The relationship between performance measurement systems and organisational ambidexterity
Farrell, Michael
Farrell, Michael
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Identifiers
http://hdl.handle.net/10379/17920
https://doi.org/10.13025/17920
https://doi.org/10.13025/17920
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Publication Date
2023-09-25
Type
Thesis
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Abstract
Successful organisational innovation is the cornerstone of continued economic prosperity in developed economies. Researchers frequently categorise organisational innovation based on the level of exploitation and exploration involved. Exploitation refers to innovation that encompasses refinement and efficiency, whereas exploration refers to innovation that reflects variation and experimentation. Both types of innovation are necessary for organisation survival, and an emerging stream of management control systems (MCSs) research examines the structures, processes, and systems that foster organisational ambidexterity, the simultaneous pursuit of exploitation and exploration. While this literature provides some insights, it is in its infancy, and we need to know more about the relationship between MCSs and ambidexterity, particularly at lower organisational levels. The overall objective of my study is to investigate the relationship between performance measurement systems (PMSs) and ambidexterity within business functions in innovative industries in Ireland. A PMS is a specific type of MCS that provides an organisation with key financial and non-financial performance measures. The importance of PMSs is well established in the literature; they are an essential component of organisational life, and recently, there has been growing interest in the relationship between PMSs and ambidexterity. I examine PMSs primarily through the theoretical lens of Adler & Borys’ (1996) framework on enabling bureaucracies. The framework suggests that designing systems with enabling features may foster ambidexterity, and the theoretical underpinnings of the framework align with recent literature that prescribes that MCSs need to possess both structure and flexibility to promote innovation. I conducted a cross-sectional survey of 143 function managers working in various functions across innovative industries in Ireland to address my research objective. Using the survey data, I tested three specific research questions relating to my overall objective: 1) What is the relationship between the extent to which a business function has a PMS with an enabling design and the function’s ambidextrous orientation? 2) What is the relationship between the extent to which a business function has a PMS with an enabling design and its function manager’s mental model development? 3) What are the relationships between a function manager’s mental model development, the function’s ambidextrous orientation, and the function’s general performance? Findings from the first research question show that PMSs with an enabling design have an inverted-U relationship with the ambidextrous orientation of business functions, where ambidextrous orientation reflects the ability of functions to exploit and explore simultaneously. I define this inverted-U relationship as a too-much-of-a-good-thing effect (Busse et al., 2016), in which an initially positive relationship becomes negative as the level of enabling design increases. Using these results, I provide a more nuanced account of Adler & Borys’ claim that enabling systems can help organisations become ambidextrous. I contribute to the existing literature by focusing on Adler & Borys’ framework beyond its simpler dichotomy of enabling and coercive control. Findings from the second research question show that PMSs with an enabling design have positive relationships with mental model building (MMB) and mental model confirmation (MMC) from the PMS, where MMB and MMC are conflicting cognitive learning processes that drive function managers’ mental model development. My results emphasise the importance of mental model development as a key cognitive learning process and demonstrate how PMSs with an enabling design can encourage people at lower levels of the organisation to trigger their creativity and imagination. I also find that the PMS debate between function managers and senior management mediates the relationship between PMSs with an enabling design and both learning processes. This finding supports the conclusions of recent studies that enabling control is part of a broader interplay between superior and subordinate managers and not just concerned with the technical design of systems. Finally, my findings from the third research question show a direct positive relationship between the ambidextrous orientation of business functions and general function performance. Ambidexterity is a concept that primarily focuses on long-term organisational survival, but my findings support the literature suggesting that the concept also has more short-term within-organisation benefits. I also find that the interaction of mental model building and confirmation results in a symmetrical crossover relationship with a function’s ambidextrous orientation. Ambidextrous orientation improves when mental model building is high (low) and mental confirmation is low (high). However, mental model building in the absence of confirmation has a stronger relationship with performance than mental model confirmation in the absence of building. More generally, the findings from this research question add to the literature on how cognitive mechanisms help explain the link between PMSs and performance. Prior literature suggests that the ability of individuals to engage in MMB and MMC simultaneously is important for performance, but little evidence exists to support the benefits of hosting these paradoxical cognitive frames, particularly at sub-organisational levels. My findings show that designing PMSs that attend to the dual processes of MMB and MMC is costly for function managers and the functions they lead.
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Publisher
NUI Galway