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

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.