Do comprehensive performance measurement systems help or hinder managers’ mental model development?

Abstract

This study examines whether and how the process of updating and changing mental models (learning) helps to explain how performance measurement systems (PMS) affect individual performance. Although prior studies (e.g., Hall, 2008; Burney and Widener, 2007; Burney et al., 2009) highlight the important role of particular cognitive and motivational mechanisms, such as role clarity and organizational justice, they do not consider how PMS can improve performance by helping individuals to update their mental models and develop learning capabilities. As such, this study investigates relations among comprehensive PMS, two types of learning at the managerial (individual) level (mental model confirmation and mental model building), and managerial performance. Results show that a more comprehensive PMS helps managers to confirm their mental models of business unit operations. In contrast, findings show that a more comprehensive PMS can help managers to build new mental models of business unit operations, but only in specific settings, that is, for managers with a short organizational tenure and/or from a small-sized strategic business unit. Importantly, results also show that both mental model confirmation and mental model building have positive associations with managerial performance.