Performance Measurement Systems, Organisational Learning, and the Sustainability–Finance Tension

Abstract

Drawing on organisational information processing theory, this study examines how manufacturing small and medium-sized enterprises (SMEs) in emerging economies use performance measurement systems (PMS) to manage the tension between environmental sustainability and financial constraints. Using two-wave survey data from 275 emerging economy SMEs and lagged financial performance data, we find that environmental performance mediates the relationship between both diagnostic and interactive PMS use and financial outcomes. Reconceptualising diagnostic controls as forward-looking tools, our findings challenge the traditional view of these systems as retrospective financial monitors by showing how they support the integration of environmental indicators into strategic decision-making. In contrast, while interactive controls foster sustainability-oriented learning and cross-functional dialogue, their overuse in financially constrained firms can reduce financial performance due to increased complexity and decision-making strain. These findings advance organisational information processing theory by introducing a contingency perspective on interactive controls, showing that their effectiveness depends on firm-specific constraints. The study also highlights a temporal misalignment between learning processes and the timing of financial returns in SMEs.