PERFORMANCE FEEDBACK UTILITY IN A SMALL ORGANIZATION: EFFECTS ON ORGANIZATIONAL OUTCOMES AND MANAGERIAL DECISION PROCESSES

Abstract

This study investigated the frequent (but previously untested) assertion that utility analysis can improve communication and decision making about human resource management programs by examining a performance feedback intervention applied in a small retail fast‐food store. The study employed several new features, including (1) applying a utility model focusing on improvements in group production most salient to decision makers (as opposed to more common approaches that measure the standard deviation of individual performance), (2) explicitly comparing empirical utility results with subjectively derived utility values, and (3) comparing managerial decisions and decision processes with the prescriptions of the normative utility model. Utility analysis results suggested substantial payoffs from performance feedback, though the store's owner‐managers had earlier rejected the program. A structured interview and questionnaire analysis of the owner‐managers' decision processes suggested that their utility parameter estimates were inaccurate (especially with regard to the cost and the effect of the feedback program) and showed that they had considered several additional program outcomes that were negatively evaluated. The combination of the inaccuracy and additional negative factors, however, was still not sufficient to produce negative subjective utility estimates. Failure to adopt the program apparently occurred because decision makers underestimated the importance of the performance problem and, therefore, failed to formally analyze the performance feedback intervention.