Performance measurement systems
as generators of cognitive conflict in ambidextrous firms
David S. Bedford
University of Technology Sydney
Sydney, Australia
David.Bedford@uts.edu.au
Josep Bisbe
ESADE Business School, Universitat Ramon Llull
Barcelona, Spain
josep.bisbe@esade.edu
Breda Sweeney
J.E. Cairnes School of Business & Economics
NUI Galway, Ireland
Breda.sweeney@nuigalway.ie
Acknowledgements
This study has benefited from comments from participants at the AAA Management
Accounting Section Meeting 2017, New Directions in Management Accounting Conference
2016, AOS Conference on Quantitative Empirical Research on Management Accounting
2016, International Management Accounting Conference 2016, European Accounting
Association Conference 2016, Management Accounting in Practice and Research Workshop
2015, and seminar participants at the University of Otago 2016 and University of Canterbury
2016. We would also like to express our sincere thanks to management in organisations who
participated in this study and to the funding bodies (Chartered Accountants Ireland Education
Trust and Irish Research council New Foundations Award) for their support of this research.
Performance measurement systems
as generators of cognitive conflict in ambidextrous firms
Abstract
This study explores the decision-facilitating role of performance measurement systems
(PMSs) in firms attempting to translate competence ambidexterity (i.e., the simultaneous
pursuit of exploration and exploitation) into innovation ambidexterity outcomes (i.e., the
achievement of both radical and incremental innovations). Drawing on paradox and
organisational conflict literature, this study emphasises the role of cognitive conflict,
generated by PMSs, in shaping the relationships between competence ambidexterity and
innovation ambidexterity. Based on survey data from a sample of 90 Irish firms, our
findings indicate that competence ambidexterity is associated with (a) the choice to have a
balanced set of performance measures, and (b) the use of PMSs for frequent and intensive
debate between top managers. Furthermore, the study reveals that these choices are
interdependent, as they function as complements in generating cognitive conflict, which in
turn drives the realisation of innovation ambidexterity outcomes. The results also show that
cognitive conflict is not directly associated with the development of competence
ambidexterity, but is instead generated through the conjoint action of a balanced PMS
design and the use of PMSs for intensive debate. Overall, this study demonstrates the
interdependent nature of choices concerning the design and use of PMSs, and the
significant role of PMSs as generators of cognitive conflict in firms attempting to achieve
ambidexterity.
Keywords: performance measurement systems; cognitive conflict; ambidexterity.
1. Introduction
An emerging stream of management accounting (MA) research emphasises the
importance of performance measurement systems (PMSs) for firms engaged in innovation
(Chenhall & Moers, 2015; Davila, Foster, & Oyon, 2009; Moll, 2015). By incorporating a
broad set of financial and non-financial measures, PMSs are able to reflect the wider span of
activities and longer time horizons typically associated with innovation. This facilitates the
achievement of innovation objectives by increasing the relevant information available for
managerial decision-making (Grafton, Lillis, & Widener, 2010). Most of the literature in this
area has been concerned with how PMSs are designed and used when managers face a
consistent set of innovation priorities (Bisbe & Otley, 2004; Cardinal, 2001; Ylinen &
Gullkvist, 2014). Firms are, however, increasingly pursuing ambidextrous innovation
strategies that involve managing tensions and trade-offs between multiple and contradictory
objectives (Birkinshaw & Gupta, 2013; Jansen, Simsek, & Cao, 2012). But as yet there is little
empirical understanding of how PMSs are designed and used in these settings or of the
psychological and organisational mechanisms through which PMSs enable ambidextrous
innovation outcomes to be realised.
As organisational scholars observe, realising ambidexterity is one of the most complex
challenges faced by managers (Atuahene-Gima, 2005; Birkinshaw & Gupta, 2013).
Ambidextrous firms attempt to achieve both incremental and radical innovation outcomes by
pursuing a strategic agenda that requires learning new competences and opportunities (i.e.,
exploration) while at the same time refining existing competences (i.e., exploitation). However,
whether firms that develop competences in both exploration and exploitation simultaneously
(referred to as competence ambidexterity) are able to effectively generate actual product and
service innovations is far from unproblematic (Lin et al., 2013). The patterns of learning
associated with exploration and exploitation tend to be self-reinforcing often to the exclusion
of one another (Levinthal & March, 1993; March, 1991), while group and individual cognitive
biases privilege consistency in decision-making over inconsistency (Smith & Tushman, 2005).
These tendencies make translating competence ambidexterity into both incremental and radical
innovations (known as innovation ambidexterity) extremely difficult to achieve, as there is a
natural inclination for managers to make decisions that favour one objective over the other
(Birkinshaw & Gupta, 2013; Lin et al., 2013). Without the implementation of structures and
processes to counteract these tendencies, firms are likely to fail to achieve intended
ambidexterity outcomes (Kortmann, 2014). O’Reilly and Tushman (2013, p. 333) recognise
that “not all firms that attempt to be ambidextrous are successful”, and point out that much
more research is needed to know what distinguishes among those firms that are unsuccessful
and those that are able to simultaneously achieve competing objectives (see also Birkinshaw &
Gupta, 2013; Lavie, Stettner & Tushman, 2010). While prior research considers PMSs to be
one such practice that is fundamental to the success of organisational innovation (Chenhall &
Moers, 2015; Davila, Epstein, & Shelton, 2012), little is known about the role they play in
influencing the ability of managers to effectively achieve competing objectives.
In this study we explore how PMSs are designed and used to facilitate top management
team (TMT) decision-making in firms attempting to translate competence ambidexterity into
innovation ambidexterity outcomes. Our focus is at the TMT level, as prior literature
demonstrates that achieving ambidexterity outcomes is significantly influenced by the
effectiveness of TMT’s decision-making processes (Lubatkin, Simsek, & Veiga, 2006; Smith
& Tushman, 2005). In particular, we consider the role of PMSs in counteracting biases in TMT
decision-making towards incremental innovation, which have higher certainty and shorter-term
payoffs relative to radical innovation (O’Reilly & Tushman, 2013; Smith & Tushman, 2005),
and the mechanisms through which PMS function to facilitate the realisation of innovation
ambidexterity outcomes. Specifically, we address three related issues.
First, we examine the design and use of PMSs by the TMT in firms emphasising
competence ambidexterity. The few studies that have examined MA in an ambidexterity
context focus on the different ways accounting is used to influence subordinate behaviour (i.e.,
diagnostic and interactive uses) (Bedford, 2015; McCarthy & Gordon, 2011). As such, how the
PMS is designed (in terms of its information contents) and used (to facilitate information
exchange between TMT members) in order to effectively cope with contradictory objectives,
is largely unknown. Second, we investigate whether the design and use of PMSs have
independent or interdependent effects in influencing the achievement of innovation
ambidexterity. While most prior studies in an innovation context investigate accounting and
control choices independently, a recent stream of literature argues that certain accounting
practices may have complementary effects (Bedford, Malmi, & Sandelin, 2016; Grabner &
Moers, 2013). To address this issue, we build upon the organisational literature on strategic
contradictions and paradoxical cognition (Smith, 2014; Smith & Lewis, 2011; Smith &
Tushman, 2005) to theorise how choices made by the TMT about the design and use of PMSs
are interdependent. Finally, we seek to understand the mechanisms through which PMSs
influence the achievement of innovation ambidexterity outcomes. Although prior research
demonstrates associations between PMSs and organisational outcomes, such as firm
performance, little attention has been given to revealing how this occurs in practice (Chenhall,
