Asian Journal of Accounting and Governance 11: 151–161 (2019) ISSN 2180-3838 (http://dx.doi.org/10.17576/AJAG-2019-11-13) Confguring the Performance Measurement Systems of Small Medium Enterprises from the Life Cycle Perspective ZULAIHAN ISMAIL, SOFIAH MD AUZAIR & AMIZAWATI MOHD AMIR ABSTRACT The purpose of this paper is to examine the attributes of Performance Measurement Systems (PMS) of the Malaysian Small Medium Enterprises (SMEs), from an organizational life-cycle perspective. It was suggested that PMS is less comprehensive at birth stage, most comprehensive in the growth stage and decrease at the maturity stage of the life-cycle. The more comprehensive use of PMS is expected to be associated with higher organizational performance. Survey questionnaires were administered to managers yielding 90 usable responses. Using cluster analysis, SMEs were categorized into birth, growth and maturity stages. The fndings support the hypotheses and thereby provide evidence on the variations of PMS attributes among SMEs across the life cycle stages. The study contributes to knowledge on internal consistencies between organizational factors at each organizational life-cycle stages that has implications for management control systems. To the practice, it provides evidence on organizational adaptations to changes in frm’s strategy and structure. Keywords: Performance Measurement Systems; Organizational life-cycle; SMEs INTRODUCTION Prior studies have acknowledged the need to contextualize a performance measurement systems (PMS) framework for SMEs (Garengo 2009; Marchand & Raymond 2018). According to Garengo, Nudurupati and Bititci (2007), attempts to develop the models have been more theoretical rather than empirical. Empirical work on PMS have been focussing on large size organizations (Ahmad 2017; Widener 2007; Henri 2006; Tuomela 2005). As with many ASEAN countries, the Small and Medium Enterprise (SMEs) are pivotal to the current development of the Malaysian economy. Formally, registered SMEs represent more than 99% of all enterprises in Malaysia, and accounting for 37.1% of the GDP and contributing 66% to Malaysian employment (SME Report 2017/2018). Despite the important role for growth to the economy, evidence has shown that many SMEs do not survive in their frst fve years in business 1 . SMEs encountered particular diffculties due to their limited size and shortcomings in skilled personnel, communication technology, cost control, management, and especially fnancing (Saleh & Ndubisi 2006; Ismail 2008). Considering the importance of the SMEs, a study to confgure a mechanism to managing the sustainability of these organizations are viewed as highly timely and crucial. It was proven that a PMS in SME business has a signifcant role in supporting the management growth (Biazzo & Bernardi 2003; Klovienė & Speziale 2015), support the process of decision making and assist in strategic as well as management controls (Barnes et al. 1998; Bhimani 1994). Chenhall (2003) suggested studying management control systems including PMS from a broad perspective. A broader view of management control in organizations deals not only with internal matters such as social and self-controls, but also acknowledges the structures, environment, technologies and tasks performed (Chenhall 2003). Studying the comprehensiveness of PMS is expected to provide the broad perspective required for understanding the system. A PMS that integrates fnancial and nonfnancial measures are expected to provide information with an understanding of cause-effect linkages between operations and strategy and goals and between various aspects of value chain including suppliers and customers (Chenhall 2005). In order to acknowledge the contextual factors in the broad framework, Moores and Yuen (2001) argue that a life cycle framework may provide a better theoretical foundation than the contingency framework. The life cycle framework identifes different laws of relationship (interaction) within various system states whereby the identifcation of PMS design at different life cycle stages is an appropriate way to demonstrate adaptation to environment. The life cycle framework is also appropriate in providing patterns of multiple contingencies and frms’ internal characteristics that have been suggested under the confguration approach. Thus, in this study the variations of PMS design will be viewed from its organizational life-cycle (OLC) perspective. The OLC configuration approach adopted Miller and Friesen’s (1984) concept, where simultaneous consideration of contextual and structural variables classifes SMEs into the different life cycle stages. Specifcally, the present study will investigate the combination of these variables namely, strategy, structural characteristics, leadership and decision making styles, that defnes the life cycle stages and PMS comprehensiveness, to enhance SMEs’ performance. The remainder of this paper is organized as follows. In the next Book 1.indb 151 10/17/19 10:08 AM