Igniting Function Performance: Fuelling Hierarchical Conflict through Performance Measurement Systems

Abstract

There is substantial theoretical support that organizational ambidexterity positively relates to the ability of all organization managers to host dual-cognitive learning perspectives. However, the empirical support for this relation is limited as most studies focus on the top management levels in organizations. Therefore, it remains unclear whether the theorized benefits of hosting dual-cognitive learning perspectives actually translate to lower organizational levels where managers tend to have more direct operating responsibilities. We aim to address this lack of clarity by investigating function manager learning from Performance Measurement Systems (PMSs) and its relation with their function's ambidexterity. We examine PMSs because they are ubiquitous in organizations and critical to organizational capabilities like learning and innovation. We focus on function managers' mental model development (MMD) from PMSs, a specific dual-cognitive learning process in which they simultaneously confirm and update their mental models. Using survey data from 148 function managers across various innovative industries in Ireland, we find that function managers' mental model development from their PMS has a curvilinear relation with functions' ambidexterity. Initially, there is a negative relation between MMD and ambidexterity, but as the level of MMD increases, an inflection point occurs, and the relation turns positive. Further, we find that environmental dynamism flattens the curvilinear relation between MMD and ambidexterity, shifting it to a more monotone profile. In other words, as the level of environmental dynamism increases, the strength of the negative relation between MMD and ambidexterity before the inflection point decreases, and the strength of the positive relation between MMD and ambidexterity after the inflection point also decreases. Overall, our findings contribute to the growing literature examining the micro-foundations of ambidexterity by adding nuance to well-established expectations that hosting dual-cognitive learning processes is beneficial.

Keywords: Performance Measurement Systems; Innovation; Ambidexterity; Cognitive Learning; Mental Models; Business Functions.