Isabella Grabner

Managers' Choices of Performance Measures in Promotion Decisions: An Analysis of Alternative Job Assignments

In this study, we investigate the choice of performance measures in promotion decisions. In particular, we examine the extent to which managers incorporate different performance measures for different types of job assignment. Based on a simple theoretical framework, we predict that, in making promotion decisions, the weight on current job performance decreases with increases in the change in tasks upon promotion, while the weight on subjective assessments of ability increases. This result basically follows from the premise that, with increased changes in tasks between hierarchical levels, the ability to master the current job says little about the ability needed in the next job, which makes current job performance less informative and increases the emphasis on subjective assessments. Using panel data of a retail bank, we find that individual managers behave according to our predictions. By examining the choice of performance measures in promotion decisions, we are able to provide unique insights into the incentive versus sorting roles of promotions, which has important implications for performance measurement and incentive system design.

Implicit Incentives for Human Capital Acquisition

The importance of human capital in building and maintaining competitive advantage is undisputed, and ensuring that employees invest in their human capital has thus become of utmost importance to firms. Despite this, management control research has not dedicated much attention to the personnel control mechanisms that aim at upgrading the effective ability of employees, i.e., training and assignment of employees. In this study, we investigate the complementary roles of training and promotions in the active management of employees’ human capital acquisition. In particular, based on a simple theoretical framework, we predict that promotion opportunities create implicit incentives to invest in job-specific human capital. To test this prediction, we develop an identification strategy to estimate the causal effect of promotion opportunities on the acquisition of job-specific human capital. Using panel data of a retail bank, we provide evidence that, in contrast to bonus-based incentives, which focus on the current job, promotion is an ideal mechanism to incentivize the acquisition of human capital that is relevant for the next job, especially when these skills are not yet relevant in the current job.

The Folly of Forecasting: The Effects of a Disaggregated Demand Forecasting System on Forecast Error, Forecast Positive Bias, and Inventory Levels

In this study, we use field and archival methods to examine the effects of sales forecast accuracy and bias on inventory and production planning within a large manufacturing organization. While the operations literature is replete with analytic and simulation studies of S&OP systems, this research fails to account for the role that incentives, biases, and organizational dynamics play. In stark contrast to prior literature, we find no associations between sales forecast accuracy and either inventory levels or short-horizon production plan stability at our research site, suggesting that operations manager discount the value of sales forecasts and, instead, rely on their own historical data. However, during the period of study, our research site modified its S&OP process to incorporate a mechanism for sales managers to disaggregate sales forecasts into its two constituent components: sales forecasts of relatively certain demand information, and sales forecasts of highly uncertain demand information. Our findings show sales forecast accuracy improved following sales forecast disaggregation with corresponding improved production plan stability. However, while greater forecast accuracy was associated with lower inventory, this was offset by higher inventory owing to increased sales forecast bias. More generally, the disaggregation of sales forecasts restored the associations between sales forecast accuracy and both inventory and production plans presumed in operations research, suggesting improved reliability of sales forecasts from the perspective of production planners. Our study provides novel insights regarding the role of forecasting within the organizational context.

The Folly of Forecasting: The Effects of a Disaggregated Sales Forecasting System on Sales Forecast Error, Sales Forecast Positive Bias, and Inventory Levels

In this study, we use field and archival methods to examine the effects of sales forecast accuracy and bias on inventory and production planning within a large manufacturing organization. While the operations literature is replete with analytic and simulation studies of S&OP systems, this research fails to account for the role that incentives, biases, and organizational dynamics play. In stark contrast to prior literature, we find no associations between sales forecast accuracy and either inventory levels or short-horizon production plan stability at our research site, suggesting that operations manager discount the value of sales forecasts and, instead, rely on their own historical data. However, during the period of study, our research site modified its S&OP process to incorporate a mechanism for sales managers to disaggregate sales forecasts into its two constituent components: sales forecasts of relatively certain demand information, and sales forecasts of highly uncertain demand information. Our findings show sales forecast accuracy improved following sales forecast disaggregation with corresponding improved production plan stability. However, while greater forecast accuracy was associated with lower inventory, this was offset by higher inventory owing to increased sales forecast bias. More generally, the disaggregation of sales forecasts restored the associations between sales forecast accuracy and both inventory and production plans presumed in operations research, suggesting improved reliability of sales forecasts from the perspective of production planners. Our study provides novel insights regarding the role of forecasting within the organizational context.

Determinants and Consequences of Budget Reallocations: Evidence from the Consumer Goods Industry

In this study, we investigate the determinants and consequences of budget reallocations, i.e., corrective actions to the budget made during the year. In particular, we analyze in how far allocation decisions regarding the initial budget drive subsequent reallocations, over and above the new information on economic factors that managers incorporate in their reallocation decisions. Using proprietary data of a large European consumer goods manufacturer, we hypothesize and find that deviations from the economically predicted initial budget influence the likelihood of budget cuts directly in the reallocation process in an attempt to increase efficiency, as well as indirectly via the influence on entities’ performance development during the year. In a more exploratory analysis, we show that such reallocations do not have the desired effects on market-place and financial performance. In particular, budget cuts are negatively associated with a product’s profitability, as well as the change in market share. More surprisingly, budget boosts do not have an (positive) effect on these performance indicators. Most importantly, our results demonstrate that efficient investment planning ex-ante is essential to achieve an improvement in performance, highlighting the value of budgeting.

The Folly of Forecasting: The Effects of Sales Forecast Accuracy and Bias on Inventory and Production Decisions under Aggregated and Disaggregated Forecasting Regimes

In this study, we use field and archival methods to examine the effects of sales forecast accuracy and bias on inventory and production planning within a large manufacturing organization. While the operations literature is replete with analytic and simulation studies of S&OP systems, this research fails to account for the role that incentives, biases, and organizational dynamics play. In stark contrast to prior literature, we find no associations between sales forecast accuracy and either inventory levels or short-horizon production plan stability at our research site, suggesting that operations manager discount the value of sales forecasts and, instead, rely on their own historical data. However, during the period of study, our research site modified its S&OP process to incorporate a mechanism for sales managers to disaggregate sales forecasts into its two constituent components: sales forecasts of relatively certain demand information, and sales forecasts of highly uncertain demand information. Our findings show sales forecast accuracy improved following sales forecast disaggregation with corresponding improved production plan stability. However, while greater forecast accuracy was associated with lower inventory, this was offset by higher inventory owing to increased sales forecast bias. More generally, the disaggregation of sales forecasts restored the associations between sales forecast accuracy and both inventory and production plans presumed in operations research, suggesting improved reliability of sales forecasts from the perspective of production planners. Our study provides novel insights regarding the role of forecasting within the organizational context.

Pay for Creativity? The Complementarity between Individual Rewards And Subjective Evaluations of Non-Task-Related Performance in Incentive System Design

In this paper, I empirically investigate the impact of an organization’s reliance on collaborative creativity on the design of incentive systems. In creativity-reliant firms, i.e., firms for which the primary source of value creation lies in the creativity of their core employees, incentive system design is particularly challenging, since the nature of creative work constrains the feasibility of extrinsic incentives but at the same time creates a need for them. Accordingly, literature seems to suggest that the use of incentives renders people not creative enough, while a lack of them makes them “too creative”. I argue that a solution to this dilemma can be found in (1) acknowledging that the decision to use individual rewards is not made in isolation, and (2) viewing the incentive system as a set of complementary choices. I theoretically argue and empirically show that subjective evaluations of non-task-related performance and individual rewards are complements in creativity-reliant settings. Given the implications of this complementarity for incentive system design, I further show that reliance on collaborative creativity increases the use of individual rewards in the presence of such subjective evaluations, while it decreases its use in the their absence.