An Empirical Investigation of Performance Measurement System Use and Organizational Performance

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Virginia Tech

This study contributes to the performance measurement (PM) literature by providing validated measures of PM system use and increased understanding of the impact of PM use on organizational outcomes. The purpose of this study was to articulate and test the relationships between PM system use, organizational learning, and organizational performance by taking into account the effects of PM-related technical factors (namely, PM system maturity and review process (RP) maturity). The concept of PM use was explored through the examination of its underlying processes, as reflected in the literature and two case studies, and a set of practices delineating PM use processes were proposed. Following a scale development approach, a measurement instrument of PM use was developed and validated with empirical data collected through a web-based questionnaire. The results from factor analysis showed the need to revise the initial set of PM use practices into five dimensions: monitoring, problem-finding, problem-solving, validating causal relationships, and validating improvement actions. Additionally, new measures were developed to assess PM and RP maturity factors. The factor analysis results identified four maturity variables: managed RP, optimized RP, PM design and PM implementation.

Data from 216 managers participating in RP meetings were used to test the hypothesized relationships via partial least square (PLS). The results provide varying support for the hypotheses defined. First, the results show that monitoring directly impacts organizational performance while problem-finding, problem-solving and validating causal relationships indirectly impact organizational performance through shared vision and team learning. These indirect effects were positive in some cases and negative in others, depending on the direction of the relationship between the use variable and the organizational learning variable. Second, validating improvement actions did not influence organizational outcomes. Finally, the only moderating effect found was managed RP on the relationship between validating causal relationships and financial performance. Because of the weak support for moderating effects, an alternative model was proposed, exploring these maturity variables as antecedents of PM use. The results provided substantial support for this alternate model. Practical implications and areas for future research are also identified and discussed.

Performance Review Process, Organizational Performance, Organizational Learning, Performance Measurement Use