Contingency theory, performance management and organisational effectiveness in the third sector

Purpose – The purpose of this paper is to develop a theoretical framework that explains how performance management (PM) affects the organisational effectiveness in the third sector. Design/methodology/approach – The authors adopt a two stage process in developing the theoretical framework; a systematic review of literature and theoretical developments of the framework. The underlying principles for developing the theoretical framework are mainly based on prior theoretical justification and empirical research in management accounting and international development fields. Findings – Drawing upon contingency theory, the authors propose a theoretical framework explaining how the contingency variables affect PM and organisational effectiveness in the third sector. The authors discuss the justification for contingency theory as well as its weaknesses in the PM research. The authors also highlight how a modified Performance Management and Control Framework could be used to identify PM practices in the third sector. The organisational effectiveness can be measured using the four domains the authors suggest in this paper. Finally the authors put forward propositions that can be empirically tested in future studies. Research limitations/implications – This conceptual paper opens an opportunity for future empirical research to cross-validate the model in a large survey through confirmatory factor analysis and structural equation modelling. Practical implications – This paper helps researchers and practitioners to understand how modern PM tools integrate with third sector characteristics to optimise the effectiveness of individual organisations. Originality/value – Integrating insights across disciplines, this paper strengthens cumulative knowledge on conceptualisation of PM and effectiveness within the third sector.