Bring the Noise, But Not the Funk : Does the Effect of Performance Measure Noise on Learning Depend on Whether the Learning is Experiential or Vicarious?

Strategic performance measurement systems facilitate strategic learning by providing managers with performance measures useful for evaluating strategic performance and identifying opportunities for improvement. However, a significant body of literature points to the conclusion that performance measure noise can be a critical barrier to strategic learning. Importantly, this literature has focused almost exclusively on experiential learning (i.e., learning from one's own experience). In contrast, the modern firm often offers opportunities to learn from observing others' actions and outcomes (i.e., vicarious learning). We use an experiment to examine whether the effects of performance measure noise on managers' strategic learning depends on the type of learning (experiential versus vicarious). We predict and find performance measure noise has a more deleterious effect on strategic learning when such learning occurs experientially rather than vicariously. Specifically, we find experiential learners demonstrate less learning as performance measure noise increases, but vicarious learners show no such effect of performance measure noise. Consistent with our theory, additional analyses reveal experiential learners process performance measure outcome information more myopically than do vicarious learners, which hinders learning. Notably, our results demonstrate these differences can be quite profound, such that depending on the level of performance measure noise, vicarious learning may be superior or inferior to experiential learning. Collectively, our research suggests performance measure noise and learning type play important roles in the extent to which firms realize the decision-facilitating benefits of strategic performance measurement systems. In particular, given that much of the learning in modern organizations occurs vicariously, our findings suggest performance measure noise may not be as detrimental to strategic learning as previously thought