External knowledge search is critical for innovation performance and centers on a firm's absorptive capacity. This study investigates whether and how two dimensions of absorptive capacity at the top management team (TMT) level, potential absorptive capacity and realized absorptive capacity, are influenced by two design choices of the performance measurement system (PMS), broad scope PMS and PMS integration, under different conditions of environmental dynamism. Based on cross-sectional survey data from firms in innovative industries, the results of our empirical study indicate that in more dynamic environments, a broader scope PMS is associated with higher potential absorptive capacity whereas higher PMS integration is associated with lower potential absorptive capacity. These associations are not observable in more stable environments. Moreover, broad scope PMS and PMS integration are both positively associated with realized absorptive capacity, independently of environmental dynamism. These findings highlight the relevance of PMS design choices for absorptive capacity, showing on the one hand the differences between the implications of broad scope PMS and those of PMS integration and, on the other hand, that the implications of PMS design choices for potential absorptive capacity (i.e. acquisition and assimilation of external knowledge) follow different patterns than the implications for realized absorptive capacity (i.e. the transformation and exploitation of such knowledge). •Implications of PMS design for PACAP follow different patterns than for RACAP.•A broader scope PMS is associated with higher PACAP in more dynamic environments.•A more integrated PMS is associated with lower PACAP in more dynamic environments.•Broad scope PMS positively related to RACAP independently of environmental dynamism.•PMS integration positively related to RACAP independently of environmental dynamism.