superior-subordinate relationship, budgetary participation and managerial performance in large...

SUPERIOR-SUBORDINATE RELATIONSHIP, BUDGETARY PARTICIPATIONAND MANAGERIAL PERFORMANCE IN LARGE HOTELS: AN EMPIRICAL

INVESTIGATION

Lokman MiaGriffith University

Gold Coast CampusQueensland

[email protected]

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INVESTIGATION

ABSTRACT

We report the results of a study designed to extend the research on budgetaryparticipation beyond its traditional domain, the manufacturing industry, to the hotel industry.Our literature search indicates that research on budgetary participation in the past has mostlyconcentrated in manufacturing industry and ignored hotel industry in particular. This studyexamines the relationship between budgetary participation (BP) and department managers’performance in large hotels in Australia taking into consideration the impact of a favourablesuperior-subordinate relationship (SSR). The results are based on data collected from 52food and beverage, and room department managers working in the hotels. Unlike previousstudies, which investigated the relationship between BP and only the 'overall' dimension ofmanagerial performance, this study examines the above relationship with the 'overall' andalso the different sub-dimensions (aspects) of managerial performance. The results revealthat the interaction between department managers’ BP and their favourable SSR is positivelyassociated with their overall performance. A further analysis of the data reveals that theabove interaction is also positively associated with four different sub-dimensions (aspects) ofthe managers’ overall performance. The implications of the results are discussed in thepaper.

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INVESTIGATION

INTRODUCTIONThe hotel industry is a people oriented industry; its business is characterised by

personalised services and face to face or direct contact of hotel managers and other employeeswith customers (Lockwood and Jones, 1991). Also, the hotel industry is highly competitive(see Mia and Patiar, 2000) and the competition is becoming increasingly fierce. Because ofthe intense competition and personalised nature of services in the industry, customersatisfaction is the key to success of a particular hotel. Consequently, every hotel within theindustry greatly emphasises the importance of high quality services to meet customer needs(Dann, 1991). The relevant literature suggests that a hotel’s achievement of its customersatisfaction depends to a large extent on favourable superior-subordinate relationship (SSR)and department managers’ active participation in budgeting1 (Deming, 1989).

Managers’ participation in budgeting has a number of positive behavioural outcomes,such as reduced stress, improved motivation and job commitment, and enhanced performance.Conversely, managers’ inadequate participation in budgeting may cause dysfunctionalbehaviour, which may lead to anxiety, stress and low performance (Brander Brown, 1995;Ferguson and Berger, 1986; Harris and Brander Brown, 1998). Previous researchers, such asFerguson and Berger (1986) argue that unless managers in a people oriented industry like thehotel industry work closely with their superiors (i.e., have a favourable SSR) and activelyparticipate in setting their budgets, the business’s success in terms of accomplishing financialtargets and customer satisfaction may not be achieved. It follows then that an understandingof the impact of managers’ perceived relationship with their superiors (SSR) and theirparticipation in budgeting is important, particularly in the hotel industry (Brander and Harris,1997; Keiser, 1989; Maher, 1995). However, our literature search reveals that although therehas been some research into the behavioural aspects of employees in the hotel industry, theresearch is mainly prescriptive; there is a lack of empirical study investigating theprescriptions (see also Ferguson and Berger, 1986; Harris and Brander Brown, 1998).

This study has three objectives. First, it attempts to extend the existing research on theimpact of BP on performance beyond its traditional domain, the manufacturing industry, tothe hotel industry. The study empirically investigates the relationship between departmentmanagers’ BP and their performance in the hotel industry. Second, it assesses the BP-performance relationship incorporating the impact of managers’ favourable SSR. In spite ofthe potential importance of a favourable SSR for employee behaviour and performance (seeRobbins, Millett, Cacioppe and Waters-Marsh, 1998; Pettit, Goris and Vaught, 1997), thevariable has been ignored in earlier studies on budget participation. Third, in addition toinvestigating the relationship between BP and overall managerial performance, which hasbeen the case in most of the earlier studies, this study investigates the BP-performancerelationship with respect to both the 'overall' and different sub-dimensions of managerialperformance.

HYPOTHESIS DEVELOPMENT

1 For the purposes of this study, food and beverage (F&B) department and room department managers were thesubordinate managers. The favourable SSR is defined in terms of open and free relationship with, andexchange of information and close communication among, superiors and subordinates.

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Senior managers generally have opportunities to promote a favourable SSR and toencourage their subordinates’ involvement in setting budgets with a view to positivelyinfluence the subordinates' performance. Because of the people oriented nature of business inthe hotel industry, we argue that a hotel’s success is at least partly dependent on its managers’favourable SSR and budgetary participation.

Superior-subordinate relationship (SSR)Given that the hotel industry is characterised by a high level of personal (face to face)

contact of hotel employees with customers, success of a particular hotel in the industry isdependent not only on sophisticated marketing, strategic planning and financial analysis, butalso on supporting organisational factors. A favourable SSR is one such factor; its coreelements are the feeling of organisational members about the openness of their relationship andinformation exchange with their superiors. The relationship facilitates employees' loyalty to,and trusts in, the organisation’s management, thereby promotes a greater cooperation andflexibility at all levels of the management. Consequently, the invisible barriers that may existbetween superiors and subordinates, and among various departments in a hotel may breakdown, encourage mutual support, cooperation and autonomy (Tracey and Hinkin, 1994;Francese, 1993, Robbins, Millett, Cacioppe and Waters-Marsh, 1998). Garnett and Sigler(1996) argue that through the promotion of open and frank information sharing amongsuperiors and subordinates, a favourable SSR assists subordinates in obtaining superiors'guidance and feedback leading to better understanding of their jobs and improved performance(see also Pettit, Goris and Vaught, 1997). The importance of a favourable SSR in a hotel isaccentuated by the fact that a hotel’s success is dependent upon the achievement of productiveinterdependencies between various departments and positive interaction (communication)among managers, their subordinates and customers. Previous research suggests that aneffective communication is positively associated with enhanced managerial performance.Luthans, Hodgetts and Rosenkrantz (1988), for example, argue that communication is one ofthe most important managerial activities and report that high performing managers spend asignificant proportion (about 44%) of their time communicating with a wide range ofindividuals within and outside their organisations. In contrast, the low performing managersspend around 28% of their time communicating with others.

We argue that a favourable SSR, through engendering free and frank communication(information exchange) and close relationship among superiors and subordinates, serves thefollowing four purposes and thereby enhances managerial performance. First, the SSR helpsto control organisational resources. The control of resources is exercised by facilitatingemployees' understanding of authority, policies, objectives, and job details, thus helping themto be aware of what their superiors expect of them. Second, having a close relationship withsubordinates, superiors can effectively clarify to their subordinates work-related issues andprovide feedback, which in turn assist the latter in performance improvements. This is alsoconsistent with the goal-setting and reinforcement theories of motivation suggesting thatindividuals’ behaviour changes due to their sense of goal accomplishment resulting inincreased motivation and improved performance (Vroom, 1959; Mia, 1984). Third, theinformation exchange aspect of the SSR is critical for effective decision-making. Because ofthe highly competitive and dynamic environment in the hotel industry, exchange of relevantinformation among superiors, subordinates and other organisational members in a hotel playsan important role in the business success. Finally, individual members in the organisationmust interact with one another to share their concerns as well as satisfy their social needs(Mullins, 1992). A favourable SSR facilitates the interaction.

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Based on the above discussion, we posit that a favourable SSR may play a significantrole in enhancing managers’ performance through fostering their motivation, assisting sounddecision making and promoting efficient control.

Budgetary participationBrownell (1982) defines budgetary participation as the process of involving

subordinates in influencing various elements of budgets (e.g. establishing a level of incomeand setting appropriate expenses for an operational budget). Alternatively, Owen (1987)explains participation, from individual employees’ point of view, as the process ofdeveloping individuals’ mental and emotional feelings that provide them with an ownershipof decisions. Such a feeling motivates individuals and encourages them to be creative andpro-active. The idea of involving employees in the formulation of budgets that affect themhas been recognised since the seminal study by Argyris (1952). Following Argyris’s study,budgetary participation has been one of the most researched topics in managementaccounting. Researchers have investigated the relationships between budgetary participationand outcome variables including performance, job satisfaction, motivation and attitudesmainly in manufacturing industry (see Shields and Shields, 1998).

Prior studies suggest that participation in budgeting yields benefits through a greaterexchange of information, better coordination of activities and development of ‘team’ spirit(Hopwood, 1976; Mia, 1988). Shields and Young (1993) further suggest that participation inbudgeting allows subordinate managers to contribute their personal knowledge to the decisionmaking process. However, as indicated earlier, the research to date on BP has been carried outmostly in manufacturing industries and the hotel industry has largely been ignored. Weconsider that the results obtained in manufacturing industries may not apply in the hotelindustry for the following reasons.

First, the demand for hotels’ products and services are more difficult to predict as theexternal environment directly affects them. For example, a large hotel generally has a diversegroup of customers who would demand a high degree of customisation in products andservices that they purchase. While the fundamental features of different hotel’saccommodation, food and beverages, and other facilities may be similar, the quality of theservices like check-in and checkout, and the quality of food and beverages that are expected bycustomers vary significantly. By contrast, in the case of a manufacturing industry, astandardised products may be designed for the needs of the specific market segments andcustomers’ individual preferences are not often catered for. Moreover, the ultimate consumersof products in manufacturing industries are usually separated by time, space and agents. Inother words, the degree of personal touch in customer services and delivery of products ismuch higher in the hotel industry than in manufacturing industries.

Second, hotels’ products and services are highly perishable. For example, if a guestbedroom is not sold for a particular night or a restaurant seat is not sold during a mealtime, thesale is lost. Therefore, to adequately manage a hotel's demand patterns, the input from itsemployees who directly deal with the customers could be most important. While in the case ofa manufacturing industry, stocks of finished goods may be accumulated and sold at a later date,and as such, various department managers’ involvement in decision making may be relativelyless critical.

Third, production, delivery and consumption cycle of hotels’ products and services isextremely short and the level of interdependencies between various departments are high.

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For instance, timely preparation and quality of food served depend heavily on acquiringquality raw materials on time, taking accurate customers’ orders, correctly conveying ordersto the kitchen and properly serving prepared food items to customers. The lead-timebetween preparation and consumption of products (such as food) in a hotel is almost nil,making the level of task interdependencies very high. Similarly, the interdependenciesbetween the front office, laundry and housekeeping departments are also high resulting inhigh complexities in the work environment. In the manufacturing industry, while theinterdependencies exist, the production, delivery and customers' consumption of goods tendsto occur over a relatively longer period of time. The result is that manufacturing industriesmay not be exposed to a similar degree of interdependencies, therefore, complexities like thehotel industry.

Because of the relatively more complex, therefore uncertain environment in whichhotels function, as discussed above, hotels' department managers’ participation in settingbudgets for their area of responsibility may be critical. This is also due to the industry’speople oriented nature. The department managers in a hotel play an essential role incoordinating various activities within and between their departments. For example, a roomdepartment manager in a hotel would coordinate activities of the employees in the front desk,housekeeping, laundry, maintenance, security, reservation, and concierge, and have directinteractions with customers in pursuit of delivering quality products and services. Similarly,a food and beverage department manager is required to coordinate the activities ofpurchasing department, kitchen, restaurants, bars, function rooms and in-room diningfacilities. The result is that department managers in the hotel industry have a relativelygreater span of control (SOC) compared to their counterpart in a manufacturing industry.Previous research indicates that size of managers' SOC is positively related to their perceivedtask interdependency (PTI), and both SOC and PTI are positively associated with their taskcomplexity. The literature also suggests that managers' need for additional information fordecision-making increases with increasing task complexity (see Kimberly, 1976; Galbraith,1977; Mia and Goyal, 1991). Hopwood (1976) argues that managers' budgetaryparticipation acts as a mechanism for gathering additional information for decision making.In addition, due to their coordination role, the department managers have the first-handunderstanding of their subordinates’ and customers’ liking and disliking, and thus, are in astrong position to incorporate valuable information for developing budgets. In summary,department managers' participation in budgeting in a hotel is likely to be useful.

We consider that department managers’ perception of a favourable relationship withtheir superiors (a favourable SSR) is a precondition for effectiveness of their participation inbudgeting. More specifically, without a congruent level of favourable SSR, departmentmanagers’ budgetary participation may not be positively associated with their performance.This is because, in a low favourable SSR situation (where subordinates may perceive not tohave a free and frank relationship with their superiors), department managers may either feelcompelled to participate or may believe that their participation is unlikely to make anydifference in the superiors' decisions. In either case, the managers' budgetary participation islikely to be pseudo, therefore, unlikely to have a positive influence on their performance. Insuch situations, managers may find their superiors' instructions, guidance and closesupervision (i.e., low participation) more consistent with their feeling, therefore performbetter. In other words, a low favourable SSR and a low budgetary participation together maynot be associated with low performance. On the other hand, a high favourable SSR togetherwith a high budgetary participation may be associated with high performance. In a highfavourable SSR situation, subordinates may believe their superiors are responsive to their

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suggestions and can actively participate in decision making. Consequently, subordinates maybelieve their participation in such situation to be useful; and it is likely to be associated withhigh performance. Intuitively, it is argued that a high favourable SSR with a high budgetaryparticipation may promote employees' job satisfaction and motivation through their effectivecommunication with, and feedback from, superiors.

Following the above discussion, we argue that the relationship between departmentmanagers’ budget participation and their performance is contingent upon their perceivedfavourable SSR. A high (low) level of budget participation together with a high (low)favourable SSR is a congruent situation, which may be positively associated with enhancedmanagerial performance. Conversely, a high (low) level of participation together with a low(high) favourable SSR is an incongruent situation, which may not be positively associatedwith high performance. The following hypothesis summarises the above discussions.

H1. There is no interaction between department managers’ budgetary participation and theirfavourable SSR affecting their overall performance in hotels.

Following the above discussion on hypothesis one, we conclude that high budgetaryparticipation accompanied with high favourable SSR is the best congruent situation, thereforeperformance is expected to be the highest in such a situation. The above expectation is testedin this study and the results are presented later in the paper.

Based on previous literature, we conceptualise managers' performance as the degree ofsuccessful accomplishment of managerial roles (see Ferris, 1978; Mia, 1993). This studyfollows Mahoney, et al (1963) in conceptualising and assessing managerial performance.Mahoney, et al's concept of managerial performance includes an 'overall' and 'eightindependent sub-dimensions (aspects)'. The eight sub-dimensions are planning, coordinating,evaluating, investigating, negotiating, representing, staffing, and supervising. Although,Mahoney, et al's (1963) concept and measurement have been consistently used by a largenumber of studies in budgeting, only a handful of them (Brownell, 1983; Mia, 1984; andBrownell and McInnes, 1986) focussed on both the 'overall' and the eight sub-dimensions ofmanagerial performance. We consider that understanding the factors influencing the eight sub-dimensions of managerial performance are as important as for the 'overall' performancedimension. In deed, managers in their work environment perform activities that are includedin each of the sub-dimensions, the extent of their involvement may vary. Following thisrationale, the present study, unlike the previous studies, investigates the relationship betweendepartment managers' participation in budgeting and their overall as well as each of the eightsub-dimensions of their performance in hotels. This issue is further discussed in the resultsection under the heading 'additional insight'. The hypothesis used for this purpose is:H2. There is no interaction between department managers’ budgetary participation and their

favourable SSR affecting any of the eight sub-dimensions of their performance in hotels.

METHODThe Sample

The data for the study were collected from the managers in charge of food andbeverage (F&B) and room departments in hotels. These managers were selected from 48large hotels having 100 or more bedrooms and located in a particular region of Australia.Initially, a letter was written to the general manager (GM) of each of the hotels. The letterexplained the purpose of the study, asked the GMs to nominate their F&B and roomdepartment managers to take part in the study and solicited their permission to contact thenominated department managers. A sample of the questions used for the data collection was

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attached to the GMs' letter for their information. Within four weeks of posting the letter, theGMs were contacted by telephone asking if they would nominate their F&B and roomdepartment managers to participate. In total, 80 department managers were nominated bythe GMs and supplied their names and addresses. Subsequently, each of the nominateddepartment managers was sent a package that contained (i) a personal letter explaining thepurpose of the study, the potential benefit of the study, and offering the assurance ofconfidentiality of their responses, (ii) a copy of the questionnaire and (iii) a self-addressedstamped envelope for returning the completed questionnaire direct to the researchers. Out ofthe 80 nominated department managers, 52 fully completed and returned the questionnaire.Therefore, the final sample of the study is 52, giving the relatively high response rate of 65%.This high response rate may be attributed to our personal contact with most large hotels inthe region and the telephone calls to the GMs and the department managers explaining thepurpose of the research and seeking their support2.

The measurement of variablesSuperior-subordinate relationship (SSR). The department managers’ perception of

the level of their favourable SSR with their superiors has been assessed by the four-iteminstrument using a 5-point Likert scale anchored on both ends (see Appendix A). Thequestionnaire asks the managers to indicate on the five-point scale, how favourable theybelieve their relationships are with their superiors. On the scale, 1 represents ‘not at allfavourable’ and 5 represents ‘highly favourable’. A manager’s overall score for SSR is theaverage of the manager’s scores for all items in the questionnaire. The Cronbach alpha of0.72 for the scale in the study indicates a satisfactory level of reliability (Cronbach, 1951).Table 1 presents the descriptive statistics for the variable. The results of the factor analysisof the scores for the four items measuring the SSR are presented in Table 2. The resultsreveal that all the items load on a single factor having an Eigenvalue of 2.18 and explaining54.42 % of the variance.

Insert Tables 1 and 2, here.Budget participation. The six-item instrument developed by Milani (1975) has

been used to measure the department managers' budgetary participation. The instrument isemployed using a 5-point Likert-scale anchored at both ends. A manager’s overall scorefor budget participation is the average of the manager’s score on each of the six items inthe instrument. A reliability check of the instrument for the study has produced aCronbach (1951) alpha of 0.91, which is considered satisfactory. Table 1 presents thedescriptive statistics for the variable. A factor analysis of all the items produced a singlefactor with an eigenvalue of 4.17 and the factor accounted for 69.49% of the variance.Table 3 presents the results of the factor analysis.

Insert Table 3, here.Managerial performance has been measured using Mahoney, et al (1963)

instrument consisting of eight sub-dimensions of managerial performance and one overalldimension. While the self-rating of performance has been criticised for bias (see Mia,1988), in the current study the self-rating method for assessing performance is adopted fortwo reasons. Firstly, according to Heneman (1974), there is a high correlation betweenself-rating and superior’s rating of performance. Secondly, in the hotel industry, it isdifficult to obtain the objective measures of performance due to the confidential nature ofinformation and the industry’s traditional outlook. Moreover, Mahoney et al (1963)instrument has been widely used in the management accounting and strategic management

2 This high response rate may also be due to the GMs' encouragement to their department managers toparticipate in the study. Since the department managers returned their completed questionnaire direct to theresearchers using the self-addressed stamped envelope, we consider the managers' responses are free from bias.

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research (Otley, 1978; Brownell, 1983; Brownell and MCInnes, 1986; Govindrajan 1986;Gul and Chia, 1994).

Mahoney et al (1963) set two conditions to be fulfilled for the suitability of theinstrument. First, all eight sub-dimensions of the managerial performance should beindependent of one another. For this purpose, the correlation between any two of the sub-dimensions should not exceed their correlation with the overall performance. Mahoney etal report that four inter-item correlations out of the possible 28 correlations violated therule. Similarly, Brownell and MCInnes (1986) found the violation of the rule for threeinter-item correlations and concluded that all the eight sub-dimensions were reasonablyindependent. In the current study, only one such correlation violates the rule, therefore, wecan conclude that the eight sub-dimensions are reasonably independent. Table 1 presentsthe descriptive statistics and Table 4 presents the results of the inter-item correlations forthe measure.

Insert Table 4, here.Second, the eight sub-dimensions of performance should account for more than

50% of the variance in the overall performance rating. In this study, the results indicatethat the eight sub-dimensions of performance account for 52% (R sq.=0.520, p<0.000) ofthe variance in the overall rating. These two conditions conform to Mahoney et al (1963)requirements and indicate the suitability of the instrument for this study.

RESULTSA check of the data for the study indicates that the room and F&B department

managers are evenly represented in the sample, and majority of managers are young.Furthermore, a significantly high proportion of managers (80%) hold hospitalityqualification in the form of diploma or degree, and possess extended professional experience(5 years on an average) at management level in the hotel industry. Table 5 presents theresults of Pearson Correlation between the variables in the study. The results indicate apositive and significant (p <.05) correlation between budgetary participation (X2) andmanagerial performance (Y). However, the insignificant correlation between budgetaryparticipation and SSR indicates that these two variables are independent of one another andmulticolinearty is not of a concern (Tabachnick and Fidell, 1989). This confirms theappropriateness of the regression analysis technique to test the hypothesis.

Test of the hypothesesHypothesis 1 states that there is no interaction between SSR and budgetary participation

affecting the department managers’ overall performance in the hotels. The hypothesis is testedusing the following regression equation:Y = a + b1 X1 + b 2X2 + b 3X 1X2 + e (1).Where, Y = Overall managerial performance

X1 = SSRX2 = Budgetary participationX1X2 = Interaction between SSR and budgetary participation

To reject the hypothesis, b3 must be positive and significant. The results presented inTable 6 reveal exactly that. It can be observed from the table that the relationship between theSSR-BP interaction and the overall managerial performance is positive and significant (b3 =0.13; t = 3.49; p = <. 001). More specifically, the results indicate that superior-subordinate

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relationship and subordinates' participation in budgeting interact at a significant level topositively impact the department managers' performance. Therefore, hypothesis H1 is rejected.The model explains 21.5% (R2 = 0.215, F= 4.39; p <0.008). An important issue that should benoted when interpreting the results is that only the interaction effect (i.e. the coefficient b3) inequation (1) is of interest. The other coefficients in the equation are not of interest as they canbe altered by shifting the origin of the independent variables, therefore coefficients are notinterpretable (see Govindarajan and Fisher, 1990; Govindarajan, 1986; Govindarajan andGupta, 1985). Also, multicollinearity in equation (1) is a non-issue as it can be completelyeliminated by manipulating the origin points for the independent variables and reducing tozero the R2 for the regression between the dependent variable and the independent variables(see Govindarajan and Fisher, 1990; Govindarajan, 1986; Govindarajan and Gupta, 1985).

Insert Table 6 here

A check of the cell means of overall performance presented in Table 7 indicate thatperformance is the highest in situations where high budgetary participation is accompaniedwith high favourable superior-subordinate relationship (SSR). Thus, the prediction earlier inthe paper that cell four in Figure 1 (i.e. the congruent situation where both BP and SSR arehigh) would have the highest performance is supported by the data. For the analysis, bothBP and SSR were categorised as low for the levels below the respective and as high for thelevels above the mean respectively. The relevant literature contains mixed evidence of theinfluence of managers' demographic variables (i.e., age, gender, education and experience)on their behaviour at work (see Rabinowitz and Hall, 1977; Mannheim, 1993; Mannheim, etal., 1997; Reiner and Zhao, 1999). To isolate the influence of the above demographicvariables on the relationship between the respondents' performance and the SSR-BPinteraction, the model is tested controlling for the managers' age, gender, level of educationand professional experiences. The results presented in Appendix 2 reveal that the impact ofBP-SSR interaction on the overall managerial performance remains significant even aftercontrolling for the influence of the above demographic variables

Insert Table 7 here

Although, the significant coefficient b3 allows rejection of hypothesis one, it does notindicate whether the association between performance and budgetary participation is positiveover different levels of superior-subordinate relationship (SSR) or it differs over, say, low SSRfrom high SSR. Therefore, to further explain the association, the interaction term is furtheranalysed mathematically by taking the partial derivative of equation (1) over SSR as shown inequation (1a) below and then presenting the results graphically in Figure 2.

ďY/ďX1 = b1 + b3X2 (1a).Substituting the value for coefficients b1 and b3 from Table 6, we get:ďY/ďX1 = - 0.46 + 0.13X2 (1b).Equation 1b indicates that the relationship between performance and budgetary participation isnegative where SSR is low or below 3.538 (0.46/0.13, the inflection point) and positive whereSSR is high or above 3.54. In other word, the department managers' participation in budgetsetting is detrimental to their performance if they believe not to have a good (high favourable)relationship with their superiors. Figure 2 graphically presents the results.

Additional insightRecall the earlier discussion that unlike the previous studies on performance as

conceptualised by Mahoney et al (1963), this study investigates the budgetary participation andperformance relationship with respect to both the 'overall' and the eight sub-dimensions of

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managerial performance, since these sub-dimensions represent relevant aspects of managers'job in practice. Therefore, hypothesis two is tested with respect to each of the eight sub-dimensions using the following regression equation:

Yi = a + b1 X1 + b 2X2 + b 3X 1X2 + e (2).Where, Yi = Individual sub-dimentions of performance, i = 1 to 8.

X1 = SSRX2 = Budgetary participationX1X2 = Interaction between SSR and budgetary participation

To reject the hypothesis for a particular sub-dimension, b3 must be positive andsignificant for that sub-dimension. The results, presented in Tables 7, 8, 9 and 10, reveal thatb3 for the performance sub-dimensions named staffing, negotiating, investigating andevaluating are positive and significant. Therefore, hypothesis 2 is rejected for the above sub-dimensions of performance. However, in the case of the other four sub-dimensions, theresults (b3) are not significant. Similar to the overall performance, we can evaluate the natureof the relationship between budgetary participation and each of the above performance sub-dimensions over different levels of favourable SSR. This can be done by substituting thevalues from table 7 for corresponding coefficients in equation (1a) and plotting the resultsgraphically. Application of the procedure for the staffing sub-dimension of performancereveals that the relationship between this sub-dimension and budgetary participation isnegative where the favourable SSR is below 3.81, and positive where the favourable SSR isabove 3.81. Figure 3 graphically presents the results.

Insert Tables 7,8,9 and 10 here

DISCUSSION

The results of the study are mixed. The significant and positive association of theinteraction between budgetary participation and favourable SSR (BP-SSR) with thedepartment managers’ overall performance supports the results reported in previous studies.Recall, this study also aimed to investigate the relationship between the above interactionand each of the eight sub-dimensions of managerial performance as identified by Mahoneyet al (1965). As the results presented in Tables 7,8, 9 and 10 reveal a significant and positiverelationship between the BP-SSR interaction and the department managers’ investigation,evaluation, staffing and negotiation sub-dimensions of performance respectively, this studyextends previous research on budgetary participation-performance relationship to the sub-dimensions of managerial performance. Thus, the study fulfils its objective of extending theabove research to first, the hotel industry and second, to the sub-dimensions of the overallmanagerial performance. The results satisfy the second objective with respect to four of theeight sub-dimensions of the performance. An interpretation of the results is that thedepartment managers’ perceived favourable relationship with their superiors and theirparticipation in budgeting are important factors affecting their performance.

Based on the above results, we consider that a favourable SSR and budgetaryparticipation are important factors in hotels. As explained earlier in the paper, departmentmanagers in hotels face relatively high environmental uncertainty due to the personalisednature of the business and greater span of control. A favourable relationship with superiorsand their active participation in budgeting improves the department managers' awareness ofthe operating environment, thus, enabling them to gather and use necessary information, and

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deal with the uncertainty. For example, having a favourable SSR, department managers canactively participate in preparation of operating budgets, contribute and influence the budgettargets and enhance appropriate allocation of resources to support attainment of the targets.As such, managers are able to develop a strong work commitment to sustain a long-termsuccess of the business. The results reveal that budgetary participation and SSR incombination (not separately) are positively associated with managers' overall performance.This statement is based on the finding that when the interaction term (b 3 BP*SSR) inequation (1) is dropped, there is no significant main effect of either BP or SSR onperformance.

The significant results relating to the four sub-dimensions of managerial performanceare useful findings for the hotel industry. Due to the personalised nature of hotel business,department mangers are closely involved in activities involving recruitment and training;negotiation with employees, supplier, union, and customers; and investigation andevaluation of actual performance of their department staff as these activities may directlyaffect quality of their hotel's services. For example, the food and beverage manager in ahotel is responsible for acquisition of raw materials, preparation and serving of high qualitymeals leading to achievement of maximum customer satisfaction and sustaining desiredlevel of profitability. Unless the above activities are properly evaluated on a regular basis,preparation and serving of quality food may deteriorate over time risking the long-termsuccess of the business3. Moreover, a regular evaluation of business activities assists inidentifying problem areas, which allows managers to take corrective action for improvingthe overall performance.

Three limitations to the study are worth mentioning. First, the sample used is basedon department managers of the large hotels situated only in one particular region of Australia.Therefore, the generalisation of the research findings to hotels in other region of the countryand to managers other than the department managers require caution. Future research togeneralise the results to (i) the next level of managers (e. g., section managers withindepartments), (ii) managers in support areas such as human resources, sales and marketingand (iii) to hotels operating in other parts of Australia will be useful. Second, the instrumentmeasuring the favourable SSR in the study is novel. Further research into the reliability andvalidity of the instrument is called for. Last but not the least, the lack of significant resultsfor the other four sub-dimensions of managerial performance is confusing. In spite of anextensive literature search, we are unable to identify a theoretical basis to explain theinsignificant results for these sub-dimensions. It is possible that the results are due to therelatively small and localised sample in the study. Future research using a bigger samplecovering all parts of Australia may offer an explanation for the results.

Notwithstanding the above limitations, a practical implication of the results is that thetop management in a hotel should encourage favourable relationships among its superiors andsubordinate managers. The results of the study (see Figure 1) indicate that the benefits ofsubordinate managers’ budgetary participation with respect to their enhanced performance in ahotel is dependent on the managers' perceived favourable (free, frank and close) relationshipwith their superiors. Such participation is detrimental, where the superior-subordinaterelationship is not highly favourable. In other words, the management in a hotel could wasteresources by encouraging its department managers' involvement in budgeting unless a highlyfavourable superior-subordinate relationship prevails. A theoretical implication of the results 3 This is not to deny the importance of the other four sub-dimensions of managerial performance.Unfortunately, the results are not significant with respect to these sub-dimensions. This is highlighted as alimitation of the study.

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is that the study extends research on budgetary participation to hotel industry. Furthermore,this study identifies favourable superior-subordinate relationship (SSR) as an important factorfor budgetary participation (BP) and these two factors together enhance managerialperformance. Previous research in the area did not examine BP - performance relationshiptaking into account the role of SSR.

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New York.Bavelas, A and Barrett, D. (1951). An experimental approach to organization

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Table 1Descriptive statistics

Items Mean Std.dev Actual Range Theoret.Range

Min Max Min MaxSSR 3.52 .57 1 5 1 5Budget participation 3.86 .69 2 5 1 5Overall performance 3.72 .43 3 5 1 5Performance sub-dimensions:Planning 3.84 .70 2 5 1 5Investigating 3.88 .81 1 5 1 5Coordinating 3.90 .52 3 5 1 5Evaluating 3.66 .73 2 5 1 5Supervising 3.82 .69 2 5 1 5Staffing 3.80 .72 2 5 1 5Negotiating 3.52 .89 2 5 1 5Representing 3.47 .95 1 5 1 5

__________________________________________________________________________

Table 2Superior-subordinate relationship (SSR) measure: factor analysis of the items

Items Factor 1Managers encourage staff views .83Communication good at all level .74Open and free communication .77Staff kept informed .60Eigenvalue 2.18Explained Variance 54.42%

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Table 3Managers’ budgetary participation measure: factor analysis of the items

Items Factor 1Activity when budget is set .89Contribution to budget .85Influence on final budget .85Reasoning provided by superior .83Request, opinion, suggestion about budget .82Superior's seeking of your request .76Eigen value 4.17Explained Variance 69.49%

______________________________________________________________________

Table 4Performance measure: correlations between the eight sub-dimensions and overall

performance Items Coor-

dinatnEvalu-ation

Inves-tigatn

Negoti-ation

Plan-ning

Repre-sentg

Staff-ing

Super-vising

Overallperf

Cord 1.00Eval .49** 1.00Invtg .11 .48** 1.00Negot .05 .45** .28* 1.00Plang .22 .31* .45** -.03 1.00Rpstg .19 .36** -.09 .62** -.13 1.00Stfng .23* .39** .25* .44** .30* .08 1.00Spvn .44** .17 -.03 .11 .24* .01 .42** 1.00Operf .50** .74** .50** .69** .45* .52* .68** .47** 1.00** Correlation is significant at the 0.01 (1-tailed)*Correlation is significant at the 0.05 (1-tailed)__________________________________________________________________________

Table 5Inter-correlation matrix for the variables

Variables Y X1 X2 X1X2Y Managerial performance 1.00X1 Level of SSR .13 1.00X2 Budget participation .02 .05 1.00

Significance ** p<.01; * p<.05; n=52

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Table 6The impact of interaction between favourable SSR and budgetary participation on

overall managerial performance

Variables Coefficient value SE t-value Level ofSignificance (p)

Constant 4.70 0.60 7.87 0.000X1X2 Interaction 0.13 0.04 3.49 0.001X1 SSR -0.46 0.19 -2.47 0.017X2 Budget participation -0.30 0.12 -2.49 0.016R. Square = 0.215; Adjusted R. Square = 0.166; F = 4.39; P=0.008__________________________________________________________________________

Table 7The average overall managerial performance (cell means) under different levels of

budgetary participation and favourable SSR.

BudgetaryParticipation

Super. - Sub.Relationship

Av. Perform.(Cell means)

1 3.5712 3.641 3.6422 3.96

__________________________________________________________________________Table 8

The impact of interaction between favourable SSR and budgetary participation onstaffing


Constant 5.71 1.00 5.66 0.000X1X2 Interaction 0.21 0.06 3.26 0.002X1 SSR -0.74 0.31 -2.35 0.023X2 Budget participation -0.55 0.20 -2.73 0.009R. Square = 0.193; Adjusted R. Square = 0.143; F = 3.828; P=0.015


negotiation


Constant 4.61 1.28 3.61 0.001

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X1X2 Interaction 0.19 0.08 2.43 0.019X1 SSR -0.50 0.40 -1.25 0.219X2 Budget participation -0.52 0.26 -2.03 0.048R. Square = 0.150; Adjusted R. Square = 0.097; F = 2.822; P=0.049__________________________________________________________________________


investigation


Constant 5.01 1.78 4.25 0.000X1X2 Interaction 0.17 0.07 2.26 0.029X1 SSR -0.74 0.37 -2.02 0.049X2 Budget participation -0.21 0.24 -0.88 0.382R. Square = 0.119; Adjusted R. Square = 0.063; F = 2.153; P=0.106__________________________________________________________________________


evaluation


Constant 3.15 1.02 3.08 0.003X1X2 Interaction 0.14 0.06 2.21 0.032X1 SSR -0.29 0.32 -0.91 0.366X2 Budget participation -0.10 0.21 -0.51 0.613R Square = 0.193; Adjusted R Square = 0.143; F = 3.84; P <0.015

Figure 1The interaction between superior-subordinate relationship and budgetary participation

affecting department managers' overall performance.

OverallPerformance

(+)

Budgetary participation

(0)1 2 3 4 5 Superior-subordinate relationship

21

(-)

Figure 2The interaction between superior-subordinate relationship and budgetary participation

affecting department managers' 'staffing' sub-dimension of performance.

Staffing sub-dimension ofPerformance

(+)

Budgetary participation

(0)1 2 3 4 5 Superior-subordinate relationship

(-)

22

Appendix 1Measurement of variables

Panel A

Superior-subordinate relationship1. Open and free exchange of information is encouraged in this hotel.2. Communication across all levels in this hotel tends to be extremely good.3. Our managers encourage their staff to give their views and are generally responsive to

them.4. The senior management keeps staff well informed on matters important to its staff.

Panel B

Budget participation1. Which category best describes your activity when the budget is set? Such as I am

involved in setting the budget2. Which category best describes the reasoning provided by your superior when budget

revisions are made?3. How often do you state your request, opinion and or suggestions about the budget to

your superior without being asked?4. How much influence do you feel you have on the final budget?5. How do you view your contribution to the budget?6. How often does your superior seek your request, opinions and suggestions when the

budget is being set?

Panel C

Managerial performance1. Planning (determining goals, policies and courses of action, work scheduling, budgeting,

setting up procedures and programming).2. Investigating (collecting and preparing information for records, reports, accounts and

measuring output).3. Coordinating (exchanging information, advising and liaising with other departmental

managers).4. Evaluating (assessment and appraisal of proposals, reported or observed performance,

output records, financial reports and inspections).5. Supervising (directing, leading and developing subordinates; counseling and training;

assigning work and handling complaints).6. Staffing (maintaining the work force, recruitment and development of staff).7. Negotiating (purchasing, selling and contracting for goods and services, and collective

bargaining).8. Representing (participation in the public relations exercise to promote the interests of

the hotel).9. Overall performance.

23

Appendix 2

A test of the impact of interaction between favourable SSR and budgetaryparticipation on overall managerial performance controlling for demographic

variables.


Constant 5.96 0.70 8.51 0.001X1X2 Interaction 0.13 0.04 3.53 0.001X1 SSR -0.43 0.18 -2.38 0.02X2 Budget participation -0.34 0.12 -2.89 0.01X3 Age 0.02 0.08 0.03 NsX4 Male -1.30 0.42 -3.09 0.01X5 Female -116 0.42 -2.73 0.01X6 Education -0.06 0.08 -0.03 nsX2 Experience 0.05 0.06 0.84 Ns

R Square = 0.28, Adjusted R Square 0.16, F = 2.41, P< 0.04.

superior-subordinate relationship, budgetary participation and managerial performance in large...

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