Effect of performance management systems on business performance: mediating roles of open innovation and organizational ambidexterity

Purpose This study aims to investigate the mediating roles of open innovation and organizational ambidexterity in the relationship between performance management systems and business performance within Indonesian state-owned enterprises (SOEs) and their subsidiaries. Design/methodology/approach A quantitative analysis was conducted using survey data collected from a sample of Indonesian SOEs and subsidiaries. A multi-mediation research framework was developed, and the partial least squares-structural equation model was used to analyze and test the hypotheses. Findings This study found that performance management systems positively affects business performance, with this relationship mediated by organizational ambidexterity. While open innovation does not mediate this relationship, it contributes to a sequential mediation process involving organizational ambidexterity. Specifically, the results show that sequential mediation effects exist whereby performance management systems influence business performance through open innovation and then organizational ambidexterity. Research limitations/implications This research primarily focuses on Indonesian SOEs holding companies and subsidiaries; therefore, caution is needed when generalizing the results to other companies. The results suggest that managers must effectively manage their performance management systems, open innovation and organizational ambidexterity to enhance business performance. Originality/value This study makes three major contributions. First, it establishes a distinctive research framework by examining the sequential effects of open innovation and organizational ambidexterity on performance management systems and business performance – a previously unexplored avenue. Second, this study provides a richer understanding of business performance drivers by revealing the mediating effects of open innovation and organizational ambidexterity. Third, this study addresses a gap in the literature by examining the unique setting of Indonesian SOEs and their subsidiaries within an emerging market, a rarely explored context.