The use of nonfinancial performance measures and their relationship to strateg

This study examines the relationship between strategy and the reporting of nonfinancial performance measures to plant senior management, and documents the perceptions of managers with respect to the influence of nonfinancial performance measures on their actions/decisions. Contingency theory suggests that the design of a management control system depends upon the circumstances affecting an organization. Prior research has found that strategy is an important factor affecting the design of a firm including its performance measurement and evaluation system. Moreover, recent literature in management accounting strongly argues that performance measures must be linked to the strategies and actions of a firm.;The study extends previous research by examining the reporting of nonfinancial performance measures by prospector, defender and analyzer firms. First, it examines whether prospector firms, compared to defender firms, report more nonfinancial measures, whether they report these measures more frequently and whether they rate nonfinancial measures as more important than financial measures for the purposes of decision making. Next, the study explores the influence of nonfinancial performance measures on the actions/decisions taken by managers towards achieving long-term growth. A survey and multiple case study approach was used in conducting the study.;Survey results indicate that, on average, prospector firms, compared to defender firms, report more nonfinancial measures and report them more frequently. However, there is no difference between prospector and defender firms with respect to their ratings of the relative importance of financial versus nonfinancial measures for decision making. The findings from eight plant visits suggest that several measures are reported by all firms regardless of their strategic orientation. Based on the information available from the field studies, it is difficult to establish a relationship between strategy and the reporting of nonfinancial measures. The field studies also provide a rich account of how managers are able to use the nonfinancial measures to influence their actions/decisions. This study makes a theoretical contribution by adding to the existing literature on the contingency theory of management accounting. In addition, the study makes a practical contribution in that the findings provide information which managers can use to reexamine their performance measurement systems.