Academic journal article Journal of Managerial Issues

The Effects of Experience and the Firm's Environment on Manager's Project Selection Decisions

Academic journal article Journal of Managerial Issues

The Effects of Experience and the Firm's Environment on Manager's Project Selection Decisions

Article excerpt

This study is a first attempt to initiate a discussion of how profit center managers' project selection decisions are affected by their experience and the environment in which they make those decisions. Along with other researchers (Scribner, 1986; Wagner and Sternberg, 1986), we contend that the managerial environment affects managers' project selection decisions. Further, we maintain that managers with different levels of experience respond to features of the environment differently. One specific environmental variable is addressed in this paper: the threat of a corporate takeover. A corporate takeover attempt represents a crisis situation for the profit center manager which could result in the manager losing his or her job. The specific research question is, do both inexperienced and experienced managers make the same project selection decisions when faced with the threat of a corporate takeover attempt? While the effects of experience have been extensively researched in the auditing literature (see, for example, Choo, 1989; Colbert, 1989; Davis and Solomon, 1989; Libby and Luft, 1993 for review of this literature), the topic has not been studied at all in a managerial accounting environment. Although the theory of practical intelligence provides the basis for hypothesis development, this study has an exploratory element. A major intention of this research is to provide some direction for researchers who are interested in how managers' environments affect their decisions.

An experiment was conducted which investigated the effects of experience on project selection decisions. In this research, an experienced manager is one who has made project selection decisions for at least two years. An inexperienced manager is one who has never made project selection decisions but has had formal training in the project selection task. Following Shanteau (1988), such an inexperienced manager is referred to here as naive. While no main effects were detected, a first order interaction effect involving experience and knowledge of the takeover attempt was detected. Both the theory developed in the paper and conversations with profit center managers provided possible explanations for our findings.

Motivation

A recent graduate of a prestigious undergraduate or master of business administration (MBA) program with no prior business experience rarely, if ever, assumes a position of significant managerial responsibility immediately upon graduation. It is generally assumed that the new graduate is not prepared to assume such responsibilities because he or she lacks experience. This paper suggests that experience means, among other things, the ability to adapt to a constantly changing environment (Klemp and McClelland, 1986). This ability to adapt is referred to here as practical intelligence. The purpose of this paper is to present a discussion and a limited empirical test of what happens to a manager as the manager gains experience and learns how to adapt to a changing managerial environment. This paper focuses specifically on profit center managers.

Profit center managers play a substantial, if not decisive role in determining the business strategies in their units, such as where growth should occur and how it should be achieved (Merchant, 1989). Deciding on business strategy means that managers select or reject individual projects that may be pursued in their profit centers. An understanding of the effects of experience is important because in a real-world setting, it seems reasonable to expect that managers' decisions are affected by their past experiences. The reasons and extent to which experience changes these decisions are of interest. Past decision research has largely ignored the effects of the context or business environment on the decision being made. The method employed in much behavioral research about managers requires experimental subjects to respond to an isolated mental task which is cut off from the environment in which that task normally takes place (see, for example, Chow, 1983; Young, 1985). …

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