The Interplay between Customized and Uniform Targets: Using Input-Output and Peer Information to Enhance Achievement of Uniform Targets

Abstract

Many firms operate multiple units that produce and sell similar products and services using similar marketing and operating practices. Although local managers may be exposed to varying local conditions, firms typically attempt to control their operations to assure that their customers experience the same high level of quality at every location. Firms thus may set nonfinancial targets that are uniform across the firm, i.e., they may be set equal for all stores. But these targets may not be effort-inducing for managers who missed the prior-period uniform target, as they know that their next-period target will not be reduced. We argue that a firm can support the achievability of a uniform target by providing underperforming firm units with additional resources to facilitate performance improvements. Using unique data from a retail firm, we find that our focal firm provides higher labor budgets to store managers who underperform on uniform customer and employee satisfaction measures. However their budget extension is conditional on them performing better than their in these uniform measures. We also find evidence to suggest that a budget labor budgeextension enables managers to improve their nonfinancial performance in the next period.