Amsterdam Business School
The Influence of Organizational Reputation on
Management Control System Tightness in Professional
Service Firms
Name: Annefleur Koek Student number: 11081570
Supervisor: Prof. dr. ir. M.J.F. Wouters Date: June 25th, 2017
Word count: 20.096
MSc Accountancy & Control, specialization Control
Statement of Originality
This document is written by student Annefleur Koek who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Abstract
In this research, the effect of organizational reputation on the tightness (explicit, implicit) of management control systems (MCSs) in professional service firms (PSFs) is examined. MCS was conceptualized in eight constructs divided in two dimensions of tightness: explicit and implicit in combination with four control dimensions: behavioral controls, results controls, cultural controls and personnel controls. This study further examines whether this relationship is moderated by the level of strategic costs management. A survey was conducted under experienced professionals working in PSFs operating in different industries. The final sample used for the analysis consist of 313 professionals. The results of this study reveal that (1) the better the organizational reputation, explicit behavioral controls, explicit and implicit cultural controls and explicit and implicit personnel controls are more tight, (2) the better the organizational reputation, implicit behavioral controls are less tight, and (3) there is no significant evidence found for the moderating effect of cost management on these relationships.
Keywords: Management Control System; Control Tightness; Professional Service Firm; Organizational Reputation; Strategic Cost Management
Contents
1
Introduction ... 1
2
Literature Review ... 3
Agency Theory ... 3
Management Control Systems ... 4
2.2.1 Management Control System – Definition and Dimensions ... 4
2.2.2 Management Control System - Tightness ... 6
2.2.3 Management Control System - Implicit and Explicit Tightness ... 7
Professional Service Firms ... 9
2.3.1 Professional Service Firm – Definition and Characteristics ... 9
2.3.2 Professional Service Firm - Professionals ... 11
Organizational Reputation ... 12
Summary Definitions ... 15
3
Hypothesis Development ... 16
4
Research Method ... 22
Thesis Survey Project ... 22
Survey Pre-test ... 23 Sample Selection ... 23 Survey Variables ... 26 4.4.1 Independent Variable ... 26 4.4.2 Dependent Variables ... 26 4.4.3 Control Variables ... 27 4.4.4 Moderator Variable ... 28 4.4.5 Overview Variables ... 29
Principle Component Analysis & Reliability Analysis ... 30
Statistical Model ... 35
5
Findings ... 36
Summary Descriptive Statistics ... 36
Correlation Analysis ... 37
Regression Analysis ... 40
5.3.1 Model 1 ... 40
5.3.2 Model 2 ... 44
5.3.3 Overview Regression Analysis ... 48
5.3.4 Additional Analysis ... 49
6
Conclusion ... 50
Discussion ... 50
Limitations ... 52
Implications for Future Research ... 52
References ... 54
Appendices ... 59
1. Survey Constructs ... 59
1! Introduction
The design of management control systems (MCSs) within firms has been researched for years (Von Nordenflycht, 2010). However, it focused mainly on manufacturing firms rather than on professional service firms (PSFs) (Von Nordenflycht, 2010). While over the past three decades, the PSFs sector is the most fast-growing and profitable sector in the world. It has a significant role in the global economy and is becoming more important in the increasingly knowledge-based economy (Empson, Muzio, Broschak, & Hinings, 2015; Gardner, Anand, & Morris, 2008; Von Nordenflycht, 2010). Health care, accounting, engineering, software development and architecture are examples of PSFs. The lack of research in combination with the growing economic interest of PSFs, constitutes the motive for doing empirical research on this field (Greenwood, Li, Prakash, & Deephouse, 2005; Empson, Muzio, Broschak, & Hinings, 2015).
Moreover, PSFs differs from other types of firms because the assets of PSFs consists primarily of human capital, which means that the outputs are intangible and custom-made for each client, which calls for a different adoption of MCSs (Von Nordenflycht, 2010; Greenwood, Li, Prakash, & Deephouse, 2005; Hinings & Leblebici, 2003). Furthermore, clients “cannot judge the experts advise or reports on substance’’(Starbuck 1992, p. 731). As a consequence, clients need to rely on organizational reputation (Greenwood, Li, Prakash, & Deephouse, 2005). For PSFs this results in the importance of having a good reputation, and this is therefore more important than in other organizations.
The choices that are made by management to control the organization, to make sure that every employee in the organization does what management envisions them to do, impact the overall organizational performance. For example, the degree of tightness of the MCS is one of the choices management makes, where a distinction can be made between explicit and implicit tightness. Explicit tightness comprehends the extent and number of controls used, and implicit tightness contains the extent to which deviations from these controls are allowed. Furhermore, MCS consits of four dimensions (1) behavioral controls, (2) results controls, (3) cultural controls and (4) personnel controls. For each of these contols, managament can decide the extent and number of controls and if deviations from these standards are allowed.
The design of the MCS is influenced by the choice for organization’ strategy (Auzair & Langfield-Smith, 2005; Kumar & Subramanian, 1998). Porter (1980) proposed that organizations can choose between two strategies: cost leadership and differentiation. Auzair and Langfield-Smith (2005) studied the direct effect of the two strategies on MCS design in service firms. However, in practice, organizations often pursue a combination of both strategies in order to achieve competitive advantage, because in many industries, an unique cost leadership strategy is not
possible (Hill, 1988). Thus, it is flawed to look only at organizations that pursue a differentiation strategy and organizations that pursue only a cost leadership strategy, because the most organizations use both strategies. Therefore, this research only focuses on the level of cost leadership, which indicates the level of cost management in organizations.
Because of the fact that organizational reputation is especially important for PSFs, this thesis studies the impact of organizational reputation on the tightness of MCSs and it examines the influences of cost management on this relationship. This aim of the research is formulated in the following research question:
RQ: To what extent does organizational reputation affect management control system tightness and how does the level of cost management influences this relationship?
To answer this question, the effects of organizational reputation on the tightness (explicit, implicit) are researched. And subsequently, the moderating effect of strategic cost management is added to examine how this affect the relationship between organizational reputation and MCS tightness. This paper contributes to the exiting literature about PSFs in the following ways. First, it gives empirical evidence for the design of MCSs in PSFs. Moreover, prior case studies about MCS in PSFs have only focused on organizations in a single industry (Auzair & Langfield-Smith, 2005), while this study comprehends 27 PSFs industries and therefore adds to the knowledge of MCS design in PSFs. Additionally, only a few researchers have examined organizational reputation in PSFs (Hinings & Leblebici, 2003; Greenwood, Li, Prakash, & Deephouse, 2005; Harvey, Morris, & Müller Santos, 2017). However, non of these researchers have focused on the influence of organizational reputation on the design and use of MCSs. This study therefore addresses this gap in the literature and responds to the call of Greenwood et al. (2005) to explore the role of reputation in PSFs.
The remainder of this study is organized as follows. Chapter ‘Theory’ gives an overview of the literature on PSFs, MCSs and organizational reputation. Based on the literature review is in chapter three the hypothesis development given. Moreover, in the chapter ‘Research Method’, the research design is outlined. Consequently, in chapter five, the empirical findings are presented. Lastly, in chapter 6, the discussion, limitations of this research and the implications for future research are given.
2! Literature Review
Due to the growing position of PSFs in the world’s economy, there is a growing interest from researchers in different research areas to study this sector (Kaiser & Ringlstetter, 2011). In order to achieve a thorough understanding of this type of organizations, it is essential to know what distinguishes PSFs from regular service companies and other types of organizations. In order to accomplish this, different elements of PSFs are extensively described in this literature review. Also, several researchers have showed the significance of normative controls in the MCS in PSFs, instead of the use of bureaucratic controls (Greenwood, Li, Prakash, & Deephouse, 2005). This is further clarified in the section about MCSs. Moreover, organizational reputation is especially important for PSFs (Greenwood, Li, Prakash, & Deephouse, 2005). Therefore, a separate section is dedicated to delineate the literature about organizational reputation.
The literature review is structured as follows: First, in section 2.1 the agency theory is described and the relevance for implementing a MCS is evinced. This is followed by section 2.2 where the relevant aspects of MCSs and different forms of control tightness are elaborated. Subsequently, in section 2.3, a definition of PSFs is developed and the characteristics of PSFs and professionals are outlined. Furthermore, section 2.4 summarizes the literature about organizational reputation. Based on this literature review, the hypotheses are presented in the next chapter.
! Agency Theory
Agency theory is a presumption that defines the relationship between the principal and the agent. It is a contract under which the principal enlist the agent to perform work, which involves delegating decision rights to the agent (Jensen & Meckling, 1976). More specifically, this theory is based on the complications that can occur in agency relationships, also known as agency problems. There are two varieties of agency problems. The first problem occurs when there is a discrepancy between the goals of the principal and the goals of the agent, where simultaneously the principal cannot validate the behaviour of the agent (Eisenhardt, 1989). Secondly, a problem develops when the principal and the agent have a different opinion about the level of risks they want to accept (Eisenhardt, 1989). An agency problem can arise when an agent does not get all the affluence that results from the outcome of the work he executes (Goodale, Kuratko, & Hornsby, 2008). Summarized, a conventional agency problem arises when there is no congruence between the agent’s decisions and the decisions that would maximize the prosperity of the principal (Jensen & Meckling, 1976).
! Management Control Systems
MCSs are designed to minimize agency problems. When employees are always willing to act in the organization’s best interest, there would be no need for management and a MCS. Sadly, this is not always the case, and management need to make actions to keep undesired actions from happening and stimulate desired actions. Thus, in order to make sure that the organization’s objectives will be accomplished, sufficient controls need to be implemented (Merchant & Van der Stede, 2012). However, if there are too much controls implemented, and therefore the control system does not match the organization, it may have a negative effect on employee’s trust, energy and morale. As a result of this, it can obstruct the organization’s effectiveness (Goodale, Kuratko, & Hornsby, 2008). This is in accordance with the contingency theory. This theory describes that every organization has a unique structure with her own strategy and objectives, and therefore there is no uniform MCS that suits all organizations (Otley, 2016). Auzair and Langfield-Smith (2005) made a distinction between cost leadership and differentiation strategies, and proved that the focus of the organization has influence on the MCS. So, when designing a MCS, contingency variables must be taken into account to develop an effective MCS.
Considering the complexity and width of MCSs, there are many different approaches in the literature of the design of MCSs. In the next section, different definitions and frameworks of MCSs will be discussed.
2.2.1! Management Control System – Definition and Dimensions
Every organization wants to be in control – that is when management can be confident, to some extent, that no major unpleasant surprises will occur (Merchant K. , 1982). To achieve this, management can implement different control mechanisms to congregate a MCS, and it can be designed in a way that is best suited for the organization.
In the literature, there are different definitions used for MCSs. For example, Lowe (1971) describes management control as: “a process of ensuring that what in some senses ‘ought’ to be done is done and of detecting when it is’’ (Lowe, 1971, p. 3). In this definition of management control, he implies with ‘ought’, the system of values, where a control system is based on work values (Lowe, 1971). Merchant & Van der Stede (2012, p. 6) describe MCSs more clearly. They describe it as: “Management control includes all the devices or systems managers use to ensure that the Behavioral s and decisions of their employees are consistent with the organization’s objectives and strategies. The systems themselves are commonly referred to as the management control systems”.
identified three different control mechanisms: market mechanisms, bureaucratic mechanisms and clan mechanisms. Market controls manage control problems by measuring and rewarding individual inputs, where on the other hand bureaucratic controls are based on close directing and monitoring of activities. Furthermore, clan controls concern social processes, where the unique characteristics of the organization constitute the clan (Ouchi, 1979). Moreover, Ouchi (1979) affirms that these mechanisms appear in combinations in organizations. Building on the control mechanisms of Ouchi (1979), Merchant (1982) provides a similar framework. This framework is based on three specific controls: action, results and personnel controls. In this model, action controls are controls to ensure that individuals perform the way that management desires. They are the actions of employees that are prescribed or prohibited. Results controls intend to make each individual responsible for the results of his, or her own actions. And at last, personnel controls include hiring the right people, offering training programs and putting effort in people so that they understand their tasks and role in the organization (Merchant K. , 1982). Furthermore, in their book of 2007, Merchant and Van der Stede added cultural controls to the framework. These controls consists of shared traditions, values and attitudes within organizations (Merchant & Van der Stede, 2007). Action controls are direct controls; management can directly influence the actions of employees. This in contrast with the other three controls, those are indirect controls to influence the behaviour of employees. Action controls give direction to employees and assurance for managers. The framework of Merchant and Van der Stede is summarized in figure 1. Moreover, it can be concluded that the market mechanisms of Ouchi (1979) are in accordance with results controls, the bureaucratic mechanisms are in line with behavior controls and clan mechanisms cover personnel and cultural controls.
Simons (1987) has a different idea about MCSs. He describes MCS as follows: “The formal, information-based routines and procedures used by managers to maintain or alter patterns in organizational activities” (Simons R. , 1987). Simons (1995) developed a framework of control mechanisms. He called it the Levers of Control, and it consists of four levers. These are the belief system, boundary system, diagnostic control system and the interactive control system. First of all, the belief system includes communication of the core values of the organization. The boundary system sets limits and rules and the diagnostic control system is a feedback system, which monitors outcomes. The last of the four systems is the interactive control systems that managers use for collecting new information to signal new opportunities.
Stouthuysen et al. (2017) distinguish formal and informal controls. Formal controls highlight the monitoring and output of processes, while informal controls emphasize the individual and the culture. These formal controls can be linked to the different control types of Merchant and Van der Stede (2007). Action and results controls are types of formal controls, and informal controls are personnel and cultural controls.
In this research, the operationalization of MCSs is measured by the presence of the following control mechanisms: (1) behavioral control, (2) results control, (3) personnel control and (4) cultural control (Merchant K. , 1982; Ouchi, 1979). These control mechanisms are best suited for this research about the reputation of PSFs due to the fact that these controls contain in the whole control environment of PSFs. That is to say, when hiring professionals, personnel control is the control mechanism that covers this. During the time professionals perform their job, behavioral controls and cultural controls can be applied. Furthermore, for the output of the work, in PSFs this is the completed service provided, results controls can be implemented.
2.2.2! Management Control System - Tightness
In extension to the control mechanisms management can implement, they also need to determine the tightness of those control mechanisms. In the current literature, control tightness is not uniform defined. There are multiple conceptions about this. For example, Hopwood (1974) suggests that tight controls mean that targets are appointed for employees, employees cannot influence objectives setting and accounting measures is the only method to measure performance. Hopwood (1974) further proposes that loose controls are the opposite of tight controls; employees can negotiate about targets, employees can participate in objective setting and targets are only reference points for performance evaluation.
Butler et al. (1998) identified errors of tightness and errors of looseness. When decision making is hold down by procedures, rules and other forms of constrains, errors can arise by the
structure in the organization; decisions could be more easily made if there were procedures and rules (Butler, Price, Coates, & Pike, 1998).
According to Amigoni (1978), tight control occurs when the participation of objectives setting is low, targets are set without considerations and performance measures are associated with accounting measures. On the contrary, when control is loose, that means that managers are sensible for the individual aspects of controls, the participation with decision making is high, non-accounting measures are also considerations for evaluation, and targets are first discussed with employees.
In this paper, the different point of views in the literature about control tightness are summarized in a new definition for MCS tightness. This is specified as follows: MCS tightness is the degree of flexibility in the control system, where flexibility is a combination of the degree of deviation that is allowed, and the quantity of presence of controls. Summarized, tight control is the combination of more controls and allowing limited deviations.
2.2.3! Management Control System - Implicit and Explicit Tightness
The flexibility in the control system can be achieved in two separate ways. The first way, also called explicit tightness, is to increase the extent of the MCS. To do this, more controls, rules and procedures need to be created. The second way, called implicit tightness, is to broaden the level of tolerance by minimizing de deviations from the actions prescribed by the MCS. This paper investigates implicit and explicit tightness for each of the four controls (behavioral control, results control, personnel control and cultural control).
2.2.3.1! Behavioral control tightness
Behavior controls, also called action controls in the framework of Merchant (1982, 2007, 2012), are controls that set boundaries for employees by limiting and prescribing actions. In this way, behavioral controls are controls that directly influences the behaviour of employees. Explicit behavioral control tightness contains the extent and use of standardized processes, procedures, rules and routines implemented in the organization. A tight system is a system with a lot of controls in terms of number and extension. While implicit behavioral control tightness is the degree to which deviation from processes, procedures, rules and routines is tolerated, where a tight system is one that does not allow any deviation from these processes and procedures.
2.2.3.2! Results control tightness
Results controls make sure that employees are accountable for their output, and that they feel responsible for this output. They will make their own decisions regarding their actions to attain the best results. Explicit results control tightness is the extent of the use of goals, targets and performance measures, where tight control can be achieved by the use of a lot numbers of controls.
Implicit results control tightness is the extent of the use of goals, targets and performance measures, where a tight system does not permit any deviation from the goals, targets and performance measures.
2.2.3.3! Cultural Control Tightness
Cultural controls are the norms, values and principles of the company. Explicit cultural control tightness is the extent of using employee socialization procedures as part of the MCS, and where tight control can be succeeded by the use of socialization procedures as the organization seeks to actively bring new employees into the organization’s culture. Implicit cultural control tightness is the degree to which the employees’ norms, values and beliefs are tolerated to deviate from those of the organization, and where tight control stands for high value congruence, and a loose system is a system where there is low value congruence.
2.2.3.4! Personnel Control Tightness
Personal controls are controls that appear in the hiring process. Explicit personnel control tightness is the extent of the use of employee selection procedures. A tight system is a system where the employee selection procedure is extensive because the organization seeks for new employees with particular characteristics. Implicit personnel control tightness is the degree to which deviation from human resource standards is tolerated, and where a tight system does not accept deviations from these human resource standards.
! Professional Service Firms
The PSF sector has become to be the most fast-growing and profitable sector in the world. It has a significant role in the global economy and is becoming more important in the increasingly knowledge-based economy (Empson, Muzio, Broschak, & Hinings, 2015). PSFs differ from non-PSFs due to the importance of human capital. Moreover, the work of professionals is not standardized because of the unique client input. Therefore, different methods of management are required (Von Nordenflycht, 2010; Greenwood, Li, Prakash, & Deephouse, 2005; Hinings & Leblebici, 2003).
There is no consensus in the literature about the definition of a PSF. Therefore, the definition of a PSF will be discussed in the next section, followed by the characteristics of PSF and the professionals in PSFs.
2.3.1! Professional Service Firm – Definition and Characteristics
In the literature of PSFs, there is not one specific definition used to clarify what a PSF is. The reason for this is, that in many research papers the term PSF is explained indirectly by only an enumeration of a list of examples (Von Nordenflycht, 2010). Research about PSFs is interesting because multiple theorists belief that PSFs are different and more complex than manufacturing firms or regular service firms (Abernethy & Stoelwinder, 1995; Goodale, Kuratko, & Hornsby, 2008; Greenwood, Li, Prakash, & Deephouse, 2005; Von Nordenflycht, 2010). Moreover, there is argued that PSF is the most important type of firm, due to the fact that the PSF industry is the most fast-growing industry since the 1990s (Jensen, Poulfelt, & Kraus, 2010).
Greenwood et al. (2005) studied the effects of reputation, diversification and organizational structure on performance of PSFs. In their research they define PSFs as: “those whose primary assets are a highly educated (professional) workforce and whose outputs are intangible services encoded with complex knowledge” (Greenwood, Li, Prakash, & Deephouse, 2005, p. 661). In this definition of PSFs, professional workforce can be defined as the degree to which the profession is formally organized. Furthermore, Greenwood et al. (2005) identified two unique characteristics of PSFs. These are (1) “outputs are intangible applications of complex knowledge” (p. 663) and (2) “PSFs need to employ a highly educated professional workforce to customize complex knowledge to client situations” (p. 663).
Auzair and Langfield-Smith (2005) used a survey to research the design of MCSs in service organizations. They describe PSFs as “organizations with relatively few transactions, highly customized, process oriented, with relatively long contact time ,with most value added in the front-office and where considerable judgment is applied in meeting customer needs” (Auzair & Langfield-Smith, 2005, p. 402). Moreover, PSFs distinguish themselves by high time spend on
customer contact hours, where professionals learn from their clients and the projects they engage in (Løwendahl, Revang, & Fosstenløkken, 2001).
Thus, PSFs distinguish themselves from regular service firms, for example childcare services or cleaning services, by employing highly educated professionals, the service they provide is intangible and of complex knowledge and where the service requires a lot of customer interaction.
Von Nordenflycht (2010) developed a theory of the characteristics of PSFs and their organizational implications. He identified three characteristics. The first characteristic, knowledge intensity, is the most important characteristic of PSFs, because it applies to almost all sorts of PSFs (Von Nordenflycht, 2010). Knowledge intensity indicates that the output of the services relies heavily on complex knowledge (Von Nordenflycht, 2010). The other two characteristics Von Nordenflycht (2010) identified are low capital intensity and professionalized workforce. Where low capital intensity means that firms do not need production equipment and inventories, and professionalized workforce means the degree to which the profession is formally organized (by required certificates for example). The degree of those two characteristics vary for different types of PSFs. In my opinion, Von Nordenflychts (2010) study helps answering my research question by outlining the specific characteristics of a PSF and the different occupations he identifies as a PSF. He accomplished to make a distinction between PSFs and non-PSFs. So, in this paper the classification of Von Nordenflycht (2010) is used. Table 1 gives an overview of the PSF occupations used in this study.
Table 1 PSF Occupations
Accounting Insurance brokerage
Actuarial services Investment banking
Advertising Investment management (hedge funds, VC, mutual funds)
Architecture Law
Biotechnology Marketing/public relations
Consulting Engineering Media production (film, TV, music)
Consulting IT Medicine/Physician practices
Consulting HR Pharmaceutical
Consulting Management/Strategic Project management
Consulting Technology Real estate
Engineering Recruiting executive
Fashion design Research/R&D
Financial advising Risk management services
Graphic design Software development
2.3.2! Professional Service Firm - Professionals
PSFs employ highly qualified individuals, professionals. Examples of professionals are accountants, engineers, lawyers and architects. These professionals are disciplined to complete complex assignments using their high degree of skill, experience and knowledge (Abernethy & Stoelwinder, 1995; Mills, Hall, Leidecker, & Margulies, 1983). Therefore, only other professionals can accurately evaluate performance (Mills et al., 1983). Moreover, professionals are quite autonomous and independent in their work (Goodale, Kuratko, & Hornsby, 2008), they can define problems and create solutions their self (Mills et al., 1983). Managers on the other hand, delegate work to others. The appearance and work of professionals is very important for the reputation of the organization, what makes them accountable for the success of the company (Kaiser & Ringlstetter, 2011).
Raelin (1985) researched the phenomenon of why professionals have a resistance to management control. He described that professionals are usually rewarded for their work with special privileges due to their positions. For example, professionals can question management’s decisions regarding professional’s work effort (Raelin, 1985). In addition, he discovered five characteristics most professionals have, that are the basis of the resistance they have to management control. Namely, (1) their preference to autonomy, (2) overspecialization of technical skills, (3) overemphasis on professional standards of evaluation, (4) lack of interest in real-world practice and (5) disregard of organizational procedures (Raelin, 1985). The first, their preference to autonomy is the most important reason for professional’s resistance to management control. That is, they wish to make their own decisions, what conflicts with management’s expectations from professionals: to follow the rules and procedures of the organization (Raelin, 1985). Additionally, professionals want to protect their individual knowledge base, while management want to minimize dependence on individuals (Løwendahl, Revang, & Fosstenløkken, 2001).
Von Nordenflycht (2010) confirms this preference for autonomy, and gives that traditional compensation and traditional authority schemes are less effective in for managing professionals. So, a solution for this is, setting up a contingent compensation scheme where professional’s performance and efforts to reach the organization objectives, are linked to their compensation (Von Nordenflycht, 2010).
Summarized, researchers (Mills et al., 1983; Raelin, 1985; Goodale et al.., 2008; Von Nordenflycht, 2010) have found that professionals have a desire for autonomy, what results in a defiance to oversight, rules and strict processes.
! Organizational Reputation
Organizational reputation is one of the most important intangible assets of a company (Fombrun & Shanley, 1990; Zabala, Panadero, Gallardo, Amate, Tena, & Villalba, 2005). Building and maintain a strong reputation is critical to compete successfully (Von Nordenflycht, 2010). A good reputation results in the ability to charge premium prices due to their ‘brand name’ and to find investors (Fombrun & Shanley, 1990), attract the very best employees (Greenwood et al., 2005), creating competitive barriers; making it difficult for new contestants to embark the market (Walker, 2010) and it deceases marketing costs because clients look for organizations with a high status (Greenwood et al., 2005).
In the literature, the definition of Fombrun (1996) is the most commonly used. According to him, corporate reputation is: ‘A perceptual representation of a company’s past actions and future prospects that describes the firm’s overall appeal to all of its key constituents when compared with other leading rivals’ (Fombrun C. J., 1996). Furthermore, a more recent definition of organizational reputation is the definition of Walker (2010). He used the definition of Fombrun (1996) as base for his definition and extends the definition by arguing that reputation is generally stable and enduring and that organizational reputation can be both positive or negative. He summarized this in his definition: ‘Corporate reputation is a relatively stable, issue specific aggregate perceptual representation of a company’s past actions and future prospects compared against some standard’ (Walker, 2010, p. 370). In a later research of Fombrun from 2012, he sought to answer how to define and frame corporate reputation. In his research he proposed that corporate reputation contains four components: reputations are (1) collective assessments (2) of a company’s attractiveness (3) to a specific group of stakeholders (4) relative to a reference group of other companies (Fombrun C. J., 2012, p. 100). He formulated this into the following definition of organizational reputation: “A corporate reputation is a collective assessment of a company’s attractiveness to a specific group of stakeholders made with reference to companies with which it competes (Fombrun C. J., 2012, p. 100). In this definition, organizational reputation depends on both reference groups and stakeholders. According to Combs and Ketchen (1999), the organizational reputation can be clarified by the following question: “Does the organization hold a high status compared to other organizations in the industry?”. In contrast with the definition of Fombrun (2012), this definition of Combs and Ketchen focusses only on reference groups.
Despite the differences in the above definitions of organizational reputation, they all have one similarity: organizational reputation plays an enormous role in the competition with other organizations. Furthermore, organizational reputation is more important in PSFs than in other
the experts advise or reports on substance’’As a consequence, clients need to rely on organizational reputation (Greenwood, Li, Prakash, & Deephouse, 2005). Fombrun (1996) acknowledges this by arguing that organizational reputation has the most effect on PSFs because a determination of quality is hard to make. Therefore, PSFs rely more than other firms on reputation as an indicator for quality. Where quality reflects the company’s knowledge and relational competence (Kaiser & Ringlstetter, 2011). Thus, a superb reputation is a requirement for PSFs for having enduring success in the field.
In order to build and maintain reputations, Petkova (2012) argues that there are three stages of reputation-building activities: (1) attract stakeholders’ attention, because stakeholders first need to know the existence of the company before they can form perceptions about it. (2) Reduce the uncertainty of the company by convincing sceptical stakeholders that the company fits within the industry norms, values and rules. (3) Demonstrate that the company has the necessary resources and capabilities to provide valuable services, to get a valuable evaluation from stakeholders which results in a good reputation.
Mitchell and Harvey (2015) argue that trust is a leading factor for creating a valuable organizational reputation. Clients rely on professionals and the information they provide will be handled confidentially. Furthermore, emotional intelligence is very important for professionals to posses (Mitchell & Harvey, 2015). They need to be in control of their own emotions, identify and adapt to the emotions of clients and manage social relationships with clients (Mitchell & Harvey, 2015).
According to (Zabala, Panadero, Gallardo, Amate, Tena, & Villalba, 2005), in order to increase organizational reputation, management’s responsibility in PSFs is to control and describe in detail the status and management of professionals to achieve recognition from stakeholders. Moreover, Kaiser and Ringlstetter (2011, pp. 50-51) outlined a couple approaches to increase organizational reputation:
•! Appearance of employees. When interacting with clients, the behavior of professionals is very important and helps to advance the reputation.
•! Alumni contact. Former employees can also influence the reputation of the firm. They know what to expect and can become future clients. Alumni can favour the services of their previous firm, so as an organization, it is important to have a good relationship with alumni.
•! PR Management. The press has also a great influence on the reputation, so it is important to establish journalist contacts.
•! Performance Guarantees. The performance of professionals is very important when the service is cost-intensive for the client. It is viewed as the discrepancy between clients’ expectations and the final output of the service the PSF provides (Mitchell & Harvey, 2015). •! Crisis management. When the organization is in a critical situation, by for example a scandal,
it can be helpful to pay fines to limit the reputation damage.
•! Advertisements. Also PSFs can be in commercials to make sure that the target group knows of the existence of the firm.
For this research, the definition for organizational reputation of Combs and Ketchen (1999) is used. Organizational reputation depends on the organizational status compared to the status of other companies in the industry. In this case, a good organizational reputation means that the organization has on average a higher status than other companies in the same industry.
! Summary Definitions
Resulting the literature review, an overview of the definitions of variables used in this research is given in the table below. When there is no reference given behind the definition of the construct, this means that is is a new developed construct.
Table 2 Overview Definitions
Construct Definition References
MCS The combination of the use of behavioral controls, results controls, cultural controls and personnel controls.
(Merchant K. , 1982; Ouchi, 1979) MCS Tightness The degree of flexibility in the control system, where flexibility is a
combination of the degree of deviation that is allowed, and the quantity of presence of controls.
Explicit
Behavioral Control Tightness
The extent of use of standardized processes, procedures, rules and routines as part of the management control system, where a tight system is defined as one with a lot of controls in terms of amount and scope.
(Aiken & Hage, 1968; Cunningham & Rivera, 2001; Van de Ven & Ferry, 1980) Implicit
Behavioral Control Tightness
The degree to which deviation from established processes procedures, rules and routines is tolerated and/or encouraged, where a tight system is defined as one which does not allow any deviation from standard processes, procedures, rules and routines.
(Aiken & Hage, 1968; Van der Stede, 2001; Bodewes, 2000) Explicit Results
Control Tightness
The extent of use of goals/targets/performance measures as part of the management control system, where a tight system is defined as one with a lot of controls in terms of amount and scope.
(Jaworski, Stathakopoulos, & Krishnan, 1993) Implicit Results
Control Tightness
The degree to which deviation from goals/targets/performance measures is tolerated and/or encouraged, where a tight system is defined as one which does not permit any deviation from established goals/targets/performance measures.
(Aiken & Hage, 1968; Simons R. , 1987; Van der Stede, 2001) Explicit Cultural
Control Tightness
The extent of use of employee socialization procedures as part of the management control system, where a tight system is one in which the use of socialization procedures is extensive as the organization seeks to actively bring new employees into the organization’s culture.
Implicit Cultural Control Tightness
The degree to which the employees’ norms, values and beliefs are tolerated to deviate from those of the organization, where a tight system displays high value congruence while a loose system displays low value congruence.
(O'Reilly & Chatman, 1986)
Explicit Personnel Control Tightness
The extent of use of employee selection procedures as part of the management control system, where a tight system is one in which the employee selection procedure is extensive as the organization seeks to actively select employees with particular attributes. Implicit Personnel
Control Tightness
The degree to which deviation from human resource standards is tolerated, where a tight system is one which does not allow any deviation from human resource standards.
Organizational Reputation
Does the organization hold a high status compared to other organizations in the industry?
(Combs & Ketchen, 1999)
Professional Service Firm
Organizations with high knowledge intensity, low capital intensity and a high professionalized workforce.
(Von Nordenflycht, 2010)
3! Hypothesis Development
Based on the literature review, eight hypotheses are developed. First, the expected relationship between behavioral control tightness and organizational reputation is described. Followed by the expected relationship between organizational reputation and results control tightness. Then, the expected relation between organizational reputation and cultural control tightness is substantiated. And fourth, the expected relationship between organizational reputation and personnel control tightness is outlined. The four constructs are divided into four hypotheses each: ‘hypothesis a and b’ for the relationship between reputation and explicit and implicit MCS tightness and ‘hypothesis c an d’ for the moderating effect of strategy on this relationship.
The service PSFs provides is intangible, thus the quality of the services is hard to measure. One indicator for quality of the service is organizational reputation. To acquire a good reputation as an PSFs, it is essential to manage professionals. This is the strategic success factor for PSFs (Kaiser & Ringlstetter, 2011). In order to do this, an organization can design their own MCS. This can be done by implementing a variety of control mechanisms, and determine the tightness of these controls. In this study the effect of organizational reputation of PSFs on the four s are examined, and the moderating effect of strategy on this relationship is studied. The interesting part about this study is, that the effect of organizational reputation on tightness of the four control dimensions has not yet been researched. While organizational reputation is, especially in PSFs, an important driver for success. Furthermore, this study also looks at the influences of strategy in this relationship, what makes the research more interesting.
Behavioral Control Tightness
Knowledge is often unique, difficult to imitate, difficult to transfer, but it it crucial for achieving competitive advantage (Løwendahl, Revang, & Fosstenløkken, 2001). Managing professionals relates to managing the knowledge of the professionals (Jensen, Poulfelt, & Kraus, 2010). Only acquiring human capital is not enough to ensure competitive advantage, to gain a good reputation. Depending on the nature of the assignments professionals have to finish, standard procedures and processes are applicable. The results of following a more systematic approach to problems are that more consistent solutions to the same kinds of problems will be developed, and it allows professionals to only engage their knowledge and skills to more difficult problems (Brivot, 2011). The assumption is that organizations that are well respected in their fields, have many guidelines, rules, and processes defined. Thus, these firms have comprehensive explicit behavioral controls. This is defined in the hypothesis written below:
Professionals do have a preference for autonomy (Mills et al., 1983; Raelin, 1985; Goodale et al.., 2008; Von Nordenflycht, 2010). They wish to make their own decisions, without the pressure of managers (Raelin, 1985). So, when an organization uses tight implicit behavioral controls, professionals do not have the autonomy they prefer. Also, the job of professionals require flexibility, creativity and thoughtful analysis (Mills, Hall, Leidecker, & Margulies, 1983). In order to perform their job correctly, to satisfy customers by delivering high quality services, professionals should be able to deviate from precise work standards. So, I assume that organizations with a high reputation, have loose implicit behavioral controls. This is formulated in the following hypothesis:
H1b: Organizational reputation is negatively related to tight implicit behavioral controls in PSFs. The two hypotheses are summarized in figure 2 below.
Figure 2 Hypothesis 1a and 1b
Kumar and Subramanian (1998) found that companies with a cost leadership strategy place a great emphasis on action (behavior) controls. Auzair and Langfield-Smith (2005) confirms this, as well as Govindarajan and Fisher (1990). Therefore, the assumption is that the higher the level of cost management, the effect of organizational reputation on behavior controls are more positive. This is summarized in the following two hypotheses:
H1c: Organizational reputation is more positively related to tight explicit behavioral controls for a higher degree of cost management in PSFs.
H1d: Organizational reputation is less negatively related to tight implicit behavioral controls for a higher degree of cost management in PSFs.
Results control Tightness
The study of Maister (2001) found that employee satisfaction is driven by high standards and fair compensation. Moreover, Mills et al. (1983) argue that the combination of the complexity of the tasks of professionals and the intangible nature of the output, require to use results controls. Results controls are targets set by management that are in line with organizational objectives. They make sure that professionals feel responsible for their results, which at the same time, motivates professionals. Therefore, the assumption is that organizations that are well-respected, place a high emphasis on tight explicit results controls. This argumentation is formulated in the following hypothesis:
H2a: Organizational reputation is positively related to tight explicit results controls in PSFs.
In order to acquire or keep a strong organizational reputation, it is important to constantly deliver high-quality services. Due to the fact that every job depends on different specific customer needs, professionals need to be flexible. So, when a professional do not meet his (or her) target, it does not mean that his (or her) performance is bad. Thus, professionals should be allowed to deviate from performance targets. This is summarized in the following hypothesis:
H2b: Organizational reputation is negatively related to tight implicit results controls in PSFs. Figure 4 Hypothesis 2a and 2b
Govindarajan and Fisher (1990) found that output (result) controls are highly effective for costs leaders. However, this research is based on data collected from 24 firms on the Fortune 500 list. This means that this research is not focused on only PSFs. So, in contrasts with these results, Kumar and Subramanian (1998) found that companies that pursue a cost leadership strategy place little emphasis on results controls. Their study used a sample of acute care hospitals, which is one of the PSFs industries (pharmaceutical). Langfield-Smith (2005) also found epirical results for cost leaders in the PSF sector, place less emphasis on less bureaucratic controls (results controls). For this reason, the assumption is that the higher the level of strategic cost management, the effect of organizational reputation is more negative on results control tightness. This is summarized in the
H2c: Organizational reputation is less positively related to tight explicit results controls for a higher degree of cost management in PSFs.
H2d: Organizational reputation is more negatively related to tight implicit results controls for a higher degree of cost management in PSFs.
Figure 5 Hypothesis 2c and 2d
Cultural Control Tightness
Ouchi (1979) argues that organizational culture is an important control mechanism. Abernethy and Stoelwinder (1995) argue that cultural controls are functional because they accomplish congruence with the values and goals of professionals and those of the PSF. Thus organizational culture influences employees’ behaviour (Ouchi, 1979). Fisher (1995) agrees with Ouchi. According to Fisher (1995), the culture of the organization entails social norms, values and beliefs that are communicated in the whole organization. These influences employees’ actions. He further argues that a powerful organizational culture, can decrease the need for other control mechanisms (Fisher, 1995). Kaiser and Ringsletter (2001) argue that corporate culture in PSFs has a higher impact on the actions of professionals than any other control mechanism. The culture shapes their behaviour. Because of the fact that organizational reputation depends on satisfaction of customers with the provided services of professionals, cultural controls are extremely important and deviation will not be allowed. Therefore, the assumption is that organizations with a strong reputation have extensive explicit and implicit cultural controls. This is formulated in the following hypotheses:
H3a: Organizational reputation is positively related to tight explicit cultural controls in PSFs. H3b: Organizational reputation is positively related to tight implicit cultural controls in PSFs. Figure 6 Hypothesis 3a and 3b
Organizations that highly manage costs are expected to focus on extensive behavior controls and allow no deviation from these (Auzair & Langfield-Smith, 2005). Therefore, these firms are expected to focus less on cultural controls. Thus, the influence of reputation on the use of cultural controls is negatively moderated by the level of cost management. This is formulated in the next two hypotheses:
H3c: Organizational reputation is less positively related to tight explicit cultural controls for a higher degree of cost management in PSFs.
H3d: Organizational reputation is less positively related to tight implicit cultural for a higher degree of cost management in PSFs.
Figure 7 Hypothesis 3c and 3d
Personnel Control Tightness
The job of professionals is complex, which requires expert knowledge and skills to complete the assignment. Abernethy and Brownell (1997) found that personnel controls are effective in this situation. In addition, these individuals perform their tasks independently (Abernethy & Stoelwinder, 1995). This is in contrast with for example managers: managers only supervise, and they let others do the job. Therefore, having an excellent team of professionals leads to enduring competitive advantage for PSFs (Kaiser & Ringlstetter, 2011). For this reason, the first step for PSFs is to recruit the best professionals. In order to do this, human resource procedures should be present. This argumentation is summarized in the following hypothesis:
H4a: Organizational reputation has a positive effect on tight explicit personnel controls in PSFs.
Organizations do not want to make mistakes in hiring professionals, for the reason of keeping their reputation high. Especially because hiring professionals is costly, difficult and time-consuming to change (Løwendahl, Revang, & Fosstenløkken, 2001). So in order to avoid mistakes in hiring people, deviations from HR procedures will not be tolerated in PSFs with a good organizational reputation. This is summarized in the following hypothesis:
Figure 8 Hypothesis 4a and 4b
Obtaining human capital with a high level of knowledge is costly, and making mistakes is therefore very costly. Therefore, high quality personnel controls should be implemented in all PSFs. I assume that for a higher degree of cost management, the effect of organizational reputation is more positive on personnel control tightness. Therefore, the following hypotheses are formulated: H4c: Organizational reputation has a more positive effect on tight explicit personnel controls for a higher degree of cost management in PSFs.
H4d: Organizational reputation has a more positive effect on tight implicit personnel controls for a higher degree of cost management in PSFs.
4! Research Method
The method used for testing the hypotheses are outlined in this chapter. The thesis survey project is drafted in the first section. In the second section is explained how the two pre-tests were conducted. In the third section, the sample selection is given. Moreover, the fourth section of this chapter gives the survey variables, the fifth section explains the validity analysis and the sixth section gives the statistical model.
! Thesis Survey Project
The research is based on empirical evidence, acquired from the dataset of the PSF Thesis Survey Project 2016-2017 at the University of Amsterdam. This project is led by Helena Kloosterman and she composed a questionnaire to collect data about the design of MCSs within PSFs, and how this influences professionals. The questionnaire consists of four types of variables, namely PSF characteristics, MCSs variables, control variables and outcome variables. Because the questionnaire contains so many different constructs, everyone who joins the project can determine their own original research question, which is a great advantage of joining the research project. Furthermore, another interesting part of the project is the amount of available quantitative data collected about PSFs. This is therefore the reason that I joined this project. On my own, I will never gather enough professionals who want to fill in the survey in the time the thesis period lasts. Moreover, the data collected by the research project is unique. My research question cannot be answered by using only public available data, therefore this thesis is interesting and can make a contribution to the existing literature about PSFs.
In order to participate in the research project, students needed to obtain at least ten completed questionnaires before 1st February 2017. When a student collected more then ten respondents who completed the questionnaire, this would favourably reflect the grade of the thesis. In this way, enough data could be amassed to reliable make an analysis on the results. There were different fields that were underrepresented in the sample. For example, advertising, architecture, engineering and medicine/physician practices. Thus, Helena Kloosterman decided to count respondents from this fields as two towards the total of respondents. I made use of this benefit, and I gathered five engineers who wanted to fill in the questionnaire for me, and one nurse. However, this nurse worked over ten years in the hospital, so I discussed this with Helena Kloosterman, and she decided to count her as one respondent, where she would originally count as two respondents. In this way, eleven respondents filled in the survey for me before February 1st 2017. In order to assure the quality of the data, respondents had to confirm by email that they have completed the questionnaire.
! Survey Pre-test
Before the survey could be sent to respondents, Helena Kloosterman conducted two separate pre-tests. These pre-tests were arranged to maximize the quality and effectiveness of the survey. The first test appraised the quality of the questions by measuring the MCS variables. For this test, fourteen professionals (1 Management Consultants, 1 IT Consultant, 1 Security Consultant, 1 Accountant, 1 Psychologist, 1 Dentist, 1 Architect, 1 Marketing professional, 4 Lawyers, 1 Graphic Designer) agreed to complete the test. The fourteen professionals were provided with two sheets of paper. The first sheet of paper contained the MCS constructs, and the other sheet of paper involved 52 statements. The statements were designed to test the constructs. In order to test the statements, the professionals had to link the eight control constructs to 52 statements. Then, the four statements per control construct with the least incorrect matches, were used to set up the survey.
The second test was meant to assess the quality of the whole survey. An additional twenty professionals (3 Medical doctors, 1 Dentist, 3 Chemists, 1 Advertising executive, 3 Lawyers, 2 Management Consultants, 1 Architect, 1 Graphic Designer, 1 Artist, 2 Marketing professionals, 1 Electrical engineer, 1 Mining engineer) were asked to evaluate the survey by answering questions about the content, clarity, their view of the survey and the time it took to complete the survey. This feedback resulted in only little changes in the survey.
! Sample Selection
For the research of Helena Kloosterman, respondents had to meet a couple of requirements. The first requirement for her research is that the sample population does not include respondents working in the following firms: non-profit, publicly owned organizations such as universities (education/teaching), government organizations, NGOs and social work agencies, but it does include medical doctors which may be employed at public or not-for-profit hospitals. For this study however, these respondents are not removed from the sample. Nevertheless, there are other several requirements that respondents have to meet for being included in the sample of the study of Helena Kloosterman and for this study:
o! The respondent must have worked in the professional service field for more than three years but preferably less than ten years. The reason for this is, that the respondent must have enough knowledge about the control system, so that they can form an opinion about it.
o! The respondent must be subject to the MCS and therefore cannot be an owner, partner or board member of the company.
o! The respondent must work in a medium or large size organization that consist over 50 employees.
o! The respondent must speak and understand English at a business level.
The original sample consists of 612 surveys. However, a selection must be made before analysing the data. In table 3, a specification is given of the sample selection process.
The first reduction of the sample size is related to question 51: ‘Have you read the above definition and remarks?’. In my opinion, people who answer ‘no’ to this question, do not understand the question, or are not serious with filling in the questionnaire. Therefore, the answers are not reliable and this results in a reduction of eleven respondents.
Moreover, the questionnaire is quite extensive and consist of 159 questions. So, it is possible that a respondent started the questionnaire, but did not finished it because it took longer than he or she expected. If I would deselect all respondents that did not finished the questionnaire, useful data could be lost. For example, if a respondent started the questionnaire and answered all questions about control tightness and reputation, then this data is still useful for this research. Therefore, not all respondents who did not finished the questionnaire were excluded from the sample, but instead respondents who did not answer all relevant questions about the dependent variables and the independent variable in this research (i.e. questions about MCS tightness, reputation) were removed. Also, respondents who do not meet the years of experience criteria were removed. This leads to a reduction of 163 respondents.
Furthermore, 125 respondents were omitted from the sample because these respondents do not meet all conditions that are required for this research: 47 because their experience in the field was insufficient (i.e. less than three years), 18 because they are not subject to the MCS (e.g. CEO, CFO, directors), two because one respondent works in a government organization, the second respondent is self-employed. Additionally, 57 respondents were excluded from the data because they do not work in a firm that is classified as a PSF in the research project. Finally, there was one respondent that was born in 2005, thus to maximize the quality of the data, this respondent was excluded from the sample. The final dataset consists therefore of 313 respondents.
When analysing the final data, 65,06% of the respondents is male and 34,94% is female (N=312) and the average age is 35,87 years. The majority of respondents are Dutch (66,35%) and 8,97% is German (N=312). Furthermore, the three most frequently occurring occupations are Accounting (18,85 %), followed by Medicine/Physician practices (10.22 %) and Consulting (7,99 %) (N=313). Table 4 gives an overview of the characteristics of the respondents. Moreover, more detailed descriptive statistics can be found in Appendix 2.
Table 3 Sample Selection
Table 4 Characteristics Respondents
Pct. N Min Max Median Mean Std. Dev.
Age 313 22,00 64,00 34,00 35,87 8,73
Years Experience in Field* 313 4,00 11,00 7,00 7,64 2,78
Years Experience in Organization* 312 1,00 11,00 6,00 6,33 3,03
Gender 312
Male 65,06%
Female 34,94%
Education 311
Bachelor Degree or lower 43,09%
Master Degree 41,16%
PhD or other doctorate degree 15,76%
* Max 11 years = more or equal to 11years
1 One respondent declared that he is a MD, I interpreted this as a Managing Director. Thus I excluded him from the
Initial Respondents 612
Respondents who did not read the definition and remarks 11 Respondents who did not answer all relevant questions 163
Behavioral Control Tightness 105
Cultural Control Tightness 15
Personnel Control Tightness 12
Results control Tightness 10
Reputation 5
Experience in current field 16
Respondents who do not meet all criteria 125
Experience in current field 47
Occupation
Owner, partner or board member1 18
Self-employed, government 2
Other (non-PSF) 57
Age 1
! Survey Variables
The survey contains an extensive amount of constructs, that is to say dependent variables, independent variables and control variables. Therefore, every student can choose their own research question and conduct analyses on different constructs from the survey. This research studies the influence of organizational reputation (independent variable) on the tightness of on the eight types of MCS dimensions (dependent variables) and the influence of strategy on this relationship. Additionally, four constructs from the survey are used in this research as control variables. They are held constant during this research, so that the influences of the independent variable can be tested on the dependent variables. Not all questions in the test were formulated positively. There were a couple of questions that were negatively formulated. This is done on purpose because in this way, the probability that a respondent fills every question positively or negatively without noticing a difference, can be tested. Therefore, all negative formulated questions are recoded.
4.4.1! Independent Variable
The independent variable in this study is organizational reputation (REP). This construct is adapted from Combs and Ketchen (1999). In the survey, four questions were asked about REP. Respondents were asked about how the organization is viewed in general. In particularly, questions about how the organization is respected in its field, if the organization is perceived to provide a good quality for the price and two questions about the brand recognition and reputation regarding the quality of the service. The questions about organizational reputation are measured on a 5-point Likert scale where respondents had to fill in if they: (1) strongly disagree, (2) disagree, (3) neutral, (4) agree and (5) strongly agree with the proposition.
4.4.2! Dependent Variables
In this study, four dependent variables are examined. These variables are the control response of organizations, where in this study the tightness of these controls are measured. These variables are the four MCS dimensions: (1) behavioral control, (2) results control, (3) cultural control and (4) personnel control (Merchant K. , 1982; Ouchi, 1979). Each of these dimensions consist of explicit tightness and implicit tightness. As a result, there are eight variables applied in this study: IBCT, EBCT, IRCT, ERCT, ICCT, ECCT, IPCT and EPCT. Each of these variables are measured based on four question in the survey, and are measured on a 5-point Likert scale: (1) strongly disagree, (2) disagree, (3) neutral, (4) agree and (5) strongly agree.
About EBCT and IBCT, questions were asked about the presence of standardized processes, rules and procedures and if employees may deviate from these (Aiken & Hage, 1968;
Four questions about IBCT (Q4_10, Q4_11, Q4_12 and Q4_13) were asked negatively, so these questions had to be reverse coded. Furthermore, the questions in the survey regarding ERCT and IRCT, were about the amount of goals, targets and performance measures and if deviation from these was encouraged and tolerated (Aiken & Hage, 1968; Jaworski, Stathakopoulos, & Krishnan, 1993; Simons, 1987; Van der Stede, 2001). Questions Q5_9, Q5_10 and Q5_11 had to be reverse coded. For ECCT, respondents had to indicate how extensive the socialization procedures are. Furthermore, for ICCT, respondents were asked about the degree to which the norms, values and beliefs are tolerated to deviate from those of the organization (O'Reilly & Chatman, 1986). Also, one question about ICCT (Q10_5) had to be reverse coded. And at last, the questions about EPCT and IPCT, are indented to know the intensity of the employee selection procedure, and in what degree deviation is possible from these human resource standards. Two questions about IPCT (Q3_11 and Q3_7) were asked negatively, so these also had to be reverse coded.
4.4.3! Control Variables
Three control variables are used in this study: size (SIZE), ownership type (OWNSHIP) and environmental uncertainty (UNCERTAINTY).
The first control variable used for this study is organization size (SIZE). Size is often used as a control variable in PSF research. When organizations increase in size, more formal, bureaucratic controls will be used. This because of the fact that bigger organizations are more complex, so social controls are less effective (Greenwood & Empson, 2003). So bigger organization are often more bureaucratic, and therefore less flexible. This results in the use of more controls to influence the behaviour of employees and less flexibility is allowed. In the survey, respondents had to fill in the number of employees in the whole organization, choosing from four categories. In appendix 1, the categories of organization size can be found.
The second control variable used in this study is ownership type. In the survey, respondents had to fill in whether the organization is employee owned, outsider owned or public/non-profit owned. King and Clarkson (2015) found that the type of ownership in PSFs has an influence on the design of the MCS, and thus should be included in the model to test the hypotheses in this study.
The last factor that influences MCS design and use, is environmental uncertainty. The construct in the survey is based on research of Gordon and Narayanan (1984). It can be defined as the (un)predictability of the business environment the organization faces. The research of Widener (2007) shows that environment uncertainty has an effect on the design of the MCS. She found that organizations that face a high environmental uncertainty, have more tight controls. In the survey,
