Implementing strategy through performance measurement: an empirical test

For years, researchers have suggested that the alignment of performance measurement systems with strategic goals can motivate managers to take actions that are consistent with a firm's strategy. Recently, various performance measurement systems (e.g., balanced scorecard) have been developed to promote strategy implementation. Kershaw (2001) developed a strategic control framework for examining how these systems can be used to implement strategy. The framework identifies the key linkages between strategy and managers' actions, as well as the performance measure characteristics that affect managers' effort allocation decisions. The purpose of this study is to empirically test some of the key variables identified in this strategic control framework. The results indicate that prioritising goals consistent with a firm's strategy and linking congruent incentives to responsive performance measures can positively affect managers' efforts. However, the results also show that a highly responsive secondary measure can divert managers' efforts from the firm's primary goals. Given the recent focus on performance measurement systems, such as the balanced scorecard, these findings highlight the importance of selecting the appropriate measures that will be used to indicate performance.