Institutional and Resource Dependence Theory,
Enhancing Benchmarking Performance.
Remco Klapdoor
r.klapdoor@student.rug.nl Student number: 2172607
University of Groningen
Faculty of Economics and Business Msc Organisation & Management Control
Msc BA Master Thesis June, 2015 Supervisor: Dr. S. Tillema 2nd Supervisor: Dr. H.J. van Elten
In the past decades the pressure on public organisations to improve their performance has increased. One of the tools that is able to assist an organisation in the search for increased productivity and quality is benchmarking. Public sector organisations can use benchmarking as a technique to communicate with stakeholders, and to improve performance. However, disclosure of benchmarking scores can result in external pressures being exerted by stakeholders for the
development and implementation of action plans. This paper will investigate whether particular types of external pressures can be associated with certain types of benchmarking behaviour, based on institutional and resource dependence theories. An improved understanding of benchmarking behaviour in relation with external pressures, should enable public sector organisations to improve benchmarking performance and thereby organisational performance. Data is collected by the means of a questionnaire, that has been distributed across municipalities and healthcare organisations in the Dutch public sector. The main finding is, that there is no significant relationship between public sector characteristics, and responses towards external pressures. Consequently, the
abovementioned theories do not prove to be useful in explaining or understanding benchmarking behaviour, let alone enhancing benchmarking efficiency in the public sector.
Key words: benchmarking, public sector, external pressures, resource dependence theory, institutional theory.
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§1. Introduction
In the past decades, the pressure on public sector organisations to improve their performance has increased. One of the tools that is able to assist an organisation in the search for increased
productivity and quality is benchmarking (Magd and Curry, 2003). Benchmarking can be described as a management tool for attaining or exceeding the performance goals, by learning about best
practices, the understanding of those practices, and the implementation of the processes by which they are achieved (Anand and Kodali, 2008). Benchmarking can be used as a performance
management technique, as it is able to make sense of performance data, by comparing these data against other (similar) organisations and sub-units (Poister, 2008). In order to be effective,
benchmarking should be a permanent exercise, because today’s “best of the class” may not be tomorrow’s (Klages et al., 1999).
The term benchmarking entered the private sector in the late 1980’s and became increasingly popular in the early 1990’s (Bessant et al., 2006). Although benchmarking appeared to be slow in forthcoming in the public sector, as it was not until the late 1990’s that benchmarking became popular in the public sector as well. This was due to a strong pressure towards an increase in efficiency and effectiveness in the public sector (Dorsch and Yasin, 1998; Bowerman et al., 2002). Benchmarking in the public sector has more functions than in the private sector. For example, it is argued by Van Helden and Tillema (2005) that benchmarking in the public sector is not only used as a tool for performance measurement, but also as a replacement of market forces. In the public sector consumers are often unable to switch between suppliers without moving to another area, so normal market forces do not work. Instead public sector organisations use benchmarking to test their competitiveness and consumers can use the reports to compare relevant characteristics of suppliers. Due to the inability of consumers to switch between suppliers, these reports will not have an effect in the short-run, however in the long-run, pressure from consumers may result in increased
supervision of these organisations or they might even be replaced by alternate service providers. Another important difference between performance management in the public and private sector is, that public sector organisations have to respond to a wider set of stakeholders. These can include, for example, customers, politicians at different levels of the government, and professional
organisations (Propper and Wilson, 2003; Brignall and Modell, 2012).
3 and defensive behaviour, which can occur when benchmarking information is disclosed to internal or external stakeholders. Both types of behaviour can frustrate performance improvement processes. Dysfunctional behaviour implies that organisations respond to their stakeholders by enhancing their reported performance, however, the real performance of these organisations does not improve. Defensive behaviour occurs when organisations tend to defend variations in their scores towards their stakeholders instead of improving them. An example of dysfunctional behaviour is sub optimisation, here the emphasis is on single measures of success rather than on the underlying objective (Van Thiel and Leeuw, 2002).
So, the relation between external stakeholders and benchmarking is twofold. It is a technique to communicate with stakeholders, and to improve performance. However, disclosure of benchmarking scores can result in external pressures being exerted by stakeholders for the development and implementation of action plans (Van Helden and Tillema, 2005). This can become problematic when organisations are faced with the demands of multiple stakeholders (Brignall and Modell, 2012), as it is likely that these stakeholders have conflicting interests and the organisation is not able to respond to everyone of them. This increased pressure from stakeholders to improve performance and conform to their specific demands, might eventually result in certain types of unwanted behaviour. In order to enhance benchmarking performance, this paper will investigate whether particular types of external pressures can be associated with certain types of benchmarking behaviour. An improved understanding of benchmarking behaviour in relation with external pressures, should enable public sector organisations to improve benchmarking performance, and thereby organisational
performance. In order to do so, this paper will make use of two complementary theories, resource dependence theory and institutional theory. These theories are complementary, because both theories state that organisations seek stability and legitimacy (Oliver, 1991). The analysis of
benchmarking behaviour in combination with institutional and resource dependence theory is lacking in the existing literature, but might provide useful insights as these two theories might be able to explain how benchmarking behaviour and practices are influenced by the external environment of the organisation.
So, the research question will be: “How can institutional and resource dependence theories be used to find ways to enhance the performance of benchmarking in the public sector?”. In order to answer this question the following sub questions will be examined:
1. How can organisations respond to external pressures, according to institutional and resource dependence theories?
4 3. Based on institutional and resource dependence theories, which responses to benchmarking
related pressures can be expected?
4. How do these responses vary among different situations.
5. Do the responses observed in practice confirm these expectations? 6. What else explains differences in these responses, if any?
7. Can the responses observed in practice enhance benchmarking performance? The first two questions can be answered by examining the current literature related to
benchmarking, institutional theory, and resource dependence theory. The answers to those two questions will result in the development of hypotheses, i.e. the third, and fourth question. These hypotheses will form the basis for the fifth, and sixth sub question in this analysis, the test if a response to external pressures can be explained by resource dependence and institutional theory and, if so, how possible differences in responses can be explained. The seventh and final question is related to the overarching research question and will aim to explain whether benchmarking
performance can be enhanced on the basis of the obtained results.
In order to test the developed hypotheses, a theory testing approach will be used. The required data will be collected by the means of a questionnaire among Dutch municipalities, and Dutch healthcare organisations in the public sector.
The main finding of this study is that institutional and resource dependence theory are not able to explain benchmarking behaviour, and are, consequently, not useful to enhance benchmarking in general.
§2. Literature Review
Benchmarking behaviour can be influenced by several external pressures. In order to gain insight into those pressures, two theories and possible responses distinguished in those theories will be
examined. These theories are institutional and resource dependence theory.
§2.1 Institutional Theory
Institutional theory is regularly used to gain insight into organisational and management accounting change (Burns and Scapens, 2000; DiMaggio and Powell, 1983; Greenwood and Hinings, 1996). A distinction can be made between three types of institutional theory, these are new institutional economics (NIE), new institutional sociology (NIS), and old institutional economics (OIE). In this paper the focus will be on NIS. From now on, the term institutionalism and NIS will be used
5 NIS attempts to explain why organisations in particular fields appear to be similar. This theory has often been applied to not-for-profit, and public sector organisations (Brignall and Modell, 2000; Modell, 2001; Frumkin and Galaskiewicz, 2004). Moreover, NIS gives insight into the responses of organisations to pressures from the external environment. This makes it appropriate for the study of benchmarking, as benchmarking in the public sector is preliminary concerned with external
stakeholders as well, i.e. customers, politicians, and government bodies (Scapens, 2006).
Important advocates of NIS are DiMaggio and Powell (1983). They argue that strategic change is not driven by efficiency seeking or other rational-actor models, but more by external pressures that push organisations towards homogeneity. They suggest that homogeneity in structure, culture and output is not achieved by the adoption of optimal practices, but by individual efforts to deal with uncertainty and constraints. This suggests that benchmarking does not necessarily result in the adoption of optimal practices, but in adaptation to external pressures. This view is supported by Frumkin and Galaskiewicz (2004), who state that organisations do not always implement strategies, structures, and processes that improve their performance, but instead react to external pressures. For example, political pressure rather than economic pressure may result in the adoptation of a certain structure.
§2.2 Resource Dependence Theory
Just as institutional theory, resource dependence theory (RDT) recognizes the influence of external pressures on organisational behaviour (Hillman et al., 2009). The central concept of RDT is the dependency of the firm on its environment. In general, organisations will tend to be influenced by those who control the resources they require (Pfeffer and Salancik, 2003). Resources can be regarded as anything that could be thought of as a strength or weakness to a firm (Dalziel and Hillman, 2003). Those resources can, for example, consist of legitimacy, advice and counsel, and links to other organisations. The “strength” of a resource determines the amount of influence that an
environmental factor has (Hillman and Dalziel, 2003). In other words, the power that an organisation has over its resources, influences its level of dependency. Power over a resource can be obtained due to: having access to it; the possession of the resource; the use and control over the resource; or the ability to regulate the possession, allocation and usage of this resource.
6 might differ across organisations, as organisations have a different levels of dependency (Boyd, 1990).
Stronger links with the environment might provide channels of communication and information between firms and external stakeholders, thereby dealing with uncertainty in the environment. In turn, this might enhance organisational performance (Dalziel and Hillman, 2003). However, strong links with the environment might restrict organisations in their freedom to adapt to external pressures. For example, when the organisation relies heavily on one or multiple external stakeholders. Consequently, the behaviour of organisations, with regard to their benchmarking scores, might differ, depending on their degree of dependency.
§2.3 Responses to External Pressures.
Oliver (1991) discussed NIS and RDT, and investigated their potential for complementarities in explaining organisational resistance and conformity towards external pressures. Oliver (1991) argued that the commonalities underlying the assumptions in both frameworks demonstrate that RDT has the ability to complement the more limited range of organisational responses towards external pressures offered by NIS.
Both theories suggest that organisations attempt to obtain stability and legitimacy, although the explanatory processes differ. Whereas RDT suggests that organisational stability is obtained by achieving a stable inflow of vital resources, by the means of power or control, institutional theory suggests that stability is achieved by conforming to institutional rules or expectations. Legitimacy can be described as “a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman, 1995). This definition emphasises that organisations need some kind of approval of external stakeholders in order to be legitimate.
Whereas institutional theory emphasises the importance of compliance, RDT includes all kinds of non-conformist behaviour (TIllema and Van Helden, 2005). The combination of these theories by Oliver (1991) resulted in the development of five types of strategic organisational responses towards external pressures, which should enhance the organisation’s legitimacy and/or stability. Each of these responses, in ascending order of active organisational resistance, will be briefly discussed below.
7 Secondly, compromise can be used when organisations are confronted with, multiple, conflicting institutional demands or expectations. Under compromise organisations seek to balance, pacify or bargain with the external constituents, which have these demands or expectations.
Thirdly, avoidance. Avoidance is the organisational attempt to preclude the necessity of conformity. This can be achieved by concealing their non-conformity, buffering themselves from external pressures, or escaping from institutional rules or expectations. Of these three tactics, escape will be impossible for most public sector organisations, as they are bound to a certain area and many of their services have to be publicly available.
Fourthly, defiance. Defiance is a form of resistance. Oliver (1991) distinguished three different sub forms: dismissal or ignoring institutional rules and values, challenging of these rules, and attacking the logic or reason underlying these rules.
And Finally, manipulation. Manipulation refers to the attempt to co-opt, influence, or control external pressures and evaluations.
§2.4 Variations in responses among different situations
Oliver (1991) states that the response of an organisation is preliminary determined by the ability and willingness of the organisation to conform to the institutional environment. In turn, the willingness and ability of organisations to conform depends on: the reasons that cause stakeholders to exert pressure on the organisation; the constituents, the stakeholders that exert the pressure; the means by which the pressure is exerted (control); the content of the pressure; and the context in which the pressure is exerted (environment) (Oliver, 1991). The level or strength of each of the factors can be associated with a type of response as predicted by Oliver (1991).
8 However, an organisation might simply be unable, or be constrained, to conform to these pressures (Oliver, 1991). The following factors are associated with the ability of the organisation to conform or resist external pressures. High levels of conformity are expected in situations where pressures are imposed by a legal mandate and in situations of high voluntary diffusion (DiMaggio and Powell, 1983; Pfeffer and Salancik, 1978). Voluntary diffusion can be described as organisations following practices that are already highly diffused throughout the field (Oliver, 1991). Moreover, in the environmental context of organisations, high levels of conformity are expected in fields with a high degree of interconnectedness, referring to the density of interorganisational relations, and, if organisations in uncertain environments aim to be perceived as stable (DiMaggio and Powell, 1983).
The responsive actions and the corresponding predictive factors are summarised in the table 1.
Predictive Factors
Strategic Responses
Compliance Resistance Cause
Increased Legitimacy High Low
Increased Efficiency High Low
Constituents
Multiplicity of Pressures Low High
Dependency on Stakeholders High Low
Content
Compatibility with Organisational Goals High Low
Control
Legal Coercion High Low
Degree of Voluntary Diffusion in the Organisational Field High Low
Context
Uncertainty High Low
Interconnectedness Between Organisations High Low
Table 1: Institutional Antecedents and Predicted Strategic Responses
Van Helden and Tillema (2005) stated that stakeholders exert pressures on the organisation for the development and improvement of action plans. Therefore, it is expected that organisations, which behave in a compliant manner in response to external pressures, will engage in the development of improvement plans. However, organisations which show a high degree of resistance against external pressures tend to neglect possibilities for improvement.
The next section will discuss certain public sector characteristics, and subsequently develop hypothesis, based on literature, that link the specific characteristics with corresponding types of organisational responses. As it is important that the expectations are governed by previous
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§2.5 Public sector benchmarking, and corresponding responses towards external pressures
The following characteristics of public sector organisations can be distinguished, which might make the organisation more susceptible to external pressures and therefore might influence benchmarking behaviour as well.
First, public sector organisations have to respond to a wide set of stakeholders (Frumkin and Glaskiewicz, 2004). Because the organisations lack a single stakeholder group, such as shareholders, who monitor and evaluate the organisation in order to legitimate its operations, public sector organisations might be susceptible to more external pressures than private sector organisations. Moreover, this wide set of stakeholders implies that public organisations have to communicate their benchmarking scores to a wider public. Consequently more stakeholders might be willing to get involved in the development of action plans to improve the performance of the organisation, which makes the decision making process more complex, as these stakeholders often have multiple, diverse or even conflicting interests (Frumkin and Galaskiewicz, 2004; Tillema, 2007). According to Oliver (1991) such a wide set of stakeholders (i.e. multiplicity is high) should lead to non-compliant
responses to external pressures. As it is has been argued, that compliant actions or behaviour would lead to the satisfaction of one stakeholder, but at the same time to ignoring or even defying another stakeholder (Pfeffer and Salancik, 1978). Therefore it is expected that:
H1: A wide set of stakeholders, exerting pressure on the basis of the organisations benchmarking scores, leads to more active, resistant, responses.
An exception might be when the organisation relies heavily on one of these stakeholders (Tillema, 2007). If these stakeholders have sufficient power and place value on benchmarking scores, they might be able to influence the actions and strategy of the dependent organisations (Frumkin and Galaskiewicz, 2004). When the dependency of the organisation is high, i.e. the corresponding
stakeholder has sufficient power, organisations tend to behave in a compliant manner (Oliver, 1991). Therefore, it is hypothesized that:
H2: The existence of a powerful external stakeholder, who values benchmarking information, leads to compliant responses.
Moreover, Oliver (1991) stated that organisations tend to have compliant responses when facing pressures such as legal coercion. According to, DiMaggio and Powell (1983) public sector
10 improve their performance (Tillema, 2007). However, as this research focuses on benchmarking within sub-sectors of the public sector, it is reasonable to assume that the same regulations and standards apply to each organisation. Therefore, these predictions will be altered into a more applicable situation within the public sector, the financial situation of organisations. Nowadays, in the year 2015, 16 of the 393 municipalities in the Netherlands are placed in ward, and many other municipalities are in financial distress as well (accountant.nl). Moreover, in the healthcare sector the financial situation of many institutions is worrying as well, more than one fifth of the hospitals is in a difficult financial situation (rtlnieuws.nl). Organisations that are in financial distress might be under severe restrictions of higher authorities such as the central government, which could influence their benchmarking practices. For example, Bowerman and Ball (2002) argue that these organisations will use benchmarking preliminary to find “slack”, which in turn can be used to cut costs, instead of improving their current performance. So, building on the prediction of Oliver, (1991), it is expected that:
H3: Public sector organisations which are subject to financial restrictions, have a higher degree of active, resistant, responses, towards external pressures.
Finally, to not forego one of the original purposes of benchmarking, the fourth and final hypothesis will be related to the extent in which organisations monitor the practices of other organisations in the field. In other words the context of organisations, and more specifically the interconnectedness. DiMaggio and Powell (1983) argue that the larger the interconnectedness of organisations, the more severe are the institutional pressures. Oliver (1991) has adopted this view and predicted that the responsiveness towards these pressures from the external environment would be high as well. Which means that a high degree of interconnectedness would result in more compliant responses. So, it is hypothesized that:
H4: A high degree of interconnectedness between benchmarking practices in, similar, organisations leads to more passive, compliant responses.
§3. Methodology
This section clarifies the research method that will be applied to test the developed hypotheses. Furthermore, the data sources, measures, and the subsequent analysis will be discussed.
§3.1 Research Method
11 institutional pressures and the corresponding responses to these pressures on the basis of Oliver’s (1991) framework, will be followed (Clemens and Douglas, 2005; Goodstein, 1994; Ingram and Simons, 1995).
The questionnaire will be developed and distributed in association with a fellow student, who examined the application of agency theory in public sector benchmarking activities. The main reason to combine the data collection for these two studies, is to be able to reach a larger sample, and thereby increase the number of respondents. This should in turn increase the reliability of the results. The distribution of the questionnaires will take place by e-mail, which has as advantages that the costs to spread the questionnaires are low, geographic distances will not be problematic, and the responses are less biased (Evans and Mathur, 2005).
§3.2 Data Sources
This study will draw on data derived from Dutch public sector organisations, which are involved in benchmarking. The public sector consists of several sub sectors, such as municipalities, hospitals, and primary schools. In this study, respondents will be selected from the healthcare sector, more
specifically hospitals, special care clinics, and nursing homes, and municipalities. This distinction allows for a comparison between sub sectors, which might prove to be valuable. Moreover, both these sectors have been in the news regarding their current financial situation, which might lead to interesting results with regard to responses to institutional pressures.
In total, 904 questionnaires were distributed towards potential respondents, 439 were successfully distributed towards healthcare organisations and 465 towards municipalities. Each of the
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§3.3 Data Measures and Pre-Measurement Analysis
In order to test the hypothesis, a distinction is made between dependent, independent, and control variables. Dependent variables, are the variables were this study is interested in. Independent variables comprehend the variables that might affect the dependent variable. Finally, control variables are believed to influence the relationship between the dependent and independent variables (Song et al., 2011).
The subsequent analysis consists of two types of measurement, pre-measurement, and the actual statistical analysis. Pre-measurement consists of a factor analysis which will be used to check, and verify that the variable consists of a fixed number of items, which can be used in a subsequent regression analysis. Moreover, a reliability analysis will be conducted in the pre-measurement stage. The reliability test consists of Cronbach’s alpha’s, which indicate to which extent items that measure an underlying concept are consistent with each other. The final stage of pre-measurement, is to create a sum variable which combines the items used to measure a single concept.
For each variable a factor analysis has been conducted, containing the Kaiser-Meyer-Olkin (KMO) and Bartlett’s test to determine if the sampling adequacy for each and every variable was sufficient. More specifically, the KMO indicates which proportion of variance is caused by underlying factors, whereas the Bartlett’s test indicates whether a correlation matrix is an identity matrix, which would indicate that variables are unrelated (Varol, 2011). In order to be satisfactory, each factor should have a KMO value above 0.5, and a Bartlett’s significance below 0.05. This was the case for each and every variable, KMO values ranged from 0.5 up to 0.75 and all the significance levels were below 1%. Moreover, the reliability analysis. A rule of thumb is that Cronbach’s alphas equal or above 0.7 are regarded as sufficient. However, Sijtsma (2009) states that the accuracy of a Cronbach’s alpha test is generally low. Moreover, other studies regard Cronbach’s alphas of 0.6 as sufficient (Hair et al., 1998; Munnukka, 2008). Therefore, this study will accept Cronbach’s alphas close to, or above 0.6.
Now the measurement items of each variable will be presented and discussed in combination with the subsequently conducted measurement analysis. A summary of the results of the pre-measurement analysis can be found in table 2, which includes factor loadings, factor loadings represent the extent to which a factor explains a variable in an analysis.
§3.3.1 Dependent Variable
13 benefits of Likert scales are the ease of answering questions for the respondent, and the ease to code when accumulating data (Likert, 1932).
Respondents are asked to give indications, ranging from totally agree, to completely disagree for statements containing possible responses that might have been given towards external pressures. The following items were included in the questionnaire. The first item is, The pressures of
stakeholders are always taken into consideration (reverse coding). Moreover, items used by Clemens and Douglas (2004) are included: The pressures of these stakeholders are ignored. As well as, Future contact/discussion with the corresponding external stakeholders is avoided, after they have contacted us. Moreover, The pressures are challenged in the media. Finally, An attempt is being made to
influence the perception of these stakeholders, regarding the necessity to comply to these pressures. The combination of these five items resulted in a Cronbach’s alpha of 0.62, which is regarded as reliable.
§3.3.2 Independent Variables
The following independent variables will be taken into account: a wide set of stakeholders; powerful external stakeholders; financial restrictions; and interconnectedness. Now each of the data measures corresponding to these variables as well as the pre-measurement analysis will be discussed.
Firstly, a wide set of stakeholders. The first item related to this variable will determine if
organisations perceive external stakeholders as interested in their benchmarking scores. We perceive that external stakeholders are well interested in our benchmarking scores. The second item is,
Multiple stakeholders have contacted the organisation with regard to our benchmarking scores. Moreover, in order to attach a number, and thereby weight, to this variable, an approach used by Greening and Gray (1994) will be followed, who studied interest group pressure. The following questionnaire items to test this variable will be used: How many external stakeholders have directly contacted your organisations about its benchmarking scores? and, Could you give an indication who these stakeholders are? With ‘external stakeholders’ is meant, any group that has an actual or potential interest in, or impact on the use of organisations benchmarking scores (Kotler and
14 Secondly, the degree of powerful stakeholders, who judge on their own merit the organisation’s benchmarking scores. As it is difficult to capture this variable with direct questions, four statements will be used, were respondents are asked to give an indication whether they agree or disagree on a 7-point Likert scale. The following statements are being used: It was difficult to make a balance of interests between different demands of external stakeholders (reverse coding). Secondly, The
demands of one particular stakeholder are often decisive. Thirdly, We are more willing to comply with one certain stakeholder. Finally, We are obliged to fulfil the demands of one particular external stakeholder. The conducted reliability analysis resulted in a Cronbach’s alpha of 0.6, which is sufficient.
Thirdly, the financial restrictions each organisation is subjected to. The following items, based on a 7-point Likert scale, will be used to measure this variable. The organisation is in financial distress. Moreover, We have sufficient resources to adequately perform our benchmarking practices (reverse coding). Followed by, Due to our organisations’ financial situation, we are restricted in our
benchmarking practices. Finally, We use our benchmarking scores, to discover possibilities to reduce costs. This variable could be perceived as reliable based on the Cronbach’s alpha of 0.62.
Finally, the interconnectedness between organisations. This variable will be tested by the means of three statements, which are partially derived from items used by Clemens and Douglas (2004). Firstly, We are more inclined to comply to certain demands of external stakeholders, if other
organisations comply as well. The following statement is: Our organisation imitates the behaviour of other organisations. Finally, The actions we take, based on the pressures exerted by external
stakeholders, are innovative (reverse coding). The corresponding reliability analysis resulted in a Cronbach’s alpha of 0.34, thereby indicating that this variable is unreliable. To increase the reliability, the third question has been removed from the corresponding analysis, thereby increasing the
Cronbach’s alpha to 0.67.
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Variable and Cronbach’s Alpha
Items Loading
Responses
Cronbach’s Alpha = 0.62
The pressures of stakeholders are always taken into consideration (reverse coding).
The pressures of these stakeholders are ignored.
Future contact/discussion with the corresponding external stakeholders is avoided, after they have contacted us.
The pressures are challenged in the media.
An attempt is being made to influence the perception of these stakeholders, regarding the necessity to comply to these pressures.
0.847
0.622 0.632
0.741 0.715 A Wide Set of Stakeholders
Cronbach’s Alpha = 0.64
We perceive that external stakeholders are well interested in our benchmarking scores.
Multiple stakeholders have contacted the organisation with regard to our benchmarking scores.
0.740
0.740 Powerful Stakeholders
Cronbach’s Alpha = 0.60
The demands of one particular stakeholder are often decisive. We are more willing to comply with one certain stakeholder.
We are obliged to fulfil the demands of one particular external stakeholder.
0.840 0.843 0.646 Financial Restrictions
Cronbach’s Alpha = 0.62
The organisation is in financial distress.
We have sufficient resources to adequately perform our benchmarking practices(reverse coding)
Due to our organisations financial situation, we are restricted in our benchmarking practices 0.61 0.819 0.789 Interconnectedness Cronbach’s Alpha = 0.67
We are more inclined to comply to certain demands of external stakeholders, if other organisations comply as well.
The actions we take, based on the pressures exerted by external stakeholders based on our benchmarking scores, are innovative (reverse coding).
0.745
0.740 Table 2: Results: Factor and Reliability Analysis
§3.3.3 Control Variables
The following control variables will be taken into account, the subsector in which the organisation is active (healthcare; municipalities; other); the size of the organisation, measured in FTE (<100; 100-250; >250); benchmarking scores (measured on a 1-7 Likert scale); the number of benchmarking projects in which the organisation has been involved in the past three years; as well as, the age (<20; 20-40; 41-60;> 60), and gender of the respondents.
§3.4 Data Analysis
Based on the sum variables the actual analysis, containing both a correlation analysis and a
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§4. Results
This section will give a description of the obtained results, starting with the correlation analysis, and followed by the subsequent regression analysis.
§4.1 Correlation Analysis
Table 3 provides the descriptive statistics and correlations for the variables. The correlation between two variables can be positive or negative. A positive relationship means that an increase in one of the variables, is associated with an increase in the other variable. Note that an increase in the dependent variable (response towards external pressures), indicates a more resistant response. Whereas a decrease would indicate a more compliant type of response.
First of all, a wide set of stakeholders, the correlation analysis took both variables in consideration. The descriptive statistics indicate that on average organisation are contacted by three stakeholders, based on the mean of Wide Set of Stakeholders III, which was a direct question regarding the stakeholders who have contacted the organisation. However, the standard deviation is high thereby indicating that the variance between organisations is large. The other variable, the combination of items one and two, indirectly measures the set of stakeholders, and indicates that on average
organisations in the public sector do not perceive the set of stakeholders, they have to respond to, as large. Although, again, the standard deviation is high.
All the other variables are based on different items with a Likert scale of 1 – 7, the means can vary from 1 – 7 as well. The descriptive statistics in table 3 indicate that on average, organisations do not perceive, powerful stakeholders, financial restrictions, and interconnectedness as highly apparent. Although the standard deviation remains high for these variables as well. Only the overall responses of organisations towards external pressures leans towards more compliant responses, with a mean of 2.8.
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Variables Mean S.D. 1. 2.1 2.2 3. 4. 5. 6. 7. 8. 9. 10.
Dependent Variable
1. Responses Towards External
Pressures 2.84 0.85 -
Independent Variables
2.1 Wide Set of Stakeholders I+II 3.58 1.33 -.025 -
2.2 Wide Set of Stakeholders III 3.04 4.04 .115 .442** -
3. Powerful Stakeholders 3.20 1.60 .047 .280* .138 - 4. Financial Restrictions 3.30 1.39 .252* -.122 -.012 .289* - 5. Interconnectedness 3.51 1.43 .047 .161 0.217 .091 .024 - Control Variables 6. Age 2.50 0.58 .246* -.120 -.142 -.064 .248* -.032 -
7. Gender (65.3% male; 34.7% female)
-.105 .236* .082 .280* .102 -.024 .004 -
8. Sub Sector (78.9% municipalities; 21.1% healthcare)
-.152 .407** .213 0.155 -.219 .063 -.106 .237* -
9. Size of the Organisation 2.13 0.84
-.015 .162 .271* .073 .044 .024 -.050 .034 .036 - 10. Nr. of Benchmarking Projects 2.51 1.18 -.018 -.009 .013 -.061 .186 .048 -.081 .021 .221 -.190 - 11. Performance (self-reported) 5.06 1.03 .134 .180 .230 -.053 -.264* .082 .048 -0.39 -.039 -.028 .223 *p < 0.05 **p < 0.01
18 The correlations in table 3 indicate that the responses of organisations towards external pressures are only related to the existence of financial restrictions. The correlation (r = 0.25, p < 0.05), is positive, thereby indicating that an increase in financial restrictions, leads to more resistant responses. This supports the expectation that, organisation are more resistant towards external pressures when they are in financial distress. Furthermore, financial restrictions are correlated with powerful stakeholders (r = 0.29, p < 0.05). A possible explanation might be that organisations perceive higher governmental authorities, who often impose the financial restrictions, as powerful stakeholders. Moreover, financial restrictions are negatively correlated with performance (r = -0.26, p < 0.05). This relationship can be regarded as logical, as it is highly unlikely that well performing organisations will be in financial distress.
It becomes clear that the two variables which are ought to measure the wide set of stakeholders, have a strong positive relationship (r = 0.44, p < 0.01). Thereby indicating that they do measure the same concept. However, due to the high correlation between these variables only one can be included in the subsequent regression analysis. As it is believed that the direct question (A Wide Set of Stakeholders III) will more adequately reflect the set of stakeholders than the two indirect questions, this variable will be included in the regression analysis. From now on, A Wide Set of Stakeholders, refers to the third item. Moreover, the set of stakeholders is positively correlated with the size of the organisation (r = 0.27, p < 0.05). Several other studies have confirmed this positive association, and argue that large organisations are more visible, and experience more scrutiny from the general public, which has increased external pressures as a result (Brammer and Millington, 2006; Greening and Gray, 1994; Oliver, 1991).
Three other correlations are between gender and powerful stakeholders; financial restrictions and age; and, gender and sub sector. A reasonable explanation cannot be found for these correlations, and they are considered to be irrelevant for the results of this study.
§4.2 Regression Analysis
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Model 1 Model 2
Step and Variables β SE β SE
Intercept 1.94 (0.04) (0.92) 1.14 (0.30) (1.10)
Control Variables
Age 0.32 (0.08) (0.18) 0.26 (0.16) (0.19)
Gender -0.12 (0.58) (0.22) -0.20 (0.39) (0.23)
Sub Sector -0.21 (0.38) (0.24) -0.13 (0.63) (0.26)
Size of the Organisation -0.01 (0.92) (0.13) -0.09 (0.48) (0.13)
Nr. of Benchmarking Projects -0.03 (0.76) (0.09) 0.02 (0.82) (0.09) Performance (self-reported) 0.11 (0.42) (0.13) 0.16 (0.26) (0.14)
Main Effects
Wide Set of Stakeholders 0.03 (0.29) (0.03)
Powerful Stakeholders 0.02 (0.76) (0.07) Financial Restrictions 0.15 (0.11) (0.09) Interconnectedness 0.02 (0.78) (0.08) F-value 1.071 (0.39) 1.336 (0.23) R Square 0.094 0.170 Δ R Square 0.026
Table 4. Regression Analysis: Beta’s, Standard Deviations, and Significance levels Based on the F-value in table 4, the conclusion can be drawn that the first model shows an insignificant relationship between the control variables, and the dependent variable (response to external stakeholders). Thereby indicating that the control variables do not explain a significant amount of the variance in the response of organisations towards external pressures. Only at a ten percent significance level, which is generally weak, a significant relationship between age and more resistant responses can be discovered. A possible explanation would be that experience, influences the type of responses, but a further explanation cannot be given.
Overall, the second model shows an insignificant relationship as well. Moreover, the fact that none of the coefficients is significant means that the relationships predicted by the hypotheses are not supported. In this second model age is no longer significant at a ten percent level, which is not surprising given the already weak relationship is model 1. However, it is remarkable that all relations, although insignificant, are positive, indicating a tendency towards more resistant responses.
Whereas it was expected that only A Wide Set of Stakeholders, and Financial Restrictions would lead to more resistant responses. Now each of the four hypothesis will be discussed individually.
20 relationship. A relatively high degree of the respondents stated that none, or just a few, stakeholders had contacted the organisation with regard to their benchmarking scores. This result negates the findings of Frumkin and Galaskiewicz (2004), who stated that public sector organisations have to respond to a wide set of stakeholders. It is not possible to perceive their results as completely invalid, as the focus of this study is different, but the conclusion can be drawn, that stakeholders are not eager to get involved in benchmarking, and the practices associated with benchmarking.
Another prediction was that the existence of powerful stakeholders, who value benchmarking scores, would lead to compliant responses (H2). But a significant relation has not been found.
Furthermore, the third hypothesis stated that public sector organisations which are subject to financial restrictions, have a higher degree of active, resistant, responses. Financial restrictions are the only variable indicating a significant correlation with the type of responses towards external pressures, although it was only significant at a 5% level. In general the organisations indicated that they are not restricted in their benchmarking activities by the financial situation of the organisation. However, benchmarking is widely used to determine possibilities for the reduction of costs. The mean of this variable reflects these scores, and although a correlation does exist, there is no evidence that the financial situation of an organisation is able to predict their responses towards external pressures.
The final prediction was that a high degree of interconnectedness with, other similar, organisations leads to more passive, compliant responses (H4). The mean of 3.5 indicates that in general
organisations do perceive their environment as having an average degree of interconnectedness. Moreover, when analysing the separate items of this variable, the separate items indicate that organisations are more likely to comply to external pressures if other organisation comply as well, but they do not perceive themselves as imitating the practices of other organisation. Thereby, reflecting the mean of 3.5. Furthermore, the relationship between interconnectedness and the type of response of the organisation towards external pressures is insignificant, implying that such a relationship does not exist.
§5. Conclusion
§5.1 DiscussionThe purpose of this paper was to examine if, and how, external pressures are related to
21 organisations to improve their benchmarking performance and thereby their organisational
performance. By examining institutional and resource dependence theory, this study used an unexplored perspective.
Central in this study was the question “How can institutional and resource dependence theories be used to find ways to enhance the efficiency of benchmarking in the public sector”. The findings indicate that there is no significant relationship between public sector characteristics, and responses towards external pressures. Consequently, these theories do not prove to be useful in explaining or understanding benchmarking behaviour, let alone enhancing benchmarking performance in the public sector.
Nevertheless, organisations still have to respond to external pressures, the findings only indicate that there is no specific type of response, resistant or compliant, that can be associated with the external pressures in particular situations. For example, the findings indicate that the existence of a powerful stakeholder will not necessarily result in compliant responses towards pressures of powerful
stakeholders. A possible explanation might be that the content of the pressure is more important for the organisation than the source of the pressure. Consequently, organisations might behave
differently than expected. This might also be the case for organisations in an environment with a high degree of interconnectedness. Although interconnectedness might increase the likelihood of
organisations to comply to external pressures, they might still prefer to resist them if those pressures are not in the best interest of the organisation.
Moreover, Frumkin and Galaskiewicz (2004) stated that a wide set of stakeholders would make the decision making process more complex, as external stakeholders often have multiple, diverse, or even conflicting interests. Consequently this should result in more resistant responses (Oliver, 1991). The results did not support this line of reasoning. A possible explanation might be that organisations are able to adapt to the existence of multiple demands, and might learn, over time, to respond to those conflicting demands. For example, the organisation might bring stakeholders, with diverse interests, together, in order to reach consensus among stakeholders and the organisation about the development of possible action or improvement plans. Leading to a perception of compliance by both the stakeholders, and the organisation.
Furthermore, it was expected that public sector organisations which are subject to financial restrictions, have a higher degree of active, resistant, responses towards external pressures. This hypothesis is again not supported by the data. A possible cause for this phenomenon is that
22 to pressures that will lead to an increase in efficiency, and thereby reduce the costs, are possible. Such pressures might not be present for every organisation, thereby resulting in a large diversity in responses, which could explain the insignificant findings.
§5.2 Limitations
A first limitation is that this study relied heavily on the work of Oliver (1991) in the establishment of the hypothesis, which could provide a rather limited perspective.
Furthermore, a significant number of the items used to measure the variables had to be specifically developed for this study. Although the scores on both the factor analysis as well as the reliability analysis were adequate, it might be possible that more reliable items exist or can be developed to test these variables.
Moreover, the degree of responses (n = 71) is relatively low, but adequate for statistical analysis. Whereas the responses among municipalities were generally large (n = 55), the responses of healthcare organisations (n =16) were low. So, it might be proven difficult to generalise the findings for all healthcare organisations in the Dutch public sector.
Finally, it might be possible that the answers to some of the questions are incorrect, as the
questionnaires have been administered online. Although, this problem has been partially solved by removing the incomplete responses from the sample.
§5.3 Directions for Further Research
Possible explanations for the insignificant findings relate primarily to why questions. For example: “Why might organisations resist pressures to develop certain action plans from powerful
23
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Appendix
Questionnaire:
Dear respondent,First of all, we would like to thank you for taking the time to respond to this questionnaire. This is of utmost importance to our researches. The subject of the questionnaire is benchmarking in the public sector. Completion of the questionnaire will take about 5-10 minutes. The provided information will be treated with care. Consequently, anonymity will be guaranteed. If you would like to receive a summary of the researches’ results, please send an email to; Remco Klapdoor:
r.klapdoor@student.rug.nl; or Remi Rutgers: r.rutgers.1@student.rug.nl, and we will contact you in due course. Hereby, we are able to ensure that your email address cannot be linked to the entered information which assures your anonymity.
27 Benchmarking in the Public Sector
1. Gender a. Male b. Female 2. Age a. <20 b. 20-40 c. 41-60 d. >60
3. Size of the organisation (measured in Full Time Equivalents). a. <100
b. 100-250 c. >250
4. Subsector within the public sector. a. Municipalities
b. Healthcare c. Other, namely
5. Number of benchmarking projects, you have been involved in, in the past three years. a. 1
b. 2 c. 3 d. >3.
7. Please indicate, to which degree, you agree with the following statements (on a 1-7 Likert scale, ranging from totally agree towards totally disagree).
a. I am under the impression that external stakeholders pay a lot of attention to our benchmarking scores.
b. Several external stakeholders have contacted us with regard to our benchmarking practices.
8. How many different stakeholders have contacted you, or your organisation about the benchmarking scores?
a. Open question
9. Could you indicate, who these external stakeholders are? a. Clients
b. Media c. Competitors
d. Government agencies e. Other, namely
10. Please indicate, to which degree, you agree with the following statements (on a 1-7 Likert scale, ranging from totally agree towards totally disagree).
a. It was difficult to make a balance of interests between different demands of external stakeholders.
b. The demands of one particular stakeholder are often decisive. c. We are more willing to comply to one certain stakeholder.
28 12. Please indicate, to which degree, you agree with the following statements (on a 1-7 Likert
scale, ranging from totally agree towards totally disagree). a. We contact organisations who perform better.
b. We are prepared to learn from organisations with better benchmarking scores. c. Contact with external stakeholders, regarding possible improvements is avoided. 14. Please indicate, to which degree, you agree with the following statements (on a 1-7 Likert
scale, ranging from totally agree towards totally disagree). a. The organisation is in financial distress.
b. We have sufficient resources to adequately perform our benchmarking practices. c. Due to our organisations financial situation, we are restricted in our benchmarking
practices.
d. We use our benchmarking scores, to discover possibilities to reduce costs. 15. Please indicate, to which degree, you agree with the following statements (on a 1-7 Likert
scale, ranging from totally agree towards totally disagree).
a. We are more inclined to comply to certain demands of external stakeholders, if other organisations comply as well.
b. Our organisation imitates the behaviour of other organisations.
c. The actions we take, on behalf of our benchmarking scores, are innovative. 16. Please indicate, to which degree, you agree with the following statements (on a 1-7 Likert
scale, ranging from totally agree towards totally disagree).
a. The wishes/demands of the stakeholders are always taken into consideration. b. An attempt is being made to influence the perception of these stakeholders,
regarding the necessity to comply to their wishes/demands. c. Their wishes/demands are challenged in the media.
d. The wishes/demands of these stakeholders are ignored.
e. Future contact/discussion with the corresponding external stakeholders is avoided, after they have contacted us.
