The indirect effects of performance measurement system and organizational ambidexterity on performance

Abstract

Purpose Performance measurement systems (PMSs) have long been used for monitoring and improving administrative performance. In parallel, organizational ambidexterity refers to firms that manage different organizational functions and various demands to generate performance. The purpose of this paper is to propose that three dimensions of PMS increase organizational ambidexterity and consequently they influence organizational performance. In this framework, organizational ambidexterity mediates the relationships between three dimensions of PMS and organizational performance. Design/methodology/approach The data were collected through a structured questionnaire sent to Brazilian software companies. Owners, directors, project managers and responsible for company strategy answered the questionnaire. The final sample was 227 Brazilian software firms that answered according to their PMSs and organizational ambidexterity. Findings The results provide four main findings. First, the three dimensions of PMS, namely—attention focus, legitimization and strategic decision-making—influenced organizational ambidexterity. Second, organizational ambidexterity had a major effect on organizational performance. Third, organizational ambidexterity mediated the indirect effects of attention focus, legitimization and strategic decision-making on organizational performance. Fourth, exploration and exploitation—two dimensions of organizational ambidexterity—mediated the indirect effect of the abovementioned PMS dimensions on organizational performance. Research limitations/implications Although there are different dimensions of organizational ambidexterity, this paper is limited to two of the most used ones: exploitation and exploration. In addition, the results were limited to subjective—in contrast to objective—performance measures. Practical implications Software companies can use PMS for attention focus, legitimization of firm’s choices and strategic decision-making to increase their exploration and exploitation capabilities. Moreover, software companies can use strategic decision-making to control existing strategies and establish new strategies for legitimizing ambidextrous choices and thereby support their decision-making process. Originality/value The data showed that not only organizational ambidexterity mediates the effects of the three dimensions of PMS use on performance, but also exploration and exploitation.

Knowledge Management and Performance Measurement Systems for SMEs’ Economic Sustainability

“…Similarly, Stein et al [91] underline the importance of entrepreneurship in enhancing the firm's profitability, market share, and sales growth. "Exploration suggests that organizations are categorized by search, discovery, experimentation, risk taking and innovation" [27], which is a feature often associated with SMEs [92]. Furthermore, Lubatkin et al [50] claim that SMEs are closer to the customers' change trend and as such are the first to feel the need to explore new sources of competitive advantages.…”

“…Indeed, as addressed by Kyriakopoulous and Moorman's [26], exploitation and exploration compete for (a) scarce resources and opposite organizational structures/cultures, (b) focus on self-excluding strategic priorities, and (c) best possible match with external environment opportunities. Particularly, the exploitation approach involves refinement, implementation, efficiency, production, and selection [27], pointing to more conservatism through stable revenues, thus maintaining key customers and efficiency for increasing the average performances [28]. The exploration approach relates to knowledge creation and is concerned with the development of new knowledge and experiments, in order to foster changes and variations to support radical innovations [29].…”

“…They refer to the firms' ability to enhance or refine exiting products or services exploiting existing knowledge to hone and extend the existing routines guaranteeing a greater efficiency within the organization supporting an increase of average performances [29]. Therefore, exploitation involves refinement, implementation, efficiency, production, and selection [27] pointing to more conservatism through stable revenues, maintaining key customers and efficiency for increasing the average performances [28].…”

“…Therefore, it involves new breakthroughs, a "loose coupling" approach toward clients to explore new markets and products, and a lower strictness in relation to employees [29], seeking innovative opportunities which foster higher variations of performance [28]. In other words, exploration fits with research, breakthrough, experiments, risk-taking, and innovation [27].…”

“…The continuous challenge for every organization is to simultaneously manage the conflicting demands derived from the two basic orientations. This usually means dealing with latent dualisms, such as global vs. local integration, adaptability vs. alignment, efficiency vs. flexibility, and evolutionary vs. revolutionary changes [27]. To this extent, a relevant research stream [28,29,[50][51][52] has addressed the importance of achieving an organizational ambidexterity-that is, the ability to contextually reach conflicting and multiple goals, guaranteeing business survival and success in a long-term perspective.…”