Amsterdam Business School
How military managers deal with formal
Management Control Systems
A case study on an innovative project in a ‘mechanistic
bureaucracy’
Name: Richard de Koning Student number: 0347817 Thesis supervisor:
Date: June 17th 2016
Word count: 27933, 0
MSc Accountancy & Control, specialization Control
Statement of Originality
This document is written by student Richard de Koning 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
Most mature organizations have established a Management Control System that helps them in achieving their objectives and strategies. For managers below corporate level in mature organizations Management Control System (MCS) design is often not or at best a limited choice. Those lower level managers are however the ones experiencing the sometimes restrictive effects and constraints inherent to the formal and more bureaucratic controls which are often part of established Management Control Systems in mature organizations, in particular in situations that call for more informal controls and less control tightness. This research paper describes a case study with a setting in which the MCS in place clearly diverges from the preferred MCS design one should expect based on contingency based research and gives answers to following questions. What were the positive effects of the formal MCS in place on the progress of the project, military managers tried to exploit? Which negative effects of the formal MCS in place did they try to avoid or mitigate and what were the problems they encountered with regard to the formal MCS? Based on documentary analysis, personal observations, analysis of data from semi-structured interviews and a discussion of case findings, conclusions are drawn with regard to how military managers used, adjusted and complemented the formal MCS during the planning phase of in an innovative project.
Key words: Ministry of Defense of the Netherlands, (MCS), formal controls, soft controls, Levers of Control (Simons, 1994), as a package (Malmi & Brown, 2008), Coercive and enabling control (Adler & Borys, 1996), Action controls, result controls, personnel controls and cultural controls (Merchant & Van der Stede, 2012)
Acknowledgements
I would like to show my appreciation for the time made available by interviewees to contribute to my research, their sincerity during the interviews and the support I have experienced throughout the development of my thesis from my colleagues of the organization in which I conducted my case study. I am also grateful for the time provided by my branch chief to work on the completion of this thesis. Next I would like to show my gratitude towards the thesis supervisor for the good discussions we had, the guidance he provided and the feedback on the draft versions of my thesis. Not least I want to thank the mother of my children and the love of my life for enabling me to invest all the time needed in my thesis project and thereby this allowed me to focus on the writing process of this thesis and my personal development.
Contents 1 Introduction ... 7 2 Literature review ... 13 2.1 MCS frameworks ... 13 2.1.1 Framework of Ouchi (1979)... 13 2.1.2 Framework of Hofstede (1981) ... 14
2.1.3 Levers of Control (LoC) framework of Simons (1994) ... 15
2.1.4 Framework of Malmi and Brown (2009) ... 17
2.1.5 Merchant and Van der Stede (2012) ... 18
2.1.6 Adler and Borys (1996) ... 20
2.1.7 Framework of Ferreira and Otley (2009) ... 21
2.2 Discussion of the MCS frameworks ... 23
3 Methodology and study design ... 27
3.1 Methodology ... 27 3.2 Data collection ... 28 3.3 Data alysis ... 30 3.4 Research site ... 31 4 Case findings ... 34 4.1 Case introduction ... 34 4.2 Formal MCS ... 35 4.3 Course of events ... 41
4.4 Using and adjusting the formal MCS ... 45
4.5 Complementing the formal MCS ... 51
4.6 Discussion of the case findings ... 56
References ... 64
Annex A Interview protocol ... 69
Annex B List of analyzed documents ... 74
1 Introduction
When organizations grow, they will face more, bigger and more complex control problems. According to Simons informal controls are then no longer suitable (Simons, 1995). In managers strive for control they introduce more and more controls and eventually build a more formal system of controls to ensure their organization achieves its objectives and the risks to which their organizations are exposed are minimized. But which combination of controls should managers use and how tight should they exert each of these controls? The answers to these Management Control System (MCS) design questions seem to be a recipe for organizational success.
Organizations are founded to serve a certain purpose. Notwithstanding the infinity of different purposes organizations besides the single purpose of making profit might have, organizations have at least one thing in common, they have to be managed. Managed to make sure an organization achieves its objectives efficiently via developed strategies and by influencing employees to act in the best interest of the organization. The process by which management ‘ensures’ that employees carry out organizational objectives and strategies is called management control. Merchant and Van der Stede (2012) suggest that management control is about influencing the behavior of employees to increase probability that organization’s objectives and strategies will be achieved. Both definitions acknowledge three main constructs, the controlling party (management), the controlled party (employees) and organizational objectives and strategies. The tools that management uses to influence employees behavior towards achieving organizational objectives and strategies are called management control systems. The tools represent the fourth construct of importance in explaining the concept of management control. Several authors have defined MCSs, the following descriptions serve only as an example of those definitions: ‘Management control includes all the devices or systems managers use to ensure that the behaviors and decisions of their employees are consistent with the organization’s objectives and strategies. The systems themselves are commonly referred to as the s.’ (Merchant and Van der Stede, 2012, p.5). ‘The formal, information-based routines and procedures used by managers to maintain or alter patterns in organizational activities’ (Simons, 1987, p.358). Management Control Systems are tools to implement strategies by influencing human behavior’ (Anthony and Govindarajan, 2004). ‘The definition of MCS has evolved over the years from one focusing on the provision of more formal, financially quantifiable information to assist managerial decision making to one that embraces a much broader scope of information’ (Chenhall, 2003, p.129). Common view in these definitions is that Management Control Systems are the formal devices, routines or tools.
Management control research on the optimal combination of controls tries to answer the questions described in the first paragraph. Contingency theory assumes the existence of an optimal set or system of controls for each contingency. The objective of management control research based on the contingency theory is to determine what this optimal set or system of controls is for a given contingency or contingency variables (Otley, 1980; Fisher, 1995; Chenhall, 2003). The underlying idea of contingency based research is that there are generalizable contingencies, for which propositions can be constructed that in general should be applied in designing a Management Control System that best suits the organization, its strategy and its internal and external environment to guarantee that an organization reaches its objectives in an efficient way. The fact that contingency based research searches for a MCS that best fits the organization and its contingency variables implies that organizations are not always in a state of MCS fit, but instead are moving on a continuum from a MCS misfit towards a MCS fit (Chenhall and Chapman, 2006; Gerdin and Greve, 2004). Previous management control research on MCS design has provided us with several frameworks and theories to describe and analyze the MCSs organizations have established. Although these frameworks and theories do not prescribe the MCS that bests fits an organizations contingencies or the ultimate recipe for success, there are many examples of frameworks and theories (e.g. Ouchi, 1979; Hofstede, 1981; Malmi & Brown, 2008; Simons, 1994; Merchant & Van der Stede, 2012; Adler & Borys, 1996 and Ferreira & Otley, 2009) that offer useful starting points and connecting factors for further research into MCSs. The purposes of these frameworks and theories are comparable, however they differ for instance in their approach of the MCS. A first difference is described by Graebner and Moers (2013), as they answer the question if we should be looking at an MCS as a system or as a package of controls. The system approach argues that controls can be substitutes or complementary to each other (Otley, 1980) and looks at an MCS as an assembly of different controls that do not act independently, but act together as one system (Wilson and Chua, 1993; Kloot, 1997). The package approach sees a MCS as a package of individual instruments with no interconnection between these individual instruments (e.g. Chenhall, 2003; Graebner and Moers, 2013; Malmi and Brown, 2008; Ferreira and Otley, 2009). A second difference is found in the focus on the MCS as an isolated system or as part of their environment. For instance Kloot (1997) and Simons (1995) tell us that changes in the environment should also be recognized by the MCS. In general the contingency theory states that external factors like environment and culture also influence the number and type of controls part of the MCS (Chenhall, 2003; Graebner and Moers, 2013; Kloot, 1997; Mundy, 2010).
Previous research has also focused on effects of formal controls and has tried to find answers on when and how to use the controls in a formal MCS to maximize performance. For example
according to Ylinen and Gullkvist (2014) projects can be divided over two different types of innovation, exploitative and exploratory. Both types ask for a different form of controls, one being the more formal controls or mechanistic controls and the other the more informal controls or organic controls. One of their conclusions is that both forms of control have positive impact on performance and when those two forms of controls interact, both mitigate the negative side effects of the other. Furthermore Bisbe and Otley (2004) have concluded that an interactive use of formal controls on product innovation enhances performance. Coletti et al. (2005) and Velez et al. (2008) also describe a positive impact that formal controls can have. Formal controls can be seen as trust builders in cooperation. Adler and Borys (1996) and also Wouters and Wilderom (2008) describe how making the MCS more enabling and less coercive can reduce negative effects of formal controls by offering employees the opportunity to repair, by enhancing internal and external transparency and by building in flexibility. This ties in with shifting on the continuums of the five dimensions Auzair and Langfield-Smith (2005) describe and thus with making the MCS less bureaucratic. According Auzair and Langfield-Smith (2005) managers might try to use more flexible and less restrictive controls, more informal forms of control over formal controls, more interpersonal over impersonal controls, more result over action controls and they might try to decrease control tightness. These suggestions are supported by Mundy (2010), Roberts (1990) and Sprinkle (2003), who argue that choosing between tight and loose controls is about balancing between the coercive and enabling role of the MCS and emphasizing or deemphasizing the use of particular parts of the MCS. Previous research also tells us it is important that managers are aware of the different positive and negative effects formal controls might have on their workforce. For example Widener (2004) argues that the strategic use of human capital positively influences the use of personnel controls and other non-traditional controls and according to Adler and Borys (1996) employees favor different types of control based on the nature of their tasks. In addition Picard and Reis (2002) argue that group culture also seems to be an important denominator for acceptance of a specific MCS. Despite previous research the recipe for organizational success has not been undisputedly discovered yet.
In most of the previous management control research into MCSs, it is assumed that managers can make choices with regard to MCS design. For example this seems to be the truth in Simons’ research (1994) on how new top managers use control systems as levers of strategic renewal. It is however hard to believe that this assumption holds true under all circumstances and is applicable for all managers. For instance design choices appear to be more limited in mature organizations and lower level managers often lack mandate for MCS (re)design. Since a vast majority of organizations, also the ones subject of previous management control research, is mature and top
managers represent only a minority of total management, MCS (re)design will most of the times not be a choice managers can make, or at least choices will be limited. In addition to this, the urge for MCS (re)design will only surface if managers experience the MCS is not supportive to their objectives and strategy or does not suit a specific situation. Answering the MCS design questions is however no less important for lower level managers in mature organizations than it is for a top level manager, however for the former it might be more difficult to change the MCS when a specific situation calls for adjustments or complements. These managers might even be restricted by the same MCS for which they experience the need to implement changes. Continuing on these positions questions emerge such as how do these managers use, adjust and complement their MCS when they encounter situations where they experience that the MCS in place does not or not fully support achieving the organizations’ objectives and in what ways do these ‘restricted’ managers enforce and exploit the positive effects and decrease the negative effects the MCS in place has on the organization’s performance, when they are not able to implement changes to the formal MCS in place? To address these questions this research focusses on an innovative project within a ‘mechanistic’ bureaucracy in which the MCS in place clearly diverges from the preferred MCS design one should expect based on previous contingency based research (e.g. Adler & Borys, 1996; Adler & Chen, 2011; Ylinen & Gullkvist, 2014). The main research question of this case study, in which the MCS is investigated as a system of controls, is:
How do managers within an innovative project use, adjust and complement the MCS, when they encounter situations where they experience that the formal MCS in place does not or not fully support achieving the organizations’ objectives and strategies?
At the same time the MCS is investigated as a part of the process of control, because management control is not only about which tools you use, but also about how you use these tools and if employees embrace, accept or oppose the controls exerted. Thus, to be able to gain a better understanding of the MCS, it is necessary to not only look into the MCS itself or to the controlling party that uses the MCS to exert control over employees, but also to look into the controlled party, being the ones confronted with the MCS by management. Follow up questions to the main question, which address these nuances, are:
How do managers cope with any experienced restrictions from the MCS in place while trying to adjust and complement the MCS?
How do managers ensure that the MCS in place and any adjustments and complements made do not only support the achievement of organizational objectives and strategies seen from the controlling party’s perspective, but also from the controlled party’s perspective?
This research paper contributes to existing MCS literature by adding a description of how managers use, adjust and complement the MCS within a specific case study. By doing so this research paper adds to the general knowledge with regard to MCSs and it specifically helps in understanding how managers within a public sector organization deal with situations where they experience that the formal MCS in place does not or not fully support their objectives and strategies and how they build in flexibility in their sometimes rigid MCSs, for instance by increasing or stressing the use of soft controls. As a result this paper also responds in some way to the question asked by Adler and Chen “how can companies use Management Control Systems effectively to support relatively uncertain and creative tasks if in doing so they risk undermining the required employee motivation?” (Adler and Chen, 2011 p.64). By focusing on the MCS as a system of controls and by acknowledging the fact that it is important to study a MCS in its context, as being part of the process of management control, this paper also contributes to existing MCS literature of proponents of the system approach (e.g. Otley, 1990; Wilson & Chua, 1993; Kloot, 1997).
Although some management control and cross-sectional research has focused on the controlling party by studying individual employee’s behavior with regard to MCSs, their attitude towards and acceptance of formal controls and control tightness (e.g. Mundy, 2010; Roberts, 1990; Adler & Borys, 1996; Sprinkle, 2003), MCSs suiting a professional workforce, a specific national culture or a group culture of employees (e.g. Picard and Reis, 2002) and the interaction of budgetary use, task uncertainty and behavior of professionals in managerial positions (e.g. Abernethy and Stoelwinder, 1991), mainstream management control research focusses on how well MCS suits the other contingencies such as organizational structure and size and the organization’s internal and external environment (e.g. Abernethy et al, 2004, Nordenflycht, 2007; King & Clarkson, 2015; Campbell, et al. 2009). As a result most of prior MCS research focusses on the controlling party and the tools they use and less on the controlled party. This paper complements prior research by also taking into account the controlled party. This is not only done by examining the choices managers make in altering or adjusting the formal MCS, but also by looking into complements in the softer part of MCSs and into ways in which organizations and managers anticipate on and react to situations where they experience that the MCS in place does not or not fully support their objectives and strategies. By studying a MCS in its specific case settings and within this broader perspective this paper will provide useful insights in how managers use, adjust and complement their formal MCS
to make sure the MCS supports the organization’s objectives and influences employees to act in the best interest of the organization. These insights provide for a better understanding of how managers use, adjust and complement MCSs and of how organizations and managers anticipate and react on restrictions and possible negative effects of the formal MCS and might even contribute to future theory building. To support this paper’s objective, gaining a better understanding of MCSs, aspects out of the different conceptual frameworks of Ouchi (1979), Hofstede (1981), Malmi and Brown (2009), Simons (1994), Merchant and Van der Stede (2012), Ferreira and Otley (2009) and Adler and Borys (1996) are simultaneously used and combined. Combining aspects of different conceptual frameworks does not only constrain analysis of qualitative data to the limits of a single framework and thus prevents the researcher from manipulating the analysis results to fit the framework of choice, but it also helps in building a more comprehensive view on Management Control Systems.
Most if not all previous research into MCS design assumes MCS design is a choice. This paper contributes to previous research by examining if the managers in this particular case study experience any restrictions imposed by the MCS in place and if they do, how these managers cope with these restrictions. This research also aims at uncovering ways in which the case organization and the managers anticipate and react on any restrictions they might encounter. Where most previous research focuses on design and or redesign, this research also recognizes the possibility that (re)design might not always be a choice. So this research will also provide practical insights that might be useful for organizations and managers beyond the case organization for whom (re)design is also not always a choice. Although conclusions and implications are based on a specific case study, they might provide ideas for how organizations and managers beyond the case organization could deal with situations in which they experience that the formal MCS in place does not or not fully supports the achievement of their objectives and strategies.
This research paper is structured as follows: First a more extensive literature review is given in the next section to provide readers with a better understanding of the constructs, frameworks and theories that are used in developing and answering the research question. This is followed by a description of the methodology used in this research and a short introduction of the research site. Then the case findings are presented and discussed, but only after the case and its settings are further introduced and a description is given of the course of events with regard to the project, on which the case study focusses. In the final section conclusions are drawn and presented and some limitations and directions for possible future research are given.
2 Literature review
2.1 MCS frameworks
In this paragraph a more extensive literature review is given based on several popular MCS frameworks to provide for a better understanding of the different constructs and theories, which are used in developing and answering the research question.
2.1.1 Framework of Ouchi (1979)
Ouchi (1979) describes three mechanisms of organizational control, markets, bureaucracies and clans. The recognition of these three mechanisms is helpful in identifying performance and allocating rewards to individuals, groups of employees or organizational units and it offers guidance to deal with control problems in different ways. Under a market mechanism performance is measured based on prices established by the market. Market control is exerted by the fact that prices reflect actual value. Reciprocity is assumed, meaning markets reward high quality and honesty and punish low quality and dishonesty. Market control is only effective when measurability of the output is high, e.g. only if there is a market price for the output. When however the costs of non-congruent and opportunistic behavior of employees rises, the continuity of the organization might be at risk. Bureaucracies offer a solution by introducing forms of authority that lower the autonomy and thereby limit the risks the organization is exposed to. In bureaucracies performance is evaluated with help from rules and standards. When processes are controlled by rules and standards, knowledge of cause and effect relationship exists. Clan control can result from bureaucracies, while bureaucracies in some way socialize their employees via these rules and standards. Clan control however can also be seen as an individual control mechanism that creates goal congruence via socialization, socialization by referring to the same profession or set of skills and by referring to shared values and beliefs. Although it might seem obvious that the implicit set of rules is less costly compared to information and accounting systems necessary when using a market mechanism, socialization can in fact be more costly. Under each mechanism socialization occurs. Under market mechanisms it is internalization that aligns the objectives of the individual employees with the objectives of the organization. Under bureaucracies compliance can be expected from employees because of the coercive way controls are exerted and employees have given up autonomy and self-control. Clan mechanisms use identification to socialize employees. Training and education affects the skills and values of the individual employees to those skills and values most appreciated by the organization. When the measurability of output is low and cause and effect relationships are unknown input controls like clan controls can offer a solution.
2.1.2 Framework of Hofstede (1981)
The Hofstede framework (1981) is based on four criteria. The first criterion concerns unambiguous objectives and clear knowledge about how to perform the job. If ambiguity exists with respect to the objectives or knowing how to the perform the job, clear common goals must be set to provide clarity to employees. The second criterion is about measurability of output. If output cannot be measured easily output controls are harder to establish and other forms of control must be applied. The third criterion is about knowing which effects interventions have. Interventions are sometimes necessary to keep the organization on track towards goal achievement. Not knowing what the consequences of interventions are makes it difficult to decide on how to intervene. The fourth criterion concerns repetitiveness of activities. If an activity is repetitive instead of a single occurring event, it might be possible to learn from earlier outcomes and experiences. Hofstede (1981) developed six control types based on these four criteria, routine, expert, trial and error, intuitive, judgmental and political control.
Starting from the bottom of figure 1, routine control is when control can be exerted by rules and regulations. This is most common in production and service company settings, where standardized work can be found. Moving up in figure 1 to expert control, work is less standardized because job activities have a less repetitive character. As a result and as the name suggests, information provided by experts is used by the organization. Experts also bring in the necessary skills to exert control. The next type of control is trial and error control. Here the effects of management’s interventions are not clear and a learning approach has to be adapted to control the organization and as the name implies changes are implemented by trial and error. Moving beyond the first three types of controls, which are examples of diagnostic controls, intuitive control is applied when the activities are of a non-repetitive nature and the effects of interventions are unknown. When objectives are ambiguous and there are also problems with measuring the output, judgmental control offers a solution. Political control, the upper type of control in figure 1, deals with control problems when all four Hofstede (1981) criteria are not met. Direct power relationships or hierarchic relations are used to control the organization.
Hofstede (1981) categorizes the management control situations corresponding to the first three control types as being relatively routine, mechanistic situations and argues that a cybernetic model is appropriate in these situations. The management control situations corresponding to the latter three control types are the non-routine, ill-defined and ill-structured situations. Cybernetic models do not suffice in these situations, because they are of a more political nature and depend on values and rituals of the actors. Relying solely on cybernetic controls in relatively routine, mechanistic situations might lead to pseudo-control while human behavior also in these situations does play a role. Using cybernetic controls in non-routine, ill-defined and ill-structured situations might lead to the real issues being covered up. Using cybernetic controls when a situation calls for non-cybernetic is defined by Hofstede (1981) as a type I error. If a situations calls for non-cybernetic controls and non-cybernetic are applied Hofstede (1981) defines this as a type II error. Hofstede (1981) therefore draws the conclusion that one should first carefully study the nature of a situation to determine which model is appropriate. Hofstede (1981) furthermore stresses one should look at activities rather than organizations, because different situations within an organization might call for the use of different models.
2.1.3 Levers of Control (LoC) framework of Simons (1994)
Simons (1994) categorizes the controls present in a control system into four different levers of control. Simons’ Levers of Control (LoC) framework consists of belief systems, boundary systems,
diagnostic control systems and interactive control systems. Belief systems are about core values, for instance communicated by mission and vision statements and credos. Belief systems are designed to direct and motivate employees. They decrease uncertainty about the intended goals and try to create a common goal via shared beliefs. Boundary systems are designed to direct employees. They limit employees to work within a predefined domain of acceptable activities and provide clarity of acceptable behavior by explicitly communicating what behavior is expected from employees and what the risks are that should be avoided by using rules, codes of conduct and procedural forms. Simons (1995) defines diagnostic control systems as the formal information systems that managers use to monitor organizational outcomes and correct deviations from pre-set standards of performance (Simons, 1995). Diagnostic control systems focus on the critical performance variables. They provide direction and motivate employees to enhance performance and are also designed to monitor performance and provide timely feedback to make adjustments. Diagnostic controls however might have a negative effect on motivation when the results cannot be influenced by the employee. Finally, interactive controls are used to deal with strategic uncertainties. Each of the three other levers can be made interactive. Managers involve themselves in the decision activities of subordinates by creating an open dialogue about strategic uncertainties. They thereby focus attention and give direction to employees and by empowering employees interactive control systems also motivates employees to adjust strategy. A disadvantage of interactive control systems is that they consume managers’ attention and are therefore expensive control instruments. According to Simons (1994) control is about balancing between these different levers of control. This balancing is necessary because the organization is confronted with all kinds of tensions while implementing its strategy. Some situations call for empowerment of employees, while others might call for more accountability. Sometimes a top-down approach has to be used and sometimes a bottom approach is necessary to facilitate creativity. The levers of control framework can be used by organizations to deal with the tensions they are confronted with.
Figure 2: Simons, 1994, p.173
2.1.4 Framework of Malmi and Brown (2009)
Malmi and Brown (2009) have developed a framework that gives an overview of different control instruments organizations have at their disposal. They categorized the different controls by their likelihood of them being changed by managers. They recognize cultural controls, planning controls, cybernetic controls, reward and compensation and administrative controls. The more rigid controls, such as cultural controls, that are less likely to change are depicted in the upper part of figure 3. Flexible controls such as administrative controls which are more likely to change are found in the lower part.
Cultural controls are described by looking at the social norms within the organizations to which members are expected to work accordingly to, the values of individual organizational members and groups of employees, clans, and the symbols they use to express their common culture. Planning controls are used to direct employee behavior and to build commitment. Long range planning activities although less clear and not directed at the individual employee provide direction and serves strategic purposes. Involving employees in planning activities such as target setting not only provides employees with direction, but also builds commitment and facilitates goal alignment of personal and organizational goals. Rewards and compensation controls are applied to motivate individuals and groups to improve performance. Usually rewards and compensations are tied to cybernetic controls (budgets, financial, non-financial and hybrid measurement systems). These cybernetic controls are according to Malmi and Brown (2009) used by organizations to measure performance. Cybernetic controls or diagnostic controls are single loop feedback controls that direct employee behavior and facilitate goal alignment, but they also support decision activities by offering benchmark opportunities. As already described under Hofstedes’ framework (1981) Malmi and Brown (2009) also argue that cybernetic controls are not always the preferred
instrument to exert control. The bottom of the framework exists of administrative controls such as governance structure, organization structure and policies and procedures. These controls direct or simply restrict employee behavior by imposing physical constraints or by the division of responsibility and accountability over different organizational members or units.
Figure 3: Malmi & Brown, 2008, p.291
2.1.5 Merchant and Van der Stede (2012)
Merchant and van der Stede (2012) have provided us with a model showing which type of control is preferred given the determinants for a specific quadrant. They distinguish between action controls, result controls, personnel and cultural controls to solve controls problems that cannot be solved by avoiding the potential risk by elimination, automation, centralization of authority or by risk sharing. Action results limit the autonomy of employees. Examples of action controls are administrative controls, physical controls and bureaucratic controls. Result controls as compared to action controls provide employees with more freedom to act while they focus on the output delivered by employees and not on employees’ actions. According to Merchant and Van der Stede (2012) result controls are cybernetic controls that provide single loop feedback by setting performance standards to compare actual performance with. This confirms the descriptions of cybernetic and diagnostic controls given by Hofstede (1981), Simons (1995) and Malmi and Brown (2009). Personnel and cultural controls or social controls are closely aligned with each other and are also known as soft controls. Personnel controls are however less rigid as cultural controls and therefore it is necessary to use personnel controls in combination with other more stable controls,
as argued by Claes (2008) and by Paape (2008). As depicted in figure 4 the determinants in the model are the programmability of tasks, knowing which actions to take, and the measurability of results.
Figure 4: Merchant and Van der Stede, 2012, p.
In the Merchant and Van der Stede framework (2012) there is a more behavioral focus towards control problems. Merchant and Van der Stede (2012) describe the negative consequences control systems might have. Tight controls might for instance result in control problems such as dysfunctional behavior. Merchant and Van der Stede (2012) further argue that control problems exist when employees experience a lack of direction as a result of the goals not being clearly communicated. Employees might also have motivational problems if their personal goals are not aligned with the goals of the organization. And finally, employees might experience personal limitations that prevent them from being able to perform their tasks. An overview of criteria to determine whether or not controls are to be seen as tight is given by Van der Stede (2001). The criteria for tight controls are that management: puts much emphasis on the control instrument, does not easily accept revision during the year, has a detailed interest in the specific instrument, does not lightly tolerate deviations from the targets and is intensively engaged in management control communication.
Action controls are costly and can be classified as tight controls. Higher control tightness is associated with a greater likelihood that the desired outcome will be delivered (Merchant & Van der Stede, 2012). Claes (2008) warns for the negative effects too tight controls might have. Claes (2008) describes four kinds of dysfunctional effects that could result from tightness of controls. Undesired behavior due to goal incongruence, manipulation of results or gaming, delaying tasks and resistance or even frustration. Result controls are less tight than action controls, but although
control tightness is less of a problem according to Merchant and Van der Stede (2012) they can also have disadvantages. For instance when employees know which results are desirable and which are not, friction between performance measures might exist. This friction has the potential to lead to suboptimal performance. Another disadvantage is that results unlike actions are not always only influenced by the individual employee, but external factors might also play a role. When employees are not fully able to influence results and if those results cannot be measured sufficiently, the performance rating of the employee will be biased and this might according to Merchant and Van der Stede (2012) lead to motivational problems. Personnel controls mainly involve human resources activities, such as staff selection, training, and placement practices (Abernethy & Brownell 1997; Widener, 2004). With the use of personnel measures, management aims at appropriately selecting and promoting the organization’s most powerful resource, their human capital. Cultural controls, on the other hand, work through processes of socialization and ensure that the organization’s values and assumptions are shared among its various members (e.g. Flamholtz et al., 1985; O’Clock & Devine, 2003; Sandelin, 2008). Some management control researchers have used the Merchant and Van der Stede framework (2012) to investigate MCS design. For instance Widener (2004) has found empirical evidence for the hypothesis that the use of strategic human capital positively influences the use of personnel and non-traditional controls. Furthermore Kleine and Weiβenberger (2014) suggest that informal control elements, such as personnel and cultural controls, enable management to positively transmit leadership behaviors and affect the development of organizational commitment.
2.1.6 Adler and Borys (1996)
Adler and Borys (1996) tell us that employees’ attitude towards the level of formality is dependent of the nature of the tasks, routine or non-routine. A high level of formality in combination with non-routine tasks causes negative attitude and to some degree a low level of formality in combination with routine tasks also causes a negative attitude. To create a more positive attitude organizations should adjust the level of formality or alter the nature of the tasks in order to move to the quadrants with the combinations of level of formality and nature of tasks that are associated with a positive attitude. Adler and Borys (1996) continue with their theories by introducing two kinds of logic with regard to formal control systems, enabling versus coercive logic. Their model with the four quadrants presented in figure 5 shows that organizations can try to alter the degree of formalization and also have the option of making their formal controls more enabling. In their model a high level of formalization is associated with bureaucracy.
Figure 5: Adler and Borys, 1996, p.78
Adler and Borys (1996) also argue that coercive logic is often presented as inevitable, sometimes even as a necessary evil, but rarely as positive good and they give an overview of positive assessments. For instance if employees see overlap between their goals and those of the organization as a whole they might welcome the potential contribution of formalization efficiency and take pride of their workmanship if those formal controls are appropriately designed and implemented. Formalization can also reduce role conflict and ambiguity by increasing work satisfaction and reducing feelings of alienation and stress. They furthermore argue that previous research has shown that, even for innovation, formalization is not necessarily negative and that this is differently perceived by profit and non-profit organizations. Procedures appear to facilitate innovations if they capture lessons of prior experience and when they help coordinate larger scale projects. By enhancing effectiveness and self-efficacy, employees might even embrace formalization. According to Adler and Borys (1996) high goal congruence is a necessary condition for these positive assessments, but high goal congruence is rarely obtained due to poor employee selection.
2.1.7 Framework of Ferreira and Otley (2009)
Ferreira and Otley (2009) developed their framework based on Simons’ LoC framework. The Ferreira and Otley framework (2009) contains twelve questions, designed to give guidance on the use and the design of a Performance Management System (PMS), which is the name Ferreira and Otley (2009) use instead of MCS. Ferreira and Otley (2009) claim that their PMS framework recognizes not only formal, accounting based controls, but also informal controls. The ‘twelve
questions’-framework is an extended version of the original ‘five questions’-framework Otley had developed already in 1999, which described the identification of the organization’s key objectives, the development of strategic plans, the target setting process, benchmarking the actual results against these targets and the provision of incentives to employees, by rewarding them individually or as a group. The first eight questions are related to the inner core of the framework presented in figure 6.
Figure 6: Ferreira & Otley, 2009, p. 268
Answering these questions is a step by step method for designing a PMS or analyzing an existing one. The first question (Q1) relates to the vision and mission of the organization. Answers to this question should describe how the organization tries to achieve their overarching objectives and satisfy their stakeholders. The second question (Q2) relates to the identification of Key Success Factors (KSFs). Answers should reveal which key factors are important for the organization’s future success. The third question (Q3) relates to the organizational structure. Answers will give a description of the structure of the organization, the allocation of authority for decision making and the distribution of accountability and responsibility over the organizations’ units. The fourth question (Q4) relates to strategies and plans. Answers should provide a clear picture of how the organization plans to ensure its success. The fifth question (Q5) relates to the Key Performance Measures. Answers will present the most important performance measures, which are derived
from the organization’s objectives, its KSFs and the strategies and plans. The sixth question (Q6) relates to the target setting process. Answering this question helps in determining which are the desired levels of performance on each of the organization’s performance measures and in making sure that those levels of performance are appropriate and challenging. The seventh question (Q7) relates to performance evaluation. Answers to this question will show if and how the organization evaluates individual, group and organizational performance and what the levels of subjectivity and informality are in the evaluation process. The eight question (Q8) relates to reward systems. This questions deals with the (non-)financial rewards and penalties employees gain by meeting or failing to meet performance targets or other evaluated performance aspects. The last four questions are related to the circle surrounding the inner core of the framework presented in figure 6. The ninth question (Q9) relates to information flows, systems and networks. Answers give an insight into how the operation of the PMS is supported by information flows, systems and networks and how results are communicated throughout the system. The tenth question (Q10) relates to PMS use. Answers to this question explain how the organization uses the PMS and if there are differences in the use of the PMS at different hierarchical levels. In contrast to the first ten ‘what’ questions, the last two questions in the framework of Ferreira and Otley (2009) are ‘how’ questions. The eleventh question (Q11) is related to PMS change. Answers should reveal how the PMS is altered in the light of organizational changes, in a reactive or a proactive manner. The twelfth question (Q12) is related to strength and coherence. Answers should provide an analysis that explains whether and how all the components of the framework and the controls in the PMS are balanced and complementary to each other and if this is consistent with the ways in which the PMS is used.
2.2 Discussion of the MCS frameworks
The distinction Ouchi (1979) makes between output, process and input control provides a theoretic framework for control. The two main criteria used by Ouchi (1979) to determine which type of control could offer a solution for control problems on hand are the measurability of output and knowledge of cause and effect relationships. Although far from offering a universal solution, the Ouchi framework (1979) provides useful insights in the relationship between the measurability of output and the cause and effect relationship of this output.
In the process that led Hofstede (1981) to the identification of six control types, which can be roughly divided in three cybernetic and three non-cybernetic control types, Hofstede (1981) used criteria to determine which control type could offer a solution for control problems on hand. The criterion of measurability of output corresponds to Ouchi’s (1979) criterion and the criterion of
knowing which effects interventions have resembles Ouchi’s (1979) criterion of knowledge of cause and effect relationships. The two other criteria Hofstede (1981) uses in addition to Ouchi (1979) are having unambiguous objectives and clear knowledge about how to perform the job and the repetitiveness of activities. The less each of the four criteria are met, makes solely relying on cybernetic controls problematic as pseudo control can arise. Hofstede (1981) warns for the creation of pseudo control, which he refers to as a type I error. A type II error, which is focusing on non-cybernetic controls while the criteria ask for the use of more cybernetic controls. The sweeping techniques used to improve management control processes under judgmental and political types can also turn out to be problematic to the organization.
Simons (1994) provides us with a framework that categorizes the controls present in a control system into different levers of control, but does not tell how to balance the levers given a certain contingency. Focusing too much on one of the levers can cause serious control problems. Focusing too much on interactive controls may destabilize activities as a result of increased uncertainty. Too much focus on boundary controls might make the organization rigid and inflexible. A focus on diagnostic controls might cause the organization to drift away from its real key success factors. Nevertheless Simons’ levers of control framework (1994) is helpful in analyzing Management Control Systems. The interactive control mechanisms, identified by Simons (1994) and incorporated in his framework, give the framework its dynamic nature, because these interactive control mechanisms enable organizational learning and acknowledge the need for adaptation in a continuously changing world. Mundy (2010) stresses the importance of interactive control systems, identified and acknowledged by Chenhall and Morris (1995), Simons (1995) and Ahrens and Chapman (2004), by arguing that next to control over the attainment of organizational goals Management Control Systems have a second complementary role, which is interdependent on the first role, enabling employees to search for opportunities and solve problems. According to Roberts (1990) and Sprinkle (2003) these competing roles necessitate a balance between taking actions congruent with the organization’s goals while also giving employees sufficient autonomy to make decisions. Van der Stede (2001) refers to this as the problem of loose-tight controls. Control tightness in his opinion is not only about how strict a single control measure is applied. Tightness also refers to the total mix of controls applied in a MCS. According to Van der Stede (2001) a MCS composed of more different control measures is supposed to be tighter.
Malmi and Brown (2009) used the LoC framework to build their own framework, which uses a management control package approach in which they describe five types of controls. The Malmi and Brown framework (2009) is also more a blueprint for the structure of a MCS then a theory which prescribes which package suits a certain contingency. The control types described by Malmi
and Brown (2009) resemble Simons’ levers of control (1994). For instance administrative controls are similar to Simons’ boundary controls such as separation of duties, cultural controls such as values can be part of Simons’ belief systems and cybernetic controls correspond to Simons’ diagnostic controls. It is not only the simplicity of this framework that makes it a useful tool, but especially its practical relevance. The framework provides guidance to managers and helps them to focus their effort, because the framework has identified the likelihood that controls can be changed by managers.
Although Merchant and Van der Stede (2012) also do not tell which system of controls is optimal in a particular setting, they do argue that personnel and cultural controls can be used to address control problems like lack of direction, lack of motivation and lack of ability. Personnel and cultural controls are introduced by Merchant and Van der Stede (2012) as being more implicit instruments then action and result controls and according to Kleine and Weiβenberger (2014) they can thus be denoted as being more informal in nature. Although it can be argued that personnel and cultural controls are part of the formal MCS, this paper argues that personnel and cultural controls are informal control elements that can be used to complement the formal MCS. This opinion is backed up by for instance Kleine and Weiβenberger (2014) and Merchant and Van der Stede (2012), who both describe personnel and cultural controls as informal control elements. Adler and Borys (1996) positive and negative assessments of the degree of formality do not tell us what type of controls should be used but how these controls should be used in order to sort the wanted effect. They argue that a lower degree of formality and using more enabling controls over coercive controls will solve control problems related to employees’ response and acceptance of control systems. A lower degree of formality ties in with making the MCS less bureaucratic by shifting on the continuums of the five dimensions Auzair and Langfield-Smith (2005) describe. Auzair and Langfield-Smith (2005) define a MCS over five dimensions which all represent a continuum form being less to more bureaucratic. The five dimensions they describe are action/result controls, formal/informal controls, tight/loose controls, restricted/flexible controls and impersonal/interpersonal controls. They suggest that the level of bureaucracy of the MCS depends on strategy, service process type and life cycle stage and is thereby a design choice. Based on Adler and Borys’s (1996) propositions of how formal control systems can be made more enabling or less coercive, Wouters and Wilderom (2008) show how a performance measurement system can be made more enabling. They argue that performance measurement systems can be made more enabling by offering the opportunity to employees to repair, by way of internal and external transparency and by building in flexibility. Groen’s enabling employees (2011) shows how these propositions work out in a specific case. Groen’s explanations for why these propositions
work out so well are building on existing performance measurement experience of employees, allowing experimentation with measures, transparency of the PMS and professionalism of employees. With regard to the presence of a professional workforce in her case, the question of how to build or shape such a professional workforce is not asked. Groen et al. (2012) did search for answers to the question why employees in that case took more initiatives to improve their performance. The main construct they used to explain this was social pressure. In making solely use of the construct of social pressure they leave plenty of room for other explanations and the question of how to build or shape such a professional workforce remains unanswered. Adler and Borys (1996) have stated that high goal congruence is a necessary condition for positive assessments of formal controls. High goal congruence could for instance be an explanation for the presence of a professional workforce in Groen’s (2011) case.
Ferreira and Otley’s (2009) framework can be very helpful in designing and analyzing a performance measurement system. The first eight out of twelve questions the framework encompasses provide for a logical sequence of steps to come to a description of a performance measurement system. It is however the last four questions, that empowers the framework. Information flows, systems and networks are the glue that hold the different parts of the PMS together and it is the way an organization uses its PMS and adapts it to organizational changes that gives meaning to the PMS and determines the strength and coherence of the PMS.
The discussion of MCS frameworks tells us that Management Control Systems are not only about what tools organizations and managers use, but also about how they combine and use those tools to encourage, enable and enforce employees to act in the organizations best interest.
3 Methodology and study design
In this section first a description of the methodology used in this research is given. Then a description follows on how data is collected and analyzed. This should provide readers with a clear understanding of which research approach has been chosen and why. This is followed by a short introduction of the research site, a description of the case settings and an explanation of its relevance for answering the research question.
3.1 Methodology
Scientific research can be roughly divided in two research methods, quantitative research and qualitative research. The former starts with constructing a hypothesis, proposing the existence of a relationship between two or more variables. As argued by Gephart (2004) these relationships then will be tested through measurement and data analysis. According to Vennix (2011) researchers using a quantitative approach then try to reject the hypothesis in order to achieve progress and growth of our knowledge. The latter research method instead yields non-numeric or qualitative information. Qualitative research ‘allows the explorations of people’s beliefs, experiences, behavior, interactions, perceptions, attitudes, feelings and motivations and to understand how they are formed. It provides in depth information which can be used in its own right or to determine what attributes will subsequently be measured in quantitative studies.’ (Gephart, 2004, p.2). For this research into the remaining MCS design choices lower level managers and managers in mature organizations with an established MCS have and into ways in which these organizations and managers can enforce or exploit the positive effects and decrease the negative effects of the formal MCS, a qualitative approach is chosen as the goal of this research is to get in-depth insights and better understanding of how formal MCSs are used and its effects perceived in a real-life setting. Gaining more in-depth information may according to Straus and Corbin (1990) be difficult to convey quantitatively. As the focus of qualitative research is on a social phenomenon within its real-life context, a case study is an appropriate method (Yin, 1989). Important sources of information in a case study are interviews. According to Silverman (2011) interviews are a preferred method if the meaning of a concept has to be observed in the field. An interview creates the potential for a richer understanding of organizational phenomena than can be examined by a statistical analysis (Lee et al., 2007) and as Vennix (2011, p. 99) stated: ‘the purpose of qualitative research is to reconstruct the meanings people assign to the reality in order to understand their actions’. Which means meaning is given to gathered information. By comparing the responses of military managers, their opinions about and experiences with using, adjusting and complementing
the formal MCS, similarities and differences can be found and through interpretation meaning can be given to the gathered information.
3.2 Data collection
Within a case study many sources can be used to collect data. According to Yin (1989) interviews, documentation, direct and participant observations, archival records and physical artifacts can be used. There are three different types of interviews, in-depth interviews, semi-structured interviews and structured interview. The research questions in this study are answered by making use of semi-structured interviews. In a semi-semi-structured interview questions are pre-established, but flexibility for deviation from these questions during the interview is provided for (Schoenberger, 1991), to be able to anticipate to the answers given, give room for subjects that arise during a conversation and in order to let interviewees tell their own story and go more in-depth on the subject. For the interviews conducted in this research interview protocols were developed to ensure that in every interview the same subjects are discussed and to prevent from suggestive questioning, while at the same time providing room for gaining insights, other than the ones anticipated on based on any biased personal experience and expectations of the researcher. This approach also improves the reliability of the interview data. The interview protocols can be roughly divided in three parts. The first part consists of general questions concerning the interviewees’ position in relation to the organization and the case. The second part consists of questions about the established MCS. The last part consists of questions related to the interviewees’ experiences with the MCS during the project and their management control actions throughout the project. The interview protocols are added as annex A to this research paper.
All five interviews lasted between 45 and 60 minutes and were held in quiet and private settings, to create a sphere where interviewees felt free to be honest and open when asked about their personal opinions on the subject matter. The interviews were recorded with a voice-recorder and recordings were then processed to transcripts. Occasionally interviewees were asked to answer any additional questions, to check the transcript and to confirm correctness of displayed interview data.
Interviewees were selected by the researcher based on acquired knowledge, being an employee of the case firm, of the organizational structure and the project’s key players. For the selection to be representative for the case-organization’s management and to maintain quality and depth in the
case-study both line managers and project officers, working on different organizational levels and in different departments, were selected. The following key players were selected:
- Interviewee 1: (Former) Deputy Chief of Defense or in Dutch P-CDS; Age 58; 38 years of working experiences within the military; As co-chairman of the High Level Steering Group three star (HLSG***) responsible for planning and coordination of (bi-/multi-) national projects with counterparts of foreign Ministries of Defense and for preparing military plans for (political) decision making.
- Interviewee 2: (Former) Deputy Director of Plans at the Central Staff of the Ministry of Defense; Age 53; 35 years of working experiences within the military; As Deputy Director of Plans representing the former co-chairman of the High Level Steering Group one star (HLSG*) and responsible for developing effective and efficient plans that are both operational feasible as well as financial sustainable.
- Interviewee 3: Director of Training & Operations at the Staff of the Royal Netherlands Army; Age 52; 33 years of working experiences within the military; Co-chairman of the Army Steering Group (ASG) responsible for planning and coordination of (bi-/multi-) national projects with counterparts of foreign Army staffs.
- Interviewee 4: (Former) Deputy Chief of Plans Department at the Directorate of Training & Operations at the Staff of the Royal Netherlands Army; Age 45; 26 years of working experiences within the military; Now still as lead project officer of the Project Team (PT) Business Case (BC) ‘Taurus’ responsible for development of BC ‘Taurus’ and the planning and coordination of the project with German counterparts.
- Interviewee 5: Project Controller within the Department of Finance and Control at the Staff of the Royal Netherlands Army; Age 49; 29 years of working experiences within the military; As project controller of the Project Team (PT) Business Case (BC) ‘Taurus’ responsible for development of BC ‘Taurus’ and the financial planning and coordination of the project with German counterparts.
Although interviews are the main source of information, a documentary analysis on at least the minutes of the HLSG, the ASG and the PT BC ‘Taurus’, on the draft and final versions of the ratified Memorandum of Understanding and Technical Agreement between the Ministry of Defense of the Kingdom of The Netherlands and the Ministry of Defense of the Federal Republic of Germany regarding the integration of parts of both nations’ armed forces, which includes a draft Financial Framework, will be conducted, to gain a better understanding of the interview data and its context. ‘For case studies, the most important use of documents is to corroborate and augment evidence from other sources.’(Yin, 1989, p.87). Access to these documents on the subject
matter provided by the representative of the Royal Netherlands Army’s Finance and Control Department in the PT BC ‘Taurus’ enables enrichment of this paper’s case findings with citations. For reasons of confidentiality, instead of the analyzed documents themselves, only a list of analyzed documents is added to this research paper as annex B. Access to these documents to thesis reviewers will be provided only on request, to ensure conformity with academic regulations regarding the thesis process.
3.3 Data alysis
The lines in the interview transcripts were first numbered and then categorized. Categories are derived from a combination of several constructs and theories discussed in the literature-review on the different theoretical frameworks. In several occasions line numbers were assigned to multiple categories. The coding of categories is designed to provide structure for data analysis and a clear presentation of case findings. The coded categories are structured and merged in a model, which is presented in figure 7. The coding sheet including remarks, which provides an overview of the constructs used in categorizing is presented in Annex C. To support analysis of all the responses assigned to a particular category, the auto filter function in excel was used. Results of the analysis are presented in section 4 of this thesis. Occasionally relevant quotes were selected to illustrate the contents of this thesis.
3.4 Research site
The research will be conducted within the Dutch Armed Forces. The supreme command of the Dutch Armed Forces resides with the Government of the Netherlands. On behalf of the government the Dutch Armed Forces have a monopoly on the use of violence in support of execution of their main tasks, which are to defend the territory and sovereignty of the Kingdom of the Netherlands and its interests in the world, to defend the territory and sovereignty of its NATO allies, to protect and advance the international rule of law and to support civil authorities in law enforcement, emergency response and humanitarian aid. The Dutch Armed Forces as part of the Ministry of Defense employs approximately 58,000 personnel and is one the biggest employers in the Netherlands. The Ministry of Defense comprises the Ministry itself (Central Staff), the four armed forces (the Royal Netherlands Navy, the Royal Netherlands Army, the Royal Netherlands Air Force and the Royal Netherlands Military and Border Police), Support Command and the Defense Materiel Organization. The Chief of Defense as the Armed Forces Commander represents the military part of the Ministry in the Central Staff. In figure 8 an organization chart of the Ministry of Defense is presented. The Royal Netherlands Army, depicted in the central left lower part of the chart, comprises a diversity of combat units, combat support units, combat service support units and a staff element.
Figure 8: Organization chart Ministry of Defense ( www.government.nl/ministries/ministry-of-defence/contents/organisation-chart)
Organizations in the Dutch public sector are commonly classified as bureaucratic organizations. The Dutch Armed Forces in particular are not exempted from this public opinion, but perhaps
even seen as traditionally more bureaucratic than other Dutch public sector organizations. According to Mintzberg’s (1980) description of organizational structures this military organization is a perfect example of a traditional bureaucracy, while it has a large apparatus or staff and is characterized by formal rules subject to procedures, by its hierarchic structure and by distribution of responsibility. According to contingency based research the high level of formal controls present in bureaucratic organizations diverges from the urge for more enabling (formal) controls for those organizations striving for innovation (Adler & Borys, 1996). The geopolitical situation and growing safety issues and incidents on the borders of Europe and even on European soil anno 2016 in combination with many years of restructuring and severe budget cuts, compels the Dutch Armed Forces to be innovative despite its bureaucratic nature.
The urge for innovation is partly met by the Dutch Armed Forces by further exploring international military cooperation. International military cooperation is not a new phenomenon. History has shown the forging of military alliances and coalitions during almost every war or armed conflict and in present time it is almost unthinkable the Netherlands would launch military missions or campaigns without any coalition partners or missions other than those under responsibility of Alliances as NATO or United Nations. It is mostly the membership of the Netherlands in these two alliances that has stimulated multinational training and cooperation during exercises of Dutch Armed Forces together with allied nations over the past decades. Most of the cooperation with regard to training and exercises is however of ad hoc nature. Combining business operations as a more structural way of cooperation was achieved with the establishment of a bi-national unit in 1995, as a result of a treaty two previously independent corps were amalgamated to form 1 German/Netherlands Corps or 1(GE/NL)Corps. During the past two decades restructuring within NATO forced 1(GE/NL)Corps to transform into a High Readiness Forces (Land) Headquarter (HRF(L)HQ) and a later to transit into a multinational Land Component Command (LCC). None of the past forms of military cooperation however included the integration of armed forces. The particular project under study, Business Case ‘Taurus’, is in that way an innovative project. ‘Taurus’ concerns the drafting and ratification of a bi-national agreement relating to deep integration of Dutch and German armed forces armored units. Although Germany and The Netherlands share a history of military cooperation as described before, the level and extend of cooperation induced by the integration of armed forces under ‘Taurus’ can be defined as innovative, at least evolutionary (exploitative) and perhaps even revolutionary (explorative) (Ylinen and Gullkvist, 2014).
This research started three months after the bilateral agreement between the Ministry of Defense of the Kingdom of the Netherlands and the Ministry of Defense of the Republic of Germany on
military cooperation and further integration of armored units, among others, was ratified and covers only the period of project planning, as the execution phase of the project is still ongoing. Despite the fact that the future has to prove how successful BC ‘Taurus’ is, the preparatory phase of the project was completed at ratification of the bilateral agreement on February 4th 2016 and
