Contingency relationship between perceived environmental uncertainty and management control systems: Implications for innovation and performance

Purpose This study aims to understand the contingency relationship between perceived environmental uncertainty (PEU), the use of diagnostic and interactive control systems, innovation and organisational performance. Design/methodology/approach Survey data were collected from a sample of 96 managers from Indonesian manufacturing companies. Data analysis was undertaken using partial least squares structural equation modelling. Findings The degree of PEU faced by companies is positively related to their reliance on both diagnostic and interactive control systems. Interactive control systems, rather than diagnostic ones, are positively associated with innovation. Importantly, the study identifies the mediating roles of diagnostic and interactive control systems in the positive relationships between PEU and organisational performance and between PEU, innovation and organisational performance. Research limitations/implications The findings are limited to the manufacturing sector and do not account for other potentially-influential contextual factors related to management control systems (MCSs). Practical implications The results of this study can enhance decision-makers’ understanding of the strategic use of MCSs in response to environmental uncertainties, which can positively impact organisational effectiveness. Originality/value This study offers relevant empirical evidence that enriches the contingency-based MCSs literature by emphasising PEU as a driving factor for the use of diagnostic and interactive controls systems. It also highlights the role of these control systems in facilitating the relation between PEU and organisational effectiveness.