Optimizing Levers of Control within Management Control Systems to Strengthen Employee Performance in Bali’s Village Credit Institutions (LPDs)

Abstract

This study aims to analyze the influence of the four main components of the Levers of Control framework developed by Simons—Belief Systems, Boundary Systems, Diagnostic Control Systems, and Interactive Control Systems—on organizational performance in Village Credit Institutions (LPD) in Bali. LPDs play a strategic role in strengthening the traditional village economy, yet they face performance and governance challenges amid increasing competition in the financial services industry. The study employs a quantitative approach using random sampling techniques based on Krejcie and Morgan’s (1970) formula. From a population of 697 healthy-category LPDs, 273 questionnaires were distributed and 248 were analyzed using the Partial Least Squares (PLS) method to examine the relationships among variables. The findings show that Belief Systems and Diagnostic Control Systems do not have a significant effect on organizational performance, indicating that organizational values and performance measurement systems have not been effectively internalized into work behavior or decision-making processes. In contrast, Boundary Systems and Interactive Control Systems have a positive and significant effect on organizational performance. Clear rules and boundaries strengthen discipline and accountability, while two-way communication between leaders and employees enhances innovation, participation, and adaptability to changes in the business environment.