Strategy selection and performance measurement choice when profit drivers are uncertain

Ronald A. Dye

doi:10.1287/mnsc.1030.0160

Strategy selection and performance measurement choice when profit drivers are uncertain

Ronald A. Dye^*

^*Corresponding author for this work

Accounting Information and Management

Research output: Contribution to journal › Article › peer-review

21 Scopus citations

Abstract

This paper studies a manager's attempt to maximize his firm's discounted expected profits by choosing what strategic actions to select and what performance measurement system to employ in a setting where the manager is uncertain about what variables "drive" the firm's profits, the firm's profit drivers remain stationary over time, and strategic actions differ in the amount of information they produce about the firm's profit drivers. For each available performance measurement system, this paper identifies necessary and sufficient conditions for experimentation-that is, deviating from the firm's short-run expected profit-maximizing action - to be optimal. In addition, the paper determines what factors influence a firm's preferred performance measurement system, and it explains why the preferred performance measurement system is likely to change over time.

Original language	English (US)
Pages (from-to)	1624-1637
Number of pages	14
Journal	Management Science
Volume	50
Issue number	12
DOIs	https://doi.org/10.1287/mnsc.1030.0160
State	Published - Dec 1 2004

Keywords

Bandit problems
Business models
Experimentation
Learning-by-doing
Profit drivers

ASJC Scopus subject areas

Strategy and Management
Management Science and Operations Research

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AB - This paper studies a manager's attempt to maximize his firm's discounted expected profits by choosing what strategic actions to select and what performance measurement system to employ in a setting where the manager is uncertain about what variables "drive" the firm's profits, the firm's profit drivers remain stationary over time, and strategic actions differ in the amount of information they produce about the firm's profit drivers. For each available performance measurement system, this paper identifies necessary and sufficient conditions for experimentation-that is, deviating from the firm's short-run expected profit-maximizing action - to be optimal. In addition, the paper determines what factors influence a firm's preferred performance measurement system, and it explains why the preferred performance measurement system is likely to change over time.

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Strategy selection and performance measurement choice when profit drivers are uncertain

Abstract

Keywords

ASJC Scopus subject areas

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