Externality of Management Control

Master’s Thesis Organizational and Management Control

Externality of Management Control

Can Management Control influence the

Employer Image?

March 24, 2011

University of Groningen

MSc BA Organizational & Management Control

Agnes Marijke Wassenaar

Gelkingestraat 15-4, Groningen

s1541498

0643755530

a.m.wassenaar@student.rug.nl

Preface

This graduation paper is written in the context of the master Organizational and Management Control at the University of Groningen. During my years as a student I have always combined studying with practical projects in my social life. At university I learned the analytical way of thinking, and found out that applying this in real life is highly challenging.

In the search for a thesis subject I was looking for a subject that was related to my master, but moreover, a subject that contained a combination of literature and practice.

I found this combination within Solid board mills in Hoogkerk. The organization is one of the biggest operators on the European cardboard industry, but is hardly known in the surroundings. This fascinated me: how is it possible that business students in Groningen have never heard of an organization that plays a key role in the economy of their province?

Due to open vacant posts at the technical department of the mill, management was concerned about their employer image among technically skilled employees, and were searching for a student to research this. I’m very happy to be the student that was hired for the assignment!

The research question In what way does Management Control influence the Employer Image? is approached in two ways. At first, literature is consulted to explain the relationship between the concepts. Secondly, the challenging part, how do this findings from literature can fit reality?

This document is written for all managers that search for a way to make their organization successful. I hope it shows them the value of employees for their employer image.

In writing the thesis I learned to link academic literature to practice. It gave me the chance to have a look inside a company and thereby prepare myself for the future ‘working life’. Writing this thesis was challenging, at times it influenced my rest at night, but above all, it was informative, and it made me enthusiastic for a job in (HR) management or consultancy. Besides this, I learned that I can rely on my persistence, it has never let me down, and that has resulted in this finished graduation thesis!

I would like to thank Alina Zuiderveen, HR advisor at the Solid board mill, for keeping me at the right track, being honest and open and leading me through this first experience inside a company. Also for her advise and objective feedback in every new step of the research. Frans Biemolt, in taking the time to advice me, and to discuss relevant issues of Human Resource Management.

Last but not least I would like to thank Joanna Gusc, supervisor from the University of Groningen. She pointed me in the right direction at times I took the wrong course. For acting as a critical reflector, not only professionally but also personally. Her enthusiasm and optimistic approach have helped me come to this result.

Content

Preface ... 2

Content ... 4

Summary ... 6

1. Introduction ... 7

2. Research Questions ... 10

3. Literature study... 11

3.1.1 Drivers of employer image ... 11

3.1.2 Conclusion... 14

3.2 Employee engagement ... 16

3.2.1 Externalities of Employee Engagement... 16

3.2.2 Drivers of Employee engagement ... 17

3.2.3 Conclusion... 18 3.3 Management Control ... 20 3.3.1 Action Controls ... 20 3.3.2 Results controls ... 21 3.3.3 Personnel Controls ... 22 3.3.4 Cultural controls ... 24 3.3.5 Conclusion... 25 3.4 Conclusion ... 26

4. Methodology ... 28

4.1 Case study design ... 28

4.2 Data analysis ... 30

5. Case Study Results ... 31

5.1 The Solid board mill ... 31

5.2 Case study results... 33

5.2.1 Action control... 33

5.2.2 Result control ... 35

5.2.3 Cultural control... 43

5.3 Employee engagement ... 44

6. Conclusion... 48

7. Recommendations for future research ... 50

7. References ... 52

8. Appendices ... 56

8.1 Questionnaire... 56

8.2Interviews among TD workers in the organization chart ... 57

8.3 Semi-structured interview guide... 59

8.4Example of a structured interview... 62

Summary

Within profit organizations, a management control system is implemented to reach the most obvious organizational goals: productivity and profit. Management control is used in creating value for shareholders. However, management does not always realize that besides the creation of value for shareholders, there are other externalities of the management control system. Employer image is an example of this. This thesis will research the question: In what way does Management Control influence the Employer Image?

The employer image is defined as what people believe is distinctive, central, and enduring about the organization as an employer. Management has the ability to influence employer image by external communication and marketing campaigns (Gray and Balmer 1998). However, the fundament of employer image are employees. By their word-of-mouth they directly influence the employer image (van Hoye 2008, Martin 2009). Spreading a positive word-of-mouth is a result of employee engagement which in turn can be influenced by management control mechanisms.

Employee engagement can be described as a well-defined, research-based cluster of employee attitudes and behaviours that can be measured and has been shown to make a difference in business results (Richman 2006). From a human resource- and more psychological perspective, engagement is described as “a persistent, positive, affective motivational state of fulfilment in employees that is characterized by vigor, dedication and absorption” (Schaufeli et al. 2002). Employee engagement can be seen as one of the benefits of management control. Management control is defined as "the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization's objectives" (Anthony, Dearden and Vancil, 1972). Action accountability, incentives, training and coaching, communication, performance feedback and social support does not only have a positive effect on the organization’s objectives, but also make an employee go home satisfied or not after a day of work.

1. Introduction

Within profit organizations, a management control system is implemented to reach the most obvious organizational goals: productivity and profit. Management control is used in creating value for stakeholders. However, management does not always realize that besides the creation of value for stakeholders, there are other externalities of the management control system. Employer image is an example of this. The relationship between management control and employer image is the subject of this graduation thesis.

Image, an intangible asset that lives among the public, among managers, employees, potential employees, customers, and other stakeholders. Image is something each and every one of us is confronted with everyday. It is a stamp worn by many entities such as a person, an organisation, a region, a brand. It is something stakeholders judge upon and it is based on information received from others, from the media and historical facts. Image can make or break an organisation. A company known for its corrupt businesses, or its unfair treatment of employees, will obviously not profit from its image. Reversely, a company known for its fair production methods and for complying with corporate governance codes could benefit from their image. Don’t get me wrong; image is not the factor that is decisive whether a company makes profit or not. It is one of many factors that contribute to a higher profit. Companies with a negative image in the public will see shrinking results (Fombrun 1996). On the other hand, a company will see that a favourable image goes hand in hand with increasing profits. This relationship can be characterized as a vicious circle; image has a positive influence on corporate performance, and in turn, company performance positively affects image (Gray and Balmer 1998). Image is of strategic importance for an organisation, not only for the recruitment of employees but also to influence the willingness of other relevant stakeholders to provide support. For example, investors and shareholders make investing decisions not only based on financial statements, but also image plays a significant role. If customers develop a negative image of the company, sales and profits assuredly will decline. Vice versa, a favourable image will decline the need for marketing investments because ‘the image does the work’ (Fombrun and Gardberg 2000). Adjacent to this, governmental entities won’t provide subsidies to companies with an unfavourable public image (Gray and Balmer 1998).

Although numerous other factors exogenous to the model can also affect competitive advantage, corporate and employer image sure are vital strategic resources.

Image is hard to express in terms of money. In a financial statement you’d probably find its value at goodwill. However, we can say for sure that image is positively related to the organization’s success. Its positive relationship to competitive advantage and the lesser need for investing in recruitment and marketing will positively affect company profits. Next to this, a favourable organizational and employer image creates high morale under employees, increases productivity and stakeholder support.

In order to stand out on the labour market and be successful in recruitment, it has become increasingly important for organisations to be known as an attractive employer by prospective applicants. Employers face a great challenge here, because jobs and organizations within the same industry are often very similar (Maurer, Howe and Lee 1992). Previous research has demonstrated that perceived employer image relates to an organization’s attractiveness as an employer and to employees’ level of identification with their employer (Arnold et al. 2003, Lievens and Highhouse 2003, Lievens et al. 2007). Given the small amount of information applicants have early in the job choice process, initial application decisions are heavily based on general impressions of organizational attractiveness and the employer image (Rynes 1991, Cable and Graham 2000). Moreover, job applicants’ intentions to pursue further contact with a firm are highly related to their image (Gatewood et al. 1993). So, a favourable image reduces the need for employee recruitment investments, which results in decreasing costs, ‘a good product sells itself’.

A positive and truthful employer image will also financially contribute to the company in another way. Setting a truthful image that fully matches the culture of the organization will attract employees that most likely fit the organization. So, job-person-fit is a positive result of setting a true image and implies that the right employees are doing the right job (Martin 2009). Research has shown that when the job-person-fit is high; an employee performs better and is more likely to stay with the organization (Phelps

Corporate identity External communication Organizational image and Employer image Competitive advantage

through creates can lead to

feedback feedback

Exogenous factors

and Brossoit, 2007). More specific, the job-person-fit shows a negative correlation to job turnover and reduces selection costs (Saks and Ashfort 1997).

Organizations tend to read their image from signals outside their ‘company walls’; what do people say about the organization? What is the mental picture of the company held by its audiences? What comes to mind when one sees or hears the corporate name or sees its logo? Sure, image lives outside the company walls. But more important is ‘how does it come to existence?’ Organizations have to be aware of the fact that they are not put up with their employer image. Management has the ability to influence employer image by external communication and marketing campaigns (Gray and Balmer 1998). However, the fundament of image, in particular of employer image, are employees. By their word-of-mouth they directly influence the employer image (van Hoye 2008, Martin 2009). Engaged employees will spread a positive word-of-mouth, and their engagement can be influenced by the management control mechanisms.

In this research I will explore the influence of management control mechanisms on the employer image. This externality of management control will be analyzed from the perspective of both ‘Organizational and Management Control’ (OMC) and ‘Human Resource Management’ (HRM). The reason for using those two disciplines is that OMC literature alone can’t explain the relationship between employer image and management control validly. In this relationship, employees are an important factor on influence. Therefore, HRM literature is essential. It will provide more insight in people and in the way management control affects individuals. On the other hand, HRM literature alone is not sufficient; OMC literature is crucial to understand the control mechanisms. By building a bridge between the two fields, this multidisciplinary approach will add on existing literature.

This thesis will answer the research question: In what way does Management Control influence the Employer Image?

2. Research Questions

In what way does Management Control influence the Employer Image?

Employer image within a Solid board mill

Sub questions:

a. What is Employer Image?

b. What drives the Employer Image? c. What is Employee Engagement? d. What drives Employee engagement?

e. In what way does Management Control influence Employee Engagement and Employer Image?

The relationships and the content of this thesis are displayed in a conceptual model:

Figure 2: Conceptual model 3.1.1

Intro 3.2.1

3. Literature study

Academic literature is the base for scientific research. The relationship between management control and employer image will be explained with the help of a literature study. The employer image is approached from outside-in. Paragraph 3.1 will analyze what is the employer image, and how it comes to existence. In paragraph 3.2 the most important driver of employer image, employee engagement, will be analyzed. And in the last paragraph, management controls are being discussed and its influence on employee engagement is explained.

Individuals try to live up to it, organizations try to influence it, teenagers worry about it, and everyone hopes to profit from it. It is accentuated by the media, created by marketing campaigns, influenced by mouth-to-mouth conversations and exists in the heads and hearts of individuals. “Image”, the intangible stamp worn by people and organizations. Difficulties in describing the phenomenon ‘image’ come from the fact that 'image' is a perception; it exists in people’s heads and minds. Besides, an unanimously shared organizational image for any given organization does not exist, merely because an organization has multiple stakeholder groups (Barich and Kotler, 1991; Fombrun, 1996) with multifarious ideas. Organizational image indicates the direction and distinctiveness of a company (Alvesson and Willmott, 2002) and indicates the mental picture of the company held by its audiences.

3.1 Employer Image

What comes to mind when one sees or hears the corporate name or sees its logo? And what the company wants or believes stakeholders think of the company (Spyropoulou et al. 2010). The stakeholder group is quite diverse, they could be members, employees, shareholders, customers, suppliers, governmental entities and business communities. Image can be perceived from a specific stakeholder group, of which employer image is an example. The organization’s perceived image as an employer is defined as what people believe is distinctive, central, and enduring about the organization as an employer (Dutton et al. 1994, Arnold et al. 2003).

3.1.1 Drivers of employer image

Building up a positive employer image is a continuous process that takes a lot of time, effort and money. At the same time, image may be ruined in very short notice.

An example of the temporariness of image is the case of the Dutch politician Ruud Lubbers; a respected men for decades, and very successful in his work for the United Nations. However, immediately after he has been accused of sexual harassment, nothing was left of his professional image and his career. The same yields for companies; building a favourable image will take time, effort and money. Guiding and accurately controlling the fundaments of it is important, because, once you’ve got it, it can change without any warning.

organizational actions. However, the key driver of employer image is external communication. Communication can be split up in two: directed external communication and word-of-mouth. In the analysis of those two drivers of employer image, we will see that they are driven by the main factor: employee engagement.

Directed external communication

Everything an organization says, makes or accomplishes will, in some way reach the external environment and have consequences for the image of an organization. For instance, a strike by employees that are dissatisfied with safety regulations within their factory will affect the employer image. A journalist writing for the national newspaper about an investment in a hypermodern machine, or even a ‘blogger’ on the World Wide Web writing about a tasteless glass of beer can influence future employees and other stakeholder’s thoughts. Besides, formal and financial statements, graphic design, architecture, media relations and routine interactions reach stakeholders and define the employer image. All of those tiny bits of information will influence the stakeholders in forming their image of the organization as an employer. Organizations have a hard time trying to control those factors of influence, and some of them will never be controllable. But managers and employers have more of an influence then they think they have.

A strong image can be built through a co-ordinated image-building campaign that encompasses a formal communication system, containing name, logo, signage, corporate advertising, and public relations (Gray and Balmer 1998). Being aware of your strengths as an employer and communicate this quality externally, will leave its mark by the public and affect employer image. For example, an organization that wants to show its care for employees can literally carry out this message in the media and thereby directly influence image. But the organization can also show this care indirectly in providing all employees a car (with the company logo) and thereby show the surroundings their secondary working conditions. Both are examples of marketing exposure that is directed by management in building an image.

But there is more to take into account in building up a positive employer image with marketing exposure. It requires consistent performance and control, usually over many years. This consistency supports the external message and is also noticed by stakeholders and affects the image favourably (Gray and Balmer 1998).

Image is something that exists outside a company. It is affected by external communication, for example marketing campaigns, financial statements or their logo. However, we shouldn’t forget the influence of stakeholders- and employee communication, the word-of-mouth.

Word-of-mouth

stakeholders who interpret this in their own way. And in turn, may influence the company’s image through secondary and tertiary interpersonal communication.

Stakeholders get to know organizations through others. Employees have an important share in this because they play a crucial role in representing the organization to external stakeholders (Gray and Balmer 1998). Positively-perceived employer image increases employee’s willingness to recommend their employer to others. After a busy day at work, they take home either enthusiastic or negative stories about their job, their organization or their boss, and tell family, friends and people who may be a stakeholder of a company.

The ‘word-of-mouth’ principle can be defined as interpersonal communication, independent of the organization’s recruitment activities, about the organization as an employer or about specific jobs (Cable and Graham 2000, Van Hoye and Lievens 2005). It seems to be more effective than external communication. Employees are more attracted to potential employers when they are exposed to word-of-mouth comments then to marketing campaigns and other external communication (van Hoye and Lievens 2007a). This implicates that word-of-mouth comments may reflect a more realistic picture and provide more credible information because they do not have the explicit purpose to promote the organization (Cable and Turban 2001).

Positive word-of-mouth comments affect opinions of stakeholders positively, and a favourable image will be the result. However, it should be taken into account that negative word-of-mouth comments have an even larger impact on the organizational image (van Hoye and Lievens 2007b). This positive word-of-mouth is dependent upon the employees’ feelings towards the organizations. When feeling engaged to an organization employees are willing to do something in return for their employer. An engaged employee is willing to tell stakeholders enthusiastic stories about the organization.

Employee engagement

The keystone of positive word-of-mouth comments lays in the enthusiasm and engagement of employees. Engagement is what prompts employees to identify with the success of the company, recommend the company to others as a good place to work, and “go an extra mile” in looking for creative solutions that help the organization succeed (Richman 2006).

Employee engagement influences employer image favourably. It affects word-of-mouth and it reinforces external communication. Employee engagement makes the effect of external communication stronger, because then the message it contains is based on a real situation.

3.1.2 Conclusion

Organizational success may well depend on developing and maintaining a recognizable and favourable image. Employer image is influenced by many factors, some of which are uncontrollable, but some can be controlled by management. External communication can be influenced by the employer; External communication can be either directed in the form of a co-ordinated image-building campaign, or by another form of external communication: people referring to the company, the word-of-mouth. In order to control external communication, the employer needs employee engagement. Employee engagement is the base of a successful employee-employer relationship. It creates a solid base for directed external communication and has a positive impact on the word-of-mouth and thereby favourably influences employer image.

From this we can conclude that the relationship between employee engagement and employer image is an indirect relationship. Employee engagement influences the employer image via its impact on the effectiveness of external communication and word-of-mouth. Hereby, the effect of the word-of-mouth on employee engagement is stronger than of directed external communication since word-of-mouth is seen as more realistic by stakeholders. According to this, a new model can be designed that maps the drivers of employer image and shows the nature of the relationship.

+

+

3.2 Employee engagement

Engagement of employees is a much-discussed subject on the work-floor nowadays. Due to the positive effect it has on an organization, this phenomenon gains popularity among employers. Employee engagement refers to the involvement of employees within a company. But this brief definition alone fails to describe the rich content of the designation. It can be approached from the two disciplines; OMC and HRM. In the field of management control, employee engagement is referred to as a well-defined, research-based cluster of employee attitudes and behaviours that can be measured and has been shown to make a difference in business results (Richman 2006). From a human resource- and more psychological perspective, engagement is described as “a persistent, positive, affective motivational state of fulfilment in employees that is characterized by vigor, dedication and absorption” (Schaufeli et al. 2002). In order to explain the phenomenon of employee engagement, literature of both disciplines will be used. In the first paragraph we will describe the positive effects employee engagement has on an organization, and after that we will go through the drivers of engagement. Herein, the HRM literature will be used to explain that engagement is driven by various characteristics of an individual. Management control focuses less on the individual but more on the general drivers of engagement.

3.2.1 Externalities of Employee Engagement

Engagement among workers indirectly influences the employer image through the word-of-mouth, but also other externalities of the phenomenon can work in favour of the employer image.

Engagement results into a highly committed and well performing workforce (Kahn 1990). This makes the word-of-mouth favourable and external communication more reliable and so works in advantage of the employer image. But employee engagement also influences the organizational image, and thereby the employer image is affected as well.

Engagement among workers is claimed to result into a belief in the organization and its mission. It makes employees desire to work and make things better, wanting to keep up to date with developments in their fields and it brings them an understanding of the business context and of the strategic drivers of the organization (Martin 2009). A situation every employer is dreaming of.

Engagement among staff leads employees not only towards better performance, but also to higher loyalty, less sick leave, lower turnover; better health and personal well-being (Truss, 2010; Sonnentag, 2003, Kahn 1990). Loyal, healthy and engaged employees need less control instruments and reduce control problems such as lack of direction and lack of motivation. And so, all of these factors result into decreasing costs of control, which positively influences organizational success, image and financial performance (Saks 2006).

Obviously, knowing the positive effects of engagement, it is something every employer is dreaming of. But how can an employer create it? In the next paragraph the drivers of engagement will be analyzed.

3.2.2 Drivers of Employee engagement

Engagement is a state of mind that is impossible to describe in one sentence. It is partially affected through job resources, which are factors of management control mechanisms. Next to this, the engagement is also driven by personal resources, the personality of the employee. The model of Demerouti, Bakker, Nachreiner and Schaufeli (2001) shows this relationship in a model.

According to this figure, employee engagement is influenced by two kinds of resources: ‘personal resources’ and ‘job resources’. This relationship is moderated by ‘job demands’ such as psychological and physical demands. ‘Job demands’ refer to those physical, social, or organizational aspects of the job that require sustained physical or mental effort and include aspects such as workload, time pressure and physical environment. Job demands have a negatively influence on the relationship that is showed in figure 4. Generally it yields that ‘the lesser demands, the higher engagement’. However, as an exception, job demands that are challenging do have a positive relationship with engagement.

Personal Resources - Optimism - Self-efficacy - Resilience - Self- esteem Job Resources - Autonomy - Performance Feedback - Social Support - Coaching Employee Engagement

“Challenging demands trigger positive emotions and active-problem-focused coping styles that increase willingness to invest energy and meet these demands” (Demerouti, Bakker, et.al. 2001). ‘Job resources’ encapsulate all aspects of the job that are instrumental in achieving work goals (Crawford et al. 2010). Job resources are factors of management control mechanisms and are assumed to activate a motivational process whereby employees’ growth and development is supported. Employee’s competencies are extended and this increases willingness and abilities to dedicate one’s efforts and abilities to the work task. Examples are job control/autonomy, coaching, participation in decision making, feedback and work social support (Crawford et al., 2010, Schaufeli and Bakker, 2003). Other drivers, such as rewards and recognition, communication, training and pay and benefits shouldn’t be forgotten for having an impact on employee engagement (Maslach 2001; UWES; Robinson, Perryman and Hayday 2004; Saks 2006). These drivers of employee engagement can all be found in management control literature, and will be further analyzed in the next chapter. ‘Personal resources’ can be analyzed from the HRM discipline. Individuals and personal resources play an important role in the existence of employee engagement and in the impact of job resources and job control. Every individual is different, which means that employees are triggered by various job resources in order to get engaged or committed. Examples of personal resources are: optimism, self efficacy, resilience and self-esteem. Wherein efficacy is a remarkable factor, since an upward spiral may exist: self-efficacy breeds engagement, which in its turn increases self efficacy beliefs, and so on. A person with a high self-esteem is more independent; he/she might need less feedback and will feel more engaged to a decentralized organization. In reverse, a dependent person needs social support and strong leadership, and therefore a centralized organization will suit this person better. For optimism we could say that optimistic individuals will more easily feel engaged, since their nature is to be optimistic.

Analyzing the impact of job resources on engagement would be most accurate if we would analyze it for every employee separately. HRM research and personal resources would be a valid source for this. However, for large organizations this is close to impossible. Besides this, engagement is more influenced by management practices than by employee demographics or personality (Richman 2006). Therefore, in the next chapter we focus on management control and try to explain the nature of the relationship from the field of OMC literature. In what way can management control mechanisms result into engagement and thereby positively influence the image of an employer?

3.2.3 Conclusion

According to this, figure 3 needs to be reconsidered. For the relationship between employee engagement and employer image an extra dimension can be included.

Engagement is driven by individual characteristics of the employee, but more importantly by management control mechanisms. Job resources such as autonomy, social support, coaching and performance feedback are used by management to achieve work goals. Besides work goals, these factors of the control mechanism influence employee engagement. Awareness among employers of the relationship between their control system and engagement is useful for them in the understanding of their employer image.

Employer image Employee engagement Directed external communication Organizational image Word-of-mouth Health, Performance + + + + + + +

3.3 Management Control

Until now we found that engaged employees positively influence the employer image. Next to this we found that employee engagement is driven by personal resources and job resources. Job resources are factors of the management control mechanism. In this chapter the impact of management control mechanisms on employee engagement and employer image will be analyzed.

On an ordinary working day factors as wage, informal talks with colleagues, managers and responsibilities move past. Without being aware of it, the employee is confronted with management control every day of its working live. Management control is defined as "the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization's objectives" (Anthony, Dearden and Vancil, 1972). Wage, dedication to colleagues, responsibilities in decision making and the way the boss treats his/her workers are used for obtaining profits or performance. However, employers have to take into account that these control mechanisms also influence an employee in going home satisfied or not after a day of work.

Job resources are factors of management control that can be classified in the four categories of control. According to Merchant and van der Stede (2007) management control can be classified in Action controls, Result controls, Personnel controls and Cultural controls. If we take a close look on these, we recognize that job resources are allocated among the categories of control. Management control mechanisms either have a positive or negative effect on employee engagement. For employers it is useful to be aware of the controls, so in the future he/she will be able to control employee engagement, and so affect the existence of their employer image. In this chapter the four categories of management control are analyzed. Each category exists out of several job resources, which are all related to employee engagement. By going through the four categories of control and the job resources related to it, the nature of the relationship with employee engagement will be further analyzed.

3.3.1 Action Controls

Action controls are controls ensuring that employees act in the organization’s best interest by making their actions the focus of control. Action controls can take several forms of which action accountability is one.

Action accountability involves holding employees accountable for the actions they take. It focuses on: how is the job done?

An important method to make employees accountable for their actions is by decentralizing decisions and actions. Through decentralization management provides employees with more autonomy and accountabilities, and can be defined as the process of dispersing decision-making governance and responsibilities closer to the employees. In the early 1990s the high-involvement movement emphasized the importance of sharing employee ideas, involving employees in decision making, and making them accountable for their own actions. Employees receive a broader span-of-control, or in other words; higher autonomy. Not only there’s a positive connection between autonomy and company performance or innovation, but also with motivation and engagement of employees (Wellins et al. 2010, Merchant and van der Stede 2007). Accountability provides the employees a feeling of being part of the organization and having the power of changing things, which leads to an engaged workforce. Along with this, autonomy allows room for new and innovative ways of thinking. This yields greater employee commitment and motivation because the need for self-accomplishment is brought into play (Merchant and van der Stede, 2007).

On the other hand, the work rules, policies and procedures can lead to a decrease of employee engagement. Employees can feel controlled or burdened by action controls. Besides this, assigning responsibilities to employees will only be successful if they have the abilities to work with them. Over all, the proportion of autonomy is important. Employees should be assigned an appropriate amount of control that is needed to do their job. Assigning an overwhelming amount of autonomy to employees leads to a high workload and job burnout (Maslach et al. 2001).

Decentralization makes employees accountable for their own actions and is a way of accomplishing organizational goals. But besides this, it positively affects employee engagement through empowerment. Making employees accountable for actions and thereby empower them is a challenging assignment for an employer (Kaliprasad 2006). The employer has to communicate explicitly about what actions are acceptable, observe what happens and reward or punish the actions.

3.3.2 Results controls

Results controls are forms of control that do not focus explicitly on the employees actions, but more on the outcomes. Merchant and van der Stede (2007) describe the design of incentive systems as a critical organizational design choice in a results-control context. Decisions about the incentive system are part of the organizational architecture. Result controls can provide a positive motivational impact by linking incentives to autonomy or to result measures.

Incentives

Incentives are an important factor of result controls and provide a positive impact on an employee’s motivation to perform. Incentives are rewards that can be provided in terms of money, but also in terms of bonuses, promotions, and employee ownership.

Organizations strive to promise their employees the rewards that provide the most powerful motivational effects in the most cost effective way possible. “The amount of wage and benefits should be market-related, relative to autonomy and the intensity of work” (Kaliprasad 2006). Lack of appropriate rewards, insufficient financial rewards, as when people are not receiving the salary or benefits commensurate with their achievements (Maslach et al. 2001) influence the employee (and thereby its engagement) negatively.

Employee ownership and profit-sharing programs improve employee productivity, and company performance. Along with this, employees gain engagement when their wage stands in direct contact with the performance of the company. In that sense, employees will work hard to make sure the company will do good. Hereby, it is important to keep in mind that the strength of the effects of any particular reward is difficult to predict, as different employees often react differently to identical incentives. Many employees respond to rewards such as job security, recognition, or self-satisfaction more strongly than to monetary rewards (Locke and Latham 1990). Others need financial incentives to exert that extra effort required to perform tasks well.

In principle incentives have a positive effect on employee engagement. Ideally, the employer has to link them to results or actions, and make sure employees know whereupon rewards are based. Hereby, superiors and employees of an organization jointly identify common goals, define responsibilities in terms of the results expected of them, and use these measures as guides for operating the unit and providing incentives as a reward (Merchant and van der Stede 2007).

3.3.3 Personnel Controls

Personnel controls build on employees’ natural tendencies to control and motivate themselves. These controls help ensure that each employee understands what the organization wants, that they are able to do a good job, and increase the likelihood that each employee will engage in self-monitoring. Self-monitoring pushes employees to be naturally committed to the organization. Personnel controls affect employee engagement through job resources such as coaching, training, performance feedback and communication (Demerouti and Bakker 2001).

Coaching and Training

employees identify the skills and capabilities that are within the person, and enabling them to use them to the best of their ability. Coaching can be applied by someone from outside or inside the

organization (wikipedia.org, search term: coaching, 10-01-2011).

Both coaching and training are in principle positively related to employee engagement, since employees are empowered by the employer that offers them the change to develop.

The difficulty for training is that it should be implemented appropriately; training should be conformed to organizational objectives. Training that is inconsistent with the organizational goals and focus could cause behavioural displacement. Behavioural displacement can be described as behaviour that is not consistent with the organization’s objectives. Obviously, this should be avoided since this entails a great deal of expenses (Merchant and van der Stede, 2007).

Both training and coaching is a costly process, peer training, reading, coaching and mentoring takes time, and thus money. E-learning could be an interesting alternative in training, which can be used to educate and train the workforce, increase engagement among employees, and thereby saves training budget. For coaching, internal coaching or coaching ‘on-the-job’ can be used, which is just as effective as other forms of coaching, but moderates the costs for coaching. However, in the end, investing in one’s human capital has a financial payback aspect (Kaliprasad 2006); it pays off in engagement and increases employee productivity and company performance.

Coaching is used for empowering employees and helping them on the job. Coaching is positively connected to employee performance and motivation. Both training and coaching facilitate employees in working more efficient, favourably influences self-confidence, personal development and makes the employee more engaged to the organization. Through engagement coaching and training affect the employer image. Besides this, these personnel controls affect the employer image directly as well; keeping employees educated and developing them personally and professionally has become an important sustainable competitive advantage in today's marketplace (Kennedy and Daim, 2010; Kahn 1990). Skill acquisition and development are the ingredients that help to set a business apart from the competition (Richman 2006).

Communication

promotes openness, trust and makes the decision-making process faster. Transparency creates involvement of employees and therefore it also works in favour of engagement.

In general, people are tempted to say that the more communication, the higher engagement. However, it is not as simple as that. A high amount of transparency may cause tensions as well. Not every individual within an organization is benefited by knowing everything about the organization. For example, employees with too much knowledge about their colleagues may misuse this information, and that doesn’t make the organization a better place to work. Employees need all information that is required to do their job efficiently. Openness and communication in the right proportions is in favour of engagement.

An interactive relationship among management and its employees gives the manager the opportunity to get to know his/her staff better. From this, managers can learn what doesn’t, but more importantly what does motivate the workforce. Supplementary to this, communication among employees is positively influencing engagement (Martin 2009). An employee, who feels connected with its colleagues and feels listened to by their employer, will be more at ease and is more likely to do a good job.

Performance feedback

Performance feedback makes employees aware of themselves in how they fulfil their job. It keeps employees motivated and engaged, but also improves productivity, and performance of the whole organization. A lack of feedback is proven to be positively related to the antithesis of engagement: burnout (Maslach 2001).

Communication and performance feedback are job resources that encourage the full engagement of employees in the business of the enterprise (Richman 2006). Employees that understand how their day to day job contributes to business strategy and business success, that have a personal career plan, and regularly receive feedback from management, have significantly higher engagement levels than those who have not (Robinson, Perryman, Hayday, 2004).

3.3.4 Cultural controls

Cultural controls differ from other kinds of control, since they are not under the direct influence of the employer. Like incentives and training it is not a control that can simply be provided or adjusted by the employer. In an organization with cultural controls, employees are influenced by their colleagues through mutual monitoring, group rewards and social support. These factors can have a positive effect on motivation and performance (Merchant and van der Stede 2007). Cultural controls such as social support are usable in almost every setting, the costs of it are low, and it hardly brings any harmful side effects.

Social support goes further than communication, but also shows a positive relationship with employee engagement. Next to open communication on the work floor, an employer needs to make his employees feel valued. Understanding and listening to their needs, wants, and personal goals, support them and recognize them for their contributions (Kaliprasad 2006). Employees want to feel appreciated for their ideas and efforts. Recognizing employees for doing a good job and encouraging them to grow and develop makes the workforce engaged.

Not only management can support its employees, also colleagues have a great share in this. Companies with high amounts of social support show high ratings on the engagement scale (Wellins et al. 2010). As against a lack of social support from supervisors and co-workers, is positively linked to the antithesis of engagement; job burnout (Maslach 2001). Social rewards are important, when one’s hard work is ignored and not appreciated by others, the workers engagement devalues. Also, (unresolved) conflicts between colleagues and stressful interactions with supervisors increase the workers’ feelings of exhaustion, which certainly is not in favour of engagement.

All in all, employees have proven to function best in a supportive work community; when they share comfort, happiness, and humour with people they like and respect. Recognition and feelings of trust are highly important in the creation of employee engagement (Macey 2008).

3.3.5 Conclusion

Management control can be separated in result controls, action controls, personnel controls, and cultural controls. All of these controls are positively linked to engagement, and so, favourably affect the employer image. Although, proportionality and differences between individuals make the relationship not indisputably positive. In general, the relationship between management control and employee engagement is as exhibited in the model beneath.

3.4 Conclusion

In what way does Management Control influence the Employer Image?

Employer image can be defined as what people believe is distinctive, central, and enduring about the organization as an employer. A favourable employer image positively affects success in recruitment, the job-person-fit, performance of employees, stakeholder’s willingness to invest, high morale under employees, increasing productivity and stakeholder support.

The image of an employer is partly derived from the image of the organization, and on directed external communication such as marketing exposure. Besides this, employer image is also constructed from within the organization. An important driver is the employee. Employees have formed their ideas about the employer and depending on whether they are satisfied with this; they recommend the company to others as a good place to work. Employees that feel engagement towards a company tell positive stories and this is how a favourable employer image is originated.

Employee engagement can be defined as a persistent, positive, affective motivational state of fulfilment. Employee engagement brings along many positive outcomes for an organization. It positively influences employee loyalty, less sick leave, lower job turnover, better health, personal well-being and the word-of-mouth, which is positively related to the employer image. Drivers of employee engagement can be found in human resource and management control disciplines. Job resources, which are factors of management control mechanisms, are proven to affect employee engagement.

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Figure 7: Externality of Management Control model

4. Methodology

This thesis is based upon exploratory research. The research question In what way does Management Control influence the Employer Image? will add on existing literature. The relationship between employer image, employee engagement and management control is not yet clearly analyzed in existing literature. Besides, the research questions will be answered from the perspective of both Human resource management and Organizational and Management control. This makes it different from other researches that provide a narrow view on a topic by only using literature from one of those disciplines (Crawford et.al 2010, Demerouti et.al. 2001, Duncan et.al. 1998, Lievens and Highhouse 2003). The relationship between the three concepts, employer image, employee engagement and management control in theory, is demonstrated in figure 7: the ‘externality of management control model’. An empirical case study is conducted with the purpose of confronting theory with the empirical world (Piekkari et al. 2009). In this chapter, an empirical case study will be executed to apply the designed model in practice and show the relevance of it within a Solid board mill. Analyzing the management control mechanisms within the Solid board mill will give a clear view on the connection between management control mechanisms, employee engagement, and employer image.

4.1 Case study design

Case studies should not be limited to a single source of evidence. Therefore, I will make use of two sources to collect information for the case study. Through a questionnaire and interviews with employees of the company, various factors of management control can be reviewed and analyzed. With this combination of qualitative data out of the interviews, and quantitative data from questionnaires, the management of the organization will receive an insight about their employee engagement, and the mechanisms influencing this. The ‘externality of management control model’, is used to analyze the management control system and draw conclusions about employee engagement and employer image.

Due to open vacant posts at the technical department of the mill, management is concerned about their employer image among technically skilled employees. Therefore, the case study takes place at the technical department (TD) of the Solid board mill, and results will provide insights mainly for this department. The structure of the TD in each of the four plants of the Solid board mill is shown in figure 8. Data is collected from a reflection of all layers of the technical department.

Solid board mills MANAGEMENT Plant manager Technical Administrator s Mechanics (employees) Engineers (employees) TD

Employee Engagement Q 10,11 Action Accountabiltiy Q 1,6 Communication Q 5,7,8 Social Support Q 2-5, 9

Figure 9: Questions of management control within the questionnaires Data collection method: Questionnaires

Short questionnaires will be supplied to all of the 64 employees within the TD. These include technical administrators, mechanics and engineers. Questionnaires are short, and exist out of 11 statements. In the questionnaires employees and administrators express their feelings about the statements. Response is filled in on the 5-point Likert Scale (Likert 1932). The outcome of the questions is quantitative data, and will be used in the analysis of the management control mechanisms within the Solid board mill. The questionnaires will be send and collected by email. This means of communication is the most used within the Solid board mill, is user friendly and, available for everyone. In this way all employees can be reached in a short period of time.

The statements will focus mainly on ‘social support’; they provide information about the way employees feel supported by their colleagues and their employer/administrator. Besides this, the questionnaire also contains some statements

about decentralization, communication and engagement.

The questionnaire can be found in appendix 8.1 and contains statements such as:

- I feel appreciated within the organization - There is a feeling of unity within the

department

- There is a feeling of unity within the company

- I have sufficient contact with my colleagues - I am proud to be a part of Solid Board’s

staff

Data collection method: Interviews

Semi-structured interviews will be held with workers at all layers of the TD and in the facilitating department: Maintenance. The maintenance department is involved in the interviews because of the functional connection with the employees of the Technical department. These two departments work together very closely since the maintenance department supervises some of the tasks that are executed by the employees of the TD. Therefore, employees of the TD consider this department as an employer.

appendix 8.2 an overview of the interviewed workers is displayed in the organization chart of the Solid board mill.

In the interviews six management control factors are reviewed; action accountability, incentives, coaching and training, communication, performance feedback and social support. The interviewed workers are able to explain in which way and in what degree the control factors are applied within the organization. Also, they can share their opinion about the implementation of management control within the Solid board mill, and support their statements with examples. While analyzing the management control mechanisms of the Solid board mill in the interviews employee engagement will come up for discussion as well. In the first instance the questions are objective. In the answering of them, employees will unintentionally hint about the consequences of the management control. Not only the way management control factors are perceived among employees will pass, also the commitment and the restrictions management control mechanisms brings along. An interview guide can be found in appendix 8.3.

In the semi-structured interviews no resources such as video or voice recorders will be used, but a simple pencil and sheet will do. Interviews will not be recorded, so people will be open and honest about their experiences (Fleiss et.al. 1965). Immediately after the interview a detailed summary of the interview will be typed out and information will be structured according to the ‘externality of management control model’. The interviewer must be objective, and confidential information needs to be handled with care.

4.2 Data analysis

The information perceived from the interviews and questionnaires is confidential and will be applied anonymously in this thesis. The semi-structured interviews will be analyzed according to the ‘Externality of management control model’. An example of a structured interview can be found in appendix 8.4.

5. Case Study Results

5.1 The Solid board mill

Solid board mill, an organization in the Northern part of The Netherlands, is one of the biggest operators in the European cardboard industry. This industry exists for more than 700 years and can be considered as a traditional sector. The Dutch Solid board mill (SBM) has been established in 2006 as a merger of four organizations. The factories are located in Hoogkerk, Bad Nieuweschans, Oude Pekela en Coevorden. SBM currently employs over 507 people and produces several types of solid board with the use of four machineries. Products manufactured by SBM are a semi manufactured product and are further processed by other companies into for example folding box board; paper sacks and bag-in-box. SBM solid board is also used in the production of hardcover books, office wares, puzzles and luxury games, carton-boxes, marketing displays and packing material for fresh products. Approximately 550000 tons of solid board is produced on a yearly basis of which 250000 tons for packaging and 300000 tons for graphic applications, with an annual turnover of 300 million Euros. Solid board mill is organized in four factories. Every factory employs its own team managers, several teams are working in shifts together on the main product: solid board. The operational and logistics department finishes the product, specifies it to customer needs and is accountable for the transport of raw materials and deliveries of the customer orders. The Technical department (TD) is responsible for the technical facilities in the mill. In this department, engineers and mechanics work together to keep the mill and its machines running.

Due to open vacant posts in the technical department of the mill, management is concerned about their employer image among technically skilled employees. Therefore, in this case study the focus lays on the Technical Department (TD). In each factory engineers and mechanics are coordinated by one or more technical administrators (TA). Figure 10 shows the organization chart of SBM and the FTE’s within the different departments.

Throughout this case study, the following concepts will be used:

‘Employees’ include both the engineers and mechanics. Employees are supervised by Technical Administrators (TA), who are the head of the Technical Department (TD). Some technical departments are supervised by one TA, and others are lead by more than one. Technical Administrators are directed by ‘management’, which can be found in the layers above the three departments. Management includes the plant managers and the management board of the Solid board Mill.

Solid board mills Management

Plant manager

Hoogkerk Plant manager _Nieuweschans Plant manager _Pekela Plant manager _Coevorden

Team-managers T.D. (2TA) Team-managers Oper. & Logistic T.D. (2.9TA ) Oper. & Logistic Team-managers T.D. (1TA) Oper. & Logistic Team-managers T.D. (1TA) Oper. & Logistic Engineers (2) Engineers (1) Engineers (1) Engineers (2) Mechanics (10.6) Mechanics (12) Mechanics (7,5) Mechanics (9,5)

Figure 10: Organization chart of Solid board mills Maintenance

process manager

In this illustrative case study I will approach the organization from the inside-out, starting at the management control system of SBM. This will be analyzed with, respectively, interviews and questionnaires. The impact of the management control mechanisms on employee engagement can be derived from this, whereupon the employer image can be analyzed.

5.2 Case study results

Data collection took place between the 10th and 25th of January 2011. The results are based on nine semi-structured interviews, of which four are managers or technical administrators and five employees (appendix 8.2). Next to this, information is also derived from 41 questionnaires. Results of the questionnaires are analyzed with the help of Excel, this analysis can be found in appendix 8.5 and the enclosed excel file. The number of respondents account for 64% of the staff working in the technical department. Interviews and questionnaires were processed anonymously.

Planning the interviews and the response of the questionnaires was surprising to me, as I thought it would take more time and effort. Planning the interviews was settled shortly and everyone was enthusiastic about participating. Questionnaires were answered fast, some even responded within two minutes after receiving the email. It made me wonder: could this be already a sign of employee engagement within SBM?

This chapter will analyze the management control system of SBM with the help of literature, interviews and questionnaires. The ‘externality of management control model’ will be used to make conclusions about the connection between management control mechanisms, employee engagement, and employer image.

5.2.1 Action control

Action controls such as action accountability ensure that employees act in the organization’s best interest by making their actions the focus of control. It focuses on the way an employee is executing his or her job.

Action Accountability

Engineers and mechanics are encouraged to take initiative and constantly improve standards and procedures. “With the technological insight and professionalism of employees within the TD, they are obviously most capable to make standards and procedures more effective and efficient”. Administrators are open for these initiatives. In the interviews with both coordinators and employees of SBM incitement for improvement projects are seen as an important driver of employee engagement. Employees are enthusiastic and feel responsible for their project and say to feel free in the execution of their work. Within cadres they can decide who does which job, when and come up with improvements. However, the time to work on the projects is limited. The TD is currently understaffed, they are too busy with day to day activities of machine failures and maintenance, and so, have minimal time to work on these projects. Tasks with a high priority have to be done first. Employees understand this, but wished they had more time for it.

Each day, tasks are distributed among employees. Employees are motivated to assign the tasks themselves, based on their preferences and on their abilities. Administrators even state that they are willing to provide their employees with more accountability and encourage employees to follow their own path (within certain cadres). Besides execution of clearly defined tasks, engineers and mechanics are encouraged to take more responsibilities, for example taking initiatives in new projects. In reality, employees do not always take this chance; “the boss should tell me what to do”. And so, it seems like they are not really in need of more autonomy.

Decentralization and dispersed decision-making within the Solid board mill sometimes leads to inconvenience. Some employees are coordinated by two technical administrators. Two individuals coordinate results, make use of different working procedures, and have a different vision. Employees say to find this challenging to work with. Mostly they know exactly to whom to turn to, but sometimes this leads to confusion.

Decision-making is mainly a management task, employees in the TD sometimes would like to have more saying in this. Especially when it involves projects they are working on. Employees are convinced that they have enough knowledge to be consulted in making decisions concerning projects. Next to this, employees do not feel to have any control concerning the policies of the organization. “Policies are outlined by our management and by the board in Ireland”. This does not empower employees, nor is it in favour of employee engagement. However, it is accepted, and many employees do not feel they want to be involved in this. In general, they also respect the fact that standards and procedures become stricter, “we have to keep up with the times and modernize”. Without the strict regulations the mill would have no right to exist.

significantly higher (average of 4.18) than by operational workers. Meaning that those feel much more part of the organization, and therefore are more engaged. Interestingly, results show evident differences between the four factories on this point. In Coevorden employees score an average of 3.67 on the employees feeling of being a part of the organization. The TA in this plant scores 5, while in Nieuweschans the scores are respectively 2.67 and 3.5.

On the other hand, employees say that they don’t feel valued in decision making, which implies that employees have less accountabilities than it seems. Quantitative data shows that for this statement there are huge differences in between plants, such as the share of employees in the decision making process. The employee share in decision making scores an average of 2,8, which is not in favour of employee engagement.

General impression is that assigning tasks to employees, and accountabilities in individual projects brings along employee engagement in the technical department of SBM. However, when analyzing the decentralization in the four factories, the employee accountability is less than expected. The nearly insignificant share in decision making is affects employee’s engagement negatively. Next to this, the pressure of their daily tasks keeps them from working on their individual projects and innovations. Furthermore, the division of the management tasks between more than one TA brings along confusion because of the diversity in coordinators. Above all, these accountabilities are not included in the performance evaluation and incentive attribution. Employee actions are not controlled by technical administrators or management.

So, action accountabilities are not affecting employee engagement positively at all. But does it have a decisive influence on employee engagement? Action accountabilities and decentralization does not differ in the four plants. However, employee engagement is higher in Coevorden than in the other factories. From this we can conclude that decentralization does not have a decisive influence on engagement within SBM.

5.2.2 Result control

Result controls can create a positive motivational impact by providing fair and reasonable incentives. Therefore, the relationship between incentives and employee engagement is generally positive. In the theoretical part it became clear that we have to keep in mind that this relationship differs per individual. Besides this, incentives can empower employees and are positively related to employee engagement if they are linked to obtained actions or results.

Incentives