How different types of performance management systems affect organizational performance?

Abstract

Purpose The purpose of this paper is to analyze the relationships between different types of performance management system (PMS) and organizational performance. The main task is based on an empirical typology of PMS to show how the different types of PMS are related to organizational performance. Design/methodology/approach The empirical typology is used on the creation on the sample of Estonian and Finnish firms. Findings The results show that the highest performance out of the four clusters is achieved by firms from strategy-focused multi-level and strategy-focused one-level clusters. They also show the highest quality of the key characteristics of PMS. Firms from the not-strategy-focused one-level cluster have the lowest performance and quality of the key characteristics of PMS. Practical implications The findings give a set of consistent guidelines on how to develop a PMS to achieve high organizational performance in different situations. These give hints, if strategic objectives are important to firm, then for achieving these objectives, also a strong emphasis of strategic aspects in PMS is necessary to gain performance; if the firm suffers from a lack of strategy, the firm should invest on the information aspects of PMS to get more relevant information to increase performance; if the firm, however, decides to move more strategy-oriented, then the strategy aspects of the PMS should get relatively more attention than other aspects in PMS, and they should be developed with care, otherwise performance will suffer. Originality/value This paper shows relations between empirically extracted clusters and organizational performance. The results show that clusters of PMS are systematically associated with the level of performance. Firms with different aspects of PMS do not achieve the equal level of performance. Firms with higher performance inside different PMS types have more desirable characteristics and aspects of PMS.