Control Systems and Incentives as Moderators of the Positive Association between Perceived Environmental Uncertainty and Willingness to Recommend Strategic Change

To remain competitive, organizations must change in response to demands in the dynamic environments in which they operate; yet oftentimes they do not change, perhaps due to an inability to first recognize, and then act on, the need for change. To combat this reluctance, organizational factors such as control systems and incentives may be effective since they are often used to direct managerial attention and thereby influence firm strategy (e.g., Simons 1990, 1995; Garg et al. 2003; Kober et al. 2007; Peterson and Luthans 2006). Indeed, prior research has found that control systems influence managers’ information search as well as firm-level strategic choice (e.g., Simons 1990, 1995) and incentives are closely tied to managers’ motivation to act (e.g., Bruggen and Moers 2007; Peterson and Luthans 2006). To further investigate this issue, we examine whether one individual-level variable – perceived environmental uncertainty (hereafter, “PEU”) – and two firm-level variables – control systems and incentives – are effective in overcoming managers’ insufficient motivation and/or their inability to recognize that change is needed, thereby increasing their willingness to recommend strategic change (hereafter, “WTRC”). Consistent with expectations, we find that the positive association between PEU and willingness to recommend strategic change is diminished by all combinations of control systems and incentives (except for an interactive system–social recognition incentive combination). Regarding this result, neither interactive systems nor social recognition incentives seem to provide a point of focus for managers to interpret strategic threats, thereby lowering the likelihood that managers will recommend strategic change. Thus, the positive association between PEU and WTRC remains intact. However, for low PEU managers, both diagnostic systems and financial incentives seem to make low PEU managers behave more like high PEU managers by focusing attention on performance metrics, thereby creating a strategic decision-making framework that increases the likelihood of recommending strategic change. Overall, these results suggest that the positive association between PEU and managers’ willingness to recommend strategic change can be enhanced, or muted, by control systems and incentives.