Profit as a signal of product quality and customer service: performance evaluation for plant managers

Abstract

Plant managers generally have no direct marketing responsibilities but they have control over product quality and customer service. This paper hypothesises that many firms evaluate these managers on profit because sales, a component of profit, convey information on a plant manager's performance on product quality and customer service. Several predictions are developed from the hypothesis and tested in this study. The chance that a plant manager is evaluated on cost vs profit is predicted to decrease with the sensitivity and precision of sales as an indicator of product quality and customer service. In addition, the chance that a plant manager is evaluated on cost vs profit may be associated with the extent to which the manager is also evaluated on specific measures of product quality and customer service. Empirical results are generally consistent with these predictions.