Balancing facilitating and
Decision-influencing roles in the design of the Performance
Measurement System: a Case Study
By Daniëlle Wilms
University of Groningen Faculty of Economics and Business
MCs Business Administration – Organizational and Management Control
June 2013
Couperusstraat 76
9721 JH Groningen, The Netherlands d.wilms@live.nl
+31630716108 Student number: s2231018
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ABSTRACT
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TABLE OF CONTENT
INTRODUCTION ... 3
LITERATURE REVIEW ... 7
MCS, PMS and contingency theory ... 7
MCS an PMS as a package; Simons’ LOC framework (1995) ... 8
Decision-facilitating and decision-influencing role in PMS ... 12
Balancing the decision-facilitating and decision-influencing role in PMS ... 13
METHODOLOGY ... 16
Research site ... 17
Data sources ... 17
RESULTS ... 19
Background information ... 19
Belief system and Boundary system ... 20
Performance measurement ... 21
Diagnostic controls ... 22
Interactive controls ... 24
Use of performance measures related to the different purposes ... 26
Balancing the decision-influencing and decision-facilitating role ... 26
Consequences of the balanced use of the PMS ... 28
DISCUSSION AND CONCLUSIONS ... 31
REFERENCES ... 35
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INTRODUCTION
In recent decades management control systems (MCS) have been more and more investigated due to developments that occur in firms and their environment, and the possibilities that arise from these changes. At the beginning the definition of MCS was more focused on the provision of more formal, financially quantifiable information to assist managerial decision making, which has evolved over the years to one that embraces a much broader scope of information (Chenhall, 2003).
Due to the constantly changing environment of firms, MCS have to adapt. Today’s business environment is becoming more and more complex. Fast technological changes, forces of globalization and increased uncertainty make organizations aware of the fact that the design of their MCS may have to be redefined and reshaped. Also the financial crisis has its impact on MCS. Due to increasing current uncertainties in the environment and fast changes organizations need to continuously renew themselves to survive (Danneels, 2002). Therefore it is important to be aware of these environmental changes and the way they affect the MCS design. The way organizations conduct their business has changed, and will continue to change in the future. This can be illustrated by for instance the introduction of advanced manufacturing such as Total Quality Management and Just-in Time Management. These new concepts have made researchers interested in again researching the role of MCS.
This research is built on contingency-based research which is characterized by the fact that the internal and external environment impact the organizational structure. This implicates that the nature of contemporary stings could determine the design and effectiveness of MCS (Chenhall, 2003). In the article of Chenhall (2003) six contingency variables that could explain the design and effectiveness of MCS are explained: external environment, technology, organizational structure, organizational size, organizational strategy and national culture. These variables should be taken into account when researching MCS. In past research it is often recognized that management control systems are comprised of multiple control systems that work together (Otley, 1980). Different sets of controls together form the package of controls, which are needed to benefit the firm in order to ensure that the behaviors and decisions of their employees are consistent with the organization’s objectives and strategies (Merchant & van der Stede 2007). This research will be based on the idea that MCS operate as a package, which means that the MCS is a collection or set of control and control systems (Malmi and Brown, 2008). Simons’ (1995) LOC framework will be used as the basic package of different controls.
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managed by performance measurement. Performance measurement in relation to compensation has been getting much attention from the media over the last decade. There is criticism on the way performance is measured and how these measures are linked to compensation. Therefore the topic of MCS and performance measurement becomes of great importance.
According to Sprinkle (2003), an MCS should provide information that improves employees’ abilities to make organizationally desirable decisions and thereby enabling employees to achieve the organization’s goals and objectives. Additionally the MCS should provide information that helps align the interests of employees with owners by directing employee effort and attention to activities that benefit the organization. Looking at an MCS the way Sprinkle (2003) does, it serves two important roles, the first one is to provide some of the necessary information for planning and decision-making (decision-facilitating role), and the second one is to motivate individuals (decision-influencing role). A good balance between the competing uses of MCS represents a complex challenge for organizations, because of constantly shifting priorities, complex problems and new information (Mundy, 2010). According to Mundy (2010), when combining these two complementary and interdependent uses of the MCS, this creates dynamic tensions that produce unique organizational capabilities and competitive advantages (Henri, 2006b; Widener, 2007). Consequently, a greater understanding of how organizations balance these different uses and knowing the consequences of this balance represents an important area of management control research (Mundy, 2010). Therefore the following research question is formulated.
Research question:
How is the MCS, including the PMS, designed in order to serve both decision-influencing and decision-facilitating purposes and what consequences arise from the combination of these purposes?
Sub questions:
- How is the MCS designed, in terms of the LOC framework? - How is the PMS designed, in terms of the LOC framework?
- Is there a difference in information used related to the different purposes: decision-influencing and decision-facilitating?
- How is the balance in the design of the PMS established in order to fulfill both the decision-influencing and the decision-facilitation role of the PMS?
- What consequences result of this balance?
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diagnostic systems). According to Simons (2000), all four control systems are necessary to provide an effective control environment. This framework is extensively used in order to research the MCS and it is also used in relation to the concept of balance. Firstly balancing the four, two positive and two negative, levers of control is studied. For instance in the research of Mundy (2010) she uses the LOC framework and the balance between these levers of control in looking at the organization’s ability to balance controlling and enabling uses of MCS. Also in the study of Henri (2006b) Simons’ LOC framework is used. This study focuses on the combination of diagnostic and interactive uses of the PMS in producing dynamic tension and contribution to the creation and maintenance of capabilities leading to strategic choices.
Within this research the LOC framework of Simons (1995) is used in order to study the MCS of an organization. This research will be mainly focused on the PMS, therefore according to Henri (2006b) the researcher should focus on the diagnostic and interactive use of the PMS. But the total LOC framework is used to determine the design of the MCS in order to see what and how these controls are used in practice. When looking at the PMS as part of the MCS, the LOC framework is used in relation to the balance in the purposes to fulfill both the decision-influencing and the decision-facilitating role and the consequences related to this balance. Past literature in the field of MCS has delivered valuable insights into the concept of the different uses of MCS, the inherent conflict between more controlling and enabling used is explained (Marginson, 2002; Simons, 1995). Also literature on creating dynamic tensions through a balanced use of the MCS can be found (Henri, 2006b; Widener, 2007). These studies all identify the importance of balance in the MCS (PMS), but fall short in empirical evidence and consequences of this design.
The aims of this study are to increase our understanding and appreciation of MCS and to contribute to the literature by theoretically and practically investigating the design of MCS; special emphasis is on the two purposes, decision-influencing and decision-facilitating within the organizational context. This paper aims to explore how organizations attempt to balance the decision-influencing and decision-facilitating role of the MCS (PMS), how this balance is experienced and what consequences are associated with this balance?
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LITERATURE REVIEW
In this section an overview of past literature will be presented. Firstly the contingency theory and contingency variables will be discussed. This in order to cope with the environment of organizations and their MCS. Then the idea of MCS as a package will be discussed. Here the LOC framework of Simons (1995) is used as a basic set of controls. After that the distinction of two purposes of MCS, including the PMS (decision-facilitating and decision-influencing) will be examined. And finally the concept of balance between these purposes and the possible consequences of this balance is described. At the end of this section a conceptual model is presented.
MCS, PMS and contingency theory
In past literature a number of definitions and descriptions of MCS exist; some of these definitions contain overlaps, while others are quite different from each other. The definition that will be used in this research is one by Merchant and van der Stede (2007): MCS include all the devices or systems managers use to ensure that the behaviors and decisions of their employees are consistent with the organization’s objectives and strategies.While the treatment of the MCS subject is quite broad, the primary focus within this research is on what Merchant and van der Stede (2007) call result control, which involves producing the outcomes the organization wants, which requires a performance measurement system (PMS). PMS represents a set of metrics used to quantify actions (Neely, Gregory, & Platts, 1995). This study is based on the contingency theory, which implicates with respect to MCS that the appropriate design will be influenced by the context in which they are applied (Chenhall, 2003). Therefore the contextual variables and the purpose of measurement are important to take into account by determining the design and effectiveness of MCS, including PMS. The base of this theory can be found in 1960 where theorists such as Burns and Stalker (1961) and Lawrence and Lorsch (1976) studied the way organizational structure is impacted by the technological environment. Later on more and more variables were studied over time in order to see the influence on organizations.
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sophisticated controls. In the propositions concerning strategy and MCS, Chenhall (2003) illustrates that different strategies result in different sets of controls, which is also the case when looking at the national culture of the organization.
MCS an PMS as a package; Simons’ LOC framework (1995)
This research is based on the idea that MCS operate as a package, which means that the MCS is a collection or set of controls and control systems (Malmi and Brown, 2008). Different organizations have different objectives in mind for their MCS which results in different sets of controls. They give a number of reasons why studying the MCS package phenomenon is important. The first reason for studying the MCS as a package is that the MCS does not operate in isolation. There has been done much research considering one single theme of practice of the MCS, but due to the fact that these practices are connected with each other and with its environment it is important to investigate them together. Secondly accounting researchers have spent much time studying innovations in practice to explain their development, adaptation, use and impact (Malmi and Brown, 2008). However, studying these systems individually may influence any conclusion that can be drawn, if the use and impact of a new MCS element is again related to the function of the existing broader MCS package (Malmi and Brown, 2008). Thirdly, in the past a major focus of MCS theory is on how to design MCS in order to produce the desired outcomes. By only focusing on the formal system of the MCS, there will still be a limited understanding of the impact of other types of control and if/how they interact with each other. So when taking a broader package into account in researching MCS design, researchers might be able to develop a better theory on how to design MCS packages and its influence in practice (Malmi and Brown, 2008). This statement by Malmi and Brown (2008) is also highlighted by Mundy (2010), who states in her research that nowadays researchers more often use the entire LOC framework in relation to the complete package of MCS used by the directors rather than one lever in isolation. According to Mundy (2010) it is important to study the MCS in its entirety because balance and dynamic tension derive from the interrelations between the levers (Henri, 2006a; Simons, 1995)
The focus of this research on the idea of Malmi and Brown that MCS operate as a package is because I want to study the combination of both the facilitating and the decision-influencing role of the MCS, which will be studied with the use of Simons’ (1995) LOC framework within its specific context. This study is based on the contingency theory, which means that environmental factors are incorporated, thus the MCS need to be studied as a package rather than looking at only one single element. Also the practical combination of these two roles will be investigated and according to Malmi and Brown (2008) investigating the MCS as a package is therefore needed to get an understanding of the interaction of these roles.
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studying MCS packages. In this research I accept these challenges and seek to cope with them in the best possible way.
The idea of MCS operating as a package is not new; earlier frameworks are extensively used in studying MCS. For instance the controls of Merchant and van der Stede (2007) are well known; they further developed Ouchi’s terminology. They distinguish result controls, action controls and personnel/cultural controls (Merchant and Van der Stede, 2007). Result controls define the outputs expected from employees, action controls evaluate the means to the end and not the result in itself, and personnel/cultural controls take into account recruitment, training and the promotion of norms to reinforce employee self-control (Merchant and Van der Stede, 2007). Another quite new but interesting framework to mention is the package of Malmi and Brown (2008). In their package five types of controls can be distinguished: planning, cybernetic, reward and compensation, administrative and cultural controls. Planning controls are used to set out goals for the functional areas of the organization and thereby directing effort and behavior. Four basis cybernetic systems are distinguished: the cybernetic controls, namely; budgets, financial measures, non-financial measures and hybrids. Reward and compensation focuses on motivating and increasing the performance of employees by achieving congruence between the goals of the employees and those of the firm. Administrative controls deal with governance structure, organizational structure and policies & procedures. The last control distinguished by Malmi and Brown (2008) are cultural controls, which is concerned with clans, values and symbols within the organization. Within this research the ideal of MCS operating as a package is also used, in terms of Simons’ (1995) Levers of Control framework.
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Within this study the LOC framework of Simons is used in order to study the MCS of the organization. This research is mainly focused on the PMS, therefore according to Henri (2006b) the researcher should focus on the diagnostic and interactive use of the PMS. But the total LOC framework is used to determine the design of the MCS in order to see what and how these controls are used in practice. When looking at the PMS as part of the MCS, the LOC framework is used in relation to the balance in the purposes to fulfill both the decision-influencing and the decision-facilitating role and the consequences related to this balance. These two roles are explained in the next section.
Underlying Simons’ framework is the idea of opposing forces that manage tensions between freedom and constrain, between empowerment and accountability, between top-down direction and bottom-up creativity, between experimentation and efficiency (Simons, 1995, p.4). These tensions are managed by positive and negative control systems. Positive controls motivate, reward, guide and promote learning. Negative controls coerce, punish, prescribe and control (Tessier and Otley, 2012). These positive and negative controls are opposing forces that need to coexist to create dynamic tensions which will lead to effective control. Negative controls could be associated as bad, but according to Simons (1995) they should be perceived as important as positive controls. In order to manage these positive and negative forces, Simons identifies four levers of control. Two are defined as positive (belief systems and interactive control systems), and two are defined as negative (boundary systems and diagnostic systems). The four levers of control are discussed below.
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performance and constantly comparing this with the set targets and intended performance. The diagnostic system acts as a constraint on employee behavior, similar to the boundary system (Simons, 2000). While the diagnostic control system is more backward looking, an interactive control system is forward-looking and characterized by active and frequent dialogue among top managers (Widener, 2007). Interactive control systems, which focus on strategic uncertainties, are formal information systems that managers use to involve themselves regularly and personally in the decision activities of subordinates (Simons, 1995, p. 95). The purpose of interactive control systems is to stimulate and guide emergent strategies (Simons, 2000). The interactive use of the PMS is focused on interaction between and within different layers in the organization, in order to improve. The focus is very much future oriented, it is about the contribution and interaction of all employees in order to improve the PMS and actual performance.
When looking deeper into the MCS and the performance measures, also the general classification of these measures into financial and non-financial performance measures is important to highlight in order to study the purposes of measuring performance. The focus changed from a more financial focus to a better balance between financial and non-financial measures, this can be seen in for instance the introduction of the Balance Scorecard (BSC) by Kaplan and Norton (1992). Both financial and non-financial measures have their advantages and their drawbacks, therefore some measures are better for one particular purpose compared to others. Looking at for instance the decision-facilitating role, the MCS is used to get information in order to make better decisions. Whereas, the MCS is used to determine variable rewards and motivate managers when fulfilling the decision-influencing role. According to van Veen-Dirks (2010), it is important to distinguish between different uses when studying performance measurement choices and their determinants. So it is expected that the type of information used is depending on the type of purpose.
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undesirable behavior. First, managers may take actions that affect the performance of the organization in the short run, even if such actions would destroy value in the long run. Second, managers may engage in financial manipulation that does not build firm value (Bebchuk and Friend, 2010). The classical agency problem can be seen in these actions.
Decision-facilitating and decision-influencing role in PMS
Looking at MCS the way Sprinkle (2003) does, MCS (and PMS) serves two important roles, first one to provide some of the necessary information for planning and decision-making (decision-facilitating role), and secondly to motivate individuals (decision-influencing role). There is evidence that also the distinction between these two purposes is important in determining the design of MCS (Ittnet, Larcker and Randall, 2003; Lingle & Schiemann, 1996; van Veen-Dirks, 2010). Ittner et al. (2003) found that firms that make more extensive use of a broad set of financial and non-financial measures than those with similar strategies or value drivers earn higher stock returns. This implicates that the way the MCS is designed can influence the performance of the firm. Lingle & Schiemann (1996) argue that it is important to define clear goals, objectives and purposes before the development of measures can be sufficient and useful. In the article of van Veen-Dirks (2010), the researcher found that there is a difference or gap between the importance attached to different types of performance measures when taking into account the two different purposes.
There are other potentially useful distinctions, which should be mentioned in studying PMS and its purposes. For instance the distinction advocated by Zimmerman (1997, 2001). Here a distinction is made between decision-making and control. Some accounting systems within firms are more focused on providing information to support decision making and others direct employee behavior. An accounting system should be designed to support both decision-making and control in order to be called a MCS (Malmi and Brown, 2008). Also Mundy (2010) makes a distinction between the controlling and enabling function of management controls. She states that when combined, controlling and enabling uses of management controls create dynamic tensions that produce unique organizational capabilities and competitive advantages (Henri, 2006b; Widener, 2007).
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the purposes of decision making and control but a more enabling formalization is often preferred.
In the above literature, various names for the classification of the purposes of MCS, including PMS, are used. Although the distinctions sound quite different, it shows overlap. They do not exactly mean the same, even though all this literature can be helpful in studying MCS. For instance the term control is consistent with the decision-influencing role of MCS and the term decision-making is consistent with the decision-facilitating role. The definitions show some overlap but some researches use a somewhat broader concept and some researchers use a narrower definition depending on the scope of their research. In this research I will use the definitions of decision-influencing and decision-facilitating role of PMS.
Overall MCS has two complementary and interdependent roles. Researchers make use of different designations to identify these various purposes. In general you could say that MCS are used to exert control over the attainment of organizational goals and to enable employees to search for opportunities and solve problems (Mundy, 2010). According to Sprinkle (2003) these two roles can complement each other; this means that information which is used for one purpose can enhance the use of information for the other purpose. But Sprinkle (2003) also acknowledges the fact that tradeoffs should be made in the design of MCS because in some cases the decision-making purpose can sacrifice some decision-facilitating purposes and vice-versa. Therefore there should be a good balance between these purposes while taking into account the environmental factors of the organizational context.
Balancing the decision-facilitating and decision-influencing role in PMS
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use of MCS. This article forms a solid basis for this study while it aims at achieving insights in balanced use of the decision-facilitating and decision-influencing role of the PMS. So by looking at the PMS as part of the MCS, the LOC framework is used in relation to the balance in fulfilling both the decision-influencing as the decision-facilitating role. The combination of the LOC framework and the two purposes are visualized in the conceptual model in Fig. 1.
Fig. 1: Conceptual model
As mentioned before, much of the research that was done in the past evaluates parts of the MCS separately, but due to the possibility of tensions and impact on decisions associated with the interplay between these roles when examined jointly, it is important to investigate them simultaneously in the MCS. Evidence of these tensions and impact can be found in for instance the research of Sprinkle (2000), this research finds that decision-facilitating information enables learning to occur, but the magnitude of learning is responsive to measures used in evaluation and incentives (Grafton et al. 2010). According to Abernethy and Bouwens (2005) who investigated the determinants of accounting innovation implementation, the tension between decision-influencing and decision-facilitating roles of information can be identified as an influence on resistance to change in the context of activity based costing (Grafton et al., 2010).
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facilitating and decision-influencing measures. In conclusion Grafton et al. (2010) state that tendencies between these two purposes can compromise the effectiveness of the strategic performance measurement system in practice. This research shows difficulties and the importance of dealing with both the decision-facilitating as the decision-influencing role of the MCS simultaneously.
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METHODOLOGY
The main goal in this research is to answer the research question on how PMS are designed in order to serve both decision-influencing and decision-facilitating purposes. I want to investigate if there is a difference in the measures in relation to the two purposes. How are these purposes balanced? And what consequences can be found as a result of this balance. This research is based on the theory development approach. This approach could provide new insights on theories and variables through an exploratory research approach. Exploratory research is often qualitative and it focuses on addressing a system and not on isolated variables, this type of research matches with the research question. According to Mundy (2010), the effectiveness of MCS in terms of combined effects, requires a holistic view of the controls in the organization (Alvesson and Kärreman, 2004; Fisher, 1995; Langfield-Smith, 1997).
Four different steps are conducted in the exploratory research process. In the first step the business phenomenon is described. Here existing literature about MCS is used to give insight in past research in order to get a good overview of the existing literature, which can be found in the literature review section. This is helpful in order to explain the research question. In this step the contribution to the scientific and practical field will also be explained. The second step consists of the observation of the phenomenon in one or more case studies. One case study has been selected and studied. The case study is conducted at Achmea which will be further explained within this section. In this step I intended to gather information on the design of the MCS and in specific the PMS, if indeed the two purposes are fulfilled, how they are balanced and what consequences can be found. This information conducted through the case study can be found in the results section. In the third step the analyzed data are compared with the existing literature, also called the ‘theory filtering’ step. Here comparison is made with both conflicting and convergent literature. In the final step, where possible, propositions are made that are changes of or additions to the existing literature. This comparison with existing literature and possible additions to the literature from the results of this study can be found in the discussions and conclusions section.
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for gathering and analysis of data. According to Yin (2009) single-case studies are an examination of one individual or group. A case study is a research strategy which focuses on understanding the dynamics present within a specific setting (Eisenhardt, 1989). The reason for conducting a single-case study in this research is that it gives a holistic understanding and more detailed information of one firm. Also the fact that case studies are meaningful to replicate or extend emergent theory makes it an appropriate research method.
Research site
This case study was conducted at the largest insurance group in the Netherlands, Achmea. At the time of the study Achmea employed more than 17,000 employees and earned a net income of € 453 million. Achmea is an appropriate organization to do this research for several reasons. According to Simons’ (1995) the levers of control are best explored in large organizations, this is because smaller firms often can alter patterns of behavior through more informal means. This makes Achmea an interesting and appropriate organization to conduct this research. Also the fact that Achmea is consciously engaged with the design and effectiveness of their PMS, because they operate according to the SENS methodology, makes this organization interesting to study. The concept of SENS will be discussed in the results section. The MCS at Achmea has been developed over a number of years and is used by managers in their efforts to achieve the organizational goals. Overall the points mentioned above make Achmea a suitable organization to conduct the study of the use of the PMS in order to fulfill both the decision-influencing and the decision-facilitating purpose.
Data sources
Data were collected from both primary and secondary sources, using semi-structured interviews and documentation. Both senior managers and operational managers of the organization were selected for the interviews. According to Ahrens and Chapman (2004), managers below the corporate executive level play a crucial role in using the MCS in different ways in order to achieve the organizational objectives. Therefore middle level management has been selected. Although the Lever of Control (LOC) framework was derived primarily from observations of corporate executives, researchers state that its relevance is not restricted to the highest levels of management (Simons, 1995; Mundy, 2010). This also makes middle level management relevant within this research.
The purpose of these interviews was to gain insight in how the managers make use of the different levers of control to balance the decision-influencing and decision-facilitating role of the MCS (PMS), in order to see if there is a balance in these two purposes, what this balance looks like and how it is experienced.
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Within this division each employee I interviewed holds a different function. The following employees where interviewed:
- Team leader quality at Achmea Care
- Team leader procurement and policy at Achmea Care - Senior Manager Operations AWBZ Agis and Achmea
- Senior Operational Risk Manager & MVO Officer at Achmea Care - Internal Auditor specialized in the domain Care
These five employees where selected because they all operate within one division and are all part of the middle management level. The fact that they all operate within one division is especially useful in order to get a more in depth research within this division. Middle management level is selected because they play a crucial role in using the MCS.
During the interviews, I made use of the interview guide shown in Appendix A. Simons’ (1995) LOC framework forms the basis of the interview guide, and is used to structure the interview. For each of the four levers of control questions are formulated in order to let the interviewee describe the MCS in detail. The LOC framework is useful because this gives insights in if and how these four controls are used in practice. During the interview the focus was constantly getting information about the design of the PMS in order to fulfill the decision-facilitating and decision-influencing purpose. Questions concerning both the possible differences and the possible balance between the purposes are formulated and questions on the consequences related to this balance. In formulating these interview questions I made use of the article of Widener (2007) who also used Simons’ LOC framework in preparing survey questions. I formulated open questions to ensure that the interviewees can describe the use of these controls as comprehensive as possible. The interview guide was used to give structure and increase the reliability of the study. All interviews took about one hour, and were audio-taped. After that the interviews were totally typed out into transcripts, using the audio-tapes. The interview transcripts can be found in Appendix B. All interviewees agreed to answering additional questions by mail or phone if necessary.
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RESULTS
The findings reported in this paper represent a summarized output of the detailed analysis conducted on the interview reports and the additional data. The findings can be fully verified back to the original data; the Interview Transcripts (Appendix B) and Additional Documentation (Appendix C).
Firstly some background information of Achmea is presented. Here information on the mission and vision of Achmea is given, in particular about the division Z&G, where the case study took place. After that the results are presented and are structured by the sub-questions as formulated in the introduction. The MCS is described by means of the LOC framework. Using the LOC framework, firstly the belief system and boundary system are discussed and after that the diagnostic and interactive system are extensively described, because the last two are especially focused on performance measurement (Henri, 2006b). Thereafter the use of performance measures in relation to both the decision-influencing as the decision-facilitating purpose is discussed. The possible differences in and the balance between these purposes is described. Finally the consequences of this design and use of the PMS are discussed.
Background information
All information described in this section is derived from the website of Achmea and additional documentation received from the organization.
The case study took place at Achmea, one of the largest insurance companies in the Netherlands. Achmea was founded in 1811, has over 7 million clients, is a private held company, and has over 17,000 employees in the Netherlands and 4,000 employees in Europe. At Achmea you can get insurance for damage, health care and income. Achmea has three divisions: Schade & Inkomen, Pensioen & Leven en Zorg & Gezondheid, this can be seen in the organogram of Achmea in Appendix D.
Within this study I only focused on the division Z&G. Some well-known brands within this healthcare insurance business are: Zilveren Kruis Achmea, Avéro Achmea, Agis, OZF, DVZ, Interpolis and FBTO. These brands together form the division Z&G and arrange the purchase of health care for over 4.7 million policyholders. The organogram of this division can be found in Appendix E. Within the division Z&G I interviewed 5 employees within different departments and different functions. The mission of the division Z&G is: ‘Together we are working on health and ensuring your care’. The vision is stated as: ‘By 2020 anyone can rely on the best care’. This study focuses on the design of the PMS; therefore also some background information is given on the LEAN/SENS methodology by which Achmea measures performance.
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means that the customer focus is also implemented in the basic processes of the organization and that both the client and the care provider, as links in the customer chain, experience service oriented, fast and efficient services. SENS focuses on three themes: Process management, Operational managements and Attitude & behavior. The majority of departments within the division Z&G has now completed the SENS project, and are using the method with success. The remainder of this section describes the results of the case study.
Belief system and Boundary system
Achmea has always been a company merger, and they keep on merging. Earlier there were all small insurance companies, and gradually it becomes one company. Recently, around 2007, Agis also merged with Achmea. This is a good example which reflects how they coped with communicating this new mission, vision and these goals.
‘Because of the merger of Agis and Zilveren Kruis, the organization had to go through a process of the formulating of a new combined mission, vision and goals for this new composed business. The whole organization was involved in forming this mission, vision and these new goals. During this process everything has been communicated widely through meetings, newsletters, booklets, mail and the website. Because this involvement of all employees, they understand their own KPIs and their part in the bigger picture; this is what I think the power of repetition.’ (Senior Operational Risk Manager)
The above quote reflects that during this process there was both top-down and bottom-up communication in forming en spreading this new mission, vision and these goals. As this senior manager states, employees within the organization still find it helpful that they were involved in this process, in order to see, know and actually feel what Achmea stands for. ‘Goals are defined at board level, which are translated into the objectives for the different divisions and departments, henceforth also for our division Z&G. These divisional and departmental goals are subsequently translated into personal objectives and KPIs. So these goals and objectives are translated top-down, layer by layer, and these objectives are established annually.’ (Team leader quality)
This implicates that the communication of the mission, vision and goals is generally top-down. These top-down goals are complemented with opinions and input from lower management. By this communication they make use of a multiannual plan for the division Z&G and different year plans for the different departments within this division. The multiannual plan for the division Z&G and different year plans per department can be found on the Additional Documents list on Appendix C.
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‘As an organization we are busy transferring our vision to everyone in the organization. For example, you can see texts emerging from our mission everywhere in this building, like; I work actively in collaboration with others, on behalf of our customers.’ (Senior Manager Operations)
The above statement shows Achmea is trying to get their vision internalized by their employees. This in order to understand what the organization stands for, and what it aims to achieve.
In conclusion the results show that the communication of the mission, vision and main goals of the organization is top-down communicated, but that there is the possibility for employees to give input. So when looking at the belief system, communication is both top-down and bottom-up.
‘The communication of rules, restrictions and boundaries is top-down. This is something that occurs less often than the communication of performance measures. All information on rules and procedures is stored in the system and is available at all times for employees.’
The above quote displays the boundary system of Achmea, information on rules and restrictions is less often communicated. It is definitely top-down communicated, but this boundary system gets less attention. Employees know the rules and restrictions, and can find them if necessary.
Performance measurement
Achmea devote great attention to performance measurement, within every layer of the organization. What is important to mention is that the internal performance measures are partly based on norms set by the NZA. The NZA is the Dutch Healthcare Authority, which manages the care industry. In its role as regulator, the NZA sets tariffs, performance targets and budgets where needed. The NZA also advises the Minister on the ground rules needed and identifies potential inconsistencies and obstacles in the health care sector. Overall the NZA oversees three public interests in health care: transparent information, accessibility and affordability.
‘The NZA determines our norms for our external accountability, and our internal norms and targets are partly based on these norms. There are different statuary norms set by the NZA, these norms can be seen in our internal performance measurement system. These standards remain the same for our internal performance measurement to a great extent and are partially translated to the internal assessment of the departments and employees. In addition, of course we have our own goals and social objectives we pursue as healthcare insurer.’ (Team leader P&P)
‘The NZA determines our external norm, but what is seen often is that our translation of these norms into internal performance measures is stricter.’ (Internal Auditor)
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internal performance measurement are for instance: handling objections within 12 weeks, handling complaints within 6 weeks and a maximum working stock of 400 objections. This could have an effect on the diagnostic and interactive use of the PMS but also on the decision-facilitating and the decision-influencing use of the PMS.
‘We work on the basis of a philosophy called the value profit chain, in which the following three aspects are central: customer values, employee values and financial values. These aspects are interrelated, and our KPIs are mainly focused on customer and employee values, because we believe that the financial values are the effect of these other aspects.’ (Senior Manager Operations)
Looking at the performance measures you see this focus on customer and employee values. There is less focus on financial values. This is a notable characteristic of the performance measures of Achmea, they are primarily concerned with measuring performance related to customer and employee satisfaction.
‘We have KPIs on employee satisfaction, customer satisfaction and service. But also on attitude, behavior and competences.’ (Senior Manager Operations)
‘Our KPIs are focused on timeliness and completeness.’ (Internal Auditor and Team leader P&P)
‘We work with KPIs on automation, efficiency, quality, reliability, budget and processing times.’ (Team leader quality)
‘We are a knowledge department; we do not have KPIs similar to the ones of the operations department. KPIs we have are for instance amounts of products to deliver within a certain time, like Risk-Self-Assessment or giving a presentation on a certain date.’
When looking at the measures, you see a difference when comparing the Operations department with the Risk & Compliance department. The Operations department does have many performance measures related to their process, many of them can be displayed in a figure. At the Risk & Compliance department it is different; they are a knowledge department and are working on projects. Overall these results give insight in important characteristics of the PMS. In the following section the diagnostic use of the PMS is discussed.
Diagnostic controls
In this section the diagnostic use of performance measurement is discussed. The way of tracking on outcomes and adjust for deviations from defined standards of performance at Achmea is described.
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not how we interact with each other, and the system is not designed for hardly settle employees.’ (Internal Auditor)
‘We work with ‘day starts’ or ‘week starts’ depending on the departments, which is in line with the context of continuous improvement. We see where we stand in relation to our objectives and KPIs and see what the developments are.’ (Team leader P&P)
‘At team level daily or weekly attention is paid to monitor the KPIs and keep track of goals. Every 14 days I have a meeting with all team leaders, in which we look at a big board on which all processes are shown and all KPIs within these processes. Every month I have a meeting with all team leaders separately. I also have a meeting with my director every month, and my director also has a meeting monthly with the Board of Directors.’ (Senior Manager Operations)
‘We are very much focused on performance measurement, especially for the part that I am responsible, Operations. Here we have visible processes with input and output and we deal with certain processing times and quality, and we are constantly reporting on this.’ (Senior Manager Operations)
The above statements show that that there is this constant focus on comparing the performance measures with the actual performance. When looking at individual performance you see this cycle of three meetings a year during which the employee and manager discuss this individual performance. Also the performance of each team, department and the whole division is tracked. At team level you see daily or weekly attention to keep up with the goals, when you go higher in the layers of the organization the frequency becomes less often. So at every layer in the organization they are busy with measuring performance, but there is a difference in frequency.
‘I work at a knowledge department; which is different from a production department when looking at performance measurement. We are also working on the basis of the sense methodology. We use an operational management board, on which we track how we are doing with regard to our goals. We have a meeting every two weeks in consultation with the entire department, and then discuss the items discussed on the operational management board.’ (Senior Operational Risk Manager)
‘Sense is a difficult process especially for our department, because at our department we cannot speak of average targets as at a production department. Besides that, in our discipline it is hard to determine how much time a question or project will take.’ (Senior Operational Risk Manager)
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‘A large part of our internal norms used for performance measurement are derived from norms set by the NZA, therefore norms cannot always be adapted. We have to look at the process why a particular norm has not been achieved.’ (Team leader P&P)
‘It is not the case that when we comply with the standard, we think it is fine. We have the ambition to be in the top 3 of best health care offices, this cannot be accomplished when we only look at our norms and if we are achieving them. It is a process of continuous improvements of our measures.’ (Team leader P&P)
The above two quotes show two different characteristics in relation to adjustment deviations of the performance measures. The first quote shows on the one hand that it is sometimes difficult in practice to adjust the performance measures due to the connection with the NZA. But the second quote implicates that they are trying to adjust and improve these measures in order to become one of the best health care offices. So here you see this tradeoff between strict norm and the focus of continuous improvement. Within this section important characteristics in the diagnostic use of the PMS are described, which reflects the extent to which the organization makes adjustment deviations of the set performance targets. In the following section the interactive use will be discussed.
Interactive controls
In this section the interactive use of performance measurement is discussed. Here the possibility of interaction between employees and managers is described.
‘The KPIs we use are quite stable, but there is enough room for input and discussion about these measures. We work with the SENS methodology, which is characterized by continuous improvement.’ (Team leader P&P)
‘Some KPIs are just hard, and we as team leaders have no further input on these measures. But over the majority of our performance measures we talk with the MT, to see what this means for the implementation. Are these KPIs realistic? And what should we do within our proceedings in order to acquire these KPIs? This discussion is necessary in trying to prevent that someone from for example the board determines KPIs, while they might not know the consequences for the implementation. There is the possibility for me as a team leader to comment on these KPIs to my senior manager, so this interaction is definitely there.’ (Team leader quality)
‘We work according to the LEAN systematic, there is lots of transparency. We talk about how we are doing now and how we can do it better in the future.’ (Senior Manager Operations)
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‘I have a whole set of KPIs in my management contract for this year, in which for instance employee satisfaction and budgets are discussed. With this I get to work. To begin with, my team leaders and I are going to another location together for one day to discuss what we have achieved in the past year and we know our new goals, so we determine what our ambitions are for the following year. Firstly we talk on ambition level, and after that we translate these ambitions into goals and KPIs as concrete as possible. We stand together in this conversation in order to see what is possible. I see myself as a king of guard in this process in order to create a realistic ambition, in which the team leaders partly determine their own goals. These goals of the team leaders will be translated back towards my KPIs and I will have a conversation with my manager about this.’ (Senior Manager Operations)
‘Operational managers are involved in the preparation of the departmental and personal objective. We do this together. It may be ambitious but must remain motivating. It is important to have confidence in your people but you also need to have knowledge of the process of assessing this.’ (Senior Manager Operations)
‘There is definitely interaction when preparation and monitoring of our objectives.’(Internal Auditor)
You see this clear interplay between senior managers and the operational managers in order to create realistic goals. Interviewees agreed upon the fact that there is enough room to interact in setting and monitoring the performance measures and goals.
‘The proposed goals for our team are translated into the subject related issues with which we work and are again translated into personal KPIs. These are established in collaboration with everyone in this department and are based on the goals set by the MT.’ (Senior Operational Risk Manager)
This quote shows that most goals are set by the MT, but the translation into team goals and individual goals is done with the whole team in accordance with the manager.
‘There is much attention paid to the improvement of the PMS, also in the context of SENS. This is supported and communicated by top management, but operational managers are involved in this process because we are also constantly looking for ways to improve the organization.’ (Senior Operational Risk Manager)
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Use of performance measures related to the different purposes
Within this section the results related to the decision-facilitating and decision-influencing purposes are presented. Here the possible differences between these purposes are described. ‘I think that most KPIs are used in order to motivate employees. Within Achmea we are convinced that when employees are motivated, this will enhance productivity and customer satisfaction, which in return will again lead to more motivated employees.’ (Team leader quality)
‘The KPIs are very decisive for me in making decisions and they are very much linked to the services we want for our customers. They are also important and strongly linked to evaluation and rewards of employees.’ (Senior Manager Operations)
The first statement shows the importance of the performance measures in order to motivate employees, the second statement shows that the performance measures are leading in making decision. According to the interviewees the PMS fulfills both purposes.
‘KPIs are used to talk about our divisional and personal goals with each other, this in order to get discussion, give feedback and learn from each other.’ (Team leader quality)
‘You cannot make a clear distinction between the KPIs used in order to motivate employees or used for making decisions. There is much coherence between KPIs, it is all linked together.’(Senior Manager Operations)
‘An important aspect of our performance measurement system is the link with our personal evaluation. Within this division we hardly make use of remunerations directly linked to performance measurement, but there is an indirect link in the form of an evaluation and possibly additional financial compensation.’ (Senior Manager Operations)
Above statements do not show a difference in information or measures used for the decision-influencing role compared to the decision-facilitating role. There is a variety of explanations possible for this observation. A logical explanation could be that Achmea barely uses variable remuneration related to performance measures. Another explanation for the fact that there is no clear distinction between the use of performance measures related to the two purposes could be the focus on external accountability. Because of this external accountability to the NZA and large impact these measures have on the internal accountability, this might be the cause no clear distinction can be made. The above results focused on the possible differences in measures used in order to fulfill each purpose, the next section is focused on the balance between them.
Balancing the decision-influencing and decision-facilitating role
Firstly the decision-facilitating role of the PMS of Achmea is discussed, after that the decision-influencing role of the PMS, and finally the balance in these roles.
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and you discuss this in agreement. The KPIs are guiding, since I use them to justify my decisions to my colleagues and manager.’ (Senior Operational Risk Manager)
‘KPIs are very important in making decisions and substantiate decisions to my senior manager.’ (Team leader quality)
The above two statements display the use of the performance measurements in the decision-facilitation role. All interviewees agreed upon the fact that these performance measures are leading in the process of making decisions and the underpinning of these decisions. Sometimes unexpected actions occur, but then you have to make choices in what to do first, then also the performance measures are used in order to make these decisions and they used as a means of communicating.
‘I do not speak of really motivating employees as a manager, in my opinion we are more on the level of inspiring them. When employees understand what we stand for as an organization and when they are touched by that, they motivate themselves.’ (Senior Manager Operations) ‘What you see nowadays is that goals and motivation have to come from within the employee. We want to give meaning to our work, this influences the process in designing our goals and KPIs, and how you use this in order to motivate employees. You can see it as a shift from a more extrinsic to a more intrinsic focus of motivation.’ (Senior Operational Risk Manager) The above two statement show that the more decision-influencing purpose (motivation) of the PMS is mainly focused on intrinsic motivation. Achmea uses the performance measures and the way they are communicated to excite employees and give meaning to their work. They barely use financial incentives linked to the performance measures in order to motivate. Therefore the use of the performance measures in order to fulfill the decision-influencing role is definitely experienced but is less clearly visible during the work.
‘I think we have the right balance in order to motivate employees and to make the right decisions. The performance measures contribute in order to make the right decisions. Due to the fact that we communicate our mission and vision extensively with our employees, and we explain our goals, it helps them to get motivated to achieve their personal and departmental goals. The management invested much time in making clear what we stand for as an organization, this makes it easier to explain the KPIs to our employees. So both motivation and decision making is covered and well-balanced in my opinion’ (Senior Manager Operations)
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What is interesting to see is that all interviewees agreed upon the fact that the performance measures were necessary and helpful for both decision making and motivation. In the first quote the interviewee explicit mentioned he experiences this balance in order to fulfill both purposes. He did not mention much about on which facts he bases this conclusion; therefore these results should be treated with caution because not much substantiation for this conclusion can be given. I noticed the possibility that these performance measures do not motivate everyone at all times. But on the other hand there is this constant communication and discussion about these measures and the actual performance employees understand the measures and their share in the bigger picture, which enhances motivation again. What should be mentioned is that the balance which is experienced does not necessarily mean that these performance measures are equally used in order to fulfill both purposes. Looking at the results more emphasis is on the facilitating role during the work, and the decision-influencing role is less noticeable, but it is there in order to fulfill its purpose. This means that the balance which is experienced in order to fulfill both purposes within this case does not mean the use of the PMS for both purposes is equally divided. The following section describes the consequences related to this experienced balance in the balance between the decision-influencing and decision-facilitating purpose.
Consequences of the balanced use of the PMS
In this section the consequences of the design of the performance measures is discussed. ‘In times of changes, for instances changes concerning the AWBZ, employees are more worried about their evaluation. Hence this way of working with KPIs and performance evaluations can be disconcerting for employees, especially in times of change.’ (Team leader quality)
‘A positive consequence is that we can make substantiated evaluations of our department and of our employees.’ (Team leader quality)
Uncertainty and changes within the organization and its environment make employees more worried when organizations make use of performance measures. They are afraid of being judged in times of uncertainty.
‘Because of the fact that our standards are partly determined by a third party, the NZA, sometimes norms are very strict, and just stay as they are. For instance the norm concerning the outstanding amounts of PGBs. In practice it turned out that it was not possible to get these amounts of money back, which resulted in demotivation for the employees and more communication and feedback towards the NZA for improvements and solutions.’ (Team leader P&P)
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‘When we just started with focusing on performance measurement, employees thought this was quite scary. They were afraid that they would be immediately fired after a bad review. But through communication, we show that we try to use it to support employees in making the right decisions and support them when necessary.’ (Senior Manager Operations)
‘We keep using these performance measures to control the organization and our employees; this is part of our corporate culture. This culture should fit our employees and the new employees we attract.’ (Senior Manager Operations)
‘I do not think that this way of working with performance measures goes at the expense of learning, we are constantly looking for opportunities and improving ourselves. I think that by having these measures, it helps us in thinking about where we stand and how to do it better, I think it enhances learning’ (Senior Manager Operations)
This implicates that there are some consequences to the use of their performance measurement system. What can be seen is that it is possible that the use of these strict measures can cause demotivation. This can have several reasons, firstly due to the fact that some internal norms are based on norms set by the NZA, secondly due to the change in the way of working, and some people just do not fit this corporate culture.
‘It is possible that some people experience this way of working with performance measures as demotivating. But if this is the case they have the opportunity to discuss this with their manager, we have a corporate culture in which there is enough room to talk about this.’ (Senior Operational Risk Manager)
‘I can see the difference in my work now compared to before we worked with these performance measures. I have a better overview of the effect certain activities have on my schedule and goals. A negative consequence might be that you are forced to work structured. For some people who have been working here for years this could be hard. Also the fact that everything is easier to control can be experienced as unpleasant for some employees (Senior Operational Risk Manager).
‘A positive consequence of the use of these performance measures is that we can precisely see how everybody manages their time and if this is efficient or if we can do it better. It helps me in order to do my work more structured, it becomes less chaotic. It is possible that this greater structure goes at the expense of creativity. But when you look at for instance a production department, people do not have to be very innovative. In departments where employees have to be innovative, there is sufficient time for that.’ (Senior Operational Risk Manager)
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‘In some cases you can see that it leads to demotivation, for instance when we have to give an early warning. But due to the fact that we use these measures, employees understand why we have to give them this warning. But it is not like they did not do anything, but sometimes this is not enough.’ (Internal Auditor)
‘In the beginning of the implementation of working with these performance measures and the SENSE methodology, it was hard for us to adapt and to arrange it in such a way that it works for our department. But at this moment the concept works very well, you are forced to enter into the conversation with each other. Are we on track? How are we doing? Do we have to make adjustments? We are constantly focused on improvements. (Senior Operational Risk Manager)
‘I do not consider use of these norms and performance measurements as threatening, I see it rather as stimulating in order to discover and implement improvements.’ (Internal Auditor) ‘Within internal audit we do not have to be very innovative. But I do not think that the use of these norms goes at the expense of innovativeness. When looking at the division Z&G, I think that there is enough room to be creative. On the one hand there are these norms but you also have to deal with reality.’ (Internal Auditor)
The above quotes show, even though the focus is on measuring performance, the interviewees agreed upon the fact that they experience enough room to be innovative and to improve when necessary. This right balance in decision-influencing and decision-facilitating might be the reason that the use of this PMS enhances learning. Also the combination of this balance and the comprehensive and frequent communication of these goals make this PMS efficient which results in the focus on continuous improvement.
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DISCUSSION AND CONCLUSIONS
This section summarizes the results and gives theoretical support in answering the research question. This study examined the design of the MCS, including the PMS, within the division Z&G at Achmea. This design is described by means of Simons’ (1995) LOC framework. In studying this design, the focus is on the two different purposes: decision-influencing and decision-facilitating. Both the differences in measures used according to this purposes and the balance of these two purposes are examined. And the consequences related to this balance are discussed. Within this section all findings are linked to the literature and comparison is made with both conflicting and convergent literature, by which conclusions can be drawn. Finally limitations of this research and suggestions for future research are discussed.
Research question:
How is the MCS, including the PMS, designed in order to serve both decision-influencing and decision-facilitating purposes and what consequences arise from the combination of these purposes?
Overall the results show that the employees experience a well-balanced PMS in order to serve both decision-influencing and decision-influencing purposes. In the analysis can be seen that the PMS is used for both purposes, but although the employees experience this balance, this results should be treated with caution because not much substantiation for this conclusion is mentioned. Main consequences related to this balance can be found in a constant focus on improving within the organization. Other consequences are; worried employees in unstable times and the fact that the influence of the NZA sometimes leads to demotivation and less possibility to adjust performance measures. The remainder of this section discusses the results more detailed in relation to existing literature in order to answer each sub question.
The results firstly show some characteristics of the design of the MCS, in the form of the belief and boundary system. These results show that the communication of the mission, vision and main goals of the organization is top-down communicated, but that there is the possibility for employees to give input. So communication is both top-down and bottom-up. When looking at the boundary system, which is top-down communicated, rules and restrictions are there, but there is less focus on this communication constantly during the activities.
