https://orcid.org/0000-0002-8187-8266
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ABSTRACT
We examined whether participation of frontline employees (FEs) in a firm’s strategic planning using strengths, weaknesses, opportunities, and threats (SWOT) analysis mitigates managers’ budget slack creation and whether it improves budget evaluation. Using a lab-in-the-field experiment in an agro-processing firm in Ghana, we found that FE participation in strategic planning enhanced managers’ identification of the number of internal and external factors affecting the firm, enabling the firm to better understand the environment in which the budget process is undertaken. We also found that FE participation reduced managers’ budget slack creation and bias in their performance evaluation. In an additional analysis, we found that FE participation improved managers’ budget allocation, effectively redirecting the firm’s resources to units where they were most needed. Overall, the results showed that FE participation in strategic planning improved the managers’ information environment, thereby positively influencing their choices and actions.
Acknowledgments
We sincerely thank the management and employees of Mawunyo, who participated in our study. We acknowledge the valuable comments and suggestions received from Jacobo Gomez-Conde (the Editor), two anonymous reviewers, and participants at the 42nd European Accounting Association Annual Congress in Paphos, Cyprus, and the American Accounting Association’s 2020 Management Accounting Section Midyear Meeting in Houston, Texas. Special thanks to Regina Amenyo Xede, Gameli Yao Attipoe, and Solomon Wise Dodzidenu Adza for their research assistance in the field.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1. Houben et al. (Citation1999, p. 126) contend that ‘the recognition of internal strengths and weaknesses, as well as external opportunities and threats, takes place on the basis of a study, also called a SWOT analysis’.
3. In this study, top management includes the FEs’ immediate managers and the managing director, the highest level decision-maker in the firm.
4. We further acknowledge that if the extent to which managers are in contact with daily operations varies in different industries, the impact of FEs on strategic planning may also vary. This confirms that our findings may not be generalisable across all firms.
5. Participation in strategic planning and participation in SWOT analysis are used interchangeably in this study.
6. Based on existing theory and previous studies, and as stated earlier, FEs possess more information than their managers, and this information can best be revealed when FEs are allowed to participate in the firm’s decision-making process. Thus, we believe that it is difficult for the managers to gain access to this information unless the FEs are allowed to participate. This rules out the possibility that support or otherwise for the hypothesis might be affected if managers were able to obtain this information from other sources.
7. See, Chow et al. (Citation1988).
8. See endnote 14.
9. The TM and TM&FE groups held their meetings concurrently in separate rooms.
10. The researchers’ presence at the TM&FE group meeting was only to enable them to observe the degree of cooperation between top management and FEs, and they were not involved in any discussions during the meeting.
11. This procedure is similar to those used in the previous studies. Previous studies (e.g., Webb, Citation2002; Young, Citation1985; Young et al., Citation1993) had the participants report their performance capability before giving them information about their pay, the negotiation process, information asymmetry, or other factors that may affect the participants’ expected actual future performance. They then asked the participants to re-estimate their performance. Therefore, we believe that measuring participants’ budget slack behaviour before going to the management meeting would mean that they would have information that would affect their actual future performance. In the meeting, they would learn about factors that would affect their future performance. As such, it might be possible that the managers would adjust what they think they can do in the future based on the new information. In this case, we believe they are not changing slack, which is the difference between what they expect to happen and what they report. Therefore, we think that measuring the managers’ budget slack behaviour immediately after the meeting but before the actual budget estimate is consistent with the existing literature.
12. The introduction of these statements was aimed at highlighting the FEs’ knowledge of the firm’s activities and enabling us to observe how the provision of this information to managers (thereby improving their information environment) affected their behaviour. In other words, we sought to examine whether the participation of FEs in the strategic planning process could also serve as a mechanism for monitoring managers, as stated in the development of hypothesis 3.
13. Our study is similar to several previous studies, for example, Ayaz et al. (Citation2012), Berntson et al. (Citation2007), and Ziegler (Citation1994).
14. While some may argue that, to borrow an argument from the corporate governance literature, a more diverse group, such as the treatment group that includes managers and FEs, can produce a more diverse set of factors than a more homogeneous group, the question is: where is the diversity coming from? Until the inclusion of the FEs in the strategic planning process during our experiment, the firm had undertaken this process without input from the FEs. Intuitively, it was expected that the inclusion of FEs in the strategic planning process should have brought diversity and new knowledge to the group. Therefore, any behavioural change can, to a large extent, be attributed to the FEs’ participation.
15. Because we were interested in observing the direct effect of FE participation on managers’ subsequent choices and actions regarding budget slack and performance evaluation, our normative benchmarks were the TM&FE group managers’ pre-budget estimates and evaluations. We believe that comparing the pre-budget estimates and evaluations with the actual budget estimates and evaluations of the TM&FE group managers provides a more direct way to observe the impact of FE participation on the managers’ subsequent budget-related behaviour, an approach that satisfies the ‘context effects’ principle suggested by Greenwald (Citation1976) and reiterated by Czibor et al. (Citation2019). In addition, because our sample was relatively small, comparing the outcomes of the TM&FE and TM in this context might be distorted by ‘unbalanced confounders’ (see, Duflo et al., Citation2007; McKenzie, Citation2012). Thus, we used within-group comparisons, which allowed the participants to act as their own control (Czibor et al., Citation2019; Farrell et al., Citation2014; Greenwald, Citation1976).
16. We believe that the managers did not behave pro-socially by building less slack. This is because they received new information that was not initially available to them. As mentioned earlier, the FEs’ participation in the strategic planning process was expected to lead to disclosure of the performance and resource requirements of the various unit managers. The availability of information about the managers’ resource requirements might have raised reputational concerns, potentially affecting the amount of slack they built. This argument is consistent with the evidence reported by Webb (Citation2002), who found that the desire to maintain a favourable reputation caused managers to build less slack.
17. Managers in the treatment group might have felt that they would be monitored more closely or required to justify their performance evaluation. However, in an organisational setting where the various units operate with little dependence on other units, it can be difficult to obtain information about the performance of the various managers, and might be even more difficult at the peer-to-peer level. As mentioned earlier, the inclusion of FEs, who have more information, might lead to revelations about the various managers’ performance capabilities. The provision of information on the managers’ performance capabilities could cause them to become psychologically sensitive (as a result of increased reputational consequences because of the new information, see, Bateson et al., Citation2013), and thus could lead them to change their behaviour and improve the quality of their decisions.
18. See, the appendix for the rest of the statements.
19. This is referring to the management meeting.
20. Given that our lab-in-the-field experiment did not observe any real performance measures, one may wonder whether our study provides reliable evidence supporting this result. For example, one of the managers in the TM&FE group explained that based on the input of the FEs, the budget for marketing and sales was increased from 3% to 6%. However, how can we be sure that this was beneficial for the firm? Perhaps the additional marketing costs outweighed the benefits. In a post-experimental follow-up, we found that the firm’s total sales for the last quarter of 2018 (the quarter after the experiment) were 5,312,344.09 Ghana Cedis (Ghs) (US$1,154,857.41), a 31% increase on sales during the same period in the previous year (3,867,180.02 Ghs or US$878,904.55). We also found that gross profit had increased from 3,868,500.00 Ghs (US$879,204.55) in 2017 to 5,267,512.00 Ghs (US$1,145,111.30) in 2018, suggesting that the involvement of FEs in the strategic planning process might have led to more efficient budget allocations, holding all other factors constant.
21. This analysis is based on the responses from top managers in the TM&FE group. We limited this analysis to these managers because they engaged with the FEs in the management meeting and undertook the budget process.
22. The choices were Strongly Disagree, Disagree, Moderately Disagree, Neither Agree nor Disagree, Moderately Agree, Agree, and Strongly Agree.