume that all firms are in
equilibrium. As Chenhall (2003, 135) notes, firms may make choices ‘‘for institutional or political
reasons that may be inconsistent with rational economic reasons’’; thus, failure is a possible
outcome.
2
It is important to note that all of our constructs are perceptual measures. Henceforth we refer to all constructs
directly and succinctly, which aids in the writing of a concise article.

4 Kruis and Widener
A survey instrument is used to collect data from 293 BU managers. In accordance with
conventional thinking, the findings indicate, on average, that managerial influence in PMS design
decreases PMS failure. However, importantly, the effect differs depending on the situation. For
instance, when there are higher levels of information asymmetry between managers and superiors,
lower levels of interdependencies, or lower levels of information asymmetry between employees
and managers, managerial influence in PMS design decreases failure. However, when there are
lower levels of information asymmetry between managers and superiors, higher levels of
interdependencies, or higher levels of information asymmetry between employees and managers,
influence in PMS design increases PMS failure.
The results contribute to the literature on user influence on accounting systems in several ways.
Eldenburg et al. (2010) state that many accounting studies focus on only one of the three stages
(e.g., design, implementation, and use) of accounting systems at a time; this study contributes by
investigating both design (through influence) and the outcome of use (through failure). More
specifically, first, this study challenges the commonly held view that managerial influence is always
beneficial in system design. The results document situations where influence is both beneficial and
(contrary to the commonly held view) detrimental. Second, prior research on user involvement has
focused on gauging the satisfaction of the user, which could be another reason for the inconclusive
empirical findings. This study focuses on failure because (1) it is an antecedent of satisfaction
(Bitner, Booms, and Tetreault 1990), and (2) people react more strongly to negative events than
they do to positive events (Kahneman and Tversky 1979; Urbany 2005). Finally, it is commonly
accepted that BU controllers provide information for dual purposes, one of which is to manage the
local unit (e.g., Dossi and Patelli 2008; Henri 2006). A PMS provides managers with information
needed to facilitate unit-related decisions, to evaluate and motivate unit employees, to communicate
information about unit activities both externally and internally, and to coordinate activities; all of
which ultimately affect BU performance. In sum, not only do the results extend current literature on
user involvement and push the boundaries on what is known with regard to PMS failure, but also
provide relevant insights for the management of BUs. Since a fundamental purpose of the PMS is to
provide information with which to facilitate decisions and optimize firm and unit performance
(Sprinkle 2003), these findings are important.
The next section develops the theory and formulates the hypotheses. The following sections
describe the research methods, and then discuss our analyses and results. The last section discusses
research limitations, gives future research suggestions, and presents concluding comments.
THEORY AND HYPOTHESES

The hypotheses examine the different outcomes that result from changing the level of BU
managers’ influence in PMS design in three common situations. In order to develop the theory, the
broad stream of literature that examines participation in PMS design is first discussed. Then the
discrepancy framework and Status Congruence Theory, which we use to develop the hypotheses,
are discussed. Figure 2 illustrates the theoretical model.
Performance Measurement System Design

PMSs are a set of performance indicators that reflect the key value-adding activities of an
organization (Kaplan and Norton 1992, 1996). A PMS can be used for both decision-influencing
and decision-facilitating purposes (Sprinkle 2003). Superiors may use PMSs to influence employees
to take action and exert efforts in certain specified ways with the objective of reducing agency
problems (e.g., moral hazard and adverse selection) (Sprinkle 2003). Alternatively, the provision of
measurement information ‘‘should provide information that improves employees’ abilities to make

FIGURE 2
The Theoretical Model
organizationally desirable decisions, thereby enabling employees to achieve the organization’s

goals and objectives’’ (Sprinkle 2003, 288).
The design of the PMS can refer to the initial implementation or to subsequent modifications
made to an existing system. Malina and Selto (2004) provide a thorough analysis of a firm that
initially implements a PMS and then, during the subsequent four years, makes modifications to it
including changing weights and adding and/or dropping measures. They concluded that changes to
PMSs are made based primarily on an assessment of measures’ attributes (e.g., accuracy, cost
versus benefit, causally related, informative) (Malina and Selto 2004). Our interest is managers’
influence in the design of the PMS as it relates to subsequent modifications. When designing a
PMS, an important decision is the extent of participation of users. Consistent with conventional
wisdom, this study assumes that BU managers’ level of participation in the design of their PMS
varies along a continuum from no involvement (i.e., the PMS is imposed on the BU from above) to
complete ownership of the design process (there is no involvement from above). Choices also have
to be made regarding (1) how to set performance standards and (2) which performance measures to
include (Murphy 2001). The former focuses on target setting while the latter focuses on the content
of the PMS.
A stream of literature on budgetary participation focuses on target setting as researchers study
possible opportunistic behaviors and the creation of slack (e.g., Dunk 1993). A common agency
problem is the BU managers’ desire for additional slack when setting targets for their performance
measures to facilitate improved evaluations, which is compounded in the presence of information
asymmetry (Sprinkle 2003; Kren and Maiga 2007). However, a benefit of participation is that
superiors may induce the revelation of private information (e.g., Kren and Maiga 2007). Indeed,
Shields and Shields (1998) show empirically that information asymmetry is a primary driver of

6 Kruis and Widener
participative budgeting. Participation is still used in the absence of private information, though, as
some suggest its use may induce positive motivational and cognitive states (Covaleski, Evans, Luft,
and Shields 2007).
The focus of this study, though, is not on target setting, but rather on the content of the PMS.
This study is interested in the extent BU managers can use the PMS content to facilitate decisions
and manage the BU. Sprinkle (2003, 288) states that research that ‘‘provides useful insights into the
benefits and costs of managerial accounting practices that are intended to support decision-making
within an organization’’ is needed. BU managers can use the information content provided in a PMS
to revise or confirm their beliefs about such matters as employee performance, which ultimately
affect BU performance.3 To examine the suitability of the PMS for decision-facilitating, this study
examines managers’ perceptions that it fails to provide needed support.
The literature on PMS failure and user influence is scarce, so related literatures help inform our
study. Extant research examines the relation between involvement and system acceptance (e.g., Qu
and Cooper 2011), system use and satisfaction (e.g., Rigby and Bilodeau 2007), involvement in
design and satisfaction (McKeen, Guimaraes, and Wetherbe 1994), and system design aspects and
satisfaction (e.g., Ittner, Larcker, and Randall 2003; Cavalluzzo and Ittner 2004). Many argue that
involving users leads to a more accurate assessment of information requirements (Robey and
Farrow 1982) and makes experience available to tailor the information system to the needs of the
organization (Lucas 1974). The budgeting literature has produced inconclusive findings regarding
the relation between participation and outcomes including satisfaction (Derfuss 2009; Shields 1995;
Covaleski et al. 2007). These inconclusive findings motivated Eldenburg et al. (2010) to examine
participation by nonprofessionals in the design of an activity-based costing system. They concluded
that participation is beneficial and can facilitate more efficient resource allocation and use.
In sum, extant literature has focused on the relation between participation in various systems
and satisfaction. Instead of focusing on satisfaction, though, we choose to examine failure for two
reasons. First, drawing on prospect theory, people are known to react differently to positive versus
negative events, in fact, the reaction is larger for negative events than it is for positive events
(Kahneman and Tversky 1979). Urbany (2005) explains that intuitively this is because people feel
negative states such as disappointment more deeply than they do positive states such as happiness.
He states ‘‘in sum, negative reactions may outweigh positive reactions in determining judgments of
decision making impact’’ (Urbany 2005, 170). Second, marketing literature has shown that failures
are an antecedent to satisfaction (Bitner et al. 1990). Interestingly, someone can not only be
dissatisfied upon experiencing a failure, but can also be satisfied. The key is in the response to the
failure. If the failure is properly mitigated, then a person can still feel satisfaction. For example, a
consumer can experience failure in a service process (such as an airline not transporting the
passenger on time) but can still have a satisfying experience (if the airline properly mitigates the
failure) (Anderson, Baggett, and Widener 2009). Thus by studying failures, we examine the
situation that (1) invokes the greatest response, and (2) occurs earlier in the satisfaction-
3
In our sample, respondents use the PMS the most for monitoring and reporting results of the BU (average score ¼
4.22 on a five-point scale), and to get employees focused (e.g., through coordination, focusing on common goals,
communication of priorities; 3.71). Other uses are budget allocation (3.43), learning (3.20), and evaluation and
motivation of employees (3.27). The respondents use their PMS on average least for external reporting and
coordination to other BUs or external parties (2.59). These uses are measured on a five-point scale (1 ¼ to no
extent, 5 ¼ very great extent) and are factor solutions based on a list of 23 items. The differences in average
scores are significant, except for learning and evaluation/motivation of employees which are not significantly
different. We provide this information in order to give context to the purpose for which our respondents put their
PMS to work. All uses are significantly negatively correlated to PMS failures, which illustrate our concept of
PMS failure: the manager is unable to use the PMS to manage the unit.

performance chain. Greater insights on failures will inform firms so they can intercede to mitigate
the heightened adverse reaction prior to negatively impacting satisfaction and performance.
The Discrepancy Framework and Status Congruence Theory

The presence of interaction variables is a possible explanation for the inconclusive findings
between satisfaction and participation. ‘‘Hopwood (1976) argues that researchers should not expect
the effects of budgeting variables like participative budgeting to be independent of other variables;
instead their effects should be expected to be conditional on other variables’’ (Covaleski et al. 2007,
604). This theorizing is consistent with Ives and Olsen (1984). They suggest that empirical findings
have failed to convincingly show that user involvement in information system design enhances user
satisfaction, although note that it is accepted as conventional wisdom. Doll and Torkzadeh (1989)
build on Ives and Olsen (1984) in deriving the discrepancy framework. The framework holds that
positive outcomes of user participation are conditional on the congruence between users’ desired
and actual involvement. When superiors involve their subordinates in system design to an extent
greater than subordinates desire, a state of saturation is reached, which is associated with poor
outcomes (Doll and Torkzadeh 1989). Hunton and Price (1994) introduce the discrepancy
framework to the accounting literature and theorize that the relation between participation in system
design and positive outcomes is conditional on the extent to which participation is meaningful, one
important aspect of which is desired involvement. One reason why desired involvement may vary is
because the ‘‘user may feel qualified (unqualified)’’ (Hunton and Price 1994, 141). Hunton and
Gibson (1999) conclude empirically that congruence between desired and actual levels of
involvement is associated with increased benefits of the participation.
To theorize about when BU managers will desire to be involved in PMS design, we draw on
Status Congruence Theory (SCT). In SCT, Saleem (1996) proposes that user influence in system
design is not always beneficial. It holds that congruence is achieved when characteristics of an
individual are consistent across dimensions that are relevant to one another (Saleem 1996). To
illustrate, incongruence between knowledge/capabilities and position are a janitor with a Ph.D. or
an illiterate corporate president (Saleem 1996). Saleem (1996) argues that the positive benefits of
allowing managers’ influence in decision-making processes will not be achieved when there is
status incongruence. ‘‘For example, instead of triggering a sense of control, feelings of decision or
system ownership, decision or system understanding, integration of knowledge, and trust in
management, status incongruence is likely to trigger mechanisms such as frustration, feelings of
unfair treatment, hostility, and distrust of management’’ (Saleem 1996, 149). Saleem (1996) applies
SCT to involvement in system design. He experimentally finds an association between
incongruence resulting from a lack of functional expertise and outcomes including resistance to
system usage and user dissatisfaction. Similarly, we draw on SCT to argue that more managerial
influence in PMS design is not always beneficial; rather it may be associated with failure of the
PMS.
Background Literature: Concluding Thoughts

The focal point of this study is the BU manager and, as such, certain decision rights have been
delegated presumably because of the specific information held at lower levels of the organization.
Hence, the organization has been structured into BUs. Jensen and Meckling (1992) state ‘‘it (a profit
center) is also widely used to describe a divisional structure in which the profit center manager is
given a broader set of decision rights.’’ We acknowledge that decision rights have been allocated to
the BU manager (and consequently control for variation in the level of decentralization). However,
even in decentralized BUs, the amount of influence managers have in the design of their PMS can
vary as well as the extent of functional expertise they possess. Functional expertise exists when

8 Kruis and Widener
managers possess a high level of information, knowledge, and skill about a specific task or situation
(Braunsberger and Munch 1998). That is, managers may have more or less expertise on matters
relevant to the design of their PMS depending on the context. Moreover, as Dossi and Patelli (2008)
show, even in divisionalized organizations, PMSs are primarily imposed from the top down.
In general, literature holds that influence is beneficial for cognitive (e.g., reduced cognitive
dissonance), motivational (e.g., increased commitment, satisfaction), and system reasons (e.g.,
quality). However, there are more specific outcomes depending on the role of the PMS information.
Two important roles are (1) to influence behaviors, and (2) to facilitate decisions (Sprinkle 2003). In
the decision-influencing role, influence (for example in the budgeting system) involves a trade-off
between inducing managers to reveal private information and managers using their private
information to act opportunistically. In the decision-facilitating role, influence has generally been
considered beneficial. Our examination focuses on the outcomes of influence within the decision-
facilitating role. The next section posits that in certain situations, the manager can use the PMS
information to facilitate decision-making and management of their unit or, conversely, managers
may find that the information does not facilitate decision-making.
Hypotheses Development
Based on the underlying literature, our starting point is that influence generally decreases
failure. Our interest, though, is how this relation varies in the presence of interdependencies and
information asymmetries.4 These common contingencies represent situations in which the
managers’ functional expertise arguably varies. As per the theories described above, functional
expertise implies the level of desired involvement. This assumption is consistent with Saleem
(1996) and Bunderson and Sutcliffe (2002), who argue and find that the breadth and depth of
functional expertise possessed drives the level of desired involvement. Further, on average and
ceteris paribus, desired involvement does not equal actual involvement. This assumption is
consistent with Doll and Torkzadeh (1991), who find that participation is positively associated with
positive outcomes, implying that the level of actual involvement, on average, is less than the level
of desired involvement (see also Chenhall 2003). Therefore, in the following subsections, we
theorize that BU managers’ influence in the PMS design interacts with information asymmetries
and with interdependencies to affect PMS failure. Since we hypothesize an interaction of
independent variables (Luft and Shields 2003), the effect is symmetrical; thus we have a choice in
the framing of the interpretation of the interaction (Hartmann and Moers 1999). To investigate our
research questions, the interactive model is theorized (and interpreted) as the relation between
influence and failure as it depends on information asymmetries and interdependencies (Judd and
McClelland 1989). Our theory of interaction effects is developed beginning with interdependencies.
Interdependencies
Interdependencies create complexities for PMS design because multiple business units as well
as their joint business have to be considered. The challenge is to design a PMS that satisfies the
intertwined issue of coordination while still providing the decision-facilitating information
necessary for managing the individual unit. BU managers will have expertise with respect to the
local unit’s climate, costs, production capacity, scheduling, planning, and other specific operating
processes, and can incorporate that into their PMS. However, they will lack information about other
4
We expect influence to have a negative main effect on PMS failure. In addition, it is likely that all three
contingency variables are significantly related to PMS failure. We do not formally hypothesize these main effects
because the interest of this paper is on understanding how the effect of influence on PMS failure differs across
different situations. Thus, we are interested in understanding when influence is, or is not, beneficial.

BUs, including but not limited to information about operations, resources, markets, customers, and
suppliers. Moreover, they will likely not possess the skill necessary to design a PMS that helps
coordinate resources and activities across joint supply chains. Thus, in the case of
interdependencies, BU managers will not have the functional expertise necessary to desire more
influence in the design of the PMS.
The empirical findings of top-down control in the presence of interdependencies are consistent
with these arguments. Williams, Macintosh, and Moore (1990), in a study of public sector firms,
find that the level of user involvement in budgeting depends on the type of departmental task
independencies. Literature examining PMS in divisionalized private firms suggests that strict top-
down control of the PMS is beneficial when interdependencies exist between business units.
Empirically, Malina and Selto (2001) find that one of the purposes of a top-down implemented
balanced scorecard is to measure the total performance of multiple distributors. Likewise, Dossi and
Patelli (2008) empirically show how headquarters of a multinational tries to influence decision
making of its subsidiaries through a centralized PMS design. They argue that global competitive
pressure calls for more coordination across subsidiaries, which is imposed through a centralized
top-down approach to PMSs.
Drawing on SCT, since managers will possess less functional expertise as interdependencies
between BUs increase, managers will desire less influence in the PMS design process (Saleem
1996). Accordingly, as the gap between desired influence and actual influence increases, less
positive outcomes result (Hunton and Price 1994; Doll and Torkzadeh 1989, 1991). In our case, this
implies the PMS will be less useful for decision-making and managers will experience PMS failure.
As an example, imagine that IBM manages their SPSS product with two separate BUs. BU
PROD makes, updates, and sells the software while BU TECH provides the technical support.
Importantly, the provision of technical support services should be sufficient to support the sales of
the product in order to sustain the company’s reputation and deliver on its promise of excellence in
customer service. Each BU manager has incomplete information regarding the capacities,
capabilities, and activities of the other BU. For example, if BU PROD focuses on monitoring sales
volume, it may not be in balance with the technical capacity that BU TECH has available, thus
harming PROD’s customer satisfaction. Hence, without consolidated knowledge and understanding
of the units, it is difficult for each BU manager to possess skills necessary for designing a PMS that
both grasps the interdependencies and provides unit-specific information necessary for managing
the unit. Since they lack functional expertise, PROD and TECH managers will desire less influence
in the design of their PMS (Saleem 1996).
In sum, we argue that when there are lower levels of interdependencies, the functional expertise
of BU managers is not restricted, and they will desire to be involved in the design of the PMS; thus,
increasing influence will decrease PMS failure. Conversely, when there are higher levels of
interdependencies, the functional expertise of BU managers is restricted; increasing their influence
in the design of the PMS is incongruent with their functional expertise and increased failure of the
PMS results. Thus, we hypothesize the following disordinal interaction:
H1: For higher levels of BU interdependencies, BU managers’ influence will increase PMS
failure. For lower levels of BU interdependencies, BU managers’ influence will decrease
PMS failure.
Information Asymmetry (Superior/Manager)

With information asymmetries, BU managers will possess information that is unknown by their
superiors. The BU manager may have better localized information with regard to the quality of
accomplishments or the technicalities of the work performed in the business unit (Nørreklit 2000).
With this increased local information, managers can use their skills to apply that information to the

10 Kruis and Widener
design of the PMS. They can properly ground the PMS in the local environment, including its
culture, language, employees, and routines (Nørreklit 2000; Wouters and Wilderom 2008). That is,
they will possess the functional expertise necessary to construct a PMS useful for managing the unit
and will be better able to knowledgeably select important and relevant performance measures.
Empirically, Dossi and Patelli (2008) find that subsidiary managers faced with a PMS designed and
implemented by headquarters perceive the PMS as inadequate to manage local operations, implying
that subsidiary managers may perceive a PMS to be more useful when they are more involved in its
design.
Drawing on SCT, as BU managers possess more local information relative to their superior,
they will possess more functional expertise and thus desire more influence in the PMS design
process (Saleem 1996). Given the ability to influence the PMS, managers will believe that their
expertise and knowledge is properly integrated and reflected (Saleem 1996). The gap between
desired and actual influence will narrow as BU managers are allowed to participate more in the
PMS design. The discrepancy framework holds that as the gap between desired influence and actual
influence decreases, more positive outcomes result (Hunton and Price 1994; Doll and Torkzadeh
1989, 1991).
To illustrate our theory, consider an oil and gas company (e.g., Chevron) that has multiple
BUs. The BU managers report to the Corporate Director of Operations. One BU produces and sells
lubricants. Its manager possesses superior local knowledge such as understanding the technical
aspects of the production processes including the transformation of inputs to outputs, is experienced
with market uncertainties that may affect demand, and is knowledgeable of the environmental
regulations that govern the lubricants industry. The BU manager will be able to take the local
information and apply it to the design of the PMS. In short, the BU manager has high functional
expertise.
In sum, we argue that as the level of information asymmetry between BU managers and their
superiors increases, the functional expertise of BU managers is heightened. BU managers will have
greater desire to be involved in the design of the PMS; thus, increasing influence will decrease PMS
failure even more. Therefore, we hypothesize the following ordinal interaction:
H2: For higher levels of information asymmetry between BU managers and their superiors,
the effect of BU manager’s influence on PMS failure is more negative.
Information Asymmetry (Manager/Employee)

Finally, we posit that information asymmetries within the BU may exist. The local employees
may possess specific knowledge that is unavailable to their managers. That is, employees may
perform work that is not easily observable or monitored. The transformational process may not be
clear and well understood. In this situation, local managers cannot apply local information to the
design of the PMS and, consequently, do not possess the functional expertise relevant to help
design the PMS. Drawing on SCT, as the information gap between the employees and the BU
manager increases, managers will possess less functional expertise and desire less influence in PMS
design (Saleem 1996). As the gap between desired and actual influence increases, less positive
outcomes result (Hunton and Price 1994; Doll and Torkzadeh 1989, 1991). In this situation,
increased influence is not congruent with the restricted functional expertise of the managers; hence,
they will feel increasingly frustrated and ineffective when asked to influence the design of the PMS
(Saleem 1996).
For example, consider a consulting firm that is organized into BUs based on products and services
(designing PMSs, providing expert testimony, etc.). BU SAP is charged with implementing SAP
systems. The BU manager has expertise in SAP systems and general management practices. The

employees understand the nuances of each job. They know the workings of each client such as the time
that a successful implementation takes and the amount of other services they can cross-sell, and the
formulation of the transformation of inputs to outputs. In this scenario, we argue that the BU manager
does not possess the necessary functional expertise to identify and select relevant performance
measures necessary to provide information for such decisions as effectively assigning staff.
In sum, when there are lower levels of information asymmetry between BU employees and
managers, the functional expertise of BU managers is not restricted, and they will desire to be
involved in the design of the PMS; thus, increasing influence will decrease PMS failure.
Conversely, when there are higher levels of information asymmetry between BU employees and
their managers, the functional expertise of BU managers is restricted, increasing their influence in
the design of the PMS is incongruent with their functional expertise, and increased failure of the
PMS results. We hypothesize the following disordinal interaction:
H3: For higher levels of information asymmetry between BU managers and their employees,
BU managers’ influence will increase PMS failure. For lower levels of information
asymmetry between BU managers and their employees, BU managers’ influence will
decrease PMS failure.
RESEARCH METHODS
Survey Design and Sample
To examine our research question we need a variety of BUs. Since there is no publicly
available database of such units, a convenience sample of BU managers contacted through personal
networks of the Masters students in the Management Control Research Class is used. Using a
convenience sample is consistent with 71 percent (92 articles) of the articles reviewed in Van der
Stede et al. (2005). They state (Van der Stede et al. 2005, 668) that it is most appropriate when it
‘‘maximizes the likelihood that the resulting sample exhibits the variation in the independent
variable(s) necessary to examine the hypotheses with sufficient power.’’ Drawing on a diverse
group of student researchers for contacts enhances the likelihood of obtaining variety in the
variables of interest. Each student researcher5 interviewed four BU managers, resulting in 293
useable responses from BU managers in 183 Dutch companies located in The Netherlands. Of the
183 firms, responses were obtained from multiple units in 45 of them.
The initial survey was subjected to two pretests. First, the survey was subjected to an academic
review to ensure correspondence between the theory and measurement of the constructs. Second, the
survey was pretested in the field using an extensive Three-Step Test-Interview (TSTI) (Hak, Van der
Veer, and Jansen 2004). In TSTIs, managers verbalize their thought processes as they proceed
through the survey, then interact with the researcher and respond to questions regarding the protocol,
and finally participate in a retrospective interview. A total of eight managers were interviewed in three
rounds and the questionnaire was improved after each round of interviews. Each manager was
interviewed once. The final changes after the third round were minor. Following the completion of the
TSTI, one last interview was performed to confirm that the survey needed no further changes.
This data-collection method mitigates the most common criticisms of survey research. First, we
ensure that we have the appropriate manager complete the survey. Second, any confusion arising
from the interpretation of the survey questions was easily addressed. Finally, the extensive pretests
help ensure both content and face validity of our constructs.
5
Masters students in the Management Control Research Class assisted in administering the survey to the business
unit managers. The students, who work as controllers or hold a management position, are trained in survey and
management accounting research, and given explicit protocols to follow in administering the survey.

The respondents have worked for their employers for an average of 10.4 years (median ¼ 8
years) and have on average held the position as BU head for 3.64 years (median ¼ 3.00 years).
Moreover, the respondents have held full profit and loss responsibility as a BU manager at other
organizations for 3.46 years, on average. The respondents on average have 2.64 hierarchical levels
beneath them indicating that they are responsible for managing one to two middle manager layers as
well as non-management employees. All of the respondents have cost responsibility, while 234
respondents have responsibility for revenues. A total of 196 respondents indicate that they have full
profit and loss responsibility.6 The average influence managers have on their PMS is 3.31 (median
of 3.0) on a scale of 1 to 5. This supports our assumption that the PMS is designed jointly by the
BU and the larger entity. Seventy-one managers (24.2 percent) respond that they have little to no
influence, while 45 (15.4 percent) respond that they have a very big influence. Respondents believe
that 23.63 percent of the time, on average (median ¼ 20 percent), the PMS lets them down when
trying to manage their BU and 12.14 percent of the time, on average (median ¼ 10 percent), the
PMS causes them difficulties in performing their job. Only 13 respondents report that their PMS
never ‘‘fails’’ them.7 The respondents were asked how many measures make up their formal PMS
that they use to manage their organization. Forty-eight respondents answered less than five
measures, 164 respondents answered five to 10 measures, 47 respondents answered 11 to 15
measures, 17 respondents chose 16 to 20 measures, and 17 respondents chose greater than 20
measures. The respondents answered that on average, the formal PMS is the most important
information source they have for managing their BU (37 percent) relative to meetings (15 percent),
verbal communication with employees (14 percent), discussion of action plans (10 percent), other
measures outside the formal PMS (11 percent), social interaction in the workplace (9 percent), and
media (e.g., newspapers/internet) (4 percent).
The BUs, on average, have 174 fulltime employees (median ¼ 62). Our cross-section of BUs
spans industry sectors with 91 (31 percent) service business units, 55 (19 percent) in production, 41
(14 percent) in banking/insurance, 33 (11 percent) in trade, and the remaining spread across
construction, entertainment, agriculture/food, telecom, and transport. There are 235 (80 percent)
profit firms and 58 (20 percent) nonprofit.
Empirical Model and Variable Measurement

To test our hypotheses, we estimate the following empirical model:
PMSFAIL ¼ b0 þ b1 INTER þ b2 IASupMgr þ b3 IAMgrEmp þ b4 MGRINF
þ b5 INTER 3 MGRINF þ b6 IASupMgr 3 MGRINF þ b7 IAMgrEmp 3 MGRINF
þ b8 GOALINCON þ b9 GOALINCON 3 MGRINF þ b10 DECENT
þ b11 GENEXP þ b12 SPCEXP þ b13 CMPLXTY þ b14 PMSIMPORT þ b15 BANK
þ b16 SER þ b17 TRADE þ b18 PRDCTN þ b19 SIZE þ b20 NONPROFIT þ e:
ð1Þ
The variables are defined in Table 1 and their measurement is explained in the following
sections.
6
In an untabulated robustness check, we control for the different types of responsibility. Our statistical inferences
are unchanged.
7
The PMS dependent variable is technically a bounded variable; however, the variable is not in fact censored as
there are few responses at either end point. All variables were reviewed for kurtosis and skewness and all
variables except the interaction terms fall within acceptable bounds. The highest absolute values of skewness and
kurtosis equal 2.046 (complexity of the PMS) and 4.966 ( years current position), respectively. Both are control
variables in the model. The interaction terms show different levels of kurtosis ranging from 6.099 to 11.883.

TABLE 1
Listing of Variables
Variable Definition
Dependent Variable
Performance Measurement System Failure Extent to which managers perceive they cannot use the
(PMSFAIL) PMS to manage the unit.
Independent Variables
Interdependencies (INTER) Extent to which BUs engage in interrelated work activities.
Information Asymmetry (Superior/ Extent of private information held by managers relative to
Manager) (IASupMgr) their superiors.
Information Asymmetry (Manager/ Extent of private information held by BU employees
Employee) (IAMgrEmp) relative to their managers.
Influence of the Manager (MGRINF) Extent to which managers can influence the design of the
performance measurement system
Interaction of Interdependencies and Extent of interdependencies conditional on the influence
Influence of the Manager (INTER 3 of managers.
MGRINF)
Interaction of Information Asymmetry Extent of private information held by managers relative to
(Superior/Manager) and Influence of the their superiors conditional on the influence of managers.
Manager (IASupMgr 3 MGRINF)
Interaction of Information Asymmetry Extent of private information held by BU employees
(Manager/Employee) and Influence of relative to their managers conditional on the influence
the Manager (IAMgrEmp 3 MGRINF) of managers.
Control Variables
Goal Incongruent Measures Extent to which the BU’s PMS does not capture unit and
(GOALINCON) organizational goals.
Interaction of Goal Incongruent Measures Extent to which the BU’s PMS does not capture unit and
and Influence of the Manager organizational goals conditional on the influence of
(GOALINCON 3 MGRINF) managers.
Decentralization (DECENT) The influence of managers relative to their superiors in
strategic, investment, marketing, internal processes, and
human resource decisions.
General Experience (GENEXP) The number of years the manager has worked for the
organization.
Specific Experience (SPCEXP) The number of years the manager has been employed in
his/her current position.
Complexity of the PMS (CMPLXTY) The complexity of the unit’s PMS in terms of number of
measures.
Importance of the PMS (PMSIMPORT) The importance of the PMS as an information source for
managers in managing their unit.
Operates in Banking and Insurance Whether the firm operates in either banking or insurance
Industry (BANK) industries ( ¼ 1).
Operates in Services Industry (SER) Whether the firm operates in the services industry ( ¼ 1).
Operates in Trade Industry (TRADE) Whether the firm operates in the trade industry ( ¼ 1).
Operates in Production Industry Whether the firm operates in the production industry
(PRDCTN) ( ¼ 1).
Size of Business Unit (SIZE) The size of the business unit (in terms of fulltime
employees).
Business Purpose of Organization Whether the business unit is a for-profit or nonprofit
(NONPROFIT) organization.

The hypotheses predict positive values for b5 and b7, and a negative value for b6. The model is
estimated using OLS. Factor scores8 are used to construct the variables since the questions use
varying scales. Appendix A contains the survey questions.9 Descriptive statistics are shown in
Table 2. A high level of content validity is ensured by specifying a domain of observables based on
extant literature and through the use of validated measures. Convergent/discriminant validity is
examined using factor analyses (Nunnally 1978) and a multi-trait matrix (Churchill 1979). Internal
reliability is assessed through computation of Cronbach’s Alpha.
In this study, the independent and dependent variables are perceptions measured through the
use of a survey by a single respondent. Bertrand and Mullainathan (2001) conclude that
perceptual dependent variables may be correlated with independent variables and thus induce
results. However, Van der Stede et al. (2005) recognize that for many studies a perceptual
measure is appropriate since the interest is a person’s beliefs. They summarize by saying ‘‘in sum,
subjective measures of performance should not be viewed as poor indicators of performance by
virtue of being perceptual’’ (Van der Stede et al. 2005, 675). To provide assurance on the
suitability of our measures, a rigorous examination of common method bias is undertaken. There
are both procedural and statistical remedies for common measure bias (P. Podsakoff, MacKenzie,
N. Podsakoff, and Lee 2003). Procedural remedies include the following: (1) the respondents are
informed verbally and in writing that the survey is about the roles and uses of the PMS, so they
are not likely to guess that the study is examining the relation between influence and failure; (2)
the survey uses various response formats: an objective number to measure size and complexity, a
division of points to measure the importance of the PMS, both horizontal and vertical formatted
questions, and importantly, two objective questions that ask for percentages as measures of the
dependent variable; (3) the respondents are informed verbally and in writing that there ‘‘are no
right or wrong answers’’ (Podsakoff et al. 2003, 888); (4) the respondents’ anonymity is
protected; and (5) the survey questions are worded to avoid ambiguity, use simple language, and
are thoroughly pretested.
Several statistical tests are used to assess the extent of common method bias that may remain
after implementation of procedural remedies. First, our theory tests for the presence of two-way
interactions. Common method bias is mostly problematic in additive relations because
respondents cannot cognitively map complex relations, and thus the bias does not appear in
their answers (Chang, van Witteloostuijn, and Eden 2010). Second, a Harman’s one-factor test is
conducted on the 23 survey questions that form the primary constructs in our model (i.e., PMS
failure, interdependencies, information asymmetry (superior/manager), information asymmetry
(manager/employee), manager influence, and goal incongruent measures). The factor solution is
shown in Table 3. It yields six factors with eigenvalues greater than one and the first factor
explains 20 percent of the total variance. Moreover, the questions load on the appropriate
constructs.10 Third, Podsakoff et al. (2003, 889) suggests that a ‘‘marker’’ variable can be
included in the regression for the purpose of controlling for any common measurement bias. This
test was performed twice using two different marker variables; the first is the importance of
meetings as an information source and the second is the importance of the media as an
information source. These variables are used as markers since there is no theoretical reason that
8
We use the default method of principal components to extract the factors. As a sensitivity test, we also use
maximum likelihood method of extracting factors and find that our statistical inferences are unchanged.
9
The survey was conducted in Dutch. The questions appended have been translated to English. While not all
Dutch words and expressions have a precise equivalent translation, multiple colleagues fluent in both Dutch and
English reviewed the translation.
10
The item ‘‘alignment measures with goals of the BU (reverse coded)’’ is part of the construct ‘‘goal incongruent
measures,’’ but cross loads on PMS failures. A robustness check reveals that the statistical inferences are robust
with respect to this cross-loading (see sensitivity tests).

TABLE 2
Descriptive Statistics
Std.
Std. Cronbach’s Alpha
Variable/Indicator n Min. Max. Mean Dev. (component loadings)
Manager Influence (MGRINF) 293 2.48 1.71 0.00 1.000 0.836
Amount of influence in design of 293 1 5 3.31 1.084 (0.877)
formal PMS
Extent you can change the measures 293 1 5 3.12 1.155 (0.887)
in PMS
Extent you add additional measures 293 1 5 3.65 1.065 (0.838)
in PMS
PMS Failure (PMSFAIL) 293 1.74 3.60 0.00 1.000 0.746
Information missing from PMS 293 1 5 2.58 0.862 (0.824)
Instances that the PMS falls short 293 0 80 23.63 16.398 (0.878)
Instances that PMS causes me 293 0 70 12.14 12.728 (0.740)
problems for work
Interdependencies (INTER) 293 2.73 1.94 0.00 1.000 0.845
Influence of your activities on other 293 1 5 3.33 0.937 (0.931)
BUs
Influence of other BUs on your BU 293 1 5 3.35 0.905 (0.931)
Information Asymmetry (Superior/ 293 2.81 1.95 0.00 1.00 0.863
Manager) (IASupMgr)
Informed about type of BU 293 1 5 3.59 1.006 (0.778)
activities
Familiarity with BU input-output 293 1 5 3.42 0.946 (0.822)
relations
Certain of BU performance potential 293 1 5 3.45 1.015 (0.816)
Familiarity with technical aspects of 293 1 5 3.52 1.184 (0.737)
work
Able to assess impact of internal 293 1 5 3.38 1.038 (0.681)
factors
Understandability of BU 293 1 5 3.17 1.145 (0.785)
achievements
Information Asymmetry (Manager/ 293 1.38 3.92 0.00 1.00 0.802
Employees) (IAMgrEmp)
Informed about type of BU 293 1 5 2.19 1.024 (0.692)
activities
Familiarity with BU input-output 293 1 5 1.75 0.877 (0.768)
relations
Certain of BU performance potential 293 1 4 1.61 0.814 (0.757)
Familiarity with technical aspects of 293 1 5 2.96 1.114 (0.590)
work
Able to assess impact of internal 293 1 5 1.90 0.851 (0.701)
factors
Understandability of BU 293 1 4 1.34 0.661 (0.743)
achievements
(continued on next page)

TABLE 2 (continued)
Std.
Std. Cronbach’s Alpha
Variable/Indicator n Min. Max. Mean Dev. (component loadings)
Goal Incongruent Measures 293 1.74 3.63 0.00 1.000 0.752

(GOALINCON)
Alignment measures with goals BU 293 1 5 2.35 0.866 (0.715)
(reverse coded)
Measures represent results of the 293 1 7 2.74 1.294 (0.856)
BU (reverse coded)
Measures relate unambiguously to 293 1 7 2.70 1.200 (0.879)
organizational goals (reverse
coded)
TABLE 3
Harman’s One-Factor Test
Factors
1 2 3 4 5 6
Percent Variance Explained 20% 14% 11% 8% 7% 5%
Amount of influence in design of formal PMS 0.152 0.102 0.213 0.125 0.872 0.161
Extent you can change the measures in PMS 0.151 0.116 0.184 0.081 0.888 0.092
Extent you add additional measures in PMS 0.228 0.102 0.162 0.068 0.828 0.111
Information missing from PMS 0.112 0.842 0.019 0.036 0.055 0.168
Instances that PMS lets me down 0.119 0.852 0.147 0.093 0.128 0.277
Instances that PMS causes me problems for work 0.072 0.674 0.078 0.011 0.229 0.345
Influence your activities on other BUs 0.116 0.038 0.030 0.921 0.100 0.111
Influence of other BUs on your BU 0.087 0.009 0.055 0.916 0.084 0.006
Informed about type of BU activities (superior) 0.776 0.054 0.118 0.228 0.212 0.138
Familiarity with BU input-output relations (superior) 0.821 0.018 0.155 0.158 0.245 0.026
Certain of BU performance potential (superior) 0.823 0.138 0.137 0.060 0.071 0.006
Familiarity with technical aspects of work (superior) 0.735 0.063 0.164 0.137 0.093 0.148
Able to assess impact of internal factors (superior) 0.669 0.134 0.255 0.018 0.206 0.061
Understandability of BU achievements (superior) 0.787 0.164 0.223 0.013 0.079 0.000
Informed about type of BU activities (manager) 0.147 0.214 0.688 0.118 0.133 0.206
Familiarity with BU input-output relations (manager) 0.166 0.047 0.776 0.033 0.179 0.010
Certain of BU performance potential (manager) 0.148 0.043 0.758 0.033 0.209 0.080
Familiarity with technical aspects of work (manager) 0.321 0.254 0.560 0.260 0.032 0.220
Able to assess impact of internal factors (manager) 0.189 0.177 0.699 0.004 0.112 0.080
Understandability of BU achievements (manager) 0.172 0.068 0.747 0.049 0.210 0.062
Alignment measures with goals BU (reverse coded) 0.050 0.509 0.137 0.161 0.181 0.598
Measures represent results of the BU (reverse coded) 0.021 0.324 0.003 0.059 0.110 0.841
Measures relate unambiguously to organizational 0.042 0.240 0.049 0.010 0.179 0.881
goals (reverse coded)
Principal Component Analysis with direct oblimin rotation (inferences are qualitatively similar with either promax or
varimax rotations)
The six factors conform to the six constructs used in the model. The highest loading for each question and all loadings
. 0.50 are shown in bold.

they should be related to the BU manager’s perception of failure (Podsakoff et al. 2003). The
findings indicate that the first marker has a significant negative relation with PMS failure (p ,
0.05) while the second marker is insignificant. Importantly, though, the statistical inferences are
qualitatively similar when including either of the markers. Finally, we establish that our
constructs are behaving plausibly by correlating them to a second measure that is often measured
in a more objective way (e.g., see measurement of influence). In sum, the use of perceptual
measures allows examination of the question of interest; namely, whether BU managers perceive
that their PMS fails. The results show that the potential for common measure bias is low and that
the results should be robust to this issue.
Influence of the Manager (MGRINF)

Existing measures of participative behavior, such as the 44-item measure by Ives and Olson
(1984), ask about technical aspects of information technology systems. This study is interested in
whether BU managers can influence the information content of the PMS, and not so much the
technical design, interface, or layout of the system. Thus, in the spirit of the information systems
studies on user influence (e.g., Saleem 1996; Wu and Marakas 2006), the following measure is
developed. The manager is first instructed to think of the combination of performance measures he/
she has just described as the (formal) PMS used in managing the business unit. Then three questions
are asked that capture the extent of influence the manager has in that formal PMS, the extent the
manager can tailor the formal PMS by changing existing measures, and the extent the manager can
add additional measures. The construct captures 75 percent of the explained variance and the
Cronbach’s Alpha is 0.836, which supports the use of this three-item measure as a unidimensional
construct. The construct is then correlated to a measure in which the manager is asked a more
objective summary question as follows: overall, provide a percentage to indicate which portion of
the PMS you can influence by changing or adding measures. As expected, the positive correlation is
significant (r ¼ 0.823, p , 0.01).
Performance Measurement System Failure (PMSFAIL)

This study examines the usefulness of the PMS as a tool for decision-making from the
perspective of the BU manager. If BU managers perceive they cannot use the PMS to manage the
unit given the information the PMS provides, the PMS fails. A measure is developed which consists
of three questions that measure managers’ perception that information needed for managing the BU:
(1) is missing from the PMS, (2) falls short11 in providing the necessary information to manage the
BU, and (3) causes managers difficulties in performing their jobs. The combination of scores
captures the general feel of the manager and enables comparison of managers who experience more
or less failure. For instance, one manager interviewed during the pretest stated that he did not
consider that his PMS failed him because ‘‘for me it really is a tool with which I can manage.’’ His
score on PMS failure was accordingly low. In contrast, another manager thought that his PMS often
failed him and stated that it, ‘‘lets me down, well, in 80–85 percent of the time you just do not use it,
so it does let me down/fail.’’ This manager scores high on our measure of PMS failure. The
construct captures 67 percent of the explained variance and the Cronbach’s Alpha is 0.746. Since it
is a new measure, we correlate it to an established measure of PMS satisfaction (three-item scale,
Cronbach’s Alpha ¼ 0.921, variance explained ¼ 86 percent) used by Ittner et al. (2003) and find a
11
The particular wording of this question is difficult to translate precisely from Dutch to English. Translations for
the Dutch word, tekortschieten, are ‘‘falls short,’’ ‘‘lets you down,’’ and ‘‘inadequate.’’

significant negative correlation as expected (r ¼0.749, p , 0.01). We also correlate it to a measure

of BU performance and find a significant negative correlation as expected (r ¼0.135, p ¼ 0.05).12
Interdependencies (INTER)
Interdependencies exist when multiple BUs engage in interrelated work activities. Keating’s
(1997) two-question scale is used. The questions measure the extent to which the BU’s actions
impact other BUs and the extent to which actions of other BUs impact on the work carried out in the
respondent’s BU. The construct captures 87 percent of the explained variance and the Cronbach’s
Alpha is 0.845, which supports the use of this two-item measure as a unidimensional construct. To
establish that the measure is working plausibly in our sample, we correlate it with a second measure
of interdependencies (Cronbach’s Alpha of 0.633; explained variance of 73 percent) comprised of
two objective questions taken from Abernethy, Bouwens, and Van Lent (2004) that ask: (1) What
percentage of the total product/services of your business is delivered to other BUs of the firm? (2)
What percentage of total product/services of your BU uses inputs of other BUs of your firm? As
expected the correlation is positive and significant (r ¼ 0.537, p , 0.01). The Keating (1997)
measure is used in the empirical specification since it has better measurement properties (in this
sample) than the Abernethy et al. (2004) measure.
Information Asymmetry (Superior/Manager) (IASupMgr)

Information asymmetry between superiors and managers measures the extent of private
information BU managers have as compared to their superiors. Dunk’s (1993) six-item scale that asks
the extent to which BU managers have better knowledge relative to their superior regarding the type of
activities, type of input-output relations, performance potential, technical work aspects, internal factors,
and achievements of their BUs is used. The construct captures 60 percent of the explained variance and
the Cronbach’s Alpha is 0.863, which supports the use of this six-item measure as a unidimensional
construct. To establish that the measure is working plausibly, it is correlated with one question asking
how long the BU manager has worked for the company (e.g., Higgins, S. Howton, S. Howton, and
Kong 2011). As expected, the findings show a significant positive correlation (r ¼ 0.173, p , 0.01).
Information Asymmetry (Manager/Employee) (IAMgrEmp)

Information asymmetry between managers and their employees measures the extent of private
information known by BU employees as compared to their manager. Dunk’s (1993) six-item scale
is used, but the wording is modified to reflect the appropriate level of analysis. The construct
captures 51 percent of the explained variance and the Cronbach’s Alpha is 0.802, which supports
the use of this six-item measure as a unidimensional construct. To establish that the measure is
working plausibly in our sample, it is correlated with the log of fulltime employees (e.g., Filbeck
and Webb 2001). As the BU grows, the knowledge should become more localized in the hands of
the employees relative to the BU manager; thus the correlation should be positive. As expected, the
findings indicate a significant positive correlation (r ¼ 0.101, p , 0.10).
Interaction Variables
The variables are created by multiplying Manager Influence with each of the following:
Interdependencies, Information Asymmetry (Superior/Manager), and Information Asymmetry
12
The measure of BU performance is a factor of five financial aspects (return on investment, profit, cash flow from
operation, sales volume, and market share) rated on a scale from 1 (very poor) to 7 (very good). The factor has a
high Cronbach’s Alpha (CA ¼ 0.824) and explained variance of 59 percent. Since the full sample includes both
profit and nonprofit firms, we also correlate business performance with a subsample that consists of only the
profit firms and also find a negative correlation ( p ¼ 0.069; one-tailed). This test is included to demonstrate that
there is some evidence that PMS Failure is empirically correlated with BU performance in our sample.

(Manager/Employees). Since factors scores are used to create all of our constructs, the variables are
not mean adjusted when computing the interaction variables.
Control Variables
Various factors that may influence the BU manager’s perception that the PMS fails are
controlled. The focus is on PMS failure related to the information contents of the system, and
whether that supports BU managers in their decision-making. Therefore, first, the overall quality of
the PMS is considered. Other contingency variables (for instance environmental uncertainty and
task complexity) can impact the quality of the PMS, which may in turn, be associated with PMS
failure. To control for the overall quality of the PMS, and especially its link with business strategy,
the variable goal incongruent measures (GOALINCON) is included. Goal incongruent measures
occur when the BU’s PMS does not adequately capture unit and organizational goals. To properly
specify our empirical model, both goal incongruent measures and the interaction of goal
incongruent measures with manager influence are controlled. We expect a positive coefficient on
goal incongruent measures since perceived failure will increase as quality of the PMS decreases;
however, we expect a negative coefficient on the interaction term, as allowing managerial influence
when there are goal incongruent measures, may mitigate that failure.
Three questions from Van Elten (2010) and Speklé and Verbeeten (2014) are used to measure
GOALINCON. Managers are asked their perceptions about whether the BU performance measures
(1) reflect the true goals of the BU, (2) reflect the results for which the BU is striving, and (3)
unambiguously link to the broader organization. All three items obtain a reverse code. The
construct captures 67 percent of the explained variance and the Cronbach’s Alpha is 0.752, which
supports the use of this three-item measure as a unidimensional construct. To establish that the
measure is working plausibly in our sample, it is correlated with a question that captures the extent
that outputs are measurable: can the outputs/outcomes of the BU be measured objectively and
expressed in a number (1 ¼ not at all, 5 ¼ very much)? As expected, the findings indicate a
significant negative correlation (r ¼ 0.351, p , 0.01).
Firm- and unit-level characteristics that are frequently associated with the choice and use of
performance measures are also controlled (see e.g., Chenhall 2007). Since our observations stem
from different industries, four dummies are used to represent the largest groups: banking/insurance
(BANK), services (SER), production (PRDCTN), and trade (TRADE). Size (SIZE) is controlled
using the log of fulltime employees and the type of business unit (for-profit or nonprofit
organization) (NONPROFIT). These two variables are generally associated with PMS design;
however, we have no ex ante predictions for the sign of these variables. Decentralization
(DECENT) influences the design of the PMS (e.g., Bouwens and Van Lent 2007) and thus may
systematically influence the perception of failure. Decentralization is measured using a five-item
scale (Cronbach’s Alpha of 0.771; 53 percent variance explained) from Bouwens and Van Lent
(2007) that measures the influence the manager has relative to the supervisor in strategic,
investment, marketing, internal processes, and human resource decisions. A sign is not predicted as
it would depend on whether managers prefer summary outcome measures (a negative sign) or
prefer disaggregated measures (a positive sign).
Next, features of the PMS that may impact the BU managers’ perceptions of failure are
considered. Complexity (CMPLXTY), measured as the quadratic of the number of measures13 in the
PMS, and the importance of the PMS (PMSIMPORT) as an information source in managing the
business unit are controlled. Both might impact on the perceived failure of the PMS. Finally, both
13
We use the quadratic term because we think that there will be an optimal number of measures in the PMS. Using
more measures may be beneficial up to a certain point, but there can also be too many measures leading to PMS
failures. To express this mathematically, we represent a U-shape by including the quadratic term.

the specific and general experience of the BU manager is considered in order to isolate the effects of
the functional expertise that is arguably captured in our three contingency situations. Experience is
‘‘familiarity with a certain subject area which is obtained through exposure’’ (Braunsberger and
Munch 1998, 25), while expertise is ‘‘a high degree of skill in/knowledge of a certain subject area’’
(Braunsberger and Munch 1998, 25). Experienced managers may or may not have functional
expertise (Braunsberger and Munch 1998). Since Status Congruence Theory is based on the
concept of functional expertise, experience is also controlled. A question on the number of years the
manager has been employed in his/her current position (SPCEXP), and a question on the number of
years the manager has worked for the organization (GENEXP) are also included. We expect
negative signs for experience since this may overcome or help mitigate perceived failures.
ANALYSES AND RESULTS

Findings
Table 4 presents the correlation matrix. The findings indicate significant positive correlations
between PMS failures and each of information asymmetry (superior/manager) (r ¼ 0.125, p , 0.05)
and goal incongruent measures (r ¼ 0.454, p , 0.01) and a significant negative correlation with
manager influence (r ¼0.142, p , 0.05). All bivariate correlations are less than 0.50; there is no
evidence of multicollinearity.14 There are many significant correlations among the control variables
and a few are highlighted: decentralization correlates positively with managerial influence (r ¼
0.300, p , 0.01), information asymmetry (superior/manager) (r ¼ 0.324, p , 0.01), and size (r ¼
0.239, p , 0.01). This is consistent with existing literature (see, e.g., Chenhall 2007). The
importance of the PMS as an information source is significantly negatively correlated with PMS
failures (r ¼ 0.210, p , 0.01).
The results of our OLS model estimation are presented in Table 5.15 The model includes both
the unstandardized regression coefficients (B) as well as the standardized coefficients (Beta). The
adjusted R2 is 26 percent (F-stat ¼ 6.160, p , 0.01).16 The interaction effects are depicted in Figure
3, Panels A, B, and C. In each of the graphs, we take the partial derivative of the regression results
with respect to manager influence and plot a line using the sample minimum, mean, and maximum
points of information asymmetry (superior/manager), interdependencies, and information
asymmetry (manager/employees), respectively. The graphs show the effect of a change in manager
influence on PMS failure at varying levels of the contingency variables. To calculate the minimum,
mean, and maximum points, the sample values of the contingency variables in the partial derivative
of the regression equation are used.
The results show that manager influence helps to mitigate PMS failures. The results indicate a
significant negative relation (p , 0.10, two-tailed) indicating that the more influence managers
14
The variance inflation factors were all , 1.8.
15
Equilibrium assumptions, simultaneity, and omitted variables can create endogeneity (Chenhall and Moers
2007). In this study, we do not assume that all firms act optimally and thus we expect that managers’ influence in
PMS design may not always be optimal. We provide evidence on this assumption in a supplemental analysis later
in this section. Next, we view our theoretical model as one in which managers’ influence and the environmental
contingencies combine to affect an outcome, which is the extent of PMS failure. We acknowledge that there can
be a feedback loop between involvement and failure such that failure may influence the amount of involvement.
However, at any one point in time the perceived failure will be the outcome of the contingencies and the extent of
managerial influence. Finally, we control for the quality of the design and decentralization, as well as other
variables, and thus minimize the possibility of a correlated omitted variable. Although endogeneity can never be
completely ruled out in a cross-sectional survey study, we do not expect it to pose a problem in this particular
study.
16
We reviewed the normal P-P plot of the regression standardized residuals and a scatterplot of the standardized
predicted values and the standardized residuals; we noted no evidence of heteroscedasticity or non-independence
of residuals.

TABLE 4
Correlation Coefficients and Cronbach’s Alpha Matrix
1 2 3 4 5 6 7 8 9 10 11
1. PMS Failures 0.746
2. Interdependencies 0.031 0.845
3. Info. Asymmetry 0.125** 0.115** 0.863
(Superior/Manager)
4. Info. Asymmetry 0.084 0.071 0.263*** 0.802

(Manager/Employees)
5. Manager Influence 0.142** 0.109* 0.217*** 0.249*** 0.836

6. Goal Incongruent 0.454*** 0.052 0.039 0.042 0.183*** 0.752
Measures
7. Decentralization 0.092 0.015 0.324*** 0.094 0.300*** 0.136** 0.771
8. General Expertise 0.120** 0.065 0.173*** 0.088 0.014 0.077 0.145** –
9. Specific Expertise 0.081 0.108* 0.139** 0.026 0.028 0.018 0.211*** 0.428*** –
10. Complexity 0.127** 0.178*** 0.027 0.001 0.075 0.157*** 0.043 0.008 0.036 –
11. Importance PMS 0.210*** 0.050 0.039 0.096* 0.083 0.343*** 0.037 0.074 0.014 0.008 –
12. Size (ln) 0.088 0.066 0.194*** 0.101* 0.220*** 0.244*** 0.239*** 0.131* 0.043 0.164*** 0.092
*, **, *** Significant at p , 0.10, 0.05, and 0.01, respectively, two-tailed.
Pearson correlation coefficients between the model variables, except dummy variables; for multi-item constructs (the variables with numbers 1–7): Cronbach’s alphas on the
diagonal. Complexity is measured as a quadratic term, which implies we cannot interpret the correlations as linear relationships with the other variables.
Managerial Influence in Performance Measurement System Design: A Recipe for Failure?
21
TABLE 5
OLS Regression
Dependent Variable: PMS Failures
Ba Std. Error Betab
Intercept 0.467 0.779
Interdependencies 0.050 0.055 0.050
Info Asymmetry (Superior/Manager) 0.164 0.058 0.164***
Info Asymmetry (Manager/Employees) 0.029 0.055 0.029
Manager Influence 0.099 0.057 0.099*
Influence 3 Interdependencies 0.088 0.050 0.096**
Influence 3 Info Asymmetry (Superior/Manager) 0.080 0.054 0.083*
Influence 3 Info Asymmetry (Manager/Employees) 0.093 0.051 0.100**
Control Variables (Quality of System)
Goal Incongruent Measures 0.359 0.059 0.359***
Influence 3 Goal Incongruent Measures 0.102 0.046 0.120**
Control Variables (Other)
Decentralization 0.029 0.058 0.029
General Experience 0.011 0.007 0.097*
Specific Experience 0.022 0.019 0.068
Complexity 0.009 0.009 0.051
Importance of PMS 0.002 0.003 0.031
Banking/Insurance 0.082 0.182 0.029
Services 0.084 0.139 0.039
Trade 0.117 0.182 0.037
Production 0.199 0.161 0.078
Size 0.044 0.057 0.044
Dummy Nonprofit 0.417 0.167 0.166**
*, **, *** Significant at p , 0.10, 0.05, and 0.01, respectively, one-tailed for hypothesized variables, and two-tailed for
control variables
a
B: Unstandardized regression coefficients.
b
Beta: Regression coefficients which have been standardized to have a mean ¼ 0 and a standard deviation ¼ 1.
F ¼ 6.160, p , 0.01, R2 ¼ 31 percent; Adjusted R2 ¼ 26 percent; n ¼ 293.
Our dependent variable is PMS failure representing a negative outcome. Hence a negative coefficient indicates that a
particular variable helps to lessen failure.
Variance inflation factors (VIF scores) are all lower than 1.8.
have, the less they perceive the PMS fails them in managing their organization. This is consistent
with the commonly held view in the literature that influence is beneficial. We predict an interactive
effect between each of the contingency variables and manager’s influence in the design of the PMS.
The findings indicate significant coefficients for all three of the relations, which provide evidence
for H1–H3. A hierarchical regression (untabulated) decomposing the variables into three sets is
conducted (J. Cohen, P. Cohen, West, and Aiken 2003). The first set contains firm and unit-level
control variables as well as attributes of the PMS (industry indicators, DECENT, GENEXP,
SPCEXP, PMSIMPORT, CMPLXTY, and NONPROFIT); the second set contains MGRINF,
GOALINCON, and their interaction; and, the third set contains the hypothesized interaction terms
and main effects. The functional set of variables containing the three hypothesized interactions
terms incrementally add 4.2 percent in explanatory power over the first two sets of variables.
H1 predicts that for higher levels of interdependencies, BU managers’ influence will increase
PMS failure, while for lower levels of interdependencies, BU managers’ influence will decrease

FIGURE 3
Graphs of Significant Interactions
Panel A: The Effect of Interdependencies on the Relationship between Influence and PMS
Failure (H1)
Panel B: The Effect of Information Asymmetry Superior/Manager on the Relationship

between Influence and PMS Failure (H2)
(continued on next page)
PMS failure. Thus, a disordinal interaction is expected. The results indicate that the joint effect of
interdependencies and manager influence on PMS failure is positive (p , 0.05; one-tailed). Panel A
of Figure 3 shows that the interaction effect is disordinal since the plotted line crosses the X-axes
(Hartmann and Moers 1999; Govindarajan and Gupta 1985). At low and mean levels of
interdependencies an increase in manager influence decreases PMS failure, whereas at high levels,
an increase in manager influence increases PMS failure. The decrease in PMS failure for a unit

FIGURE 3 (continued)
Panel C: The Effect of Information Asymmetry Manager/Employees on the Relationship

between Influence and PMS Failure (H3)
The points in the graph are calculated by taking the partial derivative with respect to manager influence. The
minimum, mean, and maximum levels of each of the three contingencies are the sample values. For example,
the minimum point for instance is calculated as: Change in PMS failure ¼0.099 þ [0.096 32.73 (minimum
value of interdependencies)].
change in influence is greatest when interdependencies are at the minimum point in the sample. H1
is thus supported.
H2 predicts that as the level of information asymmetry (superior/manager) increases, the effect
of manager influence on PMS failure is more negative. Thus, an ordinal interaction is expected.
While the results indicate that the joint effect of information asymmetry (superior/manager) and
manager influence on PMS failure is negative (p , 0.10; one-tailed), Panel B of Figure 3 shows
that the interaction is disordinal. When information asymmetry (superior/manager) is low,
increasing influence increases failure; however, when information asymmetry (superior/manager) is
at the mean or high points, increasing influence decreases failure. Moving from the mean to the high
points of the sample is consistent with the hypothesis since the decrease in failure from increasing
influence is more pronounced at the high level of information asymmetry (superior/manager)
relative to the mean level; however, the result that increasing influence increases failure when
information asymmetry (superior/manager) is low is unexpected. This result implies that managers
perceive that the costs of participation outweigh the benefits of participation when their information
advantage relative to their superiors is low. In sum, there is partial support for H2 since the findings
show a significant effect in the direction hypothesized; however, the effect is disordinal as opposed
to ordinal.
H3 predicts that for higher levels of information asymmetry (manager/employees), increasing
manager influence will increase PMS failure; however, for lower levels of information asymmetry
(manager/employees), increasing manager influence will decrease PMS failure. Thus, H3 predicts a

disordinal interaction effect. The findings show that the joint effect of information asymmetry
(manager/employees) and manager influence on PMS failure is positive (p , 0.5; one-tailed). Panel
C of Figure 3 shows that this interaction effect is disordinal since the plotted line crosses the X-axes
(Hartmann and Moers 1999; Govindarajan and Gupta 1985). At low and mean levels of
information asymmetry (manager/employees), an increase in manager influence decreases PMS
failure, whereas at high levels an increase in manager influence increases PMS failure. The decrease
in PMS failure for a unit change in information asymmetry (manager/employees) is greatest when it
is at the minimum point in our sample. The results support H3.
These results indicate that at high levels of interdependencies or information asymmetry
(manager/employees), and at low levels of information asymmetry (superior/manager), BU
managers perceive that the PMS fails more as they are granted more influence. The results also
show that at low and mean levels of interdependencies or information asymmetry (manager/
employees), and at mean and high levels of information asymmetry (superior/manager), BU
managers perceive that the PMS fails less as they are granted more influence. Overall, these results
provide a more nuanced view of both the beneficial and detrimental aspects of managerial influence
in PMS design.
Apart from the hypotheses, the results show a significant positive effect of goal incongruent
measures on PMS failures (p , 0.01, two-tailed). The joint effect of goal incongruent measures and
manager influence on PMS failure is negative (p , 0.05; two-tailed). Managers perceive the PMS
fails more when measures are not congruent with goals, but increasing manager influence decreases
that effect. Also, the results indicate a positive main effect of information asymmetry (superior/
manager) (p , 0.01, two-tailed); however, they show an insignificant main effect of
interdependencies and information asymmetry (manager/employees). Two other control variables
are significant. As expected, general expertise is negatively associated with PMS failures (p ,
0.10) while profit (coded as a 1)/nonprofit (coded as a 2) is positively associated with PMS failures
(p , 0.05). This indicates that the nonprofit firms experience a higher rate of PMS failures than do
profit firms.
Discussion
In summary, the results provide support for H1 and H3, and partial support for H2. After
controlling for goal incongruent measures, PMS complexity and importance, experience, and
mission (i.e., for profit/nonprofit), the findings indicate that organizations can employ a strategy to
help mitigate perceived failure; however, it does not work for all situations. The results are
consistent with Status Congruence Theory, which predicts that managers do not have the functional
expertise necessary to understand the coordination problems involved when there are high levels of
interdependencies. Similarly, managers do not have functional expertise when there is a high level
of information asymmetry with their employees since managers will not have the specialized,
localized knowledge necessary to design the PMS.
The results have several implications. A maintained assumption in this study is that decreasing
managers’ perceptions that their PMS fails is a good strategy while increasing that perception is a
bad strategy. Our characterization is only a partial solution, as it does not consider other costs and
benefits of allowing managerial influence in participation. However, the assumption seems
reasonable since the findings (untabulated) indicate a significant positive correlation between failure
and BU performance. One strategy to help overcome failures with the BU PMS is to allow BU
managers influence in the design of their system. However, the primary implication of this study is
that this strategy is conditional on the context.
A second implication is that the most impactful ‘‘bad’’ strategy is when there is a high level of
information asymmetry between BU employees and their manager. In this situation, an increase in

BU manager influence is associated with the largest increase in failure of the PMS. We do not have
data to further investigate this result and thus leave future research to shed more insight on this
result, as discussed in the next section. The most impactful ‘‘good’’ strategy occurs when
interdependencies are at a low level. In this situation, an increase in BU manager influence is
associated with the largest decrease in PMS failure.
A third implication is that influence is beneficial in a decision-facilitating role when there is
information asymmetry between the superior and the manager. This is consistent with the
expectation of agency theory, in this context, that superiors grant influence to induce the revelation
of private information. The findings indicate that increasing managerial influence is a good strategy
when information asymmetry between managers and superiors is at mean or high levels. That is, the
manager perceives that the PMS fails less often and performs well in the decision-facilitating role.
From a decision-influencing perspective, the superior wants to give more influence to the manager
when there is information asymmetry since the manager will hopefully reveal private information.
A fourth implication is that different information asymmetries require different strategies. Both
types of information asymmetries may occur within the organization. For instance within highly
specialized business units, BU employees may possess more specific local knowledge relative to
BU managers; however, at the same time, BU managers may possess more specific local knowledge
relative to superiors. This situation is substantiated by the finding of a positive correlation between
information asymmetry (superior/manager) and information asymmetry (manager/employees) (r ¼
0.263, p , 0.01). The implication of the results suggests a conflict. A bad strategy is to increase
managerial influence when there is high information asymmetry between employees and managers,
but it is a good strategy to increase managerial influence when there is high information asymmetry
between managers and superiors. Thus, what happens when BU managers are granted more
influence in PMS design in these circumstances? A regression model with a three-way interaction
(untabulated) shows a significant positive coefficient on the three-way interaction term of MGRINF,
IASupMgr, and IAMgrEmp (std. coefficient ¼ 0.105, p ¼ 0.086, two-tailed). To interpret this
finding, partial derivatives are used to calculate the combined effect of information asymmetry
(superior/manager) and information asymmetry (manager/employees) on PMS failures when
influence is at a minimum level (combined effect increases PMS failures by 0.150) and at a
maximum level (combined effect increases PMS failures by 0.222). Thus, when combinations of
information asymmetry exist such that they are both high or both low, the implication is that
managerial influence should not be increased since it increases the perception of failure. Hence,
when both types of information asymmetries are high, information asymmetry within the BU
appears to drive the effect on PMS failure because managers lack local information necessary to
manage the unit. To the contrary, if both types of information asymmetries are low, then
information asymmetry between managers and superiors appears to drive the effect on PMS failure.
There is no information gap and hence the manager apparently does not see the need to be involved.
A final implication arises when a situation with interdependencies and information asymmetry
between the manager and the supervisor is considered since the results do not produce a unified
strategy. That is, the results suggest that influence be decreased when there is a high level of
interdependencies, but increased when there is a high level of information asymmetry between
managers and superiors. A regression model with a three-way interaction (untabulated) shows an
insignificant coefficient on the three-way interaction term of MGRINF, INTER, and IASupMgr.
Apparently the level of interdependencies does not impact the joint effect of manager influence and
information asymmetry (superior/manager), nor does the level of information asymmetry (superior/
manager) affect the joint effect of manager influence and interdependencies in any systematic
pattern. Thus, when both are either low or high, increasing influence results in mixed effects on
PMS failure. However, when information asymmetry (superior/manager) is high and the PMS is
used in the decision-influencing role, superiors also need to consider the benefits with inducing

managers to reveal private information. Thus, when there are high interdependencies coupled with
high information asymmetry (superior/manager), increasing influence has a mixed effect on failure
from a decision-facilitating perspective, but from a decision-influencing perspective may induce
managers to reveal private information. Decreasing influence will also have a mixed effect on
failure from a decision-facilitating perspective, but from a decision-influencing perspective may
allow for increased slack.
Sensitivity Tests, Robustness Checks, and Supplementary Analyses

The model was tested for sensitivity to our measurement of goal incongruent measures. The
Harman’s one-factor test showed a cross-loading of one item from this variable on PMS failure. The
model was run without this item in goal incongruent measures and shows that the statistical
inferences are unchanged. Measurement model differences across both profit and nonprofit groups
were rerun using the OLS model with profit organizations only; the results show that the statistical
inferences are unchanged.
To provide evidence that superiors may give managers influence in PMS design even when it is
not optimal, the combination of PMS failure and manager influence is investigated. One
representative indicator for PMS failure and one for manager influence are selected, both of which
use the same scale (‘‘How much influence do you have in the design of this [formal] PMS?’’ and
‘‘To what extent is performance information that you need for managing your business unit missing
from the [formal] PMS?’’). Untabulated results show, as expected, that PMS failure and manager
influence are negatively correlated (r ¼ 0.142; p ¼ 0.015); however, the results show many
combinations of both variables.
Hartmann and Moers (2003, 808) suggest that if certain values of one variable are only
observed when the other variable is at a certain level, then the coefficient on the interaction term
may be misinterpreted due to endogeneity. To address this concern, crosstab analyses of manager
influence with each of the three contingency variables is examined. Untabulated results indicate that
almost every possible combination of values occurs in the sample supporting the conclusion that the
interaction terms are informative.
Finally, the sample of 293 BU observations contains 138 firms with one observation and 45
firms with multiple observations. Our theory is at the level of the BU manager and thus we do not
expect an issue with non-independence of error terms. However, two steps are taken to examine this
issue.17 A review of a scatterplot of PMS failure and manager influence identifies only ten cases
from five firms (two cases per firm) that return similar answers to both variables. All ten cases are
removed and the model is rerun, and findings show the statistical inferences are unchanged. A
boxplot of regression residuals for each organization with four or more observations is also
reviewed. The average residual should be approximately close to zero; that is, large deviations from
zero are not desirable (Cohen et al. 2003). The results indicate no evidence that the error terms are
dependent.
CONCLUSION
This paper is interested in the perception of BU managers regarding their ability to use the
PMS to manage their BU. The provision of performance measures is expected to improve the BU’s
and hence the organization’s outcomes by enhancing the decision-relevant information available to
managers. It is well accepted that one important role of the BU manager is to facilitate
17
When dealing with datasets that contain multiple observations per entity (in our case: organization), one possible
way to take this into account is to estimate a multi-level model. In our case that is not an option because we have
too many firms with just one observation.

decision-making for the local unit (Indjejikian and Matějka 2006; Maas and Matějka 2009).
Existing literature often argues that local managers’ influence in the design of their PMS is
beneficial; however, whether this influence is beneficial in all situations is questionable.
The findings indicate that the influence of the BU manager in the design of the PMS is either a
good or bad strategy depending on the situation. BU manager influence is a ‘‘good’’ strategy when
the BU manager has mean or high levels of private information relative to the superior, when there
are low levels of interdependencies with other business units, and when the BU managers possess
low or mean levels of private information relative to the manager. In these situations, BU managers
seem to have the appropriate functional expertise to design an informative PMS that contains
decision-relevant information. Managers will desire to be involved and hence as influence
increases, beneficial outcomes result. This finding is consistent with Wouters and Wilderom (2008)
in that BU managers can apply their professional expertise and ‘‘experiment’’ with the measures.
However, BU manager influence is a ‘‘bad’’ strategy when there are high levels of
interdependencies between BUs or when the BU employees have high levels of private information
relative to the manager. In these situations, it is likely BU managers do not possess either the
breadth or depth of functional expertise needed to design a PMS. BU managers will desire less
involvement; thus, as the level of influence increases, dysfunctional outcomes result. This finding is
consistent with Dossi and Patelli (2008), who suggest that in certain situations top-down control
may be warranted.
Similar to most studies, there are limitations. This study uses a survey instrument to collect data
from respondents in the field. Steps are taken to ensure the reliability of the data (i.e., field
interviews with eight managers, rigorous pretest of instrument, construct and content validity); and,
the results of the Harman’s one-factor test, as well as other procedural and statistical remedies,
show that there is no reason to expect bias. In spite of our rigorous pretest, survey measures contain
noise and one can never completely rule out the possibility of bias. It should be noted, though, that
the respondents were the BU managers, and through their responses they revealed that their own
involvement in the design of the PMS exacerbated failure in certain conditions. Moreover, the PMS
is used by many different parties including headquarters and local units (e.g., business units) for
many different purposes. This study is limited to studying BU managers’ perceptions that the
formal PMS they use to manage their unit fails to provide the necessary information. However, we
certainly assume (and find) that this failure maps into firm performance and thus is important to
examine. We were not able to assess in more detail the use of the PMS by the manager. The
questions asked in general about those instances when the PMS fails to support the manager. It
would be interesting to learn more about these situations. Finally, our conclusion that managerial
influence is a good or bad strategy only takes into account the specific situations considered in this
paper. Thus, while we may conclude that it is a bad strategy in our specific context, there may be
offsetting good ramifications as well that could be tested in future research.
The results in this study provide the basis for several fruitful directions for future research. An
interesting result is that when there are low levels of private information held by BU managers
relative to their superior, an increase in influence is associated with an increase in PMS failure.
There appears to be some ‘‘cost’’ that outweighs the benefit that managers derive from participating.
They may possibly realize that their superiors possess the same information and thus would prefer
to conserve their time and attention for other decisions. However, this is mere speculation; future
research that investigates this result could add to the literature stream. One of our results is that
when BU employees hold a high level of private information relative to their BU managers, an
increase in managerial influence in PMS design increases their perception that the PMS fails. It is
possible that units can operate in equilibrium and still have information asymmetry within the
business unit. Thus, an interesting line of future research would be to investigate group influencing
strategies (see, e.g., Hunton and Gibson 1999) to examine whether a process involving the BU

manager and their employees, as a group, in the design of the BU PMS reduces not only managers’
perception that the PMS fails but also the potential for opportunistic behavior by the employees.
Finally, future research could further explore the negative correlation we find between BU
performance and PMS failure. Mitigation techniques such as group influencing processes, training
on PMS systems, and enhanced communication could be investigated to see if they effectively
mitigate PMS failure and negate the effect that PMS failure has on BU performance. Moreover, an
extended structural equation model that examines how mitigation techniques impact the relation
between PMS failure and satisfaction, and in turn, performance, would help unpack the relation and
provide important implications.
In conclusion this study advances the theoretical literature by providing a more nuanced view
of when managerial influence in the design of the PMS is beneficial. Moreover, this study provides
insights on why PMSs fail. With the PMS increasingly being used as a management tool, these
results provide insights that may enhance the BU managers’ ability to make better decisions. The
results also have practical implications for firms, since we offer insights into an influencing strategy
that when used, may be either ineffective or effective depending on the contingency involved.
Overall we conclude that manager influence in the design of the PMS is not always a recipe for
success.
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APPENDIX A
Abbreviated Survey
Manager Influence
1. We refer to the combination of performance measures you have just described as ‘‘the
(formal) PMS that you use in managing your business unit.’’ How much influence do you
have in the design of this (formal) PMS? (1 ¼ no influence at all, 5 ¼ very big influence).
2. During a period, to what extent can you tailor the (formal) PMS to your needs by changing
the measures in place? (1 ¼ not at all, 5 ¼ very much).
3. To what extent can you tailor the (formal) PMS to your needs by adding additional
measures? (1 ¼ not at all, 5 ¼ very much).
PMS Failure
1. To what extent is performance information that you need for managing your business unit
missing from the (formal) PMS? (1 ¼ no extent, 5 ¼ very great extent).
2. Please provide a percentage to indicate in how many instances the PMS you use for
managing your business unit falls short (is inadequate or lets you down):18___ %.
3. In how many instances does the (formal) PMS cause you difficulties in performing your
job? Indicate this by providing a percentage: ___ %.
Interdependencies
1. To what extent do your business unit’s actions impact on work carried out in other business
units of your firm? (1 ¼ no extent, 5 ¼ very great extent).
2. To what extent do actions of other business units of your firm impact on work carried out in
your particular business unit? (1 ¼ no extent, 5 ¼ very great extent).
Information Asymmetry (Superior/Manager)
1. Please compare the amount of information you have relative to the information your
supervisor has. If you have no advantage or a disadvantage, tick ‘‘no advantage.’’ (your
information advantage relative to your supervisor where 1 ¼ no advantage, 5 ¼ very
significant advantage).
a. How much better informed are you about the type of activities undertaken in your unit?
b. How much more familiar are you with the type of input-output relations inherent in the
internal operations of your unit?
c. How much more certain are you about the performance potential of your business unit?
d. How much more familiar are you with the technical aspects of the work in your unit?
18
The particular wording of this question is difficult to translate precisely from Dutch to English. In Dutch, the
word is: tekortschieten. Additional translations for tekortschieten include ‘‘lets you down’’ and ‘‘inadequate.’’

e. How much better are you able to assess the impact of internal factors?
f. How much better do you understand what has been achieved in your business unit?
Information Asymmetry (Manager/Employees)
1. Please compare the amount of information you have relative to the information your
employees have. If employees have no advantage or a disadvantage, tick ‘‘no advantage.’’
(information advantage your employees have where 1 ¼ no advantage, 5 ¼ very significant
advantage)
a. How much better informed are employees about the type of activities they undertake in
your business unit?
b. How much more familiar are employees with the type of input-output relations inherent
in the internal operations of your business unit?
c. How much more certain are employees about the performance potential of your business
unit?
d. How much more familiar are your employees with the technical aspects of their work?
e. How much better are employees able to assess the impact of internal factors?
f. How much better do employees understand what has been achieved in your business
unit?
General Experience
1. How long have you been working for this company? __ number of years
Specific Experience
1. How long have you been employed in your current position? __ number of years
Goal Incongruent Measures
1. To what extent do performance measures relate to the true goals of your business unit? (1 ¼
no extent, 5 ¼ very great extent; reverse coded)
2. Please indicate whether you disagree or agree with the following statement: ‘‘The total of
performance measures reflects the results my business has to achieve.’’ (1 ¼ completely
disagree, 7 ¼ completely agree; reverse coded).
3. Please indicate whether you disagree or agree with the following statement: ‘‘The
performance measures of my business unit are unambiguously linked to the goals of my
organization.’’ (1 ¼ completely disagree, 7 ¼ completely agree; reverse coded).
Decentralization
1. This question compares your influence with the influence of your supervisor on a number of
decisions. Think of your supervisor as the one who evaluates your performance and/or
determines your bonus. Compared to your supervisor, how much say or influence do you
have in the following decisions (1 ¼ my supervisor has complete influence, 7 ¼ I have
complete influence).
a. Strategic decisions.
b. Investment decisions.
c. Marketing decisions.
d. Decisions on internal processes.
e. Human resource decisions.

Complexity
1. How many performance measures (e.g., sales, productivity) does the formal PMS you use
for the management of your unit contain? (introduction to question with picture added in the
survey)
a. Less than 5.
b. 5 to 10.
c. 11 to 15.
d. 15 to 20.
e. More than 20.
Importance of PMS
1. The performance information you use for the management of your unit can stem from
different sources. The information will partly stem from the (formal) PMS, but there are
other (informal) sources that can provide information about performance. Indicate for the
following possible sources their relative importance as source of information by dividing
100 points. When something is relatively unimportant, you can assign ‘‘zero’’ points.
a. the (formal) PMS.
b. other performance measures (outside the formal PMS).
c. meetings.
d. conversation with individual employees.
e. media (newspapers/internet).
f. social interaction at work.
g. discussion of action plans with individuals.
Size
1. Including yourself, how many employees work for your business unit? __ business unit
employees (FTE)
Profit/Nonprofit
1. Please indicate the branch/industry that your business unit is in: __ nonprofit

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BEHAVIORAL RESEARCH IN ACCOUNTING American Accounting Association

Vol. 26, No. 2 DOI: 10.2308/bria-50755

Managerial Influence in Performance

Keywords: manager inﬂuence; performance measurement systems; failure; design;

Behavioral Research In Accounting

Behavioral Research In Accounting

THEORY AND HYPOTHESES

Performance Measurement System Design

Behavioral Research In Accounting

organizationally desirable decisions, thereby enabling employees to achieve the organization’s

Behavioral Research In Accounting

Behavioral Research In Accounting

The Discrepancy Framework and Status Congruence Theory

Background Literature: Concluding Thoughts

Behavioral Research In Accounting

Behavioral Research In Accounting

Information Asymmetry (Superior/Manager)

Behavioral Research In Accounting

Information Asymmetry (Manager/Employee)

Behavioral Research In Accounting

Behavioral Research In Accounting

Empirical Model and Variable Measurement

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Goal Incongruent Measures 293 1.74 3.63 0.00 1.000 0.752

Behavioral Research In Accounting

Influence of the Manager (MGRINF)

Performance Measurement System Failure (PMSFAIL)

Behavioral Research In Accounting

significant negative correlation as expected (r ¼0.749, p , 0.01). We also correlate it to a measure

Information Asymmetry (Superior/Manager) (IASupMgr)

Information Asymmetry (Manager/Employee) (IAMgrEmp)

Behavioral Research In Accounting

Behavioral Research In Accounting

ANALYSES AND RESULTS

Behavioral Research In Accounting

Volume 26, Number 2, 2014

Behavioral Research In Accounting

Behavioral Research In Accounting

Panel B: The Effect of Information Asymmetry Superior/Manager on the Relationship

(continued on next page)

Behavioral Research In Accounting

Panel C: The Effect of Information Asymmetry Manager/Employees on the Relationship

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Sensitivity Tests, Robustness Checks, and Supplementary Analyses

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

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