New research: 3 keys linked to optimizing company performance

The value of empowering employees to make decisions is well known. So is the importance of holding workers accountable. And employers often go to great lengths to provide incentives for great performance among team members.

For the first time, however, research suggests that companies simply cannot achieve optimal performance without a balance of all three components: empowered decision making, accountability for performance, and incentives for strong work.

Using purchasing card data from 586 organizations, Olin Professor Mahendra Gupta and his coauthors analyzed the effect of a balanced deployment of these strategies. The findings showed companies that delegated decision-making, used a performance measurement system, and provided managers with incentives outperformed the companies with a different organizational structure.

Purchasing cards or “P-cards” allow corporate managers to make company purchases on a credit card that aggregates company purchases, allowing the firm to pay a single invoice for such company purchases. The P-card data gave researchers an entry point into the question by allowing them to examine the effects of delegating decision-making to a purchasing card administrator, as well as using a performance measurement system to track the administrator’s performance, and incentives to nudge the administrator’s behavior in the right direction.

“The study provides unique empirical evidence on the relevance of organizational architecture as a concept to explain organizational performance,” the authors wrote.

Gupta, former dean and Geraldine J. and Robert L. Virgil Professor of Accounting, said the findings show the three components are akin to a three-legged stool. If any leg is missing, the structure cannot stand.

Update: Read a deeper summary of the research paper on Olin’s Research that Impacts Business page.