Pursuing Business Models and Target Setting: The Interplay between Customized and Uniform Targets

In this paper we examine how target setting helps firms to assure that their business models are being pursued. We argue that firms can achieve this by exploiting their knowledge about the cause-and-effect relations underlying their business models. We collect data from a retail firm, whose business model is represented by financial and nonfinancial measures. The firm sets store-specific (customized) financial targets that are updated based on prior performance. The nonfinancial targets, however, are uniform meaning that targets are the same for all stores as the firm argues, amongst others, that substandard nonfinancial performance can also affect the financial performance of other stores. We first establish the extent to which the alleged relations in the business model (employee satisfaction-customer satisfaction-revenue chain) are supported by the data. Next we examine how the firm supports the achievability of the uniform, nonfinancial targets. It appears that store managers who delivered substandard nonfinancial performance, but outperformed their peers, are granted a wage budget extension. Awarding managers with additional labor resources, indeed, enables managers to improve their employee satisfaction and customer satisfaction performance, respectively.

Keywords: performance measurement, nonfinancial measures, business models, target setting