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Fear, anxiety can drive firms to the wall – research

November 4, 2016 Statistics & Trends No Comments Email Email

Ambitious corporate incentive schemes and performance goals can cause anxious employees to lie about results in a way that has a negative impact on productivity, according to University of Sydney Business School research.

Professor of Accounting Wai Fong Chua, points as an example, to the Finnish multinational, Nokia, which suffered financially because of the fear that it generated amongst middle and senior managers.

“Shared fear was so strong amongst Nokia’s middle managers that they withheld important information about the viability of its technology from senior managers,” said Professor Chua. “The company suffered significant losses as a result and was forced to exit the smartphone market.”

Professor Chua’s own research relating to the Australian subsidiary of a global computer company has confirmed the need to better understand ‘affective technologies’ – processes, information systems, and performance/financial goals that “have an emotional impact and economic consequences.

“Take for example, a billion dollar revenue target that is to be achieved within 18 months, this tends to produce an affective outcome,” she said. “It could be anxiety, it could be fear, it could be excitement, it could be all of these things and that, in turn, affects the way people work in an organisation.”

“I believe there is considerable fear and anxiety in today’s corporations, especially those experiencing financial challenges.  When corporate distress is not well handled it can have quite adverse consequences.”

Explaining her interest in “affective technologies”, Professor Chua said that financial managers today play a key role in designing performance management systems.

“We’re fundamentally interested in ensuring that the systems we design and the goals that are set enable people to develop their potential and achieve to the best of their ability.”

“Stretch goals can motivate staff.  But, when tied to incentive schemes that operate in unsupportive corporate cultures, this can prompt fraud,” Professor Chua said.

Investigations are currently underway into the incentive schemes at the Wells Fargo bank in the United States, where some 5000 employees are thought to have created fictitious customers in order to meet or exceed their performance goals.

While researching affective technologies, Professor Chua has also looked specifically at innovative start-ups and the relationship between entrepreneurs and investors.

“When passionate entrepreneurs, who are really keen on developing their product, turn to venture capitalists, the focus of their project may change in an unwelcome manner,” she said. Investors are generally interested in earning a quick rate of return and their shorter-term focus may differ significantly from the passion of entrepreneurs.”

Professor Chua said that companies “need to be aware of levels of anxiety and fear and enable folks to discuss processes and goals without being so afraid that they fabricate an answer”.

“Organizations are emotional arenas, not just economic entities,” she concluded.

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