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...examines how comprehensive control systems influence managers as they allocate their time among multiple areas of responsibility. The results show that managers do not plan increases in their working week in response to increased monitoring or to performance-based incentives, but rather they shift their time from areas that are not monitored or rewarded to areas that are. The results support Kaplan and Norton's assertion that the Balanced Scorecard can be used to influence the way managers allocate their attention between organizational objectives.
INTRODUCTION
Changes in today's competitive environment have lead many organizations to adopt control systems that track performance in multiple areas and collect performance data in addition to traditional financial measures (Chenhall and Langfield-Smith 1998). Such systems are referred to as "comprehensive control systems." Typically, comprehensive control systems are intended to direct managerial attention to multiple areas rather than focus attention to any particular one. As such, an underlying assumption of a comprehensive reporting system is that they influence the attention that managers place on the different areas that compete for their time. The objective of this study is to experimentally examine this assumption.
One version of a comprehensive reporting system in use today is Kaplan and Norton's Balanced Scorecard. In discussing reward systems linkages to comprehensive reporting systems, Kaplan and Norton (1996b, 217) state, "The big question faced by all companies is whether and how to link their formal compensation system to the scorecard measures." They acknowledge certain risks associated with linking multiple areas of performance to compensation while, at the same time, they also acknowledge the desire by many companies to formalize this relationship. They further assert that the "articulation of how individual tasks align with overall business unit objectives has created intrinsic motivation among large numbers of organizational employees. Their innovation and problem-solving energies have become unleashed, even without explicit ties to compensation incentives" (Kaplan and Norton 1996b, 217). The idea that formal reporting systems that provide senior management with information about lower level managers, in and of itself, motivates lower-level managerial effort is consistent with a large number of studies that have observed performance increases in the absence of explicit incentive systems (cf., Mento et al. 1984). Hence, a major objective of the present study is to examine whether comprehensive management-reporting systems must be linked to formal incentives (and vice versa) in order to motivate changes in planned effort. The question of interest is not whether managers respond to areas that are both explicitly measured and rewarded. Rather, the question is whether managers respond to areas that are either explicitly measured or rewarded, but not necessarily both.
Results from the prior research generally support the notion that individuals respond to changes in incentives and/or to changes in what information is reported (Bonner and Sprinkle 2002). These results, however, were obtained in settings where subjects were not required to balance their attention across multiple areas and, therefore, are only suggestive of how comprehensive control systems might affect behavior in today's business environment. In practice, many of today's managers do not operate under a single focus.
Naylor et al. (1980) address behavior in organizational settings with multiple objectives. Their work makes a distinction between level and direction of effort (see also Blau 1986, 1993). Level of effort refers to the total amount of effort a person is willing to exert on a set of tasks and includes dimensions related to both the duration and intensity of the effort. (1) Direction of effort, on the other hand, refers to how effort (either duration or intensity) is allocated among different tasks within the set (Bonner and Sprinkle 2002). Naylor et al. (1980) assert that how one divides effort among objectives usually is more important to performance than the amount of effort expended overall. In this sense, many recently implemented management control systems have undergone a fundamental philosophical shift, that is, by attempting to influence behavior among different management objectives their purpose appears to be to affect direction of effort rather than level of effort.
A further motivation for this study is the need to experimentally address the impact of comprehensive control system variables on the time-planning decision. These judgments are considered to be precursors to subsequent behavior and performance related outcomes (Ajzen and Fishbein 1980). In general, prior studies have not investigated time-planning decisions that may be more directly affected by control system variables (Tuttle and Ullrich 2003). Instead, previous research has generally explored the link between control systems and performance (for reviews see Bonner et al. 2000; Shields 1997). Yet personal time management is considered one of the most important tasks that a manager performs and precedes effective effort and performance (Miodonski 1999; Plack 2000). Furthermore, time is perhaps the most valuable and scarce resource for a manager. If the management control system does not affect where managers intend to focus their time (a first-order outcome), then it seems unlikely that the control system will have much of an impact on their subsequent expended effort or performance (second- and third-order outcomes).
Literature Review and Hypotheses
Comprehensive Control Systems
According to Kaplan and Norton (1992, 1996a, 1996b), organizations implement comprehensive control systems in order to align managers' behavior with overall competitive strategy in at least four business areas with the most common being: (1) Financial, (2) Customer, (3) Internal Business Processes, and (4) Learning & Growth. Goals with associated performance measures are then developed for each area. To influence behavior, the control system is then modified to report performance measures in all areas. The objective is to produce a comprehensive control system that fully measures performance in all the important areas. The issue of whether Balanced Scorecard measures must also be linked to incentives remains an unresolved question. A sample of one such system that is used as a basis for the current study is Mobil Oil Corporation's USM&R division's Balanced Scorecard and is shown in Figure 1 (Kaplan 1997a, 1997b).
Comprehensive control systems, such as the Balanced Scorecard, have stimulated a growing interest among researchers. For instance, two studies, Krumwiede et al. (2001) and Lipe and Salterio (2000) find that, when using Balanced Scorecards, evaluators tend to use measures that are common rather than unique to compare across divisions. Turtle and Ullrich (2003) find that when incentives are structured so that each area of the Balanced Scorecard is rewarded separately, challenging areas receive more attention than areas with unattainable goals. When incentives are structured so that satisfactory performance in all areas is required, areas having unattainable goals receive the same attention as areas having challenging but attainable goals. These studies, however, do not directly address whether comprehensive control systems influence effort direction.
Two recent surveys test for correlations between organizational performance and the use of comprehensive control systems similar to the Balanced Scorecard. Chenhall and Langfield-Smith (1998) surveyed 186 Australian companies and find a significant positive correlation between the use of "balanced" management control systems and high performance. Hogue and James (1998) also surveyed Australian companies and find that more Balanced Scorecard use is positively related to organizational performance. The results from these two studies provide some initial evidence that the use of comprehensive control systems is related to improved organizational performance. The correlational design of these two surveys, however, does not permit unambiguous conclusions regarding cause and effect. For instance, from these two studies we cannot determine if the management control system caused higher organizational performance, or if higher performing organizations tend to implement comprehensive control systems.
Information Reporting
Comprehensive control systems increase information reporting. In the pre-computer age, when information was difficult and expensive to collect and report, reporting systems tended to focus on financial measures (Kaplan and Norton 1992). This focus on financial measures has been criticized for creating a short-term perspective on the part of management and for a tendency to ignore the crucial processes that must be attended to...
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