Executive Judgment, Organizational Congruence, and Firm Performance

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Abstract
Contingency theory suggests that a match among business-level strategy, organizational structure, and the competitive environment is necessary for high performance. This research asks whether manufacturing firm chief executives judge as “good” those strategy-structure-environment matches recommended by contingency theory. Knowledge of executive judgment is particulary important for two reasons. First, judgment—defined as an individual's understanding of relationships among objects—governs the strategic choices made by top managers. Second, prescriptive strategy theories recommend the judgments that executives “should” use, but there is little evidence specifically tying executive judgment to firm performance. Part of this research is essentially a “laboratory” study of executive judgment that was conducted in the field. Manufacturing firm chief executives' beliefs about cause-and-effect relationships among business-level strategy, structure, environment and performance were ascertained through a judgment task. The second part of the study was a field survey wherein other top executives of each firm reported on their firm's actual strategy, strategy making processes, structure, competitive environment and performance. Both the chief executives' judgments and the actual alignments were compared to the matches recommended as “best” by contingency theory. The hypotheses tested link the two parts of the study. Some predict relationships between judgment policies, realized alignments, and firm performance. Others attempt to identify factors that may lead to differences in executives' judgments. Results indicate that chief executive judgment is strongly related to the actual organizational alignment. Further, judgment policies that favor the strategy-structure-environment matches recommended by contingency theory produce higher performance than do other judgment policies. No support was found for either executive experience or quality of the firm's strategy making process as factors leading to executive judgment. These results suggest that the judgment of top executives is important to both organizational alignment and firm performance.

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