LOOSE COUPLING APPROACH FOR DESIGNING EFFECTIVE PERFORMANCE MANAGEMENT SYSTEMS. EFFECT ON PROCESS INNOVATION

The recent financial and economic crisis has enhanced the perception of uncertainty for both firms and customers, together with that of the inadequacy of management accounting techniques and frameworks (Hopwood, 2009). Hence scholars, as well as practitioners, are giving more and more emphasis to the analysis of an effective design and use of management control systems. In this context, the management control literature is witnessing the introduction of new frameworks, which should be able both to cope with high levels of uncertainty and risk (Bhimani, 2009). This research paper introduces and empirically tests the loose coupling theory applied to the design and use of an effective performance management system (PMS). Adopting the loose coupling approach within the ‘PMS design’ field both provides control, by means of the coordination characteristic, and fosters a higher degree of innovation initiatives (Bisbe and Otley, 2004), by means of the autonomy and the flexibility features that loose coupling systems exhibit. Data was collected from a survey administered in 8 Italian organisations. The survey resulted in 140 completed questionnaires from individual managers. Findings support the hypotheses that, in uncertain environments, loose coupling PMSs perform higher levels of managerial effectiveness and promote process innovation, compared to noncoupling and tight coupling PMSs.