Control, accounting and trust in outsourcing the activities of the Social Support Act by municipalities

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Rijksuniversiteit Groningen

MsC Business Administration

Organizational and Management Control

Control, accounting and trust in outsourcing the

activities of the Social Support Act by municipalities

Arjen van der Kamp S1770810 Duindoornstraat 703

9741 PZ Groningen a.j.van.der.kamp.1@student.rug.nl

Supervisor: prof. dr. H.J. ter Bogt Co-assessor: dr. E.P. Jansen

March 2015

Abstract

This study aims to describe and explore the phenomenon of outsourcing the activities of the Social Support Act to external organizations by municipalities. Control, accounting information, and trust in interorganizational relationships are concepts that are widely studied. However, because the new Social Support Act has only been introduced on 1 January 2015, it is interesting what the role of these concepts is in the relationship between municipality and the external organizations. The results show that accounting information plays a role in the control of the external organization, in particular for the budget/financing, and trust was more important in the relationship than could be expected in advance. Further research is needed to show what the role of these concepts is in the next years, when all the changes of the new Social Support Act are implemented.

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Preface

This master thesis, with the title “Control, accounting and trust in outsourcing the activities of the Social Support Act by municipalities”, is the final step for completing the master Business Administration, specialization Organizational and Management Control, at the Rijksuniversiteit Groningen.

First of all, I would like to thank Mrs. Flikkema and Mrs. Bakker at the municipality of Groningen and the municipality of Hoogezand-Sappemeer for their input about the outsourcing process and the control of the outsourced activities. I also would like to thank Mrs. Van Bezoen, Mrs. Dolfing, and Mrs. Stam from the organizations TSN Thuiszorg, De Zijlen, and Kwartier Zorg & Welzijn for their input about performing the activities of the Social Support Act and the relationship with the municipalities.

Secondly, I would like to thank prof. dr. H.J. ter Bogt for his supervision. His support and advices really helped me during the process of writing this thesis and made me enthusiastic for writing this thesis. When I was struggling with some parts of my thesis, he gave useful tips and gave me confidence for the further parts of my thesis. Despite these struggles, I still liked writing this thesis and I am proud of the result.

Finally, I would like to thank my family and friends for their support. Not only during writing this thesis, but also during the whole study. They supported me and motivated me to finish my master thesis and finish my master, Organizational and Management Control, at the Rijksuniversiteit Groningen.

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1. Introduction

More and more organizations make the choice to start an interorganizational relationship. The reason for this interorganizational relationship can have different grounds, but often this reason is an economical one. When organizations form an interorganizational relationship, they are

dependent on each other and thus there is the need for control, information and/or trust. There are different ways in which control, information and trust play a role in the relationship, but it seems clear that control, information and/or trust are needed in an interorganizational relationship. Interorganizational relationships can be formed in the private sector, but also in the public sector. It is also possible that a public organization and a private organization form an

interorganizational relationship, this is sometimes called a public-private partnership (Deakin, 2002; Pongsiri, 2002). In several cases, interorganizational relationships follow from an organization outsourcing certain activities to an external organization.

In the case of outsourcing, management control is used to control whether or not the external organization acts in the way as was agreed between the organizations involved in the

interorganizational relationship. Different types of control, more formal and more informal ones, can be used and all the types of control have their advantages and their disadvantages (Smith, Carroll & Ashford, 1995, p. 10). Accounting information provides a basis for formal types of control. The duration of the relationship can have an influence on what type of control is needed and thus is used. During the relationship trust can develop and can play an important role in the control. The level of trust is influenced by the expectations and the experiences between the different organizations. It is not yet clear what the precise relationship between control and trust is, since some authors argue that these two are substitutes (e.g. Das & Teng, 2001, p. 264; Gulati, 1995, p. 93; Zaheer & Venkatraman, 1995, p. 385), while other authors argue that these two are complements (e.g. Beamish, 1988; Mayer & Argyres, 2004, p. 407; Poppo & Zenger, 2002, p. 721).

Interorganizational relationships are becoming more relevant for the Dutch municipalities. One reason for this is that the Dutch central government decided recently that to focus more on the local circumstances and the special healthcare needs of elderly people and people with a

handicap, several changes may be needed in the healthcare sector and the personal rapport. The Dutch Ministry of Health, Welfare and Sport concluded that the existing acts were not sufficient to provide good helps and control its costs. Therefore a change of the new Social Support Act was presented by the Dutch Ministry of Health, Welfare, and Sport in October 2013

(Rijksoverheid, 2013). The existing Social Support Act was introduced in 2007, but more

activities are included in the new version of the act than in the existing one. The First Chamber of the Dutch parliament accepted the changes in the Social Support Act on 8 July 2014. The result of this decision is that the new act has come into force on 1 January 2015. This new act has several consequences for the clients, but it has also some important consequences for the municipalities. The municipalities are responsible for the new Social Support Act, while it used to be the state’s and/or the provinces’ responsibility (Rijksoverheid, 2013).

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agreements, control and trust and the interrelations between these elements may be important issues in the relationship between the municipality and the organization performing the activities. Control, and the role of (accounting) information and trust in a control relationship have more often been studied, but those studies mostly focused on organizations in the profit sector. Few authors did research into the role of accounting information, control and trust in a relationship between a municipality and a profit or not-for-profit organization which is highly dependent on that municipality.

The Netherlands are not the only country in which certain healthcare-related activities are decentralized to municipalities. For example Finnish municipalities are responsible for funding and organizing healthcare since the Primary Health Care Act of 1972 (Laamanen, Simonsen-Rehn, Suomine, Øvretveit & Brommels, 2008, p. 295). Many activities in the healthcare sector cannot be (well) executed by the municipalities themselves, because they often do not have the appropriate resources for providing the healthcare. The solution for this problem may be to outsource these activities. If the municipalities in the Netherlands decide to outsource the activities, they have the choice between an independent profit organization and a formally independent not-for-profit organization, such as a foundation.

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2. Literature review

Interorganizational relationships

Organizations can have different (economic) reasons for starting an interorganizational relationship, such as increasing efficiency, knowledge sharing, and increasing or sharing resources and capabilities (Barringer & Harrison, 2000, p. 382; Dyer & Singh, 1998, p. 663; Oliver, 1990, p. 249; Palmatier, Dant & Grewal, 2007, p. 174). Although efficiency perhaps is not one of the most important reasons for starting an interorganizational relationship, it can still be related to the other motives for starting such a relationship (Oliver, 1990, p. 245). For example, knowledge sharing with a partner can be very useful for developing new ideas and obtaining information, what can lead to technology improvements and innovations and this again may increase the interorganizational performance (Dyer and Singh, 1998, p. 665).

Thus efficiency increases and knowledge sharing may be seen as some of the reasons for the formation of an interorganizational relationship, but these often play a minor role in comparison to availability of resources and capabilities. There are two different kind of views on resources, both potentially important for interorganizational relationships. In the resource-based view “rare and difficult to imitate internal firm resources are key to the firm’s acquisition and maintenance of sustainable, competitive advantage” and in the resource dependence theory the focus is on external sources (Barringer & Harrison, 2000, p. 372). Resources and capabilities do not only often play a major role in the formation of interorganizational relationships, but are also key performance drivers in the resource based view, which is one of the theoretical perspectives of interorganizational relationship performance (Palmatier et al., 2007, p. 174).

Also public organizations can outsource activities or have other types of relationships with private organizations, which can take the form of a public-private partnership (Bovaird, 2004; Deakin, 2002; Pongsiri, 2002). A public private partnership (PPP) can be defined as: “working arrangements based on a mutual commitment (over and above that implied in any contract) between a public sector organization with any organization outside of the public sector” (Bovaird, 2004, p. 200). Such PPP can be a relation between central government and private organizations or relations between local government and private organizations (Deakin, 2002, p. 134). When a PPP is formed, regulation contributes to the success of the PPP. Agreements, contracts and legal procedures are needed for defining the relationship between the government and private organization (Pongsiri, 2002, p. 489). Although it is not clear from Bovaird’s definition of a Public Private Partnerships, in practice this term is often used for infrastructure projects (see e.g. Grimsey & Lewis, 2002; Koppenjan, 2005; Kwak, Chih & Ibbs, 2009). For this reason the term outsourcing instead of Public Private Partnerships is used in this paper.

New Public Management

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Decentralization and outsourcing are two of the terms associated with New Public Management (NPM) (Alonso, Clifton & Diaz-Fuentes, 2011, p. 5; Pollitt, 1995, p.139; Pollitt, van Thiel & Homburg, 2007, pp. 2-3). Hood (1991, pp. 4-5) was the first author introducing the term New Public Management and came up with the following components of NPM: “hands-on

professional management in the public sector, explicit standards and measures of performance, greater emphasis on output controls, shift to disaggregation of units in the public sector, shift to greater competition in public sector, stress on private-sector styles of management practice, stress on greater discipline and parsimony in resource use.”

In the 1980s, a first increase in the role of NPM could be observed (Hood, 1995, p. 93). NPM was one of the most important international trends in public administration in the late 1970s and 1980s (Hood, 1991, p. 3). Although nowadays less papers about NPM are publicized, the

characteristics of NPM still have influences in the economy and in particular in the management of the public sector. One of the recently published papers on NPM is a paper about the effects of outsourcing and decentralization on public sector size by Alonso, Clifton & Díaz-Fuentes (2013). Alonso et al. (2013) found that due to transaction costs outsourcing of public services does not have to lead to lower public spending. They indicated that the reduction in expenditures by outsourcing can be neglected in the long run and that the degree of decentralization is positively related to governments costs (i.e. decentralization often leads to higher costs for the government involved).

As also mentioned before by Hood (1991), for example measures of performance and greater emphasis on output controls are important components of NPM. NPM’s idea is that accounting information is important for measuring the performance of the organization and accounting information is also relevant when more emphasis is placed on output controls. From this it can be concluded that accounting information plays an important role in the components of NPM and thus accounting information may play a bigger role when NPM is increasingly used, according to the literature and in particular the public administration and public sector accounting literature.

Management control

In principle, agreements, contracts and legal procedures will be used for defining the relationship when outsourcing takes place or a public-private partnership is formed (Pongsiri, 2002, p. 489). After defining the relationship, the role of management control in the relationship has to be considered, because the public organization is then dependent on the private organization. For example, management control can be used to control the output quantity and quality, and also the costs of the activities performed by the external organization. Langfield-Smith & Smith (2003) came up with three types of control mechanisms: market based, bureaucratic based and trust based.

Management control is defined as “the process by which managers ensure that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s

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In informal control, which can take the form of so-called clan control, behavioral norms and culture form the base for the organizational control and thus the organizational behavior (Smith et al., 1995; Ouchi, 1980). It often takes time before organizations internally use informal control instead of formal control, since more trust is needed before informal control is used. This could also be the case in controlling the relationship with an external organization.

As indicated before, formal control can be divided into output control and behavioral control (Ouchi, 1979, p. 844). In the case of output control, important in NPM, the performances are measured and these performances are in principle compared with the pre-determined goals. In particular in this case, accounting information can be the basis for control of the activities. In the case of behavior control not the output is measured, but the behavior of the partner is monitored (Dekker, 2004, p. 32). In these types of control, accounting information only plays a major role in output control. Accounting information can be used to measure output on which NPM focuses, but cannot really be used to measure behavior and thus accounting information is relevant for output control, however accounting information is not quite relevant for informal control and behavioral control.

Control, accounting information and trust

Control, accounting information and trust in interorganizational relationships are concepts that are widely studied (e.g. Das & Teng, 1998; Klein Woolthuis, Hillebrand & Nooteboom, 2005; Langfield-Smith & Smith, 2003; Vlaar, Van den Bosch & Volberda, 2007). From the papers which discuss these issues it can be concluded that both control and trust are important for the interorganizational relationship. The difference between these two is that trust is not only needed during the relationship, but also for the formation of the interorganizational relationship.

Not only the control-trust relationship is a relationship that is often discussed in literature, the role of accounting information is also often included in research about the control-trust

relationship (Vosselman & van der Meer-Kooistra, 2009, p. 267). “Accounting provides financial and non-financial measures and information on the (output of) the (expected) behavior of parties in the relationship, not only in order to co-ordinate actions but also in order to cope with

appropriation concerns” (Vosselman & van der Meer-Kooistra, 2009, p. 269). From this it follows that accounting (information) is closely related to (output) control in interorganizational relationships: accounting information is needed to control the other organization.

Next to control, trust can play an important role in relationships. Trust is often based on past experiences. Trust is not only relevant for choosing the organization for the formation of a relationship, but also during the relationship. Mayer, Davis & Schoorman (1995, p. 712) defined trust as “the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party.”

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strategic alliance” and goodwill trust is indicated as “the good faith, intentions and integrity of the partners in the strategic alliance” (Das& Teng, 2001, p. 256). According to those definitions of (the different types of) trust, it can be concluded that trust can be regarded as a part of informal control. Thus, although many authors used the terms control and trust in their papers, from the different types of control distinguished in literature it seems more logical to use the terms formal control and trust.

Although there is much research done on control, the role of accounting information and trust in interorganizational relationships, in particular in the profit sector, there is still no clarity about the relationship between these concepts. Some authors argue that control and trust are substitutes (e.g. Das & Teng, 2001, p. 264; Gulati, 1995, p. 93; Zaheer & Venkatraman, 1995, p. 385), while other authors argue that control and trust are complements (e.g. Beamish, 1988; Mayer &

Argyres, 2004, p. 407; Poppo & Zenger, 2002, p. 721). The role of control, accounting information and trust in interorganizational relationships in the public sector was much less researched. Therefore, the relationship between these concepts is even less clear in the public than in the private sector.

As indicated above, there has been done much research into the role of control, accounting information and trust in interorganizational relationships, but often this research was conducted in private organizations. It is still not clear from literature what the precise relationships between these concepts are in private organizations, but the relationships between these concepts are even less clear in the public sector. It thus may be very interesting researching the role of control, accounting information and trust in interorganizational relationships between public and private organizations. Therefore the research question in this paper, which focuses on municipalities that outsource activities which are part of the Social Support Act, is: How is control of the Social Support Act exercised by municipalities and, more in particular, what is the role of accounting information and trust in the control of activities which are part of the Social Support Act and are outsourced by municipalities?

To answer this research question, several subquestions are developed. These subquestions are developed from the points of concern indicated in the existing literature.

- Are (external) resources and capabilities the most important reasons for outsourcing the activities to external organizations by the municipalities?

- Is outsourcing used to reduce costs for the public sector, or is that not the main reason for outsourcing the activities of the Social Support Act?

- Do municipalities and organizations use more informal control instead of formal control when the length of the relationship increases?

- To what extent is output control used when the output of the external organization has to be measured?

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3. Social Support Act

The Dutch government introduced the Social Support Act in 2007. To reduce costs and to focus more on the special needs of elderly people and handicapped people, the Dutch Ministry of Health, Welfare and Sport decided that changes in the existing act were needed. These changes were presented in October 2013 and on 8 July 2014 they were accepted by the First Chamber of the Dutch parliament. The new act came into force on 1 January 2015, when the activities in the Social Support Act were decentralized to municipalities. In the new Social Support Act not the central government, but the municipalities are responsible for the execution of the activities listed in the new Social Support Act.

The budget for the Social Support Act 2015 was published at 18 November 2014. The total budget for the Social Support Act 2015 is 3.630 billion euro. The biggest part of the budget comes from the Exceptional Medical Expenses Act (AWBZ) and is 2.889 billion euro. The rest of the budget comes from other sources. The total budget can also be divided in a budget for all municipalities and one specifically for the ‘center’ municipalities, which are the municipalities with generally more residents and more regional tasks. These center municipalities have to perform a part of the Social Support Act for the smaller municipalities. Of the total budget, 2.148 billion euro is for all municipalities, another 1.39 billion euro is for the center municipalities and the rest of 92 million euro is intended for the decentralization of day care (Rijksoverheid, 2014). The changes in the Social Support Act can have different consequences for people. For clients living in a healthcare facility, they will have the right to stay in a healthcare facility, which is most of the time the one they already lived in. The Exceptional Medical Expenses Act (AWBZ) expired at 1 January 2015. Some of the support, such as aid and daytime activities, is moved from the AWBZ to the Social Support Act. Clients already receiving support in the current form of the Social Support Act do also receive support in the new Social Support Act. When the new Social Support Act leads to changes in the way support is organized, these clients should be consulted by the municipality. Many people receiving domestic help will not receive any help after the new Social Support Act was introduced. Persons receiving a personal budget based on the Social Support Act can also choose for a personal budget instead of direct provision of healthcare in the new Social Support Act. But for receiving this personal budget the motivation pitch and quality of the services are important. An important change will be applied: the personal budget will be paid directly to the healthcare provider instead of to the client. According to the plans of the Dutch government, people should live independently as long as possible. Municipalities have to decide what is needed for this, such as support from friends and family, or support from the Social Support Act (Rijksoverheid, 2014).

Since the Social Support Act was introduced, the municipalities are responsible for the activities covered by this act. In practice, municipalities cannot conduct the various healthcare and

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4. Methodology and organizations researched

When doing research, the type of study which is conducted has an influence on the research method to be chosen. There are different types of studies, for example exploratory studies, descriptive studies and causal studies. Exploratory studies are useful to develop concepts and definitions and for developing a design for further research. Descriptive studies try to describe characteristics of the phenomenon which is studied; these studies can lead to suggestions for further research or research questions. In causal studies research is done to “how one variable effects, or is ‘responsible for’, changes in another” (Cooper and Schindler, 2011, p. 150-155). The type of study one wants to conduct also (partly) determines whether a qualitative research method or a quantitative research method has to be used. Qualitative information such as sentences and narratives is used in qualitative studies and quantitative information, such as numbers and figures is used in quantitative research (Cooper and Schindler, 2011, p. 144;

Hennink, Hutter and Bailey, 2011, p. 16). Because the focus in this paper is on the role of control and trust in outsourcing activities of the Social Support Act by municipalities, qualitative

information is more useful than quantitative information. The reason for using a qualitative type of research is that the issue studied here has not been widely studied yet. According to Gray (2014), studies cannot only be classified by the research methodology but also to their purpose. There are four forms of qualitative study: exploratory, descriptive, explanatory and interpretive (Robson, 2002; Maxwell, 1996). The purpose of a descriptive study is to “draw a picture of a situation, person or event or show how things are related to each other” (Gray, 2014).

“Exploratory studies seek to explore what is happening and to ask questions about it” (Gray, 2014). The research for this paper will be descriptive and exploratory. Giving a clearer description of the issues related to outsourcing of activities in the public sector and exploring them, seems to be a useful step when researching a subject not much studied yet.

As mentioned before, qualitative information is more relevant for this research project than quantitative information. Methods for qualitative research are, for example, in-depth

interviewing, participant observation, case studies and document analysis (Cooper and Schindler, 2011, p.151; Gray, 2014, p. 27). In-depth interviewing is used for getting a complete picture of the relationship between the municipality and the organization performing the outsourced activities. The in-depth interviews are also used to find out how control of the outsourcing activities by the municipality takes place and to find out what role is played by accounting documents and trust. Interviews can be subdivided into unstructured interviews, semi-structured interviews and structured interviews. Semi-structured interviews “start with rather specific questions but allow the interviewee to follow his or her own thoughts later on ” (Cooper and Schindler, 2011, p.265). Usually, semi-structured interviews are used in exploratory studies (Hennink et al., 2011), since this type of interview is less structured and thus the interviewer can go more into dept into the answers of the interviewee. A semi-structured interview is also the most relevant type of interview for this paper. With document analysis extra information can be gathered, such as financial information and (contract) information about the relationship. This form of document analysis is also applied in this research.

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research for this paper. One reason for selecting these municipalities is that Groningen and Hoogezand-Sappemeer are neighbor municipalities, but they are also quite different in various aspects. For example, Groningen has many more residents (almost 200,000 in 2014) and the number of residents has increased between 2010 and 2014, while the number of residents in Hoogezand-Sappemeer was about 34,000 in 2014 and this number was between 2010 and 2014 more or less the same (CBS 2010-2014). This implies that Groningen is a ‘center municipality’ under the Social Support Act (see also the previous section). Another difference is the change in the percentage of residents above 65 years. In Groningen this percentage has increased from 11.2 percent in 2010 to 11.7 percent in 2014 in Groningen, while in Hoogezand-Sappemeer this percentage has increased from 17.7 percent to 20.6 percent in 2014. An important reason for this is the number of young residents (students) living in Groningen. Such a difference can heavily influence the activities which are part of the Social Support Act. For that reason it seemed interesting to focus the research on these two municipalities and to obtain a picture of (and compare) how they have the Social Support Act activities conducted and how they control them. The organizations selected for the empirical research are organizations conducting different types of Social Support Act activities.

For this paper, a total number of five interviews are conducted. Two of the interviews are

interviews with persons responsible for the Social Support Act in the municipalities. The first one is an interview with Mrs. Flikkema, MBA at municipality of Groningen, and the second one is an interview with Mrs. Bakker, policy officer at municipality of Hoogezand-Sappemeer. Three interviews are held with organizations performing activities of the Social Support Act. Mrs. Van Bezoen, accountmanager at TSN Thuiszorg, is interviewed for the organization performing Social Support Act-activities in Groningen. In the municapility of Hoogezand-Sappemeer, Mrs. Dolfing, location head at De Zijlen, and Mrs. Stam, director at Kwartier Zorg en Welzijn, are interviewed. All the interviews were recorded with the help of a voice recorder after the

interviewees gave permission for recording the interview. Based on the recorded interviews and the notes made during the interview, extensive interview reports were written (the anonymized interview reports are available from the author on request). These written reports form an important basis for the ‘Results’ section in this paper, together with the documents studied. An overview of the interview questions (in Dutch) asked during the interviews is included in

Appendix A. The next section represents the findings from the empirical research. However, first some further information on the municipalities and organizations researched, and the outsourced activities, is provided below.

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The budget for the Social Support Act for the municipality Hoogezand-Sappemeer was 9,627,561 euro in 2014. The budget for the Social Support Act in 2015 is 16,835,259 euro. This budget consists of 8,770,259 euro for existing tasks and 8,065,000 euro for tasks decentralized to the municipalities in 2015 by the central government (Gemeente Hoogezand-Sappemeer, 2014). Thus the budget for the existing tasks has decreased, but the total budget for the municipality Hoogezand-Sappemeer is much higher in 2015 than in 2014.

TSN Thuiszorg is an organization with 40 establishments in the Netherlands, where most of the establishments are located in the middle and north of the Netherlands. 5 Establishments are located in the municipality of Groningen. One of these is used as a “regional office”: it offers support to other establishments in the region and this location is also the workplace of the care coordinator. Activities conducted by TSN Thuiszorg are, for example, help with housekeeping, support at home, and nursing and care. The total operating income in 2013 was €71,652,091 (TSN Thuiszorg, 2014). In 2014, the number of employees in the municipality of Groningen was 680 (about 185 fte) with a total of 382,000 working hours. The number of employees in the municipality of Groningen in 2015 is 641 (about 187 fte) and a total of 347,000 working hours is expected.

De Zijlen is an organization which offers care and support to around 1400 people with mental health problems in the province of Groningen. Often these people need a more or less custom-made solution. After consultation with the municipality, De Zijlen develops and implements treatment plans for mental health care. De Zijlen has 25 locations for assisted living (21 locations for adults, 4 locations for children) and 13 locations for work and daytime activities. The total operating income was €61.8 million in 2013 (De Zijlen, 2014). The operating income was €60.7 million, the costs were €61.5 million, and the budgeted fte was 794 for 2014.

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5. Results

In this section the information will be presented and analyzed which was gathered with respect to the research question and in particular with respect to the subquestions. Each of the subsections focuses on one of the specific subquestions developed above.

Are (external) resources and capabilities the most important reasons for outsourcing the activities to external organizations by the municipalities?

For (private) organizations, it can be a really tough decision whether or not outsourcing activities is beneficial for the organizations. Organizations have to consider what the advantages and drawbacks are from outsourcing activities to other organizations. Although private organizations differ from public organizations (like municipalities), municipalities also have to decide whether or not they are themselves able to perform the activities of the Social Support Act they are

responsible for. According to the literature, resources and capabilities are reasons for outsourcing activities and those seemed also good reasons for outsourcing activities of the Social Support Act to external organizations by the two municipalities researched.

The interviews showed that for the municipalities of Groningen and Hoogezand-Sappemeer, the decision to outsource the activities of the Social Support Act to external was easier than perhaps could be expected in advance on the basis of the literature review. Both the municipalities point out that they do not have the expertise and the experience needed to perform the activities of the Social Support Act. One interviewee from municipality said: “Well, we as a municipality think that the provision of services in the care sector has to be performed by organizations which have the expertise”…“The expertise and volumes. The organizations performing these activities, perform these for several municipalities.” Another interviewee said: “[I]t involves such large numbers and specialist care that we decided that we cannot perform these activities ourselves, these activities are performed by a care provider, which has the knowledge about providing youth care…[W]e have care providers for this and they are performing these activities.“ Thus in these municipalities, capabilities seem an important reason for outsourcing activities to the external organizations. Next to capabilities, resources play a role in the decision, however these municipalities first come up with capabilities and then with resources.

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Is outsourcing used to reduce costs for the public sector, or is that not the main reason for outsourcing the activities of the Social Support Act?

Since the introduction of the new Social Support Act, municipalities are responsible for performing the activities of the Social Support Act. Municipalities receive a budget from the central government and with that budget they have to perform the activities of the Social Support Act in their municipality. The introduction of the new Social Support Act is also accompanied by a reduction in the budget for the help with housekeeping and, more generally, a reduction in the budget for aid.

The various documents with respect to the new decentralization of Social Support Act activities show that there are two main reasons for the shift of the responsibility for the Social Support Act from the central government to the municipalities (CPB, 2013). The first reason is that the vision of the central government is that care and social support have to be organized as close as possible to the citizens. The role of municipalities increases as they are supposed to be capable of better estimating the possibilities of the citizens and deliver custom-made solutions. The second reason is that the increase of the costs of activities of the Social Support Act has to be broken. This is closely related to the first reason, because municipalities are thought to be better able to decide which citizens need help and what they need precisely. In this way it seems logical that the budget available for activities of the Social Support Act is better spend than when the central government is responsible for the activities of the Social Support Act.

However, reducing costs for the public sector is not the main reason for outsourcing the activities of the Social Support Act to external organizations by the municipalities. As mentioned before, the reasons for outsourcing to the external organizations are (the lack of) resources and

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Do municipalities and organizations use more informal control instead of formal control when the length of the relationship increases?

From the literature, it can be expected that municipalities and organizations use more informal control than formal control when the length of the relationship between the two parties increases. The new Social Support Act has just come into force on 1 January 2015. This may also have consequences for the length of the relationship between the municipalities and the external

organizations. It has to be kept in mind that outsourcing the activities of the Social Support Act to external organizations by the municipalities is relatively new and surrounded by many

uncertainties, which may have an influence on the length of the relationship with the external organizations.

Actually, the empirical research showed that there are two types of relationships when the activities are performed by external organizations: the first is that the organization is subsidized by the municipality and the second one is that the organization is chosen after a European tender. In the first case, it is often a long-term relationship. One interviewee observed: “Well, in the case of a subsidy, there are often long-term relationships with organizations in the city, for example, in the field of social work.” The municipality chooses the organization which is subsidized and when the relationship exists, the municipality provides the subsidy each year to that organization. In contrast to subsidizing, the relationship between an external organization, which is chosen after a European tender, and a municipality tends to be much shorter. In a European tender, the municipality determines the specifications and conditions and those are used to select the external organization. An interviewee said: “So, in advance we include the selection criteria in our

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To what extent is output control used when the output of the external organization has to be measured?

Since the municipalities are responsible for the activities of the Social Support Act, but those activities are performed by external organizations, municipalities have to control how the external organizations perform those activities. Instead of direct control by the municipality of

Hoogezand-Sappemeer, part of the control for this municipality is done by Groningen as the ‘center municipality’. New Public Management (NPM) suggests that the control on

output/performance plays a major role. In this way, NPM could lead to an increase of the use of accounting information for measuring the output or performance of the organization. The main type of accounting information is the financial statement/annual report, but the municipalities may request other accounting information during the year to control the activities of the external organization.

Municipalities discuss with the external organization how often those external organizations have to present their financial information. An interviewee from a municipality: “[In the contract] it is agreed what the monthly monitoring is on. So, what information is needed each month.” The two parties also discuss (and agree) how often the meetings are between the municipality and the external organization. A difference in how often organizations have to present their financial information can be observed. This depends on whether organizations have a fixed budget or not1. An interviewee from a care providing organization: “Once a year there is the so-called annual review, that is the annual report by the end of the year. And at the beginning of the year we have the budget for that year.” However, an interviewee from an organization which did not receive a fixed budget said: “We have to invoice each month, so every month a voice specification is added in which we specify what we have done for which client.” Municipalities try, where possible, to decrease the amount of paperwork to be done by the organization. As a civil servant noticed: “And of course we would like [to have less paperwork], because that was one of the biggest criticisms in recent years, that care providers had to fill in paperwork and [spend more time on] filling in than standing next to the bed.”

How often the municipality has a meeting with the organization does also differ between the different organizations. Most of the time this seems to be once a month to once in 8 weeks. How often these meetings take place is agreed between the municipality and the external organization, but sometimes there is a need for more meetings. An interviewee: “What you can see is that if something is going on, if something is going wrong, then we have more meetings.” The performance and the activities in the next few months are the topics in these meetings. An

interviewee from a municipality: “[W]e look at the performances, but if there is no specific need, we will not discuss these performances.” Another interviewee: “[Control of fulfilling the

agreement] will be done in meetings, but this can perhaps also be done in the form of a more material [i.e., fundamental] control, such as client satisfaction research.”

Thus municipalities make agreements (i.e. written contracts) in advance with the external organizations about the performance and the budget for performing the activities of the Social

1_{However, to avoid misunderstandings, an organization which does not receive really a fixed budget, is also}

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Does trust play a role in the relationship between municipality and the organization, and if this is the case, can different types of trust be distinguished?

One of the reasons for outsourcing the activities of the Social Support Act to external organizations by the municipalities is their lack of capabilities to perform those activities

themselves. The external organizations have more experience and expertise in this field and thus they can use their experience and expertise to offer the help according to the needs of the client. The organizations also work together where needed to use their experience and expertise as good as possible: “We do not see each other like a few years ago, when we were real competitors. Now we are competitors/colleagues. Well, we do need each other and everyone has to do the same, where we can work together we will do it.”

Some organizations were given the possibility by a municipality to use a part of the budget they receive for a specific activity for another activity. So they can decide a substitution between activities, if they think that less of one activity is needed than agreed and more of another one. An interviewee: “Yes, that is right, [we can use substitution]. So it is a flexible organization. But that requires something of the employees of course.” From this it can be concluded that the

organization has the freedom to spend the budget on the activity where a bigger budget is needed, as long as the total budget spent does not increase and as long this is not at the expense of (the quality of) other activities. Giving an organization such a possibility for substitution between activities can be regarded as indicating a certain level of trust. Not everything has to be performed in the way it was written in the contract agreement. The municipality controls the external organization in two ways: control of the (total) budget used by the external organization and control of the quality of the activities of the organization (with the use of the mandatory client satisfactory research executed by the municipality). How the control is executed precisely also depends on the relation between municipality and the organization. A civil servant said: “[I]t is also a bit a matter of trust. Sometimes control of fulfilling the agreements in the contract and the tender are needed. That is done by meetings, but maybe also in the form of more material forms of control, such as client satisfactory research.” Although the practical experience with the execution of the newly decentralized activities is still very limited, the interviews do suggest that trust does (and will) play a certain part in the control of the outsourced activities. A direct form of control on the outputs ‘produced’ is not considered, the more indirect form of control on the output may take the form of the customer satisfaction research (which is mandated by central government). Apart from this, the control focuses on only the budget and financial information. The two types of trust distinguished in literature are competence trust and goodwill trust. From the previous reasoning it can be argued that competence trust indeed plays a role in the

relationship between the municipality and the external organization performing the activities of the Social Support Act. The reason that municipalities use outsourcing to external organizations for the activities is partly based on the confidence in the expertise of the professionals. Trust in their competence is also the basis for giving them the possibility to substitute between activities. Municipalities also explicitly argue that confidence may play a role in the relationships with the external organizations, which can be seen as competence trust. An interviewee from a

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6. Discussion and conclusion

Final observations with respect to the research findings and research question

As also mentioned in the “Methodology and organizations researched” section, two

municipalities and thee different type of care providing organizations are used in the empirical research for this paper. The first organization provides support at home, the second organization is specialized in mental health care, and the last one provides diagnosing activities and

coordination of social work and services. It has to be kept in mind that differences in these organizations and their types of tasks may have an influence on, for example, the transition from the old to the new Social Support Act, how often there are meetings, and the financial

information needed. For example, the number of meetings may be dependent on the type of activities the organization performs. In contrast to the other organizations, the TSN Thuiszorg organization has to deliver financial information each month. A somewhat more detailed comparison of the three organizations researched can be found in Appendix B.

As can be seen in the “literature review” section, resources and capabilities were seen as the most important reasons for outsourcing (part) of the activities to another organization. For

organizations, outsourcing (part) of the activities can be very useful if the needed resources and capabilities for performing the activities are not available in the organization. Also, outsourcing may take place when organizations would like to focus on the core activities of the organization. To improve the core activities even more and because both the organizations are cheaper in performing their activities, the total costs can be reduced. The reasons for outsourcing activities of the Social Support Act to external organizations by municipalities are more or less the same as the literature came up with. The empirical research showed that municipalities often do not have the possibility to perform the activities of the Social Support Act, since they do not have the resources and experiences. Thus, the empirical research showed that in the cases researched the reasons for outsourcing correspond to the reasons that are mentioned in the literature.

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said now is that it seems that in the next few years the total costs for the public sector will be much lower than in the years before 2015. It has to kept in mind that this decrease in costs for the public sector is not only (and perhaps not at all) caused by outsourcing the activities (and further efficiency gains which may follow from this), but also because of a cut in the budget available for the Social Support Act activities.

With respect to the form of control to be used, the literature mentioned that it often takes time before informal control instead of formal control is used. The reason for this is that the use of informal control is based on trust. In a relationship, it takes time before trust in the other party is built. At this moment, it is hard or even impossible to say whether or not more informal control instead of formal control will be used when the length of the relationship increases. Since the Social Support Act just has come into force on 1 January 2015 and there is still much uncertainty about the new Social Support Act, the contract duration of the organizations researched are only one or two years. Because of these short contract durations and the fact that the Social Support Act in its present form is new and its precise implications are not crystallized out yet, it is not clear whether or not more informal control instead of formal control is used when the length of the relationship increases. This may become clear when the uncertainty about the Social Support Act decreases and the length of the relationships between the municipalities and external

organizations increases. Thus, time will show what will happen with the extent to which formal and informal types of control are used. However, the interview findings suggest that even at this moment – except for the financial budgets – the control of the outsourced activities seems not to be very ‘factual’, but rather relatively qualitative by nature and informal. The municipalities do not focus their control on the external organizations’ outputs and they have trust in the

professionalism of these organizations.

According to the literature, and in particular New Public Management literature, measuring the output is very important. Outputs and related performances form the basis for NPM’s economic rationality and its ‘business-like’ control of the public sector. In measuring the output, which is closely related to output control, accounting information plays a major role, since the accounting information can be used to measure the output (and its costs per unit). Since municipalities are responsible for the Social Support Act and the activities are outsourced to external organizations, municipalities might use output control to measure the output of these external organizations. However, the empirical researched showed that output control is less important than could be expected in advance, i.e. based on what NPM intends. As indicated before, there is a strict municipal control on the budget/financing of the external organizations; however, there is no control on the actual output of the external organizations. In performing the activities of the Social Support Act, organizations may have the freedom to use part of the budget for one activity for another activity. Such findings suggests that municipalities have confidence in the experience and professionalism of the organizations to which they have outsourced the activities.

The literature suggests that trust not only plays a role in the formation of a relationship, but also during the relationship. From the cases researched, it was not directly clear to what extent and how trust plays a role in the relationship between municipality and organization, but as was shown above there were some clear indications that there certainly is trust between municipality and the external organization. In the literature, two types of trust can be distinguished:

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example, from the fact that the organizations may substitute the budget between activities and control is only focusing on the budget/financing. From this it can be concluded that competence trust plays a role in the relationships. It takes time before (goodwill) trust arises between

municipality and organization, since this type of trust is based on experiences between

municipality and organization (Zucker, 1986, pp. 67-68). Yet, in addition to contracts, mutual information provision and frequent informal contacts play a major role in building trust (Free, 2008; Ring & Van de Ven, 1992). Thus the results show that, in accordance with the literature, trust plays a role during the relationship. In addition to the competence trust, goodwill trust may gradually develop and play a role when the length of the relationship between the municipality and the organization increases.

Since municipalities are responsible for the Social Support Act, but the activities are outsourced to external organizations, control is exercised by the municipalities. The control of the outsourced activities to external organizations by municipalities is exercised in two ways. The first type of control is formal control and the second type of control is informal control. Formal control contains the control on budget/financial statement. Unless meetings are part of a formal control mechanism (e.g. a formal contractual rule/procedure which prescribes two meetings a year, i.e. a behavior control), meetings and various other informal contacts that may take place between municipality and organization are ways of informal control.

For organizations with a (fixed) budget for performing the activities, the municipalities receive accounting information in the form of the budget and the financial statement. Some of the

external organizations researched do not have a (fixed) budget, but have to invoice the performed activities each month. Formal (output) control is not as important as may be expected in advance. As said above, the municipalities do not actually control the output, since they only control for the budget/financing of the external organizations. Most of the time, if the organization does not exceed the total budget, there is no need for the municipality to take a more critical view on the activities of the organization. The mandatory customer satisfaction research is another way to control the (quality of the) activities. If both the budget and the customer satisfaction research do not produce any remarkable results, the municipalities assume that there is no need to worry about the outputs and do not really control them.

From the empirical research it became clear that trust does play a role in the relationship between municipality and the organization performing the activities of the Social Support Act. The

activities are outsourced by the municipalities to professional organizations. Because of the experience and expertise of these organizations, it is thought that they are better able to estimate which people need support and what support they exactly need. This indicates that municipalities have confidence in the competence of the organizations. So, the organizations may have the freedom to use part of the budget for an activity for another activity where a larger budget is needed. As long as these organizations do not exceed the total budget and the quality of the activities seems to be decent, the municipalities agree with such a form of substitution. With respect to the research question for this research project, it can be concluded that competence trust plays an important role in the control relationship between municipality and organization, whilst it can also be observed that accounting information focusing on the financial budget has to provide a basis for trust to be build and be maintained. It was not clear from the empirical

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Limitations

Because the new Social Support Act has only been introduced on 1 January 2015, some of the changes of the new Social Support Act have not been implemented or really developed at the time of the empirical research. Municipalities and organizations mention that during the year it will be more clear what the consequences of the new Social Support Act are for both the municipalities and the external organization. Some of the activities have not yet been changed, because the municipalities and external organizations do not know what changes are really needed. This may have an influence on the way control is exercised and the process of outsourcing activities to external organizations.

For this research the municipalities of Groningen and Hoogezand-Sappemeer were selected. These are neighbor municipalities in the province of Groningen. Because of this, these

municipalities work together in outsourcing some of the activities and part of the control is also done by the municipality of Groningen as the ‘center municipality’. The facts that these

municipalities cooperate and are neighbor municipalities, may have an influence on the

outsourcing of activities to external organizations and the way control is exercised. Research of municipalities in other parts of the country might lead to different pictures of the control of outsourced Social Support Act activities.

Only three care providing organizations were selected for doing the empirical research. Although these three organizations are different type of organizations which conduct different types of activities, with the information from these organizations it is hard or even impossible to generalize the results of outsourcing the activities of the Social Support Act to other external organizations. The research did give an insight into the control of the organizations researched and how this is developing until now. However, further research in more organizations (and after more time has passed) is necessary to obtain a more generalizable picture.

Suggestions for further research

During the year 2015 and in later years, it will become more clear what the consequences are of the new Social Support Act. Thus, when research is done when all the changes of the new Social Support Act are implemented and the situation has more stabilized, the municipalities and organizations know better what has to been done in the coming years and the contracts may be more focused on the long-term. Then research could be done, for example, into the effect of the length of the relationship on the control of outsourced activities, or the building of goodwill trust and the role this plays in the control relationship.

Municipalities and organizations in the province of Groningen are selected for conducting the empirical research presented in this paper. However, this gives a view about outsourcing and control in two municipalities in the province of Groningen. The organizational forms chosen, as well as the control forms used, may be different in other parts of the Netherlands. So the picture obtained of the control relationship could be different when other municipalities or organizations are selected. Thus, for further research it would be interesting to select municipalities and

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8. Appendices

Appendix A: interview questions

Algemene vragen

- Welke functie heeft u binnen de gemeente/organisatie?

- Hoeveel ervaring heeft u in deze functie/hoe lang vervult u deze functie?

- Was het al meteen duidelijk dat activiteiten van de WMO uitbesteed zouden worden of is dit pas in de loop der tijd duidelijk geworden dat dit de beste optie was?

- Wat zijn de belangrijkste redenen voor de uitbesteding van de activiteiten van de WMO? - Moest er een keuze gemaakt worden tussen verschillende organisaties voor de

uitbesteding? Hoe is de keuze van de uitvoerende externe partij tot stand gekomen en welke overwegingen speelden er een rol bij?

Afspraken voorafgaand aan de uitbesteding

Wat zijn de doelen die de gemeente wil realiseren op het gebied van de WMO?

- Op welke manier en in hoeverre draagt de partij waaraan de uitvoering van de WMO-activiteiten is uitbesteed precies bij aan de realisatie van de gemeentelijke doelen? - Zijn er concrete afspraken gemaakt, bijv. in de vorm van een prestatiecontract, over de

bijdrage van de externe partij aan elk van de gemeentelijke doelen? Zo ja, hebben die afspraken precies betrekking op de gemeentelijke doelen, of zijn het veeleer prestatie-afspraken over ervan ‘afgeleide’ zaken, die zich concreet in prestatiemaatstaven laten uitdrukken?

- Controleert de gemeente ook regelmatig op de voortgang die de externe partij maakt ten aanzien van de realisatie van de gemeentelijke doelen en vindt hier bijvoorbeeld ook tussentijds regelmatig overleg over plaats? Rapporteert de externe organisatie regelmatig aan de gemeente over (de voortgang bij) de realisatie van de gemeentelijke doelen? Wat is er in het contract tussen gemeente en externe organisatie afgesproken met betrekking tot de prestaties van de organisatie en de bijdrage ervan aan de gemeentelijke doelen?

- Hoe worden de prestaties van de organisatie uitgedrukt, welke rol spelen bv. kwantiteit en kwaliteit bij deze prestaties?

- Zijn de gemeentelijke doelen goed en concreet uit te drukken? En zijn er prestatie-afspraken met de externe organisatie te formuleren waarvan vaststaat dat ze ‘naadloos’ aansluiten bij de gemeentelijke doelen? Of is het van te voren al duidelijk dat de prestatie-afspraken met de externe partij (en misschien ook de gemeentelijke doelen?) in de loop der tijd aangepast/beter gedefinieerd moeten worden?

- Wat voor stem heeft de organisatie in het vastleggen van de prestaties van de organisatie en de ermee te bereiken (gemeentelijke) doelen?

- Wat is de invloed van prestaties in het verleden op de nieuw vast te leggen prestatie-afspraken (en misschien ook op de gemeentelijke doelen)?

Control van uitbesteding

Op welke manier geeft de gemeente sturing aan de externe organisatie?