The study critically examines the intersection of three distinct themes of literature: strategy, performance measurement and management as well as turbulent
environments. An initial scoping of the literature is now discussed.
2.6.1. Strategy
Literature related to strategy has evolved significantly as this management field has formalized. Business strategy literature traces its roots to the writings of military leaders, such as Sun Tzu in China in the sixth century BC and Karl von Clausewitz in nineteenth-‐century Europe. Modern business strategy literature emerged in the twentieth century with the publication of Theory of Games and Economic Behavior (Von Neumann and Morgenstern, 1944), a book that explains how mathematics can depict competitive interactions among different actors.
The study of business strategy, as it is known today, focused first on long-‐range or strategic planning, starting in an exploratory manner after World War II (Ewing, 1956; Quinn, 1961). Strategic planning began formalizing with the appearance of process-‐based literature, which persisted for about two decades (Steiner, 1967; Vancil and Lorange, 1975; Lorange and Vancil, 1976; Steiner, 1979). Planning research waned during the 1970s as a more comprehensive, policy-‐oriented approach to strategy arose (Christensen, et al., 1978; Bower, 1982).
Policy research eventually gave rise to the analytically based techniques adapted from the field of industrial organization (Bain, 1956). Economics until that point was concerned with the industry as a unit of analysis. Porter (1979) began examining conditions inside industries to better understand the causes for variances in
individual firm performances. Blending this approach with business policy research, he demonstrated that firms were active agents within their industries and that the study of strategy could actually be carried out using analytical methods (Porter, 1980; Porter, 1985).
Throughout the 1980s, scholars challenged the belief that strategy was a largely analytically driven or planning-‐based endeavor. Emergent or incremental strategy posits that strategy develops over time as organizations discover, sequentially but non-‐linearly, patterns of actions that improve environmental fit while increasing slack generation abilities. The unplanned or emergent school established their
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alternative views as a viable means of strategy formation with in-‐depth studies of organizations that showed examples of emergent strategy making (Pascale, 1984; Mintzberg and McHugh, 1985; Mintzberg and Waters, 1985).
Researchers searching for sources of formed strategies asserted that strategy was a function of an individual firm’s combination of resources and capabilities. This resource-‐based approach to strategy making was not new—it was originally identified in early business history writing (Penrose, 1959). In the resource-‐based view of the firm, the firm is the collection and organization of valuable resources that, when configured in a way that is unique, provide a means to achieve
competitive advantage (Wernerfelt, 1984; Hamel and Prahalad, 1990; Barney, 1991; Grant, 1996). To the extent that those resources are largely inimitable or free from material substitution by alternative sources, they can provide a competitive
advantage that is sustainable in nature (Barney, 1991).
Although discussed as far back in the literature as strategic planning itself, strategy implementation and control received little formal treatment until the 1980s. It was then that scholars began researching the impact organization structure,
measurement, and decision-‐making have on successful implementation of strategy (Lorange and Murphy, 1984; Gupta and Govindarajan, 1984; Chakravarthy, 1986; Goold and Quinn, 1990; Goold, 1991). This research continues today, but it is more colloquially termed execution (Hrebiniak, 2005; Hrebiniak, 2006), and it incorporates a number of execution-‐oriented performance measurement frameworks (Kaplan and Norton, 1992; Kaplan and Norton, 2000b; Neely et al., 2000).
2.6.2. Performance Measurement and Management
Performance measurement research has accelerated in the past two decades, but the practice of both measuring and managing performance is not new (Neely, 2005). The earliest records of commerce-‐oriented measurement activity can be traced back to Mediterranean and Baltic societies around 1000 AD (Johnson, 1983). The double-‐ entry accounting system that underpins account transaction entry today is believed to have been formalized roughly 500 years later in Europe by Venetian monks (Johnson and Kaplan, 1987).
Cost accounting began to emerge in England and then migrated to the Northeast region of the United States in the mid to late 1800s (Johnson and Kaplan, 1987). These early systems of operationally oriented accounting were developed further
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during industrialization and in some respects were fully mature by the late 1800s (Chandler, 1977). As firms continued to expand production and scope, the
techniques of strict budgetary control began to show adverse effects on the labor force. Budgets began their long-‐standing association with worker control and ever-‐ increasing targets of performance (Ridgway, 1956). Gradually, measurement processes started evolving toward developing broader, more balanced sets of measures that were not solely budget specific (Drucker, 1954). Although the idea of a balanced set of measures was appealing in practice, the concept of sets of
measures called into question the nature of all fragmented control thinking being published at the time.
Anthony (1965) described the first and still dominant conceptual framework in management control literature. The framework identifies three separate aspects of an overall system of control: strategic planning, management control, and
operational (or task) control. What followed in the literature for approximately 20 years after Anthony’s introduction were papers that expanded and added detail to this three-‐dimension control framework.
Processes for establishing systems of control were defined as were detailed activities such as control variable identification, performance tracking, and problem diagnosis (Lorange and Scott Morton, 1974). Case studies were conducted to aid movement toward achievement of specific organization objectives as well as to enhance overall systems designs (Ouchi, 1979). Behavioral problems associated with control systems were addressed during this period also (Merchant, 1982). Despite these advances in control thinking, challenges of control remained, and scholars sought means by which various performance measurement and control practices could be integrated into a more comprehensive evaluations of performance.
During the late 1970s as U.S. manufacturing competitiveness declined, researchers began examining the practices of leading manufacturers, in particular those in the automobile, steel, and technology industries. Findings indicated that cost-‐
accounting practices failed to support the information needs of organizations attempting to increase productivity in the face of mounting foreign competition (Kaplan, 1983; Kaplan, 1984; Miller and Vollmann, 1985; Turney and Andersen, 1999). During the studies, deficiencies were identified not only with cost-‐accounting systems, but with enterprise performance measurement practices in general. Subsequently, influential papers were published that highlighted deficiencies in
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measurement practices and recommended a variety of ways to improve
performance indicators through more comprehensive, integrated frameworks (Cross and Lynch, 1988; Keegan et al. 1989; Brignall et al, 1991; Hronec, 1993). But these advancements were only frameworks, not systems to measure and manage performance comprehensively.
Unrest with disintegrated performance measurement practices peaked with the publication of “The Performance Measurement Manifesto” (Eccles, 1991). The article highlighted the shortcomings with short-‐term, financially based
measurement, and it challenged researchers and practitioners to develop more comprehensive, long-‐term performance measurement systems. The following year, Eccles and Pyburn (1992) provided a set of steps and activities organizations might take to establish a comprehensive system to measure performance.
Dixon et al. (1990) developed the Performance Management Questionnaire, a tool that helped groups of managers assess the importance and priority of measurement information. Activity-‐based costing was developed at roughly the same time as a means to better handle the cost allocations that were being handled incorrectly in traditional costing systems (Kaplan and Cooper, 1998). The Balanced Scorecard was introduced (Kaplan and Norton, 1992) and served as the catalyst to move beyond basic measurement approaches into the area of research today called performance management and performance management systems.
Formalization of the field of performance management followed framework introduction as academics from the areas of management control area, strategy, marketing, economics and operations engaged in research. Research began to focus on understanding how entire systems of performance measurement and
management were designed, established, implemented, and refreshed during their lifecycle (Bourne et al., 2000; Bititci et al., 2000; Bourne et al., 2002; Kaplan and Norton, 2000b; De Toni and Tonchia, 2001). The performance management systems questions currently atop the research agenda are concerned with dynamic
measurement systems and the flexibility of measurement systems, which is the point of this inquiry.
2.6.3. Turbulent Environments
Much of the early research in environmental turbulence was conducted in the behavioral science arena (Pepper, 1934; Tolman and Brunswik, 1935). This research
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crossed over to organization science during the early 1960s in Emery and Trist’s (1965) paper “The Causal Texture of Organizational Environments.” The authors note that organizations, like organisms, are impacted by changes in their environments. They provide a typology of four types of environments in which an organization can exist. The most difficult in which to survive is turbulent field, where organizations are moving within the environment itself. This turbulent field is an environment where “dynamic processes, which create significant variance’s for the component organizations, arise from the field itself” (Emery and Trist, 1965, p. 26).
Organizations, they note, cannot adapt solely through their own actions; they are interrelated to the actions of others in the environment.
Throughout the 1960s, organizational theorists examined how organizations adapted themselves to their environments. Burns and Stalker (1961) found that prospering entities had modified their structures, managerial routines, flows of communication, and employee interactions significantly from those that had not. They identified two separate management systems—mechanistic and organic. Mechanistic
management systems were oriented toward stability and were characterized by specialization, precision in functional definitions, significant hierarchy, vertical interaction of members, and obedience, while organic systems, designed for changing conditions, lacked specialization and precise functional definitions. This finding spawned additional organizational research that sought to empirically
validate differences in organizational forms (Lawrence and Lorsch, 1967; Child, 1972; Child, 1973). These studies identified structural differences among variables that had been previously presented by Burns and Stalker (1961), including specialization, standardization, documentation, centralization, and span of control.
Researchers in the 1980s—accepting that certain environments contribute more to uncertainty than others—began trying to identify which environments contribute most significantly. Hrebiniak and Snow (1980) studied 88 companies consisting of 247 managerial responses across four separate industries and concluded that differences exist by industry and that industry effects should be factored into empirical work. Dess and Beard (1984) in their analysis of task environments analyzed 23 variables derived from U.S. Census Bureau and Office of Business Economics information from 52 separate industries and concluded that SIC code as industry classification was a useful proxy for classifying task environments.
Hrebiniak and Joyce (1985) examined the issue of organizational choice and environmental determinism. They provide a matrix that examines how
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organizational choice and environmental determinism interact and produce different relationships. Their conclusion is that organizational adaptation is impacted by an ongoing dynamism between the organization’s choices and the environment’s response to those choices. Thus adaptation is not purely a function of the
environment; firms can make conscious choices that impact the environment itself.
Environmental research into the 1990s presented two key findings. First,
environmental conditions, when severe in terms of complexity and change, impact both organizational form and managerial decision-‐making. Second, some industries exhibit greater levels of complexity and dynamism than others. Research
commenced that focused on the most turbulent industries—technology-‐intensive ones. The definition of technology in this study is consistent with the high-‐
technology industry definition developed and used by Eisenhardt (1989b). Technology industries became popular units of analysis because they were experiencing rapid change, developing new applications such as the Internet, and also receiving a great deal of media and investor attention.
Research by Eisenhardt (1989b) provided rich insights into what is termed a “high velocity” environment. The claim that change was in fact continuous in nature in these environments was made (Brown and Eisenhardt, 1997). This finding was in contrast to the punctuated equilibrium model provided by other researchers at the time (Tushman and Anderson, 1986; Romanelli and Tushman, 1994). In-‐depth case-‐ based research also chronicled the ways in which managers made decisions in these contexts (Bourgeois and Eisenhardt, 1988). Decision-‐making processes incorporated the use of additional information, cycled decisions through multiple organizational levels and considered, more analytically, a larger set of choices and alternatives.
Another product of the field research was creation of a model that could be used to improve performance through decision-‐making by organizations operating in high-‐ velocity environments. These studies of high-‐velocity or turbulent environments continued throughout the decade as other researchers worked to understand the ways to improve strategic decision-‐making as well as to enhance firm profitability (Judge and Miller, 1991; Ansoff and Sullivan, 1993; D'Aveni and Gunther R., 1995; Burgelman and Grove, 1996; Bogner and Barr, 2000).