Linking control systems to business unit strategy: impact on performance

Abstract

Rooted in contingency theory, this paper examines linkages between strategy, incentive bonus system and effectiveness at the strategic busines unit (SBU) level within diversified firms. Data from 58 SBUs reveal (1) that greater reliance on long-run criteria as well as subjective (non-formula) approaches for determining the SBU general managers' bonus contributes to effectiveness in the case of 'build' SBUs but hampers it in the case of 'harvest' SBUs, and (2) that the relationship between extent of reliance on short-run criteria and effectiveness is virtually independent of SBU strategy.