The Sophistication of Performance Measurement System in Manufacturing SMEs: The Role of the Interpersonal Ties in Top Management Teams

Abstract

This study aims to explore the relationship between informal social relations between top-managers and the sophistication of the performance measurement system (PMS) in small-and-medium sized manufacturing companies. Drawing on social network theory, I argue that when TMT members are networked by interpersonal ties, this would provide top managers with easier excess to information and exchange of knowledge. Hence, these informal relationships could facilitate their control over day-to-day activities, and there would be a lesser need for adopting sophisticated management control practices. Using survey data on 2058 manufacturing SMEs from World Management Survey (WMS) project, the results supports the predicted negative impact of interpersonal ties in TMTs on PMS sophistication. The results also shed light on the key role of CEO in SMEs, by showing that this negative association is larger in TMTs leaded by internally promoted CEOs, than outsider CEOs. I also predict and find that interpersonal ties between TMTs moderate the extent to which SMEs adopt sophisticated PMS due to pursuing differentiation strategic priorities.