Relationships among types of use, levels of sophistication, and organizational outcomes of performance measurement systems: The crucial role of design choices

Abstract

Based on the levers of control (LoC) framework and contingency theory, this study examines the relationships among the sophistication of a firm’s performance measurement system (PMS), the firm’s emphasis on the interactive and diagnostic use of the PMS, and the organizational outcomes of the PMS. We also examine whether firm size moderates these relationships. Based on a survey of 276 midsized enterprises, this study provides empirical evidence of direct, positive relationships between both types of use and the benefits of a PMS. However, PMS sophistication positively moderates the relationship between interactive use and PMS benefits, but it negatively moderates the relationship between diagnostic use and PMS benefits. Thus, our study suggests that an increased emphasis on diagnostic use may reduce benefits for the firm when the PMS is more sophisticated. This result contributes to our understanding of why existing outcome effects of PMSs in the literature have been shown to be sometimes negative, positive or nonsignificant. We also find that, compared with smaller firms, larger firms benefit more from the interactive use of a PMS, whereas our results are robust for other contextual or structural variables.