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Strategy communication and measurement systems

  • Pascal Courty

Organizations often face the challenge of communicating their strategies to local decision makers. The difficulty presents itself in finding a way to measure performance wich meaningfully conveys how to implement the organization's strategy at local levels. I show that organizations solve this communication problem by combining performance measures in such a way that performance gains come closest to mimicking value-added as defined by the organization's strategy. I further show how organizations rebalance performance measures in response to changes in their strategies. Applications to the design of performance metrics, gaming, and divisional performance evaluation are considered. The paper also suggests several empirical ways to evaluate the practical importance of the communication role of measurement systems.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/330.pdf
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 330.

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Date of creation: Oct 1997
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Handle: RePEc:upf:upfgen:330
Contact details of provider: Web page: http://www.econ.upf.edu/

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  1. Baker, G.P. & Jensen, M.C. & Murphy, K.J., 1988. "Compensation And Incentives: Practice Vs. Theory," Papers 88-05, Rochester, Business - Managerial Economics Research Center.
  2. Courty, Pascal & Marschke, Gerald, 1997. "Measuring Government Performance: Lessons from a Federal Job-Training Program," American Economic Review, American Economic Association, vol. 87(2), pages 383-88, May.
  3. HOLMSTROM, Bengt, . "Moral hazard and observability," CORE Discussion Papers RP -379, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
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