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Jurnal 5 Ta
Jurnal 5 Ta
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THE ACCOUNTING REVIEW
Vol. LII, No. I
January 1977
David C. Hayes
ABSTRACT: Working mainly from the literature of modern organization theory, it was
possible to develop a model of organizational performance for internal subunits. The model
hypothesizes three major contingencies which affect subunit performance: (1 ) factors
internal to the subunit (internal factors); (2) interrelationships with other subunits (inter-
dependency factors); and (3) interactions external to the firm (environmental factors).
The contingencies operate differentially across organizational subunits. Three propositions
derived from the model were examined empirically in a field study of large manufacturing
organizations. Strong support for two of the propositions was found, along with indica-
tions of support for the third, by using the analytical methodology of path analysis. The
final section of the paper explores the implications of the study approach and results for
managerial accounting theory and practice.
22
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Hayes 23
The two dimensions concern the rela- associated with performance. This model
tive stability and homogeneity of the is presented in Figure 1.
environment faced by subunits. It is sug- The model is not intended to suggest
gested that the uncertainty associated that all aspects of each dimension are
with dealing with elements of the environ- appropriate for the evaluation of all sub-
ment is lowest in Cell I and greatest in units. Rather, only some aspects of each
Cell IV but that no ordering can be placed dimension would seem applicable for dif-
on the relationships of the other situa- ferent types of subunits. Some of these
tions in such a typology. are outlined in the propositions pre-
The nature of the environment faced sented.
by a subunit will determine the relative
THE ASSESSMENT MODEL
difficulty such a unit will encounter in
dealing with environmental elements. It Two major contributions to a con-
would appear a priori that the more un- tingency theory of organizations are pro-
certain the environment, the more diffi- vided by Thompson [ 1967 ] and Lawrence
cult will be the tasks of the subunit and and Lorsch [1969]. Although conceptu-
the greater the extent of environmental ally abstract, Thompson deals more com-
influence on their functions. Thus, type pletely with the contingent aspects of
of environment is another contingent performance than Lawrence and Lorsch;
aspect of performance, leading to con- thus, the Thompson study serves as the
tingent methods of assessment. basis for much of the proposed model
The other major contingency aspects of development.
performance evaluation concern the in- The essence of any evaluation task can
ternal structure and functions of a sub- be captured by two dimensions per-
unit. The nature of the tasks performed, formance criteria and the ability to dis-
types of people, interpersonal relation- cern cause-effect relationships. Thomp-
ships and the ability to measure and son diagrams these via a 2 x 2 matrix as
quantify functions are all likely to vary presented in figure 2.
with subunit type. Situations posited by Cells I and II
A three-dimensional model of the as- theoretically provide little challenge to
sessment function can be constructed on the development of assessment devices
the basis of the three major contingencies and, consequently, encompass most of
FIGURE 1
THE ASSESSMENT MODEL
Productivity
______________________ Cost behavior
Internal Supportive relations
Manpower utilization
Work group cohesion
Departmental _ Reliability
Effectiveness Interdependency < Cooperation
Flexibility
Planning ability
<_ Share of market
Environmental Dealer opinions
-\ Environmental stability
Environmental diversity
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24 The Accounting Review, January 1977
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Hayes 25
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26 The Accounting Review, January 1977
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Hayes 27
TABLE I
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28 The Accounting Review, January 1977
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Hayes 29
TABLE 3
Factor I Factor 2* Factor 3** Factor 4 Factor 5 Factor 6 Factor 7 Factor 8 Factor 9 Factor 10
Price-F Extent of Extent of Superior/ Product Importance Reliability of Budget Delivery Leadership
.75634 cooperation cooperation subordinate quality-D of budget personnel capturing of schedules-D ability
.82582 .72677 relations .86001 .88200 .81004 performance .71081 .66984
.87118 .82198
Creative Information
problem exchange
solutions .84208
.93583
Information Flexibility
exchange .67791
.75786
Flexibility
.89668
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30 The Accounting Review, January 1977
TABLE 4
Factor J* Factor 2** Factor 3 Factor 4 Factor 5 Factor 6 Factor 7 Factor 8 Factor 9 Factor 10
Extent of Extent of Innovation-D Reliability Skill Budget- Product Superior/ Leadership Delivery
cooperation cooperation -.58619 of personnel utilization capturing quality-D subordinate ability schedules-D
-.80188 .68762 .70805 -.82457 performance .75514 relations -.74834 .71828
.75287 .89703
Creative Creative
problem problem
solutions solutions
-.91046 .83295
Information Information
exchange exchange
- .88354 .91635
Flexibility Flexibility
-.89618 .81403
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Hayes 31
TABLE 5
Factor I* Factor 2** Factor 3 Factor 4 Factor 5 Factor 6 Factor 7 Factor 8 Factor 9 Factor 10 Factor 11
Extent of Confidence Within- Customer Innovation-D Budget- Product Product Price-D Extent of Performance
cooperation expressed group work service-D .72776 capturing price-F quality-D - .83286 cooperation pressure
.62786 .90771 relations .62682 perfor- -.94706 .66290 .74215 .82156
.85158 mance
-.74570
Task Team
cooperation feeling
.91442 .89592
Productive Creative
conflict problem
settlement solutions
.88451 .86215
Creative Flexibility
problem .80287
solutions
.88118
Information
exchange
.93492
Flexibility
.90476
judgment is negative (r13= - .2795). A the direct (.0569) and net effects (.0318)
joint interpretation of this result suggests computed for the coefficient of determi-
that while interdependence is an impor- nation support this proposition. Further,
tant element in explaining production assuming some consonance between fu-
department effectiveness (P. 3 > 0), in- ture production and delivery schedules,
terdependence and internal factors may the negative path coefficient (PY 4=
be working against each other (r13 <0). -.2385) suggests an inverse relationship
This highlights potential conflict and with effectiveness. This implies that pro-
indicates the continual difficulty of suc- duction departments are being buffered
cessful differentiation and integration successfully from environmental influ-
[Lawrence and Lorsch, 1969]. ence by sufficient order lead times. Thus,
Limited association with effective per- the proposition concerning production
formance was expected from variables department effectiveness is supported
on the environmental dimension. Both strongly by the analysis.
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32 The Accounting Review, January 1977
FIGURE 4
PRODUCTION DEPARTMENTS*
/ 1. Own judgment on
/ performance
/ ~~~(internal)
Residual .5471
1 I / ~~~~ ~ ~ ~ ~ ~~~~~~~~.2726\\
\- 2385 , /
Coefficients of Determination
1 2 3 4
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Hayes 33
FIGURE 5
RESEARCH AND DEVELOPMENT DEPARTMENTS*
p to measure performance q
((internal)m t
.6021/ \
.7106 /-.106 \
\ \ ~~~~~~~~- .351 9 /
\-.2217 \ l32 3
\ 3. Importance of improving /
product quality
(environmental)
Coefficients of Determination
1 2 3
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34 The Accounting Review, January 1977
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Hayes 35
FIGURE 6
MARKETING DEPARTMENTS*
.. Own judgment on a
performance \
/ (internal)\ \
/ ~~~~on performance
/ } ~~~~~~~.2432\/\
Y/ Efeu 2. Production managers'judgment
Residual 5 ( r(interdependence)dpnec
\ \ '~~~~~ ~ ~~-.2655>\
Coefficients of Determination
tion icddnao2 3 4 5
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36 The Accounting Review, January 1977
The absolute values of the correlation accounting is that of budgeting and its
r45 (- .1565) and r1 4 (.0824) are sub- behavioral ramifications. The standard
stantially less than those with the inter- research approach has been the explora-
dependency variables, indicating that it tion of factors such as the extent of par-
has a relatively closer relationship to the ticipation in budget setting and the per-
interdependency variables than the formance effects of tight and loose
others. standards. The emphasis of this study
Another important relationship to note has been on more fundamental issues,
is that between the internal summary and these other aspects were intention-
variable (1) and concern with customers' ally excluded. What have been explored
future requirements (5); r15 =.3622. One are the perceptions of managers with
aspect of this association is the depart- respect to the accuracy and importance
mental ability to perform its boundary- of budgets and other financial data
spanning role between the firm and the utilized in performance evaluation. The
environment. It suggests that internal results indicate a general dissatisfaction
task-performance is associated with satis- with such measures, tending to reinforce
fying environmental requirements. As the arguments from previous work that
such, it provides supportive argument they are unsatisfactory assessment tools
for the proposition and its rationale as [Argyris, 1953, Lowe and Shaw, 1968].
outlined in an earlier section of the paper. In fact in most instances, environmental
Examination of the variables and and interdependency factors were gen-
their interrelationships indicates substan- erally more important than financial
tive support for the proposition ad- data. The implication is that budgets,
vanced concerning marketing depart- which are essentially surrogates for the
ment effectiveness. However, environ- entire set of factors which influence per-
mental variables may contribute more to formance, do not perform the surroga-
the explanation than interdependencies. tion function well. By explicitly recog-
Further refinement and empirical work nizing controllable and uncontrollable
are required to clarify the various inter- influences [Horngren, 1972, pp. 162-163]
relationships. the link is formed to the concept of
Evaluating the results for all three de- responsibility accounting.
partments suggests strong support for the
propositions on production and market- Responsibility, A ccounting
ing departments, and indications of such The basic tenet of responsibility ac-
support for research and development counting is that subunit managers should
departments. only be held accountable for aspects of
subunit performance over which they
IMPLICATIONS
have control. As Caplan [1971, p. 19]
The research results reported here argued, accountants usually mean by
indicate that the traditional managerial this responsibility for costs. However,
accounting tools were relatively poor the notion really is broader than costs
explanators of effectiveness. The follow- for the extent of controllability of the
ing exploration of some implications of factors cause certain costs to occur,
this finding is performed within the and that really delimits the extent of re-
constraints on generalizability imposed sponsibility. From the theoretical de-
by the obvious limitations of the study. velopment and empirical results reported
One of the problem areas of managerial here, it is argued that these factors fall
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Hayes 37
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38 The Accounting Review, January 1977
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