Management control systems in Dutch municipalities and the
influence of intra-organizational relationships: A case study
research at a Dutch municipality
W.M. de Vries - University of Groningen; Faculty of Economics and Business
Keywords: Management control systems, organizational learning, intra-organizational relationships, benchmarking Abstract:
This study identifies the management control systems within a Dutch municipality and analyzes whether intra-organizational benchmarks influence the control mechanisms in the municipality. The data collection was established at the Dutch municipality of Emmen within the department of villages and neighborhoods by conducting thirteen interviews within the department and outside the department. As theoretical foundation, the study used the package approach of Malmi & Brown (2008) and the ‘object of control’ framework by Merchant & van der Stede (2003; 2007). The expectations were based upon the assumptions of new public management and the public management initiative, which state that public organizations had to become more results-oriented to increase performance and efficiency. The results show a focus towards personnel controls within the department. The inequalities with the literature can be explained by a failing implementation of the public management initiative and a changing department in tasks and responsibilities. In addition I found several intra-organizational relationships that developed benchmarks for a specific project or element, no generic benchmark does exist to stimulate municipalities in comparing performances.
Student number: 2230259
University: Rijksuniversiteit Groningen
Department: Faculty of economics and business
Master degree: Business administration
Specialization: Organization & management control
Supervisor: MSc. B. van der Kolk
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Table of content
Table of content ... 2 1. Introduction ... 3 1.1 Research question ... 4 1.2 Structure of thesis ... 4 2. Literature review ... 62.1 New Public Management (NPM) and ‘Beleids en Beheers instrumentarium’ (BBI) ... 6
2.2 Management control systems in municipalities ... 7
2.3 Organizational learning and benchmarking in public organizations ... 11
2.4 Concluding remarks of literature review ... 13
3. Methodology ... 14
3.1 Research method ... 14
3.2 Case description ... 14
3.3 Data collection ... 15
3.4 Data analysis ... 15
4. Analysis and results ... 16
4.1 Municipality of Emmen control systems ... 16
4.2 Departmental management control system ... 17
4.3 The application of intra-organizational relations across municipalities ... 23
5. Discussion ... 26
6. Conclusion, limitations and suggestions for further research ... 27
6.1 Limitations of the study ... 28
6.2 Suggestions for further research ... 28
6.3 Acknowledgements ... 29
7. References ... 30
Appendix A: organizational chart of the municipality of Emmen ... 33
Appendix B: attended consultations and meetings ... 34
Appendix C: document analysis ... 35
Appendix D: interview questions for managers ... 36
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1. Introduction
The dominating concept of new public management (NPM) is stagnating and slowly losing ground. Researchers already stated multiple times the declining role of NPM, based on the lack of empirical evidence about improving effectiveness within public organizations. But also the implementation of private mechanisms into public organizations has been criticized due to misinterpreting the essential differences in business between private and public organizations. The current literature is now more focusing towards a post-NPM era where collaboration between local governments is increasing. An important feature of this collaboration is an open structure to improve the comparability of the results, because the only valid benchmark for public organizations, comes from public organizations.
In the 1980s the Dutch government initiated particular changes in the management control systems of Dutch municipalities. This evolved from the Public Management Initiative (PMI, original called: ‘beleids en beheers instrumentarium’) that was set up in 1985 after criticism from pressure groups, especially private organizations who criticized these municipalities for being too much inward oriented and focusing on citizens as customers (ter Bogt & van Helden, 2000). This initiative stimulated a more ‘business-like’ orientation among municipalities and their management control system, it also demanded municipalities and private organizations to share their knowledge of their current practices including planning and control (van Hengel, 2014).
The PMI showed a lot of overlap with the influences of New Public Management (NPM) as discussed by Hood (1991; 1995) (ter Bogt, 2008). He described NPM as a generic label that contained all the individual changing processes in public organizations (Hood, 1995), this also implicates that NPM is not some universal ‘package’ to implement in public organizations, neither is it a static process but a constantly changing and adapting phenomenon. Main focus of NPM is increasing effectiveness and efficiency in the organization (ter Bogt, 2008). Although the PMI program ended formally in 1995, it didn’t seem to have taken much of an impact in public organizations as various evaluative studies have shown (van Helden, 1998). The influences of PMI/NPM towards Dutch municipalities demanded an adapted management control system (MCS) to control the focus towards efficiency and effectiveness. In this paper the MCS will be treated as a package, corresponding with the literature of Malmi & Brown (2008) and Grabner & Moers (2013). They state that different MCS’ do not operate in isolation, which indicates that all separate mechanisms are interconnected to each other. Malmi & Brown (2008) described the lack of case study research that analyzes the management control systems within an organization. Every organization needs a specific MCS to guide the employees in accomplishing the goals which are best for the organization as a whole. Due to this focus towards efficiency and effectiveness, public organizations were obliged to evaluate employees by delivered output. This topic has created a discussion among researchers that highlighted several implications by implementing private organization control mechanisms in public organizations. For instance, the motivation and continuum development of improving efficiency and effectiveness in private organizations is influenced by market forces, these forces lack in public organizations (van Helden & Tillema, 2005).
4 system (Sharif, 2002), but less in the context of management control, for example Tillema (2009). Due to the changing role of municipalities and the development of becoming more result oriented, demands a realistic performance measurement system as a part of the management control system. Benchmarking could be a system that is able to provide this information to municipalities. Van Helden & Tillema (2005) raised the question whether benchmarking would be a proper substitute for market forces when talking about incentives to increase efficiency and effectiveness. The conclusion of van Helden & Tillema (2005) was that benchmarking can be used as a “quasi-market mechanism”, this means that benchmarking improves performance but also shows a degree of conformity across municipalities. The case of Xerox in the late 1950’s has been the basis of several authors who defined and described benchmarking. The change in manufacturing between organizations demanded a comparative approach from Xerox. Only a few years ago research has focused towards a theory of benchmarking in public organizations and until now very limited research has done in this direction. This paper will analyze to what degree the case study benefit from intra-organizational relationships and whether benchmarking is used as a tool to stimulate the process.
1.1 Research question
This paper will provide a more specific insight into the structure of a management control system within a municipality. Additionally, this paper also analyzes to what extent municipalities benefit from intra-organizational relationships. To gain more insight, this paper will conduct interviews in a single case-study. This paper will also provide an overview of the literature that has been written about this subject.
The main research question stated is: how is the management control system of a Dutch municipality structured and is the system influenced by benchmarking activities to substitute for market forces?
We will answer this research question by using several sub questions:
RQ1: What is the definition of a management control systems and management control system as a package?
RQ2: How are the management control systems used within a municipality and how is the management control system structured?
RQ3: (How) does the municipality benefit from intra-organizational connections?
1.2 Structure of thesis
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2. Literature review
In this section we will provide an overview of the existing literature that has been written about the main concepts that are involved. To start with an introduction about new public management which influenced the municipality sector largely in the last decades. After that, the literature review will continue by describing the literature that has been written about management control systems. At last the subject of organizational learning will be described.
2.1 New Public Management (NPM) and ‘Beleids en Beheers instrumentarium’ (BBI)
Thinking about NPM is the equivalent of thinking about the exceptional person Margaret Thatcher. Her reforms in the public sector made changes to the public sector bothsubstantively and institutionally (Kajimbwa, 2013). Her search towards a more efficient and effective public sector formed the basis of the concept of NPM. Hood (1991) noted that the most practical information and evaluation came from the United Kingdom, other countries at that time just started to follow the ‘trends’ of NPM. Separately from ‘trends’, authors have developed several key doctrines consisting of: ‘hands-on professional management’, ‘explicit standards and measures of performance’, ‘greater emphasis on output controls’, ‘shift to disaggregation of units in the public sector’, ‘shift to greater competition in public sector’, ‘stress on private-sector styles of management practice’ and ‘stress on greater discipline and parsimony in resource use’ (Hood, 1991; 1995). These doctrines will be described in short to provide a clear view of what is meant by Hood (1991; 1995)
‘Hands-on professional management’: an active, discretionary and visible management at the top of the organization, free to handle and a clear distribution of responsibilities instead of a diffusion of responsibilities.
‘Explicit standards and measures of performance’: developing the right goals and performance indicators described in quantitative measures, creating tools for the different professions in the organization.
‘Greater emphasis on output controls’: based on a higher need for effectiveness by evaluating employees by results achieved, based on a quantitative measure.
‘Shift to disaggregation of units in the public sector’: the creation of better manageable divisions by disaggregation will cause an anti-waste culture due to splitting productions and provisions.
‘Shift to greater competition in public sector’: stimulating public tenders and privatizing state-owned-enterprises in ‘safe sectors’.
‘Stress on private-sector styles of management practice’: the necessity to use proven management practices from the private sector.
‘Stress on greater discipline and parsimony in resource use’: represents the principle of ‘do more with less’.
After further development of the theory, the current literature had developed these
7 motives could be, for example: finance shortages or the presence of a too large public sector (van Helden, 1998). For successful implementation an integral political system is a necessity to create a top-down implementation (Hood, 1991; 1995). In the Netherlands the motive for change was sought behind the financial problems it faced in the early 1980’s, so the demand of a new system was high at national government level (van Helden, 1998). The BBI project was established in seven different stages and five assumptions. The key assumptions which overlapped the doctrines of Hood (1991; 1995) were: control the outlines by the
government, full responsibility for management, responsibility for results by task-setting agreements towards employees, decentralization and clear outlines of tasks and
responsibilities and monitoring of results (Aardema, 2002; van Helden, 1998). In 1989 the government assigned this task to the foundation of BBI, because it was not able to solve the problems in two years. The main cause of the delays were the change in culture and behavior within the municipality (Aardema, 2002). The assumptions for the BBI were established to maintain the advantage of implementing new standards in procedures. The monitoring or supervision task lacked continuity and quality from the municipal council (Aardema, 2002). Also the assumption of decentralization attained a lot of positive reactions among municipal employees and is also part of a changing processes that already occurred before the start of the BBI implementation. But empirical research lacks evidence for improved efficiency among decentralized municipalities (Aardema, 2002).
2.2 Management control systems in municipalities
“If all employees could always be relied on to do what is best for the organizations there would be no need for a management control system” (Merchant & van der Stede, 2003 p. 7).
This citation by Merchant and van der Stede (2003) is being complemented by research in defining management control systems. A management control system (MCS) is used to control the behavior of people in such a way that suits best to the organization (Ouchi, 1979), organizational individuals do not always pursue common goals with the organization, in other words: people act mainly in a self-interested way (Merchant & van der Stede, 2003). The goal and usage of the systems are consistent with Ouchi (1979), for instance Merchant & van der Stede (2007) who state that a management control system is used to deal with employee behavior or Abernathy & Chua (1996) who state that there would be no need for a MCS when people behave perfectly correct to what organizations expect. Defining the concept of MCS throughout the years has evolved corresponding to the changing needs of
organizations. Chenhall (2003) developed its definition by describing it throughout the concept of management accounting and management accounting systems. As Chenhall (2003) stated: “Management accounting refers to a collection of practices such as budgeting
or product costing, while Management accounting systems refers to the systematic use of management accounting to achieve some goal” (Chenhall, 2003; p. 129). A management
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function in organizations. Management control failures can lead to large financial losses, reputation damage, and possibly even to organizational failure” (Merchant & van der Stede,
2007, p. 3).
This traditional focus based on private organizations is hardly applicable in public or non-profit organizations, it requires a different insight and usage of the system. This was also the reason that the PMI didn’t became a great success according to van Helden (1998). Hofstede (1981) stated that management control was purely focused on profit-oriented organizations, also mentioned as “applied cybernetics”. Cybernetic controls are stated as static
non-learning control systems (Hofstede, 1981), examples of these type of controls are budgets, financial measures, non-financial measures and hybrids between these two (for example: BSC) (Malmi & Brown, 2008). These cybernetic controls represent one of several control mechanisms applicable in organizations. Malmi & Brown (2008) described several mechanisms which together form the management control system as a package: cultural controls, administrative controls, planning controls, rewards & compensation and cybernetic controls. These control types represent the package of MCSs for a single organization. Malmi & Brown (2008) state that each organization has multiple control systems in place which cannot be analyzed individually. They described three reasons why this is not the case: Firstly, management control systems do not operate in isolation. Second, the analysis of individual management control systems, such as activity-based costing or the balanced scorecard, could influence the conclusions. At last, the development of MCS as a package creates a more holistic view of connections between different mechanisms that could influence the design of different control mechanisms in organizations.
This paper will use the insights of Malmi & Brown (2008) with regard to treating
management control system as a package instead stand-alone systems. In the following section a theoretical framework will be described to analyze the individual management control systems.
Van Helden (1998) conducted an in depth analysis at several municipalities that were facing changes in their control system. This analysis showed a broad diversity in quality of the management control system, this result does not correspond to a basic principle of BBI which states that municipalities should use a universal and uniform management control system independent from type of department or activities. Van Helden (1998) distinguished two broad terms that represent the activities of municipalities: standard activities, which include the guidance and control of the government and the control based towards more results oriented and more responsible civil servants. The second type of activities, that is
distinguished, are management activities. These activities are hard to describe but demand a high amount of supervision. Especially management activities show that it is hard to
implement results-controls (Merchant & van der Stede, 2007). Results-controls is part of the distinction of management control based on the “object of control” which can focus towards results controls, action controls, personnel controls and cultural controls (Merchant & van der Stede, 2003, p. 15). These type of controls show similarities with the framework of Ouchi (1979). Ouchi (1979) distinguished the type of control based on two main questions: “What
are the mechanisms through which an organization can be managed so that it moves towards its objectives?” and “How can the design of these mechanisms be improved and what are the limits of each basic design?” (Ouchi, 1979; p. 1). This concluded to the
9 control mechanism as stated: “prices convey all the information necessary” (Ouchi, 1979; p. 3). But this is a statement which only maintains in a perfect, frictionless, market. A market that hardly exists. Bureaucratic controls represents the close involvement of superiors and directors by specifying specific rules and routines towards their employees. The difference between a market-based control type and a bureaucratic type of control, as specified by Ouchi (1979): “… rules differ from prices in the important sense that they are partial rather
than complete bundles of information” (Ouchi, 1979; p. 3). Because a rule is more arbitrary
due to the comparison that has to be performed after the implementation of the rule by evaluating the performance differences as a direct result of the implemented rule. A price, however, already consists of a comparison between different suppliers of which the decision is made after the comparison is performed. The usage of bureaucratic type of controls can cause higher costs due to the longer evaluation process in which the possibility exists that the rule does not achieve the expected results. The third type of control, clan control, refers to the informal social system (Ouchi, 1979). Each type of control is related to different industries or type of business. Ouchi (1979) distinguished two factors that influence the appropriate control mechanism: knowledge of the transformation process and ability to measure outputs. The underlying assumption, as Ouchi (1979) mentioned, is when an organization needs to be controlled it needs to measure or monitor the business of the organization. The monitoring or measuring of an organization is, according to Ouchi (1979), limited to measurement of behavior or output. For example, when the knowledge of the transformation process is imperfect and the ability to measure outputs is low, the preferred type of control is clan control, controlling the informal social system of the organization, according to Ouchi (1979). In opposite direction, when the knowledge of the transformation process is perfect and the ability to measure outputs is high, then organizations can both control their organization by behavior and output. The similarities between the two authors and their view will be further elaborated using as primary framework the object of control framework by Merchant & van der Stede (2007).
In the following section these different angles towards management control will be highlighted shortly. This paper will not provide a literature review of the management control systems literature but due to the relevance to the topic of this paper, these angles are described below.
2.2.1 Results controls
As stated in the previous section, a MCS is used to motivate employees towards coherent individual and organizational goals. A good example of a results type of control is a pay-for-performance construction, in which employees receive rewards by performing the desired behavior (Merchant & van der Stede, 2003). Also the opposite could occur, if employees do not perform well they receive punishments instead. Merchant & van der Stede (2003) refer to this principle as ‘creating meritocracies’, which represents that employees that perform best, will receive the most rewards, these rewards are not only monetary but could also include promotions, autonomy or job security (Merchant & van der Stede, 2003). However, Speklé & Verbeeten (2014) stated that pay-for-performance construction only succeed when “(1) the goals of the organization are clear and unambiguous, (2) performance can be
10 show similarities with the results control of Merchant & van der Stede (2003). Because in a perfect market employees can be rewarded based on their production or in equal proportion to its contribution.
2.2.2 Action controls
This type of control is a more direct form of motivating employees to perform beneficially to the organization. Due to the lack of universal routines to use action controls, the
effectiveness and usability depends upon the managers’ capabilities of knowing what the desired actions are in the organization. Merchant & van der Stede (2003) further
distinguished action controls into separate basic forms: “behavioral constraints”, “preaction
reviews”, “action accountability” and “redundancy”. The first form, behavioral constraints,
implies that people are physically or administratively being constrained to perform their tasks. This form of action controls therefore can be seen as a negative form (Merchant & van der Stede, 2003). The second form, preaction reviews, implies the scrutiny of actions that are planned. The controlled actions can be approved or disapproved. The third form, action accountability, refers to the responsibility employees have for their own actions and performance. To prevent employees to behave incorrectly, organizations need to provide guidelines of acceptable behavior and communicate this towards its employees (Merchant & van der Stede, 2003). The last form, redundancy, implies that organizations should pay attention towards the capacity of their employees with regard to the pressure of completing tasks or other forms of stress. For example, an organization could assign more employees to a specific task to increase the probability that a task will be performed satisfactorily
(Merchant & van der Stede, 2003).
The bureaucratic form of control introduced by Ouchi (1979) shows a strong similarity to the action type of control from Merchant & van der Stede (2003). As stated, bureaucratic form of controls rely heavily upon rules and direct control from superiors. The similarities with both type of controls can be described as motivating and directing employees to act in the best interests of the organization.
2.2.3 Personnel controls
This type of control refer to the natural tendencies that people poses to correct their own behavior or motivation. It involves the coherent interests of employees, and the organization and also self-monitoring, referred to as “naturally present force” (Merchant & van der Stede, 2003, p. 75) that enforces employees to act in the same interests as the organization. Merchant & van der Stede (2003) distinguished three types of methods to implement personnel controls: “selection and placement of employees”, “training”, “job design and
provision of necessary resources”. The first method, selection and placement of employees,
refers to the quest of searching and finding the correct persons that fit the organizations norms and values. The second method, training, can help employees to gain more
11 & van der Stede (2003). Both type of controls have the goal to help employees to work actively towards their self-development goals, for example: training and the provision of resources.
2.2.4 Cultural controls
This type of control encourages the group process of mutual monitoring in the organization. A culture represents the shared values and beliefs of an organization, also the way of how employees should behave within the organization. In the optimum a strong organizational culture will cause employees to work together in a well-coordinated way (Merchant & van der Stede, 2003). The article of Merchant & van der Stede (2003) distinguished five methods of how organizations can shape their culture: “codes of conduct”, “group-based rewards”,
“intra-organizational transfers”, “physical and social arrangements” and “tone at the top”.
The first method, codes of conduct, refers to the formal documents that provide a broad description of the corporate values and the commitments towards its stakeholders. The second method, group-based rewards, refers to the collective provision of rewards when a division or group has realized a certain task or other achievement. The third method, intra-organizational transfers, refers to the rotation of employees through the organization to provide them with new incentives in a new environment. The fourth method, physical and social arrangements, refers to the appearance of the work environment and informal communication among employees which need to represent the overhauling core principles of the organization. The fifth method, tone at the top, refers to the role model behavior of top management that influences corporate behavior.
Ouchi (1979) mentioned that each type of control, whether it is market-based, bureaucratic or clan, can form the basis of the entire management control system. However, as Ouchi stated: “In reality, of course, we will never observe a pure market, a pure bureaucracy, or a pure clan” (Ouchi, 1979; p. 8). This corresponds to the article of Malmi & Brown (2008) which states that the controls opposed by Merchant & van der Stede (2003) do not operate
separately from each other. To create a coherent set of controls, all elements need to be analyzed interdependent from each other. As mentioned earlier, Malmi & Brown (2008) state that a management control system does not operate in isolation but consists of several elements that coherently form the overhauling management control system.
2.3 Organizational learning and benchmarking in public organizations
As mentioned in the introduction, benchmarking in public organizations is described as a substitute for market forces in public organizations (van Helden & Tillema, 2005). In case of a municipality, both civilians and clients form the essential parties of interests that the
municipality should secure. As part of the management control system, private organizations were already familiar with the concept of the balanced scorecard where the customer forms one of the four essential measures (Kaplan & Norton, 1992). In 1999 the same authors addressed an article with regard to the implementation of the balanced scorecard within public organizations (Kaplan & Norton, 1999) where the customer perspective could be measured by: “reduction of crime”, “increase perception of safety”, “strengthen
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“maintain competitive tax rates” and “promote economic opportunity” (Kaplan & Norton,
1999; p. 2). These factors relate to measuring the satisfaction of civilians within the municipality to compare possible improvements or deteriorations within the municipality. Online a public benchmark is developed to gain insight into the evaluation of civilians, called: “how is your municipality rated” (in Dutch: “waar staat je gemeente”). This section will provide an overview of the literature regarding organizational learning and benchmarking.
2.3.1 Organizational learning in public organizations
The article of Huber (1991) defines organizational learning as the acquiring of knowledge that could be potentially useful to the organization, four constructs or processes are identified through which organizations learn: knowledge acquisition which is the process of obtaining new knowledge, information distribution is the process of sharing information, information
interpretation is the process of interpreting the distributed knowledge and organizational memory that represents the knowledge which is stored for future use (Huber, 1991). This
definition by Huber (1991) is widely used in the literature. Other literature has based their definition to the article of Huber (1991). Dodgson (1993) defined organizational learning as it is opposed to create the ability for organizations to adapt or improve efficiency (Dodgson, 1993). However, former literature has stated that management control systems may hinder organizational learning (Batac & Carassus, 2009), the research of Kloot (1997) was the only study that showed how the use of a correct control system can stimulate organizational learning and therefore increase the possibility of improving efficiency or the ability of adaptation. It requires an enabling type of formalization to stimulate employees to act upon problems that they observe (Adler & Borys, 1996). However, municipalities have become even more coerced controlled than ever before nowadays (Bergevärn et al., 1995). Huber (1991) argued that organizations with a bureaucratic control mechanism do not stimulate their employees to benefit from learning out of mistakes. This indicates that organizations with a bureaucratic form of control, top-down decision making approach, are not able to gain an advantage by organizational learning.
Benchmarking is seen as one of the main tools to stimulate (intra)organizational learning (Auluck, 2002; Askim et al., 2007). In the following section this practical approach will be described in further detail.
2.3.2 Benchmarking in public organizations
As mentioned in the introduction, Benchmarking is a tool that is known for several decades in the literature and has been discussed by many authors in the governance literature. The story of optimizing the manufacturing process of Xerox is well-known and the basis of the current concept of Benchmarking as we know it nowadays (Hong et al. 2012). The former CEO of Xerox, David Kearns, at the time of the implementation of benchmarking defined the concept as: “the continuous process of measuring products, services and practices against the
toughest competitors or those companies recognized as industry leaders” (Hong et al. 2012;
13 Municipal benchmarking is possible in two ways: within a municipality and between
municipalities (Noordhoek, 2012). The inter-organizational aspect stimulates organizational learning within a municipality. As mentioned before, organizational learning is the acquisition of knowledge that could potentially be useful to the organization. Within Dutch local
governments, benchmarking is seen as a challenge to implement in the organization (Korsten, 2006). These comparisons of performance within public organizations has long been absence. However van Helden & Tillema (2005) state that benchmarking has become of increasing importance in municipalities. One of the problems regarding benchmarking in public organizations was the lack of available comparable information. Bowerman & Ball (2010) complement to this by stating that municipalities rather demonstrated their “good” performance instead of increasing performance even more. This attitude is created due to very detailed prescriptions of the activities within the local authority, it caused a lack of pro-activeness that is necessary, employees were stuck in their ‘everyday routine’ (Bowerman & Ball, 2010). The position to which public sector benchmarking was promoted stimulated organizations in “finding, sharing and implementing best practices” (Tillema, 2009; p. 70). Moreover, public organizations have been implementing benchmarking as a result of the new public management influences but it still remains without clear results (Noordhoek, 2012). Main arguments from municipalities for the failure of current benchmarking are the high costs which are involved in the usage of inter-organizational benchmarking. But also the lack of a generalized benchmark to compare results with the same parameters.
2.4 Concluding remarks of literature review
This literature review provided a comprehensive overview of the different elements involved to the subject of this thesis, started with the principles of new public management, after that the different control types of Merchant & van der Stede (2003) and Ouchi (1979) and at last defining the concept of organizational learning and benchmarking within public
organizations. Following the statement of van Helden & Tillema (2005) which implied the usage of benchmarking as a substitute for market forces, the comparison between market forces and based controls can be analyzed. Ouchi (1979) describes that market-based controls and clan controls form the two main control systems, when these control mechanisms fail or become insufficient, bureaucratic forms of control will be implemented in addition. Market-based controls require the least social requirements of all control types, however it nevertheless requires the highest amount of information prerequisites (Ouchi, 1979). This corresponds to the high amount of labor investment necessary to develop a valuable and present benchmark. In conclusion: when organizations gain the most
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3. Methodology
3.1 Research method
In the introduction the development of the research question was described. The main research question that is required to be answered is how the management control system of a Dutch municipality is structured and whether the system is influenced by benchmarking activities to substitute for market forces? To answer this question a case-study research will be conducted within a municipality. A case-study is characterized to answer ‘how’ and ‘why’ questions (Yin, 1989). Malmi & Brown (2008) also stated that case-studies could help to see how elements of MCS’s are related to each other. Cooper & Morgan (2008) complemented this by stating how case studies play an important role in describing the implementation and usage of (new) accounting innovations. Due to the complexity of MCSs and the analysis of these systems as a holistic package, this can be interpreted as a complex phenomenon. Cooper & Morgan (2008) stated that case-study research is very important in understanding complex phenomena.
3.2 Case description
The case where this research question will be analyzed is the municipality of Emmen located in the Dutch province of Drenthe. The municipality is 342.5 square kilometers wide and locates almost 109.000 citizens, this represents the fourth biggest municipality in the Netherlands based on surface. The delegation of decisions and tasks is divided into sixteen different departments with separate management teams. At the top of the organization a management board and the municipal council supervise the executing sixteen departments. The sixteen departments are named: management-staff, business, participation, policy and direction, social matters and health care, sports and culture, spatial development and infrastructure, fire department, public education, center of excellence, facility service, personnel legal affairs and communication, finance and taxation, villages and neighborhoods and permitting monitoring and enforcement. This research will focus to one department within the municipality named: villages and neighborhoods.
This department is responsible for the maintenance in the public areas of the entire municipality including for instance: landscaping, sewers and children playgrounds. It is divided into different sub-clusters which are responsible for different tasks. These clusters are: preparation and coordination, countryside, city and specialists in the public area. All these different clusters are controlled by separate cluster managers. Formally every employee is allocated to a cluster but in practice the activities and tasks are performed by the entire team where cooperation between different team members is a standard. This is enhanced by the work environment of the supervisors which operate together in the same room.
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3.3 Data collection
The main source of data collection in this research will be interviews. This type of data collection consists of open and closed questions, the open questions create a broad range of different answers to the subject that contributes to the answer of the research question (Runeson & Höst, 2008). Interviews can be conducted unstructured, semi-structured or full-structured, Runeson & Höst (2008) argued that in case-study research the semi-structured method provides freedom to improvisation and exploration during the interview. The asked questions to the interviewees, can be seen in appendix D and appendix E. The distinction between both questionnaires was based on the function of the interviewee. Apart from interviews, additional observations were done during different business meetings between supervisors and management. The researchers also performed desk research at the
department of villages and neighborhoods between 29th of April 2014 and 22nd of June 2014. Documents received during the period that contribute to the research, are coded in appendix C.
The interviews will be held with managers, supervisors and operating staff. In total thirteen interviews were conducted, six managers and seven supervisors or operating personnel. Each interview was held at the department of villages and neighborhoods or at the city hall. After conducting the interview, each interview was transcribed to follow the protocol that has been described by the research team.
3.4 Data analysis
In the previous section the different collection methods were described, but only the data that is perceived from the interviews will be used in the analysis. The observations during meetings or during desk research will only contribute to broaden the understanding of the organizations’ activities and tasks or to help the researcher to add content in the semi-structured interviews. This will be done by reacting to specific answers.
The interviews are developed using the framework of Merchant & van der Stede (2007), the questions are structured around the four types of controls (see appendix B). The analysis of the gathered data will therefore be structured around the ‘object of control’ framework of Merchant & van der Stede (2007). This framework enables the possibility to analyze what control mechanisms are active within the organization (personnel-, cultural-, action- or results controls). Using the literature that was described in an earlier chapter, the analysis will contain several reflections with findings from former literature.
The data received from the interviews will be used anonymously. Quotes that reinforce specific statements will not contain any names or personal information regarding the
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4. Analysis and results
As described in chapter 3.2, case description, the case study was held at the Dutch
municipality of Emmen within the department of neighborhoods and villages. Starting with controls used widely across the entire municipality, after that the control types within the department will be described using the four categories of controls: results controls, cultural controls, personnel controls and action controls (Merchant & van der Stede, 2003).
4.1 Municipality of Emmen control systems
The municipality of Emmen faced a major management crisis in 1996, due to this crisis the entire management and the committee of mayors and councilors left the organization. This has led to a struggling organization until 2002 when a new municipal secretary was
appointed. He had a clear vision of creating an integral organization that needed to become more case-oriented. Over the years the pressure towards the budgets of municipalities increased due to the crisis which forced the government to decline municipal budgets. This has caused a reorganization in 2005 and a municipal wide further development of the organization in 2012. These two moments have restructured the hierarchy within the organization by removing managerial functions in each department. The separate teams grew immense and increased the workload of the different team managers. The different transitions also asked a lot of empathy of the employees, especially in adapting to different administrative systems that increased the digitizing of different processes.
During the process of transformations and improving business, the management of the municipality has developed three main core values, called in Dutch: VerDeR (verbinden, daadkracht en ruimte), translated in English these values are called: connecting, decisiveness and space. Connecting is described as creating a more integral organization where different departments work together more effectively and efficiently. Connecting also stands for the connection with the customer, or citizens, especially within the department of
neighborhoods and villages, who have a lot of contact with the citizens, it is a core value that this connection is of sufficient ground. Decisiveness elaborates to the role responsibility of employees and space refers to the flexible way for employees to perform their tasks, for example: flexible working hours and opportunities to self-development. As an interviewee mentioned during the interview, the values are need to be interpreted in the following way:
"The purpose of these values is that they say something about what kind of company we are, but there's also a bit of ambition"
But these values could provide different interpretations by departments who implement different control types to comply these values, dependent on the diversity of the characters of employees.
Apart from these core values, the management of the municipality is trying to improve the job descriptions based on a personal work plan. This is a new development introduced last year. Before the introduction of the individual work plan, the job descriptions were based on competencies the employees have. The following citation shows that these job descriptions are still active at this moment:
17 By analyzing these different descriptions, there are differences in measurability and
differences to the degree of description. To be more elaborative about this statement: the individual work plan expects employees and supervisors to make activities more measurable to grade specific tasks at the employee its activities. The evaluation of these activities remains to be an interpretive task of the supervisor. Embedded within the personal work plan is the yearly cycle of consultations with the supervisor with a frequency of three consultations a year. This consultation cycle starts together with a planning consultation which is guided by what an employee is expected to achieve in the coming year. During the year an evaluation is discussed between employee and supervisor to see how the progress is evolving. At the end of the year a final evaluation consultation takes place to discuss whether the goals are achieved or not. This final evaluation, also referred to as an assessment
interview, can be experienced as frightening, as the following citation illustrates:
"What really is something huge, is when an assessment interview is planned, then you know something is wrong, you know"
However, due to the incomplete implementation of the consultation cycle, employees were not unanimous about the frightening aspect. The current situation shows one performance evaluation consultation a year. Within the consultation cycle, the assessment interview is equivalent to the final evaluation consultation. A variable that could explain the lack of generalization in the organization exists in the implementation process of the individual work plan and the consultation cycle, this process is still in development.
4.2 Departmental management control system
Within this section the four types of control mechanisms will be covered using a structured overview of the data collected throughout the interviews. The four types of control are: results controls, personnel controls, cultural controls and action controls. But first more information will be provided about the department, how it is structured and what the core operational activities are.
As mentioned in the case description, the department of villages and neighborhoods is responsible for the public space within the municipality of Emmen. The department is divided into four teams: preparation & coordination, countryside, city and specialists of the public area. These four teams each consists of one team manager. Each team manager is responsible for the operational activities within the team. Looking at the framework of Ouchi (1979), which looks at the knowledge of the transformation process and the ability to
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4.2.1 Personnel controls
One dominating thread was clear during the analysis of the data collected. The department of villages and neighborhoods was very generous with providing the necessary training for their employees. This is an important value which is deeply rooted in the organization. Starting at the management of the municipality, who stated the following:
"The motive of management has always been that you can start cutting back on things like self-development, easy as that, it does no immediate pain to people. Because at the moment I have to fire someone, it directly affects someone, less training budget is annoying but it does not directly affect someone. We have always said that we would rather decrease in personnel than cutting in these kinds of budgets"
This employee assumes that managementalways stimulates employees to actively be involved in possibilities for self-development. Key in this process is the willingness of the employees themselves. During the performance evaluation consultation the responsible team manager discusses the needs that exist at the employee. The individual needs outweigh the collective needs. To describe an actual case, if a service employee is eager to become a supervisor, the department allows him to do the training that fits this function. But at the moment he graduates, there is no room for another supervisor. At the end the service employee stays service employee and has gained more competences and trained more competencies but cannot actually benefit from this education. As the following citation confirms, when an employee has a proposal to his career development, nearly any proposal is rejected.
"It rarely happens that, in terms of career development, something is rejected, then it must surely be very special"
However, some signs for change in this system have been mentioned. Discussions are being held whether you should train employees as broad as possible or should they be trained specifically at competencies which are proficient. The following citation illustrates the ideas of this management employee:
"I always say: a duck is very good at swimming and can walk, but it will never become a runner. Then you can send the duck to a training to train the ability to walk, at the end the effect is that his feet are worn and that his swimming ability has become worse. So you should just let the duck swim and make sure he can still swim better instead of educate the duck to walk"
This illustrates that training and educational opportunities should be more carefully selected to make an employee even stronger at its best competencies. This could also cause people to become more directed towards their own functional responsibility.
Talking about functional responsibility, in the interview the question was raised whether people know what is expected from them. Due to the transition from an organic functional description to a more results-oriented model, different answers were raised dependent whether their superior already took actions regarding the transformation. In general the organic functional descriptions did not provide the required tools to give employees specific guidelines within their daily activities. But the idea also prevails that employees do not want to know what their functional responsibility is.
19 This statement contains a double message, it indicates a malfunction in the relation between superior and employee and it contains a possible lack of communication. Both problems enforce each other and will finally evolve in a ‘we’ versus ‘them’ posture. By implementing the individual work plans, the management is seeking to provide more structure in the evaluation of the employees but by containing the necessary space to perform the activities. Space is one of the three key values prescribed by the municipal management. Due to the great diversity within the department, the degree of self-control varies widely. The
dependent factors are: function and individual characteristics. But essential in the key value is the principle that employees also are able to take the space available. The freedom that appeared after the reorganization in 2005 left employees with the possibility to gain more self-control instead of hierarchical control between superior and employee. One of the most independent employees within the department of villages and neighborhoods are the coordinators within regions. As stated by one of the employees:
"It feels like I’m a small independent entrepreneur"
The personnel controls form an important element in the department of villages and neighborhoods. Due to the stimulation of the management towards the natural tendencies of employees, management is seeking to find an optimum in making employees responsible to what degree they are active in self-development and what degree of self-control they are able to successfully achieve.
4.2.2 Cultural controls
Looking at the cultural aspect, different employees experienced a different atmosphere within the department. Essential for the atmosphere is the allocation of people towards different offices. Within the department of villages and neighborhoods, this was not the case. Due to the key value of space, which the municipality encourages to its employees, the entire municipality reorganized its offices around flexible workplaces. Essential to this principle is that no employee has a permanent workplace, everyone is allowed to sit wherever is preferred. To illustrate, the department of villages and neighborhoods has one open space with multiple flexible workplaces. Due to the open work environment, all positive and negative experiences are perceived by the entire department. Only a few workplaces are outside of this open space, also appointed as flexible workplaces. As the citation shows, at the start of this sub-chapter, the atmosphere is not particularly experienced as satisfactory. The most recent employee satisfaction survey confirmed this problem, the survey showed an unsatisfied evaluation from the employees. The negative atmosphere causes friction
between management and employees, as the following citation illustrates:
"They have the idea that there are lots of things happening beyond them where they are not included in"
“group-20 based rewards”, “intra-organizational transfers”, physical and social arrangements” and “tone at the top”. Looking at possible codes of conduct in the organization, no employee in the department was aware of a formal document which prescribed certain norms and values that employees must comply. One essential value that has been institutionalized across the department is the customer orientation. This particular norm can be assigned to be a success of ‘the tone at the top’, in other words the exemplary role of the management. Due to the lack of a clear overview of values in a formal document, employees get informed during meetings about the expectations and commitments towards stakeholders.
4.2.3 Results controls
Within the department of villages and neighborhoods there exists diversity between superiors and employees whether employees are controlled by achieved results or goal setting towards results. During the time of the interviews, management was implementing individual work plans, as mentioned earlier. This plan should also allow superiors to set goals together with the individual employee which are evaluated at the end of the year. In other words, motivating employees to strive towards specific organizational goals. However, at this moment few employees knew about the transition to become more results-oriented:
"Our work also has to deal with the political and administrative dynamics and sometimes it is therefore difficult to establish very hard targets because yes, you're dependent on decision-making. So no, it's not currently on the agenda, and yes, I do not see it happening in the future"
This citation showed a contradiction towards signals mentioned from managerial functions which describe the current process of implementation of individual work plans to create more results-oriented awareness among all employees. But to motivate employees to actually achieve the required results, it helps to provide employees specific incentives to guide employees towards the required behavior. Incentives can be both monetary or non-monetary rewards. Currently the department of villages and neighborhoods has no instruments that show similarities with pay-for-performance instruments, according to Merchant & van der Stede (2003) an effective tool to motivate employees to strive towards specific goals. The department does provide a bonus for exceptional activities.
"But really in special situations, if someone just does his job well, he just does his job well and you may expect that"
These exceptional activities are not specified in clear guidelines but each management team of the different departments is able to assess to what degree an employee deserves a bonus.
"Each department manager has the space to act in the area of flexible bonuses"
This flexibility also causes indistinctness among employees, because it creates confusion about the demands to be eligible for a bonus. Either people didn’t knew about the possibility of receiving a bonus or it was experienced as something unattainable.
21 In other words by exaggerating: “bonuses are only feasible for employees who function high in the hierarchy”. Due to the unattainable feeling, some employees are experiencing, it becomes unattractive to stay motivated and to be actively involved in transformation processes guided by management.
Identical to bonuses, setting penalties for tasks that are performed poorly is scarcely used in the department of villages and neighborhoods. Consequences to poor performed activities only exist if it harms the integrity code of the municipality. In cases where integrity plays an important role employees face consequences, for example: dismissal or redeployment at another department. Apart from integrity cases, employees are held accountable for poorly performed tasks, but when these occasions occur, the direct consequence stops after having a conversation about the situation occurred.
"I notice that it does not happen quickly that someone is held accountable for dropping a stitch. In that sense I think more guidance/control is necessary to the employees within the municipal organization"
Part of the new public management principles, as discussed in the literature review, is the delegation of decision rights to all levels in the organization. By implementing this principle and delegate decision rights, this could encourage employees to become more involved in transformation process to their own interest. The lack of clear defined targets or results show that the implementation of the BBI (Beleids- en beheersinstrumentarium), mentioned in the literature review, was not successfully implemented. The department of villages and
neighborhoods is now seeking towards more effectiveness in measuring output of employees in qualitative or quantitative measures in the new individual work plans.
4.2.4 Action controls
The questions raised regarding action controls showed a high degree of consistency in answers provided. Important aspects when looking at action controls were possible
behavioral constraints, scrutiny of planned actions, employee responsibility and the capacity within the department. Important question that can be raised is to which degree employees are guided in their behavior to behave in the organization’s best interests. Behavioral constraints therefore could contain places within the municipal organization which access is denied to or, for example, server location which is access denied to. The interviewees were consistent in answering this question by stating that the municipal organization is very open and transparent.
"I can go anywhere, I can go anywhere and I am supported everywhere"
Some employees mentioned that there would possibly be a server location to which the access is denied but it does not hinder them in performing their tasks or activities. If employees signal a constrain which hinders them, the access is assigned quickly. Within the municipal organization, every employee owns an access pass which allows them to gain access to all buildings that are part of the town hall.
22 approval of certain activities is only necessary when an employee is developing a large tender or when confirming a large outsourcing contract, the direct supervisor will then be responsible for the decision. The service employees have a lot of freedom in planning activities, the schedules produced do not need to be approved by the supervisor. As
mentioned before, the main task of the service employee is the settlement of complaints by civilians. Within the boundaries of handling certain complaints within a specific amount of hours, service employees gain a lot of freedom in the order and content of handling
complaints. This does involve a high degree of responsibility towards the tasks and activities performed. Unless the lack of formal delegation of decision rights, employees do feel responsible towards the tasks they perform but it lacks the chance of high consequences when tasks are performed poorly which could motivate employees to act always in the best interests of the organization.
Another major principle of new public management was the higher need for effectiveness within public organizations. An important factor in judging effectiveness and efficiency is the capacity within the organization. To what degree exists an overcapacity or under capacity within the municipal department. The reorganization in 2005 created a new structure of decision rights within the department. Interviewees mentioned that due to these big changes over the years, it has caused a changing function with less responsibility. Also the increasing amount of outsourcing has declined the workload of employees. But the human capacity did not decline, this results in an overcapacity at different elements.
Action controls are not extensively used within the municipal department to guide behavior. Main argument for this statement is the open recognition of redundancy within the
department and the lack of formally written rules.
4.2.5 Management control system as a package
In the analysis the distinction was made between the four types of control: personnel-, cultural-, results- and action controls. The analysis showed a high focus towards personnel controls due to the high amount of competence development and the high stimulation of self-monitoring and self-controlling. Despite that the functional responsibility is not clear for every employee within the department the personnel controls remain important within the department and municipality wide. The results control is in development and part of the work plan that is established to evaluate the employees. The cultural and action controls play a role intrinsically but specific norms and values or specific procedures are not
communicated towards the employees. Employees’ actions are corrected when they perform below average. Rewarding or correcting employees is described by the department as
something difficult due to the policies of the municipality. As mentioned in the literature review, Malmi & Brown (2008) stated that management control systems do not operate in isolation. During the interview, the interviewees were questioned how the employees experience the connections between the different control mechanisms. This sub-chapter will shed light to the connections between the control mechanisms applied within the
department of villages and neighborhoods associated to the theory of Malmi & Brown (2008).
23 department of villages and neighborhoods was still experiencing the implementation of a different phase in the INK-model.
“Between INK 1 and INK 3 you have the process-oriented phase, and that is often a phase of much fuss and we are still very much in that phase. Hassle has always been a key characteristic of phase 2”
In becoming more process oriented, employees deal with uncertainty due to changing
control mechanisms, for example: changing formal functional descriptions, which changed, as mentioned before, from a more organic form towards a more measurable results oriented form.
However, the results-orientation is an element that is still underdeveloped within the department. Employees do not experience to be controlled based on output or specific results based on their activities. Raising the question which control mechanism is
experienced as dominant, many employees state that personnel controls, and especially the self-monitoring element, is dominant within the organization. This corresponds with the following citation:
"Here the challenge was that without any guidance I needed to find my own way, and in the end I succeeded so regard to this it works"
In contrast, the management team of the department is seeking for an optimum between personnel controls and action controls. In particular the self-monitoring element within the personnel controls and the more bureaucratic way of controlling, described in the chapter of action controls (4.2.3). This search is specifically focused towards the competencies of employees, whether the particular employee is able to bear responsibility and controls its own behavior towards the goals as defined by the management team. A team leader within the department is therefore required to constantly switch between approaches towards different employees.
Although the activities of the service employees are very straight forward, the employees are guided by the complaints mentioned to the department by the citizens. The complaints can be caused by, for example: deferred maintenance, weather conditions and misplaced complaints (complaints not meant for the municipality). This could cause a totally
unpredictable content of the day. To describe a scenario: during the research period the municipality suffered a storm causing waterlogging in the sewers. The sewers are one of the responsibilities of the department of villages and neighborhoods, which directly caused a lot of complaints about the waterlogging of the sewers by citizens. The service employees had faced a couple of days to handle with each complaint. This short scenario shows that the activities of the service employees are highly unpredictable. Referring back to the framework of Ouchi (1979), the knowledge of the transformation process is imperfect but the output which is delivered, can be measured highly. This type of business can be best controlled, according to Ouchi (1979), by output measurement, as mentioned at the start of the analysis.
4.3 The application of intra-organizational relations across municipalities
24 Particularly they make use of acknowledged consulting partners (in Dutch: “erkende overleg partners”) to have one contact which represents the community of a specific area within the municipality. All acknowledged consulting partners have a budget at their disposal to be used to everything that is requested from the neighborhood or village, the amount of budget depends on the size of the community. Apart from the acknowledged consulting partners, the department of villages and neighborhoods has employed eight coordinators who are active within the communities and stimulates the improvement of the society of that district together with the society. Both methods form exceptions in participating with civilians across Dutch municipalities. There do not exist any intra-organizational relations that stimulate this approach with other municipalities in the Netherlands. These intra-organizational relations do exist in other areas together with the municipality of Borger-Odoorn and Coevorden according to the principle of host municipality (in Dutch: gastheergemeente). In practice this means that common execution, management and service activities could be organized throughout one municipality to improve the efficiency and effectiveness of resources.
Another form of intra-organizational learning is in development at the area of waste management. The department is connecting with the municipality of Delfzijl to create a collaboration based towards information distribution. The information that is distributed is in particular the citizen review about the waste collection, the opinion is valuable due to the changing method of the collection of waste across the municipality. Using benchmarking as a tool for information distribution will enable the department to measure the success of certain developments within that specific area.
The closing note of the literature review referred to the high costs involved to set up different benchmarks. Within the department of villages and neighborhoods, the use of departmental wide benchmarks was small. Only a few people were aware of the website: ‘how is your municipality rated’ (waarstaatjegemeente.nl), employees that were aware of the website criticized possible differences in community culture.
"Maybe you never realize high valuations due to the type of population, well then I would like to know"
To be more elaborative, employees described civilians of the municipality Emmen as being very critical. The distinction within the community was made between the peat-resident and the sand-resident, referring to the different territories. The peat-resident is described as someone which is very self-controlling and does not accept direct supervision by the municipality. Back to the original topic, due to the critical attitude, employees expect civilians will grade the municipality of Emmen lower than civilians in other municipalities. The outcomes of the website: ‘how is your municipality rated’, cannot be included in this thesis as solid proof for certain situations due to the lack of knowledge about the
methodology executed within the benchmark. However, the website is a free provided tool to gain quick access about citizens their evaluations, so when interviewees mentioned the website during the interviews, the assumption can be created that this particular person gained knowledge out of the results.
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5. Discussion
In the performed case study, we saw that the department of villages and neighborhoods had a high focus towards personnel controls. The result type controls have gained more attention and will increase in existence within the department. The two remaining control
mechanisms, cultural and action control mechanisms, have shown to play a less intensive role within the management control package. In the analysis the identification of the current management control system was established of the particular case study. In addition the analysis concluded that the department is experiencing intra-organizational relationships in an early phase and hopes to benefit from these relationships in the future.
In the literature is stated that Ouchi (1979) distinguishes the type of control based on the knowledge of the transformation process and the measurability of the outputs. In the analysis we saw that the knowledge of the transformation process is imperfect and a high ability to measure outputs. Ouchi (1979) states that these findings should be controlled by output measurement. This difference can be declared in the change of activities within the department. As mentioned, the declining financial budgets have led to the outsourcing of several activities. As a consequence, the current service employees were obliged to become more all-round instead of being a specialist in landscaping or civil works. Their tasks were, before the continuing development of 2012, more focused to performing maintenance tasks. The maintenance tasks have a high level of knowledge about the transformation process due to the specified descriptions of the required performances. So the former situation, before 2012, the knowledge of the transformation process was perfect and the measurability of the outputs was high. Ouchi (1979) prescribes output or behavioral control mechanisms for this type of business. Using the theory of Ouchi, we can state that the management team of the department of villages and neighborhoods changed the content of the service employees’ function several times but did not immediately changed the type of control necessary, despite the high amount of service employees within the department. As mentioned in the analysis, the implementation of results-oriented control mechanisms is not complete and is still in development to fit the department. As Speklé & Verbeeten (2014) described three assumptions necessary for the success of pay-for-performance constructs. At first, clear and unambiguous goals of the organization. Secondly the measurement of performance can be consistent with the organizational goals and in third, good knowledge of the transformation process. The case study has showed to perform activities which are characterized by an imperfect knowledge of the transformation process. Which is not a beneficial situation for pay-for-performance constructs and creates difficulties in developing result controls within the department.
