Performance management systems: Trade-off between implementation and strategy development

Abstract

The aim of this study is to understand how performance management systems (PMS) affect the strategy development process. The research examines PMS implementation and evaluates how the implementation of PMS links measures with rewards, i.e., financial and non-financial, to influence strategy formation. This qualitative study is based on 74 semi-structured face-to-face in-depth interviews with board members, mid-level managers, and other employees in nine organizations. Theory-building is comprised of the transcribed and analyzed interviews using MAXQDA 12 software. Theory-testing, i.e., a verificatory stage, consisted of analyzing previously identified phenomena. Results suggest that PMS affects strategy development processes by influencing both employee relational and calculative trust in their superiors. It also indicates a direct behavioral effect on employee knowledge sharing and manager trust in their subordinates. As a result, this may determine the extent to which managers exploit shared knowledge while formulating a strategy. The research demonstrates there is a trade-off between PMS implementation and strategy development. A gap in the literature is filled by integrating relational and calculative trust with PMS implementation and showing how such changes in trust mediate knowledge sharing behavior and strategy development.