Metric intensity and innovation dependency

Abstract

AbstractWe examine how metric intensity—that is, the quantity, frequency, and extent to which performance metrics are tracked and used—varies with a firm's dependency on innovation for business success. Although performance metrics are essential in an organization's management control system, little is known about how the use of metrics differs in organizations with varying dependencies on incremental and radical innovation. Drawing on data from a sample of small‐ and medium‐sized enterprises (SMEs), we hypothesize and find that firms' dependency on incremental (radical) innovation is positively (negatively) associated with metric intensity. Furthermore, we find that (1) the positive relationship between the dependency on incremental innovation and metric intensity is stronger when the organizational culture is focused more on “control” and (2) the negative relationship between the dependency on radical innovation and metric intensity is mitigated when the organizational culture is focused more on “flexibility.” Additional analysis shows that the positive (negative) relationship between incremental (radical) innovation dependency and metric intensity can be mitigated by greater use of metrics for decision‐facilitating purposes. Our findings suggest that metrics‐based formal controls are designed to match the types of innovation dependencies and pre‐existing informal controls such as organizational culture. This study highlights the importance of distinguishing different types of innovation dependency in studying management control systems.