Does firm nationality impact control system design?
Name: Karolina Weszczak Student number: 11152508
Thesis supervisor: Helena Kloosterman Date: 26 June 2017
Word count: 17.972
MSc Accountancy & Control, specialization Accountancy Faculty of Economics and Business, University of Amsterdam
Statement of Originality
This document is written by student Karolina Weszczak who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Abstract
This study uses the survey method to investigate the influence of firm nationality on the design of Management Control System (MCS) in Professional Service Firms (PSFs). In this paper MCS was conceptualized into six constructs that distinguish between three sets of controls – behavioural, result and personal – and two dimensions of control tightness – explicit and implicit. Questionnaires were distributed to various professionals having at least three years of experience in their expertise field, working in different industries within PSF sector, operating in many countries worldwide. Using multiple regression analysis, the results obtained indicate that the firm nationality might affect the design of the MCS in PSF, however, this impact in very low and might be considered as not very significant.
Keywords: Professional Service Firm, Management Control System, Management Control
System Tightness, Explicit Control Tightness, Implicit Control Tightness, Power Distance, Individualism and Collectivism, Masculinity and Femininity, Uncertainty Avoidance, Long Term and Short Term Orientation.
Table of content
1. Introduction ... 6
2. Theory Development and Hypothesis ... 8
2.1 Literature review ... 8
2.2 Professional Service Firms ... 8
2.3 Management control and Management Control System (MCS) ... 10
2.4 Types of control ... 10 2.4.1 Behavioural Controls ... 11 2.4.2 Result Controls ... 11 2.4.3 Personnel Controls ... 12 2.4.4 Cultural Controls ... 13 2.5 Control tightness ... 14
2.6 Cultural dimensions by Hofstede... 15
2.6.1 Power Distance ... 16
2.6.2 Individualism and Collectivism ... 18
2.6.3 Masculinity and Femininity... 19
2.6.4 Uncertainty Avoidance ... 21
2.6.5 Long- and Short-Term Orientation ... 22
3. Research methodology ... 23 3.1 Research design ... 23 3.2 Sample ... 24 3.3 Variables measurement ... 27 3.3.1 Dependent variable ... 27 3.3.2 Independent variable ... 28 3.3.3 Control variables ... 29
3.4 Explanatory Factor Analysis ... 29
3.4.2 Results Control Tightness ... 31
3.4.3 Personnel Control Tightness ... 33
4. Results... 35
4.1 Descriptive Statistics ... 35
4.2 Correlation Analysis ... 37
4.3 Regression Analysis ... 38
4.3.1 Behavioural Control Tightness ... 39
4.3.2 Result Control Tightness ... 40
4.3.3 Personnel Control Tightness ... 41
5. Conclusion ... 43
5.1 Discussion of findings ... 44
5.2 Limitations... 47
5.3 Implications for future research ... 48
References ... 50
Appendix A ... 54
1. Introduction
Over the years, companies have been struggling with obtaining cooperation and full objectives alignment among different individuals working within organizations. Individuals put different levels of effort in to achieving common, collective objective, which makes it very difficult to reward them equally in regard to their effort (Ouchi, 1997). Apart from that, organizations face many other issues that are related to the concept of control such as, for example, employees’ commitment, motivation, and integrity. The intensity of these organizational problems can be reduced by the application of proper controls and suitable design of the control system.
The control system consists of many control instruments that serves several purposes, such as performance measurement, evaluations and coordination of organizational activities (Speklé, 2004). Chenhall (2003, p.128) states that MCSs “are adopted to assist managers achieve some desired organizational outcomes or organizational goals”. According to him the design of control system is influenced by many factors, such as the external environment, technology, organizational structure, size, strategy, and national culture (Chenhall, 2003). In this study, I want to explicitly focus on one of these factors – nationality. Specifically, I want to investigate the impact that nationality or national culture may have on the design of the MCS. This research will help me to find the answer to the following question:
Does the firm nationality impacts the design of Management Control System in Professional Service Firms?
This research builds on the study of Hofstede et al. (2010), in which he indicates that the cultural and/or national dimensions have impact on management controls. Different cultural and mental settings may lead to divergence in control tightness in companies across countries. For instance, countries with high uncertainty avoidance (UAI) indicate a very strong need for rules, regulations and formalization (Hofstede et al., 2010). This is because laws give more security and they are the source of reference. On the other hand, low uncertainty avoidance countries do not like to have an excess of rules and want to limit them to only the most necessary (Hofstede et al., 2010). The findings of Hofstede et al. (2010) indicate therefore that different countries might show different need for the existence of various controls as well as the need for application of various control tightness. Another cultural aspect that might influence the design of control system is, for instance, long or short term orientation (LTO, STO). Countries that score high in long term orientation used to be very result oriented and put emphasis on keeping one’s commitments (Hofstede et al., 2010).
I have decided to conduct a research on this topic because this topic is still relatively unexplored. Ditillo (2004) notices that many researches have focused on the design of MCS within the manufacturing settings. However, in the recent years there has been more interest in PSFs, where the tasks are far different from those in the factories and are exposed to much higher uncertainty (Ditillo, 2004). Therefore answering my research question will be an interesting contribution to the existing literature regarding MCSs within PSFs across countries. Firstly, it contributes to development on the literature on Professional Service Firms by adding knowledge on the impact the firm nationality may have on the development of MCSs in PSFs. My study extends the research of Hofstede by exploring the national differences in PSFs and the impact they may have on MCSs, particularly in this organizational setting (PSF). Secondly, the study follows the framework of Merchant and Van der Stede (2012) that distinguishes four types of control – behavioural, result, personnel and cultural, in order to enhance the understanding of the role of these controls in PSF. The framework of Merchant and Van der Stede is also supported by other researchers (Ouchi, 1979; Snell, 1992; Tannenbaum, 1968). Finally, the study develops new concepts of explicit and implicit control tightness, which adds a contribution to the existing literature on the MCS tightness. This research will therefore provide a better understanding of the factors that influence the design of control system in PSF. The results may be useful in the future development of MCSs within PSFs across the countries. In addition, it can also help to explain certain organizational behaviours and choices with respect to control.
The paper is structured as follows. Section 2 provides a review of the relevant literature that creates the background for the development of the hypotheses. Section 3 contains the research methodology. In Section 4, I present the results of my analyses. Finally, in Section 5, I discuss the main findings of my research, list the limitations and provide the implications for the future research.
2. Theory Development and Hypothesis
2.1 Literature review
In this section, I will give a literature review on organizational control, control systems and their components, control system tightness and; cultural dimensions and their main characteristics. Based on the theoretical framework, I will build my hypotheses.
2.2 Professional Service Firms
This research is conducted in Professional Service Firms (PSFs). There has been a lot of interest in PSFs in recent years. According to Empson (2001), this is mainly because of the decline in capital and labour-intensive industries, as well as due to the increased importance of information-intensive industries, where rapid technological development led to identifying and spreading sources of knowledge across the organization.
In fact, PSF is difficult to clearly define. It can be seen as centre of knowledge and expertise. Greenwood et al. (2005) defines PSFs as those “whose primary assets are highly educated (professionals) workforce and those whose outputs are intangible services encoded with complex knowledge” (Greenwood, 2015, p.661). Starbuck (1992) agrees that the knowledge is the most valuable input for PSF. He says that for PSF “knowledge has more importance than other inputs” (Starbuck, 1992, p. 716). According to Ditillo (2004), PSFs can be described as firms “that provide intangible solutions to the customer problems by using mainly knowledge of their individuals” (Ditillo, 2004, p.401). Alvesson et al. (2015) also put emphasis on the importance of knowledge within the PSFs, where the individuals have broad expertise in their field and therefore may often even be referred to as elite. Creativity, problem solving and high task complexity are typical characteristic of jobs within PSFs (Løwendahl, 1997).
Furthermore, the definition of PSF is linked to the definition of a professional, which is very broad. Alvesson (1993) says that the old definition of professional, who is characterized, among others, by long formal education, autonomy, ethical rules and, client-orientation has been seriously weakened. Apart of that, there are still many characteristics that PSF share with other types of organizations (van Nordenflycht, 2010), and therefore, it is difficult to draw a line between professionals and non-professionals (Alvesson, 1993). The study of van Nordenflycht (2010) focuses on the distinctiveness of Professional Service Firms and their organizational implications. He mentions three main features that characterize these firms: knowledge intensity, low capital intensity and professionalized workforce.
Besides that, the concept of control plays very important role within PSFs. However, in PSFs the management control is not always directly observable. Prior research has shown that there exists a conflict between professionals and bureaucratic principles of control (Alvesson et al., 2015). Many studies have tried to find out how to reconcile professional and bureaucratic principles. Winch & Schneider (1993) notice that management in knowledge-intensive firms is, in fact, very difficult. The authors emphasize that this not only requires attracting the right people, with the appropriate knowledge and expertise, but also integrating the knowledge of these individuals in order to carry out the complex activities characterized by uncertainty and knowledge asymmetries (Winch & Schneider, 1993). Additionally, PSFs require from their employees a high level of self-organization and self-discipline because the professionals are usually not a direct subject of management supervision (Alvesson, et al., 2015). According to Alvesson et al (2015), this is because the assessment of quality of work in PSFs is often difficult and/or cannot be directly measured or assessed. Although there is no direct managerial supervision, Alvesson et al. (2015) highlight that this does not mean that professionals are not being controlled at all. They notice that the traditional forms of controls, such as, for example, monitoring or guidance provision, are not always applicable or more difficult to conduct in PSFs. Therefore in the PSF there should be more focus on socio-ideological forms of control, rather than traditional forms of bureaucratic controls (Alvesson et al., 2015). Alvesson and Karreman (2004) investigate the variety of MCSs in the consultancy company, which is qualified as a PSF. They notice that socio-ideological controls are applied in organization where the level of uncertainty is too high for classic bureaucratic solutions (Alvesson & Karreman, 2004). Socio-ideological forms of control are according to the researchers “efforts to persuade people to adapt to certain values, norms and ideas about what is good, important, praiseworthy, etc. in terms of work and organizational life” (Alvesson & Karreman, 2004, p.426). Furthermore, Strudy (1997) points out that the problem of control may cause some anxiety professionals face when selling their expertise. Therefore, professionals are expected to be given sufficient level of autonomy to adequately perform their services (Strudy, 1997).
Having considered increasing importance of PSFs, and the existing problems PSFs face with regard to control of autonomous professionals, arising from high level of uncertainty and complexity, PSFs seem to be very interesting subject for further research. There is still little research done on the specific nature of the PSFs and therefore my study, which focuses on the PSFs, will bring a novelty to the literature that is still exploring these firms.
2.3 Management control and Management Control System (MCS)
Organizational control is a very broad concept and may be interpreted in many ways. The prior literature mentions that control is the equivalent of power (Etzioni, 1965). Other research sees control as a distortion in smooth information flow (Galbraith, 1973), or as a mechanism through which the organization can be managed in order to achieve its objectives (Ouchi, 1979). This shows that there is no one agreed upon definition of control. Merchant and Van der Stede (2012) claim that good control allows manager to be quite certain about desired company performance. However, they emphasize that even in organizations that have ‘good control’ there is still room for failure as “perfect control does not exist” (Merchant & Van der Stede, 2012, p.12).
Brinberg and Sonograss (1988, p.447) define MCS as “a mechanism designed to limit the decision space of individuals within the organization so as to affect their decisions”. The researchers claim that the main purpose of the MCS is decision coordination within the organization since this should help in attainment of organizational goals. In addition, Binberg and Sonograss (1988) emphasize that control systems perform the coordination function by controlling the information flow, establishing the evaluation criteria as well as defining the rewards. Besides the control function, MCS is supposed to motivate employees and encourage the desired behaviours (Binberg & Sonograas, 1988).
Management Control Systems vary across different types of the organizations, such as PSFs – knowledge-intensive organizations and goods-producing, manufacturing organizations, as they are involved in different kind of activities. For this reason, organizations may use different control measures and they may apply different intensity of the controls used, which will determine the overall control tightness. The different types of control and the concept of control tightness are addressed in the next sections.
2.4 Types of control
The literature indicates four main types of controls applicable within the organizations – Behavioural Controls, Result Controls, Personnel Controls and Cultural Controls (Merchant & Van der Stede, 2012).
2.4.1 Behavioural Controls
Behavioural control can be simply defined as an exercise of influence and authority over human behaviour. Merchant and Van der Stede (2012, p.81) say that behavioural controls “make it impossible, or at least more difficult, for employees to do things that should not be done”. Ouchi (1979) says that behavioural controls refer to bureaucratic controls, which consist of set of formal rules and procedures that provide detailed descriptions of how certain tasks should be performed. Snell (1992) agrees with the findings of Ouchi (1979) and claims that behavioural controls regulate the subordinates’ actions at work. In addition, he points out that the subordinates actions are the subject of continuous monitoring and evaluation.
Behavioural controls can be applied physically or administratively. In general, companies use many forms of behavioural controls, such as passwords, locks, badges – physical constrains. Administrative constrains limit the employees ability to perform specific tasks or actions for which they are not authorized. Separation of duties, which is a basic requirement of internal control, is also a form of behavioural control. It involves separation of the tasks that need to be performed to accomplish company objectives, making it impossible for one person to be involved in all the duties. Behavioural controls contain a set of rules, policies and procedures, and a company code of conduct that employees have to follow. Furthermore, companies use so called pre-action review, which is the careful examination of planned actions (Merchant & Van der Stede, 2012).
In the industrial organizations, the management is mainly focused on designing and supervising work procedures for their employees, in order to minimize the effort and skills they will need to involve to carry out their tasks (Karreman & Alvesson, 2004). On the other hand, Karreman and Alvesson (2004) say that the professional organizations operate under the circumstances where it would be difficult or even underproductive to control the behaviours. This is because professionals need high level of autonomy and they are not direct subject of managerial supervision (Strudy, 1997; Karreman & Alvesson, 2004; Alvesson et al., 2015). Similarly, Perrow (1970) says that behavioural controls are only applicable for the “routine” task setting. He (Perrow, 1970) expects that in “non-routine” situations, as in PSF, bureaucratic controls are not effective because tasks are not standardized or “programmed”.
2.4.2 Result Controls
In the literature, result controls are also often referred to as output controls. Snell (1992) sees result controls as a decentralized form of control, where the focus is on targets achievement,
with relevant freedom to select the most desirable action leading to attainment of that target, rather than on standardization of operating procedures. Moreover, result controls are also regarded as rewards or punishments. They hold employees accountable for performance measures they define (Merchant & Van der Stede, 2012).
Result controls serve organizations to specify output targets, and subsequently to measure the performance with regard to achievement of these targets (Stouthuysen et al., 2012). Targets influence employees’ performance because they motivate employees towards goal achievement and give them a clear direction of their action (Merchant & Van der Stede, 2012). In addition, targets are form of feedback as the performance can be easily compared with the pre-set objectives and assessed.
According to many researches result controls can be seen as the most efficient form of control in PSFs. Merchant and Van der Stede (2012, p.30) say that “result controls are particularly dominant as means of controlling the behaviours of professional employees”. Rockness and Shields (1984) together with Abernethy and Brownell (1997) emphasize that output controls are the most important in the organizations, where the tasks are complex or interdependent with other tasks, such as it is in PSF. Additionally, Abernethy and Brownell (1997) agree that due to the level of autonomy and empowerment the result controls give to employees, they fairly match the PSF environment.
2.4.3 Personnel Controls
Personnel controls are simply defined as the discipline of hiring, developing and training employees so that they become valuable assets for the organization (Merchant & Van der Stede, 2012). Snell (1992, p.293) introduces a concept of human resource management control and defines it as “any process that helps to align the actions of individuals with the interest of their employing firm”. In his research, Snell (1992) focused on human resource management practices, such as staff selection, personnel training and performance evaluation. These practices are used to regulate performance and therefore serve as set of personnel controls.
Merchant and Van der Stede (2012) emphasize that organizations use personnel controls because of three main functions they perform. Firstly, personnel controls are supposed to clarify the expectations of the organization towards its employees. Secondly, personnel controls aim to facilitate the selection process. They help to ensure that potential employees are capable of doing the job, meaning that they have required skills, education and/or experience as well as resources to do the job. This includes a number of procedures and selection techniques involved to check
new employees. Finally, the personnel controls are supposed to support employee self-monitoring, which motivates employees to perform their tasks in the proper manner. In addition, many organizations provide numerous trainings to their workers in order to increase the likelihood that the work is performed in the most desirable way (Merchant & Van der Stede, 2012).
In PSFs, where the focus is on knowledge intensity and high or outstanding qualifications of employees (Greenwood et al., 2005; Von Nordenflycht, 2010), personnel control is of particular importance. It regulates future performance conditions by determining knowledge, skills, abilities, values and motives requirements (Snell, 1992). Additionally, the application of severe personnel controls, called also input controls (Snell, 1992; Jager & Baliga, 1985), helps to prevent the performance problems, as they can prevent deficiencies that could occur due to inappropriate personnel selection (Snell, 1992).
2.4.4 Cultural Controls
According to Merchant and Van der Stede (2012), cultural controls can be defined as the norms that govern employees’ behaviours. This form of control is used to build on norms, values, beliefs and ideologies. Cultural controls are designed to enhance mutual monitoring and group pressure on employees that deviate from shared norms and values (Merchant & Van der Stede, 2012). According to Turner and Makhija (2006), cultural controls promote shared values, beliefs, goals and create understanding among organizational members. The authors say that cultural controls are used by the organisations because they serve as informal socialization mechanisms. In PSFs, the management influences the behaviours rather indirectly, using different norms and values that are promoted in the organization, referred to as normative controls (Etzioni, 1964). The concept of normative controls is also investigated by Kunda (1992), who defines them as follows: “the attempt to elicit and direct the required efforts of members by controlling the underlying experience, thoughts, and feelings that guide their actions” (Kunda, 1992). Furthermore, cultural controls have additional value for PSFs – they facilitate knowledge transformation process (Flamholtz & Tsui, 1985) and have ability to target and achieve longer-term and broader goals as they enhance shared understanding and sense of organizational identity (Truner & Makhija, 2006).
2.5 Control tightness
Another important concept is control tightness. Merchant and Van der Stede (2012) define control tightness as the benefit of management control system that derives from the increase in the likelihood of organizational goal attainment, relative to what could be expected in absence of management control. Authors perceive that tight controls are beneficial, because tight controls are expected to provide more certainty about the achievement of organizational objectives, for example by guiding employees’ actions or providing expected output targets. Marchant and Van der Stede (2012) link control tightness with control effectiveness.
Dearden (1971) and Dalton (1971) also provide a definition of control tightness. The researchers claim that a control system can be defined as tight when administrative control dominates over social and individual control. Hopwood (1974) defines control tightness in terms of instrumental or task aspects and socio-emotional aspects of managers’ behaviour. According to Hopwood (1974), high control tightness occurs when managers have a more instrumental focus, when roles are clearly delineated, targets are imposed on employees, there are detailed job instructions, and employees’ performance is assessed based on accounting measures. Additionally, Hopwood (1974) says that loose control tightness is more often applied by managers who put more emphasis on socio-emotional focus. There is a higher level of empathy and there is more employees’ involvement in target setting. The accounting data plays not very important role in the targets achievement evaluation (Hopwood, 1974). Anthony, Dearden and Govindarjan (1992) associate control tightness with the frequency of monitoring the business activities. The concept of MCS tightness in PSF was researched by Alvesson and Karreman (2004). According to them, PSFs are usually complex and the level of uncertainty; these firms face, might be too high for classic control solutions, such as manuals, instructions or fixed procedures. Therefore, in their research Alvesson and Karreman (2004) focus mainly on socio-ideological form of control, which according to them are more applicable for PSFs. Socio-ideological forms of control target employees believes, emotions or self-image, and they give employees more empowerment (Pedersen & Humle, 2016). Alvesson and Karreman (2004) say that these controls are often misleadingly labelled as loose controls. The socio-ideological forms of control put “imprints of beliefs and identities on people within company” (Alvesson & Karreman, 2004, p. 437). This creates certain performance anxiety and motivates people to achieve the organizational objectives. Also, the professionals with considerable status within the company are given a lot of autonomy, which creates tension in relation to tight management control (Alvesson & Karreman, 2004). Nevertheless, PSFs also use various forms of tight controls. For
example, Alvesson and Karreman (2004) point out deadlines, as they put a lot of pressure on employees to fulfil their contracts and obligations in time, as well as all kinds of financial controls, such as budgets, financial statements or operating ratios, are tight form of control. In PSF they investigate, these measures are frequently reviewed and analysed (Alvesson & Karreman, 2004).
Control tightness in this research is defined as “the degree of flexibility in control system”. Control tightness can be created in two ways – by expanding the management controls on various activities (explicit tightness) or by increasing the level of tolerance for deviation from the MCS (implicit tightness). More tightness can be obtained by implementing more controls, procedures and policies. Loose control is rather obtained by minimizing the number of rules and increasing the acceptance of actions not defined by the MCS. Control tightness can be assessed for each type of control – Behavioural, Results, Cultural and Personnel. For the purpose of this research the following tightness measures will be used:
- Explicit Behavioural Control Tightness (EBCT) – the extent of use of standardized processes, procedures, rules and routines as part of the MCS.
- Implicit Behavioural Control Tightness (IBCT) – the degree to which deviation from established processes, procedures, rules and routines is tolerated and/or encouraged. - Explicit Results Control Tightness (ERCT) – the extent of use of goals, targets and
performance measures as part of the MCS.
- Implicit Results Control Tightness (IRCT) – the degree to which deviation from goals, targets and performance measures is tolerated and/or encouraged.
- Explicit Personnel Control Tightness (EPCT) – the extent of use of employee selection procedures as part of the MCS.
- Implicit Personnel Control Tightness (IPCT) – the degree to which deviation from human resource standards is tolerated.
2.6 Cultural dimensions by Hofstede
The identification of contextual variables that may impact the design of MCS can be traced backed to the development of early organizational theories (Chenhall, 2003). National culture has been identified as one of these variables. It may impact the design of MCS, especially, because in the last decades, “companies have developed multi-national operations” (Chenhall, 2003, p.152). Organizations need to decide whether to transfer abroad the national culture embedded in their
MCSs, or whether to adjust their control systems to fit the foreign cultures (Chenhall, 2003). Harrison and McKinnon (1999) say that it is crucial to understand the relation between national culture and the design of MCS as without examination of the national influences, the design of MCS is under-specified. Many early cross-cultural studies (e.g. Whitt, 1979; Chiu & Chang, 1979) were criticized because they ignored the cultural differences among the countries (Harrison and McKinnon, 1999). Nevertheless, Harisson and McKinnon (1999) claim that at that time, culture was seen as a very broad variable and there was a need for “unbundling” of the culture variable. This paper builds on the cultural framework of Hofstede et al. (2010), which is a perfect example of “unbundling” of the culture into five different components: Power Distance (PD), Individualism and Collectivism (IDV), Masculinity and Femininity (MAS), Uncertainty Avoidance (UAI), Long- and Short-Term Orientation (LTO), which will be discussed further in this section.
The cultural dimensions of Hofstede will be used to investigate whether the country specific characteristic are mirrored in the control system designs across the organizations originating from different countries. Hofstede et al. (2010) conducted research in around 70 countries worldwide to find prominent differences among them. He ranked the countries based on the five above mentioned dimensions. The analyses of Hofstede et al. (2010) indicate that there exists correlation between the cultural dimensions, or national characteristics, and the design of control system. Harzig and Sorge (2003) tested whether internationalization supersedes the influence of the country of origin on the control system. Their research shows that multinational firms that operate across national and societal borders are subjects to many local influences. Despite the fact that multinationals want to reduce these influences due to standardization of their MCSs, the study of Harzig and Sorge (2003) shows, that even the MCSs of multinationals remain “impregnated by the country of origin” (Harzig & Sorge, 2003).
The word “nationality” in this study refers to national culture and the dimensions of Hofstede, which identify the main national characteristics. The cultural dimensions are explained further in the next sections.
2.6.1 Power Distance
Hofstede et al. (2010) define Power Distance (PD) as “the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally” (Hofstede et al, 2010, p. 61). Power Distance is concerned with measuring inequality within the society. Hofstede et al. (2010) conclude that inequality exists in any society,
which means that some people have more power than the others. Power Distance scores inform about the dependence relationships in a country or certain society. In countries that score low on Power Distance, the dependence of subordinates on bosses is limited. Rather, there is a need for consultation and interdependence among subordinates and boss. The bosses in low PD cultures are very approachable. The subordinates can contradict bosses’ decisions if they disagree. In high PD cultures, the subordinates are highly dependent on their bosses. In such cultures, subordinates are unlikely to approach their bosses, and they will hardly ever disagree with them. The centralization of power prevails over decentralization. The level of supervision is excessive and the subordinates are clearly told what to do (Hofstede et al., 2010).
Hofstede et al. (2010), highlight the fact that less-educated and lower level employees have, in general, more authoritarian values than those with higher qualifications. His study conducted in USA and in Italy, in 1960, showed that people from working-class paid more attention to obedience to those who are higher in the hierarchy, than people from different classes. Similar results were obtained in both countries. These countries however score relatively low in PD (USA 40, Italy 50). The results show thus that PD is important in working-class, where people are less educated.
In PSFs, strong influence of PD should not be experienced. PD is less important for highly educated individuals (as in PSFs), at least in relatively low PD countries (Hofstede et al., 2010). In PSFs the hierarchy is flatter and more horizontal than in manufacturing organizations. Therefore, in general, PD should be less experience in PSFs than in manufacturing organizations or factories. In PSFs there is generally high education level and high qualifications of the personnel. Due to the fact that the PSFs are called the knowledge centres, in this research, PSFs are associated with high education level and high qualifications.
In addition, Hofstede et al. (2010) notice that in high PD counties the employees are told what to do, which suggests tight behavioural controls. In PSFs behavioural controls are not expected to be very tight due to the need for employees’ autonomy, high tasks complexity and lack of direct supervision (Perrow, 1970; Kunda, 1992; Karreman & Alvesson, 2004). Nevertheless, it is expected that the institutions in high PD counties will employ more behavioural controls than those in low PD countries.
To the best of my knowledge, there is no support in the prior literature that would predict relationship between PD and Results Control Tightness either between PD and Personnel Control Tightness. Therefore the relationships between PD and Results Control Tightness and
between PD and Personnel Control Tightness remain an empirical question. Based on the analysis above, I predict the following:
H1a: PD is positively related with and Behavioural Control Tightness. H1b: There is no relationship between PD and Results Control Tightness. H1c: There is no relationship between PD and Personnel Control Tightness.
2.6.2 Individualism and Collectivism
Another cultural dimension – Individualism and Collectivism, considers the role of the individual and the role of the group within the society. Individualism and collectivism show different importance attached to work goal items. People from individualistic environments place more value on their personal time. In workplaces, there is a good balance between professional and personal/family life. People are given more freedom to adopt their own approach to the job (Hofstede et al., 2010), which indicates loose behavioural controls.
In addition, people in individualistic environments like to have challenging tasks, which will give them sense of accomplishment. This preference is linked to intrinsically motivating jobs and stress on employees’ independence from the organization (Hofstede et al., 2010). On the contrary, people in collectivist societies put more emphasis on training opportunities, and good physical conditions at their workplace are of high importance. The collectivists are more dependent on the organization they work for and the motivation comes rather from extrinsic sources, such as rewards provided, as opposed to the individualists (Hofstede et al., 2010). Hofstede et al. (2010) also notice that there is some evidence that the people working in occupations demanding more education tend to be more intrinsically oriented. On the other hand, lower education level occupations show more extrinsic orientation (Hofstede et al., 2010, p.106). Intrinsically motivated behaviours refer to doing things for their own sake and the satisfaction derived from participation, whereas extrinsic motivation arises from gaining rewards and avoiding criticism (Bakker, 2004). Intrinsically motivated individuals display enhanced need for learning, flexibility, creativity and autonomy (Bakker, 2004). Based on the conclusions above, it seems that professionals, and respectively PSFs, should be associated with intrinsic characteristics. Subsequently, the need for autonomy, creativity, flexibility and learning indicates loose behavioural control (Chang & Birkett, 2004; Campbell et al., 2010). Campbell et al. (2010) especially emphasize that the learning is associated with low control tightness and less
monitoring. Tight controls limit learning by restricting possibility to use the decision rights and adjusting information (Campbell et al., 2010).
In PSFs, employees have strong preference for autonomy (Snell, 1997; Strudy, 1997; Alvesson & Karreman, 2004; Scott, 2008) and as a consequence, in professional work environments formal, direct supervision and control are absent (Goodale et al., 2008). Chang and Brikett (2004) emphasize the importance of an individual creativity, which is essential for innovation, granting organizational survival. They say that creativity might be limited by application of high behavioural control tightness. Moreover, Mills et al. (1983) propose self-supervision as the most appropriate control mechanism in PSFs.
Considering the fact that PSFs provide education demanding jobs, the education level could be seen as a variable indicating their adherence to the Individualistic or Collectivistic approach. In fact, the educational level may moderate externalities, but the cultural values and conditions should rather be stronger (Hofstede et al., 2010).
Similarly like in previous section, the relationships between IDV and Result Control Tightness and between IDV and Personnel Control Tightness remain an empirical question. No support for the existence of these relationships was found in the literature. Having these aspect considered, I draw the following hypothesis:
H2a: IDV is negatively related with Behavioural Control Tightness. H2b: There is no relationship between IDV and Results Control Tightness. H2c: There is no relationship between IDV and Personnel Control Tightness.
2.6.3 Masculinity and Femininity
Masculinity and Femininity consider differences between genders. Hofstede et al. (2010) indicate a list of goals that are associated with the masculine pole versus the feminine pole. They find that masculine societies assign high importance to high earnings and competitiveness. In such societies, there is a need to get recognition as a reward for a good job. People are often pursuing opportunities for advancement to higher-level jobs, and similarly, like individualistic societies, they like challenging work. Masculine societies are very results oriented and they reward achievements based on the performance evaluations (Hofstede et al., 2010). Feminine societies are, on the contrary, less competitive and they value good working relationships with colleagues as well as with a supervisor. They find cooperation very important. Additionally, in feminine
societies the employment security is crucial. In these societies people like to have a possibility to stay in the organization as long as they want (Hofstede et al., 2010).
Snell (1992) and Merchant and Van der Stede (2012) associate the focus on goals and targets achievement with results controls. Based on this, it is expected that the cultural dimension – Masculinity and Femininity, might influence results control tightness. Hofstede et al. (2010) indicate that skilled workers, such as those in PSFs, are in general very achievement oriented. In masculine societies, the rewards for these achievements are distributed based on the performance measures – output controls – and therefore employees’ results are carefully and regularly measured (Hofstede et al., 2010). Therefore, masculine societies are expected to show preference for results controls rather than for behavioural controls. This preference could also be supported by the fact that behavioural controls limit creativity (Chang & Birkett, 2004; Campbell et al., 2010) and therefore adversely impact competitiveness (Hofstede et al., 2010).
In PSFs, professionals value their autonomy at the workplace and if any assistance is required they will know where to find the colleagues needed (Realin, 1985). This indicates rather masculine features. Also, it leads to the conclusion that employees in PSFs might have more masculine characteristics than non-professionals. Additionally, Raelin (1985) finds that, in general, professionals prefer controls that are output based, giving them independence over the controls that direct their actions (behavioural controls). Furthermore, in PSFs, employees usually do not remain on jobs permanently – they frequently change between positions and organizations (Campion et al., 1994). Job rotation is important in professional environments for many reasons: career development (Morrison & Hock, 1986), it supports learning by gaining new experience (Morrison & Brantner, 1992), stimulation of employees’ commitment (Ference et al., 1977; Near, 1985). Job rotation is therefore more likely in masculine societies, where employees like to face new challenges (Hofstede et al., 2010).
Based on the literature review, I expect to find relationships between MAS and Behavioural Control Tightness, and between MAS and Result Control Tightness. However, prior research does not find any relationship between MAS and Personnel Control Tightness. Accordingly, I anticipate the following:
H3a: MAS is negatively related with Behavioural Control Tightness. H3b: MAS is positively related with Results Control Tightness.
2.6.4 Uncertainty Avoidance
Uncertainty Avoidance (UAI) is defined by Hofstede et al. (2010, p. 191) as “the extent to which the members of a culture feel threatened by ambiguous or unknown situations”. The research notices that the feeling of uncertainty is manifested by stress and need for predictability and therefore, the need for multiple rules, procedures and policies. Consequently, Hofstede et al. (2010) show, that high UAI cultures apply many formal laws and rules to control the employees’ performance. These findings suggest that high UAI countries will employ tight MCSs that would be expected to cover as much of existing risks and uncertainties as possible. It is important to emphasize that the UAI should not be confused with environmental uncertainty. UAI refers to anxiety and fears of uncertainty, as well as the measures people adopt to protect themselves against environmental uncertainty.
Auzair and Langfield-Smith (2005) emphasize that tight control ensure precision in defining employees’ actions (behavioural control tightness) and targets (result control tightness) as well as their timely and frequent monitoring. Also, tightening controls ensures that employees follow organizational wishes (Auzair & Langfield-Smith, 2005), which firms may desire in highly uncertain environments (Hofstede et al., 2010). On the contrary, low Uncertainty Avoidance environments show rather low anxiety levels. They do not like formal rules and regulations. These cultures try to limit the establishment of procedures to only what is the most necessary (Hofstede et al., 2010).
Ditillo (2004) tries to find out how the PSFs deal with uncertainty. First of all, Ditillo draws the attention to the fact that the PSFs deals with tasks that include very high level of uncertainty. He defines uncertainty, based on definition of Galbraith (1973, p.5.), as “the difference between the amount of information required to perform a task and the amount of information already possessed by the organization”. He emphasizes that in PSFs uncertainty is very important factor that determines how knowledge is transferred and controlled (Ditillo, 2004). Ditillo (2004) explains that due to high uncertainty level PSFs experience, management of these organization is more complex, thus require more control. He concludes that the knowledge-intensive firms are especially exposed to uncertainty, because uncertainty is related with factors that play essential role within PSF, such as technology innovation, task complexity and interdependencies (Ditillo, 2004). Research finds that PSFs put a lot of effort in reducing the uncertainty, for instance by the integration of knowledge, as one of the ways to deal with unknown. The uncertainty level increases with the knowledge complexity, which also affects the type and the tightness of controls applied – the more complexity the tighter control (Ditillo, 2004). Ditillo’s (2004) study suggests that uncertainty avoidance plays important role in PSFs in general.
Based on the contributions from the prior literature discussed above, it seems that the high UAI nations employ many measures to avoid unknown and uncertain circumstances. I expect that the control systems in the counties that score high in UAI will apply overall tighter controls than others. Therefore I draw the following hypothesis:
H4a: UAI is positively related with Behavioural Control Tightness. H4b: UAI is positively related with Results Control Tightness. H4c: UAI is positively related with Personnel Control Tightness.
2.6.5 Long- and Short-Term Orientation
The fifth dimension defined by Hofstede et al. (2010) is Long- and Short- Term Orientation (LTO and STO). Long-term orientation is concerned with the future rewards, whereas the short-term orientation is related with the past and present. STO country-based firms look at bottom line results and current year’s profit, whereas LTO country-based firms focus on their market position and their profits ten years from now (Hofstede et al., 2010). LTO supports entrepreneurial activity. In addition, people in LTO cultures are very persistent in the pursuit of their goals and objectives. Societies with LTO are also considered to be thriftier because this helps them to accumulate savings that can be (re)invested (Hofstede et al., 2010).
The above mentioned characteristics indicate a link between LTO and results controls, which are forward looking and set the targets and objectives to pursuit (Hill & Hoskisson, 1987). Since LTO countries are very concerned about their future performance they are expected to apply strict result controls. Also, I anticipate the relation between LTO and personnel controls. Application of tight personnel controls should be linked to LTO as the organization ensures thereby, not only that appropriate personnel is selected, but also that they are provided appropriate training and development to align the goals of individuals with those of the firm (Ouchi, 1979).
In PSFs, employees deal with many uncertainties (Winch & Schneider, 1993; Sharma, 2002), therefore, they should be more forward looking in order to properly respond to the unknown circumstances. PSFs give their employees a lot of autonomy and freedom concerning the performance of their duties (Chang & Birkett, 2004; Karreman & Alvesson, 2004; Campbell et al., 2010). In PSFs, there is more focus on the final outputs (Rockness & Shields, 1984; Snell, 1997). The application of tight personnel controls in PSFs helps to ensure employment of knowledgeable and qualified personnel that is the most valuable asset within PSFs
(Merchant & Van der Stede, 2012; Greenwood, 2015). However, the long- or short- term orientation of the PSFs and the application of suitable controls might vary with their country of origin.
Based on the analysis performed above, I anticipate that the LTO should be positively related with both – Result Control Tightness and with Personnel Control Tightness. The existing literature does not provide any indications of existence of any relationship between LTO and Behavioural Control Tightness, which remains an empirical question. I draw the following hypotheses:
H5a: There is no relationship between LTO and Behavioural Control Tightness. H5b: LTO is positively related with Results Control Tightness.
H5c: LTO is positively related with Personnel ontrol Tightness.
3. Research methodology
This study was conducted in the context of the PSF thesis survey project 2016-2017 at the University of Amsterdam, led by Helena Kloosterman. I have decided to take a part in this project because of the following reasons.
First of all, the project enabled the use of pre-developed survey that, among others, examines the aspects of control tightness within PSF as well as defines the control tightness constructs, which fit the purpose of this paper. In addition, participation in the project gave me the access to the database containing large sample of the respondents that was used to conduct the analysis. Finally, the project helped me to broaden my knowledge in the area of research as well as get a better and understanding of the topic.
In this section, I will discuss the research design, followed by the description of sample used in the study. Afterwards, the relevant variable measures and the statistical model will be presented.
3.1 Research design
The main objective of this research is to find out whether firm nationality has an impact on the design of its control system, in regard to its tightness. There is very limited research on this topic so far. This study builds on the database obtained by survey research. In order to find the answer to the research question, I have chosen to use the quantitative approach.
The survey was designed to gather information about the coordination, motivation and performance measures of professionals working in PSFs, in various industries. The survey examines the different features of particular industries, organizations and jobs that may affect the design of firm MCS, its reputation, customer reliance, professional tension, employees performance etc.
In order to ensure the quality and effectiveness of the survey two separate pre-tests were conducted before the data was collected. The explanation of the specific terminology used in the survey was available to the respondents. It explained the main concepts measured by the questionnaire.
The first pre-test focused on the assessment of the quality of items used to measure the variables for the types of management control. This was done in two steps. Firstly, by asking subjects to match definitions of control constructs with the statements that best described these controls. The results revealed whether the matches were correct or not. The statements, which respondents found difficult to match properly, were removed from the survey.
The second pre-test was designed to evaluate the quality of the survey itself. Twenty employees of PSFs were asked to view the survey and evaluate on its content, clarity, appearance and the amount of time spent to complete the survey. The feedback obtained resulted in minor changes in the wording as well as the inclusion of additional answers to a few multiple choice questions. Because the survey has a very broad focus, it allows the research on many topics related to MCS in PSFs. The focus of this paper is especially narrowed to the tightness of MCS as well as the firm country of origin, controlled for the organizational size and ownership type. The relevant survey questions can be found in Appendix A.
3.2 Sample
The main objective of the data collection was to build a solid database containing a diverse sample of professionals working in different industries, in various organizations around the world. To take part in the survey, professionals were supposed to meet a list of requirements to classify for this research. Firstly, the respondents were required to have a sufficient English proficiency level to be able to understand and interpret the questions. Secondly, the professionals were expected to have at least 3 years of working experience in their field. The reason for selecting this time frame was the fact that those 3 years is a minimum period to learn to perform the job properly, especially if the job requires specific knowledge and expertise. In addition, the
employees at the learning stage of their career are often subject of tighter control system, which could bias their responses. Thirdly, the respondents must have been subject to management accounting and control system. It means that the respondents should not be involved in the design of the system either be an owner of an organization, because they were supposed to feel controlled by the system. Finally, the minimum required size of the firm is 50 or more employees. In general, small companies do not have very expanded management control systems. Bigger organizations usually have their controls implemented.
The professionals that participated in the survey come from around 30 different professional fields such as Accounting, Consultancy, Investments, Medicine, R&D, Information Technology and many others. The total number of all respondents was equal to 612. The responses were obtained by completing the survey. In order to reduce or eliminate bias in the responses to the survey, which could result in the measurement error, the responses were treated completely confidential. From the total number of 612 respondents, 98 were removed for the following reasons: they did not complete the survey, they did not provide the county where their organization was founded or the values for particular dimensions of Hofstede were not found. This resulted in a sample of 514 respondents.
The sample of organizations the respondents work for were founded in 32 different countries. Table 1 – Firm Country of Origin and Scores of Hofstede – shows the number of the respondents, whose organizations were based in a particular country and how the country scores in cultural dimensions of Hofstede.
Table 1: Firm Country of Origin and Scores of Hofstede
Dimensions of Hofstede
Firm Country of Origin N PD IDV MAS UAI LTO
Afghanistan 1 80 38 53 68 27 Algeria 1 80 38 53 68 26 Australia 2 38 90 61 51 31 Austria 4 11 55 79 70 60 Belgium 16 65 75 54 94 82 Canada 9 39 80 53 48 38
China, Hong Kong 1 68 25 57 29 61
China, People’s Republic 2 80 20 66 40 118
Cyprus 1 60 35 57 112 45 France 12 68 71 43 86 63 Germany 25 35 67 66 65 31 India 2 77 48 56 40 61 Israel 4 13 54 47 81 38 Japan 2 54 46 95 92 80 Malta 5 56 59 47 96 47 Netherlands 203 38 80 14 53 44 Norway 2 31 69 8 50 20 Pakistan 12 55 14 50 70 50 Poland 1 68 60 64 93 38 Qatar 1 80 38 53 68 27 Romania 3 90 30 42 90 52 Russia 1 93 39 37 96 81 Saudi Arabia 3 80 38 52 68 0 Singapore 1 74 20 48 8 48 Slovenia 8 71 27 19 88 49 Spain 4 57 51 42 86 0 Sweden 6 31 71 5 29 33 Switzerland 12 34 68 70 58 74 Thailand 1 64 20 34 64 56 Turkey 1 66 37 45 85 46
United Kingdom of GB & NI 46 35 89 66 35 25
United States of America 122 40 91 62 46 29
Total 514
Other characteristics of the sample are presented in Table 2 – Descriptive Characteristics. The age of the respondents vary from 19 to 64 years, with the average of 35 years. Males are the majority of surveyed professionals – they make 67,5% of the respondents in the sample. Around 45% of the respondents hold a Master degree and 13% a PhD or other professional doctorate
degree. Remaining 42% graduated from Bachelor or have a lower education level. The number of years professionals work in their field range from 1 to 11, with the average tenure of 7 years. The average period worked for a particular organization is between 5 and 6 years.
Table 2: Descriptive Characteristics
PSF N Minimum Maximum Mean Median Std. Deviation
Age 510 19 64 35,26 22 8,731 Gender* 513 1 2 1,35 1 ,417 Education** 513 1 3 1,72 2 ,688 Years in field*** 514 1 11 7,13 7 3,128 Years in organization*** 514 1 11 5,84 5 3,188 * Male = 1, Female = 2
** Bachelor degree of lower =1, Master degree = 2, PhD or other professional doctorate degree = 3 *** Less than 1 = 1, 1 year = 2, … 9 years = 10, 10 years of more = 11
3.3 Variables measurement
The survey contains several questions that will help to measure each of the variables in this study. The questions where the respondents are supposed to give their opinion are measured based on the five-point Likert scale. They can strongly agree or strongly disagree with certain statements. The middle score is neutral.
3.3.1 Dependent variable
In this research, Management Control System, or more specifically – the design of a MSC, in regard to its tightness, will be a dependent variable. I test how the design of the MCS, in regard to it tightness, depends on the firm nationality. The tightness of the MSC is measured by the following variables: Behavioural Control Tightness (BCT), Results Control Tightness (RCT), and Personnel Control Tightness (PCT). These three variables were created as formative constructs from respective reflective constructs: Explicit Behavioural Control Tightness (EBCT), Implicit Behavioural Control Tightness (IBCT), Explicit Results Control Tightness (ERCT), Implicit Results Control Tightness (IRCT), Explicit Personnel Control Tightness (EPCT), and Implicit Personnel Control Tightness (IPCT). I use formative constructs as they better fit the Merchant and Van der Stede framework, on which this study is built.
All the constructs related to the control tightness were measured on five-point Likert scale, based on the respondents’ agreements with the particular statements. EBCT, IBCT, ERCT and IRCT1
items. EPCT and IPCT were newly developed items. The questions measuring explicit and implicit control tightness are presented in Appendix A, which gives better overview of each construct.
Behavioural Control Tightness was measured using two reflective constructs – EBCT and IBCT, which encompassed various questions related to the application of rules and procedure within the organization. In particular, these questions were concerned with the volume as well as the extent of different rules and regulations used within the organization, their task coverage, frequency of monitoring and the level of flexibility given to the employees to adjust the procedures.
Subsequently, Result Control Tightness was measured using both ERCT and IRCT constructs. The questions measuring the ERCT were focused on the intensity and frequency of measuring performance targets and evaluations concerning their completion. IRCT questions examine the expectations towards attainment of the company objectives and the organizational tolerance of possible deviations from attainment of pre-established goals.
Finally, to measure Personnel Control Tightness, EPCT and IPCT constructs were used. They examined the hiring procedures within the respondents’ organization. For EPCT, respondents were asked their opinion about the extensiveness of the hiring procedures, with regard to the number of interviews conducted and specific requirements towards applicants. IPCT was concerned with the type of education and experience acquired as well as with the variation in competence and the type of profession hired.
3.3.2 Independent variable
In this study, the national culture will be the independent variable. Nationality is specified by the five cultural dimensions of Hofstede: Power Distance, Individualism and Collectivism, Masculinity and Femininity, Uncertainty Avoidance, Long- and Short- Term Orientation. Because some of the countries are underrepresented in the database, I will cluster the countries based on how they score in the cultural dimensions of Hofstede. Countries with index scores below 50 will be clustered as low scoring countries. Subsequently, countries with the scores equal or higher than 50, will be clustered as high scoring countries.
3.3.3 Control variables
Control variables refer to rather general features of the organizations that might have effect on the design of MCS. In order to get a better picture of the impact of nationality on MSC, the company size (SIZE) and the ownership type (OWN) will be controlled for.
Organization size is measured by the number of employees. This variable should be included because the literature suggests that it provides very pervasive and consistent explanation of organizational control (Rockness & Schields, p.169). In addition, according to the study conducted by Talacchi (1960), the organizational size has impact on the employees’ attitudes and their behaviours as well as their level of satisfaction (Talacchi, 1960). Furthermore, multiple researchers (Snell, 1992; Empson & Morris, 1998; Von Nordenflycht, 2011) agree that greater organizations employ more formal controls, such as, for instance, bureaucratic controls. This is because an increase in an organizational size results in an increase of complexity, making personal forms of control difficult to apply and less effective. For these reason, the organizational size may play important role in designing of MCS and should therefore be included as a control variable in this research.
Another aspect that might influence the MCS design is the ownership type of PSF. Scott (2008) states that both, organizations and the work of professionals, have always been linked with the partnership forms of ownership, which reject the institutional logics associated with market-based and for-profit forms. Besides that, Scott (2008) notices that the emergence of business-oriented professionals led to enhanced reliance on market controls and managerial mechanisms since there was more emphasis on privatization. Therefore, the MCS design in organizations owned by outsiders may differ from that in the organizations owned by employees.
3.4 Explanatory Factor Analysis
Before constructing variables, the validity and reliability tests were performed. In order to test for validity, I used Explanatory Factor Analysis. This technique is used for identifying clusters of variables and to better understand the structure of a set of variables. Subsequently, the reliability test helps to measure that the survey consistently reflects the construct that is measuring. To test reliability, I used Cronbach’s Alpha, known as the most common measure of scale reliability. Cronbach’s Alpha is reported for each construct.
According to study of Corrita (1993), Nunally (1967) refers to Cronbach’s Alpha statistic as to the estimate of reliability. He also defines reliability as “the extent to which [measurements] are
repeatable and that any random influence which tends to make measurement different from occasion to occasion is a source of measurement error” (Corrita, 1993, p.98). Therefore, I will use Cronbach’s Alpha statistic to assess the reliability of the questions measured with the Likert scale. These questions measure so called latent variables, which are hidden variables – in this research it refers in particular to the measurement of the control system tightness. Cronbach’s Alpha will help to ensure that all these questions measure the same thing. In general, the Cronbach’s Alpha increases when the correlation between items measured increases.
The literature says that the preferred value for Cronbach’s Alpha should be equal or higher than 0,7 (Kline, 1991). There is, however, not a definite agreement on what the minimal value should be. Nunally (1978), for example, argues that in the early stage of research even values as low as 0,5 should be sufficient. Nevertheless, using very low Cronbach’s Alpha is generally not advised.
3.4.1 Behavioural Controls Tightness
The initial design of the survey splits control tightness in to two components – explicit and implicit control tightness. The tables show how the single items loaded on each construct. Explicit Behavioural Control Tightness (EBCT) is defined as “the extent of use of standardized processes, procedures, rules and routines as part of the management control system, where a tight system is defined as one with a lot of controls in terms of amount and scope”. In organization where the explicit behavioural control is tight the amount of various procedures will be higher and all possible activities will be documented, in contrast to the organization with loose explicit controls. Additionally, an organization with tight control will implement more supervision to ensure that the established procedures are being followed.
For the EBCT all four items loaded on a single underlying factor. They explain 56,89% of the total variance and show the Cronbach’s Alpha of 0,744. This is sufficient to regard the measures reliable.
Table 3: Factor Analysis – EBCT
Explicit Behavioural Control Tightness Component 1
Q4_1 Whatever situation arises, we have existing processes, procedures or rules to follow in dealing with it. ,786 Q4_2 Established processes, procedures and rules cover all of my job tasks. ,765
Q4_4 In my organization, we have rules for everything. ,804
Q4_8 My supervisor frequently monitors the extent to which I follow established process, procedures and
rules. ,654
Total variance explained 56,89%
Implicit Behavioural Control Tightness (IBCT) is defined as “the degree to which deviation from established processes, procedures, rules and routines is tolerated and/or encouraged, where a tight system is defined as one which does not allow any deviation from standard processes, procedures, rules and routines”. The organizations that apply tight implicit behavioural controls will not allow any changes or adjustments to the existing procedures. On the contrary, loose implicit controls give employee a lot of flexibility and freedom in choosing the best way to perform their job, dependently on a particular situation. Therefore, in the organizations that have rather loose controls, adjustments to the procedures will be acceptable.
IBCT table shows the items’ loadings on one underlying factor. The items explain together 50,32% of the variance and have the Cronbach’s Alpha equal to 0,541. This measure is relatively low. Additionally, one item (Q4_11_RC) loads very low compared to other items – 0,154. This low score lead me to performing additional factor analysis including both constructs – EBCT and IBCT. The rotated components matrix showed that this item loaded much higher on the same underlying factors as the items of EBCT – 0,656. Therefore, the factor was excluded from the construct. After performing subsequent analysis for the remaining items, it turned out that the exclusion of that item, resulted in increase of the total variance explained to 66,62%. Also the reliability of the measure increased, with Cronbach’s Alpha of 0,749.
Table 4: Factor Analysis – IBCT
Implicit Behavioural Control Tightness Component 1
Q4_10_RC My job allows me to decide how to adjust rules to best perform my job tasks. ,784 Q4_11_RC The organization I work in primarily uses established processes, procedures and rules to give
broad guidelines as to how activities are to be performed. ,154
Q4_12_RC Employees in my organization are encouraged to use procedures flexibly. ,847 Q4_13_RC Employees in my organization are encouraged to adjust procedures to suit the situation. ,810
Total variance explained 50,32%
Cronbach’s Alpha 0.541
3.4.2 Results Control Tightness
The tightness of Results Control is similarly measured by two constructs. Explicit Result Control Tightness (ERCT) is “the extent of use of goals/targets/performance measures as part of the management control system, where a tight system is defined as one with a lot of controls in terms of amount and scope”. Therefore, management control with tight explicit result controls sets multiple performance targets, involves frequent monitoring of the achievements and evaluation of these results in comparison to the established objectives. Respectively, loose explicit management control sets fewer targets and involves less monitoring and evaluation.
