Beyond the system vs. package dualism in Performance Management Systems design: A loose coupling approach

A Performance Management System (PMS) can be conceived as either a package or a system, with the latter generally being seen as preferable to the former. This paper tries to go beyond this dualism by adopting an approach which understands the integration of the mechanisms within an overall PMS as being a continuum that ranges from a complete lack of integration to a totally integrated system. Loose coupling theory is used to investigate the type of relationships occurring in a PMS, with no and tight coupling being the extreme ends of a spectrum, with loose coupling representing a range of intermediate solutions providing both a desired level of coordination and also a degree of flexibility for local control needs. To ascertain whether one type of PMS coupling delivers superior performance, in terms of both organizational effectiveness and process innovation, this paper conceptually develops a PMS coupling index and validates this using a sample of 140 managers operating in a variety of sectors. The empirical findings show that the coupling approach demonstrates the effect of different PMS coupling states on both outcomes. Despite differing results from prior studies, intermediate levels of coupling appear to give the best outcomes for both effectiveness and innovation. Although further empirical work is necessary, this study contributes to enriching both the PMS design and the innovation management literature. Practitioners can also benefit from this research by using it to help design or redesign the relationships in a PMS in order to effectively match local and overall control needs.