Performance implications of exploratory and exploitative innovation: the role of management control systems

Abstract

Drawing on prominent theories of innovation, this study investigates the inter-relationships between the use of management control systems (MCS), exploratory innovation, exploitative innovation, and firm performance in Vietnam, an emerging market. The research hypotheses were empirically tested using a partial least squares-structural equation model. Data were collected by survey questionnaires from a sample of 238 top-level and middle-level managers in Vietnamese firms. The results confirm that the diagnostic use of MCS has a significant positive effect on exploitative innovation and the interactive use of MCS has a significant positive effect on both exploratory innovation and exploitative innovation. The results also reveal that exploitative innovation and exploratory innovation partially mediate the relationship between the interactive use of MCS and firm performance. Understanding these relationships can assist Vietnamese firms to invest appropriately in MCS that is able to promote innovation actions, thereby achieving outstanding performance.