The effects of performance measurement system uses on organizational ambidexterity and firm performance

Abstract

Purpose: This study aims to investigate how dynamic tensions between performance measurement system (PMS) uses enable organizations to achieve both exploitation and exploration and enhance firm performance. Design/methodology/approach: The authors collected survey data on 153 Italian companies. Scales for each construct were validated through an exploratory factor analysis. Data on firm performance were cross-validated by using lagged accounting data. The authors tested our hypotheses using hierarchical ordinary least squares regressions, together with bootstrapping procedures for the test on mediation. Findings: A diagnostic use of PMS has a positive association with both exploitation – e.g. reductions in total costs and lead times – and exploration, e.g. introduction of new products and extension of product ranges. The dynamic tension created by a joint diagnostic and interactive use has the strongest association with organizational ambidexterity, measured as the multiplicative interaction between exploration and exploitation. Practical implications: If an organization or business unit is mainly pursuing exploitative goals, a mainly diagnostic use of PMS would be most suitable. If goals are both exploitative and explorative, a mix of diagnostic and interactive uses would be most effective. Originality/value: This research helps reconcile conflicting views in the literature. The diagnostic use of PMS, far from acting as a “negative force,” appears to be necessary to guide opportunity search and to establish an appropriate scope for exploration-related activities. The authors’ focus on the uses of PMSs shows that ambidexterity is achieved through managerial capability, rather than just through the introduction of systems and structures.