Target Setting in Multi-Divisional Firms: State of the Art and Avenues for Future Research

Abstract

This study provides descriptive evidence on target setting policies in multi-divisional firms. Despite the importance of performance targets in practice, research mainly focuses on a few key areas in target setting, neglecting many other important aspects of target setting in organizations. Hence, relatively little is known about how performance targets are actually set, especially within multi-divisional firms. We perform in-depth interviews with managers responsible for target setting in multi-divisional firms. Using this interview information, we develop specific research questions that we examine in a survey among large US and European multi-divisional firms. Broadly speaking, the survey results provide evidence that firms commit substantial time and resources to the target setting process, indicating that they place a high strategic importance on this process. However, we also find that they are not very effective in reaching the goals of the target setting process. Most importantly, we find large variation in target setting policies across firms. We exploit this variation to identify future research directions to guide examination of the diverse decisions managers encounter in the field of target setting.