Self-determination theory and performance measures : a case study from the retail industry

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Self-Determination Theory and

Performance Measures: A case

study from the retail industry.

Faculty Economics and Business Administration

Name: J.C. (Jordy) de Reuver Student number: 5776619

Master: Accountancy and Control: variant Control

Date: 23 June 2014

Thesis : Master thesis

Field of study: Management accounting research Supervisor: Mw. Dr. Ir. B.A.C. (Bianca) Groen

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Abstract

Relevance – The relevance of this paper is to show the connection between the use of a performance measurement system and the motivation of shop managers and employees within a retail organization.

Research Goal – The goal of this paper is to investigate if organizations use performance measures in a coercive (enabling) way, if this will lead to employees and lower managers being more controlled (autonomous) motivated.

Methodology – This case study is done with qualitative research within a large Dutch store chain. I conducted interviews with the shop managers and employees of two specific clothing shops. After the interviews I used a documentaryanalysis to analyze the results.

Discussion – The performance measurement system within this organization is used in a wrong way, which lead to a coercive type of bureaucracy. However, the people working in this organization are mainly autonomously motivated. If they want to use the performance measures to motivate their shop managers and employees they should focus on the five issues provided by Otley.

Research implications/limitations – The research suggests that performance measures in this organization created a coercive type of bureaucracy, but another use of performance measures or other reward systems could result in an enabling type of bureaucracy. Another way of using the performance measures or the reward system is discussed.

Practical implications – Several other store chains with the same characteristics in the retail sector may benefit from the results described herein: to create a non-hierarchical organization and make shop managers and employees part of the organization. It is especially useful if the performance measures do not motivate the employees and shop managers.

Originality/value – This is the first paper concerning the connection between performance measures and the Self-Determination Theory from a bottom-up approach in a business to customer organization.

Keywords – Performance measures, Retail organization, Self-Determination Theory, Type of bureaucracy, Dutch, Store chain, Business to customer organization.

I want to thank the shop managers and employees of the case study firm for participating in this research. I also want to thank Rui Vieira for his final comments on this research. I especially want to thank Bianca Groen for all her help from the outset, she was real helpful and supportive.

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1. Introduction

Performance measures has been widely implemented within organizations. Traditionally, companies have used accounting numbers such as costs and revenue, profit, ROI, Residual Income as performance indicators for managers, from a top-management perspective to align the interest of employees/managers with those of the stakeholder (Wouters and Wilderom, 2008). The past few years new measurements have emerged, this increased the use of non-financial performance measures to measure performance of employees/managers (Rom and Rohde, 2007). Performance of managers and employees are no longer measured only based on financial performance, but non-financial performance will also be taken into account in the performance measures. Some examples of non-financial performance measures are customer satisfaction, stock level, timeliness and accessibility. The implementation of new measurements has not only increased the use of non-financial performance measures, but has also made the control on managers and employees more rigorous. With the new measurements everything could be linked together, measured and controlled (Wouters and Wilderom, 2008).

According to Adler and Borys (1996) the use performance measures play an important role in the formalization of the type of bureaucracy. They distinguish two types of bureaucracy: first of all the enabling type of bureaucracy. Enabling is the positive view of the human outcomes of bureaucracy, it provides the needed guidance and clarifies responsibilities. Furthermore it makes employees feel and be more effective (Adler and Borys, 1996, p.61). An enabling bureaucracy seeks to put employees in a position to deal directly with the inevitable contingencies in their work (Ahrens and Chapman, 2004, p.277). Secondly, the coercive type of bureaucracy. Coercive is the negative view of human outcomes of bureaucracy, it hinders creativity, stimulates dissatisfaction and it demotivates employees (Adler and Borys, 1996, p.61). Coercive use refers to the stereotypical top-down control approach that emphasis centralization and preplanning (Ahrens and Chapman, 2004). In this research I want to investigate the role of performance measure on the formalization of the type of bureaucracy and the influence of the type of bureaucracy on the motivation of people who are working in the retail sector. Eventually I will connect the use of performance measures to the way people are motivated. I will do that by looking to the Self-Determination Theory developed by Ryan and Deci (2000b). With the Self-Determination Theory I will focus on the social-contextual conditions that facilitate versus forestall the natural processes of self-motivation and healthy psychological development (Ryan and Deci, 2000b).

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5 According to Ryan and Deci (2000b) all human beings share three basic innate psychological needs: need for autonomy i.e. right to determine what you do yourself, need for competence i.e. developable abilities of people to choose and apply appropriate procedures to achieve the right results, and the need for relatedness i.e. the feeling that you belong together. In addition we will distinguish two types of motivation: autonomous motivation and controlling motivation. Autonomous motivation of human beings reflects personal interest and values. Controlling motivation of human beings is that what someone feels compelled to do by external or internal pressure.

Due to technological developments the availability of information has improved. This has change the way performance of employees could be measured, they became more complex and a more interesting. However, most research on performance measures is done for senior management, in this research I will investigate the influence of performance measures on employees and lower managers, so a bottom-up approach instead of a top-down approach. This research will provide an insight if managers and employees get motivated by performance measures or if they see the performance measures as a tool for higher management to control their employees, furthermore it will show how managers and employees respond to performance measures if there rewards does not depends on these performance measures. This research will particularly focus on shop managers and employees in the retail sector, namely the clothing industry. The clothing industry is interesting because this market is subject to constant pressure from competitors and online sales, thereby they are very dependent on external factors such as economic development, clothing collection etc. Therefore performance can vary considerably over time and the influence of shop managers or employees on performance can be small, but they do get assessed on these performance.

The next question is the central issue of this research, how do managers and employees in the retail sector get motivated by the performance measures used by its management?

The Self-Determination Theory has much support from laboratory experiments and some field studies, but almost of all of these field studies were in domains other than business to customer organizations (Gagné and Deci, 2005). This research will add contribution to prior research by showing how the Self-Determination Theory works within a business to customer organization. This research will connects the motivation of employees and managers of different clothing shops with the use of a performance measures used by its higher management. Thereby this research will show which type of bureaucracy the higher managers

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6 create with their performance measures and if the performance measures achieve the same purpose for managers and employees as for themselves.

The outline of this paper will be organized as following. First, the theoretical background of this research will be discussed including the proposition of this research. Secondly, the case study and the research methodology will be described. Thirdly, the results of the case study will be presented for both stores separately and finally the discussion including the conclusion, the limitations and some suggestions for future research will be discussed.

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2. Literature review and hypotheses

In this section I will explain the role of performance measurement systems within organizations, I will describe the characteristics of performance measurement systems and give an explanation of the development and implementation of performance measurement systems in the retail sector. After performance measurement systems are fully explained I will show which impact performance measures can have on the type of bureaucracy formalized within organizations. I will distinguish two types of bureaucracy: enabling and coercive and explain the framework of Adler and Borys (1996) which provides a framework for the understanding of how organizations seeks to refine work processes without necessary implications for the hierarchy. In the third subsection I will explain the Self-Determination Theory of Ryan and Deci (2000b) and the relationship between the Self-Determination Theory and performance measures. In the last subsection I will explain the connection between the Self-Determination Theory and both types of bureaucracy.

2.1 Performance Measurement Systems

Control is one of the basic pillars within organizations, a good way of keeping control within the organization is by making use of performance measurements. According to Neely et al. (1995) a performance measurement is seen as the process of quantifying the efficiency and effectiveness of an action, where measurement is the process of quantification and the action leads to performance. A performance measure can therefore be defined as the metric used to qualify the efficiency and/or effectiveness of an action. A performance measurement system can be defined as the set of metrics to qualify the efficiency and effectiveness of an action (Neely et al. 1995).

Performance measurement systems can support organizations to be more effective and efficient than their competitors (Neely et al. 1995). In the retail sector, organizations seek after high gross margins and high customer service levels or customer satisfaction (Mattila et al. 2002, p. 340). The effectiveness of an organization refers to the extent in which customer requirements are met and efficiency of an organization refers to the way organizational financial resources can help to provide customer satisfaction. So an effective and efficient organization should lead to higher customer satisfaction (Neely et al. 1995). Thereby, according to Ostroff and Schmidt (1993) organizations that are efficient will reduce costs which will lead to higher gross margins. For example, in the retail sector efficient

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8 organizations can reduce costs through a decrease of field failure or a decrease of warranty claims (Neely et al. 1995)

Traditionally performance measures are based on accounting numbers such as cost and revenue, profit, residual income, ROI etc. However, instead of developing these financial performance measures, other authors argued that organizations should focus on a set of multiple performance measures (Neely et al. 2000). They came up with new performance measurement systems with both financial and non-financial performance measures, for example the performance matrix (Keegan, et. al., 1989), the performance pyramid (Lynch and Cross, 1991), but the most famous and widespread is Kaplan’s and Norton’s Balanced Scorecard, see figure 1. Kaplan and Norton (1992) argued that the shortcoming of financial performance measures can be overcome if a firm adopts a balanced set of measures. In their framework the balanced scorecard Kaplan and Norton came up with four performance perspectives:

1. Financial perspective; How do we want our stakeholders to view us?

2. Internal business perspective; What are the processes at which we should excel and how can we continue to improve our processes to create value?

3. Customer perspective; How do we want our customer to view us?

4. Innovation and learning perspective; How do we support, satisfy and develop our employees into excellence?

Although these frameworks can create effectiveness and efficiency within an organization, the adoption of such frameworks can be challenging because they are simply frameworks (Neely et al. 2000). Therefore, a crucial factor for implementing a performance measurement system is to decide which performance measures should be adopted in their

Figure 1, source: Trump University

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9 performance measurement system (Neely et al. 2000). Otley (1999) designed five main sets of issues that need to be addressed in developing a framework. He phrased five question which reflect the managerial perspective. These five questions appear to remain constant, but the organization needs to develop continually new answers to them, because organizations and strategies are constantly changing (Otley, 1999). The five question are as follows:

1. Objectives; what are the key objectives that are central to the organization’s overall future success, and how does it go about evaluating its achievement for each of these objectives? This question Deals with the goals of the organization and the measurement of the goal attainment (Otley, 1999).

2. Strategies and plan; what strategies and plans has the organization adopted and what are the processes and activities that it has decided will be required for it to successfully implement these? How does it assess and measure the performance of these activities? This question is strongly related to the first question, but deals more with the practical issues of business processes and operational management (Otley, 1999).

3. Target setting; what level of performance does the organization need to achieve in each of the areas defined in the above two questions, and how does it go about setting appropriate performance targets for them? This is more a traditional question, but very important for an organization given the practice (Otley, 1999).

4. Rewards; what rewards will managers (and other employees) gain by achieving these performance targets (or, conversely, what penalties will they suffer by failing to achieve them)? This question deals with the rewards of managers and employees, important is to avoid short-termism driven by financial incentive schemes (Otley, 1999).

5. Information flows; what are the information flows (feedback and feed-forward loops) that are necessary to enable the organization to learn from its experience, and to adapt its current behavior in the light of that experience? The last question deals with the connection between the ‘learning organization’, employee empowerment and emergent strategies.

As described above, the development and implementation of a performance measurement system is crucial and there is not a good universal performance measurement system for organizations, but organizations in the same industry often have similar characteristics, therefore it is possible to set commonly used performance measures for an industry. Mattila (1999) described the commonly used performance measures in the retail sector for seasonal fashion. To start Mattila et al. (2002) came up some critical success factors

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10 associated with seasonal fashion products in the retail sector, these critical success factors are as follows:

 Forecast accuracy

 Process lead-time

 Offshore/local sourcing mix

 Up-front/replenishment buying mix

The critical success factors have a significant impact on the performance of a retail organization for seasonal fashion and are mainly managed by senior management so the influence of lower managers and employees on the critical success factors is minimized (Mattila et. al. 2002). To measure the performance of lower managers and employees, Mattila (1999) came up with commonly used measures for retail performance. The commonly used measure are as follows:

 Service level, the availability of the assortment in the store.

 Lost sales, caused by stock outs, is useful in planning but almost impossible to measure.

 Product substitute percentage.

 Gross margin, considers only selling price and purchase price.

 Gross margin return on inventory (GMROI), combines profitability and inventory investments.

 Stock-turn, annual sales divided by average annual inventory.

 Sell-through percentage, percentage of goods sold for the normal selling price so without any discount.

2.2 Type of bureaucracy: Enabling and Coercive

The development and characteristics of a performance measurement system can result in two conflicting types of bureaucracy: enabling and coercive (Adler and Borys,1996; Wouters and Wilderom, 2008; Robson, 2005). Enabling is the positive view of the human outcomes of bureaucracy, it provides the needed guidance and clarifies responsibilities. Furthermore it makes employees feel and be more effective (Adler and Borys, 1996). An enabling bureaucracy seeks to put employees in a position to deal directly with the inevitable contingencies in their work (Ahrens and Chapman, 2004). Coercive is the negative view of human outcomes of bureaucracy, it hinders creativity, stimulates dissatisfaction and it demotivates employees (Adler and Borys, 1996). Coercive use refers to the stereotypical

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top-11 down control approach that emphasis centralization and preplanning (Ahrens and Chapman, 2004). According to the German sociologist Max Weber, the amount of individual freedom is an important factor for creating a type of bureaucracy, ( Swedberg and Agevall, 2005).

According to Adler and Borys (1996) the formalization (written rules and procedures governing employee activities) process for an enabling or coercive bureaucracy consist of four generic features that distinguish deskilling from usability approaches, namely repair, internal transparency, global transparency, and flexibility.

- Repair deals with the fear of managers in the opportunism of his employees. Managers fearing more the opportunism of his employees instead of their contribution when something unexpected will happen. Those who do will adopt a deskilling approach, where the equipment is specially designed to reduce loss when something will happen (Adler and Borys, 1996). Repair will separate the routine work from the non-routine work and fulfills a differentiated function (Ahrens and Chapman, 2004, p. 279). - Internal transparency deals with the internal functioning of equipment and is related

to repair. Equipment will be designed to reduce reliance on users’ skills, because there is little reason to provide users with any visibility into its internal workings (Adler and Borys, 1996, p.72).

- Global transparency deals with the functioning of equipment in a much broader way. Global transparency refers to the intelligibility for employees of the overall context in which the organization is operating. It is a way of making organizational processes globally transparent, for example by using budgets (Adler and Borys, 1996, p.73). - Flexibility deals with the discretion of the organizational members’ over the use of

control systems (Ahrens and Chapman, 2004, p. 280). The operational function is something that cannot be automated, therefore it is important to get a good co-operation (Adler and Borys, 1996, p.74).

I just have identified the distinction between enabling and coercive formalization and I have shown the features that distinguish between good and bad procedures as experienced by employees. Besides the distinction between the type of formalization we can distinguish the degree of formalization. The degree of formalization can be conceptualized in the terms of the Aston group (Pugh and Hickson, 1976) as the extent of formalized rules governing work behaviour and the way they are enforced. With this two dimension it is possible to place organizations in a certain typology. This typology is shown in figure 2 below, with on one dimension the type of formalization and on the other dimension the degree of formalization.

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12 The typology of organizations overcomes two problems with the conventional, the one-dimensional contract of organic forms of organizations and the mechanistic/bureaucratic forms of organizations (Adler and Borys, 1996, p.78). Sometimes it is difficult to place the formalization of an organization in one of the two types, according to Bernard’s (1938) notion, between the two types of formalization there is a “zone of indifference”, where the formalization have neither a positive nor a negative response.

2.3 The Self-Determination Theory

As we have seen above, control is an important goal for organizations, but to get control is a complex process. Besides the implementation of a performance measurement system, the use of performance measures and the formalization of a bureaucracy, work motivation of employees and lower managers are important factors (Knippenberg, 2000). To investigate the types of motivation and how people get motivated I will use the Self-Determination Theory of Ryan and Deci (2000b).

The Self-Determination Theory of Ryan and Deci (2000b) investigates people’s inherent growth tendencies and innate psychological needs (Ryan et al., 1997). They identified three basic psychological needs that appear to be essential for optimal functioning of growth, integration, social development and personal well-being, namely:

 Need for competence, the competence of the individual is the developable abilities of human beings to choose and apply appropriate procedures to achieve the right results, so to believe that they can deal effectively with their environment (Harter, 1978).

 Need for autonomy, the autonomy of the individual is the right to determine what you do yourself, so independence or freedom (deCharms, 1972).

 Need for relatedness, the relatedness of the individual is the feeling of being part of the group (Baumeister and Leary, 1995).

Figure 2, source: Adler and Borys, 1996, p.78

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13 If the above mentioned psychological needs are met, the possibility of optimal functioning and growth of human beings exist, but besides the psychological needs the motivation of human beings plays an important role. Human beings are motivated when they are moved to do something and unmotivated when they don’t feel the impetus or inspiration to act (Ryan and Deci, 2000a). Motivation can vary in two ways: the level of motivation and the orientation of their motivation (i.e. what type of motivation). Ryan and Deci (2000a) distinguish two types of motivation, intrinsic and extrinsic motivation.

When human beings do an activity for their inherent satisfaction instead of some separable consequences, human beings are intrinsic motivated for this activity. So human beings are intrinsic motivated when they act for the fun or challenge and not because of external prods, pressures, or rewards (Ryan and Deci, 2000a). The intrinsic motivation of human beings is related to the path of life, it starts from birth onward, the environment in which they grow, level of education, ambitions to learn and discover, etc. (Ryan and Deci, 2000a). Intrinsic motivation exists within every human being, and exists in the relation between human beings and activities.

Although intrinsic motivation is an important type of motivation, most of the activities human beings do are not intrinsically motivated but are extrinsically motivated (Ryan and Deci, 2000a). When human beings do something in order to attain some separate outcome, human beings are extrinsic motivated for this activity. So human beings are extrinsic motivated when they act for external prods, pressures, or rewards, not initially for the fun or challenge (Ryan and Deci, 2000a). The Self-Determination Theory distinguish four forms of extrinsic motivation:

1. External regulation. External regulation is the least autonomous form of extrinsic motivation. Human beings act to satisfy an external demand or to obtain an externally imposed reward. Human beings typically experience externally regulated behavior as controlled or aligned (Ryan and Deci, 2000a).

2. Introjection. Introjection regulation describes a type of internal regulation that is still quite controlling because human beings perform such actions with the feeling of pressure in order to avoid guilt or anxiety or to attain ego-enhancements or pride (Ryan and Deci, 2000a).

3. Identification. Regulation through identification is a more autonomous form of extrinsic motivation. Human beings have accepted the regulations as his or her own, (s)he has identified the value of an activity and the personal importance (Ryan and Deci, 2000a).

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14 4. Integration. Regulation through integration is the most autonomous form of extrinsic motivation. Integration occurs when identified regulations have been fully assimilated to the self (Ryan and Deci, 2000a). Integration occurs through self-regulation and new self-regulations which are more in line with someone’s values and needs.

According to Groen (2012), human beings can become more intrinsically motivated when they are involved in the development of their performance measures. When employees are involved in the development of performance measures, expectation and objectives of the employees and the organization are more in line. When the expectations and objectives of employees and the organization are more in line, extrinsic rewards are not always needed to encourage employees to work better, so employees get more intrinsic than extrinsic motivated (Groen, 2012). Besides, participative performance measurement systems are more enabling, which will lead to more intrinsic motivation, (Groen, 2012)

Figure 3 below shows a schematic view of taxonomy of human motivation. It shows the different type of regulations, which processes are associated with each type of regulations and the perceived locus of causality of each type of regulation. The locus of causality deals with the gradations autonomy that applies with different styles, (Ryan and Connell, 1989).

Figure 3, source: Ryan and Deci, 2000a, p.61

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15 2.4 The Self-Determination Theory and the types of bureaucracy

To summarize the above, besides amotivation where human beings don’t get motivated at all, the Self-Determination theory distinguishes two types of motivation: intrinsic and extrinsic motivation, which has been divided in five regulatory styles. As described above, external regulation and introjection are the least autonomous regulatory styles, while identification, integration and intrinsic motivation are the most autonomous regulatory styles. Because the separation between the five regulatory styles is not entirely clear, there is a lot overlap between these five styles, I will separate two types of motivation in this research: first of all controlling motivation, where human beings do an activity that he or she feels compelled to do by external or internal pressure (Vallerand et al., 2008). The least autonomous regulatory styles regulation and introjection are covered by controlling motivation. Secondly, autonomous motivation, where human beings do an activity that reflects personal interest and values (Vallerand et al., 2008). The most autonomous regulatory styles identification, integration and intrinsic motivation are covered by autonomous motivation (see appendix I).

According to Adler and Borys (1996) an enabling type of bureaucracy enables employees to better master their tasks or functions and therefore makes it easier for employees to accept the regulations as his or her own or even have been fully assimilated to the self. Employees will be able to identify the importance of an activity and the personal importance (Ryan and Deci, 2000a). If an enabling type of bureaucracy is created, the possibility exists that employees will be more autonomously motivated because they will be stimulated to better master their tasks or functions, or in other words, they will be given more freedom.

According to Adler and Borys (1996) a coercive type of bureaucracy attempts to coerce employees’ effort and compliance and therefore human beings act to satisfy an external demand or perform with a feeling of pressure. Employees are going to act in order to obtain an externally imposed reward (Ryan and Deci, 2000a). If a coercive type of bureaucracy is created, the possibility exists that employees will be more motivated through controlling because the bureaucracy attempts to coerce them, so they will have less freedom.

As described above we can see that controlled motivation is more related to a coercive type of bureaucracy and autonomous motivation is more related to an enabling type of

bureaucracy. Therefore, I will investigate the following proposition in this research:

Proposition: If organizations use performance measures in a coercive (enabling) way, employees and managers will have a more controlled (autonomous) motivation.

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3. Research Methodology

3.1 Introduction

I will answer the research question and test the proposition by using qualitative research, namely by doing interviews. Interviews can be used to collect high quality data if they are properly constructed and administered (Groen et al., 2013). The interviews have been conducted in a Dutch store chain. The organization is a private held organization owned by three people, which is selling their own fashion brand through different shops mainly in the Netherlands, but they are expanding to other European countries and countries outside Europe. Furthermore, their fashion brand is sold through many other stores in the Netherlands. This organization is interesting because they are operating in the higher segment of the clothing industry and is subject to constant pressure from competitors and online sales, thereby they are very dependent on external factors such as economic development, clothing collection etc. Therefore performance can vary considerably over time and the influence of shop managers or employees on performance can be small, but they do get assessed on these performance.

The organizational structure comprises of a board of directors, these are the owners of the company. Below the board of directors, there is a management team including a general director, creative director and financial director. Below the management team there are several rayon managers, which control the shops in their area. The rayon manager maintains most of the contact with the shop managers in his area, and the shop manager in his turn maintains almost every contact with his employees. Below you will see organizational structure.

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17 The retail branch is under a lot of pressure the past few years, the number of customers becomes less and they have a lot of competition from e-stores. The organization has noticed this, so they started their own e-store a couple of years ago, which deprives more patronage from the stores. According to one of the shop managers, the biggest advantage of an e-store is that it can accommodate larger stocks than shops. In addition, the margins become more important, the result is that shops are supplied with increasingly smaller stock so they are going to sell less products with a discount. This is an obvious change in the whole clothing branch. Some believe that it is almost impossible to survive as an individual organization and that only subsidiary companies will continue to survive within the next ten years.

3.2 Respondents

I have started to search for respondents by contacting people within my network. Important for this research is that I was able to compare stores of the same organization, because I wanted to investigate if the type of bureaucracy and the motivation will be different between stores with the same procedures and standard. This could make it possible to investigate how employees and shop managers get motivated. I will do that by interviewing the employees and shop managers of two completely different stores of the organization as described above. I started with contacting the shop manager of clothing shop B. Clothing shop B is flag ship store, a large store with a lot of appearance within the company. The store area is approximately 160 square feet, they have the entire collection and a reasonable large stock. He was willing to cooperate and through him I could approach his other three permanent employees. The shop manager and his employees all working part time on the basis of contract hours with a fixed salary. They also have an on-call employee who sometimes works on Saturdays, but just for a period of three months, therefore he is not included in this research.

After I got the opportunity to interview the shop manager and employees of clothing shop B, I contacted another store which differs significantly from clothing shop B. I want to use two different stores, because this make it possible to compare how both shops see the type of bureaucracy and how the employees and shop managers of both shops getting motivated. Clothing shop A is small shop, where not much attention is spent from the management. The store area is approximately 40 square feet, they have just a part of the entire collection and a reasonable small stock. Initially, the shop manager was not too keen to cooperate, but after a second call I could convince her to cooperate. Through her I could approach her only

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18 employee, he is working part time, just like his shop manager and they working both on the basis of contract hours with a fixed salary.

3.3 Data collection

For the data collection I drafted a questionnaire and a study schedule. I have used two different questionnaires, one questionnaire for the shop manager (twenty-eight questions) and one questionnaire for the employees (twenty-three questions), both can be found in appendix II. In the study schedule, I described the purpose of the question and I thought of a possible answer. The questions were focused on various parts, first of all on motivation, secondly on performance measures and thirdly a combination of performance measures and motivation. The type of bureaucracy was discussed at various moments during the interview. After I had perfected the questionnaire and the study schedule, I was able to start with the interviews.

Before I conducted an interview I made a telephonic appointment with the interviewee, so I was sure that he or she was available. I have sent the questionnaire to two out of the six interviewees before I conducted the interview. The interviews were semi-structured, during the interview we occasionally wandered off from the questionnaire, but eventually we would always return to the questionnaire, so I was sure every question was to be answered. The interviews lasted between thirty five minutes and one hour and a quarter. I started with a short introduction about myself and the research topic. After the introduction, I started recording the interviews. All the interviewees had no problem with the interviews being recorded. In both shops I started with interviewing the shop manager, before I interviewed the employees. In clothing shop A we had the interviews in a locked room above the shop, whereby the interviews would not be interrupted. In clothing shop B we had the interviews on the second floor of the shop. One interview had a short interruption of approximately two minutes, all the other interviews were not interrupted.

3.4 Data Analysis

After tape recording the interviews I have transcribed the interviews, divided into the structure of the interviews as described above. With the transcribed interviews I was able to organize the interviews into six codes. All relevant statements were placed in one of these six codes. After I had read the transcripts for the first time I started using colors to organize the transcripts into the six codes. The first two codes came from the distinction between an enabling or coercive type of bureaucracy, I placed all the statements regarding the type of bureaucracy among one of these two codes. The third and fourth code came from the

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19 distinction between autonomous and controlling motivation, I placed all the statements regarding the form of motivation among one of these two codes. Everything that was said about performance measures was placed under the fifth code. The last code was a remaining code, everything that could not be placed in one of the other five codes, but was relevant for this research was placed in this code. After the transcripts were divided into the six codes I was able to formulate the results, these can be found in the next section.

In the table below you will see a schematic overview of all the relevant information regarding the interviews.

Function / role Shop Gender Tape recording Introduction approx.

Shop manager A Female 0:48:37 hour 12 min.

Employee A Male 0:43:40 hour 8 min.

Shop manager B Male 1:04:43 hour 20 min.

Assistant shop manager B Female 0:47:10 hour 10 min.

Employee 1 B Female 0:34:28 hour 13 min.

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4. Results

In this section I will review the results of the interviews. I will start with the results of the interviews in clothing shop A, this is the smaller shop. Hereafter I will show the results of the interviews in clothing shop B. The implications of the results will be shown in the discussion.

4.1 Clothing store A Performance measures

Clothing shop A is a small shop with just two employees, the shop manager and another employee. The head office is setting the targets for the shop and for every single employee and they are able to get all the information on performance and targets out of their enterprise research planning system. Productivity is the most important performance measure, but the head office is trying to measures as much as possible for every single employee.

“They measure everything, the amount of an receipt, your target, the amount of people that went into your store, they have performance measures for everything”.

Both the shop manager and the employee see the advantages of the performance measures. According to the shop manager the performance measures keep you focused and it is a tool for the head office to control the productivity

“Performance measures keep you focused, and it provides a tool to know insightfully how you are operating and what is going on in the shop. The head office wants to know, because you must be paid and employees are really expensive”.

Besides the advantages and importance of the performance measures, there are some disadvantages of performance measures. According to the employee the performance measures are used to exert pressure

“you are constantly chased, if sales drops, you will be approached and they will tell you that it’s your fault”.

The shop manager sees it differently, she doesn’t see any disadvantages to performance measures, but sees it as the business aspect of a company

“The results of performance measures aren’t always nice to hear, the truth is hard to hear, but that’s the way it works, that’s the business aspect”.

Although they are working on the basis of contract hours and a fixed salary, the shop manager is able to get a bonus out of the performance measures, the employee does not. But it is very hard to achieve this bonus, because you have to achieve your target for a continuous period of eight weeks.

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21 Type of bureaucracy

Performance measures are an important tool for the head office to get insight into their shops. Besides the performance measures, the head office can create a type of bureaucracy which can lead to an enabling or coercive type of bureaucracy. In this organization the shop manager is responsible for operational business within her shop. Over the past few years the shop manager has less participation about the progress of the shop with her rayon manager, which is responsible for the link between the strategic plans of the head office and the operational business.

“We don’t have much participation at all, there are probably things not going well, but meetings are becoming less. Of course, because the rayon manager gets more and more shops, but if we have real problems they will react by mail, or they will pass by”. There is not only few participation, the weekly targets for the shop are based only on last year’s figures and there isn’t any participation about the targets between the shop manager and her rayon manager. Thereby the collection and the amount of clothing within the shop is determined by the head office, which takes a lot of creativity away from the shop manager and her employee.

“I think it is unfortunate, if we could choose our own collection we would have a lot more creativity. We know our customers so we can respond to the demands of our customers, but it is all mass production of course”.

Despite of the limited participation, the shop manager has the freedom of the operational business within in her shop. For example she can decide when her employee is working, what should be done etc. this enables her to better master their tasks.

“It is quite versatile, you have to deal with anything and everything, but what I prefer the most is that I’m the boss. I have always found this a nice feeling; the fact that I don’t have to work for someone else”.

However, she is aware that her performance will be measured and that she will be judged on these performance measures, therefore she sometimes manipulate the performance measures.

“We manipulate the measures sometimes, but that is just for…., but if you try to influence the measures too often, people are going to notice and then the system isn’t working anymore. But we always score very high with our targets”.

The employee of store A doesn’t have any consultation with the head office, his shop manager is the link between him and the head office. He receives all the information through his shop manager. He regrets the hierarchy in the organization, but beliefs that this is inherent

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22 in a large organization. Furthermore he has the feeling that the head office isn’t listening to their staff.

“I can suggest things to the head office, but whether they do something with it…, I have the feeling that they not really listening to us”.

Even though he knows he will be judged on the performance measures, he will not affect the performance measures.

“I do appreciate honesty, if you manipulate the measures they will make no sense at all”.

Motivation

People can be motivated in several ways, we distinguish two types of motivation. First of all autonomous motivation, whereby an activity reflects personal interest and values. Secondly controlling motivation, whereby an activity feels necessary by external or internal pressure. The shop manager in shop A is proud of the brand she is working for, she has a lot of respect for the owners which are able to continue to exist. She is by herself intrinsically motivated, this is something she has had her whole life, but sometimes she is aware that she is still working for a boss and that there are things she cannot decide. For example, when she likes to invest in the store, she has to ask the head office for approval, this can take a lot of time until it is approved.

“Everywhere where I work, I fight for the company, even when I’m working for a boss. When I’m in the shop, I want to score sky high because I just like it”.

The shop manager is seeing her shop as her own business and wants to achieve the best results. She tries to create the same feeling for her employee by providing him enough feedback and practice certain sales techniques so that he is aware of his performance and he can score higher.

“It’s your own business, so make sure you sell something, otherwise you cannot eat tonight”.

The employee gets motivated by the feedback he receives from his shop manager and likes the collaboration with his shop manager, they motivate each other and keep each other focused.

“Feedback motivates, performance measures don’t, the most important thing to know is that we have to work together to reach our targets”.

Therefore he regrets the days he is working alone in the shop and that he is working in a small shop. He found out that he is a team player more than a soloist.

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23 “Upstairs we have a lot of stock, therefore I believe it is irresponsible to work alone, besides when you work together you motivate each other. When you are working alone and there is no customer, it demotivates and it will take a lot of effort when someone enters the store to go for it”.

The employee doesn’t have the feeling that he can influence the performance of the shop with the way he works, only when you keep pushing you sell more. Thereby he gets the feeling that the head office applies double standards between employees in different stores.

“What I found very difficult, the head office applies double standards, for example everyone with a contract of minimum 16 hours needs to follow a seminar, no one likes that seminar. But some employees have arranged that they doesn’t have to follow that seminar, but we do because we sell less than the employees in the other shop …I have a lot of difficulty with it”.

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24 4.2 Clothing store B

Performance measures

Clothing shop B is a large shop with a shop manager, an assistant shop manager and two other employees. Furthermore, they have an on-call employee who sometimes works on Saturdays, he is not included in this study. The head office is setting the targets for the shop and for every single employee and they are able to get all the information on performance and targets out of their enterprise research planning system. Their performance are measured separately, so it is important that everyone uses their own login at the checkout.

“It involves your individual performance, of course you have to take the conditions into account, but eventually your individual performance counts”.

The most important performance measures for both the shop manager and the other employees are productivity, units per customer, conversion, the amount of an receipt and, of course, the sales.

“Eventually they will look at the sales. Of course units per customer and productivity are important, but eventually sales is the most important”.

The shop manager primarily focuses on other matters than financial performance measures by evaluating his employees, he is more focused on non-financial performance measures.

“It is an interaction, they should have the skills and the basics to serve a customer. They must know information about the shop, our products, our stock and they must be able to ‘read’ a customer”.

The shop manager and the other employees understand why performance should be measured, but not everyone is seeing the advantages of this performance measures. An employee believes that it just makes everyone nervous, another employee thinks that they should use the performance measures in a different way, the do not get any feedback on the performance measures from the higher management.

“There is quite a negative atmosphere within the company, everyone feels the pressure is high, I definitely do not think that it is wrong to measure performance, but you have to do something with these measures, otherwise it makes no sense. You know they measure performance but we, as employees, never hear anything from it”.

Nevertheless, another employee sees only the benefits from the performance measures, she sees it as a tool to perform better.

“With performance measures you know exactly what your weaknesses are, you must have a look to your weaknesses sometimes. It is a good tool to know where our opportunities are”.

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25 Besides the performance measures above, which are all financial performance measures, the shop manager mentioned that the head office uses a mystery shopper to investigate how the shop is operating. This represents the non-financial aspect of the performance measures, but the shop manager doesn’t see any advantage in this form of measuring non-financial performance.

“We have a mystery shopper, if it is not going well in the shop they can use the findings of the mystery shopper as another stick to wield, they use it to control the shops, but of course they will never say”.

Type of bureaucracy

In this organization the shop manager is responsible for operational business within his shop. In contrast with clothing shop A, the shop manager of clothing shop B participate a lot with his rayon manager which is the same rayon manager as clothing shop A. The rayon manager is responsible for the link between the strategic plans of the head office and the operational business.

“I have much participation with the rayon manager, because the pressure on this shop is very high. With all due respect this isn’t a shop like clothing shop A, off course they have also some pressure, but much less than this shop. Here, there must be performed, here, a given turnover must be generated”.

Although the shop manager has much participation with his rayon manager, this is much less than the past few years. This is a direct consequence of the number of visitors, which has also declined the past few years. The weekly targets are based on last year figures just like we have seen at clothing shop A. There isn’t any participation between the shop manager and the rayon manager about his weekly targets.

“They simply pushing it down your throat. The only thing I have said about productivity and that kind of performance measures, I do not even look after these measures anymore, the only thing that matters for me are the sales, so what is my budget and what is my turnover”.

The other employees of shop B do not have any consultation with the head office, their shop manager is the link between them and the head office. They will receive all their information through the shop manager.

“The head office can get all the information they want out of the system, if it is not going well they will ask questions, initially not to us but to the shop manager. The shop manager will be addressed to the figures in any case”.

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26 Another employee was surprised about the hierarchy within the company and the distance that this entails.

“I’m surprised about the hierarchy in this company, some employees are almost kneeling in front of the higher managers, I think this is completely unnecessary”….”This distance emerges because sometimes I believe they are only concerned with spreadsheets, numbers and checkmarks, I found it difficult but this is also a way of doing business”.

Although the shop manager and the employees know they will be judged mostly on the financial performance measures, they will not manipulate them. They all appreciate honestly, it happens in a fair way or it doesn’t. Besides, they all appreciate the way in which their salary is determined, they all get a fixed salary. .

“I would not wish we would be paid on the performance we achieve, I’m pretty sure you will get a more annoying atmosphere among colleagues, and that is something the customer would notice”.

Motivation

Again we distinguish two types of motivation: autonomous and controlling motivation as we have seen in clothing shop A. The shop manager of shop B isn’t tied to this brand. He could easily work for another brand, the most important for him is that he is working in a team.

“I have to work in a team even though I could also work individually, but eventually I’d like to have people around me, this could be clients but also team members so we could build something together. I don’t see myself as a big leader, it is a team so we have to do it together, when it matters I have to stand above my employees, but 90 percentage of the time I’m one of them”.

The shop manager is satisfied if he can help his employees with their sales, he likes it when his employees score high. This is partly because the shop manager gets not only reviewed on his personal performance, but more important are the performance of his shop. Nevertheless, he is not sure if he is still working in the retail sector much longer, but he knows he cannot just quit, that is not how it works in this world.

“I’m not sure if I work here much longer, but it is pure income what I need I have to pay my rent and mortgage every month. I cannot just quit, that’s not how the world works but deep inside me I would like to do something else”.

The shop manager and all the employees believe that they can influence the performance of the shop, they believe performance can be influenced by your attitude towards the shop and

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27 the atmosphere with your colleagues, they all believe the only thing they can’t influence is the clientage. Furthermore, the shop manager is able to influence his staffing costs by properly responding to external factors.

“Of course we can influence the performance of the shop, for example by sending employees home earlier, or not scheduling employees at all so by responding to external factors, for example, the weather or activities in the neighborhood”.

The employees of clothing shop B are mostly intrinsically motivated, this motivation originates from the atmosphere among colleagues. Besides the atmosphere, they like the brand they are working for and they find it a pleasant company to work for.

“I like to work for this company, I am impressed by what the owners have put down”…”In the end it is a pleasant company to work for, I just have great colleagues”.

Despite the fact that they are mostly intrinsically motivated, they are getting more motivated through the way their shop manager evaluates them. He is able to push the feelings of his employees in a positive direction, even if they are extremely intrinsically motivated, they like to hear when they perform well.

“The shop manager is able to push my feelings in a positive direction”

The employees don’t have the feeling that there is a difference in the way their performance is measured, but one of the employees finds the salary difference incomprehensible and finds her salary ridiculous.

“My salary is just really bad, really ridiculous, but before I lived on an unemployment pay, so then everything will be better”.

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28

5. Discussion

The main goal of this research was to examine the role of performance measures on the type of bureaucracy within a business to customer organization, in combination with the way employees and lower managers are motivated by using the concept of the Self-Determination Theory. Previous studies that investigated this relationship were done in domains other than business to customer organizations, and much support for this relationship comes from laboratory experiments (Gagné and Deci, 2005). This research shows how this relationship works within a business to customer organization. The results indicate that both the employees and managers understand why performance should be measured and they believe performance measures are the only way to control the shops. Although the shops have their own weekly targets, the other performance measures are the same among shops. Some interviewees believe it is not fair to compare performance among shops, there are too many differences between shops (location, collection, amount of employees, business hours etc.). The results implicate the difference between the two shops I have used in this research. According to the shop manager of clothing shop A, she has the freedom of the operational business within in her shop. We should expect a enabling type of bureaucracy according to the amount of freedom. An enabling bureaucracy seeks to put employees in a position to deal directly with the inevitable contingencies in their work (Ahrens and Chapman, 2004). However the shop manager tries to manipulate the performance measures sometimes to get better performance, and she has to ask everything to the head office before she can do something. Although she has the feeling of freedom, the amount of freedom is limited and she is aware of the controlling function of the performance measures. The employee of clothing shop A has never felt the freedom which his shop manager is feeling, the main reason for this is that his shop manager likes to control their employees and likes being the ‘boss’. The shop manager creates a coercive type of bureaucracy for her employee and the organisation creates a coercive type of bureaucracy for the shop manager. An Coercive bureaucracy refers to the stereotypical top-down control approach that emphasis centralization and preplanning (Ahrens and Chapman, 2004). Despite of the coercive type of bureaucracy the shop manager is extremely autonomously motivated, she likes the job and to score sky high for her own satisfaction. The employee is controlled motivated, he regrets the days he is working alone and gets the feeling that he is constantly chased by the head office, probably because his shop manager likes to control him. Besides he gets the feeling that the head office applies double standards between employees in different stores and believes that they are not fair.

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29 The results implicate that clothing shop B has almost no freedom, they are a flagship store and have a lot more pressure than clothing shop A. The shop manager therefore has a lot more participation with the rayon manager compared to clothing shop A. Despite of the participation, he has the feeling that they simply pushing the targets down his throat and that they are using the mystery shopper as another tool to exert control. His employees have the same feeling, they regret the hierarchy in the company and believe the performance measures are used in a wrong way. The company created a coercive type of bureaucracy in clothing shop B. However, the coercive bureaucracy, the shop manager and his employees would never manipulate the performance measures, they will be aware of the value of information that comes out of these performance measures. The coercive type of bureaucracy ensures that the shop manager is controlled motivated. He is aware of the difference between shops and feels a constant pressure from the head office, he is constantly operating by this pressure and despite of his good relationship with the higher management, he has the feeling that they can dismiss him whenever they want. Nevertheless, his motivation partly comes from the team he is working with, he tries to motivate his team by depriving them as much as possible from the pressure of the performance measures and he succeeded. All the employees at clothing shop B are autonomous motivated, they like the team they are working with and the contact with their clients. They want to get good performance for their self-satisfaction and for their shop manager, they see under what pressure he is and they don’t want to lose him as their shop manager.

Concluding, the hierarchy within this company provides a coercive type of bureaucracy. The performance measures play an important role in the formation of the hierarchy. The employees and shop managers know the importance of the performance measures, but didn’t see the value of these measures for themselves. This is because the performance measures are used in the wrong way. According to Otley (1999), the development and implementation of a performance measurement system has a couple of issues that need to be addressed. First of all, the objectives, strategies and plans of the organizations needs to be addressed, these are addressed by the head office. Another issue according to Otley (1999) is target setting, the weekly targets for both shops a set based on last year’s figures, but the amount of customers decreased and the e-store deprives more patronage from the stores, therefore the weekly targets are almost impossible to reach. It is important to set appropriate targets, so they be stimulated to achieve a target. Thereby, the rewards for shop managers and employees are missing. The shop manager is able to achieve a bonus if his or her shop has achieved their weekly target for a continuous period of eight

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30 weeks, but this is almost impossible. The employees will not gain any bonus if the weekly targets of the shop are achieved. On the other hand there is no penalty if they don’t achieve their targets, dismissal seems to be the only penalty for shop managers and employees. So the rewards and penalties are missing within this organization. The last issue according to Otley (1999) is the flow of information, the employees never get some information from the head offices about the performance measures and none of them has contact with the head office. Their shop manager is the link between them and the head office, so the shop manager receives all the information about his employees. He has to decide to which extent he will tell this information to his employees, however, the head office reviews their employees based on these performance measures. The shop managers and employees of both shops give each other feedback and feed forward, there is no feedback or feed forward from the higher management. The connection is missing between the strategic plans of the organization and operational business.

Despite the coercive type of bureaucracy and the flaws in their performance measurement system, four out of six interviewees (all female) are extremely autonomous motivated, the other two (both male) are predominantly controlled motivated, these two interviewees also have the strongest sense of a coercive type of bureaucracy. We can conclude that the use of performance measures plays a role in the formation of the coercive type of bureaucracy within this organization and that the head office plays an important role in this process, because they develop and implement their performance measurement system. The motivation of employees and shop managers depends to the extent they feel the coercive type of bureaucracy, they are more controlled motivated if they have a stronger feeling of a coercive type of bureaucracy and more autonomous motivation if they have less strong sense of a coercive type of bureaucracy. In addition, the shop manager has an important role in the motivation of his or her employees, as one shop manager said “It is the way something is said”, they are able to motivate or demotivate their employees.

In the table below you will see a schematic overview of the main findings of both clothing shops. The separation between an enabling and a coercive type of bureaucracy and an autonomous and a controlling type of motivation is set very superficial, detailed elaboration is stand above.

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31

Function / role Shop Gender Type of bureaucracy Type of motivation

Shop manager A Female Coercive type of bureaucracy Autonomous motivation

Employee A Male Coercive type of bureaucracy Controlling motivation

Shop manager B Male Coercive type of bureaucracy Controlling motivation

Assistant shop manager B Female Coercive type of bureaucracy Autonomous motivation

Employee 1 B Female Coercive type of bureaucracy Autonomous motivation

Employee 2 B Female Coercive type of bureaucracy Autonomous motivation

5.1 Implications

The results do offer an explanation for the effect of performance measures on the type of bureaucracy that is created. The results have shown that the use of performance measures in this organization has led to a coercive type of bureaucracy. Unfortunately the results doesn’t provide enough information about the degree of formalization, so I wasn’t able to place the organization in one of the four typologies. However, this research provide us information about employees and shop managers who doesn’t have any participation in the performance measures, according to Groen et al. (2013) performance measures participation affects job performance. Future research may investigate if organizations that use performance measures which have been drawn up in consultation with the employees and shop manager will lead to enabling type of bureaucracy.

Thereby, this research did not find evidence that a coercive type of bureaucracy will lead to more controlling motivation. According to Ryan and Deci (2000b) people have three basic psychological needs: need for competence, need for autonomy and the need for relatedness. This research has shown that the need of competence and the need for autonomy are partly determined by the type of bureaucracy that is created and that the need for relatedness is the most important psychological need for people in this organization. All the interviewees are autonomous motivated by the team in which they work. Despite the fact that their performance is measured at individual level, they have a strong team spirit and they try to help each other. Nevertheless the individual performance measures don’t influence the individual rewards. Future research may investigate if the motivation of employees and shop manager changes when their individual reward will be based on the performance measures. In addition, it will be interesting to investigate what the turning point is in the hierarchical layer, where external rewards going play an important role.

Self-determination theory and performance measures : a case study from the retail industry