The impact of interactive and diagnostic uses of budgets on team effectiveness

Abstract

This study investigates the impact of style of budget use on team-level motivation and team effectiveness. Specifically, we draw on Simons’ work (1994, 1995, 2000) to examine how, in biotechnology firms, the extent of interactive and diagnostic uses of budgets affect team effectiveness directly and indirectly through perceived collective efficacy. We used an online survey to obtain data for this study and analysed the data using partial least squares approach. The main results suggest that the extent of interactive use of budgets has direct positive effects on team effectiveness and that the positive effect of the interactive use of budgets on team effectiveness is partially mediated by perceived collective efficacy. We did not find support for the predicted positive effect of diagnostic use of budgets on perceived collective efficacy and team effectiveness. We explain the implications of these results.