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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 financial and non-financial measures covering different 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 configured. However, as yet, there has been little consideration given to identifying underlying

information characteristics that might help explain how the systems have beneficial effects. This study identifies a key

dimension of SPMS, integrative information, as being instrumental in assisting managers deliver positive strategic out-

comes. Three interrelated dimensions of integrative SPMS were identified in this study. The first, strategic and opera-

tional 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 financial and customer measures. The third dimension, supplier

orientation, is based on linkages to suppliers and includes business process and innovation measures. A model is devel-

oped that predicts that integrative SPMS will enhance the strategic competitiveness of organizations. It is proposed that

the influence of integrative SPMS on strategic outcomes is indirect through the mediating roles of alignment of man-

ufacturing 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

Increasingly, innovations in management

accounting systems have sought to provide infor-

mation for developing a strategic orientation to

the operations of the firm (Ittner & Larcker, 2002;

0361-3682/$ - see front matter 2004 Elsevier Ltd. All rights reserved.

doi:10.1016/j.aos.2004.08.001

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

E-mail address: [email protected]

Accounting, Organizations and Society 30 (2005) 395422

www.elsevier.com/locate/aos
mailto:[email protected]:[email protected]


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Kaplan, 1994; Shank & Govindarajan, 1993; Si-

mons, 2000). One area of innovation has been per-

formance measurement systems. There have been

efforts to refine financial measures such as eco-nomic value added (Wallace, 1998). Non-financial

measures have been recommended for use in man-

ufacturing and marketing but in ways that lack

integration between functional areas (Banker, Pot-

ter, & Srinivasan, 1993;Foster & Horngren, 1987;

Fullerton & McWatters, 2002;Hall, 1989;MacAr-

thur, 1996; Maskell, 1992; McKinnon & Bruns,

1992;Perera, Harrison, & Poole, 1997;Vollmann,

1990). Several authors have presented measure-

ment schemes that are strategic in that they

provide a more integrated approach relating oper-

ations to customers and corporate vision. These

have included Performance Pyramids and Hierar-

chies (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 Score-

card(Sveiby, 1997).

A distinctive feature of these strategic perform-

ance measurement systems (SPMS) is that they

are designed to present managers with financial

and non-financial measures covering different per-spectives which, in combination, provide a way of

translating strategy into a coherent set of perform-

ance measures. The perspectives that are relevant to

profit orientated companies most often include

financial, customers, internal processes and long-

term innovation. This system of associated meas-

ures has the potential to identify the cause-effect

linkages that describe the way operations are re-

lated to the organizations strategy. The aim is to

provide a rational framework to formulate and

implement strategies. Evidence on the adoption ofSPMS, particularly BSC, has been mainly anecdo-

tal with little survey work to confirm the adoption

or effects on desired organizational outcomes.

While there is some support for growing BSC

implementation (Chenhall & Langfield-Smith,

1998; Hoque & James, 2000; Ittner & Larcker,

1998b;Silk, 1998), the characteristics or informa-

tion 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 financial and non-financial meas-

ures to more comprehensive systems linking opera-

tions 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 ef-

fects desired organizational outcomes by providing

information on the linkages between operations

and strategic outcomes and between different fac-

ets 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 great-

er measurement emphasis and diversity of

performance measures (Ittner et al., 2003), com-

petitor focused systems (Guilding, 1999), common

compared to unique performance measures (Lipe

& Salterio, 2000), systems linked to value chain

analysis (Dekker, 2003), measures of the benefits

of supplier partnerships (Seal, Cullen, Dunlop,

Berry, & Ahmed, 1999), activity knowledge struc-

tures (Dearman & Shields, 2001), and performance

measure precision and sensitivity (Banker & Da-tar, 1989).

In this study, the nature of SPMS is described in

terms of a key information characteristic, that of

integrativeness. The characteristic of integrative-

ness within SPMS has two components. First, a

generic aspect involving information that provides

an understanding of cause-effect linkages between

operations and strategy and goals, and between

various aspects of the value chain including suppli-

ers and customers (Banker, Janakiraman, Kon-

stans, & Pizzini, 2001; Kaplan & Norton, 2001;Malina & Selto, 2001;Stivers & Joyce, 2000). Sec-

ond, a measurement component concerning provi-

sion of measures in the areas of financial,

customers, business processes and long-term inno-

vation (El-Shishini, 2001; Frigo & Krumwiede,

2000;Kaplan & Norton, 1996;Malmi, 2001;Shar-

ma, 2000). It is this dimension of integrativeness

that is seen to provide managers with information

that potentially assists in developing competitive

strategies.

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


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There are several ways in which researchers

have examined variables that are implicated in

the relationship between management control sys-

tems and desired organizational outcomes. Twomain approaches have been applied widely. First,

researchers have considered the influences of vari-

ables such as environmental uncertainty or tech-

nology 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 af-

fects 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 relation-

ship between management control systems and de-

sired outcomes (Luft & Shileds, 2003). This

approach does not consider how the effects might

be moderated by different 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 incorpo-

rate the influence of different aspects of context

as our understanding matures.

The study contributes by providing a concep-

tual advance in understanding the application of

SPMS. This involves, first, explicating the natureof SPMS by identifying integrative information

as a key dimension of the systems. Specifically, 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;Wheel-wright & Hayes, 1985) to show how integrative

SPMS can align manufacturing with strategy

which then enhances the organizations competi-

tiveness on strategic outcomes. Theories from

organizational learning (Duncan & Weiss, 1979;

Hedberg, 1981;Huber, 1991) indicate that integra-

tive SPMS can provide a platform for learning

which, in turn, can lead to successful strategicoutcomes.

The remainder of the paper is structured in four

sections. The next section develops the structural

model including a series of hypotheses. This is fol-

lowed 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 inno-

vation (Atkinson et al., 1997; Hronec, 1993; Ka-

plan & Norton, 1996; Lynch & Cross, 1995). It is

claimed that SPMS improve an organizations

ability to be competitive, in terms of its specific

strategic priorities. SPMS assist in developing stra-

tegic 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 thefuture. In this paper, theory is developed to ex-

pound upon these relationships.

First, this research is predicated on the belief

that integrative SPMS enhance organizationsstra-

tegic competitiveness. Arguments are presented to

support positive associations between integrative

SPMS and competitive strategic outcomes associ-

ated with both product differentiation and cost-

price strategies (H1). Next, a structural model is

developed that elaborates upon the relationship

between integrative SPMS and competitive strate-gic outcomes. First, an alignment path is identified

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 compet-

itive strategic outcomes (H4), and integrative

SPMS influence organizational learning (H5).

Fig. 1outlines the nature of these relationships.

1 Luft & Shileds (2003)andGerdin & Greve (2004) provide

analyses of the different forms of modelling, including struc-

tural models, used in management accounting research, point-

ing out the legitimacy of different approaches to answer

different questions.

R.H. Chenhall / Accounting, Organizations and Society 30 (2005) 395422 397


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Integrative SPMS and strategic outcomes

Models of market globalization maintain that

business organizations operate within increasingly

competitive, global environments (Bartlett & Gho-

shal, 2000; Harvey, Novicevic, & Kiessling, 2001;

Levitt, 1983; Ohmae, 1988; Porter, 1990). Porter

(1980, 1985, 1990) suggests that businesses are

compelled to compete by differentiating their prod-

ucts on the basis of product characteristics or low

price. Others claim that firms focusing strategies

on product features must to do so without a pricepremium (Belohlav, 1993; Kotha & Vadlamani,

1995; Normann, 1971). Also, firms competing on

low cost must ensure that their products are com-

petitive 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 fea-

tures include functionality, high quality, dependa-

ble delivery, effective after-sales service, flexible

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 competi-

tive advantage of novel priorities or cost advan-

tage erodes over time it is necessary to generate a

continual flow of new ideas (Porter, 1990;Roberts,

1999). This erosion is exacerbated for those firms

that have products with short product life cycles

and that face continuous improvement in cost

structures. These firms have an intensified need

for a stream of innovative product features and

technological improvements to sustain long-termcompetitive advantage (Berliner & Brimson, 1988).

In this study, the basic notion of Porters pro-

duct differentiation and cost leadership taxonomy

is elaborated by defining these generic strategies

in terms of a selection of strategic priorities describ-

ing specific product features as identified by Miller

et al. (1992). These product characteristics include

unique features, high quality, low price, flexibility,

delivery and product services such as customiza-

tion and after-sales service. Successful strategic

Integrative

SPMS

Competitive

strategic

outcomes

Organizational

learning

Strategic

alignment of

manufacturing

H1

H2

H3 H5

H4

Fig. 1. Structural model: integrative SPMS, strategic alignment of manufacturing, organizational learning and competitive strategic

outcomes.



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outcomes are defined as being competitive on these

strategic priorities. 2

The necessity to sustain competitive strategic

advantage presents considerable administrativechallenges (Quinn, 1980a; Wheelwright & Clark,

1992; Hammond, 1994). To sustain competitive

strategic advantage firms require administrative

procedures that encourage invention and creati-

vity, targeted on combinations of product features

(Clark & Fujimoto, 1991; Damanpour & Evan,

1984; Kanter, 1985). Also, contemporary strate-

gies 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,

effective implementation is required to ensure that

innovative product characteristics and techno-

logies deliver product characteristics to customers

in cost effective ways (Shank & Govindarajan,

1993).

SPMS have been proposed as a management

system to assist in developing and sustaining com-

petitive 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 processesthat are critical to developing competitive strate-

gies: clarify and translate vision and strategy;

communicate and link strategic objectives and

measures; plan, set targets, and align strategic ini-

tiatives; and, enhance strategic feedback and learn-

ing (Kaplan & Norton, 1996, p. 10). Proponents

of SPMS provide anecdotal evidence on the bene-

fits 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

there have been a number of studies into the suc-

cess of non-financial performance measures, there

is only limited survey evidence on the effectiveness

of SPMS. Concerning the extent to which BSChelped 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.Itt-

ner & Larcker (2003) found that managers made

little attempt to link non-financial performance

measures to advance their chosen strategies. More-

over, only 23% of these managers were able to

show that they built causal models and most did

not validate the causal links.

The effects of SPMS on organizational perform-

ance are ambiguous. Some studies have shown

positive links between SPMS and performance.Itt-

ner & Larcker (2003) found that firms that did

build causeeffect linkages had higher ROA and

ROE than those that did not. Hoque & James

(2000)found that overall usage of BSC was signi-

ficantly correlated with organizational perfor-

mance. 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 financial measures. Other

studies have shown that the association betweenSPMS and performance depends on the type of

organizational performance being considered, with

some evidence suggesting that SPMS are associ-

ated with medium to long-term performance. Itt-

ner et al. (2003) found that in financial service

firms using a broad set of financial and particularly

non-financial measures, relative to firms with sim-

ilar strategies or value drivers, earned higher stock

returns. Also,Ittner et al. (2003) found that tech-

niques such as balanced scorecard, economic value

and business modelling were associated with in-creased measurement systems satisfaction but not

with economic performance.

Other studies suggest more equivocal outcomes

from SPMS. Chenhall & Langfield-Smith (1998)

reported that while BSC were part of the best

practicesof high performance firms they were also

evident in poorly performing firms that had less

well developed management techniques. In an

experimental study, Lipe & Salterio (2000) found

that managers had cognitive difficulties working

2 While success in achieving product differentiation and cost

leadership provides a basis to develop theory, it was necessary

to identify how the various strategic outcomes were related to

product differentiation and low cost strategies.Table 2, Panel D

shows that two aspects of product differentiation were identi-

fied, one involved delivery, service and quality outcomes (titled

delivery), the other flexibility and customisation (titled flexibil-

ity). A third factor captured low cost-price strategic outcomes

(low cost-price). The method section describes how these

factors were derived.



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with measures to evaluate performance that were

specific to a situation (unique measures) and pre-

ferred measures that were the same for different

situations (common measures).In evaluating the success of SPMS, it is impor-

tant to distinguish different designs. Some SPMS

are based only on combinations of financial and

non-financial measures, with little attempt to inte-

grate the various measures and relate them to the

organizations strategy (Epstein & Birchard,

2000, p. 82). Others are more comprehensive, rep-

resenting a strategic management system focusing

on integrating financial position, customers, rele-

vant aspects of processes, and growth and innova-

tion. Increasingly it is being argued that the

effectiveness of SPMS will depend on the extent

to which they form a coherent performance mea-

surement system that enables strategy and opera-

tions to be integrated and harmonized (Epstein

& Birchard, 2000;Ittner & Larcker, 2003;Norrek-

lit, 2000; Olve, Roy, & Wetter, 1999). Empirical

evidence on the effectiveness of more coherent

SPMS is limited. Banker et al. (2001) andSandt,

Schaeffer, & Weber (2001) found that the provi-

sion of systematic linkages between measures en-

hances satisfaction with the systems. Ittner et al.

(2003) also found that firms in the financial ser-vices sector that had more coherent performance

measurement systems were associated with en-

hanced satisfaction with SPMS. However, their re-

sults indicated that these systems were not

associated with improved economic performance.

Importantly, this study extends research by identi-

fying the role ofcoherentSPMS. However, the ex-

act nature and meaning of these systems is not

explored, the study relying on single items to meas-

ure the extent of use of balanced scorecards, eco-

nomic value measuresand

business models

.In the current study, the notion of coherence is

explored through the information dimension of

integrative SPMS, defined 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 con-

cerned with product differentiation or low cost-

price. This follows as the successful formulation

and implementation of both forms of strategy re-

quire managers to be provided with specific per-

formance goals and feedback that can assist in

assessing the effectiveness of existing strategiesand provide a basis for learning related to effecting

successful strategies (Kaplan & Norton, 1996, p.

15). Theories drawn from psychology provide a

theoretical basis to suggest that individuals will

be motivated to expend effort when they are pro-

vided goals (Locke, Shaw, Saari, & Latham,

1981) and comprehensive feedback integrating ac-

tions 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 reflection of

organizational priorities (Baumler, 1972; Porter,

Lawler, & Hackman, 1975). These effects are aug-

mented 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 competi-

tiveness in both product differentiation and lowcost-price strategies will be assisted by understand-

ing how the specific strategies relate to the broad

objectives of the firm and how various business

unit activities influence other units in the organiza-

tion. Developing successful product differentiation

can be assisted by integrative SPMS. Integrative

SPMS can provide feedback to understand and

successfully manage the increasing level of com-

plex interdependencies that occur between opera-

tions and strategy and between various aspects of

the value chain, caused by product differentiation.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 require-

ments in cost effective ways. Thus, it may be pre-

dicted that integrative SPMS will be associated

with enhanced competitiveness related to product

differentiation strategies.



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Managing low cost-price strategies may involve

a more limited range of interdependencies. How-

ever, competitiveness on costs is likely to be

achieved if the effects of different business unitactivities on each other are understood by way of

their explication within integrative SPMS. Moreo-

ver, effective cost-price strategies may be achieved

by using integrative information that assists devel-

oping customer relationships where the customers

work with the firm to develop products at particu-

lar 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 with-

in an integrative SPMS.

In summary, SPMS can vary in the degree to

which information integrates operations with stra-

tegy, with more integrative systems providing ri-

cher strategic feedback. It is the provision of

strategic feedback from integrative SPMS that pro-

vides the basis to enhance competitive outcomes for

both product differentiation and cost-price strate-

gies. These arguments and the claims of proponents

of SPMS provide the basis for Hypothesis 1.

H1: There is a positive relationship between inte-

grative SPMS and competitive outcomesassociated with both product differentiation

and low cost-price strategies.

Strategic alignment of manufacturing and

competitive strategic priorities

In this study, the strategic alignment of man-

ufacturing is defined in terms of the existence

of clear links between manufacturing and stra-

tegy, consistency of manufacturing with strategydevelopment and an understanding by senior

managers of the manufacturing policy and how

it relates to other functions (Wheelwright &

Hayes, 1985). Effective 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 interac-

tive development of both products and associated

processes (Hayes et al., 1988; Shank & Govind-

arajan, 1993).

The significance of aligning manufacturing with

strategy to develop competitive outcomes has been

emphasized for some time in manufacturing mod-

els of the firm (Hayes & Wheelwright, 1984;Hayeset al., 1988; Skinner, 1969, 1978, 1985; Wheel-

wright & 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 stra-

tegic priorities and their effective 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 im-

proved strategic priorities (Hayes et al., 1988;

Wheelwright & Hayes, 1985).

One aspect of manufacturings strategic capabil-

ity 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 effected. Also, strategicalignment stresses the need to focus on strategic

priorities that provide process innovations that

will develop an innovative, learning approach to

enhancing manufacturing capabilities (Bhoovar-

aghavan, Vasudevan, & Chandran, 1996; Brown,

1998;Hayes et al., 1988).

The task of alignment has become particularly

acute as firms face increasing complexity within

manufacturing (Drucker, 1990). Alignment is

likely to be particularly important to manage the

complexity associated with product differentiationstrategies. Such complexity occurs as production

processes must be coordinated and focused on

delivering multiple product characteristics, such

as quality, flexible 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 pro-

viding strategic advantage by developing seamless

production processes and coordinated supplier



8/28

and customer relationships. These efforts are

important to maintain continuous cost improve-

ment and sensitivity to both down-stream and

up-stream quality and delivery (Dekker, 2003).Consequently, it has been recognized that develop-

ing competitive strategic outcomes for both prod-

uct differentiation and low cost-price strategies

requires aligning manufacturing with strategy

and that this involves managing multiple and var-

ied interdependencies that occur across all aspects

of the value chain (Shank & Govindarajan, 1993).

This involves choosing technologies, selecting and

managing suppliers, production planning and con-

trol systems, work force and quality practices and

customer relationships (Bates, Amundson, Schroe-

der, & Morris, 1995; Cooper, 2000). Hypothesis 2

presents the relationship between strategic align-

ment 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 differentiation and low cost-price

strategies.

Integrative SPMS and strategic alignment

of manufacturing

Communication and information theories pro-

vide 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 effective routing of potentially

synergistic information across the organization.

This routing involves horizontal and vertical com-munications and assists in coordinating infor-

mation between managers who are not aware of

where information may be used, or of the existence

of potentially useful information. Specifically, the

achievement of a strategic alignment of manufac-

turing requires information to ensure there is

effective coordination between strategy and manu-

facturing and between manufacturing and other

functions (Wheelwright & Hayes, 1985). The role

of manufacturing as a means of formulating and

achieving strategic priorities requires a comple-

mentary, organizational-wide information system

which ensures that manufacturing systems are pro-

vided with appropriate information (Hayes et al.,1988).

It is the integrative nature of SPMS that assists

strategic alignment of manufacturing. This in-

volves combining performance measures so that

manufacturing decisions can be assessed in terms

of their coherence with strategies concerning finan-

cial returns, customers, processes and innovation

(Dixon et al., 1990; Lynch & Cross, 1995). That

is, integrative SPMS can assist alignment by expli-

citly identifying, measuring and communicating to

managers the effects of linkages between manufac-

turing, consumers and financial outcomes. This in-

volves 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 fol-

lows, as the success of managers in effecting such

alignment will be assessed by the performance

measurement systems. This relationship is pre-

sented in hypothesis 3.


grative 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 toacquire, interpret, diffuse 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-



9/28

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 areseen to manage knowledge which implies that

any individual learning requires some substantia-

tion of the essence of learning that leads to the

accumulation of knowledge.

Increasingly, the operating environments of

business organizations are becoming highly com-

petitive. Such environments involve high demands

for information and knowledge. This pressure has

prompted commentators to identify the develop-

ment of knowledge organizations, learning organ-

izations 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 knowl-

edge intensity of the organization which is a pre-

requisite for developing strategic responses

(Starbuck, 1992; Tenkasi & Boland, 1996). Fol-

lowingHuber (1991), in this work, organizational

learning is identified as involving information

acquisition, interpretation, distribution and mem-

ory. Information acquisition entails obtaining

information and knowledge; information interpre-

tation refers to the process whereby distributedinformation is given some form of commonly

understood interpretation; information distribu-

tion is concerned with sharing information; and

organizational memory is the means whereby

information and knowledge are stored for the fu-

ture. Each of these aspects of learning provides a

capacity to develop competitive product differenti-

ation and low cost-price strategies.

Literature derived from searching behaviour is

relevant to organizational information acquisition

as it identifies the links between effective learningand information scanning, focused search and per-

formance monitoring (for a summary see Huber,

1991). The survival of organizations facing com-

petitive operating environments will depend on

the effectiveness with which search procedures

identify changes and develop effective responses

(Daft, Sormunen, & Parks, 1988; Tushman &Katz, 1980). More specifically, strategy researchers

have stressed that information acquisition pro-

vides potentially useful ideas related to external

and internal opportunities and threats that are rel-

evant to formulating innovative strategy to gain

competitive advantage in differentiating products

or lowering costs (Dutton & Freedman, 1985;

Hambrick, 1982;Jelinek, 1979;Shrivastava, 1983).

Research in organizational communications ex-

plains that information interpretation is the proc-

ess whereby information is given meaning (Daft

& Wieck, 1984). The benefits from effective infor-

mation sharing derive from translating events,

developing shared meanings and conceptual

schemes (Daft & Wieck, 1984). These outcomes

provide a clear and common focus for organiza-

tional activity which can, according to conven-

tional strategy literature, enhance performance

(Andrews, 1971; Ansoff, 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 pur-

pose can result in accidentally discovering effectivestrategies which then provide focus (Kogut, 1991;

Quinn, 1980b). There is little systematic study link-

ing strategy to the interpretation of information.

However, from a cognitive perspective, the role

of interpreting information ensures that all acti-

vities are related to strategic priorities, whether

they concern product differentiation or cost leader-

ship, thereby clarifying purpose and avoiding

ambiguity (Daft & Wieck, 1984; Dutton, Fahey,

& Narayanan, 1983).

Theories from business communications haveidentified information distribution as central to

enabling organizations to conduct their business

(Goodman, 1998; Tucker, Meyer, & Westerman,

1996;Tushman & Nadler, 1978). Essentially, with-

out communication the linkages between organiza-

tional sub-units are an abstract chain. Decisions

and communications interact such that communi-

cation gives rise to action and action gives rise to

information to be communicated. Huber (1991,

p. 101) points out that information distribution

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).



10/28

involves linking individuals who need information

with those who possess it and that this can assist in

identifying knowledge throughout the organiza-

tion. From a strategy viewpoint, distributing infor-mation 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 prod-

uct differentiation 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 mem-

ory provides a repository of information that is

often extensive and precise. This memory involves

sophisticated storing and retrieval that can en-

hance the organizations capacity to source and

process valuable information for strategic analysis

related to differentiating products and to continu-

ously improve cost structures (Feldman, 1989).

These arguments lead to H4.

H4: There is a positive relationship betweenorganizational learning and competitive out-

comes associated with both product differen-

tiation and low cost-price strategies.

Integrative SPMS and organizational learning

A distinctive characteristic of SPMS is their

objective of ensuring that the organization can de-

velop a capacity to innovate by encouraging learn-

ing. There are arguments to support the view thatintegrative 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 com-

plex process, Huber (1991) concludes that more

proactive, formal procedures at the senior man-

agement 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 deli-

ver on strategy. Diverse measures across financials,customers, processes and long-term innovation

provide an important formal mechanism to collect

information that can be used to develop organiza-

tional 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 effort may be dissipated. These theo-

ries suggest that the strategic focus of integrative

SPMS provides a common basis for framing

information.

Organizational theorists have noted the impor-

tance of formal systems in distributing informa-

tion 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 effective these formal systems need to main-

tain a balance between managing the interface be-tween tight control to ensure activities deliver

strategy and more fluid processes to ensure effective

interaction and systems-wide effects 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 (Si-

mons, 1995).Malina & Selto (2001)provide empir-

ical evidence that emphasises the role of BSC incommunicating 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 fixed quality and is subject to differences in expe-

rience and conflicting interpretations, the record-

ing of events in formal documents supported by

an authoritative source and effective experiences

can develop the formal systems as endorsed mem-



11/28

ory (Sims, 1999). Accounting and formal informa-

tion systems have been identified as important to

developing organizational memory (Huber, 1991;

Levitt & March, 1988). The use of integrativeSPMS, as part of an on-going formal control sys-

tem, provides the basis to store information on

integrated plans and the recording of subsequent

events. H5 summarizes these arguments.


grative SPMS and organizational learning.

Research method

Sample

Data were collected by a survey questionnaire

administered to senior managers drawn from Aus-

tralias largest 200 industrial organizations. The

companies were selected from IRESS that covers

publicly listed companies and the Kompass busi-

ness directory of non-listed companies. These

organizations were either strategic business units

(SBU) (i.e. divisions of larger companies) or inde-

pendent companies. A single SBU was drawn, atrandom, from each multi-divisional organization.

The initial targeted individuals were the chief exe-

cutive of independent firms and managers of SBU.

Telephone calls confirmed if the divisions of com-

panies 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 sen-

ior financial officers, in others they were generalmanagers, manufacturing or human resource man-

agers. To test if function provided a bias in results,

tests of differences in construct scores across func-

tional areas were undertaken. No significant diffe-

rences were found. It is possible that the

respondents with more innovative SPMS held pos-

itive attitudes to the performance measurement

systems thus biasing responses to more positive

outcomes. Apart from guaranteeing confidenti-

ality, the study has no direct controls for such bias.

However, evidence concerning performance evalu-

ations suggests a high correlation between mana-

gers 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 first point of contact.

Usable responses were received from 80 managers

providing a final response rate of 40%. There were

no significant differences in average scores for var-

iables 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 perfor-

mance measurement systems and indicated a range

of applications that were similar to the respond-

ents, suggesting that non-respondents were not sig-

nificantly different from respondents. Reasons for

non-response were time pressures and a reluctance

to participate in non-official surveys. Variable

scores were compared for a sub-sample of 10 early

respondents (one week) with 10 of the late re-

sponses (one-two months). There were no signifi-

cant differences providing some evidence for lack

of response bias. The average age of respondentswas 38 years with an average length of employ-

ment in the companies of six years and in their cur-

rent positions of three years. Table 1 provides

information on the size, industry and functional

area of respondents.

Measures

The questionnaire elicited information on inte-

grative SPMS, competitive strategic priorities,

strategic alignment of manufacturing and organi-zational learning. Given the novelty of the re-

search 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 re-

view process involving five managers of firms not

included in the original survey, three senior



12/28

academics in management accounting, and four

members of the consulting division of an account-

ing company. The wording of items in the ques-

tionnaire is provided in Appendix.

The measure for integrative SPMS sought to

identify items that would measure the key infor-

mation characteristic of integrativeness. The sur-

vey identified if the organizations employed a

BSC. Those with a BSC answered items that re-

ferred to BSC, while those without BSC were di-

rected to a separate section that had identical

items but referred to performance measurement

systems. 4

First, the instrument measured the ex-tent to which the performance measurement sys-

tems provided integration between goals,

strategies and operations; and across the value

chain including supplier and customers. Second,

the provision of performance measures in the area

of financials, customers, business processes andlong-term innovation was assessed. Third, given

the important distinction given to leading and lag-

ging 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 con-

ducted 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 identifies three factors for the

variable. Interpreting these exploratory factors re-

quires careful consideration to identify common

themes within each factor. While such interpreta-

tion is somewhat subjective, the following descrip-

tions attempt to encapsulate the meaning of the

factors. The first 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 sys-

tems provided linkages between operations and

goals and strategy, and between subunits in theorganization. There were two factors that elabo-

rated on linkages, one focused on customers and

the other with suppliers. Factor 2 included a ques-

tion that captured the extent to which the mea-

sures linked the business unit to customers. It

also included items on financial 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. Aweighted 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

inWheelwright & Hayes (1985). These were the ex-

tent to which the connection between manufactur-

ing policy and strategy was clearly formulated and

pursued, manufacturing investments were screened

for consistency with business strategy, and senior

4 Companies that had not adopted their current perform-

ance measurement system (BSC or other systems) for at least six

months were excluded from the analysis. In the main, compa-

nies 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 significant differences in

construct means between these two groups.

Table 1

Respondents by size of SBU, industry and functional area

n

Panel A: SBU sizeNumber of employees

0100 20

101500 16

5011500 16

15012000 16

2001+ 12

Panel B: Industry

Category

Chemical 10

Foodstuffs & beverages 11

Engineering and automotive 16

Construction and mining 10

Light engineering & electrical 10Computers and electronics 8

Agricultural 6

Other 9

Panel C: Functional area

Category

Finance 22

Manufacturing 14

General management 20

Human resources 18

Other 6



13/28

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 II III

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

Fully documented balanced scorecard (1-1) 0.979 0.094 0.144

Links operating performance and long term strategies (1-2) 0.845 0.028 0.190

Shows how business unit activities affect other units in organization (1-4) 0.777 0.050 0.230

Links activities to goals and objectives (1-3) 0.624 0.274 0.121

II. Customer orientation (a= 0.724) (Eigenvalue = 1.376, % of variance = 11.47)

Measures provide links to customers (1-6-2) 0.111 0.772 0.298

Customer measures (1-7-2) 0.058 0.722 0.166

Lagging indicators (1-5-2) 0.081 0.719 0.402

Leading indicators (1-5-1) 0.021 0.628 0.192

Financial measures (1-7-1) 0.271 0.410 0.165III. Supplier orientation(a= 0.749) (Eigenvalue = 1.256, % of variance = 10.45)

Long-term innovation measures (1-7-4) 0.175 0.033 0.810

Measures providing links to suppliers (1-6-1) 0.091 0.220 0.667

Business process measures (1-7-3) 0.241 0.277 0.517

Panel B: Strategic alignment of manufacturing (all items loaded on one factor)

Factor and Cronbach alpha Factor loadings (component matrix)

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)

0.898

Links between manufacturing policy and strategy are clearly formulated and pursued (2-1) 0.876

Senior managers understand of how products, markets and manufacturing processes

interact and manage these interactions across functions (2-3)

0.635

Panel C: Organizational learning (all items loaded on one factor)

Factor and Cronbach alpha Factor loadings (component matrix)

Organizational learning(a= 0.800) (Eigenvalue = 2.596, % of variance = 64.89)

There are well established ways to share information and knowledge

between people within the organization (3-1)

0.884

The business units beliefs, attitudes and ways of doing business

provide a strong basis for interpreting information (3-2)

0.829

The organization stores information and knowledge from prior

experiences in formal systems (3-4)

0.748

There are extensive formal and informal procedures and processes

for the acquisition of information (3-3)

0.741

Panel D: Competitive strategic priorities

Factor and Cronbach alphas Factor loadings

I II III

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

Make dependable delivery promises (4-8) 0.895 0.136 0.133

Provide effective after-sales service and support (4-9) 0.825 0.035 0.134

Provide fast deliveries (4-7) 0.817 0.075 0.082

Product availability (4-10) 0.757 0.043 0.112

Provide high quality products (4-1) 0.531 0.213 0.228

(continued on next page)



14/28

managers had understanding of how manufactur-

ing processes interacted with products and mar-

kets and the management of these interactions

across the functions.Table 2(panel B) shows a sin-

gle factor confirming 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 informa-

tion and knowledge, extent of business units belief

and attitudes as a basis for interpreting informa-

tion, and the storage of information and know-

ledge 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 identified

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 de-

gree 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 obli-

que rotation, revealed three dimensions of strate-

gic outcomes. Table 2 (panel D) presents thesefactors. These were concerned with quality/deli-

very/service, flexibility and low cost/price. Final

scores for each dimension were averages, aggre-

gated across all items within the respective factor.

This analysis can be interpreted as revealing two

dimensions of product differentiation outcomes

(quality/delivery/service and flexibility) and one

of low cost-price.

Statistics for the Bartletts test of sphericity

were significant for all factors and Kaiser

MeyerOlkin measures of sampling adequacy were

above 0.60 for all factors. These statistics confirm

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 pro-

vided inTable 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 inde-

pendent variables (critical value of 0.001). This

outlier was due to a very low score on strategicalignment of manufacturing in a case with high

scores on other variables. All observations were

retained. 6

While the study is concerned with the interac-

tive nature of SPMS it was considered important

to identify if firms 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 difference in the means between groupswith and without BSC for all variables was not sig-

nificant, except all three dimensions of integrative

SPMS which were marginally higher for the BSC

group, although not statistically significant at con-

Table 2 (continued)

Panel D: Competitive strategic priorities

Factor and Cronbach alphas Factor loadings

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

Make rapid volume and/or product mix changes (4-6) 0.177 0.866 0.177

Make changes in design and introduce new products quickly (4-5) 0.027 0.828 0.115

Provide unique product features (4-3) 0.102 0.671 0.085

Customise products and services to customer needs (4-11) 0.261 0.617 0.134

III. Low Cost/price (a= 0.656) (Eigenvalue = 1.318, % of variance = 11.98)

Low price (4-4) 0.057 0.067 0.868

Low production costs (4-2) 0.182 0.059 0.801

5 As indicators of constructs in this study are considered to

be reflective, rather than formative, it is appropriate to consider

issues of validity and reliability (Fornell, 1982).6 There were no significant differences in any results with this

observation excluded.



15/28

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 sys-

tems, including BSC.

Descriptive statistics, based on the weighted

average scores of multi-item variables, are pro-

vided inTable 3.

Results

This section describes the technique of partial

least squares (PLS) used to test the model and pre-

sents 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 sam-

ple size studies and when the analysis is explora-

tory (Wold, 1985). Also, it overcomes some

theoretical and estimation problems in the use ofmore 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 identifies the relationships among constructs

and a measurement model that specifies the rela-

tions between the manifest items and the con-

structs that they represent. PLS enables an

overall assessment of the validity of constructs

within the total model.

Given the exploratory nature of the currentstudy, a two-step approach was taken which in-

volved a preliminary analysis to examine the con-

struct validity of multi-item variables and then

the estimation of the structural model. This ap-

proach is recommended when theory is more ten-

tative and measures are less well developed as it

maximizes the interpretability of both measure-

ment and structural models (Hair, Anderson, Tat-

ham, & Black, 1998, p. 600). The preliminary

analysis of multi-item constructs was reported

above, and detailed inTable 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 confirmed the earlier factor

analyses for organizational learning, competitive

strategic priorities with all items loading over

0.70 on their respective latent variables. For stra-

tegic 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 measurementmodel was assessed by calculating the average var-

iance extracted (AVE) and comparing with the

squared correlations between constructs. This pro-

vides 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 4provides the AVEs that can be com-

pared with the correlations between other con-

structs derived from Table 5. All AVE measures

Table 3

Descriptive statistics

Variable Mean Standard deviation Actual range Theoretical range

Min Max Min MaxCompetitive strategic priorities

Flexibility 4.489 1.103 1.69 6.80 1.00 7.00

Delivery 3.664 1.071 1.00 6.04 1.00 7.00

Low cost-price 3.339 1.149 1.07 7.00 1.00 7.00

Strategic alignment of manufacturing 5.431 0.905 2.00 7.00 1.00 7.00

Organizational learning 4.910 0.975 2.75 7.00 1.00 7.00

Integrative SPMS

Strategic and operational linkages 4.653 1.276 1.25 7.00 1.00 7.00

Customer orientation 5.163 0.972 2.20 7.00 1.00 7.00

Supplier orientation 3.908 1.337 1.00 6.67 1.00 7.00

Number of observations 80



16/28

Table 4

Results of PLS: path coefficients and t statistics, R2, average variance extracted (AVE)

Paths from Paths to

Integrative SPMS Organizational

learning

Strategic alig

of manufactuStrategic and operational

linkages

Customer

orientations

Supplier

orientation

Competitive strategic priorities

Delivery/service 0.072 0.174 0.084 0.347 0.225

(0.493) (1.265) (0.611) (2.321)*** (1.726)**

Flexibility 0.261 0.060 0.011 0.043 0.183

(1.581)* (0.124) (0.015) (0.348) (1.295)*

Low cost/price

0.101 0.070 0.354 0.131 0.128 (0.533) (0.314) (2.934)*** (0.963) (1.290)*

Strategic alignment of

manufacturing

0.237 0.008 0.239

(1.533)* (0.153) (1.744)** NR

Organizational learning 0.268 0.276 0.147 NR

(2.038)** (1.708)** (0.938)

Integrative SPMS

Strategic and operational linkages

Customer orientation

Supplier orientation

NR = not hypothesized within the model.* p< 0.10.** p< 0.05.***

p< 0.01.


17/28

are greater than the respective squared correla-

tions attesting to satisfactory discriminant validity.

The AVEs are used, also, to assess the conver-

gent validity of constructs within the PLS model.Table 4 indicates that all variables are above the

conventional guideline of 0.50 for adequate con-

vergent 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 coefficients

within the structural model and are interpreted

as in OLS regression. Bootstrapping provides a

basis to evaluate parameter estimates and their

confidence intervals based on multiple estimations.

Bootstrapping using 500 samples with replacement

was used to assess the significance of the path

coefficients.

Table 4andFig. 2present the results from PLS

related to the structural model. These include the

path coefficients and their t tests. It is inappropri-

ate in PLS to use any overall goodness-of-fit meas-

ures, as used in covariance structure analysis

modelling, because PLS makes no distributional

assumptions (Chin, 1998). Rather, fit is evaluated

by the overall incidence of significant relationships

between constructs and the explained variance ofthe endogenous variables. R2 values are reported

inTable 4.

Test of hypotheses

The study sought first to establish that integra-

tive SPMS would be associated significantly with

competitive strategic outcomes (H1). A structural

model was then developed to examine the way in

which integrative SPMS influence competitive out-

comes, related to both product differentiation andlow cost-price strategies. This was done by exam-

ining the extent to which integrative SPMS are

associated with a strategic alignment of manufac-

turing (H2) and organizational learning (H4),

and how these variables, in turn, relate to compe-

titive strategic outcomes (H3 and H5). The

hypotheses are tested using the three dimensions

of integrative SPMS that were identified, empiri-

cally, in the study. The results are mixed but show

partial support for the hypothesized relationships.Table5

Correlationsfrom

PLSmodelbetweencompetitivestrategicpriorities,

strategicalignmentofmanufacturing,

organizationallearningandintegrativestrategic

performancemeasurementsystems

(N=80)

Strategicalignmentof

manufacturing

Organiza

tional

learning

IntegrativeSPMS

Strategicandoperationallinka

ges

Customerorientation

Supplier

orientation

Competitivestrategypriorities

Flexibility

0.3

64

***

0.4

56

***

0.2

14

**

0.3

77

***

0.2

59

**

Delivery

0.3

14***

0.2

84

0.2

94***

0.2

32**

0.2

80***

Lowcost-price

0.2

95***

0.3

30***

0.1

83**

0.2

51**

0.4

35***

Strategicalignmentofmanufacturing

0.4

80

***

0.3

75

***

0.2

32

**

0.3

59

***

Organizationallearning

0.4

95***

0.4

78***

0.4

30***

**

p

(2)integrative strategic performance measurement systems, strategic alignment of manufacturing,...

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