Professional Documents
Culture Documents
PEU Ke Kinerja Manajerial
PEU Ke Kinerja Manajerial
PERCEIVED
ENVIRONMENTAL UNCERTALNTI’ AND DECENTRAUZATION ON
MANAGERlAL PERFORMANCE: A TEST OF THREE-WA)’ INTERACTION’
FERDINAND A. GllL
The Chinese 1Wrwsip o/Hong Kong
and
llus stucl~ mwsugawd he meraaion ekcts of perceived enwcmnmml uncemry ( PEti ). decenuahxion
and managernenl accounting s)xems ( MAS) design on managenal petfo-ce hIA5 deGgn was delined III
terms ofperceived avadabtli~ of IWO chamc~ensucs of mhmaUon. wlwh were scope and level olaggregauon
The resprws of M manage. drawn from a crossxcuon of Singapore compames to a quesdo-e survq
were analysed b) exammmg he regresson equations for the hreewa) mwracuon model and the parual
derivatives of the equaoons The results mdicawd thawdecenrrahauon and the xulabil~~ of MAS informaoon
charart~cs of broad scope and aggrepuon were associated wh lugher managerial @o-cc under
conditions of tugh PRI lhder condioons of low PELi. decenuahzadon and Ihe awlabiir) ol MA5 broad
xwpe and aggregated mformation were assoc~awci ails lower managerial performance
A major strand of managemenr accounting of contingency theorists that the capacities for
research has been the application of contin- information or control systems (e.g. MAS)
gency theory to the study of management should meet the requirements or demands
accounting systems (MAS) design and pet-for. as a result of uncertainr) facing the
mance (Chenhall & Morris. 1986; GUI. 1991). organization (Gerloff, 1985: Tushman & Nadler.
In particular, these studies have focused on 19’8) By matching the capacities with the
the relationship between aspects of contextual requirements the organization can improve its
variables (e.g. perceived environmental un- performance ( Nadler & Tushman. 1988; Gerloff.
certainty). MA5 characteristics and performance. I985 ).
MAS is seen as a control subsystem within this To date. most of the studies relating to this area
configuration of variables that is posited to affect of research have adopted a bivariate interaction
a firm’s performance. For example. following analysis to evaluate the joint effects of two
contingency theory, a “fit” between high independent variables on a dependent variable
perceived environmental uncertainty ( PELl ) and (e.g. Schoonhoven. I98 I ; Govindarajan. 1986;
broad scope MA.5 information is more likely to Govindarajan & Gupta, 1985: GUI. 1991).
improve performance than a “misfit” such as Govindarajan & Gupta ( I985 ). for example. ex-
broad scope information and low PEli (Gordon amined the linkages between strategy and control
& Narayanan. 1984 ). This follows the reasoning systems in terms of different types of incentive
- The authors WI.. IO acknowledge Ihe commem of Ah Dunk and the IWO anonymous renewers
-11-l F. A GllL and YEW MU% CHtA
I This r)pe of analysis was rdentied by Draain Bi Van de Ven ( 1985 ) and Gupu % Govmdara~an ( I989 ) aho described
II as rbe muhivana~e interaction approach where “performance Is hypotbesiaed ro be a funclon of imeraction between
smgle (or multiple) coruexr variables and the syslem of muldple design varrables”
~~.ANAGERM_ PERFORMANCE 415
It has been argued that a fit between of PEli on managerial performance will be
decentralization and the MAS characteristics of influenced by the level of hlAS sophistication
broad scope and aggregation is likely to improve and thedegree ofdecentralization. Consider first
managerial performance (Cordon R Miller. the relationship between PELl and hlA!%. When
19’6; Waterhouse & Tiessen. 19’8). An PEll is low.. management is able to make
appropriatel) structured organization will relatively accurate predictions about the mar-
need to be complemented by appropriate ket m.hich can be derived from some fairI}.
information from the hlAS to facilitate a higher common parameters in the MAS Additionally.
level of managerial performance. As pointed out there are fewer classes of information that
b!, Chenhall & Morris ( 1986) broad scope are critical and necessary for decision
information n.ould be needed to service the making. linder these conditions. interpreting
diversity of decisions faced by the decentralized the environment is relatively easy because set
manager in areas such as pricing. marketing. rules are available and traditional hM would
inventory control and labour negotiations. In a be adequate. However. if the hlAS is highly
decentralized organization where different sub. sophisticated (in terms of broad scope and
unit managers have different specific needs, aggregation) so that reports. for example.
broad scope information nilI enable the tncorporate more non.economic and non-
managers to decide more effectively. thereb! financial information, and utilize greater applica-
resultmg in better managerial performance tion of forecasts and decision models. the
(Sathe & W’atson. 198’. p. ‘2 ). managers receiving such information may suffer
Similarly. it isexpected that in a decentralized from an information overload.2 and this
organization. aggregated MAS information will ma)’ cause their decisions to be sub-optimal
be associated with higher performance. This is (Tushman & Nadler. 19’8; GUI. 1991).
because “decentralized managers are more Consequently. managerial performance may be
likeI}, to prefer to be evaluated on performance adversely affected.
measures which are aggregated in ways which In contrast. when PELl is high, the organiza-
retlect their area of responsibility” (Chenhall Rr tion ma!’ require additional information to cope
hlorris. 1986. p. 21 ). Conventional accounting with the complexities of the environment. hlore
evaluation measures that do not reflect the sophisticated reports from the hlAS can help
autonom!’ of. and integration between. the to reduce uncertainty and Improve decision
activities of the sub-unit will result in lom.er making ( Amey. 19’9: Chia. 1990). which in turn
morale and increased conflict (Ansari. 19’9; may impr0k.e managerial performance. Similarly.
Chenhall R Morris. 1986) PEli may be related to organizational structure
in the sense that when there is high PEU. a
decentralized organizational structure is appro-
Thus far. we have argued that a lit beween priate in order to respond to unexpected events
decentralization and sophisticated hL9S can and facilitate unstructured*unprogrammable
improve performance. but this is subject to one decisions (Stinchcombe. 19-O). Prior research
qualttication This relates to the level of PEtI. suBBests that the organic form of organizations
The strategy of combining decentrahzation with (which are similar to decentralized organiza-
sophisticated hiAS will only be more effective tions) tend to succeed in dynamic envlron-
in terms of managerial performance when the ments (e.g. Burns & Stalker. 1961; Hall. 1962;
level of PEl 1 is high. In other words. the effects Gerloff. 1985). In an uncertain environment. the
‘Rosen 8, whneck I 1969. p I” ) detined mIormarmn overload as Ihe anwunt of unf~,rmatwn which LSgreater than
that atuch the organwatlon or I& decwon.makers can adequalely handle” II ha heen suggesled thal the presence of
mformauon overload on Ihe managers IS dysfuncuonal IO organwa~lonal performance f Tushman Ilr Nadler. 19’8 I
MANAGERIAL PERKXMANCE 41’
unforeseen requirements for action cannot characteristics (in terms of scope and aplp;rega-
lx broken down or distributed automatically tion) and decentralization will be alfected by
through the functional roles detined within the the level of PEU. In order to achieve better
orRanixation. However, duo&t decentralization manae;erial performance there must be an
an orRartization is able to provide its managers appropriate “fit” between environmental
with Rreater responsibility and control over its certainty and the two control subsystems. In
activities (Waterhourse R Tiessen. 19’8). other words. managerial performance will be
Decentralization is likely to have a positive intluenced by the interaction between the level
effect on orRanhzational performance when of uncertainty in its operating enviroument.
managers perceive their environment to be the degree of decentralization and the
uncertain, while centralized decision making is sophistication levels of the MAS information
more likely to be effective when uncertainty is characteristics. This suRRests the followinR
perceived to be low (Nee;andhi & Reimann, hypotheses for testing:
1972). However. as pointed out earlier. we
believe that decentralization complemented HI. There wll be an imeracuve effect on managerial
performancebetween Ihe degree of decenuahzallon.
with broad scope and aRRregated MAS informa-
broad scope MAS mformauon and lhe level ol perceived
tion characteristics will be more effective in
envuonmental uncertain0.
improving managerial performance under con-
H2 l-here wtll be an mteracuve eUecr on managerial
ditions of hi#t PEli than decentralization or MAS
performance between Ihe degree ol decentrahzauon.
information characteristics (by itself). The aggregated MAS mformalion and Lhe let,el of perceived
possibility of this complex relationship was enwonmental uncertamg
perhaps tirst reco@z.ed by Gordon & Narayanan
( 1984) who examined the effects of PEli on It has also been argued that managrs faced
MAS des@n and organizational structure acting with low PEll conditions will require less
sir@y and in combination. More recently. sophisticated MAS The presence of more
Chenhall & Morris ( 1986. p. 22 ) also recoe;nized sophisticated MAS information in terms of scope
this complex relationship: and aRRregation may be dysfunctional because
of information overload (Gerloff. 1985). A
percewed enttionmemal uncertamt) Induces
hi#ter degee of decentralization may not also
decentralization. and therefore the e&co of the former
on inlormarion characteristics may be. m pan. due
be appropriate as the events are fairly routine
IO the indirect path through decentralization The and in most cases, codified into standard
information charactenstlcs aiuch ma) be tnlluenced b) operating Ruides or instruction manuals. This
lhrs indirect e&cl are those which are proposed lo Rives rise to Hypotheses 3 and 4:
be directly related IO bolh percewed environmental
uncenamv and decenu-akauon . thesecharacleristics
Hj A combination of a high degree of decenuahzwon
are broad scope and aggregauon
and a more sophwicated broad scope hIAS information
null have a negative Impact on the performance
However. a more complete formulation of
of managersa-ho have a low level of perceived
this complex relationship must obviously also
enwonmental uncertainq.
include performance as the end (dependent)
Hi A combmarion of a high degree of decenualtza~ion
variable. This study. therefore, examines the
and a more sophwicaled aggregaled MAS information
combined effects of PElI. decentralization and
41 have a negative impact on perlkmance of managers
MAS on manaRerial performance. who have a low level of perceived enwonmental
uncenainr)
3 In the context of the Singapore environment. the response rate was considered good in view of the “sensiUve” nature
of the infortnauon requested. It compared favourably to ” the expected return of 25% for most postal suneys” (Seal-t.
I99 I. p 12) conducted In Singapore II was observed by Ang et al ( 1986) that the cultural orientallon ol’compani- in
Sin~re~oa~dspri~a~doesaffect theresponserate Chia( 1992)commentcdtha1 inacompetitive businesscn~ironmcnt
such as Singapore. there is little inccntlve Tar companies IO respond to surveys that require them to Indicate the details
of orgatw.aUonal structuring and procedures which these companles have succe~fully employed
IUNAGERML PERFORMANCE 419
. No MSA and Cronbach alpha cocfficlenr because this Is a single item measure
characteristics. As pointed out earlier, the scale (ranging from “well below average
measurement of perceived usefulness, in itself. performance” to Well above average perfor-
does not provide a satisfactory link between the mance”) their performance on eight dimensions
MAS and managerial performance. In this study. and an overall global dimension. This measure
the objective was to measure the extent to has been used in other studies (e.g. Brownell.
which the MAS provides the relevant informa- 1982; Brownell & Hirst. 1986; Govindarajan,
tion for enhancing managerial performance. 1986).
What was perceived as useful MAS information
might not be what was available MAS infor- Data analysis
mation to the user. Hence. the MAS instrument The results from ( I ) factor analysis of the data
for this study measured the perceptions of the for construct validity ( Kerlinger. 1964; Chenhall
respondents regarding the availability of the & Morris. 1986). ( 2) computation of the
MAS information characteristics of broad scope Cronbach alpha statistics for internal reliability
and aggregation. of the variables, ( 3) descriptive statistics of the
variables. and (4) tests of hypotheses for
Organizationul struch4m - &cen~allzatJon interaction effects are presented in Tables l-3.
The instrument for measuring decentraliza- Table I reports the descriptive statistics as
tion was operationalized in terms of Bums & well as the Kaiser-Meyeralkin measure of
Stalker’s ( 1961) classification of mechanistic- sampling adequacy ( MSA ) ( Kaiser 8r Rice, 19’4 )
organic continuum (Cordon & Narayanan, values for the various variables. These results
1984 ). Five questions were used to measure the provided evidence to the extent of which the
degree of decentralization of decision making. items of a variable belonged together. thereby
The classes of decision making were the rendering the set of data appropriate for factor
development of new products or services. the analysis. The MSA values provided the validity of
hiring and tiring of managerial personnel. the measurement constructs for the various
selection of large investments, budget allocations variables Satisfactory internal reliability for the
and pricing decisions. variables was achieved, as retlected by the
Cronbach alpha statistics reported in Table 1
Managerial peq%rmance eualuation (NunnaRy. 1978).
A subjective measure of managerial petfor-
manceJ developed by Mahoney et al. (1963) Managerial perjkmance evaluation
was adopted in this study. Respondents The construct validity of the instrument for
were asked to rate on a seven-point Likert measuring personal performance evaluation was
’ See Govtndara(an ( 1986) for a dkusslon on the strengths and weaknesses of his measure He argued that. on halance.
thh is an acceptable way for measuring performance
420 F. A GliL and YEW MING CHIA
Dimewons I 2 3 4 5 6 8
the term X,Xfi3 in equation ( I ) added signili- between Y and X2. given a fixed value of XI.
cantly to the variance explained. However. would be regarded as monotonic; otherwise. it
equation ( I) provides no information on would be regarded as non-monotonic.
whether the posited relationship is monotonic’
or not. This information is needed to test H3,
RESLILTS
H4. H5 and Ho.
Such information can be obtained by examin-
Tables 3(i) and 3( ii ) provide the results of
ing the partial derivative horn the larger
the multiple regression models performed to
regression equation ( I ) (Sout.hwood. 19’8;
test the various hypotheses.6 Equation A in Table
Schoonhoven, 1981 ). This would determine
3( i ) is the results of the regression done on PEU.
whether a non-monotonic or symmetrical effect
decentralization. MAS broad scope and the
was present. For example. assume that the level
interactions of PEll and decentralization. PEll
of PEt! alTects the selection of the types of
and broad scope. and decentralization and broad
control subsystems (i.e. the degree of decentral-
scope. Equation B is the results for the same
ization and the level of MAS broad scope). Given
regression but with the inclusion of the three-
this perspective. we tixed XI (the level of PElI)
way interaction term. Similarly, Table 3(ii)
and then examined the interaction between X3
shows the results with aggregation as the MAS
(the degree of decentralization ) and Xz (the
variable.
level of IllAS broad scope or aggregation). For
As reported in Table 3(i), the three-wa)
a tixed XI, the interaction term, if significant.
interaction term (Equation B) is positive and
can be interpreted as changing the coefficients
significant (c, = 0. IO. p < 0.05). The intro-
ofXz or X3. The assumptions about causality that
duction of the interaction term results in a
are made determine the choice between these
significant increase (at p <0.05) in R2. thus
two variables. Mathematically. both approaches
suggesting that the three-way interaction term
are equalI}. valid. We chose to study the partial
improved the predictive ability of the model.
derivative of XzV but the results are the same if
These results provide support for the presence
X3 is selected.
of a three-way interaction hYpot.hesis between
The partial derivative of equation ( I ) with
PElI, decentralization and MAS broad scope
respect to X2 is shown as equation (2) below:
information. Similarly. the result for Equation B
3r3x, = u2 +6,x, +6.&s + c,x,x+ (2) in Table 3( ii) shows that the three-way inter-
action term is positive and signiftcant (c, = 0.08.
The partial derivative of the impact of the level
p < 0.09). The introduction of the interaction
of MAS sophistication in terms of scope and
term also causes a signikant increase in R2.
aggregation on managerial performance in
These results provide support for Hypotheses I
equation (2) depends on the level of PELI and
and 2.
the degree of decentralization. lf XI ( PELI ) is a
The partial derivatives of Equation B in Tables
constant, equation (2) can be rewritten as
3(i) and 3( ii) over X2 (scope and aggregation
3mx2 = (a2 + 63, ) + (b3 + C&l) x3. (3) of km information. respectively) give the
following results:
If the value of aY!aX, in equation (3) is always
positive or always negative over the entire 3YGX, = 1.93 - 0.5-3X, - 0.3W, + O.IOX,X~.
observable ranBe of X3. the relationship (4i)
‘The suustical analyses and imerprelalions of the results lollowed the approach adopled by Govtndarajan & F&her
(1990)
422 F A. GUL and \EU’ MING CHL&
TABLE 3(l) Resulrr of muldplc regxsslon analysis for TABLE 3 (II ). Resulu of muldple regression analysis for
managerial performance (MAS variable - broad scope) mvlagcrlal pertbrmancc (MAS variable - aggregation)
np < 0.10. ‘. p < 0.05; N=48 Standard errors are In ‘/I c 0.10. “p<OO5:N=48 Standarderrorsuein
parentheses parenlheses
PEU = Percewed environmental uncenainry; DEC = PEU = Perceived environmental uncenainr). DEC =
decentralizadon. SSE = sophisticauon of MAS informalion decentralization. SAE = sophistication of MAS mformation
charactenstic of broad scope Interactions between the characteristic of aggregation. lnteracllons berween the
variables are denoted bl ‘* x ” variables are denoted by .’ x ”
R’ explained by significanr Ihree.wag imeracUon term = R’ explained by significam threeway mteraclion term =
8 220 5.63%
Equations (4i ) and (4ii ) suggest that the effect Equations ( 5i ) and ( 5ii ) will be zero when X:,
of changing the degree of decentralization ( Xz ) has a value of 6.09 and 5.‘5. In other words, the
on managerial performance is a function of each equations will be negative when X3 is above
of the MAS characteristics (X,) and PEll (XI ).- 6.09 (MAS scope) or 5.‘5 (MAS aggregation)
In order to analyse the relationship under low which are the itiection points’ (i.e. where the
PECI. we selected the extreme value.for PEU. change in the direction of the scope occurs)
setting it to I ’ Equations (4i ) and (4ii) can then and they will be positive when X3 is below 6.09
be expressed as follows: and 5.‘5, respectively. These inflection points
-The subsequent mterprelation followed the approach adopted by Govindarajan & Fisher ( 1990)
’ The extreme value of I (low) and _ (high ) provided the observable range for PEU. and these values were adopted IO
ensure the imerpretabihry of Ihe results for Ihe presence of non-monotonic relationships
‘The use of mlewal scale does not intluence Ihe lnferemial statistics yielded b) the multiplicaUve approach (Allison.
19”: Southwood. 19’8: Arnold. 1982)
MANAGERIAL PERFORMANCE -123
are within the range of observable values for X3 3, 4. 5 and 6 were consistent with the notion
for the above equations. Therefore, for organiza- that decentralization promotes a high informa-
tions operating in low PEU situations and having tion processing capability as more managers are
high degree of decentralization. a high level of involved in making decisions. When PEU is
broad scope and aggregated MA!5 information is also high, managers will also require more
associated with lower managerial performance. information and a MA5 which provides more
Thus, the results provide support tbr Hypotheses sophisticated information in terms of scope and
3and4. aggregation will enhance the decisions of the
To calculate the interaction of decentralization managers, hence contributing to higher
and the level of MA5 information characteristics performance. This explanation is similar to that
on managerial performance for organizations of Duncan ( 19’3). Tushman & Nadler ( 19’8)
operating at higher levels of PEU, equations (4i) and Gerioff ( 1985) who suggested that
and (4ii) were modified. htserting Y as the organizational structure has important impiica-
value of XI (PEU). With this substitution, the tions for the ability of the organization to
equations are: gather and process information. A centralized
organizational structure is seen as restricting
wax, = -1.3+ 0.37~~. (6i)
the flow of information to prescribed channels.
where X, is MAS scope. This is suitable for an organization operating
in a routine environment where fixed responses
awax,= -1.66+0.32~,, (Gii)
and procedures are identified in advance.
where X3 is MA5 aggregation. Thus a combination of high PFtl and sophis-
ticated hlAS for a centralized structure is
The inllection points for equations (61) and (6ii )
inappropriate and unlikely to contribute to
were 4.81 and 5.19, which are within the
performance.
observable ranges of the variable decentraliza-
in designing the hlAS. there is a need to be
tion. For those organizations operating under
conscious of two issues.
high PEU states and having more decentralized
( I ) The interaction effect of the state of
structures, high levels of MAS scope and
PEU. decentralization and the level of MA5
aggregated information are associated with
sophistication in terms of scope and aggregation
superior managerial performance. These results
on managerial performance. I0
also support Hypotheses 5 and 6.
( 2) The relationship of the degree of decentra-
lization for organizations operating under
DISCUSSION varying PEU. on managerial performance is
nonmonotonic over the range of the level of
The results suggest the presence of a I4bG sophistication in terms of scope and
contingent relationship between the degree of aggregation.
decentralization and managerial performance Organizational designers may benefit from
over the range of the level of MAS sophistication being aware of the need to adopt an integrated
for organizations operating under varying PEU approach towards designing the overall
states. In more general terms, they provide control systems in organizations which could
support for the multivariate interaction be achieved by considering the interaction
conceptualization of contingency theory (Gupta effects between the PEll and the control
& Govindarajan, 1989). subsystems on performance. Any changes in one
The results which supported Hypotheses I, 2. of the control subsystems may necessitate
” Based on the sugption of a reviewer. we conducted an explorarory tesl br a four-wag interaction. i.e the heraction
of PEU. decenuallzadon. and sa). MAS aglFregatlon on pertbrmance will be dilTereru depmding on the level of M~s scope
The resl did not yield a signifmru result
42-I F A. ClrL and )Tw MtNG CHL4
compensating changes in other aspects of the which might be signikant to the performance
organizational structure and control subsystems of an organization and its members.
so as to promote higher performance in the
organization. Being aware of the interactive CONCLUSION
relationships between the variables enables the
organizational designer to identify those feasible This study, using a trivariare model, examined
sets that are appropriate to meet different the notion that the contextual variable (PEU)
conringencies and also to understand the and two control subsystems (the organizational
internal consistency of the control subsystems structure - decentralization, and the MAS
necessary to enhance performance. characterisrics of scope and aggregation ) would
In evaluating this study. several limitations interact to tiect managerial performance. The
should be noted. As with most empirical studies results of the study provide support for all
of this r)pe. generalizing the results to other the hypotheses and suggest that any stud)
setting needs to be viewed with caution. How- which examines the notion that managerial
ever, this limitation is mitigated because the performance is alTected by only one control
population consisted of organizations operating subsystem in the organization is Likely to be
under varying PEll states and which would most inadequate. The main practical implication
likely use a range of sophisticated MAS and have that can be drawn from the discussions of
KU@I~ decentralized structures. Generalktbili~ the results is thar organizational designers
of the results was also limited by the sample size. need to consider rhe appropriate environment
The variables included in the present stud) in the design and implementation of control
represented only a small subset of the variables subsystems.
BIBLIOGRAPHJ