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The project life cycle and budgeting functions: planning, control, and motivation

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The project life cycle and budgeting functions: planning, control, and motivation

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Content THE PRODUCT LIFE CYCLE AND BUDGETING FUNCTIONS: PLANNING, CONTROL, AND MOTIVATION by Alan Benjamin Czyzewski A Dissertation Presented to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree DOCTOR OF PHILOSOPHY (Business) December 1985 UNIVERSITY OF SOUTHERN CALIFORNIA THE GRADUATE SCHOOL UNIVERSITY PARK LOS ANGELES, CALIFORNIA 90089 This dissertation, w ritten by Alan Benjamin Czyzewski under the direction of h.X§ D issertation Committee, and approved by all its members, has been presented to and accepted by The Graduate School, in partial fulfillm ent of re quirem ents for the degree of D O C TO R OF PH ILOSOPH Y f h . f i . Com v " D e M o f G n of Graduate Studies Date ....Dec ember _ 4_ 19 8 5 _ DISSERTATION COMMITTEE Chairperson In loving memory of Dad and to Mom for teaching me how to dream, to chase my dreams, and for always supporting my many chases ACKNOWLEDGEMENTS I I Many thanks to my committee for their faith, time, ! !and effort helping me, espically Dick Savich who was not j ; only a committee member, but a freind and mentor. They , taught me the true meaning of pygalgia. To Lou Corsini ! for planting the idea of a Ph.D. in Accounting in my mind, j I was never sure before if thanks or a pain worse than j death were due him. Now I know thanks are due him. I am grateful to Frank McNulty and Alan Cherry who' went beyond freindship in their support. To the powers I ithat be in the School of Accounting, the secrataries, for1 all their favors and Judy Takagaki and Karen Young for the introduction to the liberating spirit of El Cholos',; thanks. To Lear Sigler, Inc. for providing the subjects and j jKen Pearson of LSI who coordinated the collection, thanks. I | To my former, present, and yet to be students whose Ismiling faces helped make it bearable, thanks. . To Dad, Mom, Stan, Tom, and Mary for treating me like ; =a sane, normal person throughtout this endever and ! :and Deborah-Maria for her patience, acceptance of my \ absence, and at times semi-rational behavior, I am very j grateful. I TABLE OF CONTENTS CHAPTER 1 - INTRODUCTION A. Budgets B. Product Life Cycle C. Conclusions CHAPTER 2 - CURRENT LITERATURE A. Introduction B. Budgeting 1. Introduction 2. One Function 3. Two or Three Functions 4. Macro Level 5. Summary C. Life Cycle Research 1. Product Life Cycle a. Product Definition b. Process through Stages c. Present Position d. Forecasting Parameters e. Strategy Formulation 2. Other Life Cycle Research a. Nolan b. Greiner c. White d. Churchhill and Lewis D. Summary !CHAPTER 3 - RESEARCH METHOLOLOGY A. Hypotheses B. Subjects , C. Questionnaire | D. Definitions j E. Questionnaire Construction F. Case Construction J “ Gl Analysis of Results 64 H. Pilot Test 67 CHAPTER 4 - RESULTS A. Introduction 73 ! B. Preliminary Testing 75 C. Budget Function Patterns Across PLC Stages 76 ! D. Budget Function Rankings within Stages 78 j ; E. Conclusions 82 I CHAPTER 5 -IMPLICATIONS ! A. Budget Research 84 | B. Budget Decision Process 87 i ' C. PLC Research 89 i i D. Conclusions 91 !BIBLIOGRAPHY 92 .APPENDIX A -TABLES 101 |APPENDIX B - FIGURES 144 APPENDIX C - EXHIBITS 158 APPENDIX D - QUESTIONNAIRE SAMPLE 162 CHAPTER I INTRODUCTION All the world's a stage And all the men and women merely players: They have their exits and their entrances; And one man in his time plays many parts, (As You Like It, Act II, Scene III) Shakespeare in his play, As You Like It, describes the seven ages of man: "the infant, the schoolboy, the lover, the soldier, the justice, the lean and slipper'd pantaloon, and finally the second childishness and mere oblivion." To Shakespeare, the human life consisted of moving from role to role with man assuming the characteristics and physical appearance attributed to each phase of life. Over the years the attributes of the various stages of the human life cycle, from birth to death, have proved to be a challenging subject for scholars, novelists, playwrights, and journalists. Some have focused on the life cycle as a whole, others have focused on its various stages, and some have dealt with the transitions from stage to stage. How people progress and change from birth to death has been examined in depth. Firms are in many ways like humans. Firms are born, live, and die. Just as humans are made of many 1 systems (e.g., circulatory, nervous, respiratory, and skeletal), so are firms (e.g.,accounting, production, sales, and finance). None of these systems, in humans or firms, has any purpose by itself without the other systems which make up the whole. So one would expect the business literature to have examined the question of how firms change as they progress from birth to death. The number of research studies in business on various business life cycles has grown in recent years. Firms have been labeled start-up, growth, or maturity for quite some time. Some magazines are even devoted to just the start-up firm: Entrepreneur and Inc. In marketing research a different life cycle has developed— the product life cycle which examines how a product's needs change as sales grow and time passes. Books have been written on the changing business cycle, Megatrends (Naisbitt, 1982), and on how to organize a large diversified firm, My Years With General Motors (Sloan, 1964). Apparently, researchers and practitioners do recognize the similarities between human life and the life of a business firm. While the firm has been examined as it changes over the course of its life, the functions within the firm have not been studied extensively. How do, for example, approaches to marketing, accounting, data processing, or budgeting change over the life of a firm? Will using the same procedures or goals for a given function work equally 2 welT“throughout—the life of a firm? ~~ In particular, budgeting research has not considered how budgets change over the life of a firm. Managers are asked to prepare a budget for the next month, year, or some other period of time. The firm usually has a procedure for both old and new products which all managers are to follow: generally, the manager gets a sales estimate from the marketing department and determines how to meet its sales estimate. Meeting the sales estimate typically involves preparing various other budgets: production, cash flow, materials, labor, overhead, etc. Budgeting should follow the life cycle research because budgeting is an open system. A closed system is characterized by certainty, a static equilibrium, and little or no exchange of energy from or to the environment. An open system, however, is characterized by growth and survival. It has a dynamic equilibrium and a constant exchange of energy with the environment. An open system is self-regulating, can achieve the same goal from different initial conditions, and can store excess energy for later use. To reflect the results of life cycle research, budgeting research should allow for differences in the budgeting procedures between different types of products or firms. Should budgeting for a start-up firm be similar to budgeting for a General Motors? Humans move from role 3 “to role; as~they age. Does the budget's role similarly change as the product or firm ages? Budgets A budget, as defined by Tosi (1975), is a specification of how and at what rate a manager may expend resources to meet the responsibilities associated with the job. There is general agreement in the budgeting literature that the three main functions of a budget are planning, control, and motivation (Hanson, 1966, Hopwood, 1974, Ronen and Livingstone, 1975, Ronen, 1975, and Barrett and Fraser, 1977). Various definitions of planning exist. In "A Statement of Basic Accounting Theory” (ASOBAT) (American Accounting Association, 19 66) planning is described as a decision making activity involving a four-stage selection of alternatives: 1. Recognizing and defining the problem. 2. Searching for alternative solutions. 3. Evaluating the alternative solutions. 4. Selecting an alternative based on results of evaluation (p. 45). Dermer (1977) defines planning as the process by which an organization solves the problem of determining its relationship with its environment. Planning is an information-collecting and decision making process by which management formulates objectives and goals and 4 chooses the pattern of action to achieve these objectives and goals. Dermer sees planning in two steps: where do we want to go, and how do we get there? Planning, for the purposes of this study, is defined as the development of future objectives and goals and the formulation of steps to achieve these objectives and goals. Control has various definitions. ASOBAT defines control as the "process of ensuring that alternatives chosen are accepted and the plans for implementing them are carried out (p. 45)." Control encompasses feedback on both the quality of the actions taken and the quality of the plans. Anthony and Dearden (1980) break the control process into four parts: 1. Detector or sensor. 2. Selector-compares what is with what should be. 3. Effector-devices to take action if need be. 4. Communications network to transmit information between the above three (feedback)(pp. 3-4). An example of the control process is a thermostat. The thermostat contains a thermometer (detector). The thermostat compares this measurement with the preset standard, the desired temperature (selector). If the preset standard is above the current temperature, the furnace is turned on (effector). The wires connecting the furnace and thermostat and the internal circuitry are the 5 communications network. Anthony and Dearden also delineate three levels of control: management control, operational control, and strategic planning. Management control is the process by which management assures that the organization carries out the strategies effectively and efficiently. Operational control is the process that assures specific tasks are carried out effectively and efficiently. Strategic planning is the process of deciding on the goals of the organization and on the broad strategies used in attaining these goals. In this study, control is the means by which management assures that all parts of the organization function properly and attain the objectives established in the planning stage. The third main function of a budget is motivation. Belkaoui (1980) states "Motivation is related to the intrinsic force within the individual; namely the motives and unsatisfied needs of the individual.... It is concerned with how behavior gets started, is energized, is sustained, is directed, is stopped..."(p. 63). As a motivational tool, the budget conveys information to subordinates about expectations of superiors regarding what constitutes successful task performance and the consequent rewards. 6 Because these three budgetary functions are interdependent (Barrett and Fraser, 1977), motivational effects should be explicitly considered in the planning and control areas. Similarly, knowledge by subordinates of superiors' plans and control styles have motivational effects. The interdependencies are important. Concentrating on one function while not considering the effect on the other two could lead to disaster. An example of this would be trying to budget a research lab for a given number of new products within a predetermined time span. Research results cannot be specifically planned, and expecting such results might demotivate researchers. At the same time, planning cannot be forgotten. The correct balance between the three functions should be found. Most of the writing on budgeting has considered one or two of these areas. Behavior studies deal with motivation, participation, aspirations, and the general reaction of people to budgets. Planning studies deal with how to plan better through the use of mathematical models, regression, simulation, and cost-volume-profit analysis. Control studies have examined the standard cost systems, feedback systems, and cost estimation. Because planning studies are generally quantitative, little attention is paid to the effects on people of these methods. Behavioral studies examine the effect the budget 7 tha~s””on people without considering planning. 1 Budgeting is systemic, and exists within the organization. Budgeting is usually part of the organization's short-range planning and control system. Research on budgeting has been difficult to integrate and results often have been conflicting. A reason for the { confusing results may be that most studies have been done ! jon a micro level, focusing on the individual, not the i system: effects of participation (Milani, 1975 and ; ; I Searfoss,1976), goal difficulty (Stredy and Kay,1966, j i ' Kenis,1979); budget pressure (DeCoster and Fertakis, 1968) | on managerial behavior and attitudes; budgeting ; characteristics as dependent variables focusing on ' independent variables such as manager's personality (Foran : and DeCoster, 1974; Swieringa and Moncur, 1975); and j I . | leadership style of the immediate superior (Hopwood, ' 1972,1974). 1 These studies have conflicting results because a small number of settings were considered. Results are j conflicting because budget behavior and outcomes are | I likely to interact with firm-wide characteristics, such as j * type of organization or culture (0tley,1978, Hopwood, 1978). ! i i The need to integrate results and develop frameworks has I been recognized. A number of contingency frameworks have been published recently in studies drawing on the findings in organizational behavior (Sathe, 1975; Gordon and Miller, T976; Ansari," 1977', 1979; and Waterhouse and Tiessen, ; 1978. They highlight the importance of the characteristics of the organization and its environment to the design and operation of accounting information systems. Little research has been done at the macro level 1 I (considering the entire budgeting system and firm). This lack of research may be attributable to the j difficulty in classifying all firms or products in a I complete and mutually exclusive way. Firm size, industry, j I : age, or type of firm structure are possible alternatives j •for categorizing firms. Firm size may be related to age. | Older firms are often larger, but some old firms are still small. Firms in the same industry may have different i sizes and organizational structures. Different types of organizational structure may be present in a firm of any > I size, industry, and age. While one or more of these ' variables is controlled, other important variables are ! not. Product Life Cycle J I ' One classification scheme that better controls | t ! . I intervening variables and is a complete and mutually j exclusive classification is the product life cycle (PLC). | Products cannot be in more than one stage at a time, and no products exist outside the PLC classification scheme. i The PLC has been used by marketing researchers for 1 years to forecast sales revenues and to plan marketing strategies. The classic PLC curve illustrated in Figure 1.1 is typically divided into four stages: start-up, growth, maturity, and harvest (For ease of reading all Tables, Figures, and Exhibits are in Appendixes A, B, and C at the end of the dissertation). While other researchers divide the life of a product into more stages (Wasson, 1978) or label the stages differently (Cox, 1967, Levitt, 1965) (See Figures 1.2 and 1.3 for examples of each), the basic concept is the same: A product, brand, or industry is born, grows, levels off, and declines or dies. Bringing a new product to the market is risky. Generally, demand has to be created during the product's start-up phase. How long this takes depends on the product's complexity, its degree of newness, its fit into consumer needs, and the presence of substitutes in one form or another. High costs and frequent fatalities are associated with launching new products. Nothing takes more time, costs more money, involves more pitfalls, or shortens more careers than seemingly well-conceived, new product programs (Levitt, 1965). Usually a successful new product has a gradual rise in its sales curve. At some point in this rise, stage two— the growth stage— begins with a marked increase in consumer demand and sales take off. Potential competitors who have been watching jump in. The ensuing fight for the consumer's sales dollars poses problems. 10 ‘ Competitors limit the suppliers' choice of solutions. As new distribution pipelines are opened and filled, factory sales rise more rapidly than store sales, and competition charging low prices because of advanced technology, production shortcuts, etc., moves the industry, firm, or product into the next stage: the maturity stage. First comes market saturation, when most consumer companies or households that are sales prospects own or use the product. Price competition becomes intense. Producers concentrating on holding their own against the competition, appeal tq consumers on price, marginal product differences, or both (Levitt, 1965). When market maturity tapers off and eventually ends, the product enters the fourth stage: harvest. Few firms can weather the competition. Demand decreases and overcapacity, already apparent during maturity, now becomes endemic. Some producers see the handwriting on the wall, but believe with proper planning they can survive. They initiate varied tactics— including proposed mergers or buy outs— to reduce the competition. Production becomes more concentrated? prices and margins drop? and consumers become bored. Time in each stage varies from product to product. The entire cycle can last one year or less (hula-hoops) or many years (cars or televisions). 11 Conclusions The proposed study will consider, at one time, the three budgeting functions of planning, control, and motivation at the macro level. The study proposes to consider the budgeting functions simultaneously by answering the question: Is there an optimal mix of planning, control, and motivation in a given PLC stage? In the growth stage should the major emphasis be on planning, with less emphasis on control and motivation, when preparing a budget? Barrett and Fraser (1977) asked how should the conflicts between the three functions be resolved? The three budgeting functions are interdependent. What Barrett and Fraser did not state or even hypothesize is how they are interdependent or how the conflicts should be resolved beyond some general suggestions. Are there different combinations of the three that will produce better results than other combinations? If so, would changing the situation change the results of the budget? Knowing how to resolve the conflicts in varying situations might lead to better budgets being prepared and better results in terms of the success of the budget in producing the desired results. The literature does not contain any studies which empirically test the interdependence of the three functions. At most, two of the three functions have been varied. Varying all three functions is the next step. 12 The literature also has not examined budgeting at the macro level or budgets as a dependent variable. While most of the empirical work has studied how budgets affect people, this study will examine how each stage of the PLC affects what function or combination of functions is emphasized when preparing the budget. The budget becomes a dependent variable and using the PLC puts the study at the macro level. The use of the PLC is an extension of Savich and Thompson (1978) and Savich and Czyzewski (1984) which used the PLC as an independent variable. Savich and Thompson hypothesized the effects of the stage of the PLC on the balance sheet, income statement, and funds statement. Savich and Czyzewski empirically tested these hypothesised effects. The proposed research addresses three areas largely ignored in the current research on budgets: 1. The interdependence of planning, control, and motivation. 2. The role of the PLC in budget construction. 3. The budget system at the macro level. The remainder of this dissertation is divided into four chapters: l)a review of the relevant literature including research on budgeting and the business and product life cycle, 2)the research metholology including 13 TiKe~“hypotheses to be tested, the methods of data collection and analysis, 3)the results of the data analysis, and 4)the implications of the research results. 14 CHAPTER II CURRENT LITERATURE Introduction This chapter reviews the budgeting and life cycle research. The discussion of the related budgeting studies includes (1) studies which examine a single budgeting function; (2) studies which examine two or more; and (3) macro studies of budgeting which demonstrate the need for a macro study of all three budget functions simultaneously. The review of life cycle research begins with a discussion of product life cycle research in the marketing area. This discussion is constructed around five questions which summarize the areas in which product life cycle research has concentrated. Also four papers (Nolan, 1977, Greiner, 1972, White, 1975, and Churchhill and Lewis, 1982) which present four views of a life cycle will be reviewed. BUDGETING Introduction The budgeting literature can be divided into two broad categories: the functions of a budget and the design of a budgeting system. Research on the functions of a budget selects a (the) function(s) of a budget and 15 determines what the impact is if the levels of the function are varied. Most studies do not consider the impact on other functions of improving one function. Research on the macro level is more recent— post 1977— and largely theoretical. Budgeting research has three perspectives: (1) one function, (2) two and three functions, and (3) the macro level. One Function Many studies propose new quantitative methods to improve the planning function. Bonini (1963) and Mattessich (1961, 1964) used simulation to improve the planning function. Simulation allows many different "what if" questions to be asked and the impact on the budgetary process to be seen. Charnes, Cooper, and Ijiri (1963), Ijiri, Levy, and Lyon (1963), and Jaedicke (1961) used linear programming to improve the planning function. Markov chains were used by Prodhan (1977), Gillespie (1975), Dittman (1978), and Yu and Neter (1973) to model the budgeting decision. All these studies used quantitative methods to improve the planning function without considering either of the two other budgeting functions. Most control studies focused on control to the exclusion of planning and motivation. Dittman and Prakash (1978), Dittman (1979), and Yu and Neter (1973) used Markov chains to determine a control policy. 16 The decision to investigate a cost process depends on the reported amount exceeding some critical value. Dopuch, Birnberg, and Demski (1967), Samuels (1965), Bernhard (1965), Demski (1967), and Kaplan and Thompson (1971) ail used linear programming to compute variances used to control people and processes. Bodnar and Lusk (1977), Shishai, Hopwood, and Hermanson (1977), and Lin (1979) used goal programming, a variation of linear programming, to evaluate and compute variances. Milani (1975) tested motivation by examining attitude toward job, company, and performance. Searfoss (1976) and Swieringa and Moncur (1972) also tested motivation in a budgeting situation. Searfoss found that participation influenced motivation. Swieringa and Moncur found a relationship between attitude, and tenure in the position and budget-oriented behavior. Characteristically, studies in each area assumed the budget as a given and tested its effect on something else. How does a budget affect a variable? The studies did not manipulate the variable to see how the budget might change. The studies did not test the budget as the dependent variable and planning, control, or motivation as the independent variable. The success of a budget (B) is dependent on planning (P) , control (C) , motivation (M). e is an error term. 3=bp+bc+bM+e and not B=F(P,C,M). If budget success is a 17 “ function, all three budget functions are equally important. There is no need to have different methods of constructing budgets. If a regression equation explains the budgeting process, the weights of importance attached to the different functions could be different. The importance of each function could change from situation to situation. Two or Three Functions Some studies have looked at more than one function at a time and studied the effect of varying the two functions on the budget. San Miguel (1977) attempted to overview several relevant areas of behavioral science literature concerning managerial accounting. He reviewed on three levels--individual, small group and organizational— and concluded that the study of individual and group behavior is inseparable from the study of organizational behavior and vice-versa. More research is needed on the impact of organizational and environmental variables on effective management planning and control systems according to San Miguel. Otley and Berry (1980) examined discussions of accounting control which, according to them, take place jagainst a backdrop of incomplete and outmoded theories of organization and simplistic and authoritarian concepts of control. They proposed a cybernetic model of control as an improvement. Bruns and Waterhouse (1975) examined the 18 effect of organization structure on budgeting and found budget-related behavior contingent on various aspects of organizational structure, such as centralization, autonomy, and the degree to which activities are structured. They concluded that there must be alternative organization control strategies in different kinds of organizations. Barrett and Fraser (1977) recognized the problem with the conflicting roles of the budgeting functions (Figure 2.1). A budget must meet a variety of needs and each need demands a different role of the budget. For planning purposes a budget needs to be realistic, what is the most likely outcome. This enables managers to respond to given circumstances better. Without this characteristic, reasonable plans cannot be made. For control, the budget must be adjusted to reflect the changing environment. For a budget to motivate, it must be difficult yet attainable (Garrison, 1983). The authors offer several methods to reduce these conflicts: rolling budgets, revised forecasts during the year, and the use of ex post facto budgets. They go further in that they recognize all three budgeting functions, attempt to reconcile all three, and state that the importance of each of the budget functions may vary with the level of organization. These studies either do not examine all three functions at once or in the case of Barrett and 19 Fraser (1977), do not empirically test the relationships. The existence of interdependencies is only stated; it needs to be explored. The connection between budgets and the outcome they produce is still unclear. These studies show the need to consider organizational factors in budgeting. Macro Level This section examines the budgeting research that has been done at the macro level. Such discussion is necessary because, despite previous research, the nature of the relationship between budget systems and the outcomes produced is unclear. Few uses appear to produce similar results. Much of the research is untested models of the process based on contingency theory: The right solution to a problem depends on the given situation, but what is right for one situation may be wrong in another. Ansari (1977, 1979) argues for an open systems approach to budgeting. Closed systems are characterized by certainty, a static equilibrium and little or no input from the environment. A open system creates a system whose future states are determined by existing states. Open systems are characterized by growth, survival, dynamic equilibrium, and constant import and export from the environment. Ansari further argues that since World War II, new and more complex organizational forms have come into being, creating the need for firms to adapt the 20 open system approach. NASA (the National Aeronautics and Space Administration) is an example. NASA was one of the first organizations to use matrix organization. Teams were built with personnel from each operation— manufacturing, sales, accounting, legal, etc.— to work on a specific project or problem. Waterhouse and Tiessen (1978) used contingency theory to develop a model for the comparative analysis of organizations. The model identified control requirements of various organizational types, and addressed a number of related management accounting systems design issues. They agreed that the budgeting system must match the particular organization it is in and discussed some implications of their conceptual scheme for the design and use of management accounting systems. Banbury and Nahapiet (1979) tried a different approach to the same problem. They proposed that the antecedents and consequences of management accounting systems need to be studied. Only by knowing what came before and the consequences of those systems can a new system be designed to fit the changing firms. Banbury and STahapiet believed that how a system develops is important and may help explain its impact on the firm. The next two papers consider one more variable besides the environment and the firm. This extra variable is the person using the system (Figure 2.2). The individual using 21 the system is contained in the Decision Making box. How does the decision making style used by a person affect the information system being used? Gordon and Miller (1976) proposed the framework in Figure 2.2. They stated that most research has taken a narrow view of accounting information systems. They proposed a new framework to provide a broader and more adaptive method for designing accounting information systems. Mealiea and Lee (1979) also took the individual into account when designing a system. They believed that people have become preoccupied with matching the design of the organization to the environment. They believed that matching the organization with the workers will allow better selection and training of employees. Summary Current budgeting literature can be divided into two broad categories: functions of a budget and how to design a budgeting system for a given firm. There is general agreement on the three functions of a budget: planning, control, and motivation. None of the studies are empirical. Some work has been done using contingency theory to design budgeting systems. Most argue the firm's environment should be considered in system design. A few articles argue for the inclusion of the individuals using the system in the design of the system. Unlike previous studies, the present study will examine the 22 interdependence of the three budget functions and observe their change as the environment and stage of the PLC changes. LIFE CYCLE RESEARCH Product Life Cycle Substantial empirical research has been conducted on the PLC, covering various facets of business enterprises. The concept has an enduring appeal because of the intuitive logic of the sequence based on a biological analogy to man. However, the simplicity of the PLC leaves it open to criticism. Most of these criticisms are based on five issues: 1. How should the product-market be defined for the purposes of cycle analysis? 2. What are the factors that determine the progress of the products through the stages of the life cycle? 3. Can the present life cycle position of the product be unambiguously established? 4. What is thepotential for forecasting the key parameters includingthe magnitude of sales, the duration of the stages, and the shape of the curve? 5. What role should the product life cycle concept play in the formulation of competitive strategy? (Day, 1981, p. 60). The following sections provide insights into these issues. The studies also lend support to the emerging 23 consensus that the PLC represents the outcome or summary of numerous forces present in the marketplace. Product definition. The proper level of aggregation or product-market definition that should be used in PLC studies ranges from all to one. The all position states/' look at all levels/' on the grounds that each level gives different insights. Generic classes cannot be used alone because they serve such enduring needs that meaningful trends are not usually apparent. Product forms by themselves are so volatile that making any judgment accurately is difficult (Dhalla and Yuspeh, 1976). The one-level position includes those who argue that the only level managers can control is the brand level, so that is the level PLC should be using (Enis, La Garce, and Prell, 1977). Abell (1980) provides a useful answer to the level question by defining a product as the application of a distinct technology to the provision of a particular function for a specific customer group. Thus, while Tide is considered a product, nylon as a multiple function material is not. Each application of nylon, carpeting, tire cord, and hosiery would be analyzed as a different product using the PLC. Process through stages. The factors underlying the PLC (i.e., level of advertising, research and development, and competition) that determine its parameters have been studied. Most work has suggested 24 that, while most of the factors operate during several stages, the importance of each factor changes as products move from stage to stage. The rate of diffusion affects how long a product stays in the start-up phase. Diffusion is affected by the perceived advantage of the new product over the old product, the perceived risk of a negative outcome, and information and availability (Zaltman and Stiff, 1973). Midgeley (1981) showed that the shape of the life cycle curve could be explained by the ratio of mean adoption time to mean interpurchase time. The mean adoption time is how long it takes a person to purchase a new good for the first time , from the time it is first introduced. The mean interpurchase time is the period of time that passes between purchases of the good by one person. Bass (1969) applied regression analysis to eleven consumer durable products. R2 values were high, correlating with Bass' PLC model. Bass concluded that "the timing of a consumer's initial purchase is related to the number of previous buyers. The model yielded good predictions of the sales peak and the timing of the peak when applied to historical data" (p. 215). Qualls, Olshavsky, and Michaels (QOM) (1981) provided an analysis of changes in the length of the introductory (start-up) and growth stages of the PLC. QOM used thirty-seven household appliances over a fifty-year 25 period which provided the first empirical evidence for the commonly held assumption that the product life cycle's length is decreasing. Present position. The position of the product in the life cycle is difficult to determine. Problems are caused by the sensitivity of the analysis to the choice of measures (Wind, 1981). What unit should be used— unit volume, current or constant dollar total revenues or per capita consumption— to measure sales? What effect should current economic conditions have? The variety of possible life cycle patterns also can cause difficulties. More than one type of PLC sales curve has been identified in the literature. Forecasting parameters. Tigert and Farivar (1981), using the model developed by Bass (1969), forecasted quarterly and annual sales of optical scanning equipment for U.S. supermarkets. They found the model robust under conditions of appropriate data from the relevant time frames, but the model did not correctly predict sales in subsequent time periods. Harrell and Taylor (1981) provided support for the contention that the PLC of a new consumer durable goods product can be simulated with reasonable accuracy assuming various causal marketing conditions. A model was derived from housewares and electronic consumer goods having diverse life cycles. The model was validated using both 2 6_ the products used to construct the model and relatively new products not used to construct the model. Strategy formulation. The role of the PLC in the formulation of strategy was explored by Kotler (1965). He demonstrated that by following PLC concepts firms may effectively eliminate weak products from their product lines. Kotler also outlined several workable plans to increase the effectiveness of a firm's product selection. Davidson, Bates, and Bass (1976) defined four distinct phases facing retail firms, citing examples in each phase. They concluded with advice to "stay flexible, analyze risks and profits, attempt to extend the maturity stage, and emphasize research" (pp.95-96). Thorelli and Burnett (1981) examined the market structures, performance, and strategies of over 1000 industrial businesses. They found that the growth rate of industrial products was one factor of the PLC. Other variables showing PLC behavior included market innovation, market concentration, competitive entry, and spending on R&D and marketing. Tellis and Crawford (1981) proposed that the adaptive view of the life cycle is consistent with comprehensive theories of biological evolution and that the birth to death analogy often used in the PLC was wrong. Sproles (1981) demonstrated this perspective by proposing an integrated theory of short and long-term fashion 27 acceptance. The evolution perspective is not incompatible with the PLC. Tellis and Crawford and Sproles are saying that the PLC is not a smooth curve but, one with dips and bumps. As a product starts to decline it is changed to suit new consumer needs. This may happen many times over the life of a product. PLC researchers agree with this perspective. Savich and Thompson (1978) documented the introduction of a PLC Budgeting System into Lear Siegler, Inc., a Fortune 500 firm. They stated that a PLC Budgeting System is an improvement upon the traditional budgeting process because underlying assumptions, employed in any budgeting system, depend on a product's stage, start-up, growth, maturity, or harvest: "...Revenues, capital expenditures, department expenses, cash flows, and pertinent financial statements are distinctive at each stage of a product's life cycle" (p. 35). Characteristics of an income statement balance sheet, and statement of changes in financial position that can be expected in each state of the PLC, according to Savich and Thompson, are shown in Tables 2.1, 2.2, and 2.3. In the start-up phase sales are low or nonexistent, and many costs are expended. Market research, product development, and capital expenditures to provide technical development capabilities are high. Property, plant, and 28 equipment requirements grow at an increasing rate to meet long-range projections of market demand. When budgeting for expenses, firms should plan for high market research for testing of market strength and high engineering expenses to develop successful prototypes. Compensation is a high variable expense, tied directly to sales. When moving to the growth stage managers should be aware of several pitfalls that are encountered frequently: a negative cash position, low working capital, and a high inventory turnover (due to low inventory balances). Earnings are not high because profits lag behind sales. Return on assets employed is at its lowest point. These indicators lead directly to the growth stage. If a marketable product is developed, then the growth stage is entered. The budget during this stage should reflect rising revenues with related promotional costs as well as costs of production. Costs related to technical efficiencies and refinement of production also rise. Accounting information system and organizational development expenses rise to allow for greater control and to provide early warning systems. Production capacity and production asset purchases are increased because of rising orders. Earnings start to improve, but cash flow is low or negative until the end of the growth stage due to reinvestment requirements. 29 In the mature stage most budgeted amounts are stable. Historical data can usually be used to predict future cost budgets. Standards have been established to aid budgeting, compensation is stable, research is devoted to cost cutting areas, and earnings are showing a long-run profit margin in this stage. Most managers budget as if they are in this stage. The differences seen so far demonstrate how this mistaken belief can cause problems. Managers like to prolong this stage as long as possible because it is so easy to plan for and produces a large net income. However, the declining market will eventually be reached, and sales will diminish. In the harvest stage the process of disbanding operations provides revenues through sales of equipment, reduced costs of personnel, and the lack of need for new facilities. The organizational structure is that of pared-down operations using a command structure which is awaiting the inevitable. Orders which meet variable costs are often accepted, but the earnings are low and follow sales directly. The return on assets is high because of the diminishing asset base. The organizational characteristics in each stage are different. In the start-up stage entrepreneurial types who deal with free form organizations using qualitative measurements take precedence. Market research and product development are predominant. The growth stage has a 30 managerial style which institutes a more formal system of marketing, production, and accounting. In the mature stage an administrative type takes over. All systems are in existence and monitoring becomes of primary importance. As sales decline, a manager who can face the hard facts of disposition needs to take command. Purchases and production must be tied to sales. As can be seen each stage of the PLC has its own unique and distinct characteristics. Each stage requires a different emphasis. Managers cannot budget as if all products are the same. The differences must be recognized and taken into account when budgeting. A PLC budget could do this. Savich and Czyzewski (1983) empirically tested the model proposed by Savich and Thompson. The results of Savich and Czyzewski give credibility to the fundamental tenets of Savich and Thompson's PLC models and the soundness of applying PLC concepts to budgeting procedures and techniques. Tables 2.1, 2.2 and 2.3 describing the expected financial statement account behavior, provided the basis for the research questions. Expenses and revenues recorded by LSI in its internal accounting reports provided the data base for analysis. LSI provided data for 153 products through five fiscal quarters, 7-1-78 to 9-30-79, a total of 918 observations. __________31 Sales, costs, and asset composition were reported for each product for each quarter. The income statement accounts included 1. Sales 2. Cost of Goods Sold 3. Advertising Expense 4. Administrative Expense 5. Net Earnings The balance sheet items included 1. Accounts Receivable 2. Inventory 3. Fixed Assets 4. Other Assets For some products, cost of goods sold was separated into 1. Material 2. Labor 3. Overhead Each product was identified by its stage of the PLC by LSI. To reduce the impact of bias present in the raw data, financial ratios were used to depict the characteristics of each stage of the PLC. The ratios were categorized into three groups. 1. Income Statement a. Cost of Goods Sold/Sales b. Gross Profit/Sales c. Advertising Expense/Sales d. Administrative Expense/Sales e. Net Income/Sales f. Material/Cost of Goods Sold g. Labor/Cost of Goods Sold h. Overhead/Cost of Goods Sold 2. Balance Sheet a. Accounts Receivable/Total Assets b. Inventory/Total Assets c. Fixed and Other Assets/Total Assets 3. Combined Analysis a. Net Income/Total Assets (Return on Assets) b. Sales/Total Assets (Asset Turnover) c. Cost of Goods Sold/Inventory (Inventory Turnover) d. 3 65 days/inventory Turnover (Conversion Period) e. Sales/Accounts Receivable (Receivable Turnover) f. 3 65 days/Receivable Turnover (Collection Period) Table 2.4 presents the hypothesized relationships of each of the ratios. Two analyses, the mean ratio method and ratio of sums method, were employed to compute ratios accepted as representative of the financial characteristics of the PLC stages. M, the mean ratio, is defined as the arithmetic mean of the ratios calculated for all the products in a specified stage. Where x is the gross profit and y is sales, r^j=X^j/Y^j represents the gross profit percentage for product i in stage j, then Mj equals the mean gross profit percentage for stage j. The formula for Mj is where n equals the number of products found in stage j. Since seventeen ratios were used in the experiment, seventeen Mj's were calculated for each stage. S is defined as the ratio of the sum of all X^j's divided by the sum of Y^j's. The formula of Sj is The data were divided into two groupings. The two groups were required because (a)some of the data supplied by LSI exhibited unique internal accounting procedures which did not conform with external generally accepted accounting principles and (b)not all of the product data contained a breakdown of costs of goods sold into material, labor, and overhead. The ratios were calculated, the results are summarized in Tables 2.5 and 2.6 with projected trends to facilitate comparisons between the trends and ratios. The ratios which conform to the trends expected are noted with an asterisk. Conformity is measured by the shape of the curve of the ratio over the PLC. Ten ratios calculated using the mean ratio method were found to be in conformance with the trends predicted for them, while nine ratios computed using the ratio of sums method were found to be in accordance with the projected trends. The authors state that the results establish firm support for Savich and Thompson's model of cost behavior. The substantiation of the majority of the ratios analyzed is strong evidence in favor of the model, particularly in view of the difficulties encountered with the data— LSI's internal accounting procedures. They further state the results clearly establish the validity of the fundamental tenets of Savich and Thompson's PLC model and the soundness of applying PLC concepts to budgeting procedures and techniques. Savich and Czyzewski contribute to this dissertation in two areas: l.Using the PLC to classify products and 2.Empirically testing budgeting differences across the stages of the PLC. Savich and Czyzewski show that the ratios change in accordance with the PLC model. These articles represent some of the work done in the PLC area. They serve to supply the groundwork upon which this research is based. Recognition of the aforementioned product stages is critical to a company's success. The current research includes documented evidence of one corporation and its successful adoption of PLC concepts. Other Life Cycle Research This section will review four papers (Nolan, 1977, Greiner,1972, and White, 1975, and Churchhill and Lewis, 1982). Which present a type of life cycle research different than the PLC. Nolan discusses how data services grow and evolve. He covers the various stages and the problems of each. Greiner in his article examines organizations as a whole. How do firms change as they grow larger and older? Greiner maintains that growing organizations move through five distinguishable phases of development. Each of these stages contains a relatively 35 realm''period of growth that ends with a management crisis. ! ,White examines Federal agencies and how they adopt or develop management science groups. In the adoption of 'management science groups, agencies go through several ddentifiable stages. How ideas are adopted seems to depend; ; i on how new the idea is. Churchill and Lewis take a | i i particular type of firm, small and owner operated, and ;develop a framework of development. I ' i I j Nolan. He states that an organization's data services ! 'can be considered in one of four stages: initiation, : ^contagion, control, or integration. Table 2.7 shows the attributes of each stage. ! Initiation is when the computer is first introduced j ( i into a firm. The objective is to get the computer up and i ! j running. The computer is seen as a black box which does ! tedious, highly repetitive clerical jobs. I i [ Contagion is when the use of the computer is j ; I broadened into the operations area. Programmers and j i analysts still run the department for the most part. | \ i Users are not involved in applications design and are not | enthusiastic about the data services department. Control occurs when it is realized, by management, that the data processing department is out of control, and needs to be brought back under control. The data processing function is centralized, as opposed to the ! ; i i decentralized approach in the first two stages. Users 36 . . j become more interested because they are now being held accountable for their share of data processing costs. Integration is when data processing is thought of as part of the business, not just a service department. Users have become more involved in the applications, use, and budgeting of data processing. Definite standards are set for the data processing department. A summary of the characteristics of each stage is presented in Table 2.7. The article is based on a study conducted by Nolan in eighteen organizations. Four were banks with assets ranging from $1 billion to $8 billion. Sales in the remaining firms ranged from $50 million to over $6 billion. Data processing budgets ranged from $750,000 to $12 0 million for an aerospace company that commercially sold computer services. Presentation of how a data processing department grows and changes over its life is an example of a life cycle approach other than the PLC. The start-up, growth, and maturity stages in Nolan's model match the first three stages of the PLC. Unlike the PLC, however, there is no end or death to the data processing department; it continues in the integration stage. Greiner. He proposes a model of organizational growth with five distinguishable phases. Each phase has an evolution and revolution section. Evolution is defined as "prolonged periods of growth where no major upheaval _____________________3 7 occurs in organization practices" (p. 38). Revolution is defined as "those periods of substantial turmoil in organization life" (p. 38). The five evolutions and four revolutions and their relationship to each other are shown in Figure 2.3. The five evolutions are creativity, direction, delegation, coordination, and collaboration. The four revolutions are leadership, autonomy, control, and red tape. White. He examines Radnor and Rubenstein's model of the development of management science activities in U.S. business. Radnor and Rubenstein proposed a phase model of the integration of management science into an ■ < ? organization. In their model integration takes place in a sequence of life cycle phases. There are four phases to the model (Figure 2.4). First, there is a prebirth phase. Two activities may occur in this phase. Key managers in the organization become aware of management science, and some begin to advocate the initiation of management science activities. At the same time mathematically trained staff may, on their own, try to conduct preliminary management science work. The prebirth phase is followed by the birth phase in which the activity is organized as a formal unit and its members go to work. This is a period of aggressive, almost missionary, behavior in which management science analysts undertake ambitious projects and try to convert 38 managers to a belief in the efficacy of management science. Eventually a decline sets in. Management science analysts are not particularly successful in getting their projects completed and results implemented. They change their pitch and try to sell smaller, less ambitious projects. There is an overall decline in the professional quality of the staff, as well as the sophistication and scope of their work. This decline may continue all the way to the death of the staff. Another alternative is the staff may survive its troubles. Key professionals are replaced. The scope and sophistication of projects gradually increase. The relationship between the management science staff and its clients is not that of a missionary salesman to ignorant natives; rather, the role of the management science analyst is accepted as one involving changes based on new technologies. This is a phase of maturity in which management science has a stable relationship with the organization. The key idea in the model is that of an initial surge of management science activity, followed by a decline which leads to the death of the group, or to eventual recovery leading to maturity (Figure 2.4). The model was found lacking by White in early interview data. The Radnor-Rubenstein model appeared to 39 fit roughly some of the government management science activities but not to fit others. For many of the activities the expected up and down pattern graphed in Figure 2.4 was not found. Instead, these activities seemed to develop gradually and monotonically in size, technical capability, and acceptance. The tentative conclusion was that there were two distinct patterns in the development of management science activities in organizations. The discovery of two patterns implied that a model with more phases might more adequately describe the development of management science activities. To this end, White proposes five variables to base his model on. These five variables describe salient features of the management science activity, its host agency, and the relations between the two. Together, White says, they describe the state of a management science activity at any given time. The variables and their levels are summarized in Table 2.8. The variables are used to define the phases of the model of management science development. The phases are shown in Table 2.9. A pictorial representation of the model is shown in Figure 2.5. Data consisting of 1,100 pages of interview transcripts and 1,500 pages of questionnaires was collected. The data was collected from forty-six groups in thirty-seven Federal civilian agencies. Patterns which emerged from the data supported White's claim that there were two distinct patterns of development of management science activities in Federal civilian agencies. Twenty-two of the thirty-three activities were easily classified as following one of the two patterns in Figure 2.6. Eight followed one pattern, then the other. Three of the activities had even more complex patterns. White concluded that the adoption of an activity in the early years of diffusion is characterized more often by revolutionary activity and in later years more often by evolutionary activity. Revolutionary activity is characterized by aggressive actions toward the adopting agency, stretching the adaptive capacity of the host, and conflict and controversy. The evolutionary process is characterized by gradual development of the innovation responsiveness to organizational parameters, and little conflict between the innovation and adopting agency. The adoption of innovations in a family of organizations goes through a series of patterns. The age of the innovation determines how it is accepted or adopted by the organization. The younger the innovation the more revolutionary the process of adoption will be. As the innovation ages, the evolutionary adoption process takes over. As time passes the adoption process becomes shorter. The adoption process goes through a life cycle for each innovation. 41 Churchhill and Lewis. They take a particular type of firm, small and owner operated, and propose a five-step framework of development: existence, survival, success- growth or success-disengagement, take-off, and resource maturity (Figure 2.7). In the Existence Stage the main problems of the business are obtaining customers and delivering the product or service contracted for. Companies in the Existence Stage range from newly started restaurants and retail stores to high-technology manufacturers that have yet to stabilize production or product quality. In the Survival Stage the business has become a workable business entity. It has enough customers and can satisfy them enough to keep them. The main problem of the Survival Stage is cash flow. Can the firm generate enough cash to continue operating and earn an economic return on assets and labor? Examples are mom and pop stores and manufacturing companies which cannot get their product or processes sold as planned. The Success Stage can go either of two ways — disengagement or growth. In the Success-disengagement stage, the business has grown large enough to require functional managers to take over certain duties performed by the owner. As the business matures, it and the owner move increasingly apart. This is due to the owner's activity elsewhere and/or the presence of other managers. 42 The Success-growth Stage is where the owner becomes more involved in the firm. The owner consolidates resources and borrowing power of the firm and risks it all in financing growth. In the Survival and Success- disengagement Stages, managers were hired for the current condition of the firm. In the Success-growth Stage, managers are hired for the future conditions of the firm. The fourth stage, Take-off, occurs if the Success- growth Stage is successfully navigated. The problems faced in the Take-off Stage are growth and financing. Can the owner delegate responsibilities to others to improve managerial effectiveness? Will there be enough cash to satisfy the demands of growth? The last stage, Resources-maturity, requires the consolidation and control of the financial gains brought on by rapid growth. Also the flexibility and entrepreneurial spirit of a small firm need to be retained. Figure 2.7 summarizes the management style, organizational structure, types of systems present in the firm, major business strategy, and relationship of owner and business for all five stages. Figure 2.8 is a decision tree of how a small owner-operated business can proceed through the stages. Figure 2.9 also lists several factors and how they change over the five stages. As the business grows the owner's ability to perform all the business 43 functions decreases. The firm's need for cash changes as the firm progresses through the stages. So not only has the life cycle of firms in general been researched, but also a particular type of firm, small owner operated. Churchill and Lewis show the interest in life cycle research in business entities. The paper provides support for non-physical needs of the firm to change (owner delegation, and matching of owner and firm goals and objectives). The paper also illustrates the need for empirical evidence to support, alter, and/or improve the present untested frameworks. There is still much to learn about the processes of development in organizations. Nolan, Greiner, White, and Churchhill and Lewis's studies are a start in another form of life cycle research outside the PLC. The PLC examines a product or market, Nolan examined the life cycle of a function, data processing; Greiner examines a broader form, the firm in its entirety; White examines the adoption process in Federal agencies; and Churchhill and Lewis propose a model of development for a small owner- operated firm. SUMMARY This chapter has covered two areas: budgeting and life cycle research. These two areas have shown that the research question to be answered is a valid question, because the question goes one step beyond present ___________________ 44 budgeting research and adds to the life cycle research. The research question being: Does a manager's perception of the relative importance of planning, control, and motivation for a budget's perceived success change over the various stages of the Product Life Cycle? The budgeting literature does not examine the three budgeting functions at one time. Barrett and Fraser (1977) say the three functions are interdependent, but offer no empirical proof on how they are interdependent. The macro studies done in budgeting also offer no empirical evidence. The proposed study will examine all three functions at one time at the macro or system level. The PLC section reviewed the literature in answer to five questions posed by Day (1981). The most important question in terms of this research is, "What role should the PLC play in the formulation of competitive strategy?" How should a firm structure a budget in terms of planning, control, and motivation in the different stages of the PLC to maximize the firm's success in terms of the firm's goals and objectives. The PLC could be used to construct better, more goal- and objective-achieving budgets. The papers by Nolan, Greiner, White, and Churchhill and Lewis show a need to expand the research in this area, outside the PLC. The papers also demonstrate that the concept behind the PLC can be used in other fields to predict behavior of managers. The biological concept of 45 birth, life, and death can be extended outside of products, to systems within a firm or the firm itself. 46 CHAPTER III RESEARCH METHODOLOGY Introduction This chapter contains an explanation of how the research question is tested. First, the two sets of hypotheses to be tested are explained: One set concerns the change in importance of the budgeting functions over the stages of the PLC; the other set focuses on the rankings, in order of importance, within each stage of the PLC. Second, the subjects used in the study are discussed. The third section examines the questionnaire, including design and the definitions of the four stages of the PLC, planning, control, and motivation. The final section explains the statistical techniques used to analyze the results. Hypotheses Based on the literature review, the following hypotheses are proposed. The hypotheses represent a model to be tested. The first set of hypotheses are contained in Figure 3.1. It is hypothesized that the importance of each function will follow the graphed curves. The rationale behind the curve for each of the three budget functions is explained next. The first budget function, Planning, starts out low in the start-up stage because managers are more concerned 47 "with getting the product made and sold than with planning what to do. Most planning is a reaction to the market place. What does the market say to do? The start-up stage is entrepreneurial. In the Growth stage, planning becomes more important as production capacity and employees grow in number. The increase in size calls for better planning. In the Maturity stage, planning's importance increases as more competitors enter the market and prices drop. Investment in the product peaks. In the Harvest stage knowing when to drop a product and how to drop it requires careful planning. Getting out of the market too late can cost money because unsold inventory piles up and extra money is spent storing and attempting to sell the inventory. Getting out too soon can lead to a large opportunity loss as competitors make sales the firm could have made. The hypothesis for how Planning changes over the PLC is ps<pg<pm<ph Where P is planning. The subscripts are the stages of the PLC (s-Start-up, g-Growth, m-Maturity, and h-Harvest). The next budget function, Control, starts out low in the start-up stage. Concern here is for making and selling the product. If too much control is used, creative processes needed in the start-up stage can be impeded. If the product is reacting to the market-place, control could 48 cause a response delay. As more money and personnel are used in making the product, control grows more important in the growth stage. In the maturity stage, control must be at its highest point. The product must be manufactured at the lowest cost with the highest quality possible to counter a large number of competitors, dropping prices and intense competition for sales. In the harvest stage, the need for control decreases slightly as market size shrinks and competitors drop out. But, a significant amount of control is still necessary because timing is very important. The hypothesis for how Control changes over the PLC is cs<cg<cm>ch Where C is control and the subscripts are the stages of the PLC. The third budget function, Motivation, must be greatest in the Start-up stage when long hours are worked for few, if any, results or rewards. Employees must be motivated because sales are low and the results of their work are hard to see. In the growth stage, the need for motivation drops slightly as rapid sales increases motivate employees. The need for motivation is lowest in the maturity stage when procedures have been implemented and employees know what is expected of them. In the harvest stage the need for motivation increases because employees know the product is going to be phased out, and they need some incentive to keep working efficiently. The hypothesis for how Motivation changes over the PLC is Ms>Mg>Mm<Mh where M is motivation and the subscripts are the stages of the PLC. The curves in Figure 3.1 represent the importance of planning, control, and motivation hypothesized to change over the PLC. The second set of hypotheses rank planning, control, and motivation in order of importance within each stage of the PLC. If a manager has X amount of time to spend on improving the budget, how should he/she allocate the time available between the budget functions. In the first stage— start-up— motivation is the most important function of a budget. It is difficult if not impossible to control or plan the creative processes occurring during the start-up stage. If the budget emphasizes planning or control, the creative process could be hampered or stopped. In the Start-up stage, many of the results come after a great deal of effort and time. Motivation is needed to keep the creative process going. Planning is the second most important function. In the first stage, knowing where you want to end up is more important than how you are going to get there. The firm may know it wants a certain type of product but not know when or how it will get that product. The hypothesized ranking of Planning, Control, and Motivation in the Start- 50 up stage is Ms>ps>cs In the second stage— growth— control becomes the most important function, followed by motivation and planning. As the resources dedicated to the product increase, the need to control the spending on these products also increases because rapidly increasing sales may lead managers to overspend. Procedures and cost standards are put in place during the growth stage. Since the procedures will have a long term effect— they will remain until the product's death— implementation must be tightly controlled. Motivation is slightly more important than planning in this stage. New employees added to increase production do not appreciate what it took to get to this point. They are not as motivated by the increasing sales as the old employees. Planning is still fairly simple in this stage: How much can we or do we want to sell and can we build the production capacity to produce that amount? The ranking of Planning, Control, and Motivation in the Growth stage is C_,>M_r>P-r g g g In the third stage— maturity— planning and control are equally important, and both are more important than motivation. Planning and control are so important because of increased competition. The need for plans, strategies, and making sure that the plans are achieved is important. This stage has a risky environment characterized by increasing competition, decreasing prices, and product modifications, etc. Alternative strategies must be considered and plans must be followed if success is to occur in the maturity stage. The ranking of Planning, Control, and Motivation in the Maturity stage is pm=cm>Mm In the last stage— harvest— planning is most important. Control is slightly less important and motivation is the least important. Planning is so important because coordination is necessary to get out of a market without incurring a large loss. If the market is left too soon, there is an opportunity loss, and the competition benefits. If a market is left too late, actual losses will occur, from inventory storage costs to scrapping or selling obsolete goods at a loss. Control is less important than planning because there is little chance of losing a great deal in this stage by missing a target by a small amount. Small unexpected cost overruns will not cost a great deal because small numbers of sales are being made. Resources involved are small, and a small deviation in when they are sold will not cause a material loss. Large deviations, however, will become important. Motivation is least important because the product is dying and employees are being shifted or fired. The ranking of Planning, Control, and Motivation in the Harvest stage is 52 ph>Mh>ch The rankings of planning, control, and motivation in the four PLC stages are given in Table 3.1. Subjects Subjects are division presidents and vice-presidents in a Fortune 500 firm which has used the PLC in its budgeting process for approximately six years. The firm manufactures a variety of goods including electrical instruments, hearing aids, and ironing tables (See Table 3.2 for a complete listing). Division assets range from $5 to $33 million. Division sales range from $13 to $85 million. The divisions report to headquarters on a monthly basis. Headquarters lets the presidents run their own divisions. The corporate staff is small. They provide help or support when asked to. Budgets are prepared by the divisions. Headquarters approves or disapproves the final product, not individual line items. Because the managers selected have budget responsibility, the task is familiar to them. A minimum of twenty subjects from the Los Angeles area were obtained. Subjects were selected by the firm and randomly assigned to categories to control for any intervening variables. Random assignment to treatment categories is one way to control for outside influences that may occur by letting the firm select the subjects. Any intervening variables are randomly distributed to all treatment groups. So if there are any idiosyncracies, they 53 are equally distributed among the groups (Cook and Campbell, 1979). A minimum of ten managers not using the PLC in budgeting were used as a control group. These managers will have approximately the same level of responsibility as the treatment subjects. The control group was drawn from the USC Excutive MBA Program. This program is for mid career managers with senior executive responsibilities or individuals who have been selected by their firms to advance to these positions within the next three to five years. Questionnaire A questionnaire was used to gather data. Certain terms, used in the questionnaire, need defining: the four stages of the PLC, the levels of planning, control, motivation, and budget success. How these terms are defined in this study will have an impact on the results. The four stages of the PLC— start-up, growth, maturity, and harvest— are defined using the criteria in Table 3.3 to write a product description. These criteria are used by the firm to classify products so the subjects should be familiar with them. Definitions The four stages of the PLC are defined in the questionnaire by products— widget, yanger, dinger, and gimzo. Products instead of PLC stage names were used so ________ 54 as not to lead the subjects and bias the results. Start-up The widget is just being introduced to the market. The widget is not a redesign of an old product, but a new product concept being introduced by a division. The widget's dollar volume of sales is low, but projections show large percentage increases— 50% or more— for the next two or three years. The Marketing department is concentrating on gaining customer acceptance since there are few direct competitors to the widget. There is frequent redesign and modification of the product by the marketing department. Financially the widget is absorbing cash and not producing a net profit. Gross profit is low due to high production and engineering costs. Growth The yanger has experienced major growth recently. Its technology has been accepted by the market. There have been high percentage growth rates, 25- 50%, during previous fiscal periods and 15-2 0% during recent periods. The number one objective for the yanger is gaining market share and expanding marketing and production capacity to meet the increased market share. No dominant producer has appeared yet in the yanger's market. The competition is increasing as new competitors enter the market. The gross profit percentage has been increasing due to volume increases and operating efficiencies. The yanger's cash flow has gone from negative to being relatively high. Return on Assets before tax has gone from zero to around 15% recently. Maturity The dinger has been in a stable market for approximately five years. The market has a lot of competitive maneuvering, but a general state of normalcy exists. The dinger's growth rate has fluctuated between 8 and 15 percent over the past five years. The main emphasis is on cost cutting and efficiency. Profit maximization is being emphasized as gross profit has stabilized. There is a dominant producer in the dinger's market. The price had dropped significantly previously, but lately has stabilized. Because of projected labor and material cost increases, the dinger's price is projected to increase. Because of a general state of overcapacity in the market, smaller firms have begun to drop out or be absorbed by larger firms. The dinger's Return on Assets before tax has been in the 15 to 25 percent range and it has had excess cash for the past five years. Harvest The gizmo has been superceded by new technology and has become obsolete. The market for the gizmo has not .55. disappeared but it has begun shrinking. The gizmo has had a growth rate below 6%. Gross profit has begun to shrink significantly on the gizmo. The dominant producers had experienced increased sales due to companies dropping out of the market. The main objective for the gizmo is to cash out. Before tax Return on Assets is 25% or more due to the sales of assets as the firm cashes out of the gizmo. The following definitions of planning, control, and motivation are used in the questionnaire. These definitions were used because they represented the consensus in the literature. Other definitions might have been used, but these were the most widely supported and most appealing to and understandable by managers. The definitions provided extremes to anchor the scales without either being more positive than the other. Planning The development of future objectives and goals and the formulation of steps to achieve these objectives and goals. Centralized planning A centralized planning budget clearly lays out the objectives and goals and how the firm expects the manager to reach the objectives and goals. There is a format to be followed when preparing plans. Headquarters approves all budgets, goals, and objectives. The planning activity has certain steps to be taken which are detailed in a formal document distributed by headquarters. Results are reported regularly to headquarters using a standardized format. Activities of the various divisions are coordinated by headquarters. Redundant programs are deleted. Plans for each division contain detailed performance criteria. Managers are evaluated on how well they achieve the budget. Decentralized planning A decentralized planning budget provides only general guidelines and leaves implementation to the divisions. The divisions, not headquarters, decide their own goals and objectives. Headquarters does not approve a division's budget. It only receives the budget for information purposes. 561 r Headquarters provides only basic support services. 'Research and development efforts are conducted by the divisions and may be duplicated. Products from the various divisions may compete with each other. Divisions are responsible for a certain minimum .level of profitability. Performance is measured by profitability (e.g., return on assets, net income , or net income as a percent of sales). Information from the divisions is sent to headquarters only in unusual circumstances, good or bad, or at the end of the period to j report the division's performance. I i i ) Control The means by which management assures that all j parts of the organization function properly and attain objectives articulated in the planning stage. ! Formal control A formal control budget contains the imeans by which management can assure that operations are igoing as planned. Reports are used to gather information ion operations. Formats and due dates of the reports are ' ; stated and enforced. Only authorized personnel are i [provided specified data. The reports measure such detailed items as output, hours worked, scrap, defective ! units, overtime, etc. How the data will be collected is j determined by headquarters. Headquarters audits and ^monitors the results. ! i | Benchmarks of success are determined by headquarters [and communicated to the divisions. All reports are sent to a central location for evaluation. Rewards are predetermined for various levels of performance. [ ; i Authorization to do certain activities comes from headquarters,including expenditures over a certain amount, new product introduction, or hiring and firing of employees. Major decisions for the divisions, such as major plant expansion, new products development, research emphasis and personnel number, are made at headquarters. Informal control An informal control budget depends on divisional management having hands-on control. ; The manager is involved on a day-to-day basis with j operations. The manager is familiar with all phases of operations. The manager knows what should be going on, when it should be going on, and where it should be happening. Control is exercised by observing operations, walking the floor, talking to workers, or actually getting involved in the operations. Managers know the names of operations personnel. r "Reports, if used within a division, are not of a j predetermined form, and are often just memos. Memos or reports are prepared only when events need explaining. Performance evaluation is done within the division. A good example of informal control is the owner-run firm where the owner does a little of everything. The owner signs the checks, does most of the purchasing, negotiates with customers, and helps supervise production. A rigid, formal system of control is not needed because j the owner has a handle on all aspects of the firm and can I correct problems. Decisions are often made on the spot. | I ! Motivation The intrinsic force within an individual. It is how behavior is started, energized, sustained, 1 ’ directed, and stopped. j ! . . I j External motivation An external motivation budget ! ! supplies a manager with the need to achieve the budget •objectives and goals. Managers know what is expected of them in an external motivation budget. The motivation to ; perform is provided by the budget. Performance is measured' !by comparing actual results with the budget. Motivation ; to perform comes from outside the manager not within. ; External motivation provides managers with goals to ! achieve. The goals are consistent across the firm. ;Managerial efforts toward firm goals and objectives are ! coordinated. Each manager knows what to expect, in terms ! 'of performance, from other personnel. There is no ; 'ambiguity as to what is expected; it is specified. The i imanager can plan how and when to act. i Internal motivation An internal motivation budget leaves motivation to the individual. The need within a manager to do the best possible job is the primary motivating force. Managers perform because they want to :do their best, not because the budget prompts it. Managers see their level of performance as measured i against internal goals as more relevant than the goals set I by the budget. i I Managers may see their goals as more relevant because the budget's goals are unrealistic. The budget's goals may be set too high. Managers are not motivated by this type of budget because they know they can never reach its goals. The budget's goals may be set too low. Managers ! do not respond to this type of budget because the goals j can be reached without effort. In an internal motivation j budget a manager is not evaluated by comparision to the budget. With either type of budget the manager must be motivated to act from within, because the budget does not ^provide the motivaton to act. ; The manager, not the budget, sets the goals and 1 objectives that need to be reached to be judged successful. Also, how the goals and objectives are reached is left to the manager. Budget Success Budget Success is how well the budget assists managers to perform their duties and tasks. A helpful budget helps the manager to operate successfully j and meet the goals and objectives of the manager and/or budget. Goals and objectives of a budget can be profits, Imarket share, productivity levels, quality levels, or combinations of any of the above. A budget helps a jmanager by providing the proper amount of planning, ; control, and motivation. j If the budget does not contain enough planning or has I too much, managers may not meet the goals and objectives I 1 !of the budget, which is their job. For example, a | manager of a medical group does not need a detailed budget i i [on how he or she is to produce a given net income number. i A budget which did this would be a hinderance because [illnesses cannot be forced to happen. Probably no doctor I i could function in an environment like this. On the other I hand, managers of a manufacturing plant might find a i detailed budget helpful to meet their or the budget's [goals and objectives. A budget's helpfulness or ' i i hinderance depends on how well it gives managers what they need to reach specified goals and objectives. J I 1 This definition of budget success is different from planning in that plans, even the best of them, will not l , meet goals and objectives without control and motivation. ' Planning only sets goals and objectives. A budget does this and controls and motivates. If there is no control, managers will do what they want without regard for the firm. Without motivation managers may not follow the plan. To be helpful, a budget should contain all three aspects: planning, control, and motivation. Questionnaire Construction The questionnaire was constructed by combining each of the four products with all the possible combinations of planning, control, and motivation. After being given the four definitions— product, planning, control, and motivation— the subject was asked how helpful a budget containing the various levels of planning, control, and motivation for the given product would be. Subjects were asked to rate on a -3 to +3 scale, -3 being hindering and +3 being helpful. How likely is it that the given combination of budget functions in a given PLC stage would produce the results wanted (budget success)? A seven-point scale was used because reliability increases as the number of scale steps increases. Further, the amount of discrimination provided by scales increases with the number of scale steps up to at least twenty steps. Reliability increases rapidly as the number of steps are increased from two to seven, where it levels off. After eleven steps, there is little gain in reliability (Nunnally, 1978). 60 Seven scale steps also are thought to be less confusing or irritating to the subjects. The difference between seventeen and eighteen on a rating scale may not be seen as being significant. Not being able to see a difference between the two may irritate the subjects because it may be seen as an impossible task. Seven is seen as a level of scale steps subjects can differentiate between and large enough to provide reliable and meaningful differences (Nunnally, 1978). An odd number of steps was used to provide a natural neutral point, neither helpful nor hindering. Subjects are more comfortable with a neutral point. Those subjects having neutral feelings should be measured, not forced to choose one way or the other (Nunnally, 1978). A number scale was used for several reasons. People frequently think of quantities as represented by degrees of physical extensions. The presence of a graphic scale helps to convey the idea of a rating continuum. The graphic scale lessens clerical errors in making ratings. Subjects are less likely to forget the meaning of the numbers. Finally, numbers hand written by the subjects may be difficult to decipher (Nunnally, 1978). The -3 to +3 numbering system was used to provide the subjects with a natural neutral point, zero. People do not think of 4 as a midpoint. Negative numbers are seen as being not helpful, hindering. If 1, 2, and 3 were 61 used instead of -3,-2, and -1, these first 3 points on the scale would not be seen as hindering, but only less helpful, because of their positive nature (Nunnally, 1978). The semantic-differential scale, employs a direct rating of concepts with scales anchored on the extremes by bipolar adjectives. The anchors used were picked based on discussions with various faculty members. Other pairs were rejected because of negative connotations, or as not measuring the qualities of a budget. For example a budget may be unsuccessful, yet produce a large profit or a successful budget may achieve a loss. A large profit may not have been a goal or objective of the budget. Some firms lower profit objectives to reduce the risk of anti trust action by the government. The best some firms can hope for is a small net loss for a time period. Helpful and hindering are evaluative factors which are by far the strongest factors in semantic-differential scales. In some studies evaluative factors are so strong that little common variance is left to define other factors (Nunnally, 1978). Questionnaires were mailed to the subjects at their work address. Approximately one week after mailing the subjects were contacted by phone and a ten to twenty minute meeting was arranged at which the questionnaire was collected, inspected for completeness, and subjects debriefed. 62 Case Construction Cases were constructed by combining each of the four products with all the possible combinations of planning, control, and motivation. Because there are three functions at two levels and four stages of the PLC, there were 32 separate cases creating a 23x4 factorial. Most subjects did sixteen cases, some did eight. For those subjects that did sixteen cases, eight of the cases were in one stage of the PLC and eight were be in the next stage of the PLC. For the subjects who did eight cases, all eight were in the harvest stage of the PLC because there is no stage five. Exhibit 3.1 gives the list of four categories that a subject could be randomly assigned to. The four categories cover all the categories a subject could fall into. As seen in Exhibit 3.2, the cells of the matrix below the diagonal are a repeat of the top half and are excluded for this reason. Also the cells in the bottom half of the matrix are not in logical order. The bottom cells are the opposite of what is normally encountered in the business world. Managers see products go from stage one to stage two, not from stage two to stage one. The diagonal was not included because those results can be obtained using the results from one of the other cells. To determine what the start-up stage decision model is, Category One of Exhibit 3.1 was used. The results of the first eight cases were untainted because they were 63 completed before the growth cases were done. Category Two provided the decision model for the Growth stage for the same reasons, and Category Three provided a decision model for the maturity stage. The three cells in the upper right corner are not used because products do not jump stages. The product may spend a very short time in stage two, but it still spends some time in stage two. The control group received eight cases. None of the cases had a product description to guide them. This was done to determine how managers would perceive the importance of planning, control, and motivation without a product description to guide them. The questionnaire didn't force them into a specific type of product. By comparing the control group results with the PLC stage results it could be determined what stage managers see themselves in. Analysis of Results To analyze the results ANOVA was used. A nested ANOVA was used because planning, control, and motivation are contained within each stage of the PLC. Data is assumed to meet the three assumptions underlying the ANOVA design: (1) criterion scores are statistically independent because the subjects were randomly assigned to the various treatments; (2) criterion scores are from a normally distributed population and were tested for using the chi-square test; and (3) normally distributed population 64 requirements should be met because of the large (4 0 or more subjects) sample size. Criterion scores are drawn from the same population? therefore, the variance was the same for all criterion scores. Regression was considered for analyzing the results, but was rejected because regression requires the independent and dependent variables to be quantitative. Analysis of variance, however allows the independent variable to be qualitative. This study uses qualitative independent variables. ANOVA was used to test for the hypothesized patterns of each budget function. The test determined whether the PLC stage had a significant effect at the level of the function. The tau statistic was used to determine the percent of variance accounted for by the PLC. Two different ANOVA tables were produced to analyze the results. The first table looks like Table 3.4 for the first set of hypotheses. The table determined if there is a difference in the importance of each function between stages of the PLC. Does the stage of the PLC cause a change in the importance of Planning, Control, and Motivation to Budget Success? There are three tables, one for each budget function. The second set of hypotheses has four ANOVA tables, as shown in Table 3.5. The tables determine the rankings of the budget functions within each PLC stage. Eta Squared, _______________________ 65 similiar to R2 in Regression Analysis, was used to determine the amount of variance accounted for by each variable. Eta squared is the ratio of the sum of squares for the explanatory variable to the total sum of squares. It tells how much of the variation in the dependent variable is explained by the explanatory variable (Iversen and Norpoth, 1976). The variable accounting for the most variance is the most important in determining Budget Success. The variable accounting for the second highest amount of variance is the second most important variable. The variable accounting for the least amount of variance is the least important variable. To test for significant differences between etas Fisher's Z Coefficient was used. Fisher's Z is not the same as the standard measurement z. To use Fisher's Z the etas are transformed with the following formula Z =1/2[loge(l-eta)-loge(l-eta)]. The standard error of a Z difference is The difference between two Zs is divided by the SE. The resulting number is a standard score, which is used to compute a P-value from the standard z score table (Guilford, 1956). SE 1 66 Pilot Test Introduction A pilot test of the questionnaire was conducted to test the instrument, computer programs, and testing procedures. Based on the results no changes were made in the procedures or instruments. A total of seventy-five questionnaires were distributed to Master of Business Administration (MBA) and Doctoral students. The MBA students were enrolled in the University of Southern California (USC) Core Program (an MBA program for students not having an undergraduate business degree). The Doctoral students were enrolled in the USC Doctoral Program in Accounting. The questionnaires were distributed in several classes and collected at a later class meeting by the researcher. Of the seventy-five questionnaires distributed 25 were returned. The 3 3% response rate was considered good because of the time pressures the students were under. There was no incentive for the student to respond other than interest in the subject or willingness to help a fellow student. The returned questionnaires were checked for completeness, coded, and entered into the computer. The results were analyzed using Statistical Analysis System (SAS) T-test and GLM programs. SAS was used because of the ease of use and applicability of the programs. ______________67 Preliminary Testing The first test was a T-test between the means of the dependent variable, helpfulness for a given product for the two positions in the questionnaire. A T-test was done to determine if position in the questionnaire affected the ratings of helpfulness. If the T-test showed the responses were different, the second position subjects for that stage were dropped from further analysis. Three stages were tested: Growth, Maturity, and Harvest. The Growth and Maturity stage results indicated they were not significantly different (Table 3.6). The Harvest stage results indicated there was a very low probability the results are from the same population. The T-test was done under two assumptions: equal and unequal variances? the results were the same under both. An F-test for equal variances was not used because it is very sensitive to departures from normality and should not be used with small samples unless normality is well established (Roscue, 1975). The Budget Success ratings should be the same for all groups since all possible combinations of levels, of planning, control, and motivation, are tested, a full factorial design. There were an equal number of helpful and hindering budgets in each stage. On average the Budget Success ratings were four, neither helping or hindering. The Harvest stage responses were not combined 68 for future testing because the ratings were significantly different. Further T-tests were run between each of the stages and the control group (Group five). They are given in Table 3.7. They indicate that the Start-up, Growth, and Maturity stages are not significantly different from the control group. These results are expected, as noted before. The differences appear in the level of importance attached to the budget functions, not the ratings of Budget Success. The Harvest stage results indicate that the stage and control group are different at the 1.47% level. There does not seem to be an explanation for the difference. Next, the ANOVA analyses were run. First an ANOVA with all interactions was run on all the data being used (Table 3.8). The results indicate the model is significant at the .0001 level. The amount of variance explained is low, only .330356. The interactions were not significant. Based on these results the interactions were dropped from the remaining analysis. The ANOVA was rerun without the interactions (Table 3.9). The model is still highly significant— .0001 level. The variables in the model are significant. The eta2 dropped from .330356 to .264747, a drop of .065609. ANOVAs were run for stages two and three by position to determine if the two positions can be combined for future analyses. The ANOVAs are shown in Tables 3.10 and 69 3.11. Based on these results, the amounts of variance accounted for by each budget function were different between the two positions. In the second stage the amounts of variance accounted for in the two positions were approximately 47% and 54% for planning, 18% and 5% for control and 35% and 41% for motivation. The difference, between the two positions, in the amount of variance accounted for by control precludes the combining of the two positions. In the third stage the amounts of variance accounted for by planning in the two positions are 19% apart, and the amounts of variance explained by motivation in the two positions were 3 6% apart. These are too far apart to combine for further analysis. Only the first position of all stages will be used. Tables 3.11, 3.12, 3.13, and 3.14 are the results of an ANOVA for each stage of the PLC. The Start-up stage of the PLC was the only stage which did not have a significant model at the .001 level. The eta2 on the three significant models ranged from .1916 to .4305. The jStart-up stage had an eta2 of .0606. Budget Function Patterns Across PLC Stages To answer the first set of hypotheses the ANOVAs in Tables 3.11, 3.12, 3.13, and 3.14 were used. The Sum of Squares for each function were divided by the corrected total to derive eta2. The etas were then plotted for each function across the stages. Figures 3.2, 3.3, and 3.4 show how the results compared to the hypothesized patterns. None of the etas are significantly different from each other (Table 3.15). The pattern will be examined to determine if at least it is in the right direction. Planning follows the path hypothesized except for the Mature stage where it drops instead of rising. Control follows the hypothesized pattern, except for the Growth stage where it drops instead of rising. Motivation does not follow the expected pattern at all; it is the opposite of what was expected. Budget Function Rankings Within Stages For the second set of hypotheses Tables 3.11, 3.12, 3.13, and 3.14 were used. The same procedure was used. Each variable's Sum of Squares was divided by the Corrected Totals. The variables were ranked according to this ratio, the highest being the most important, lowest the least (Table 3.16). None of the etas were significantly different from each other. As with the first set, the pattern will be examined to determine if at least they are in the right direction. The Start-up stage results agree with the hypothesized rankings, except for control which is equal to planning when it should be less important. The rankings are tenuous at best since the ANOVA for the Start-up stage was lot significant. This could be due to the subjects not being familiar with a Start-up firm. 71 The Growth, Maturity, and Harvest stages' ANOVAs were significant, so their rankings carry more weight. The Growth rankings had control being the least important instead of the most. Planning was the most important instead of the least. Motivation was the second most important function. The rankings for the Mature stage were just the opposite of the hypothesized. Motivation was the most important instead of the least. The Harvest stage rankings agree that planning is the most important by a large amount. The difference in importance between control and motivation is so small and the p values so large as to completely discount them. Conclusion The questionnaire elicited the expected responses. Differences from the hypothesized results can be explained in terms of the student subjects. The length of time required to finish a questionnaire was reasonable, twenty- five to forty minutes. Based on the results of the pilot test no changes were made in the questionnaire or procedures. 72 Chapter IV RESULTS The methodology had been determined, tested, and found workable. In this chapter the analysis is conducted and hypotheses tested. The Director of Industrial Relations at Lear Siegler, Inc. was contacted for a list of subjects to participate in the study. He then contacted seven division presidents to approve the list of subjects (Exhibit 4.1). The presidents approved the list given with three exceptions. Forty-two questionnaires were mailed to the subjects on May 25, 1985. A letter was included explaining the questionnaire, requesting their assistance, and telling them they would be contacted to arrange a meeting to collect the questionnaire and answer any questions they may have (Exhibit 4.2). The subjects and questionnaires were randomly matched by taking the names in order and assigning them a number from one to four from a random number table. One to four represent the four types of questionnaires a subject could receive. Starting June 3, 1985, the subjects were called to arrange a meeting. A total of thirty-eight questionnaires were collected between June 5 and July 8. The high 'response rate, 90.5%, is probably because the division presidents approved the project and this researcher 73. personally collected the questionnaire. The rate was also exceptional considering June 30 is the firm's fiscal year end. Of the 3 8 questionnaires, five went to division presidents and the remainder went to vice-presidents. The collected questionnaires, by type, were broken down as follows: 10 Start-up/Growth 10 Growth/Maturity 9 Maturity/Harvest 9 Harvest Other demographic information is given in Table 4.1. The control group consisted of 2 6 subjects taken from a session of the University of Southern California Executive MBA program. Fifty-six questionnaires were distributed and 2 6 were collected within a week after distribution. The response rate of 4 6% was considered good because the subjects were working full time and attending classes. The control and treatment subjects all have the same levels of responsibility and in particular budget responsibility. The demographics are in Table 4.2. The subjects came from a wide range of entities: U.S. Army, U.S. Navy, insurance, aircraft manufacturing, banking, and the U.S. Postal Service are represented. The subjects came from all areas of the United States and Hong Kong, Denmark, Korea, Italy, Saudi Arabia, Austria, New Zealand, South Africa, and Australia. All were at least managers and several were presidents and vice-presidents. 74J Preliminary Testing T-tests were done to determine if the position, first or second, of the product in the questionnaire affected the subjects ratings of budget success (Table 4.3). All three stages tested were not significantly different from each other. A nested ANOVA was run by position to determine if position had a significant effect on the amount of variance accounted for by planning, control, and motivation (Table 4.4). The results indicate that the model is significant at the .0001 level. Position does account for a significant amount of variance. ANOVAs were also run by position for each stage. The results are in Table 4.5. This was done because one or two of the stages may have caused the significant difference. Once an overall test is done each stage should be tested to determine which if any stages do not have significant differences. This two step procedure was used to insure that all possible data were used. The first position of stage two will be used in further analysis because the percent of variance accounted for between the two positions was different. Stage three results will be pooled because the variances accounted for by the budget functions were very similar, within 3% of each other. Stage four results were not pooled because planning accounted for 29.33% of the variance in the first 75 position, but 50.44% in the second. Motivation decreases approximately 2 0% from the first to the second position. The etas squared and P-values increased from the first to the second position. The fourth stage results appear to have been tainted by coming after the third stage. The ANOVA combining the two positions of stage three is shown in Table 4.6. Table 4.7 gives the ANOVA for the first stage. Budget Function Patterns Across PLC Stages The first set of hypotheses concerning the change in importance of a budget function over the PLC was tested by running an ANOVA over all stages to determine if they account for a significant amount of variance. Then the etas from each stage's ANOVAs were graphed and compared to the hypothesized curve. The ANOVA model for all the stages is shown in Table 4.8. The ANOVA used a nested design. The ANOVA is significant at the .0001 level and has an eta squared of 11.7%. Planning, control, and motivation are the most significant factors. Motivation is not highly significant (P-value of 10.67%) , but it will be retained in further analyses for completeness. The interactions will be dropped since they are significant (P-values of 13.85% to 82.31%). The results indicate that the stage has a significant effect on the amount of variance explained by planning, _______________________ 76 control, and motivation. The etas and hypothesized relationships are graphed in Figures 4.1, 4.2, and 4.3 For planning, the etas follow the hypothesized pattern, except that they peak one stage too soon. It was hypothesized that the budget should provide the most planning in the Maturity stage. The results show that planning is most important in the Growth stage. The Fisher's Z coefficients for differences between the stages are in Table 4.9, with the P-value for the z score. All of the stages are significantly different from the stage following it. The managers' perceptions of the importance of planning did change over the PLC as hypothesized with a minor difference. The pattern of the importance of control over the PLC agrees with the hypothesized pattern. None of the stages' etas are significantly different from the following stage. The etas are graphed along with the hypothesized pattern in Figure 4.2. The Fisher's Z and P-values are in Table 4.9. Significant differences cannot be expected since control was not significant in the ANOVA for the model as a whole. The pattern did agree with the hypothesized pattern so the responses are, at a minimum in the right direction. The motivation patterns differ from the hypothesized pattern in every stage (Figure 4.3). The etas' pattern is almost the opposite of the hypothesized pattern. The _______________________________77. results indicate that the budget does not need to provide motivation in the Start-up stage. If the motivation is not present within the person, the budget cannot provide it. Again the etas are not significantly different from each other. The differences between the second and third and third and fourth stages have low, but not significant, P-values (Table 4.9). Budget Function Rankings within Stages The second set of hypotheses— the rankings of the budget functions within each stage— are examined next. The etas are given in Table 4.10. The etas are ranked within each stage. The hypothesized rankings are also shown. The rankings of the functions are difficult to interpret because not all of the etas explain significant amounts of variance in the ANOVA model. Only four of the twelve etas are significant at the .05 level. This would preclude drawing any firm conclusions if the nonsignificant etas were not used in further analysis, so all etas will be used. Any conclusions reached about these hypotheses will be tentative. Table 4.11 shows the results of significance testing between the etas within each stage. For the Start-up stage none of the etas are significantly different from each other. Examining the etas by themselves, without regard for being significantly ________78 different from each other, motivation is the least important instead of the most important. This agrees with the results of the first set of hypotheses. Motivation in the Start-up stage received the lowest ranking of all the stages. The subjects placed the most importance on planning. Control was seen as second most important. Managers must insure that projects do not go too far off course or cost too much. Worker enthusiasm should not overrule good business sense. In the Growth stage the rankings in terms of importance of the budget functions did not change. Planning was still most important, specifically decentralized planning. The mean of the Budget Success rating when planning was decentralized as opposed to centralized was significantly higher, .0001 level. Managers wanted the plans to be formulated at the division level. The eta of planning was significantly different from control and motivation at the .0001 level. Control and motivation were not significantly different from each other (Table 4.11). The etas for control and motivation are not significantly different than zero, P-values of .5 when tested against zero. This is supported by the ANOVA for the stage: neither function contributes significantly to the variance accounted for. 79 In the Maturity stage all three functions account for a significant amount of variance, minimum .0336 level (Table 4.6). Planning was the most important as hypothesized, motivation was second, and control third. The planning eta was significantly different from the control and motivation etas. Control and motivation etas were not significantly different (Table 4.11). In this stage centralized planning is seen as contributing to Budget Success more than decentralized planning. The mean of the Budget Success rating is significantly higher, .0003 level, for centralized versus decentralized budgets (difference of .76). Motivation was the second most important budget function, and control was the least important. The results on motivation and control do not agree with the hypothesized rankings. Motivation is seen as more important because if the control procedures are not formalized before this, the product most likely did not make it to stage three. Evidence of this is that the Budget Success rating was significantly higher, .0493 level, for formal versus informal control systems (difference of .84). Control procedures, besides the budget, are used to insure that everything is going according to plan. Motivation should come from outside the employee. The Budget Success rating was significantly higher, .0055 level, for a difference of 80. 1.02 for the external versus internal motivation. The Harvest stage rankings agreed on only one function, control was rated the least important. Planning and motivation were switched. Planning was second instead of first, and motivation was first instead of second. None of the functions contributed significantly to the variance explained by the model (Table 4.5) . Planning is not significantly different than control. Planning and control are significantly different from motivation. The subjects thought a budget, more than planning or controlling, should motivate the employees. In the Harvest stage neither planning nor control is very important. Planning and control are not significantly different from each other, and tied for second most important budget function. This result is difficult to explain. Table 4.12 shows the results of testing for significant differences between the experimental and control groups. Control was not significantly different between the two groups. This is not unexpected as control was not significant in any of the stages except Stage Three. The lowest P-value for Control was in Stage Three, yet it was not significant. Where Planning and Motivation were significant in the ANOVA for a stage, there are significant differences between it and the control group. ____________________________________________________: ____________ 8.i. The correlations between the etas and weights assigned by the subjects were computed (Table 4.13). Subjects in Stages One and Two had the highest correlations and were significant. Stages Three and Four and the control group had very low correlations and were insignificant. Conclusions The insignificant results of many of the budget functions within stages make interpretation of the results difficult. If the function was not significant in the ANOVA model, can the etas be ranked? If not, then only four of the twelve rankings would be meaningful. All three variables in the Maturity stage and planning in the Growth stage were significant in the ANOVA model. Two of the three patterns of budget functions across the PLC and three of the twelve budget function rankings within PLC stages were upheld. The results support the fact that the importance of planning, control, and motivation may not change as hypothesized, but they do change over the PLC. While not being significant the patterns presented do lend credibility to the changing importance of planning, control, and motivation as hypothes i z ed. The differences between the control and experimental groups are difficult to interpret because of the insignificant results for some of the budget functions within stages. Any conclusion as to what environment 82 managers see themselves in when they are preparing a budget is tenuous at best. 83 ■ CHAPTER V IMPLICATIONS "When there is no wind, row." (Old Polish proverb) I | i Though the results did not fully support the j hypotheses, the results did provide an answer to the research question. The importance of planning, control, and motivation to budget success does change over the PLC. ! The implications of this are not that clear because of the limited support provided by the results. The implications are in three major areas: 1 1.Extension of budget research • 2.Manager's budgeting decision process 3.Extension of PLC research Each area is important because of its impact on both future research and practice. While there may be other : implications, these were thought to be the most important j by the researcher. I Budget Research ! The implications of this research on the budgeting iresearch are supporting, contradictory, and extending. | : i This research supports the previous research in its \ | contention that planning, control, and motivation are the , main functions of a budget. Up until now there has been I ■ no empirical research as to the functions of a budget. I ' “The-literature has taken it for granted that planning, t , control, and motivation are the main functions of a I budget. This study provides empirical evidence that planning, control, and motivation are the main functions of a budget. The eta2, or amount of variance explained, is low on j 1 all the ANOVA models, .0396 to .3125. With such large ! ; amounts of unexplained variance it would seem not to | support the literature. In fact it would seem to indicate | i |a need for research to determine what besides planning, 1 control, and motivation are the functions of a budget. ; The eta2 and etas for planning, control, and 1 t .motivation are shown by subject in Table 5.1. The average . p i eta was .74328. The subjects use planning, control, and ; motivation a great deal, but each subject placed a [ different weight on the functions producing the low I ^ overall eta . The wide variation in the weights placed on each function can be seen in Table 5.2, which shows the etas and etas2 by subject within each stage of the PLC. ■ The managers when answering the question, how would j J I I I 'you allocate your time, when preparing a budget, between I I planning, control, motivation, and other assigned less ' than 10% to the other component on average. The managers I did not think they used anything besides planning, ' i ! .control, and motivation. ! * i The contradiction of budgeting research is the implied I contention that the budget construction process is static. Research has implied that there is one way to construct a budget and that planning, control, and motivation receive • the same emphasis in every budget. There are certain 1 steps you take and all budgets take them. This research implies that the way a budget is constructed changes. If the importance of planning, ■ control, and motivation change, the budgeting process should change. If motivation is not important, why spend i 1 time considering it when preparing a budget? If planning will contribute the most to budget success, more resources should be spent on it than control or motivation. This research supports the changing importance of planning, control, and motivation. i Research is needed to clarify what the different stages of the PLC require of the functions. Do budgets progress in an orderly manner; for example, the first budget for a product is controlling, as time passes and sales increase planning becomes more important than controlling, and as sales decline the budget becomes more ^motivationally oriented. Future research should expand on how budgets are categorized. Perhaps the PLC is not the best method to ,divide the budgets. The type of firm, manufacturing- service, or type of industry, computer-auto, may provide ! “more insight into” the “budgeting process. The level of use of the budget in the organization may influence the importance of the functions. Do the various levels of management see the role of the budget differently? Do the : various functions (e.g. accounting, marketing, or management) see the importance of the budget functions jdifferently? This research extends the budgeting literature by | examining the effect of circumstances-situations on ;budgets. Previous research has gone the other way: What !effect do certain types of budgets have on people? In prior research the budget was the independent variable; in this research the budget is the dependent variable. This is the first empirical study to examine all three ,functions at one time. Prior research has not examined all three functions at one time. Most previous studies examined two of the three functions together. Budgeting Decision Process There is no agreement among subjects as how to use planning, control, and motivation in the budgeting 'decision process. Exhibit 5.2 shows the wide variation among the subjects in their use of the functions. The subjects agree that planning, control, and motivation are important, but not how to use them within a stage of the PLC. 87 r There could be two reasons for the variation in use: 1. The subjects do not know better and need to be educated 2. The subjects have other devices to achieve planning, control, and motivation. If a lack of education is hypothesized, then research is needed to determine the correct decision ! process. How should managers make budget construction : decisions? Before that research can be attempted research i is needed to determine what is a good budget given the i | circumstances (as noted in the previous section). There i : has been little if any empirical research on how budgets are, or should be constructed. 1 If the budget is not the only source of planning, I 'control, or motivation, what are the other sources? What other devices are used by managers to plan, control, and ,motivate? Research should be conducted not only to find ’these devices, but also to determine how they and budgets fit together. Are there trade-offs between the two? Can planning, control, and motivation be achieved by any combination of the two or are there circumstances which require one or the other? Are there situations which are best served by primarily using the budget or primarily other devices to plan, control, or motivate? The results in Table 4.13 indicate that the managers do not realize how they are making budgeting decisions. ' The correlations In Stages One and Two are significant but : only 40.24 and 49.98 percent. The other Stages are lower 7.61 to 19.61 percent and insignificant. If managers do not know how they are making a decision they need to be educated. First, what a good budgeting decision is needs clarification, then managers need to determine how they are making budgeting decisions, and finally the two should be reconciled. | Table 4.12 results show that control subjects do not have a decision model like any of the PLC Stages. Research 1 is needed to determine what type of product managers use to: 1 make a budgeting decision? If managers see themselves in the Maturity Stage all the time problems could arise. The ■ environment the product is in should be more closely matched ■with the budgeting decision process. PLC Research i PLC research has been extended by this research. I Previously, the PLC was applied to mainly products. Very little work has been done which did not use the PLC in i marketing products. Savich and Thompson and Savich and ICzyzewski brought the PLC into accounting. This research 1 builds on and supports each of the two papers. 1 More work is needed to try and expand the uses of the j ,PLC in accounting. More work should be done in the areas ! I iopened by the above papers. i Savich and Thompson propose a model of financial statement change over the PLC. Savich and Czyzewski tested and found support for the model. More testing should be done to improve the model and to develop models for different industries and types of firms. Research should be attempted to link employees with j , budget types. If a PLC stage were found to need a control j budget, people should be hired who have an ability to 'control. If a stage needed a motivating budget, people j should be hired who can motivate. The needs of a stage ,should dictate what type of person is hired. This linking of product needs and type of employee has , merit. Greiner's model states the same. As a firm goes 1 through a "revolution," the needs of the company changes. i After a firm has developed a product and market; a strong manager is needed to take over from the founder (s), whom do not have the time or expertise to handle the increased managerial duties. A firm in the control crisis has lost control because of excesive decentralization. A manager :is needed to bring the divisions under control and coordinate their activities. As firms change, so should the people who run them. | While there is no empirical evidence, there is some anecdotal evidence to support this view. Entrepreneurs :after their firm grows too large, turn over running it to a "professional manager" (e.g. Apple Computer and General "Motors, with Sloan taking over from Durant). Sandy Sigallof is known as a person who can turn failing firms . around. His strategy is in part based on the PLC concept. The PLC could help the personnel department in deciding who to hire. 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Declining equipment Tntanpibles TluJId1nft Stable Write off Written off Current liabilities Accounts payable lHgh Stretched Constant Suppliers like cash Taxes payable Hone Mono due to c^rry- f orwntds I.evcl, High hong-term 1 1 nb:l .1J11 es High Moderate Aval 1ahl c Pny-nf f Deferred 1. labilities ’ Taxes Receivables due to net operating loss Offset by carry forwards Delayed by accel erated depreciation High payoff Compensation Offered Taken Used Re fused Stockholders' equity Common stock Mow Publ ic Offering Used for options Only leverage' Retained earnings Deficit: Reinvested Stable Paid out (Savich and Thonpson, 1978) ^ TABLE 2.2 , Income Staicmunt I Start-up 1 growth Maturi l y . Harvest Bill es Low hut rising ■ Rising fast Level Heellning Cost of goods sold' Direct material Lots of scrap Ri sing Search for efficiencies Tied to Sales Direct labor High per unit Learning curve Dependent on Reduced consid henef i t union negotiations erably Overhead Depreciation High due to accelor- j ated depreciation 1 Rising due to acquisitions Stable Low Indirect labor Minimal ; Crowing with labor force Stable Redirected property Minimal Crowing with Depend on mill Down taxes equipment levy Utilities Related to RAD j Crowing with equi pmcnt Stable Reduced Cross profit Fluctuating Z estah 11 sited Smooth Market Bearing Expenses Sales 1 Compensation Variable individual rewards Croup rewards Fixed Advertising High I I is lug Stable Hone Travel and Very high Crows with sales Reduced Hone entertainment force Market research Very high Level lug Seek new markets Accept defeat General and admin istrative Salaries Division manage ment Expanding with work force Administrative Reduced Depreciation Minimal > Crnwi ng wi th furnt ture Stable None Research and Very high Product ion Cost-reductlon Look for,new development oriented < ori ented products Income taxes negative Rising Stable Declining Distribution costs honking I I is 1 ng Stahle Cut hack Accounting and Start-up costs Formalizing S table Looking for information benefits Insurance Minimal High Constant and busi ness interruption Product liability Earnings Lowest flood Highest ISelow average Earnings per share Lowest Ave rage Highest Average (Savich anct Thompson, 1078) TABLE 2.3 F u n d s F l o w A n a l y s i s Start-up (I row tii Hatur 1 ty li;i rvc : ; ‘ c Sources of funds Hot Income Low flood High Dec!injng Long-term debt High Moderate Capacity high but no new debt None. Stock offerings Hesitant market Lots of buyers Looking for dividends Sell out Sale of property, plant, and equipment Hone None Replacement Extensive Uses of Funds D Ividends None Little if any Good Extensive Repayment of debt Hone Hone HiCh Remainder TrcasuVy stock Hone Hone l*or options At deflated prices Purchase of prop erty, plant, and equipment Mainly prototype High Replacement None Change In cash Negative Hot too bad None Very positive (Savich and Thompson, 1978) TABLE 2.4 ' HypothenTxuil' i.claliimships P.ntio Income Statement Start-up Growtli Maturity Harvest Cost of Roods sold Rales Highest Declining T.owe st Rising Cross profi t Sales Lowest Rising Highest Declining Advertising expense Sales High Ri sing Stable Declining Administrative expense Rales Low Rising Stable Declining Net income Rales Lowest Average Highest Declining Material Cost of goods sold High Declining Stable Rising Labor Cost of goods sold High Declining Stable Reduced Overhead Cost of goods sold Low Rising Stable Declining Balance Sheet Accounts receivable Total assets Low Rising Stable Declining Fixed & other assets Tonal assets High Declining Stable Rising Combined Analysis • Inventory Total assets Low Rising Stable Declining Return on assets • Lowest * Average • Highest Declining Asset turnover Lowest Rising Stable Declining Inventory turnover Fluctuating Stable Rising Highest Conversion Fluctuating Stable Declining Lowest Accounts receivables turnover Fluctuating Stable Rising Highest Collection period Fluctuating Stable Declining Lowest (Savich and Thompson, 1978) TABLE 2.5. RATIO OF SUMS METHOD Ratio - J - Stage Income Statement Start-up Growth Maturity Harvest * Cost of goods sold Highest Declining Lowest Rising Sales ,9308 ..8291 .8052 .8752 Gross profit Sales ■ * ' Lowest .0692 Rising .1709 Highest , 1948 Declining . 1248 Vr Advertising expense High Rising Stable Declining Sales .0054 .0593 .0654 .0311 * Admin, expense Low Rising Stable Declining Sales .0549 .0680 .0677 .0623 Net income Sales Lowest .0090 Average .0435 Highest .0617 Declining .0310 Materia1 Cost of goods sold High .0053 Dec 1ining .6597 Stable .5896 Ris ing .3997 * Labor Cost of goods sold High .2963 Declining .0959 Stable .1203 Reduced . 1030 Overhead Cost of goods sold Low .6984 Rising .2444 Stable .2901 Declining .4973 Balance Sheet * Accounts Receivable Low Rising Stable Declining Total assets_______________.1605___________.2S31________.3156________ .2598 * Inventory Total assets Low .0021 Ris ing .4335 Stable .4167 Declining .3802 * Fixed & other assets Total assets High .8374 Declining . 2833 Stable .2677 Ris ing . 3600 Combined Analysis * Return on assets Lowest -.0072 Average .0329 Highest .0451 Declining .0210 Asset turnover Lowest .7966 Average . 7552 Kighes t .7312 Declining .67,68 Inventory turnover Fluctuating 345.0 Stable 1.4444 Ris ing 1.4129 Highest 1. 5530 Conversion period Fluctuating .2609 Stable 62.3100 Declining 63.6970 Lowest 57.7675 Accounts Receivable Turnover Fluctuating " 4.9643 Stable 2.6674 Rising 2.3167 Highest . 2.6048 Collection period Fluctuating 18.1295 Stable 33.7430 Declining 38.8489 Lowest 34.5517 • • ‘ Conforms with trend expected. (Savich and Czyzewski, 1984) Rat io Income Statement ..TABLE MEAN RATIO M. J Start-up 2,0 METHOD Stage Growth Maturity Harvest * Cost of Roods sold Highest Declining Lowest Rising Sa 1 es .9320 .8923 .8247 .8568 * Gross profit Lowest Rising Highest Declining Sales .0681 . 1077 . 1753 .1432 * Advertising expense High Rising Stable Declining Sales .0051 .0892 .0550 .0382 * Admin, expense Low Rising Stable Declining Sales .0627 . 1013 .0507 .0638 Net income Lowest Average Highest Declining Sales .0001 (.0823) .0267 .0411 Material High Declining Stable Rising Cost of goods sold • .0053 .6*47 . 6411 .5012 * Labor • . High Declining Stable Reduced Cost of goods sold .2963 .1167 . 174-9 .1635 Overhead Low Rising Stable Declining Cost of goods sold .69S4 .2356 .1513 .3303 Balance Sheet - * Accounts Receivable Low Rising Stable De c1 ining Total assets .2036 .2961 .3197 .3147 * Inventory Low Rising Stable Dec1ining Total assets .0025 . * 22* .3818 .3599 * Fixed & other assets High Declining Stable Ris ing • Tota 1 Assets . 7963 .2450 .2639 . 3253 Combined Analvsis Return on Assets Lowest Average Highest Declining .0103 . 2958 .1153 .0591 * Asset Turnover Lowest Rising Stable Declining .9558 2.7057 1.6S92 1.0160 Inventory Turnover Fluctuating Stable Ris ing Highest ... — ... 139.5000 12.4510 7 .3612 3.3565 Conversion period Fluctuating Stable Dec1ining Lowest . 1613 111.9026 70.7768 62.3369 ■* Accounts receivable Fluctuating Stable Rising Highest turnover 12.7028 4.S6S9 8 . 7093 22.3605 Collection period Fluctuating * Stable Declining .Lowest 12 .8226 48.2278 42.8552 39.0015 ^‘ Conforms with trend expected. (Savich and Czyzewski, 198 I TABLE 2, 7 Stage process audit criteria Criteria S ta g e 1 : Initiation S tag e II: Contagion S tag e ill: Control S tag e IV: Integration OP o rg an iz a tio n Objective Get first application on the com puter Broaden u se of com puter technology Gain control of d a ta processing activities Integrate d a ta processing into b usin ess Staffing em phasis Technical com puter experts U ser-oriented system an aly sts and program m ers Middle m an ag em en t B alance of technical and m an ag em en t specializations Structure E m bedded in low- functional a re a Growth an d multiple DP units created Consolidation of D P activities into central organizational unit Layering and “fitting’’ DP organization structure Reporting level Tp functional m anager To higher level functional m anager To senior m an ag em en t officer VP level reporting to corporate top m anagem ent . U ser a w a re n e s s Senior m anagem ent Clerical staff reduction syndrom e B roader applications in operational a reas Crisis of expenditure growth A cceptance a s a m ajor b u sin ess function Panic about penetration in b u sin ess operations Involvem ent in providing direction User attitude “H ands-off” Anxiety over implications Superficially enthusiastic Insufficient involvem ent in applications design Frustration from suddenly being held a ccountable for DP expenditures A cceptance of accountability Involvem ent in application, budgeting, design, and m aintenance Communication with DP Informal Lack of understanding Oversell and unrealistic objectives and schedules Schism develops Formal lines of comm unication Formal com m itm ents Cum bersom e A cceptance and informed com m unication Application developm ent partnership Training G eneral orientation on "w hat is a com puter” Little u ser interest Increase in u se r interest due to accountability U ser se ex s out training on application developm ent and control P lanning an d c o n tro l Objective Hold spending at initial com m itm ent Facilitate w ider functional u se s of com puter Formalize control and contain DP expenditures Tailor planning and control to DP activities Planning Oriented toward com puter im plementation O riented toward application developm ent O riented toward gaining central control Established formal planning activity M anagem ent control F o cu so n com puter operations budget Lax to facilitate applications developm ent activity growth Proliferation of formal controls B alanced formal and informal controls Project m anagem ent OP m an ag er responsibility P rogram m er's responsibility Formalized system DP departm ent responsibility Formalized system tailored to project D P and u ser/m anagem ent joint responsibility Project approval and priority setting DP m an ag er responsibility Multi-functional m anagers First in, first Out Steering com m ittee Steering comm ittee Formal plan influence DP stan d ard s Low aw aren ess of im portance Inattention Importance recognized Activity aggressively im plem ented Established standards activity P ublished policy m anuals A pplication p o rtfo lio Objective Prove value of com puter technology in organization Apply com puter technology to multi-functional a re a s Moratorium on new applications Consolidate an d gain control of existing applications Exploit opportunities tor integrative system s Cost-effective application of advanced technology Application justification C ost-savm gs Informal u serfm anager Hard cost savings Benefit/cost analysis approval Short-term payout Senior m anagem ent approval ( N o l a n , 1977} TABLE 2 . 8 F i v e Variables and the Three Values for Each Legitimacy Aggressiveness Innovativeness Skills Technology none aggressive. missionary slightly low prior tentative Passive moderately medium low-level consolidated Routinized relations highly high hizh-.'evel (White, 1976) Twelve Phases in the Development Trichotomized Varlahles TABLE 2.9 of M anagem ent Science and Their Definitions in T erm s o f Five P h a s t s S I ills T e c h n o lo g y V a ria b le s in n o v a tiv e n e s s L e g itim a c y A p g re 3 s iv rm e ss GAINING TENTATIVE LEGIT 1 MAO' — Ev olutio n a rv (d ev e lo p m e n t slightly to m oderately o f organizational role and d iscovery o f p ro b le m s) GAINING TENTATIVE LEGITIMACY — low , m ed iu m , high prior or low.level n o n e p assive rf.v o; OTiuNAKY (m issionary exposure) low. m ed iu m , o r high p rior o r iow-icvel slightly n o n e aggressive (m issionary application) high o r m edium high-level o r h*w-level slightly o r m oderately n o n e aggressive (m issionary application and exposure) high or m edium high-level o r low-level highly or m oderately no n e aggressive C r's c 5 L1PAT|NC LEGITIMACY — evo l u t io n a r y (gradual consolidation) high, m ed iu m , o r low tow -te vel m oderately o r slightly tentative passive CONSOLIDATING LEGITIMACY — r ev o lu t ion a ry (rapid consolidation) ROUHNIZEO CHANGE AGENT ROLE high o r m ed iu m high-level or low-level m oderately to highly tentative n o n e . aggressive (prior technology) tow . m ed iu m prior slightly m o st likely, but possibly tentative o r consolidated routinized (low-level m an a g e m en t science te c h n o lo g s ) m ed iu m o r high low-lcvcl m oderately nr highly c o nsolidated routinized (high-level m an a g e m en t science technology) high high-level highly o r m oderately consolidated roui inizaJ PROCESSING ROLE (prior technology) lo w . m ed iu m o r high p rior slightly n o n e: possibly tentative passive (low-level technology) m ed iu m o r high low-lcvcl slightly n o n e . o r tentative o r high passive » (high-level technology) high or m edium high-lc vcl slightly none o r tentative or high passive (White, 1976) 109 TABLE 3.1 Hypothesized Function Rankings Within Stages Start-up Growth Maturity Harvest Planning 2 3 1 1 ■ Control 3 1 1 3 Motivation 1 2 2 2 TABLE 3.2 Divison Product Description General purpose computer display terminals and multifunctional printers. iAutomatic flight control systems, fly-by wire systems, all- weather landing systems for commercial and military aircraft, integrated avionic systems for remotely piloted vehicles, north seeking gyro systems, tactical radar systems, specialized ground-based electronic systems. Barricade flashers, trailer and roof mounted arrow panels, revolving and strobe lights, barricades, plastic 'channelizers, reflective sheeting, and other traffic control devices. Nuclear reactor control rod drive mechanisms and valves, cryogenic and petrochemical valves and external aircraft fuel tanks. Commercial telephone products, secure communications equipment, closed circuit television cameras, bus bars, and | survival support devices. Spring parking/emergency brakes and air dryers for heavy duty trucks and trailers. 'Self-lubricating bearings for aerospace and industrial ;applications, mobile air conditioning for ground support of (commercial and military aircraft, mass transir vehicles, ; and industrial applications. TABLE 3 . 3 Criteria to C la ss ify P ro d ucts Start-up Not a redesign, unless it is a significant change in concept or technology Lew dollar sales, with the probability of 50% or more increase being high in the next two or three years Emphasis on customer acceptance Frequent debugging of product Few direct competitors Low gross profit Absorbs cash, does not produce a net profit Products over three years old not in start-up phase, unless mitigating circumstances Growth High growth rates, 25-50% during early stages, 15-20% during later stages of growth phase Emphasis on expanding market share Increasing production capacity Increasing ability to access entire market Increasing competition Sales volume grows regardless of business cycle No dominant producer has emerged Gross profit increasing Cash return goes from negative in early part of growth stage to being relatively high during latter part of growth stage ROA before tax goes from zero early in growth stage to around 15% in latter segment Maturity Growth rate between 6% and 15% Emphasis on cost cutting and efficiency Maximizing profit is main goal Gross profit begins decreasing or stabilizes Dominant producer has emerged Smaller firms are merged or drop out ROA in the 15-25% range Prices drop early, then stabilize during middle segment Economic business cycles affect sales volume and profits Decline Unit volume decreasing, low or negative growth in dollars Gross profit decreasing significantly Dominant producer's sales may increase as small producers leave market Goal is to cash out, unless dominant producer, then the goal is to generate cash 111 - J TABLE 3^4 ANOVA Table for Testing First Set of Hypotheses Stage Residual Total Sum of Squares Degrees of Freedom Mean F-Ratio Square TABLE 3.5 ANOVA Table for Testing Second Set of Hypotheses i . I Sum of Degrees of Mean F-Ratio ; ; Squares Freedom Square Planning Control Motivation : Residual ; Total TABLE 3.6 Helpfulness T-test Between Stage Positions in Questionnaire : Position Stage Mean T-value P-value Appearing 1 2 4.450 2.719 .7864 2 2 3.350 1 3 4.350 -.6149 .5405 2 3 4.575 1 4 3.575 -3.5835 .0006 2 4 4.950 1 112- ----- ' _ " “ TABLE 3.7 Helpfulness T-test Between Experimental and Control Groups Stage Mean T-value P-value 1 4.2500 -.8245 .4122 5 4.6000 2 4.4000 -.6187 .5373 5 4.6000 3 4.4625 -.4262 .6707 1 5 4.6000 4 3.5750 -2.4946 .0147 i 5 4.6000 I TABLE 3.8 ANOVA—All Data ■ Source DF Sum of Mean F-value P-value 1 o \ eta"* , Squares Square Model 39 321.75 8.25 3.54 .0001 .33 Error 280 652.20 2 . 33 Corrected Total 319 973.95 Source DF Sum of F-value P--value Squares Product(Planning) 9 121.45 5.79 .0001 Product(Control) 5 25.18 2.16 . 0579 Product(Motivation) 5 111.23 9.58 .0001 ; Product(Planning and 1 1 Control) 5 8.33 .71 .6151 Product(Planning and 1 Motivation) 5 17.98 1.54 .1752 Product(Control and Moviation) 5 25. 68 2.20 . 0535 Product(Planning, Control,and Motivation) 5 11.93 1. 02 .4043 TABLE 3.9 ANOVA Table First Position/ Stage Two Source Model Error Corrected Total DF Sum of Squares 7 45.90 32 70.00 Mean Square 6.58 2.19 F-value 3.00 P-value .0155 eta“ .40 39 115.90 Source DF Planning 1 ;Control 1 :Motivation 1 Planning and Control 1 Planning and Motivation 1 Control and Motivation 1 Planning, Control, ;and Motivation 1 Sum of Squares 16.90 2 .50 14 .40 4.90 3 . 60 . 00 3 . 60 F-value 7.73 1.14 6.58 2.24 1. 65 . 00 1.65 P-value . 0090 .2930 .0152 . 1443 .2088 . 0000 .2088 Source Planning Control Motivation Total Percent of Variance Accounted For 47. 08 17.86 35.06 100.00 TABLE 3.9 - Continued ANOVA Table Second Position, Stage Two Source DF Model 7 Error 32 Corrected , Total 39 Sum of Mean F-value P-value eta2 Squares Square 15.90 62.27 .92 79.20 2.48 95.10 .5058 .17 Source DF I jPlanning 1 'Control 1 Motivation 1 Planning and Control 1 Planning and Motivation 1 Control and Motivation 1 Planning, Control, and Motivation 1 Sum of Squares 6.40 .40 3.60 .10 4.90 . 10 .40 F-value 2.59 . 16 1.45 . 04 1.98 .04 .16 P-value .1176 . 6903 .2366 .8420 . 1691 .8420 . 6903 Source Percent of Variance Accounted For Planning 54.13 Control 4.59 Motivation 41.28 Total 100.00 TABLE 3.10 ANOVA Table First Position, Stage Three Source DF Model 7 Error 32 Corrected Total 39 Sum of Mean F-value P-value eta2 Squares Square 60.70 62.40 123.10 8.67 1.95 4.45 .0015 .49 iSource DF [Planning 1 iControl 1 iMotivation 1 Planning and Control 1 Planning and Motivation 1 Control and Motivation 1 Planning , Control, and Motivation 1 Sum of Squares 6.40 2 .50 44.10 3.60 1. 60 .90 1.60 F-value 3.28 1.28 22.62 1.85 .82 .46 .82 P-value . 0794 .2659 . 0001 . 1837 .3718 .5018 . 3718 Source Percent of Variance Accounted For Planning 18.86 Control 12.29 Motivation 68.85 Total 100.00 TABLE 3.10 - Continued ANOVA Table Second position, Stage Three Source DF Model 7 Error 3 2 Corrected Total 39 Sum of 21.78 64.00 85.78 Mean Squares Square 3.11 2.00 F-value P-value eta2 1.56 .1847 .25 Source DF Planning 1 i Control 1 iMotivation 1 Planning and Control 1 Planning and Motivation 1 Control and Motivation 1 Planning, Control, and Motivation 1 Sum of Squares 7.23 5. 63 5. 63 .23 1.23 .63 1.23 F-value 3.61 2 .81 2.81 . 11 . 61 . 31 . 61 P-value . 0664 . 1033 . 1033 .7395 .4396 .5800 .4396 Source Percent of Variance Accounted For Planning 3 7.64 Control 2 9.28 Motivation 3 3.08 Total 100.00 1 1 7 J ' " TABLE 3.11 ANOVA Table - Start-up Stage Source Model Error DF 3 36 Corrected Total 39 Sum of 9.90 153.60 163.50 Mean Squares Square 3.30 4.27 F-value P-value eta2 .77 .5165 .06 Source Planning ;Control iMotivation DF 1 1 1 Sum of Squares 2.50 2.50 4.90 F-value .54 .54 1.06 P-value .4682 .4682 . 3177 TABLE 3.12 ANOVA Table - Growth Stage Source DF .Model 3 ^Error 3 6 Corrected Total 39 Sum of 82 .10 115.90 Mean Squares Square 33.80 11.27 2 .28 F-value 4.94 P-value eta' .0010 .29 Source Planning Control Motivation DF 1 1 1 Sum of Squares 16.90 2 .50 14.40 F-value 9.83 1. 09 7.22 P-value . 0024 .2993 . 0088 Source DF Model 3 Error 3 6 Corrected Total 39 TABLE 3.13 ANOVA Table - Maturity Stage Sum of Mean F-value Squares Square 53.00 17.67 70.10 123.10 1.95 9.03 P-value eta2 .0010 .43 Source Planning | Control iMotivation DF 1 1 1 Sum of Squares 6.40 2.50 44.10 F-value 3.28 1.28 22.62 P-value . 0794 .2659 .0001 TABLE 3.14 ANOVA Table - Harvest Stage i Source DF I Model 3 Error 3 6 Corrected Total 3 9 Sum of Mean Squares Square 51.48 17.16 F-value P-value eta2 93 . 30 145.78 2.62 6.55 .0012 .35 Source Planning Control Motivation DF 1 1 1 Sum of Squares 50.63 .63 .23 F-value 19.33 .24 .09 P-value .0001 | .6282 .7711 ! 119 TABLE 3.15 Eta Rankings Within Stages Planning Control Motivation Start-up 1.529% 1.529% 3.000% Growth 14.583% 2.157% 12.425% Maturity 5.199% 2.031% 35.825% Harvest 34.728% . 428% .153% jStart-up 'Hypothesized 'Actual t Growth Hypothesized Actual Maturity Hypothe s i z ed Actual Harvest Hypothesized Actual Rankings Planning Control 2 2 3 1 1 2 1 1 3 2 1 3 1 3 3 2 Motivation 1 1 2 2 2 1 2 3 Functions Planning/Control Z-score P-value Control/Motivation Z-score P-value Planning/Motivation Z-score P-value Start-up Growth Maturity Harvest 0. 000 .500 .063 .476 . 063 .476 534 298 442 330 093 464 . 136 .444 1.534 .063 1.400 . 080 1.551 .060 . 012 .496 1.563 . 059 12 TABLE 3.16 Function Patterns Across Stages Planning Control Motivation Stages Start-up/ Z-score -.5614 . 0270 -.4055 Growth P-value .2877 .4880 . 3446 Growth/ Z-score .4036 . 0054 1.0870 Maturity P-value .3446 .5000 .1401 Maturity/ Z-score 1.3463 . 0689 1.6150 Harvest P-value . 0885 .4721 .0526 j TABLE 4.1 Experimental Subject Demographics I Level of Education Number Percent 6 15.79 High School 0 0. 00 Associates 14 50. 00 Bachelors 6 15.79 MBA 4 10.52 Masters Degree - Other 1 2.63 Doctoral Degree 2 5.27 No response 38 100.00 Total \ Field of Most Recent Degree Number Percent ’ 3 7.89 Accounting 1 2.63 Finance 0 0.00 Marketing : 13 34.22 Management ! 0 0. 00 Other Business < n 28.95 Engineering l 2 . 63 Other i 9 23 . 68 No response 38 100.00 Total TABLE 4.1 - Continued Experimental Subject Demographics Division Number Percent 7 18.42 Astronic 4 10.52 Anchorlock 8 21. 06 Energy Products 3 7.89 Data Products 4 10.52 Signal 4 10.52 Transport Dynamics 1 8 21. 06 Electronic Instrumentation 38 100.00 Total Function 1Number Percent i 6 17.79 Accounting/Finance 5 13.16 Sales/Marketing 3 7.89 Production 4 10.53 Engineering 17 44.74 Other 3 7.89 No response 38 1 100.00 Total Years Performing Function Number Percent 6 15.79 0-5 7 18.42 6-10 4 10.52 10-15 7 18.42 16-20 3 7.89 21-25 0 0.00 26-30 1 2 . 63 31-35 0 0.00 <40 10 26.33 No response 38 100.00 Total ~TABLE 4.2 Control Subject Demographics Level of Education Number Percent 2 7 . 69 High School 0 0. 00 Associates 10 38.40 Bachelors 4 15. 38 MBA 7 26.92 Masters Degree 2 7. 69 Doctoral Degree 1 3.85 No response 26 100.00 Total Field of Most Recent Degree Number Percent 1 3.85 Accounting 3 11. 53 Finance 0 0. 00 Marketing 1 3 .85 Management 0 0. 00 Other Business 6 23 . 08 Engineering 2 7. 69 Other* 1 50.00 No response 26 100.00 Total Other *0 ftwo in category one each in math and physics. Function Number Percent 3 3 1 4 15 0 26 11.54 11.54 3.85 15.38 57.69 0.00 100.00 Accounting/Finance Sales/Marketing Production Engineering Other* No response Total *0f fifteen in category nine were management two each in maintenance, and planning, and one each in financial assurance and data processing. 123' r ' TABLE 4". 2 - Continued : Control Subj ect Demographics Years Performing Function Number Percent 11 42.32 0-5 4 15.38 6-10 2 7.69 10-15 3 11.53 16-20 6 23.08 21-25 0 0. 00 26-30 0 0. 00 31-35 0 0. 00 <40 0 0. 00 No response 26 100.00 Total TABLE 4.3 T-test Between Questionnaire Positions Growth First Position Second Position Maturity First Position Second Position Mean 4.4000 4.3500 4.5972 4.7000 T-value 1654 -.3522 Harvest P-value .8688 .7252 First Postion Second Position 4.2083 4.6111 -1.3241 . 1876 TABLE 4.4 ANOVA Table - Nested by Position Source DF Sum of Mean F-value Squares Square Model 15 190.16 12.68 4.92 Error 304 783.79 2 . 58 Corrected Total 319 973.95 Source DF Sum of F-value 1 1 1 Squares ;Planning 3 65.88 8.52 ! Control 2 7.05 1. 37 Motivation 2 101.81 19.74 Planning and ; Control 2 3.32 . 64 Planning and Motivation 2 7 .25 1.41 Control and Motivation 2 2.12 .41 Planning, Control / iand Motivation 2 2.72 .53 i >-value eta2 .0001 .20 P-value .0001 .1562 .0001 .5260 .2466 .6633 .5906 125] TABLE 4.5 ANOVA Table - First Position/ Stage Two Source DF Sum of Mean F-value P-value eta2 Squares Square Model 7 66.25 9.46 3.64 .0027 .31 Error 56 145.75 2.60 Corrected Total 63 212.00 Source DF Sum of F-value P-value ; Planning 1 Squares 49 . 00 18.83 .0001 'control 1 5. 06 1.95 .1686 ^Motivation 1 2 . 25 . 86 .3565 Planning and Control 1 1.56 . 60 .4417 ; Planning and Motivation 1 6 . 25 2.40 . 1269 Control and Motivation 1 1.56 .60 .4417 Planning, Control sand Motivation r 1 .56 .22 . 6438 Source Percent of Variance Accounted For Planning 74.76 Control 11.40 Motivation 13.84 Total 100.00 TABLE 4.5 - Continued ANOVA Table - Second Position, Stage Two Source DF ;Model 7 < Error 64 Corrected :Total 71 Sum of 12.89 193.11 206.00 Mean Squares Square 1.84 3.02 F-value P-value eta2 .61 .7469 .06 I Source DF 1 Planning l I Control 1 'Motivation 1 Planning and Control 1 Planning and Motivation 1 Control and Motivation 1 Planning, Control, land Motivation 1 I Source ;Planning 1 Control Motivation Total Sum of Squares 2 . 00 6.72 .50 . 06 2.72 . 00 .89 F-value .66 2.23 . 17 .02 .90 .00 .29 P-value .4186 . 1405 . 6853 .8925 .3458 1.0000 .5892 Percent of Variance Accounted For 32 .48 43.95 23 .57 100.00 r ------ 'TABLE 4.5 - Continued ! ANOVA Table t First Position, stage Three . Source DF Sum of Mean F-value P-value eta2 Squares Square Model 7 37.41 5.34 2.64 .0216 • Error 48 97.14 2 . 02 Corrected Total 55 134.55 < I Source DF Sum of F-value P-value Squares Planning 1 15.02 7.42 .0090 Control 1 . 16 .08 .7793 Motivation 1 4.02 1.99 .1653 Planning and Control 1 1.45 .71 .4021 Planning and Motivation 1 2.16 1.07 . 3067 Control and jMotivation 1 5.16 2.55 . 1169 'Planning, Control / ;and Motivation 1 9.45 4.67 . 0358 I Source Percent of Variance Accounted For Planning 4 3.14 ■Control 24.92 ^Motivation 31.94 Total 100.00 TABLE 4.5 - Continued ANOVA Table - Second Position, Stage Three Source DF Model 7 Error 56 Corrected Total 63 Sum of Mean Squares Square 55.25 125.75 181.00 7.89 2.25 F-value P-value eta2 3.51 .0035 ,31 Source DF j Planning JControl Motivation Planning and Control Planning and Motivation ■ Control and Motivation Planning, Control, land Motivation i Sum of Squares 18.06 16. 00 18. 06 . 06 2 . 25 .56 .25 F-value 8.04 7.13 8.04 .03 1. 00 .25 . 11 P-value .0063 .0099 .0063 .8681 . 3211 . 6187 .7399 Source | Planning | Control Motivation Total Percent of Variance Accounted For 35.18 27.78 26. 03 100.00 129, TABLE 4.5 - Continued ANOVA Table - First Position, Stage Four Source DF Model 7 Error 64 Corrected Total 71 Sum of 10.43 252.89 263.32 Mean Squares Square 1.49 3 .95 F-value P-value eta2 .38 .9124 .04 Source DF I Planning 1 (Control 1 Motivation 1 Planning and Control 1 Planning and Motivation 1 Control and Motivation 1 Planning, Control, and Motivation 1 Sum of Squares 1.13 . 13 5. 01 . 01 2 .35 . 68 1.13 F-value .28 . 03 1.27 . 00 .59 . 17 .28 P-value .5955 .8594 .2642 .9529 .4437 .6795 .5955 ( Source Percent of Variance Accounted For Planning 29.33 Control 12.37 Motivation 58.30 Total 100.00 TABLE 4.5 - Continued ANOVA Table - Second Position, Stage Four Source DF Sum of Mean F-value P-value eta2 Squares Square Model 7 39.64 5.66 2.62 .0224 .28 Error 48 103.71 2.16 Corrected Total 55 143.35 i Source DF Sum of F-value P-value i Squares Planning 1 12 . 07 5.59 .0222 Control 1 .29 . 13 .7177 Motivation 1 1.79 .83 .3678 Planning and Control 1 1.14 .53 .4706 Planning and Motivation 1 20.64 9.55 .0033 Control and Motivation 1 2.57 1.19 .2808 Planning, Control and Motivation / 1 1.14 .53 .4706 Source Percent of Variance Accounted For Planning 52.80 Control 7.76 Motivation 39.44 Total 100.00 TABLE 4.6 ANOVA Table - First and Second Positions, Stage Three Source Model Error DF 7 112 Corrected Total 119 Sum of Mean F-value P-value eta2 Squares Square 70.83 10.12 4.63 244.76 315.59 2.19 .0003 .22 iSource DF Planning 1 jControl 1 (Motivation 1 planning and Control 1 Planning and Motivation 1 Control and Motivation ' 1 Planning, Control, and Motivation 1 Sum of Squares 33 . 08 10. 21 20. 01 .41 . 08 1. 01 6. 08 F-value 15.00 4.63 9.07 . 19 .00 .46 2.76 P-value . 0002 . 0336 . 0032 .6678 .9511 .5003 . 0998 Source Planning Control Motivation Total Percent of Variance Accounted For 12.66 34.51 52.83 100.00 13 TABLE 4.7 ANOVA Table - Stage One Source DF Model 7 Error 64 Corrected Total 71 Sum of Mean F-value P-value eta2 Sguares Sguare 19.65 2.81 231.33 250.98 3.61 .78 .6104 .0783 Source DF ! Planning Control Motivation Planning and Control Planning and Motivation Control and 'Motivation planning, Control, and Motivation Sum of Squares 2.35 . 13 . 01 10.13 5. 01 1. 68 . 35 F-value . 65 . 03 . 00 2 .80 1.39 .46 . 10 P-value .4233 .8531 .9508 .0991 .2433 .4978 .7576 ■ Source Percent of Variance Accounted For Planning 47.98 Control 3 3.04 Motivation 18.98 Total 100.00 TABLE 4.8 ANOVA Table - Nested by Product and Demongraphics Source Model Error DF 84 579 Corrected Total 663 Sum of Mean F-value P-value eta2 Squares Square 462.15 5.50 1626.88 2.81 2089.03 1.96 .0001 .2212 Source DF Product(Planning) 9 ‘Product(Control) 5 'Product(Motivation) 5 Product(Planning and Control) 5 Product(Planning and Motivation) 5 ‘ Product(Control and Motivation) 5 Product(Planning, Control, and Motivation) 5 Education 5 Field of Education 6 Division 7 Function Performed 6 Years Performing Function 21 Sum of F-value P-value Squares 119.52 4.73 . 0001 69.15 3.50 .0042 26.81 1.91 .0902 12.23 .87 .5021 24.66 1.76 . 1190 6.48 .46 .8070 7.27 .52 .7653 18.01 1.25 .1521 27.75 1. 65 .1322 29.44 .99 .4392 33.98 1.42 . 1836 89.88 1.52 .1437 Source Percent of Variance Accounted For Planning 47.98 :Control 3 3.04 Motivation 18.98 Total 100.00 TABLE 4.9 Function Patterns Across Stages Planning Stages Fisher Z Standard Error z-score P-value 1-2 .1194 — .9500 .1757 -4.727 . 0001 2-3 .9500 - .5100 . 1579 2.787 .0027 3-4 .5100 — .1079 . 1518 2.649 .0040 Control 1-2 . 0064 — . 0764 .1757 -.398 . 3483 2-3 . 0764 - . 1441 .1579 -.429 .3336 3-4 . 1411 — .0120 .1518 .870 .1922 Motivation 1-2 .0007 . 0340 . 1757 -.189 .4247 2-3 .0340 - .2900 . 1579 -1.621 . 0526 3-4 . 2900 - . 5230 . 1518 -1.535 .0618 i TABLE 4.10 Eta Rankings Within Stages Planning Control Motivation Start-up . 1194 . 0064 .0007 Growth .7392 . 0764 . 0340 Maturity .4670 . 1441 .2825 Harvest . 1079 . 0120 .4807 TABLE 4.10 - Continued Eta Rankings Within Stages Rankings Planning Control Motivation Stage Start-up Actual 1 Hypothesized 2 Growth Actual 1 2 3 ,Hypothesized 3 1 2 Maturity Actual 1 3 2 Hypothesized 1 1 2 harvest Actual 2 3 1 Hypothesized 1 3 2 TABLE 4.11 Fischers1 Z Test for Rankings Within Stages Functions Start-up Growth Maturity Planning/Control Z-score .6640 P-value .2526 4.8250 . 0001 2.8000 . 0026 Control/Motivation ;Z-score . 0330 P-value .488 0 2340 4090 1.1160 . 1335 Harvest .5630 .2877 2 .9840 .0014 Planning/Motivation Z-score .6970 P-value .2420 5.0590 . 0001 1.6830 . 0465 2.4210 . 0078 1 — ..... Table 4.12 Fishers 1 Z Test Between Experimental and Control Groups Difference Standard Error z-score P-value Planning Start-up . 0927 . 1392 .6659 .2546 Growth . 9233 . 1458 6.3330 . 0001 Maturity .4833 . 1159 4.1700 .0001 Harvest . 0812 . 1392 .5833 .2810 Control Start-up -.0340 . 1392 -.2442 .4052 Growth . 0360 . 1458 .2469 .4013 Maturity . 1037 . 1159 .8947 . 1867 •Harvest -.0284 . 1392 -.2040 .4207 Motivation Start-up -.0081 . 1392 -.0582 .4761 'Growth . 0252 . 1458 . 1728 .4325 Maturity . 2812 . 1159 2.4260 .0082 Harvest . 5142 . 1392 3.6940 . 0001 I Correlation Between TABLE 4. Etas and 13 Subject Assigned Weights Stage r T-score Degrees of Freedom P-value Start-up . 4024 2 . 326 28 .0200 'Growth 1 . 4998 3 . 053 28 .0030 Maturity . 1022 . 893 55 . 1900 Harvest i . 1961 1. 000 25 . 1600 Control . 0761 . 666 76 .2500 137. TABLE 5.1 Individual Subj ect Etas Amount of Explained Variance Accounted For Subj ect 3 Start-up Growth Subject 6 Growth Maturity Subj ect 9 Maturity Harvest Subj ect 13 Growth Maturity Subj ect 14 Growth Maturity Subj ect 15 Maturity Harvest Planning .5000 . 6578 Control Motivation Subject 4 Start-up .2571 Growth .0000 Subject 5 Start-up .1837 Growth .0755 9038 7806 3077 7143 Subj ect 10 Start-up .1613 Growth .0909 3600 0000 5952 4950 4526 4237 . 0000 .2368 . 0286 . 9000 . 0816 . 0000 . 0481 . 1613 . 0000 . 0286 .5226 . 0909 . 0000 . 0385 . 0238 .2525 .2737 .4237 .5000 . 1054 .7143 .1000 .7347 . 9245 0481 0581 6923 2571 3161 8182 6400 9615 3810 2525 2737 1526 Eta' . 0645 .9500 2448 9091 9423 8983 9034 8857 3023 1913 6078 7333 5682 8387 7636 6226 9372 9365 Subj ect 16 Start-up Growth . 3990 . 1112 Subj ect 17 Maturity .2032 Harvest .4444 . 5961 .4444 . 3984 . 1112 0049 4444 3984 4444 .7961 . 7500 . 9111 1.0000 TABLE 5.1 - Continued Individual Subj ect Etas Amount of Explained Variance Accounted For Subject 18 Maturity Harvest Planning .7414 .9838 Control . 1343 . 0081 Motivation .1343 .0081 Eta' . 6036 .6181 Subj ect 19 Start-up Growth .0476 .0000 .7619 .8000 . 1905 .2000 5385 7407 ISubject 22 Start-up .5828 Growth .3984 3526 2032 .0646 . 3984 9720 9685 ' Subject Growth Maturity 23 .5952 .3990 3810 5961 .0238 .0049 8750 9103 Subj ect 24 Start-up Growth . 6429 . 6429 2857 2857 . 0714 .0714 9333 9333 . Subject Growth Maturity 25 . 0196 . 0133 4902 6534 .4902 .3333 7183 8621 Subject 26 Maturity Harvest .8182 . 8182 0909 0909 . 0909 . 0909 8319 8319 Subject 28 Start-up Growth . 0783 . 0000 2174 0755 .7043 .9245 3134 9636 Subj ect 29 Growth Maturity Subject 30 Start-up Growth . 0056 .6525 . 1837 . 0755 9441 0348 0816 0000 .0503 .3127 .7347 .9245 8995 8119 9423 8983 Subject Growth Maturity 31 .5952 .4950 . 0238 .2525 . 3810 .2525 7636 6226 TABLE 5.1 - Continued Individual Subj ect Etas Amount of Explained Variance Accounted For Subject 32 Growth Maturity Subj ect 33 Maturity Harvest Planning 9038 7806 .2032 .4444 Control Motivation 0481 1613 .3984 . 1112 . 0481 .0581 .3984 .4444 Eta' . 9034 .8857 .9111 1.0000 Subject 34 ; Growth .5828 Maturity .3984 i subject 35 Maturity .8182 Harvest .8182 Subj ect 36 ■Maturity .7314 Harvest .983 8 . 3526 . 2032 .0909 . 0909 . 1343 . 0081 . 0646 . 3984 . 0909 . 0909 . 1343 . 0081 .9720 .9685 .8319 . 8319 . 6036 . 6181 Subj ect 37 Maturity Harvest .3077 .7143 . 0000 . 0286 . 6923 . 2571 .3023 . 1913 Bubj ect 38 Growth Maturity .5952 . 3990 .3810 . 5961 . 0238 . 0049 .8750 .9103 14 0i Table 5.2 Subject Etas by Stage Start-up Subj ect Planning Control Motivation Eta2 3 .5000 . 0000 .5000 .0645 4 . 2571 . 0286 .7143 . 2448 5 . 1837 . 0816 .7347 .9423 10 . 1613 . 5226 .3161 .6078 16 . 3990 . 5961 . 0049 .7961 19 . 0476 . 7619 .1905 .5385 22 . 5828 . 3526 . 0646 .9720 24 . 6429 .2857 . 0714 .9333 28 . 0783 .2174 .7043 .3134 30 . 1837 . 0816 .7347 .9423 Average .3036 .2928 .4036 .6355 Start-up ANOVA .4798 .3304 . 1898 .0783 Growth 6 .9038 . 0481 .0481 .9034 13 .3600 . 0000 .6400 .5682 ' 14 .5952 . 0238 .3810 .7636 23 .5952 . 3810 .0238 .8750 25 .0196 . 4902 .4902 .7183 ’ 29 .0056 . 9441 . 0503 .8995 31 .5952 . 0238 .3810 .7636 32 . 9038 .0481 . 0481 .9034 34 .5828 . 3526 . 0646 .9720 38 .5952 . 3810 . 0238 .8750 Average .5156 .2692 .2151 .8242 Growth ANOVA .7476 . 1140 . 1384 . 3125 r - TABLE 5.2 - Continued Subject Etas by Stage Maturity Subject Planning Control Motivation Eta2 6 .7806 . 1613 .0581 .8857 9 .3077 . 0000 . 6923 .3023 13 . 0000 . 0385 .9615 .8387 14 .4950 . 2525 .2525 .6226 15 . 4526 . 2737 .2737 .9372 17 .2032 . 3984 .3984 .9111 18 .7314 . 1343 .1343 .6036 23 . 3990 .5961 .0049 .9103 25 . 0133 . 6534 .3333 .8621 26 . 8182 . 0909 . 0909 .8319 29 . 6525 . 0348 .3127 .8119 1 31 . 4950 . 2525 .2525 . 6226 1 32 . 7806 . 1613 . 0581 .8857 : 33 . 2032 . 3984 .3984 .9111 ; 34 . 3984 .2032 .3984 .9685 35 . 8182 . 0909 . 0909 .8319 36 .7314 . 1343 .1343 .6036 37 . 3077 . 0000 .6923 .3023 38 .3990 .5961 .0049 .9103 Average .4730 .2353 .2917 .7660 Maturity ANOVA .1266 . 3451 .5283 .2244 Harvest 1 .8448 . 0000 . 1552 .8657 2 .9608 . 0196 . 0196 .4286 7 .4444 . 1112 .4444 1.0000 8 .4237 .4237 . 1526 . 9365 11 .9608 . 0196 . 0196 .4286 : 12 .9730 . 0000 .0270 .7255 , 20 . 9237 . 0076 . 0687 . 6859 21 . 6205 . 1282 .2513 . 9070 , 27 . 0046 . 2237 .7717 .7849 Average . 6840 . 1037 .2123 .7514 Harvest ANOVA .2933 . 1237 . 5830 .0396 TABLE 5.2- Continued Subj ect Etas by Stage Control Subj ect Planning Control Motivation Eta2 39 . 1333 .8333 . 0334 .5000 40 . 0909 . 8182 . 0909 .8919 41 .9608 . 0196 . 0196 .8095 42 . 1667 .6666 .1667 1.0000 43 .2571 . 7143 .0286 .7447 44 .0286 .2571 .7143 .7447 45 .7951 . 1731 .0318 .8871 46 .5526 .2237 .2237 .7228 47 .0909 . 0909 .8182 . 6471 48 .7076 .2865 .0058 .8593 49 .0196 .9608 .0196 .7183 1 50 . 0238 .5952 .3810 .7119 ! 51 .0000 . 0000 1.0000 1.0000 52 . 4237 .4237 .1526 .9365 53 . 6666 . 1667 .1667 .3158 54 .8182 . 0909 . 0909 .1158 55 .9260 . 0370 . 0370 .2432 56 .7619 . 1905 .0476 .7778 57 .4630 .4630 . 0740 .8571 58 . 7619 . 1905 . 0476 .7500 59 .7903 . 0645 . 1452 .9841 I 60 . 1112 .4444 . 4444 1.0000 1 61 .5905 . 3012 . 1083 .9540 62 . 1343 . 1343 .7314 .9437 63 .8325 . 1232 . 0443 .8788 64 .4902 . 0196 .4902 .2287 Average Control .4461 . 3188 .2352 .7393 ANOVA . 3593 . 4846 . 1564 .0807 i I 143J APPENDIX B - FIGURES Figure 1.1 Product Pife Cycle Curves Start-up Maturity Harvest Enis, La Garce, and Prell (1 9 7 7 ) S ales C osts Profits 145 . J Figure 1.2 Alternative PLC Curve ( 5 ) <3> (**) (1) (C o x , 1967 ,p.32 ) Figure 1.3 R apid S ale s G r o w t h S a tu ra te d M x u rlty D e c lin e D EA TH Pfe - In f r o d u c lion Development MARKET {W a s s o n , 197 7, p . 5 4 ) Figure ? i Interrelationships of Budget Functions Planning Realistic, most likely outcome Motivation fficult, yet obtainable Control s Ex Post Facto Adjusted Barrett and Fraser (.1977). Figure 2,2 Budgeting System Which includes People I Eninomnent accounting information i Gordon and Miller (.197 6) 14 7 J Figure 2.3 Greiner's Model Graphed PHASE 4 PHASES PHASE 2 -------- Evolution stages y V V ' / ' R e v o lu tio n sta g e s 5: C risis o f ? 4: C risis o f RED TA PE 5 : G ro w th th ro u g h C O LLA BO R A TIO N 4 : G ro w th th ro u g h C O O R D IN A T IO N r . v . ? StsE " I 2 : C risis of [ A U T O N O M Y S: G ro w th th ro u g h DE LEGA TION I l . C risis o f llZ S & l {LEA D ER SH IP m 18' S 2 : G ro w th th ro u g h D IR E C T IO N ?V l: G ro w th th ro u g h : CREATIVITY i S£u ns :e or o rg an izatio n (Greiner, 1972) Figure 2.4 " s ta t u s o f m a n a g e m e n t sc ie n c e a c tiv ity in th e o r g a n i z a ti o n ” b ir th a r.d g r o w th Graphical Representation of the Radnor-Rubenstein Model {White , 1 9 76 ) Figure 2.5 P e n e tr a tio n a n d in itia l o r g a n is a tio n A Q U I S I U O N O f EXTERNAL S K I L L S D E V E L O P M E N T O f S K IL L S IN A N E X IS T IN G U N IT Gaining te n ta tiv e le g itim a c y C o n s o lid a tin g ■egtjimacv Forced r e s tr u c tu r in g F O R M A L 3 I R T H I D E V E L O P M E N T O F d i s p e r s e d s k i l l s M ISSIO N A R Y A P P L IC A T IO N } -* —^ ( M I S S I O N A R Y A P P L IC A T IO N ! A N D e x p o s u r e M I S S I O N A R Y E X P O S U R E IF7 " DEVELOPMENT cf O R G A N IZ A T IO N A L R O L E A N O D IS C O V E R Y O F P R O S L £ M S 1 ! P .A P lD C O N S O L ID A T IO N { g r a d u a l c o n s o l i o a t i c ' l~ * j Q«CA M Z A T lO N A L lZ iN G R o u t m i i e d Change agent P ro c e s s in g ro ie A P P L IC A T IO N O F P R IO R T E C H N O L O G Y : IN A C H A N G E A G E N T R O L E A P P L IC A T IO N O F P R IO R T E C H N O L O G Y IN A P R O C E S S IN G S O ' - E _______ APPLICATION OF HIGH L E V E L M A N A G E M E N T S C IE N C E IN A C H A N G E • * G -N T R O L E A P P L IC A T IO N O F LO W L E V E L M A N A G E M E N T S C IE N C E IN A C H A N G E G E N T R O L E A P P L IC A T IO N O P H IG H L E V E L M A N A G E M E N T S C IE N C E IN A P R O C E S S IN G P O L E A P P L IC A T IO N C F LOW L E V E L M A N A G E M E N T S C IE N C E IN A PROCESSING ROLE | O E A T H | Pictorial Representation of the Descriptive Phase Model of the Development of Management Science Activities (White, 1976) 150 Figure 2.6 " s ta tu s of m a n a g e m e n t science activity ‘n th e o r g a n iz a tio n " decline T w o Alternative Patterns in the Development of Man agement Science Activities iq7fn Figure 2.7 Small Business Systems of CRutchhili.' and L&Wis S ta g e ) S la c e li S ta g e ill-D S te o e tlh -G S ta g e tv S ta g e V E x is te n c e S u rv iv al S u c c e s s * O ise n g a c e .T .e n t S u c c e s s - G ro w tn T ake-off R e s o u rc e m a tu rity E b sro c e m e n t CiMI D irect su o e rv ts.c n S u o e rv ;« e e su e ervis.on P u n ctio n ai r u n e ; c-->ai O iM .o n al U*i® sn c start C r r a n t z j u c .i 0 0 0 0 o © a a □ A 3 4 A B ♦ A ( . O 0 s e e a D a L B B A A a o a ” a 3 a 3 a s r *a as >fl*A E3* - w - « o: fo rm a l 3VE2CBI Min<rr.at t3 neno.«:s:cru Minima: 5 a s ;c O ev eico m g M aturing e x te n siv e U i 't . T u r a » q y E x iste n c e S urvival M a.rtaiftsng pcni-tco.a s ta tu s l .j o tor Grow trt R a r^ m on invesrir.ern sun.rv-saj and 3 O *D irsxler c irc le t e c r e s e n t j ow ner. L e rc e r e tr e r r r e e r e s e m & o u s in e s s . (Churchtiill and Lewis, 1983) 1511 1 Figure 2. Decision Tree of Small Business Growth _ H*scxjro ' artaturTtf R e -' to a p t / p a . Se:i lpotam y oe perm anently a t a g re a te r profit {Churchhill and Lewis, 1983) I I i 152 r Figure 2.9 Management Factors and the Staces ' Sasgilt P* A a rt* ^ s r - te e ti S i » £ £ a > » i Sur“e s s * & 4 » < e > “ ^ * * t it* * > / 5S23*«-*-2: $er '<f - « p s i i ' v r f n t ^ ?viJDr£J SrtT jV (Churchhill and Lewis, 19S3) 153 Hypothesized Function Patterns Across Stages PIanni ng Control Moti vation Hi Lo Start- Growth Maturity Harvest up Hi Start-up Growth Maturity Harvest Hi Lo Start-up Growth Maturity Harvest Fi gure 3.2 HI Planning LOW Eta Graphed 'Across Stag' PLANNING Start-up Growth Maturity Harvest Etas 1 .0152915 2 .14582 3 .05199 4 .34728 ZX Actual • Hypothesised Control HI Ft gure 3.3 Eta Graphed Across Stages LOW CONTROL Start-up Growth Maturity Harvest Etas .0152911 2 .02157 3 .02031 4 .0042874 & Actual o Hypothesised 155 I Motivatic Figure 3.4 Eta Graphed Across Stages HI MOTIVATION LOW Start-up Growth Harvest Etas 1 .0299694 A Actual • Hypothesized 2 .12425 3 4 .35825 .0015434 HIGH LUW 1.8 1.6 1.4 1.2 1.0. .8 . 6 .4 .2 Figure 4.1 Eta Graphed Across Stages PLANNING Hypothesized • Eta A Start-up Low .1194 Growth Maturity Increasing Highest .7392 .4670 Harvest Decreasing .1079 156 H igh LOW Figure 4.2 Eta Graphed Across Stages ----------------MOTIVATION--- 9 .8 .7 6 .5 ,4 .3 .2 . 1 Start-up Growth Maturi ty Harvest Hypothesized O Highest Eta A -0007 Decreasing Lowest .0340 .2825 Increasing .4807 HIGH LOW Figure 4 .3 Et'a Graphed Across Stages CONTROL .55 .50 .45 .40 .35 .30 .25 .20 .15 .10 .05 Maturity Harvest Start-up Growth Hypothesized o Low Eta A -0064 Increasing Highest .0754 , 1441 Decreasing .0120 APPENDIX C - EXHIBITS Exhibit 3.1 Combination of Stages in Questionnaire 1 . 1-2 2. 2-3 3. 3-4 4. 4 Exhibit 3.2 Analysis of Combinations of Stages in Questionnaire Stage of PLC 1 2 3 4 1 2 3 4 X-Cells used in analysis Exhibit 4.1 Memo Requesting Division Partcipation LEAR SIEGLER, INC. INTER-OFFICE CORRESPONDENCE TO: See Distribution Below DATE: May 9, 1985 f r o m : K. R. Pearson SUBJECT: DOCTORAL PROGRAM CANDIDATE AT U.S.C. CO FtES TO: Gentlemen: Dr Dick Savich of U.S.C. has asked if we could provide scone assistance to one of his doctoral program candidates, Alan Czyzewski. The attached letters describe the information he desires to obtain. I would like to solicit your assistance and to have Alan mail directly to some of your key managers the attached questionnaire that he has prepared. Attached to this letter are the managers that I have recommended from your division to be solicited for receipt of the questionnaire. Without being presumptuous on the selection of the group, please answer the following questions for me: May I hear from you by May 15, 1985, or sooner, if convenient to your schedule. Yes, go ahead and mail the questionnaire directly to the list of division managers selected. No Maybe, but let me discuss with you first. Thanking.you in advance for you assistance in this matter. K. R. Pearson KRP:mll Attachments 3>l/IS'oy distribution list B. Rodgers j. A. Hollars J. H. Kulp 0. T. Bowland F. E. Cole R. G. Knoblock L. R. Couts Astronics S . ^ Anchorlok f Signal^ Energy Products'^' Transport Dynamics Data Products ^ OtC. Electronic Instrumentation 160 j Exhibit 4.2 Letter Accompanying Questionnaire Dear s*r. : »r. Ken Pearson, Director of Industrial Relations. pave me your name as a person T could contact to fill out tnis questionnaire. Your Division President has also been notified and aooroved of this oroject. The ouestionnaire is part of a study concerning planning budgeting processes in corporations. It should take approximately thirty minutes to complete. Results will be reported in aggregate form only and individual responses will oe strictly confidential. I will call you during the week of June 3rd, to schedule a fifteen to twenty minute meeting, at your convenience to Dick ud the ouestionnare and answer any Questions you might have. I will be haooy to suooiy you with the results of the stucy when they are availaole. Thank you for your time and held in this study. Sincerely, Alan B. Czyzewski Doctoral Candioate 161 -4 APPENDIX D - SAMPLE QUESTIONNAIRE This questionnaire is part of a study to determine the decision processes managers use when they prepare a budget. Before completing the questionnaire, please read the following definitions. When answering the questions, use the terms as defined. DEFINITION’ S Planning The development of future objectives and goals and the formulation of steps to achieve these objectives and goals. j Centralized planning - A centralized planning budget clearly J lays out the objectives and goals and how the firm expects the manager to reach the objectives and goals. There is a format to be followed when preparing plans. Headquarters approves all budgets, goals, and objectives. The planning activity has certain steps to be taken which are detailed in a formal document distributed by headquarters. Results are reported , regularly to headquarters using a standardized format. Activities of the various divisions are coordinated by headquarters. Redundant programs are deleted. Plans for each j division contain detailed performance criteria. Managers are evaluated on how well they achieve the budget. Decentralized planning -A decentralized planning budget provides only general guidelines and leaves implementation to the divisions. The divisions, not headquarters, decide their own goals and objectives. Headquarters does not approve a division's budget. It only receives the budget for information purposes. Headquarters provides only basic support services. Research i and development efforts are conducted by the divisions and may be j duplicated. Products from the various divisions may compete with j each other. Divisions are responsible for a certain minimum level of profitability. Performance is measured by profitability(e.g., return on assets, net income , or net income as a percent of sales). Information from the divisions is sent to headquarters only in unusual circumstances, good or bad, or at the end of the period to report the division's performance. Control The means by which management assures that all parts of the organization function properly and attain objectives articulated in the planning stage. Formal control - A formal control budget contains the means by which management can assure that operations are going as planned. Reports are used to gather information on operations. Formats and due dates of the reports are stated and enforced. Only authorized personnel are provided specified data. The reports measure such detailed items as output, hours worked, scrap, defective units, overtime, etc. How the data will be collected is determined by headquarters. Headquarters audits and monitors the results. Benchmarks of success are determined by headquarters and communicated to the divisions. All reports are sent to a central location for evaluation. Rewards are predetermined for various levels of performance. Authorization to do certain activities comes from headquarters,including expenditures over a certain amount, new product introduction, or number of employees. Major decisions for the divisions, such as major plant expansion, new products, or research and personnel, are made at headquarters. Informal control - An informal control budget depends on divisional management having hands-on control. The manager is involved on a day-to-day basis with operations. The manager is familiar with all phases of operations. The manager knows what should be going on, when it should be going on, and where it should be happening. Control is exercised by observing operations, walking the floor, talking to workers, or actually getting involved in the operations. Managers know the names of operations personnel. Reports, if used within a division, are not of a predetermined form, and are often just memos. Memos or reports are prepared only when events need explaining. Performance evaluation is done within the division. A good example of informal control is the owner run firm where the owner does a little of everything. The owner signs the checks, does most of the purchasing, negotiates with customers, and helps supervise production. A rigid, formal system of control is not needed because the owner has a handle on all aspects of the firm and can correct problems. Decisions are often made on the spot. Motivation The intrinsic force within an individual. It is how behavior is started, energized, sustained, directed, and stopped. External motivation - An external motivation budget supplies a manager with the need to achieve the budget objectives and goals. Managers know what is expected of them in an external motivation budget. The motivation to perform is provided by the budget. Performance is measured by comparing actual results with the budget. Motivation to perform comes from outside the manager not within. External motivation provides managers with goals to achieve. The goals are consistent across the firm. Managerial efforts toward firm goals and objectives are coordinated. Each manager knows what to expect, in terms of performance, from other personnel. There is no ambiguity as to what is expected; it is specified. The manager can plan how and j when to act. | Internal motivation - An internal motivation budget leaves motivation to the individual. The need within a manager to do the best possible job is the primary motivating force. Managers perform because they want to do their best, not because the budget prompts it. Managers see their level of performance as measured against internal goals as more relevant than the goals set by the budget. Managers may see their goals as more relevant because the budget's goals are unrealistic. The budget's goals may be set too high. Managers are not motivated by this type of budget because they know they can never reach its goals. The budget's goals may be set too low. Managers do not respond to this type of budget because the goals can be reached without effort. In an internal motivation budget a manager is not evaluated by comparision to the budget. With either type of budget the manager must be motivated to act from within, because the budget does not provide the motivaton to act. The manager, not the budget, sets the goals and objectives that need to be reached to be judged successful. Also, how the goals and objectives are reached is left to the manager. Budget Success - Budget Success is how well the budget assists managers perform their duties and tasks. A helpful budget helps the manager to operate successfully and meet the i goals and objectives of the manager and/or budget. Goals and I objectives of a budget can be profits, market share, productivity levels, quality levels, or combinations of any of the above. A budget helps a manager by providing the proper amount of planning, control, and motivation. If the budget does not have enough planning or has too much, managers may not meet the goals and objectives of the budget, which is their job. For example - a manager of a medical group does not need a detailed budget on how he or she is to produce a given net income number. A budget which did this would be a hinderance because illnesses cannot be forced to happen. Probably no doctor could function in an environment like this. Managers of a manufacturing plant might find a detailed budget helpful to meet their or the budget's goals and objectives. A budget's helpfulness or hinderance depends on how well the budget provides what managers need to reach the budget's or their goals and objectives. APPENDIX D - SAMPLE QUESTIONNAIRE INSTRUCTIONS Cases are constructed using various combinations of the above definitions, using one level each of planning, control, and motivation. You will be asked to determine how helpful a budget would be given the various levels of planning, control, and motivation for a specific product(widget or yanger, explained more fully below). For each of the following products, please indicate how helpful a budget would be, given the attributes in each case, by circling the appropriate number. A -3 rating, hindering, means the budget would hinder the manager in achieving his/her or the budget's goals. A 0 rating,neither hindering or helpful, means the budget would neither help nor hinder managers in achieving their or the budget's goals. A +3 rating, helpful, means the budget would help managers in achieving their or the budget's goals. The Widget The widget is just being introduced to the market. The widget is not a redesign of an old product, but a new product concept being introduced by a division. The widget's dollar volume of sales is low, but projections show large percentage increases— 50% or more— for the next two or three years. The Marketing department is concentrating on gaining customer acceptance since there are few direct competitors to the widget. There is frequent redesign and modification of the product by the marketing department. Financially the widget is absorbing cash and not producing a net profit. Gross profit is low due to high production and engineering costs. Example: A budget for a widget has centralized planning, formal control, and external motivation. If you see this budget as being neither helpful or hindering in achieving its goals and objectives, you would circle the zero point of the line. Hindering _________________________________ Helpful -3 -2 -1 0 +1 +2 +3 If, however, you thought such a budget would be helpful but not as helpful as possible, you would circle the +1 or +2 point on the line. The actual cases follow. Widget Case 1 The widget is just being introduced to the market. The widget is not a redesign of an old product, but a new product concept being introduced by a division. The widget's dollar volume of sales is low, but projections show large percentage increases— 50% or more— for the next two or three years. The Marketing department is concentrating on gaining customer acceptance since there are few direct competitors to the widget. There is frequent redesign and modification of the product by the marketing department. Financially the widget is absorbing cash and not producing a net profit. Gross profit is low due to high production and engineering costs. Planning is centralized - A centralized planning budget clearly lays out the objectives and goals and how the firm expects the manager to reach the objectives and goals. A centralized planning budget coordinates all the activities of the firm. Control is formal - A formal control budget contains the means by which management can assure that operations are going as planned. Results are reported on a timely bisis and compiled in an accurate and reasonable manner that reflects the performance of the manager. Motivation is external — An external motivation budget supplies a manager with the need to behave in such a manner as to achieve the budget objectives and goals. Managers know what is expected of them in an external motivation budget. Budget will be Hindering __________________________________ Helpful —3 2 —1 0 +1 +2 - r 3 Widget Case 2_ The widget is not a redesign. The widget has a low gross profit, few direct competitors, absorbs cash, low dollar sales, frequent debugging, does not produce a net profit, and is one and a half years old. Planning is centralized - A centralized planning budget clearly lays out the objectives and goals and how the. firm expects the manager to reach the objectives and goals. A centralized planning budget coordinates all the activities of the firm. Control is formal - A formal control budget contains the means by which management can assure that operations are going as planned. Results are reported on a timely basis and compiled in an accurate and reasonable manner that reflects the performance of the manager. Motivation is internal - An internal motivation budget leaves the motivation to act in accordance with the budget up to the individual. The budget provides little motivation to the individual. The motivation to conform to the budget comes from within the individual. Budget will be Hindering __________________________________ Helpful -3 -2 -1 0 +1 +2 +3 Widget Case 3_ The widget is not a redesign. The widget has a low gross profit, few direct competitors, absorbs cash, low dollar sales, frequent debugging, does not produce a net profit, and is one and a half years old. Planning is centralized - A centralized planning budget clearly lays out the objectives and goals and how the firm expects the manager to reach the objectives and goals. A centralized planning budget coordinates all the activities of the firm. Control is informal - An informal control budget depends on management having hands-on control. Control is exercised by management actually observing operations. Performance is evaluated and results are reported in a casual and intermittent manner. Motivation is internal - An internal motivation budget leaves the motivation to act in accordance with the budget up to the individual. The budget provides little motivation to the individual. The motivation to conform to the budget comes from within the individual. Workers compete with other workers instead of cooperate with them. Budget will be Hindering _________________________________ Helpful -3 -2 -1 0 +1 + 2 + 3 Widget Case 4 ^ The widget is not a redesign. The widget has a low gross profit, few direct competitors, absorbs cash, low dollar sales, frequent debugging, does not produce a net profit, and is one and a half years old. Planning is decentralized - In a decentralized planning budget headquarters does not clearly state the goals and objectives. Activities of various managers are not coordinated. Planning is left up to the individual managers. Control is informal - An informal control budget depends on management having hands-on control. Control is exercised by managment actually observing operations. Performance is evaluated and results are reported in a casual and intermittent manner. Motivation is internal - An internal motivation budget leaves the motivation to act in accordance with the budget up to the individual. The budget provides little motivation to the individual. The motivation to conform to the budget comes from within the individual. Workers compete with other workers instead of cooperate with them. Budget will be Hindering __________________________________ Helpful -3 -2 -1 0 +1 +2 +3 Widget Case 5 The widget is not a redesign. The widget has a low gross profit, | few direct competitors, absorbs cash, low dollar sales, frequent debugging, does not produce a net profit, and is one and a half years old. Planning is decentralized - In a decentralized planning budget headquarters does not clearly state the goals and objectives. Activities of various managers are not coordinated. Planning is left up to the individual managers. Control is informal - An informal control budget depends on management having hands-on control. Control is exercised by management actually observing operations. Performance is evaluated and results are reported in a casual and intermittent manner. Motivation is external - An external motivation budget supplies a manager with the need to behave in such a manner as to achieve the budget objectives and goals. Managers know what is expected of them in an external motivation budget. Budget will be Hindering _________________________________ Helpful -3 -2 -1 0 +1 +2 +3 Widget Case < 5 The widget is not a redesign. The widget has a low gross profit, few direct competitors, absorbs cash, low dollar sales, frequent debugging, does not produce a net profit, and is one and a half years old. Planning is decentralized - In a decentralized planning budget headquarters does not clearly state the goals and objectives. Activities of various managers are not coordinated. Planning is left up to the individual managers. Control is formal - A formal control budget contains the means — by which management can assure that operations are going as * planned. Results are reported on a timely basis and compiled in an accurate and reasonable manner that reflects the performance of the manager. Motivation is external - An external motivation budget supplies a manager with the need to behave in such a manner as to achieve the budget objectives and goals. Managers know what is expected of them in an external motivation budget. Budget will be Hindering_______________________________ Helpful -3 -2 -1 0 +1 +2 +3 169 Widcret Case 7. The widget is not a redesign. The widget has a low gross profit, few direct competitors, absorbs cash, low dollar sales, frequent debugging, does not produce a net profit, and is one and a half years old. Planning is centralized - A centralized planning budget clearly lays out the objectives and goals and how the firm expects the manager to reach the objectives and goals. A centralized planning budget coordinates all the activities of the firm. Control is informal - An informal control budget depends on management having hands-on control. Control is exercised by management actually observing operations. Performance is evaluated and results are reported in a casual and intermittent manner. Motivation is external - An external motivation budget supplies a manager with the need to behave in such a manner as to achieve the budget objectives and goals. Managers know what is expected of them in an external motivation budget. Budget will be Hindering __________________________________ Helpful -3 - 2 -1 0 +1 +2 +3 Widget Case 8 The widget is not a redesign. The widget has a low gross profit, few direct competitors, absorbs cash, low dollar sales, frequent debugging, does not produce a net profit, and is one and a half years old. Planning is decentralized - In a decentralized planning budget headquarters does not clearly state the goals and objectives. Activities of various managers are not coordinated. Planning is left up to the individual managers. Control is formal - A formal control budget contains the means by which management can assure that operations are going as planned. Results are reported on a timely basis and compiled in an accurate and reasonable manner that reflects the performance of the manager. Motivation is internal - An internal motivation budget leaves the motivation to act in accordance with the budget up to the individual. The budget provides little motivation to the individual. The motivation to conform to the budget comes from within the individual. Workers compete with other workers instead of cooperate with them. Budget will be Hindering __________________________________ Helpful -3 -2 -1 0 +1 +2 +3 When preparing a budget a manager considers the planning, control, and motivation aspects of it. For planning purposes a manager wants the most realistic outcome. For motivational purposes a manager wants the budget to be difficult yet obtainable. For control purposes a manager wants the budget to be the optimal budget; what are the best possible results. Keeping the above in mind, what percent of your time during the year would you spend on the following for a widget Planning Control Motivation Other(please describe below) lOOPercent total ranger case ^ The Yanger - The yanger has experienced major growth recently. The yanger's technology has been accepted by the market. There have been high percentage growth rates, 25-50%, during previous fiscal periods and 15-2 0% during recent periods. The number one objective for the yanger is gaining market share and expanding marketing and production capacity to meet the increased market share. Ho dominant producer has appeared yet in the yanger's market. The competition is increasing as new competitors enter the market- The gross profit percentage has been increasing due to volume increases and operating efficiencies. The yanger's cash flow has gone from negative to being relatively high. Beturn on Assets before tax has gone from zero to around 15% recently. Planning is centralized - A centralized planning budget clearly lays out the objectives and goals and how the firm expects the manager to reach the objectives and goals. A centralized planning budget coordinates all the activities of the firm. Control is formal - A formal control budget contains the means by which management can assure that operations are going as planned. Results are reported on a timely basis and compiled in an accurate and reasonable manner that reflects the performance of the manager. Motivation is external - An external motivation budget supplies a manager with the need to behave in such a manner as to achieve the budget objectives and goals. Managers know what is expected of them in an external motivation budget. Budget will be Hindering __________________________________ Helpful -3 -2 “1 0 +1 +2 +3 Yanger Case 2 The yanger has an emphasis on expanding market share; gross profit has been increasing; sales growth rates were 25-50% during previous fiscal periods, and 15-20% during recent fiscal periods; Sales volume is growing; cash return has gone from negative to being relatively high; competition has increased, but r.o dominant producer has emerged; and Return on Assets before tax has grown from 0% to about 15%. Planning is centralized - A centralized planning budget clearly lays out the objectives and goals and how the firm expects the manager to reach the objectives and goals. A centralized planning budget coordinates all the activities of the firm. Control is formal - A formal control budget contains the means by which management can assure that operations are going as planned. Results are reported on a timely basis and compiled in an accurate and reasonable manner that reflects the performance of the manager. Motivation is internal - An internal motivation budget leaves the motivation to act in accordance with the budget up to the individual. The budget provides little motivation to the individual. The motivation x d conform to the budget comes from within the individual. Workers compete with other workers instead of cooperate with them. Budget will be Hindering ___________________ Helpful -3 -2 -1 0 +1 +2 +3 Yanger Case 3^ The yanger has an emphasis on expanding market share; gross profit has been increasing; sales growth rates were 25-50% during previous fiscal periods, and 15-20% during recent fiscal periods; Sales volume is growing; cash return has gone from negative to being relatively high; competition has increased, but no dominant producer has emerged; and Return on Assets before tax has grown from 0% to about 15%. Planning is centralized - A centralized planning budget clearly lays out the objectives and goals and how the firm expects the manager to reach the objectives and goals. A centralized planning budget coordinates all the activities of the firm. Control is informal - An informal control budget depends on management having hands-on control. Control is exercised by management actually observing operations. Performance is evaluated and results are reported in a casual and intermittent manner. Motivation is internal - An internal motivation budget leaves the motivation to act in accordance with the budget up to the individual. The budget provides little motivation to the individual. The motivation to conform to the budget comes from within the individual. Workers compete with other workers instead of cooperate with them. Budget will be Hindering __________________________________ Helpful -3 -2 -1 0 +1 +2 +3 Yanger Case £ The yanger has an emphasis on expanding market share; gross profit has been increasing; sales growth rates were 25-50% during previous fiscal periods, and 15-20% during recent fiscal periods; Sales volume is growing; cash return has gone from negative to being relatively high; competition has increased, but no dominant producer has emerged; and Return on Assets before tax has grown from 0% to about 15%. Planning is decentralized - In a decentralized planning budget headquarters does not clearly state the goals and objectives. Activities of various managers are not coordinated. Planning Is left up to the individual managers. Control is informal - An informal control budget depends on management having hands-on control. Control is exercised by management actually observing operations. Performance is evaluated and results are reported in a casual and intermittent manner. Motivation is internal - An internal motivation budget leaves the motivation to act in accordance with the budget up to the individual. The budget provides little motivation to the individual. The motivation to conform to the budget comes from within the individual. Workers compete with other workers instead of cooperate with them. Budget will be Hindering _____ Helpful -3 -2 -1 0 +1 +2 +3 Yanger Case 5 The yanger has an emphasis on expanding market share; gross profit has been increasing; sales growth rates were 25-50% during previous fiscal periods, and 15-20% during recent fiscal periods; Sales volume is growing; cash return has gone from negative to being relatively high; competition has increased, but no dominant producer has emerged; and Return on Assets before tax has grown from 0% to about 15%. Planning is decentralized - In a decentralized planning budget headquarters does not clearly state the goals and objectives. Activities of various managers are not coordinated. Planning is left up to the individual managers. Control is informal - An informal control budget depends on management having hands-on control. Control is exercised by management actually observing operations. Performance is evaluated and results are reported in a casual and intermittent manner. Hotivation is external - An external motivation budget supplies a manager with the need to behave in such a manner as to achieve the budget objectives and goals. Managers know what is expected of them in an external motivation budget. Budget will be Hindering __________________________________ Helpful -3 -2 -1 0 +1 +2 +3 Yanerer Case £ The yanger has an emphasis on expanding market share; gross profit has been increasing; sales growth rates were 25-50% during previous fiscal periods, and 15-20% during recent fiscal periods; Sales volume is growing; cash return has gone from negative to being relatively high; competition has increased, but no dominant producer has emerged; and Return on Assets before tax has grown from 0% to about 15%. Planning is decentralized - In a decentralized planning budget headquarters does not clearly state the goals and objectives. Activities of various managers are not coordinated. Planning is left up to the individual managers. Control is formal — A formal control budget contains the means by which management can assure that operations are going as planned. Results are reported on a timely basis and compiled in an accurate and reasonable manner that reflects the performance of the manager. Motivation is external - An external motivation budget supplies a manager with the need to behave in such a manner as to achieve the budget objectives and goals. Managers know what is expected of them in an external motivation budget. Budget will be Hindering __________________________________ Helpful -3 -2 -1 0 +1 +2 +3 Yanger Case 7 The yanger has an emphasis on expanding market: share; gross profit has been increasing; sales growth rates were 25-50% during previous fiscal periods, and 15-20% during recent fiscal periods; Sales volume is growing; cash return has gone from negative to being relatively high; competition has increased, but no dominant producer has emerged; and Return on Assets before tair has grown from 0% to about 15%. Planning is centralized - A centralized planning budget clearly lays out the objectives and goals and how the firm expects the manager to reach the objectives and goals. A centralized planning budget coordinates all the activities of the firm. Control is informal - An informal control budget depends on management having hands-on control. Control is exercised by management actually observing operations. Performance is evaluated and results are reported in a casual and intermittent manner. Motivation is external - An external motivation budget supplies a manager with the need to behave.in such a manner as to achieve the budget objectives and goals. Managers know what is expected of them in an external motivation budget. Budget will be Hindering __________________________________ Helpful -3 -2 -1 0 +1 +2 +3 Yanoer Case 8 The yanger has an emphasis on expanding market share; gross profit has been increasing; sales growth rates were 25-50% during previous fiscal periods, and 15-20% during recent fiscal periods; Sales volume is growing; cash return has gone from negative to being relatively high; competition has increased, but no dominant producer has emerged; and Return on Assets before tax has grown from 0% to about 15%. Planning is decentralized - In a decentralized planning budget headquarters does not clearly state the goals and objectives. Activities of various managers are hot coordinated. Planning is left up to the individual managers. Control is formal - A formal control budget contains the means by which management can assure that operations are going as planned. Results are reported on a timely basis and compiled in an accurate and reasonable manner that reflects the performance of the manager. Motivation is internal - An internal motivation budget leaves the motivation to act in accordance with the budget up to the individual. The budget provides little motivation to the individual. The motivation to conform to the budget comes from within the individual. Workers compete with other workers instead of cooperate with them. Budget will be Hindering ________________________________ _ Helpful -3 -2 -1 0 +1 +2 +3 When preparing a budget., a manager should consider the planning, control, and motivation aspects of it. For planning purposes, a manager wants the most realistic outcome. For motivational purposes, a manager wants the budget to be difficult yet attainable. For control purposes a manager wants the budget to be the optimal budget; what are the best pooible results. Keeping the above in mind, what percent of your time during the year would you spend on the following for a yanger Planning Control Motivation Other(please describe below) lOOFercent total Please indicate the highest level of education you have obtained. High school____ Associate Degree____ Bachelors Degree____ MBA Masters Degree-Other____ Doctoral Degree____ In what field was your most recent degree?____ Which division do you work for?_________________ What function do you perform? Accounting/F inance_____ Sales/Marketing_____ Production______ Engineering______ Other(Please Describe)___________________________ How many years have you been performing this function? UMI Number: DP22618 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a com plete manuscript and there are missing pages, th ese will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI DP22618 Published by ProQ uest LLC (2014). Copyright in the Dissertation held by the Author. Microform Edition © ProQ uest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United S tates Code ProQuest LLC. 789 E ast Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106 -13 4 6

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Asset Metadata

Creator Czyzewski, Alan Benjamin (author)

Core Title The project life cycle and budgeting functions: planning, control, and motivation

School Graduate School

Degree Doctor of Philosophy

Degree Program Business

Degree Conferral Date 1985-12

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag engineering, industrial,OAI-PMH Harvest,operations research

Language English

Contributor Digitized by ProQuest (provenance)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c17-748137

Unique identifier UC11345868

Identifier DP22618.pdf (filename),usctheses-c17-748137 (legacy record id)

Legacy Identifier DP22618.pdf

Dmrecord 748137

Document Type Dissertation

Rights Czyzewski, Alan Benjamin

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA