Integrative Strategic Performance Measurement Systems, Strategic Alignment of Manufacturing, L PDF

Accounting, Organizations and Society 30 (2005) 395422
www.elsevier.com/locate/aos
Integrative strategic performance measurement

systems, strategic alignment of manufacturing, learning
and strategic outcomes: an exploratory study
Robert H. Chenhall
Department of Accounting & Finance, Monash University, Clayton, Vic. 3800, Australia
Abstract
There is considerable interest in the role of strategic performance measurement systems (SPMS), such as balanced
scorecards, in assisting managers develop competitive strategies. A distinctive feature of SPMS is that they are designed
to present managers with nancial and non-nancial measures covering dierent perspectives which, in combination,
provide a way of translating strategy into a coherent set of performance measures. There appears to be wide variation
in how these systems are congured. However, as yet, there has been little consideration given to identifying underlying
information characteristics that might help explain how the systems have benecial eects. This study identies a key
dimension of SPMS, integrative information, as being instrumental in assisting managers deliver positive strategic outcomes. Three interrelated dimensions of integrative SPMS were identied in this study. The rst, strategic and operational linkages, was a generic factor that captures the overall extent to which the systems provide for integration
between strategy and operations, and integration across elements of the value chain. The second attribute, customer
orientation, focuses on customer linkages and includes nancial and customer measures. The third dimension, supplier
orientation, is based on linkages to suppliers and includes business process and innovation measures. A model is developed that predicts that integrative SPMS will enhance the strategic competitiveness of organizations. It is proposed that
the inuence of integrative SPMS on strategic outcomes is indirect through the mediating roles of alignment of manufacturing with strategy and organizational learning. Data from a survey of 80 strategic business units provide varying
support for the proposed relationships.
2004 Elsevier Ltd. All rights reserved.
Introduction
Tel.: +61 03 9905 2355; fax: +61 03 9905 5475.

E-mail address: robert.chenhall@buseco.monash.edu.au
Increasingly, innovations in management

accounting systems have sought to provide information for developing a strategic orientation to
the operations of the rm (Ittner & Larcker, 2002;
0361-3682/$ - see front matter 2004 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2004.08.001
396
R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422
Kaplan, 1994; Shank & Govindarajan, 1993; Simons, 2000). One area of innovation has been performance measurement systems. There have been
eorts to rene nancial measures such as economic value added (Wallace, 1998). Non-nancial
measures have been recommended for use in manufacturing and marketing but in ways that lack
integration between functional areas (Banker, Potter, & Srinivasan, 1993; Foster & Horngren, 1987;
Fullerton & McWatters, 2002; Hall, 1989; MacArthur, 1996; Maskell, 1992; McKinnon & Bruns,
1992; Perera, Harrison, & Poole, 1997; Vollmann,
1990). Several authors have presented measurement schemes that are strategic in that they
provide a more integrated approach relating operations to customers and corporate vision. These
have included Performance Pyramids and Hierarchies (Dixon, Nanni, & Vollmann, 1990; Hronec,
1993; Lynch & Cross, 1995; McNair, Lynch, &
Cross, 1990), Balanced Scorecards (BSC) (Kaplan
& Norton, 1992; Kaplan & Norton, 1996; Kaplan
& Norton, 2001) and the Intangible Asset Scorecard (Sveiby, 1997).
A distinctive feature of these strategic performance measurement systems (SPMS) is that they
are designed to present managers with nancial
and non-nancial measures covering dierent perspectives which, in combination, provide a way of
translating strategy into a coherent set of performance measures. The perspectives that are relevant to
prot orientated companies most often include
nancial, customers, internal processes and longterm innovation. This system of associated measures has the potential to identify the cause-eect
linkages that describe the way operations are related to the organizations strategy. The aim is to
provide a rational framework to formulate and
implement strategies. Evidence on the adoption of
SPMS, particularly BSC, has been mainly anecdotal with little survey work to conrm the adoption
or eects on desired organizational outcomes.
While there is some support for growing BSC
implementation (Chenhall & Langeld-Smith,
1998; Hoque & James, 2000; Ittner & Larcker,
1998b; Silk, 1998), the characteristics or information dimensions of the systems are not examined
in these studies. It seems clear that there is wide
variation in the nature of SPMS, ranging from
combinations of nancial and non-nancial measures to more comprehensive systems linking operations to various perspectives and to strategy
(Hoque & James, 2000; Ittner & Larcker, 1998b;
Ittner & Larcker, 2003; Ittner, Larcker, & Randell,
2003).
This study aims to contribute to the body of
accounting literature that examines how the
underlying information dimensions of SPMS effects desired organizational outcomes by providing
information on the linkages between operations
and strategic outcomes and between dierent facets of the entire value chain. The importance of
identifying measurement system attributes to the
study of SPMS is noted by Ittner et al. (2003, p.
739). Examples of this body of literature include
studies associating enhanced outcomes with greater measurement emphasis and diversity of
performance measures (Ittner et al., 2003), competitor focused systems (Guilding, 1999), common
compared to unique performance measures (Lipe
& Salterio, 2000), systems linked to value chain
analysis (Dekker, 2003), measures of the benets
of supplier partnerships (Seal, Cullen, Dunlop,
Berry, & Ahmed, 1999), activity knowledge structures (Dearman & Shields, 2001), and performance
measure precision and sensitivity (Banker & Datar, 1989).
In this study, the nature of SPMS is described in
terms of a key information characteristic, that of
integrativeness. The characteristic of integrativeness within SPMS has two components. First, a
generic aspect involving information that provides
an understanding of cause-eect linkages between
operations and strategy and goals, and between
various aspects of the value chain including suppliers and customers (Banker, Janakiraman, Konstans, & Pizzini, 2001; Kaplan & Norton, 2001;
Malina & Selto, 2001; Stivers & Joyce, 2000). Second, a measurement component concerning provision of measures in the areas of nancial,
customers, business processes and long-term innovation (El-Shishini, 2001; Frigo & Krumwiede,
2000; Kaplan & Norton, 1996; Malmi, 2001; Sharma, 2000). It is this dimension of integrativeness
that is seen to provide managers with information
that potentially assists in developing competitive
strategies.
There are several ways in which researchers

have examined variables that are implicated in
the relationship between management control systems and desired organizational outcomes. Two
main approaches have been applied widely. First,
researchers have considered the inuences of variables such as environmental uncertainty or technology in moderating the relationship between
accounting systems and outcomes. Second, studies
have attempted to build structural models that
help explain how accounting systems have their affects on outcomes. 1 In this paper, a structural
modelling approach is adopted. Structural models
are appropriate when the theory sets out to explain
the role of variables that intervene in the relationship between management control systems and desired outcomes (Luft & Shileds, 2003). This
approach does not consider how the eects might
be moderated by dierent contextual factors,
rather it is assumed that these factors are noise
within the models. As is common in evolving areas
of research, theory can be developed to incorporate the inuence of dierent aspects of context
as our understanding matures.
The study contributes by providing a conceptual advance in understanding the application of
SPMS. This involves, rst, explicating the nature
of SPMS by identifying integrative information
as a key dimension of the systems. Specically, it
is argued that this information characteristic of
SPMS focuses on integrating business operations
with strategy. It is this integrative dimension that
provides SPMS with the potential to enhance an
organizations strategic competitiveness. Next,
the study develops a structural model drawing on
established theories related to manufacturing
(Hayes & Wheelwright, 1984; Hayes, Wheelwright,
& Clark, 1988; Skinner, 1969, 1978, 1985; Wheelwright & Hayes, 1985) to show how integrative
SPMS can align manufacturing with strategy
which then enhances the organizations competitiveness on strategic outcomes. Theories from
1
Luft & Shileds (2003) and Gerdin & Greve (2004) provide
analyses of the dierent forms of modelling, including structural models, used in management accounting research, pointing out the legitimacy of dierent approaches to answer
dierent questions.
397
organizational learning (Duncan & Weiss, 1979;

Hedberg, 1981; Huber, 1991) indicate that integrative SPMS can provide a platform for learning
which, in turn, can lead to successful strategic
outcomes.
The remainder of the paper is structured in four
sections. The next section develops the structural
model including a series of hypotheses. This is followed by sections that discuss the research method
and present results. Finally, conclusions are
discussed.
Theoretical framework
There has been extensive literature proposing
the importance of performance measurement innovation (Atkinson et al., 1997; Hronec, 1993; Kaplan & Norton, 1996; Lynch & Cross, 1995). It is
claimed that SPMS improve an organizations
ability to be competitive, in terms of its specic
strategic priorities. SPMS assist in developing strategic advantage by formulating and implementing
strategies in ways that ensure the value chain is
compatible with strategies. Importantly, SPMS
have a role in ensuring that the organization learns
so that it can maintain its competitiveness in the
future. In this paper, theory is developed to expound upon these relationships.
First, this research is predicated on the belief
that integrative SPMS enhance organizations strategic competitiveness. Arguments are presented to
support positive associations between integrative
SPMS and competitive strategic outcomes associated with both product dierentiation and costprice strategies (H1). Next, a structural model is
developed that elaborates upon the relationship
between integrative SPMS and competitive strategic outcomes. First, an alignment path is identied
where the strategic alignment of manufacturing is
associated with competitive strategic outcomes
(H2), and integrative SPMS assist in the strategic
alignment of manufacturing (H3). Second, an
organizational learning path is presented where
organizational learning is associated with competitive strategic outcomes (H4), and integrative
SPMS inuence organizational learning (H5).
Fig. 1 outlines the nature of these relationships.
398
Integrative
SPMS
H3
H5
Strategic
alignment of
manufacturing
H1
H2
Organizational
learning
H4
Competitive
strategic
outcomes
Fig. 1. Structural model: integrative SPMS, strategic alignment of manufacturing, organizational learning and competitive strategic
outcomes.
Integrative SPMS and strategic outcomes

Models of market globalization maintain that
business organizations operate within increasingly
competitive, global environments (Bartlett & Ghoshal, 2000; Harvey, Novicevic, & Kiessling, 2001;
Levitt, 1983; Ohmae, 1988; Porter, 1990). Porter
(1980, 1985, 1990) suggests that businesses are
compelled to compete by dierentiating their products on the basis of product characteristics or low
price. Others claim that rms focusing strategies
on product features must to do so without a price
premium (Belohlav, 1993; Kotha & Vadlamani,
1995; Normann, 1971). Also, rms competing on
low cost must ensure that their products are competitive on product features such as delivering on
time, providing service and warrantees as well as
developing technologies to continuously lower
costs. In contemporary environments product features include functionality, high quality, dependable delivery, eective after-sales service, exible
response to customer product requirements, rapid
product volume and mix changes and low price

(Dertouzos, Lester, & Slow, 1989; Levitt, 1983;
Miller, Meyer, & Nakane, 1992). As the competitive advantage of novel priorities or cost advantage erodes over time it is necessary to generate a
continual ow of new ideas (Porter, 1990; Roberts,
1999). This erosion is exacerbated for those rms
that have products with short product life cycles
and that face continuous improvement in cost
structures. These rms have an intensied need
for a stream of innovative product features and
technological improvements to sustain long-term
competitive advantage (Berliner & Brimson, 1988).
In this study, the basic notion of Porters product dierentiation and cost leadership taxonomy
is elaborated by dening these generic strategies
in terms of a selection of strategic priorities describing specic product features as identied by Miller
et al. (1992). These product characteristics include
unique features, high quality, low price, exibility,
delivery and product services such as customization and after-sales service. Successful strategic
outcomes are dened as being competitive on these

strategic priorities. 2
The necessity to sustain competitive strategic
advantage presents considerable administrative
challenges (Quinn, 1980a; Wheelwright & Clark,
1992; Hammond, 1994). To sustain competitive
strategic advantage rms require administrative
procedures that encourage invention and creativity, targeted on combinations of product features
(Clark & Fujimoto, 1991; Damanpour & Evan,
1984; Kanter, 1985). Also, contemporary strategies place demands on production processes to
provide a capacity to manufacture products with
enhanced features but at low cost (Cooper, 2000;
Shank & Govindarajan, 1993). Once formulated,
eective implementation is required to ensure that
innovative product characteristics and technologies deliver product characteristics to customers
in cost eective ways (Shank & Govindarajan,
1993).
SPMS have been proposed as a management
system to assist in developing and sustaining competitive strategic outcomes. Kaplan & Norton
(1996, 2001) have popularised SPMS as BSC by
articulating the strategic nature of performance
measurement systems. They claim that SPMS
aim to accomplish four management processes
that are critical to developing competitive strategies: clarify and translate vision and strategy;
communicate and link strategic objectives and
measures; plan, set targets, and align strategic initiatives; and, enhance strategic feedback and learning (Kaplan & Norton, 1996, p. 10). Proponents
of SPMS provide anecdotal evidence on the benets for a variety of individual companies (Ahn,
2001; Dixon et al., 1990; Kaplan & Norton,
1996; Kaplan & Norton, 2001; Lynch & Cross,
1995; Mooraj, Oyon, & Hostettle, 1999). While
2
While success in achieving product dierentiation and cost
leadership provides a basis to develop theory, it was necessary
to identify how the various strategic outcomes were related to
product dierentiation and low cost strategies. Table 2, Panel D
shows that two aspects of product dierentiation were identied, one involved delivery, service and quality outcomes (titled
delivery), the other exibility and customisation (titled exibility). A third factor captured low cost-price strategic outcomes
(low cost-price). The method section describes how these
factors were derived.
399
there have been a number of studies into the success of non-nancial performance measures, there
is only limited survey evidence on the eectiveness
of SPMS. Concerning the extent to which BSC
helped clarify strategy, Ittner & Larcker (1998b)
found that scorecards assisted only a minority of
managers in understanding goals and strategies
or in relating their jobs to business objectives. Ittner & Larcker (2003) found that managers made
little attempt to link non-nancial performance
measures to advance their chosen strategies. Moreover, only 23% of these managers were able to
show that they built causal models and most did
not validate the causal links.
The eects of SPMS on organizational performance are ambiguous. Some studies have shown
positive links between SPMS and performance. Ittner & Larcker (2003) found that rms that did
build causeeect linkages had higher ROA and
ROE than those that did not. Hoque & James
(2000) found that overall usage of BSC was signicantly correlated with organizational performance. In a study of banks, Davis & Albright
(2004) found that a group of branches that used
BSC outperformed a group that did not use BSC
on common composite nancial measures. Other
studies have shown that the association between
SPMS and performance depends on the type of
organizational performance being considered, with
some evidence suggesting that SPMS are associated with medium to long-term performance. Ittner et al. (2003) found that in nancial service
rms using a broad set of nancial and particularly
non-nancial measures, relative to rms with similar strategies or value drivers, earned higher stock
returns. Also, Ittner et al. (2003) found that techniques such as balanced scorecard, economic value
and business modelling were associated with increased measurement systems satisfaction but not
with economic performance.
Other studies suggest more equivocal outcomes
from SPMS. Chenhall & Langeld-Smith (1998)
reported that while BSC were part of the best
practices of high performance rms they were also
evident in poorly performing rms that had less
well developed management techniques. In an
experimental study, Lipe & Salterio (2000) found
that managers had cognitive diculties working
400
with measures to evaluate performance that were

specic to a situation (unique measures) and preferred measures that were the same for dierent
situations (common measures).
In evaluating the success of SPMS, it is important to distinguish dierent designs. Some SPMS
are based only on combinations of nancial and
non-nancial measures, with little attempt to integrate the various measures and relate them to the
organizations strategy (Epstein & Birchard,
2000, p. 82). Others are more comprehensive, representing a strategic management system focusing
on integrating nancial position, customers, relevant aspects of processes, and growth and innovation. Increasingly it is being argued that the
eectiveness of SPMS will depend on the extent
to which they form a coherent performance measurement system that enables strategy and operations to be integrated and harmonized (Epstein
& Birchard, 2000; Ittner & Larcker, 2003; Norreklit, 2000; Olve, Roy, & Wetter, 1999). Empirical
evidence on the eectiveness of more coherent
SPMS is limited. Banker et al. (2001) and Sandt,
Schaeer, & Weber (2001) found that the provision of systematic linkages between measures enhances satisfaction with the systems. Ittner et al.
(2003) also found that rms in the nancial services sector that had more coherent performance
measurement systems were associated with enhanced satisfaction with SPMS. However, their results indicated that these systems were not
associated with improved economic performance.
Importantly, this study extends research by identifying the role of coherent SPMS. However, the exact nature and meaning of these systems is not
explored, the study relying on single items to measure the extent of use of balanced scorecards, economic value measures and business models.
In the current study, the notion of coherence is
explored through the information dimension of
integrative SPMS, dened as providing a broad
array of measures and a design framework that
links strategy with operations and activities across
the value chain. It is theorized, in this study, that
integrative SPMS will assist managers to achieve
competitive outcomes, whether they will be concerned with product dierentiation or low costprice. This follows as the successful formulation
and implementation of both forms of strategy require managers to be provided with specic performance goals and feedback that can assist in
assessing the eectiveness of existing strategies
and provide a basis for learning related to eecting
successful strategies (Kaplan & Norton, 1996, p.
15). Theories drawn from psychology provide a
theoretical basis to suggest that individuals will
be motivated to expend eort when they are provided goals (Locke, Shaw, Saari, & Latham,
1981) and comprehensive feedback integrating actions with goals (Ilgen, Fisher, & Taylor, 1979).
Goal directed behaviour and feedback enhance
performance by: (i) clarifying expectations at
organizational and operational levels (Taylor,
Fisher, & Ilgen, 1984); (ii) reducing ambiguity
associated with tasks to achieve strategies (Graen,
1976); and (iii) providing a coherent reection of
organizational priorities (Baumler, 1972; Porter,
Lawler, & Hackman, 1975). These eects are augmented when performance measures are part of
formal systems used to evaluate work (Briers &
Hirst, 1990; Bruns & McKinnon, 1992).
Integrative SPMS provide feedback on how
business activities link to strategies and to various
aspects of the value chain. Developing competitiveness in both product dierentiation and low
cost-price strategies will be assisted by understanding how the specic strategies relate to the broad
objectives of the rm and how various business
unit activities inuence other units in the organization. Developing successful product dierentiation
can be assisted by integrative SPMS. Integrative
SPMS can provide feedback to understand and
successfully manage the increasing level of complex interdependencies that occur between operations and strategy and between various aspects of
the value chain, caused by product dierentiation.
Also, the systems can focus attention on how to
integrate the complexity derived from responding
to changing and diverse customer requirements.
Moreover, they can highlight the need to ensure
that business processes, including supplier
arrangements, can deliver on customer requirements in cost eective ways. Thus, it may be predicted that integrative SPMS will be associated
with enhanced competitiveness related to product
dierentiation strategies.
Managing low cost-price strategies may involve

a more limited range of interdependencies. However, competitiveness on costs is likely to be
achieved if the eects of dierent business unit
activities on each other are understood by way of
their explication within integrative SPMS. Moreover, eective cost-price strategies may be achieved
by using integrative information that assists developing customer relationships where the customers
work with the rm to develop products at particular costs. Finally, close connections with suppliers
are likely to be a critical aspect of constraining
costs. Such connections maybe enhanced by the
way interactions with suppliers are evaluated within an integrative SPMS.
In summary, SPMS can vary in the degree to
which information integrates operations with strategy, with more integrative systems providing richer strategic feedback. It is the provision of
strategic feedback from integrative SPMS that provides the basis to enhance competitive outcomes for
both product dierentiation and cost-price strategies. These arguments and the claims of proponents
of SPMS provide the basis for Hypothesis 1.
H1: There is a positive relationship between integrative SPMS and competitive outcomes
associated with both product dierentiation
and low cost-price strategies.
Strategic alignment of manufacturing and

competitive strategic priorities
In this study, the strategic alignment of manufacturing is dened in terms of the existence
of clear links between manufacturing and strategy, consistency of manufacturing with strategy
development and an understanding by senior
managers of the manufacturing policy and how
it relates to other functions (Wheelwright &
Hayes, 1985). Eective strategic alignment of
manufacturing is important as it ensures that
strategy is delivered at the process level and it
provides the opportunity for parallel and interactive development of both products and associated
processes (Hayes et al., 1988; Shank & Govindarajan, 1993).
401
The signicance of aligning manufacturing with

strategy to develop competitive outcomes has been
emphasized for some time in manufacturing models of the rm (Hayes & Wheelwright, 1984; Hayes
et al., 1988; Skinner, 1969, 1978, 1985; Wheelwright & Hayes, 1985). In essence these models
claim that improved competitiveness derives from
the way manufacturing can provide a strategic
capability to contribute to the formulation of strategic priorities and their eective implementation
(Sun & Hong, 2002; Wheelwright & Hayes,
1985). Thus, a strategic priority of timely delivery
may require manufacturing processes to ensure
that suppliers are of high quality and deliver on
time, and that production cycle time is reduced
with no delays from defects. Aligning strategy with
manufacturing elevates manufacturing from a
reactive role to play a major part in strengthening
market position by providing capabilities for improved strategic priorities (Hayes et al., 1988;
Wheelwright & Hayes, 1985).
One aspect of manufacturings strategic capability is aligning communication between individuals
formulating product strategy and those at the
operational level. This encourages operational
managers to ensure that manufacturing enables
strategic priorities to be eected. Also, strategic
alignment stresses the need to focus on strategic
priorities that provide process innovations that
will develop an innovative, learning approach to
enhancing manufacturing capabilities (Bhoovaraghavan, Vasudevan, & Chandran, 1996; Brown,
1998; Hayes et al., 1988).
The task of alignment has become particularly
acute as rms face increasing complexity within
manufacturing (Drucker, 1990). Alignment is
likely to be particularly important to manage the
complexity associated with product dierentiation
strategies. Such complexity occurs as production
processes must be coordinated and focused on
delivering multiple product characteristics, such
as quality, exible design, fast delivery and in
many instances do so at acceptable cost (Billington
& Davis, 1992; Shank & Govindarajan, 1993).
Complexity may also be apparent in low cost-price
strategies with contemporary manufacturing providing strategic advantage by developing seamless
production processes and coordinated supplier
402
and customer relationships. These eorts are

important to maintain continuous cost improvement and sensitivity to both down-stream and
up-stream quality and delivery (Dekker, 2003).
Consequently, it has been recognized that developing competitive strategic outcomes for both product dierentiation and low cost-price strategies
requires aligning manufacturing with strategy
and that this involves managing multiple and varied interdependencies that occur across all aspects
of the value chain (Shank & Govindarajan, 1993).
This involves choosing technologies, selecting and
managing suppliers, production planning and control systems, work force and quality practices and
customer relationships (Bates, Amundson, Schroeder, & Morris, 1995; Cooper, 2000). Hypothesis 2
presents the relationship between strategic alignment of manufacturing and competitive strategic
priorities.
H2: There is a positive relationship between the
strategic alignment of manufacturing and
competitive outcomes associated with both
product dierentiation and low cost-price
strategies.
Integrative SPMS and strategic alignment

of manufacturing
Communication and information theories provide the basis to predict that integrative SPMS
can assist in developing a strategic alignment of
manufacturing (Guetzkow, 1965; Krone, Jablin,
& Putnam, 1987). Information theories consider
the importance of eective routing of potentially
synergistic information across the organization.
This routing involves horizontal and vertical communications and assists in coordinating information between managers who are not aware of
where information may be used, or of the existence
of potentially useful information. Specically, the
achievement of a strategic alignment of manufacturing requires information to ensure there is
eective coordination between strategy and manufacturing and between manufacturing and other
functions (Wheelwright & Hayes, 1985). The role
of manufacturing as a means of formulating and
achieving strategic priorities requires a complementary, organizational-wide information system

which ensures that manufacturing systems are provided with appropriate information (Hayes et al.,
1988).
It is the integrative nature of SPMS that assists
strategic alignment of manufacturing. This involves combining performance measures so that
manufacturing decisions can be assessed in terms
of their coherence with strategies concerning nancial returns, customers, processes and innovation
(Dixon et al., 1990; Lynch & Cross, 1995). That
is, integrative SPMS can assist alignment by explicitly identifying, measuring and communicating to
managers the eects of linkages between manufacturing, consumers and nancial outcomes. This involves identifying and mapping logical connections
between the stages across manufacturing processes
to ensure consistency of the stages with overall
strategy (De Hass & Kleingeld, 1999). Importantly,
integrative SPMS provide motivation for managers
to align their operations with strategies. This follows, as the success of managers in eecting such
alignment will be assessed by the performance
measurement systems. This relationship is presented in hypothesis 3.
H3: There is a positive relationship between integrative SPMS and the strategic alignment of
manufacturing.
Organizational learning and competitive

strategic priorities
Theoretical research on learning contends that
organizational level learning involves systems type
thinking where organizations develop systems to
acquire, interpret, diuse and store information
and outcomes of organizational experiences
(Huber, 1991; Nevis, DiBella, & Gould, 1995;
Roth & Senge, 1996). Individuals draw upon such
systems when they have to solve problems and
make decisions. Organizational learning concepts
can be related to the way organizations provide
an information and knowledge platform upon
which individual learning can evolve. This notion
is consistent with commentators who see organiza-
tional learning as creating structures and strategies

that facilitate the learning of all members of the
organization (Burgelman, 1990; Garvin, 1993;
Senge, 1990; Stewart, 1997). 3 Organizations are
seen to manage knowledge which implies that
any individual learning requires some substantiation of the essence of learning that leads to the
accumulation of knowledge.
Increasingly, the operating environments of
business organizations are becoming highly competitive. Such environments involve high demands
for information and knowledge. This pressure has
prompted commentators to identify the development of knowledge organizations, learning organizations and intellectual capital as major sources of
competitive advantage (Garvin, 1993; Edvinsson
& Malone, 1997; Senge, 1990). Learning at the
organization level is seen to increase the knowledge intensity of the organization which is a prerequisite for developing strategic responses
(Starbuck, 1992; Tenkasi & Boland, 1996). Following Huber (1991), in this work, organizational
learning is identied as involving information
acquisition, interpretation, distribution and memory. Information acquisition entails obtaining
information and knowledge; information interpretation refers to the process whereby distributed
information is given some form of commonly
understood interpretation; information distribution is concerned with sharing information; and
organizational memory is the means whereby
information and knowledge are stored for the future. Each of these aspects of learning provides a
capacity to develop competitive product dierentiation and low cost-price strategies.
Literature derived from searching behaviour is
relevant to organizational information acquisition
as it identies the links between eective learning
and information scanning, focused search and performance monitoring (for a summary see Huber,
1991). The survival of organizations facing com-
3
The study does not consider the process of knowledge
generation at the individual level, nor does it consider the
explicit outcome of learning such as developing organizational
routines or standard operating procedures (Levitt & March,
1988; March & Olsen, 1988), cognitive systems (Hedberg, 1981),
or a collective mind (Weick & Roberts, 1993).
403
petitive operating environments will depend on

the eectiveness with which search procedures
identify changes and develop eective responses
(Daft, Sormunen, & Parks, 1988; Tushman &
Katz, 1980). More specically, strategy researchers
have stressed that information acquisition provides potentially useful ideas related to external
and internal opportunities and threats that are relevant to formulating innovative strategy to gain
competitive advantage in dierentiating products
or lowering costs (Dutton & Freedman, 1985;
Hambrick, 1982; Jelinek, 1979; Shrivastava, 1983).
Research in organizational communications explains that information interpretation is the process whereby information is given meaning (Daft
& Wieck, 1984). The benets from eective information sharing derive from translating events,
developing shared meanings and conceptual
schemes (Daft & Wieck, 1984). These outcomes
provide a clear and common focus for organizational activity which can, according to conventional strategy literature, enhance performance
(Andrews, 1971; Anso, 1965). While shared
meaning may produce a single vision or purpose,
it may also involve a variety of interpretations
(Huber, 1991). The very process of clarifying purpose can result in accidentally discovering eective
strategies which then provide focus (Kogut, 1991;
Quinn, 1980b). There is little systematic study linking strategy to the interpretation of information.
However, from a cognitive perspective, the role
of interpreting information ensures that all activities are related to strategic priorities, whether
they concern product dierentiation or cost leadership, thereby clarifying purpose and avoiding
ambiguity (Daft & Wieck, 1984; Dutton, Fahey,
& Narayanan, 1983).
Theories from business communications have
identied information distribution as central to
enabling organizations to conduct their business
(Goodman, 1998; Tucker, Meyer, & Westerman,
1996; Tushman & Nadler, 1978). Essentially, without communication the linkages between organizational sub-units are an abstract chain. Decisions
and communications interact such that communication gives rise to action and action gives rise to
information to be communicated. Huber (1991,
p. 101) points out that information distribution
404
involves linking individuals who need information

with those who possess it and that this can assist in
identifying knowledge throughout the organization. From a strategy viewpoint, distributing information ensures that more individuals throughout
the organization are aware of the precise nature
of strategies and can contribute to the achievement
of those strategies or provide feedback on their
adequacy and potential alternatives (Guetzkow,
1965; Huber, 1982). Such clarity of purpose is
important to all forms of strategy, including product dierentiation and low cost-price.
Organization behaviour theorists have noted
that extensive knowledge about how to do things
is stored in organizational memory both as formal
documents and informal mental models (Feldman,
1989; Levitt & March, 1988). Organizational memory provides a repository of information that is
often extensive and precise. This memory involves
sophisticated storing and retrieval that can enhance the organizations capacity to source and
process valuable information for strategic analysis
related to dierentiating products and to continuously improve cost structures (Feldman, 1989).
These arguments lead to H4.
H4: There is a positive relationship between
organizational learning and competitive outcomes associated with both product dierentiation and low cost-price strategies.
Integrative SPMS and organizational learning

A distinctive characteristic of SPMS is their
objective of ensuring that the organization can develop a capacity to innovate by encouraging learning. There are arguments to support the view that
integrative SPMS can contribute to each of the
four elements of learning: information acquisition,
interpretation, distribution and organizational
memory.
While there is extensive research indicating that
organizational information acquisition is a complex process, Huber (1991) concludes that more
proactive, formal procedures at the senior management level can assist in learning. Integrative
SPMS are potentially a primary tool for mapping,
evaluating and learning about strategic direction.

This follows as integrative SPMS focus on how
operations, suppliers and customer linkages deliver on strategy. Diverse measures across nancials,
customers, processes and long-term innovation
provide an important formal mechanism to collect
information that can be used to develop organizational learning.
Theories drawn from cognitive mapping and
framing provide a basis to explain the importance
of integrative SPMS in information interpretation
(Dutton & Jackson, 1987; Tversky & Kahneman,
1985). If information is not uniformly framed,
common interpretations are unlikely to be
achieved and eort may be dissipated. These theories suggest that the strategic focus of integrative
SPMS provides a common basis for framing
information.
Organizational theorists have noted the importance of formal systems in distributing information related to strategies (Burns & Stalker, 1961;
Galbraith, 1973, 1993; Lawrence & Lorsch, 1967).
Khandwalla (1977, p. 453) observed that without
formal deliberate channelling of information and
action, organizations would operate chaotically.
To be eective these formal systems need to maintain a balance between managing the interface between tight control to ensure activities deliver
strategy and more uid processes to ensure eective
interaction and systems-wide eects that may
encourage innovation in strategy formulation
(Leonard-Barton, 1992). The use of integrative
SPMS to implement strategies and to communicate
strategic uncertainties and emerging strategy can
be important in facilitating the distribution of
strategic priorities throughout the organization (Simons, 1995). Malina & Selto (2001) provide empirical evidence that emphasises the role of BSC in
communicating and distributing information.
Information and organizational theorists have
demonstrated the importance of formal systems
to develop organizational memory (Feldman,
1989; Gioia & Poole, 1984). While memory is not
a xed quality and is subject to dierences in experience and conicting interpretations, the recording of events in formal documents supported by
an authoritative source and eective experiences
can develop the formal systems as endorsed mem-
ory (Sims, 1999). Accounting and formal information systems have been identied as important to
developing organizational memory (Huber, 1991;
Levitt & March, 1988). The use of integrative
SPMS, as part of an on-going formal control system, provides the basis to store information on
integrated plans and the recording of subsequent
events. H5 summarizes these arguments.
H5: There is a positive relationship between integrative SPMS and organizational learning.
Research method
Sample
Data were collected by a survey questionnaire
administered to senior managers drawn from Australias largest 200 industrial organizations. The
companies were selected from IRESS that covers
publicly listed companies and the Kompass business directory of non-listed companies. These
organizations were either strategic business units
(SBU) (i.e. divisions of larger companies) or independent companies. A single SBU was drawn, at
random, from each multi-divisional organization.
The initial targeted individuals were the chief executive of independent rms and managers of SBU.
Telephone calls conrmed if the divisions of companies had SBU responsibilities and who was the
most suitable person to be contacted to participate
in the survey. It was requested that the most senior
manager who had comprehensive knowledge of
the performance measurement systems be involved
in the survey. In some instances these were the senior nancial ocers, in others they were general
managers, manufacturing or human resource managers. To test if function provided a bias in results,
tests of dierences in construct scores across functional areas were undertaken. No signicant dierences were found. It is possible that the
respondents with more innovative SPMS held positive attitudes to the performance measurement
systems thus biasing responses to more positive
outcomes. Apart from guaranteeing condentiality, the study has no direct controls for such bias.
405
However, evidence concerning performance evaluations suggests a high correlation between managers self-ratings and objective measures
(Venkatraman & Ramanujam, 1987).
Managers were provided with the option of
receiving a hard copy questionnaire or to respond
by way of an internet version of the questionnaire.
Reminder calls were made after two-weeks, one
and two months after the rst point of contact.
Usable responses were received from 80 managers
providing a nal response rate of 40%. There were
no signicant dierences in average scores for variables between the internet (70 respondents) and
hard copy respondents (10 respondents). Ten of
the non-respondents were prepared to discuss in
general terms, over the telephone, their performance measurement systems and indicated a range
of applications that were similar to the respondents, suggesting that non-respondents were not signicantly dierent from respondents. Reasons for
non-response were time pressures and a reluctance
to participate in non-ocial surveys. Variable
scores were compared for a sub-sample of 10 early
respondents (one week) with 10 of the late responses (one-two months). There were no signicant dierences providing some evidence for lack
of response bias. The average age of respondents
was 38 years with an average length of employment in the companies of six years and in their current positions of three years. Table 1 provides
information on the size, industry and functional
area of respondents.
Measures
The questionnaire elicited information on integrative SPMS, competitive strategic priorities,
strategic alignment of manufacturing and organizational learning. Given the novelty of the research the only established instrument was for
competitive strategic priorities. New measures
were developed for the remaining variables in the
model. Extensive pilot testing was undertaken to
enhance the content validity of the measures. This
involved the construction of items based on the
theoretical nature of the constructs and then a review process involving ve managers of rms not
included in the original survey, three senior
406
Table 1
Respondents by size of SBU, industry and functional area
n
Panel A: SBU size
Number of employees
0100
101500
5011500
15012000
2001+
20
16
16
16
12
Panel B: Industry
Category
Chemical
Foodstus & beverages
Engineering and automotive
Construction and mining
Light engineering & electrical
Computers and electronics
Agricultural
Other
10
11
16
10
10
8
6
9
Panel C: Functional area

Category
Finance
Manufacturing
General management
Human resources
Other
22
14
20
18
6
academics in management accounting, and four

members of the consulting division of an accounting company. The wording of items in the questionnaire is provided in Appendix.
The measure for integrative SPMS sought to
identify items that would measure the key information characteristic of integrativeness. The survey identied if the organizations employed a
BSC. Those with a BSC answered items that referred to BSC, while those without BSC were directed to a separate section that had identical
items but referred to performance measurement
systems. 4 First, the instrument measured the extent to which the performance measurement systems provided integration between goals,
4
Companies that had not adopted their current performance measurement system (BSC or other systems) for at least six
months were excluded from the analysis. In the main, companies had adopted their current systems for at least 12 months
(72 companies) while eight had adopted their systems in the
prior 6-12 months. There were no signicant dierences in
construct means between these two groups.
strategies and operations; and across the value

chain including supplier and customers. Second,
the provision of performance measures in the area
of nancials, customers, business processes and
long-term innovation was assessed. Third, given
the important distinction given to leading and lagging measures in SPMS, with a combination of
both being recommended for more comprehensive,
integrative systems, items requested respondents to
evaluate the extent to which the SPMS provided
leading and lagging indicators.
Factor analysis, with oblique rotation, was conducted to identify the extent to which there may
have been separate attributes within the SPMS
variable. Table 2 (panel A) provides the results
of this analysis and identies three factors for the
variable. Interpreting these exploratory factors requires careful consideration to identify common
themes within each factor. While such interpretation is somewhat subjective, the following descriptions attempt to encapsulate the meaning of the
factors. The rst factor captures the overall level
of integration including items that indicated the
extent to which the SPMS comprised a formally
documented system, the extent to which the systems provided linkages between operations and
goals and strategy, and between subunits in the
organization. There were two factors that elaborated on linkages, one focused on customers and
the other with suppliers. Factor 2 included a question that captured the extent to which the measures linked the business unit to customers. It
also included items on nancial and customer
measures as well as the provision of leading and
lagging indicators. Factor 3 included an item that
captured the extent of linkages of the measures
with suppliers, with measurement in the areas of
business processes and long-term innovation. A
weighted aggregate of items within each dimension
is used in the descriptive part of the analysis.
Three items were used to measure the strategic
alignment of manufacturing. They were drawn
from the attributes of this construct as detailed
in Wheelwright & Hayes (1985). These were the extent to which the connection between manufacturing policy and strategy was clearly formulated and
pursued, manufacturing investments were screened
for consistency with business strategy, and senior
407
Table 2
Factor loadings for integrative strategic performance measurement systems, strategic alignment of manufacturing, organizational
learning, strategy (items are cross referenced to Appendix)
Panel A: Integrative strategic performance measurement systems
Factors and Cronbach alphas
Factor loadings
I
I. Strategic and operational linkages (a = 0.884) (Eigenvalue = 5.133, % of variance = 42.77)

Fully documented balanced scorecard (1-1)
Links operating performance and long term strategies (1-2)
Shows how business unit activities aect other units in organization (1-4)
Links activities to goals and objectives (1-3)
II. Customer orientation (a = 0.724) (Eigenvalue = 1.376, % of variance = 11.47)
Measures provide links to customers (1-6-2)
Customer measures (1-7-2)
Lagging indicators (1-5-2)
Leading indicators (1-5-1)
Financial measures (1-7-1)
III. Supplier orientation (a = 0.749) (Eigenvalue = 1.256, % of variance = 10.45)
Long-term innovation measures (1-7-4)
Measures providing links to suppliers (1-6-1)
Business process measures (1-7-3)
Panel B: Strategic alignment of manufacturing (all items loaded on one factor)
Factor and Cronbach alpha
Strategic alignment of manufacturing (a = 0.739) (Eigenvalue = 1.992, % of variance = 66.39)
Investments in manufacturing are screened for consistency with
business strategy (2-2)
Links between manufacturing policy and strategy are clearly formulated and pursued (2-1)
Senior managers understand of how products, markets and manufacturing processes
interact and manage these interactions across functions (2-3)
Panel C: Organizational learning (all items loaded on one factor)
Factor and Cronbach alpha
Organizational learning (a = 0.800) (Eigenvalue = 2.596, % of variance = 64.89)
0.979
0.845
0.777
0.624
0.094
0.028
0.050
0.274
0.144
0.190
0.230
0.121
0.111
0.058
0.081
0.021
0.271
0.772
0.722
0.719
0.628
0.410
0.298
0.166
0.402
0.192
0.165
0.175
0.091
0.241
0.033
0.220
0.277
0.810
0.667
0.517
Factor loadings (component matrix)

0.898
0.876
0.635
0.884
0.829
0.748
0.741
Factor loadings
I
I. Delivery/service (a = 0.845) (Eigenvalue = 4.033, % of variance = 36.67)

Make dependable delivery promises (4-8)
Provide eective after-sales service and support (4-9)
Provide fast deliveries (4-7)
Product availability (4-10)
Provide high quality products (4-1)
III
Factor loadings (component matrix)
There are well established ways to share information and knowledge

between people within the organization (3-1)
The business units beliefs, attitudes and ways of doing business
provide a strong basis for interpreting information (3-2)
The organization stores information and knowledge from prior
experiences in formal systems (3-4)
There are extensive formal and informal procedures and processes
for the acquisition of information (3-3)
Panel D: Competitive strategic priorities
Factor and Cronbach alphas
II
0.895
0.825
0.817
0.757
0.531
II
III
0.136
0.133
0.035
0.134
0.075
0.082
0.043
0.112
0.213
0.228
(continued on next page)
408
Table 2 (continued )
Panel D: Competitive strategic priorities
Factor and Cronbach alphas
Factor loadings
I
II. Flexibility (a = 0.761) (Eigenvalue = 1.849, % of variance = 16.81)

Make rapid volume and/or product mix changes (4-6)
Make changes in design and introduce new products quickly (4-5)
Provide unique product features (4-3)
Customise products and services to customer needs (4-11)
III. Low Cost/price (a = 0.656) (Eigenvalue = 1.318, % of variance = 11.98)
Low price (4-4)
Low production costs (4-2)
managers had understanding of how manufacturing processes interacted with products and markets and the management of these interactions
across the functions. Table 2 (panel B) shows a single factor conrming the construct validity of this
measure.
Organizational learning was based on Hubers
(1991) four dimensions of this construct. These
were processes for acquisition of information and
knowledge, established ways of sharing information and knowledge, extent of business units belief
and attitudes as a basis for interpreting information, and the storage of information and knowledge from prior experience. Table 2 (panel C)
shows that items loaded onto a single factor.
The variable competitive strategic outcomes
was measured using 11 strategy items identied
by Miller et al. (1992). Respondents were asked
to indicate how they performed relative to their
competitors on each of the items, and then the degree of importance of the strategic priorities to
their business unit. Scores for each item were
determined by multiplying the performance by
the importance scores. Factor analysis, with oblique rotation, revealed three dimensions of strategic outcomes. Table 2 (panel D) presents these
factors. These were concerned with quality/delivery/service, exibility and low cost/price. Final
scores for each dimension were averages, aggregated across all items within the respective factor.
This analysis can be interpreted as revealing two
dimensions of product dierentiation outcomes
(quality/delivery/service and exibility) and one
of low cost-price.
Statistics for the Bartletts test of sphericity
were signicant for all factors and Kaiser
II
III
0.177
0.027
0.102
0.261
0.866
0.828
0.671
0.617
0.177
0.115
0.085
0.134
0.057
0.182
0.067
0.059
0.868
0.801
MeyerOlkin measures of sampling adequacy were

above 0.60 for all factors. These statistics conrm
the factorability of the items. Cronbach alphas
were calculated on all factors and exceeded 0.70,
except for the low cost/price dimension of strategic
priorities which was 0.65. These statistics are provided in Table 2 and indicate satisfactory internal
reliability. 5
An examination of the residual scatterplots
indicated that there were no serious deviations
from normality and linearity. Consideration of
the Mahalanobis distance values indicated that
there was one multivariate outlier among the independent variables (critical value of 0.001). This
outlier was due to a very low score on strategic
alignment of manufacturing in a case with high
scores on other variables. All observations were
retained. 6
While the study is concerned with the interactive nature of SPMS it was considered important
to identify if rms employed a BSC. Given the
popularization of BSC, it might be expected that
these systems would be more advanced in terms
of providing integrative information and multiple
measures. Of the 80 respondents 25 had adopted
BSC. The dierence in the means between groups
with and without BSC for all variables was not signicant, except all three dimensions of integrative
SPMS which were marginally higher for the BSC
group, although not statistically signicant at con5
As indicators of constructs in this study are considered to

be reective, rather than formative, it is appropriate to consider
issues of validity and reliability (Fornell, 1982).
6
There were no signicant dierences in any results with this
observation excluded.
409
Table 3
Descriptive statistics
Variable
Competitive strategic priorities

Flexibility
Delivery
Low cost-price
Strategic alignment of manufacturing
Organizational learning
Integrative SPMS
Strategic and operational linkages
Customer orientation
Supplier orientation
Number of observations
Mean
Standard deviation
Actual range
Theoretical range
Min
Max
Min
Max
4.489
3.664
3.339
5.431
4.910
1.103
1.071
1.149
0.905
0.975
1.69
1.00
1.07
2.00
2.75
6.80
6.04
7.00
7.00
7.00
1.00
1.00
1.00
1.00
1.00
7.00
7.00
7.00
7.00
7.00
4.653
5.163
3.908
80
1.276
0.972
1.337
1.25
2.20
1.00
7.00
7.00
6.67
1.00
1.00
1.00
7.00
7.00
7.00
ventional levels (p < 10). While this is, perhaps,

surprising it suggests that business organizations
are achieving integrative performance measures
with a variety of performance measurement systems, including BSC.
Descriptive statistics, based on the weighted
average scores of multi-item variables, are provided in Table 3.
Results
This section describes the technique of partial
least squares (PLS) used to test the model and presents the results of hypotheses testing.
Structural equation modelling: partial least squares
To test the hypotheses, the technique of PLS
was used. PLS is particularly suited to small sample size studies and when the analysis is exploratory (Wold, 1985). Also, it overcomes some
theoretical and estimation problems in the use of
more well known structural equation modelling
approaches that use covariance structure analysis,
such as AMOS or LISREL (Hulland, 1999). The
technique of PLS comprises a structural model
that identies the relationships among constructs
and a measurement model that species the relations between the manifest items and the constructs that they represent. PLS enables an
overall assessment of the validity of constructs
within the total model.
Given the exploratory nature of the current

study, a two-step approach was taken which involved a preliminary analysis to examine the construct validity of multi-item variables and then
the estimation of the structural model. This approach is recommended when theory is more tentative and measures are less well developed as it
maximizes the interpretability of both measurement and structural models (Hair, Anderson, Tatham, & Black, 1998, p. 600). The preliminary
analysis of multi-item constructs was reported
above, and detailed in Table 2.
The measurement model is re-examined within
PLS with the generation of additional statistics to
access the validity of the measurement model.
The PLS analysis conrmed the earlier factor
analyses for organizational learning, competitive
strategic priorities with all items loading over
0.70 on their respective latent variables. For strategic alignment of manufacturing, item 2-3 loaded
0.429. For integrative SPMS, factor II, item 1-5-2
loaded 0.520 and item 1-7-1 loaded 0.528.
The discriminant validity of the measurement
model was assessed by calculating the average variance extracted (AVE) and comparing with the
squared correlations between constructs. This provides a test of the extent to which a construct
shares more variance with its measures than it
shares with other constructs (Fornell & Larcker,
1981). Table 4 provides the AVEs that can be compared with the correlations between other constructs derived from Table 5. All AVE measures
410
Paths from
Paths to
Statistic
Integrative SPMS
Strategic and operational
linkages
Competitive strategic priorities
Delivery/service
Flexibility
Low cost/price
Strategic alignment of
manufacturing
0.072
(0.493)
0.261
(1.581)*
0.101
(0.533)
0.237
(1.533)*
0.268
(2.038)**
Integrative SPMS
NR = not hypothesized within the model.
*
p < 0.10.
**
p < 0.05.
***
p < 0.01.
Customer
orientations
0.174
(1.265)
0.060
(0.124)
0.070
(0.314)
0.008
(0.153)
0.276
(1.708)**
Supplier
orientation
0.084
(0.611)
0.011
(0.015)
0.354
(2.934)***
0.239
(1.744)**
0.147
(0.938)
Organizational
learning
0.347
(2.321)***
0.043
(0.348)
0.131
(0.963)
Strategic alignment
of manufacturing
0.225
(1.726)**
0.183
(1.295)*
0.128
(1.290)*
NR
NR
Mult R2
AVE
0.254
0.616
0.179
0.583
0.227
0.725
0.173
0.320
0.644
0.656
0.741
0.482
0.665
Table 4
Results of PLS: path coecients and t statistics, R2, average variance extracted (AVE)
are greater than the respective squared correlations attesting to satisfactory discriminant validity.
The AVEs are used, also, to assess the convergent validity of constructs within the PLS model.
Table 4 indicates that all variables are above the
conventional guideline of 0.50 for adequate convergent validity, except for factor 2 of integrative
SPMS which is marginally low with an AVE of
0.48.
To examine the structural model, PLS generates
standardized bs that are used as path coecients
within the structural model and are interpreted
as in OLS regression. Bootstrapping provides a
basis to evaluate parameter estimates and their
condence intervals based on multiple estimations.
Bootstrapping using 500 samples with replacement
was used to assess the signicance of the path
coecients.
Table 4 and Fig. 2 present the results from PLS
related to the structural model. These include the
path coecients and their t tests. It is inappropriate in PLS to use any overall goodness-of-t measures, as used in covariance structure analysis
modelling, because PLS makes no distributional
assumptions (Chin, 1998). Rather, t is evaluated
by the overall incidence of signicant relationships
between constructs and the explained variance of
the endogenous variables. R2 values are reported
in Table 4.
0.280***
0.435***
0.359***
0.430***
0.232**
0.251**
0.232**
0.478 ***
0.294***
0.183**
0.375***
0.495***
0.284
0.330***
0.480***
0.259**
0.377***
0.214**
0.456***
**
***
p < 0.05.
p < 0.01.
0.314***
0.295***
Delivery
Low cost-price
Strategic alignment of manufacturing
0.364***
411
Test of hypotheses
Competitive strategy priorities

Flexibility
Integrative SPMS
Organizational
learning
Strategic alignment of
manufacturing
Table 5
Correlations from PLS model between competitive strategic priorities, strategic alignment of manufacturing, organizational learning and integrative strategic
performance measurement systems (N = 80)
The study sought rst to establish that integrative SPMS would be associated signicantly with
competitive strategic outcomes (H1). A structural
model was then developed to examine the way in
which integrative SPMS inuence competitive outcomes, related to both product dierentiation and
low cost-price strategies. This was done by examining the extent to which integrative SPMS are
associated with a strategic alignment of manufacturing (H2) and organizational learning (H4),
and how these variables, in turn, relate to competitive strategic outcomes (H3 and H5). The
hypotheses are tested using the three dimensions
of integrative SPMS that were identied, empirically, in the study. The results are mixed but show
partial support for the hypothesized relationships.
412
SPMS
Supplier
orientation
SPMS
Strategic &
operational
SPMS
Customer
orientation
0.276**
0.237*
0.354***
0.268**
0.239**
Strategic
alignment of
manufacturing
Organizational
learning
0.261*
0.128*
0.225**
0.347***
0.183*
Strategic
Outcome:
Low cost-price
Strategic
Outcome:
Flexibility
Strategic
Outcome:
Delivery
= p<0.01
= p<0.05
= p<0.10
Fig. 2. Partial least squares model: signicant path coecients: integrative SPMS, strategic alignment of manufacturing,
organizational learning and competitive strategic outcomes.
Consistent with expectations, Table 5 indicates

that each of the three dimensions of integrative
SPMS were signicantly correlated with competitiveness on each of the strategic outcomes, supporting H1. The structural model indicates how
strategic alignment of manufacturing and organizational learning act as intervening variables in
each of these associations. For the strategic alignment of manufacturing path, Fig. 2 shows some
support for the hypothesized associations. For
the associations between strategic alignment of
manufacturing and strategic outcomes (H2), there
are signicant coecients for delivery, exibility
and for low cost-price. For the associations between integrative SPMS and strategic alignment
of manufacturing (H3), there are signicant paths
between alignment and strategic and operation
linkages and with supplier orientation but not with
customer orientation. For the proposed association between organizational learning and strategic
outcomes (H4), the only signicant path was between organization learning and delivery. The proposed association between organizational learning
and integrative SPMS (H5) was partially supported with signicant paths between organizational learning and strategic and operational
linkages and customer orientation, but not with
supplier orientation.
Fig. 2 indicates the way in which the intervening
variables either fully or partially mediate the correlations between the dimensions of integrative
SPMS and strategic outcomes (Baron & Kenny,
1986). The intervening variables of strategic alignment of manufacturing and organizational learning provide full mediating eects for the
associations between the SPMS dimension of strategic and operational linkages and the strategic
outcomes of delivery and low cost-price; the SPMS
dimension of customer orientation and the strategic outcomes of delivery; and the SPMS dimension
of supplier orientation and the strategic outcomes

of delivery and exibility. The model provides partial mediating eects for the association between
strategic and operational linkages and exibility
strategic outcomes, and supplier orientation and
low cost-price strategic outcomes. The customer
orientation dimension of SPMS has only a single
signicant path to delivery outcomes, acting
through organizational learning.
Discussion
The study aimed to improve understanding of
how contemporary SPMS can assist organizations
enhance their strategic competitiveness. This was
approached by clarifying that an integrative
dimension of SPMS is a primary information characteristic that assists organizations to achieve strategic competitiveness by aligning manufacturing
with strategy and developing organizational
learning.
Existing empirical research has tended to examine SPMS in terms of the extent to which multiple
measures are provided (Foster & Gupta, 1994;
Hoque & James, 2000; Ittner & Larcker, 1998b;
Perera et al., 1997). The current study contributes
by showing, empirically, that it is important to
consider SPMS in terms of the extent to which
they focus on the way operations integrate with
goals and strategies, and on connections across
the value chain. The study identied three information components that describe integrative
SPMS. First, one dimension identied the extent
to which formal SPMS provide information linking operations to goals and strategies, and to link
activities across sub units. Second, dierent types
of measures were linked with a customer and a
supplier component of the SPMS.
The customer dimension included customer
measures, leading and lagging measures and nancial measures. Customer measures have been associated with eorts to develop a customer
orientation and consequently have a central role
in linking SPMS to customers (Ittner & Larcker,
1998b, p. 220; Tuomela, 2000, pp. 106113). Also,
leading indicators have been associated with a customer perspective by way of providing key value
413
propositions, such as customer relationships and

reputation, that ensure operations will support a
customer focus (Ittner & Larcker, 1998a; Kaplan
& Norton, 1996). Attention to nancials within a
customer perspective suggests a strategic focus
whereby SPMS aim to ensure that systems monitor customer protability. This would seem to be
an important aspect of eective SPMS, as results
on the association between customer measures
and organizations nancial performance have
been ambiguous with some studies providing support for the relationship (Anderson, Fornell, &
Rust, 1997; Banker, Konstans, & Mashruuola,
2000; Banker, Potter, & Srinivasan, 2000; Ittner
& Larcker, 1996), while others have found that
the relationships depends on the specic measures
used (Foster & Gupta, 1997) and vary depending
on industry (Ittner & Larcker, 1998b).
A separate supplier aspect of integrative SPMS
was identied in the analysis. This factor incorporated an emphasis on linking measures with
suppliers and included business process and longterm innovation measures. This dimension
suggests that concern with supplier management
involves incorporating suppliers into a business
processes measurement perspective (Carr & Ittner,
1992). Also, the dimension suggests that supplier
management provides opportunities to develop
measures with a focus on long-term innovation.
This would seem consistent with the growing interest in horizontal accounting with important strategic supply issues, such as outsourcing, supplier
networks, supply chain management, total cost
of ownership, sourcing leadership and open book
accounting presenting performance measurement
challenges for many organizations (Shields, 1997,
p. 24; Dekker, 2003; Slack, Chambers, Harland,
Harrison, & Johnston, 1998). Also, long-term
innovation measures may be used as part of horizontal accounting to ensure the development of
customer-focused manufacturing (Perera et al.,
1997). It may be speculated that long-term innovation measures in areas such as work force capabilities, IT potential as well as measures of technical
innovativeness can be linked to attempts to
achieve best practices as they relate to managing
networks of suppliers and internal processes, and
in ways that provide a customer focus.
414
Overall the study supports the view that the

three dimensions of integrative SPMS can enhance
strategic competitiveness for rms emphasising
both product dierentiation and low cost-price
strategies. These results are consistent with arguments that performance measurement can be a
strategic management tool (Dixon et al., 1990;
Kaplan & Norton, 2001; Lynch & Cross, 1995).
Explicitly, this study shows that performance
measurement systems will improve the strategic
competitiveness of organizations if they focus on
how goals, strategies and operations are connected, and attempt to provide understanding of
the interdependencies across the value chain.
Additionally, the study provides insights into
how integrative SPMS enable organizations to
achieve more eective strategies by assisting in
the strategic alignment of manufacturing and
organizational learning. Inspection of Fig. 2 shows
the eects of each dimension of integrative SPMS
on the various strategic outcomes. Strategic and
operational linkages has the most widespread
eects within the model. First, the paths in the
model indicate a full mediating eect associated
with this dimension and the strategic outcome of
delivery, with indirect eects acting through both
alignment of manufacturing and organizational
learning. Also, the association between strategic
and operational linkages and low cost-price outcomes is fully mediated by a path through strategic
alignment of manufacturing. The association between this dimension and competitiveness on
the exibility strategic outcome is partially
mediated, acting though strategic alignment of
manufacturing.
The association of the customer linkage dimension of SPMS with delivery strategic outcomes is
fully mediated acting through organizational
learning. However, organizational learning does
not intervene between customer linkages and exibility or low cost-price strategic outcomes because
of non-signicant paths between organization
learning and these strategic outcomes. Also, it
is noteworthy that the path between SPMS customer orientation and strategic alignment of manufacturing is not signicant. Clearly, while there
is a positive correlation between customer orientation and manufacturing alignment (0.232,
p < 0.05), within the structural model, manufacturing alignment is not enhanced by the customer
linkages. It may be that a customer orientation
adds little incremental information for managers
to strategically align manufacturing after they consider the information provided by the dimensions
of strategic and operational linkages and supplier
linkages.
The correlations between the supplier orientation dimension of SPMS and both delivery and
exibility strategic outcomes are fully mediated
by the paths through manufacturing alignment.
The correlation between the supplier dimension
of SPMS and low cost-price strategy is partially
mediated by the alignment path. These results attest to the important role of a supplier orientation
within SPMS to developing competitiveness on
all strategies, with paths through a strategic
alignment of manufacturing explaining these
associations.
Statistical support for the association between
the strategic alignment of manufacturing and all
competitive outcomes conrms the belief that strategic alignment of manufacturing is an advanced
form of manufacturing that provides considerable
capacity to achieve strategic advantage (Bhoovaraghavan et al., 1996; Brown, 1998; Hayes &
Wheelwright, 1984; Hayes et al., 1988; Skinner,
1969, 1978, 1985).
The signicant paths between both the strategic
and operational, and supplier dimensions of SPMS
and the strategic alignment of manufacturing
support claims in the manufacturing literature
that both manufacturing systems and information
systems are complementary sources of competitive strength with the information systems helping integrate all functions into an eective
strategy (Hayes et al., 1988). Also, many proponents of SPMS emphasize the way in which these
systems can provide the front-end justication
and the focus for integrating manufacturing with
overall strategic priorities (Kaplan & Norton,
1996; Kaplan & Norton, 2001; Lynch & Cross,
1995).
It was argued that integrative SPMS can enhance competitive strategy by generating organizational learning. Some commentators see this as the
cornerstone of a strategic management system
(Kaplan & Norton, 1996, p. 269). Signicant links

between both strategic and operational and customer aspects of integrative SPMS and organizational learning are consistent with the view that
SPMS provide a shared framework for communicating strategy and vision, a language that helps
individuals see how parts of the organization t
the whole, a store of knowledge and feedback that
provides input for analysing and learning from
performance data (Kaplan & Norton, 1996, p.
252). The signicant positive association between
organizational learning and competitiveness on
delivery strategic outcomes provides some support
for the view of many commentators that knowledge or learning organizations, intellectual capital
and knowledge intensity are major sources of competitive advantage (Edvinsson & Malone, 1997;
Garvin, 1993; Senge, 1990; Starbuck, 1992; Tenkasi & Boland, 1996).
In the structural model, organizational learning
is not signicantly associated with the strategic
outcomes related to exibility and low cost-price.
It is, perhaps, plausible that the challenges of gaining competitive advantage in a low cost-price strategy do not require a signicant organizational
learning platform, after the benets are derived
from aligning manufacturing with strategy. Concerning exibility, informal comments from several survey participants indicated that designing
products to suit customers and adjusting product
mix (exibility) was very much driven by the firms
technological and design capabilities. It seems that
for low-cost and exibility strategies, organizations could rely on established ways of doing
things and did not need to rely on on-going organizational learning. For delivery strategies, informal
comments suggested that signicant challenges
were presented by customers demanding that
appropriately designed products could be provided on time and challenging back-up services
(delivery) could be assured. To satisfy these demands, faster more novel responses were required and all available information drawn from
across the rm and from past experiences assisted
this process. These observations are consistent
with Galbraiths (1973) proposition that the greater the uncertainty in tasks the greater the amount
of information that must be processed during
415
task execution to achieve a given level of

performance.
Finally, the study found that organizations
both with and without BSC were achieving high
levels of integrative information from their performance measures. Also, the data indicate that
there is wide variation in the eectiveness of BSC
in providing integrative information. This suggests
that the adoption of BSC is not a suciently
strong indicator that performance measurement
systems will provide integrative information. Some
BSC may not be designed to provide high levels of
integrative information, rather they may be limited
to supplying a mixture of nancial and non-nancial measures (Ittner & Larcker, 2003). Future
studies of BSC should look beyond the mere provision of nancial and non-nancial measures to
assess their role in organizational control. Even if
it is the intent of BSC to provide integrative information, it may be that diculties related to implementing the systems lead to the perception that the
systems are not eective in providing this information. Thus, it would seem fruitful to investigate
implementation issues associated with BSC (Mooraj et al., 1999).
This study is subject to several limitations that
should be considered when drawing conclusions
from the results. First, the results of the analysis
represent necessary but not sucient conditions
for proof of causal relationships. The paths indicate statistical associations consistent with the theory developed in the paper. Alternate research
methods employing experimental techniques or
longitudinal cases that can control for causality
could investigate these issues. Second, there are issues concerning variable measurement. Measures,
other than strategy were novel and further study
could lead to renement. For example, additional
work could identify how specic measures within
the categories of nancials, customers, business
processes and long-term innovation, relate to information dimensions such as integrativeness, comprehensiveness, a future-orientation or timeliness.
While the measures of strategic alignment of manufacturing and organizational learning exhibited
acceptable measurement validity it would be useful
to develop these measures, perhaps by rening the
underlying dimensions of the constructs.
416
Third, the study does not consider the inuence

of contextual variables. Extensions to this study
could examine the extent to which contextual variables inuence the predicted relationships. Future
research could examine the inuence of dierent
types of competitive environments and technologies including those that emphasize a high degree
of process integration such as JIT as these create
unique control issues related to managing interdependencies (Dixon et al., 1990, p. 130). More generally, high levels of uncertainty in the operating
environment or within the technology may generate ambiguity in cause-eect relationships and as
a consequence inhibit the potential for integrative
SPMS to help align manufacturing and organizational learning (Galbraith, 1973). For example,
Lillis (2002) found the eectiveness of performance
measurement systems with multiple measures may
be inuenced by whether strategies focus on quality or responsiveness, with the later creating measurement problems due to diculties in creating
complete and unambiguous measures. The current
study considered manufacturing organizations.
Given recent interest in the application of SPMS
in not-for-prot organizations (Cavalluzzo & Ittner, 2004), it may be useful to examine how
integrative SPMS assist in managing these organizations. Also, the current study was conducted at
the organizational level. A line of research has
examined the eects of common or unique SPMS
on individuals judgement (Lipe & Salterio,
2000). It would be interesting to extend this research by examining the eects of dierent dimensions of SPMS, such as integrativeness, on
individuals perceptions of information and their
judgements based on the SPMS dimensions using
theories from psychology (Lipe & Salterio, 2000).
Finally, it is important to note that this study
examined the relationship between integrative
SPMS and the achievement of competitive advantage in the areas of product dierentiation and low
cost-price. It is possible that rms emphasising different strategies may dier in terms of the adoption of integrative SPMS. There are potential
implications of strategy inuencing the adoption
of SPMS for studying the eects of SPMS on desired outcomes. If, for example, all rms emphasising low cost-price do not adopt integrative systems
then none of them would receive any benets that

may enhance their competitiveness. Consequently,
the model would not apply to low cost-price rms.
However, this is an extreme case. If some low costprice rms adopt dimensions of integrative SPMS
systems to some extent then these rms may attain
competitive advantage over their competitors
which may then be identied within the model. 7
Notwithstanding the limitations of the study,
the results suggest that much can be learned about
the role of SPMS in developing eective strategies
by investigating the information properties of the
systems. Moreover, the study provides an illustration of how PLS can be used to explore how information dimensions of SPMS assist in developing
competitive strategic outcomes. In this study PLS
helped advance understanding by identifying the
role of strategic alignment of manufacturing and
organizational learning as important in intervening between an integrative information dimension
of SPMS and strategic outcomes.
Acknowledgement
My thanks to David Larcker, Ken Merchant, David Smith, Wim van der Stede and two
7
The issue of whether strategy drives the adoption of SPMS

is essentially empirical. For example, Ittner et al. (2003) found
no association between type of strategy and BSC use. However,
business models were associated with strategies of exibility and
innovation but the association with maintain strategies was
not signicant. In the current study, it was possible to check the
extent to which an emphasis on the dierent strategies were
associated with the three dimensions of SPMS. An emphasis on
exibility strategies was associated with SPMS strategic and
operational dimension (0.266, p < 0.05), customer orientation
(0.269, p < 0.05) and supplier orientation (0.200, p < 0.08). An
emphasis on delivery strategies was signicantly associated with
customer (0.266, p < 0.05) and supplier orientations (0.16,
p < 0.05) but not with the SPMS strategic and operation
dimension (0.110, NS). Low cost-price strategies were associated with supplier (0.247, p < 0.05) and customer orientation
(0.194, p < 0.10) but not with the SPMS strategic and operational dimension (0.114, NS). While these correlations indicate
some dierences, there is some degree of association between
each strategy and all SPMS dimensions. Thus it is possible that
some rms within each strategic group were using integrative
SPMS which provides the potential to enhance competitive
advantage.
anonymous reviewers for helpful comments. This

project was funded by the Australian Research
Council.
Appendix. Survey questions used in the study
For integrative SPMS, respondents were asked
the extent to which a series of characteristics were
provided by the performance measurement system.
A separate section was used for rms with BSC that
substituted the words balanced scorecard for performance measurement system in questions 1.1 and
1.5. For strategic alignment of manufacturing and
organizational learning respondents were asked to
rate the extent to which statements reected the situation in their business unit. For both competitive
strategic priorities and performance respondents
assessed, rst, the performance of their business
unit compared to competitors, and second, the degree of importance to their business unit.
1. Integrative strategic performance measurement

systems (not at all = 1, to a great extent = 7)
1-1 The performance measurement system is
produced in a fully documented form,
which provides a record for evaluating
performance.
1-2 It provides consistent and mutually reinforcing links between current operating
performance of your work group and long
term strategies of the business unit.
1-3 It links together all business unit activities
to the achievement of goals and objectives
of the organization.
1-4 It shows how activities of this business unit
aect activities of other units within the
organization.
1-5 Performance measurement systems provide:
1-5-1 leading indicators (early warning signals)
e.g. customer requirements, planned
improvements,
1-5-2 lagging indicators (of past performance) e.g.
rejects, customer complaints, past prots.
1-6 Measures link activities of this business
unit to:
417
1-6-1 suppliers,
1-6-2 customers.
1-7 Measures are provided in the following
areas:
1-7-1 nancial,
1-7-2 customers,
1-7-3 business processes,
1-7-4 long-term innovation.
2. Strategic alignment of manufacturing (not

at all = 1, to a great extent = 7)
2-1 Links
between
manufacturing
policy
and strategy are clearly formulated and
pursued.
2-2 Investments in manufacturing are screened
for consistency with business strategy.
2-3 Senior managers have a general understanding of how products, markets and manufacturing processes interact and manage these
interactions across functions.
3. Organizational information and knowledge

(not at all = 1, extensively = 7)
3-1 There are well established ways to share information and knowledge between people within
your organization (e.g. formal and informal
forums for debate, well developed systems
and practices for sharing information).
3-2 The business units beliefs, attitudes and ways
of doing business provide a strong basis for
interpreting information (e.g. the business
units mission, or culture, is reected in distributed information).
3.3 There are extensive formal and informal procedures and processes for the acquisition of
information and knowledge from internal
and external sources that are potentially useful to your business unit (e.g. routine and/or
special reports on markets and production
processes, regular informal discussions).
3.4 The organization stores information and
knowledge from prior experiences in formal
systems (e.g. data bases, documentation of
programs, plans, procedures and reports).
418
4. Competitive strategic priorities (performance

compared to competitors: well below = 1, well
above = 7) (degree of importance to the business
unit: of little importance = 1, very important = 7)
4-1
4-2
4-3
4-4
4-5
4-6
4-7
4-8
4-9
4-10
4-11
Provide high quality products

Low production costs
Provide unique product features
Low price
Make changes in design and introduce new
products quickly
Make rapid volume and/or product mix
changes
Provide fast deliveries
Make dependable delivery promises
Provide eective after-sales service and
support
Product availability
Customise products and services to customer
needs
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Accounting, Organizations and Society 30 (2005) 395422

Integrative strategic performance measurement

Tel.: +61 03 9905 2355; fax: +61 03 9905 5475.

Increasingly, innovations in management

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

There are several ways in which researchers

organizational learning (Duncan & Weiss, 1979;

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

Integrative SPMS and strategic outcomes

product volume and mix changes and low price

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

outcomes are dened as being competitive on these

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

with measures to evaluate performance that were

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

Managing low cost-price strategies may involve

Strategic alignment of manufacturing and

The signicance of aligning manufacturing with

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

and customer relationships. These eorts are

Integrative SPMS and strategic alignment

achieving strategic priorities requires a complementary, organizational-wide information system

Organizational learning and competitive

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

tional learning as creating structures and strategies

petitive operating environments will depend on

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

involves linking individuals who need information

Integrative SPMS and organizational learning

evaluating and learning about strategic direction.

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

Panel C: Functional area

academics in management accounting, and four

strategies and operations; and across the value

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

I. Strategic and operational linkages (a = 0.884) (Eigenvalue = 5.133, % of variance = 42.77)

Factor loadings (component matrix)

I. Delivery/service (a = 0.845) (Eigenvalue = 4.033, % of variance = 36.67)

Factor loadings (component matrix)

There are well established ways to share information and knowledge

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

II. Flexibility (a = 0.761) (Eigenvalue = 1.849, % of variance = 16.81)

MeyerOlkin measures of sampling adequacy were

As indicators of constructs in this study are considered to

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

Competitive strategic priorities

ventional levels (p < 10). While this is, perhaps,

Given the exploratory nature of the current

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

Competitive strategy priorities

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

Consistent with expectations, Table 5 indicates

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

of supplier orientation and the strategic outcomes

propositions, such as customer relationships and

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

Overall the study supports the view that the

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422

(Kaplan & Norton, 1996, p. 269). Signicant links