Development and Delivery
“A case study of Non profit versus For profit Training
organisations”
A. Gilat
The Management Process of Training
Development and Delivery
“A case study of Non profit versus For profit Training
organisations”
“The man who graduates today and stops learning tomorrow is uneducated the day
after” (Newton D. Baker)
Groningen, January 2010
University of Groningen
Msc in Business Administration Strategy and Innovation
Name: Alon Gilat Number: 1341812
Preface
With this master thesis for the MBA Strategy & Innovation I finish my studies during which “I learned avidly. Questioned repeatedly what I have learned. Analyzed it carefully. Than put what I have learned into practice intelligently” (Edward Cocker).
I would like to thank all persons who enabled me to write this thesis lying in front of you. My first supervisor drs. Ivan Orosa Paleo, who provided me with intelligent and very useful feedback during the process of writing this thesis. Also the second supervisor dr. Thijs Broekhuizen who contributed as well in a helpful way. Thank you for your support and contributions.
Irene van Ringen, you were really helpful and supportive during our weekly meetings. You kept me focused during the entire project, which was great.
Next I want to thank all participants of the case study. Without your help no research would be possible. I really appreciate that you had time and interest in participating in this study. I also want to thank the Studentenbureau UMCG and its staff, which provided me a good workstation and positive feedback during the process.
Finally, my family, friends and colleagues who have been great and supportive during the entire period. Without you, this period would have felt much longer.
Alon Gilat
Abstract
Index
Introduction...7
1.1 Short training courses for adults in the Netherlands...7
1.2 Reason for research...8
1.3 NPOs vs. FPOs (1)...9
1.4 Insight in the Dutch Short training course market...11
1.4.1 Short course subjects...11
1.4.2 Benefits of short training courses ...12
1.5 Organisation of this thesis ...13
Chapter 2 Theoretical background ...14
2.1 Training courses as a service...14
2.1.1 Intangibility ...15
2.1.2 Inseparability ...15
2.1.3 Heterogeneity...16
2.1.4 Perishability ...16
2.2 Selection systems for services ...17
2.3 NPOs vs. FPOs (2)...19
2.3.1 Agency theory...19
2.3.2 Decision making within a organisation...21
2.3.3 Customer view ...21
2.4 Strategic capabilities ...23
2.4.1 Internal direct strategic capability factors ...23
2.4.1.1 People (HRM) ...24
2.4.1.2 Structure ...25
2.4.1.3 Resources ...26
2.4.1.4 Networking...27
2.4.2 Internal indirect strategic capability factors ...29
2.4.2.1 Culture and leadership ...29
2.4.2.2 Strategy ...31
2.4.3 External conditions influencing organisations...33
2.4.3.1 Market conditions...33
2.4.3.2 Knowledge and infrastructure ...34
2.4.3.3 Government policy ...35
2.5 New training development ...37
2.5.1 The start of training development ...37
2.5.2 Types of training methods ...39
2.6 Evaluating performances...40
2.7 Conceptual Model...43
Chapter 3 Methodology ...44
3.1 Research method...44
3.2 Sample...45
3.2.1 Non profit training organization: Breedte training ...46
3.2.2 Non profit organisation: PAOG Diepte Training ...48
3.2.3 For profit training organisation: Mastertraininggroep ...49
3.2.4. For profit training organization: BAN ...51
3.3 Data collection method ...52
3.4 Data analysis...54
Chapter 4 results...54
4.1 Results concerned with differences in organisation types NPOs vs. FPOs ...55
4.2 Results concerning the development of training ...56
4.2.1 The start of training development ...56
4.2.2 Training development process ...58
4.2.2.1 Process of training development by NPOs ...58
4.2.2.2 Process of training development by FPOs ...59
4.3 Results concerning differences in strategic capabilities used by NPOs and FPOs ...65
4.3.1 Internal direct strategic capabilities ...65
4.3.1.1 People (HRM) ...65
4.3.1.2 Structure ...66
4.3.1.3 Resources ...68
4.3.1.4 Networking...70
4.3.2 Internal indirect strategic capabilities ...72
4.3.2.1 Culture and leadership ...73
4.3.2.2 Strategy ...75
4.3.3 External conditions ...77
4.3.3.1 Market conditions...77
4.3.3.2 Knowledge infrastructure ...79
4.3.3.3 Government policy ...80
4.4 Evaluating and adjusting the process of training development and delivery...81
Chapter 5 Conclusion and discussion...85
5.1 Conclusion and discussion ...85
5.1.1 Differences in direct strategic capabilities ...86
5.1.2 Differences in internal indirect strategic capabilities...88
5.1.3 Differences in external conditions ...89
5.1.4 Evaluating and adjusting the process ...90
5.2 Final conclusions ...91
5.3 Limitations and recommendations for further research ...93
Introduction
“Much learning does not teach understanding.” (Heraclitus)
In mixed-form markets several types of organisations coexist together (Marwell and McInerney 2005). Non-profit organisations (NPOs), for-profit organisations (FPOs) and governmental organisations supply goods and services. One of the mixed-form markets in the Netherlands is the market of extra and refresher training courses. According to the Centraal Bureau voor de Statistiek (CBS)1, Dutch companies spend €3.1 billion in 2005 on courses and training provided by private sector companies with ten or more employees2. The average spending per employee on training courses and additional adult education was €810 in 2005. €360 out of the €810 are so-called holdup costs which are costs for missing the specific employee in the office. The total amount of spending in 2005 directly on additional education is €1.758 million. Since more companies are active as facilitator and organizer of training courses, even more money is spent in the Netherlands in this sector.
In a market where billions of Euros are spent on training, there will always be organisations active to capture the value. Large amounts of money are spent on training with the objective to teach and improve various skills to improve the performance of the trainee (Burke and Day 1986). The training organisations are expected to deliver training courses which realize these objectives.
1.1 Short training courses for adults in the Netherlands
In the Netherlands learning becomes more important. Especially with the desire of the Netherlands to be a knowledge extensive society with a high percentage of people attending a training to improve their skills (CBS 2007). The goal of the Dutch government is to have 20% of the Dutch workforce participating in educative activities which contributes to life long learning before 2011. At the moment less than 16% of the target group has participated in adult education (Onderwijsraad 2009).
Adult education can be divided into two types of training; long training and short training. In this thesis I will only look at the short training course. A short training course can be seen as a planned period of training and instructions, with a maximum of half a year, to teach and learn skills and knowledge. Written education, private lessons, workshops and seminars are also part of the definition short training course (Pleijers and Nieuweboer 2009). Short training
1
Bureau of statistics Netherlands
2
courses are on the whole about one specific subject, work related and most often do not end with an acknowledged certificate like most long training courses do. Whenever in this thesis the definition training course is used it can be replaced by the definition short training course.
1.2 Reason for research
Several types of organisations are suppliers of short training courses in the Netherlands. The largest share of training is provided by educations and training institutes; like universities, training organisations or by the employer itself. Other training facilitators such as unions, non-profit organisations or individuals have a small market share in the adult education market(Pleijers and Nieuweboer 2009). A deeper view on the Dutch market of short training courses is given in §1.4.
Since continuing education also can be called post graduate education it is logical to consider that most continuing education is offered by universities. This is however not the case. The president of the European Universities Continuing Education Network, Victor Kosinsky states that they know very well that if universities do not offer continuing education someone else will do it (Bullac 1999). Bullac (1999) also mentioned that even though it is difficult to find the statistics, experts say that in most European countries, universities only provide a small percentage of post graduate continuing education. Most is provided by private training schools, industrial associations or organized in-house.
The current supply of extra and refresher short training courses has grown without a specific vision, there is no systematic offering. The supply of non profit companies has originated from the initial educational schools (supply oriented). The supply by private organisations is created and developed from a growing demand in adult education (Onderwijsraad 2009). 90% of the working population attended training courses at private training facilitators. This can be seen as a signal that the private for profit facilitators are better able to offer the desired training (Onderwijsraad 2009).
Both public non profit organisations and for profit organisations offer their own courses. These courses are based on in-house methods of training (Onderwijsraad 2009). The education council3states that based on the incentives from the market, for-profit organisations are better able to create flexible training courses compared to public non-profit organisations. The dilemma for the trainee here is; to decide which course he wants to attend where. There is no transparency and the education council stated that in general more transparency is needed and better information must be provided about offered training courses.
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Training organisations can differ according to the education council and this makes it difficult for prospects to choose the right organisation delivering the right training. This thesis tries to explain the differences between both types of training suppliers, namely non-profit and for-profit organisations. When differences are revealed, both types of organisations can better understand how they operate and how they can reach their customers in a better way.
In recent years many comparisons have been made between for profit organizations (FPO) and non profit organizations (NPO). These comparisons were mostly comparisons in the health services (Hirth 1999;Judge and Zeithaml 1992;Pauly 1987;Peters 1993;Reeves and Ford 2004;Rushing 1974). These authors described differences between the two types of organisations and how differences have significant effect on the way the processes of both types of organisations work. The authors state that there are differences between how NPOs and FPOs deal with effectiveness, performances, efficiency and financing of services. Differences between these points of attention create differences in managing the process of training delivery by NPOs and FPOs. I too expect differences between processes of NPOs and FPOs developing and delivering training courses, dealing with effectiveness, performances, efficiency and financing.
1.3 NPOs vs. FPOs (1)
In this thesis I will look at the way the development process and delivery of training is managed by For-Profit Organisations (FPOs) and Non-Profit Organisations (NPOs). The type of organisation affects how organisations are managed and how the process looks like for development and delivery of training courses.
A clear distinction between NPOs and FPOs may be inappropriate. Rushing (1974) explained that both types of organisations tend to bring in more revenue than they spend. The difference is that NPOs usually invest the excess in the expansion of the organisations’ services and operations. This can create a significant difference. (Rushing 1974).
Subsequently researchers started to look at the missions and visions of FPOs and NPOs. As will be explained in §2.4.2.2, the mission of a company does have influence on the entire process and on how organisations manage the development and delivery of training courses (Bart 1996;Bart et al. 2001;Reeves & Ford 2004). Reeves and Ford (2004) stated that differences in the missions of NPOs and FPOs will create different strategic capabilities and different strategic objectives. Strategic capabilities are needed to fulfil the strategic objectives (Teece et al. 1997).
Nevertheless, as stated above, both types of organisations do make profit and are active on a highly competitive market, the missions of NPOs and the means used by NPOs to pursue the mission have become more comparable with FPOs (Reeves & Ford 2004).
The ability of the organisation to provide training to customers they will value or will value in the future depends on the strategic capabilities. “This involves the need to adjust and change in order to fit the environment and the need to exploit organizational resources in a way that are innovative, or that other organisations will find hard to match.”4How organisations apply strategic capabilities differ. Differences in NPOs’ and FPOs’ mission and vision create different usage of strategic capabilities, but as Reeves and Ford (2004) stated, the use of strategic capabilities by NPOs and FPOs became more similar over the years. Differences between FPOs’ and NPOs’ processes and success are caused by several capabilities. The capabilities can be tangible and intangible and are divided into three groups in this thesis: Internal direct strategic capabilities (HRM, Structure, Resources and Network), internal indirect strategic capabilities (Culture & leadership and Strategy) and external conditions influencing the organisation (Market conditions, Knowledge infrastructure and Government policies). To conclude, if both types of organisations have different organisational missions and therefore also dissimilar strategic objectives, the capabilities summarised here might be different (Reeves & Ford 2004).
Independent of the goals and missions any FPO or NPO lay on themselves, they are all organisations. This is their most fundamental denominator. Managing the process and development of training courses aims at the organisational level; it can be viewed in various ways and will still have to do with the measures and the magnitude of the effect or impact different types of organisations have over whatever factor is analyzed; direct or indirect strategic capabilities or external conditions influencing the organisation.
4
Fig. 1-Source: CBS Socio-economic trends, 2009
Therefore there is no reason to consider that differences between FPOs and NPOs are so wide that this study must be considered in a fundamentally different construct for each type of organisation. As Hansmann (1980) stated, NPOs can be considered “commercial NPOs”, so can be said “To be ‘for profit’ does not imply to be ‘for profit only’”(Baruch and Ramalho 2006).
The main research question for this thesis is: How do NPOs and FPOs manage the development and delivery of training courses based on the use of strategic capabilities?
1.4 Insight in the Dutch Short training course market
This thesis is about the short training course market in the Netherlands. The Dutch market is a specific market which needs to be introduced in a more comprehensive form. This short section explains how the Dutch short training course market looks like and what benefits people expect from participating in short training courses.
1.4.1 Short course subjects
There are many subjects to choose from when choosing a short training course. The most popular subject is ‘general personal skills’ (Pleijers & Nieuweboer 2009). As figure 1 show,
personal development. This is possible by gaining new knowledge, skills and attitudes, as mentioned before, to enable competent practice (Peck et al. 2000).
The main reason for people to attend a short training course is to be more skilled in work and improve career opportunities (75%). One third mentioned the improvement of knowledge and skills on interesting subjects or learning useful knowledge and skills for daily activities as a motive for participation in short work related training courses (Pleijers & Nieuweboer 2009).
1.4.2 Benefits of short training courses
Apparently many participants do not attend courses to improve their usefulness at work, but more out of personal interest. One of ten participants states that taking a course is creating an opportunity for new work or to prevent a lay-off (Pleijers & Nieuweboer 2009).
The education council created 4 basic functions for extra and refresher training (Onderwijsraad 2009)
- Reparation: a person who did not attend school at young age must be able to catch up later.
- Change of career: a person, who discovered late in his career that his interest changed or new talent is discovered, must be able to attend a course to make a career switch. - To stay up to date and to progress in career development: adults must be able to keep
their skills and knowledge up to date to maintain their market position and to work on improving their position.
- Social-cultural and personal function: people do not only learn for their careers but also in general to keep up with daily life.
Short training courses are very appropriate for adults to improve their position on the labour market. The courses are a good addition for life long learning; they are easy accessible, to the point and with a clear time investment for the participant and employer (Onderwijsraad 2009). Most companies pay for training their employees go to. This means that whenever an employee is attending a course, the value the course will add is of interest of the employer. In the Netherlands however, most adults do not feel the pressure for a consistent and systematic way of improving their education. Also employers of especially smaller companies are not familiar with possible profit which can be attained by sending staff to extra and refresher training courses (Onderwijsraad 2009).
the same labour opportunities as certified long courses. Private organisations which want to show a signal of quality can join Cedeo5. Cedeo is more focused on the organizational quality of the course instead of the content quality. Trainees can also check for quality if an organisation is member of bodies such as VETRON6. VETRON has its own regulations for becoming member; such regulations are an indication that members provide guaranteed quality.
1.5 Organisation of this thesis
This thesis is structured in four sections. The first section chapter 2 presents the theoretical findings done by other authors about this subject. This section supports the qualitative research preformed in the remaining of this thesis. Chapter 2 is build up in 6 parts. §2.1 explains why training courses can be considered to be a service. §2.2 explain the selection system of the training course market. §2.3 goes more in-depth in the differences between NPOs and FPOs. §2.4 is the body of the direct strategic capabilities, indirect strategic capabilities and external conditions. §2.5 covers the subject of training development, §2.6 explains the importance of evaluating training courses and finally §2.7 shows the conceptual model of this thesis.
After defining propositions in chapter 2, these propositions must be tested in a case. Chapter 3 explains how data was gathered and used during this thesis. The collected results gathered from the interviews are discussed in relation to the literature in chapter 4. In the final part, chapter 5, conclusion and interpretations of the researcher are given and suggestions for future research are provided.
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A joint organisation which provides a quality mark for short training courses based on the response of the participants of the courseshttp://www.cedeo.nl/nl/site/about(visited on 06-09-2009)
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Chapter 2 Theoretical background
“Give a man a fish, and he'll eat for a day. Teach him how to fish and he'll eat forever.” (Chinese Proverb)
In this theoretical background section the present known knowledge and opinions about the subject are provided. The theoretical background must provide the information needed for a theoretical debate. The focus therefore will mainly be about the development and delivery of new services such as training courses and about the processes of such services by companies with different monetary goals. What other authors wrote about development of new services and about the way delivery occurs in different types of organizations must provide sufficient information to create propositions, which can be tested in the case study in this thesis.
2.1 Training courses as a service
Services can come in all kind of forms and sizes. They form the major industry of the Netherlands with an estimated 73.6% of the total industry7. One of the service industries is the training industry. According to the CBS, Dutch companies spend in 2005, 3.1 billion euro in total on courses and training schemes which were provided by private sector companies with ten or more employees8.
Organisations provide different types of goods. A good can be a product that is manufactured in a factory and later sold to the final consumer, but a good can also be a service which is delivered by the organization directly to the consumer Training courses provided by organisations have specific characteristics which can define them as a product or a service. Some authors differentiate between goods and services on the basis of tangibility. A product is tangible and a service is not (Bowen and Ford 2002). In a service the participation of the customer is required in the production process. Dolfsma (2004) uses the definition of Grönroos (1990) to define a service: “An activity or series of activities of more or less intangible nature that normally, but not necessarily, take place in interaction between the customer and service employees, and/or physical resources or goods and/or systems of the service provider, which are provided as a solutions to customers problems.” Many other authors however created their own definition of a service over the last decade (de Jong et al. 2003).
7
http://www.europaeducatief.nl/documenten/Kaart%20handel_en_economie%202009.pdfvisited on September 1st2009
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A service has four distinctive characteristics which distinguish a service from a product. The four characteristics are: Intangibility, inseparability or simultaneity, heterogeneity and perishability. (Wolak R et al. 1998;Hartman and Lindgren 1993;Dolfsma 2004).
These characteristics are not unique for a service only, but services tend to be more intangible, inseparable, simultaneous and heterogenic. I will investigate if training courses match the four characteristics of a service.
2.1.1 Intangibility
Intangibility refers to the lack of a physical object being exchanged between customer and company. A customer cannot own the product; instead he retains an intangible memory (Wolak et al. 1998; Dolfsma 2004). The customer at first does not know what he is purchasing, since the lack of transfer of ownership. Combination of intangible and tangible attributes exists however, such as credit cards in financial services (de Jong , Bruins, Dolfsma, & Meijaard 2003). A training course lacks the physical object being exchanged between customer and company. A professor teaches his knowledge and at the same time the students absorb the knowledge. There is no physical exchange during the course, only intangible exchange of knowledge. A combination of tangible and intangible exchanges can be the use of specific training manuals and books during training.
2.1.2 Inseparability
Inseparability means that the customer is partner in the exchange with the company, he is co-producing the service. The customer and provider are at the same time involved in providing a service. Products can be produced, stored, sold and than only consumed. In services the consumer is thus participating in all steps of adding value. This means that the delivery and consumption of the service are at the same time and this enables consumers to affect and shape the performance and quality of the service during ‘production’. This creates uncertainty because the customer can affect the efficiency and quality of the service. (Wolak et al. 1998; Abramovici and Bancel-Charensol 2004;Dolfsma 2004;Jong et al. 2003)
2.1.3 Heterogeneity
Heterogeneity explains how a customer experiences the offered service; this can vary due to different circumstances. Heterogeneity reflects how high the potential variability of a service can be at delivery. The customer is co-producing and therefore helping shape the service and the provider tends to shape the service based on the specific needs of the customer. The experience of the service is therefore for every customer different. The quality might not be different but the perception of one customer might be different from the perception of another customer. Services are delivered personally by employees and performances of employees vary every time a service is delivered. Heterogeneity provides, according to Onkvisit and Shaw (1991 in Wolak et al. 1998) the opportunity for flexibility and customization of the service. However, customers’ perception differs each time due to the mostly intangible nature of the service and quality is therefore for a service very difficult to measure. (Wolak et al. 1998; Dolfsma 2004).
Training courses are provided by individuals, and can as a result vary in quality. The variability of training courses is very high, especially since students co-produce the training and help shape the course. The performances of the teachers also vary daily. The course is not fixed but can be adjusted and customized based on previous knowledge of the participants. Training courses are therefore heterogeneous.
2.1.4 Perishability
Perishability means that services cannot be stored or used in the future. Services are therefore time dependent and this makes them very perishable. The lack of the possibility of storage is something which customers are not aware off until the supply becomes insufficient and customers have to wait for the service. (Wolak et al. 1998; Dolfsma 2004)
As mentioned before, storage of training courses is not possible for future use and therefore complies with the characteristic of perishability.
2.2 Selection systems for services
When creating a new service, companies tend to get in difficulties managing the process, since it is completely different to manage a tangible product (Bowen & Ford 2002). Before I elaborate further on the subject of training courses this paragraph will first look at the selection systems of services in general which therefore also apply for training courses.
The creation of services can be hard due to the specific characteristics of services. It is difficult to distinguish between the types (radical/incremental/really new) of innovations. Service quality and evaluation are strongly dependent on certifiers. This has an effect on the role of selectors who must value the new service. There is no prototyping possible and also no formal R&D required. For innovation in services which is essentially about change and renewal, fewer fixed assets are needed (de Jong et al. 2003). Whenever a service company changes or renews its service, imitations will be made easily (Dolfsma 2008). The lack of well educated staff also can be a main barrier to innovate in service firms. Organizational problems can avert new services from being a success. (Sirrilli and Evangelista 1998 in de Jong et al.2003). Evaluation of the delivered services is very important for the organizations which provide the services. Both NPOs and FPOs provide services and considering the characteristics of services, evaluating service performances can be difficult. Not only the characteristics of the service can create obstacles in evaluating the performance, also the selectors of the services can have an influence on the development and evaluation.
Referring to Wijnbergs (2004) definition of an innovation; an innovation is something new and that the value is determined by its selectors. For services this is also the case, but it is needed to rule a margin.
distinction between three selection systems. The three selection systems have all different effects on how consumers choose their service or product; they also have an effect on the outcome of the market process. The selection systems are: Market selection: in this selection the consumers decide which good they purchase from which company without the possibility of any of them to influence the process considerably.
Peer selection: In this selection the opinion of peers or other significant others interested in specific services will determine the choice of the customer. So people make their decision based on the opinions of their peers. This system is mostly used in the academic environment where published articles are evaluated by peers before publication.
Expert selection: In this selection the success is based on the opinions of industry experts. These are not consumers of a product, nor are they producers. The experts are people who have an expertise in the market and who make selection based on their expertise.
Figure 2 shows the combinations of the three types of goods and the three selection systems combined. As shown by the figure, search goods are best selected in a market selection, experience goods are best selected by peer selection and credence goods are best selected by expert selection (Dolfsma 2004). Dolfsma (2004) states that the more complex and unique services are, the more closest they become to be a credence good, whereby an expert selection is needed to determine the quality of the service. He also state that the reputation of the provider of the service can be a sort of substitute for the expert, but such substitution is only sustainable with the involvement of third parties. A combination of third party involvement and expert selection is also possible. For example the bureau of accreditation that provides training courses with an accreditation score, is an expert in the field of training but also a third party who provides a reputation for the provider of the training course such as Cedeo9.
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The characteristics of the selection systems which are used for experience goods and credence goods do influence the performance of organizations and therefore the evaluation of the performances. Peers and experts can have an important influence on the success of a service and on the process of how organizations create and manage the provided service.
2.3 NPOs vs. FPOs (2)
In the introduction a distinction is made between the two types of organisations. In addition to the previously provided information about the differences also the agency theory, decision making and customer view will be reviewed.
2.3.1 Agency theory
Agency theory describes problems and advantages that arise from the separation of ownership and control. It has benefits in the creation of professional managers, but also costs as a result of the potential self-interest of such managers to manage an organisation in such a way to get the highest bonuses (Judge & Zeithaml 1992). Managing the strategic capabilities is different between NPOs and FPOs, taking in consideration the influencing factors described in this section.
Regarding differences between NPOs and FPOs, agency theory suggests that the organisations with a profit goal should be more efficient in their processes than non profit organisations (Reeves & Ford 2004). They state on the basics of agency theory that FPO managers seek to maximize shareholders return by being the most efficient. The goal of maximizing shareholders return generates other methods of management, development and of the delivery of training. To be the most efficient comes down to using strategic capabilities most effectively. The allocation of resources will be controlled by NPOs and FPOs
differently. All of this is translated into the culture and leadership of how organisations operate (Peters 1993). Management of NPOs will pursue other objectives than maximizing shareholders return: “Objectives throws a wide net around potential managerial behaviour.” (Peters 1993). Peters state that a difference is that NPOs incur higher costs with lower efficiency. In contrast, FPOs must manage their resources very carefully to prevent spill-over and wasted resources. In the past when NPOs were fully dependent on government subsidies and corporate or private gifts, a surplus of profit made by NPOs was a sign of inability to use the resources optimally. It can also be a sign that the NPO needed the raised amount of money but was unable to supply the intended service or was too greedy (Baruch & Ramalho 2006). Such differences create other methods of management.
The points described with the help of the agency theory can be extended with others. Pauly (1987) mentions three other important factors how NPOs and FPOs manage the process and development of training delivery. First, NPOs must partly finance themselves with the help of donations by third parties or owners. FPOs can attract money by providing the supplier of money with shares of the company. Second, FPOs try to provide the most profitable training courses to get a good return on investment. However, as stated above, the line between NPOs and FPOs becomes thinner over the years regarding the financial structure of the organisations. Profitability becomes also for NPOs a factor for long-term sustainability. And NPOs start to generate new sources of income through sale of services and merchandising (Andreasen and Kotler 2003).
Third, NPOs are not allowed to pay the management dividend or give them stock options after a profitable year. FPOs can pay their management and owners dividend over the shares or pay out some profit. This consequence is creating another difference for this thesis namely; the right to extract residual income by the management when a new creation of service is becoming very successful (De Alessi 1982;Pauly 1987). Those who direct the firm and those who create new services are not rewarded in an NPO as they would be in an FPO. With the dependence of performance for the income of the management, managing the organisation and making choices will differ between NPOs and FPOs.
The proposition derived from this section is:
2.3.2 Decision making within a organisation
The type of good10 training courses are influences how selection takes place. The status of a non-profit organisation can serve under certain circumstances as a credible signal of quality. Therefore even some NPOs actually are an FPO with a non profit status in order to exploit the trust customers have in the quality of non profit organisations. Such organisations are called for profits in disguise (Hirth 1999).
NPOs are trusted by their customers to deliver high quality service since they should not have interest in maximizing profit through misrepresenting quality to poorly informed consumers (Hansmann 1980). The trust of customers towards the organisation creates differences in how the organisation manages the process of development and delivery of training courses.
Differences in organisations types can be of influence on how organisations manage the start of the development process. The differences in the voluntary aspect and the profitable aspect of delivering a training course create differences in development. As stated previously, NPOs and FPOs start to look more the same, looking at how the organisations start the development process and how they manage it further in the process can show if differences still exist. The determinants of developing specific training courses by organisations cannot only be based on the mission of the organisation but also on the specific market they are operating in.
The performance of the company will have effect in the long run on the capital value of the company (Peters 1993). The income of NPOs is not only from revenue but also from third party money suppliers and therefore NPOs can afford to try more new and different things. Since less pressures is laid on returning the investment. Additional sources of income generate this opportunities for NPOs.
2.3.3 Customer view
The trust of customers in NPOs to deliver high quality is more common for complex personal services such as health care and training delivery, whereby the measurement of quality is very difficult (Hansmann 1980). This links strongly with the ideas of Dolfsma (2004) who combines the selection system and type of goods provided by organisations. The more difficult the perception of quality is for credence goods, the more need there is for an expert selection (see §2.2). For credence goods the risks of failure for the purchaser is high, the involvement is high, purchasers will use more social comparisons and will rely more on independent sources (Hoffmann and Broekhuizen 2009). To lower the risks for potential customers, the Dutch education council suggested the creation of specific quality guidelines
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for short training courses. Such guidelines must inform consumers about the quality of the training (Onderwijsraad 2009). To create such guidelines is however expensive, time-consuming and difficult to organise. At the moment it is just a plan with no real timetables for implementation.
Therefore, consumers must rely on different factors. Consumers trust NPOs since such organisations prohibit payment of profit to owners or employees and are supposed not to have a goal to make profit, but to create high quality services. A natural implication is that customers who cannot easily judge quality may prefer dealing with NPOs, using non-profit ownership as a signal of honesty (Hirth 1999). Many researchers however, tried to identify the quality by differences in ownership (citations in (Hirth 1999), none really succeeded in doing so correctly. Since NPOs know that customers rely on their status for delivering quality, less pressure can be sensed on actually delivering the quality (Hirth 1999). FPOs must however try to reach a similar amount of trust at consumers. Differences in trust in organisation types and how organisations deal with such differences creates differences in how organisations manage the process of development of training courses.
The identification of quality before purchasing a good, especially when the good is a service, seems to be very difficult. The use of specific selections systems, such as peer selection or expert selection can be a useful way for a customer to make a selection. Hirth (1999) states, that when customers always will have full information about services, non profit organisations wouldn’t be necessary. Since information about the quality of a service is not unlimited available, customers will need to use the expert and peer selection systems. A proof of customers with a lack of information choosing NPOs is done by several studies cited in Hirth (1999). These studies found evidence that customers going to a non profit nursing house do more likely have the characteristics which indicated high information acquisition costs. Such as the lack of children help making the right decision. Most consumers of the non profit nursing homes are poorly informed. Organisations operate according to how customers are deciding. The view of the customers that NPOs are more trustworthy and that they provide higher quality, affect the way both types of organisation manage their strategic capabilities. The proposition therefore is
2.4 Strategic capabilities
As discussed in §1.3; NPOs and FPOs have different strategic capabilities and strategic objectives they want to achieve. Reeves and Ford (2004) stated that if both types of organisations have alternate organisational missions and objectives, the capabilities needed to develop and deliver training courses also might vary.
The strategic capabilities are already mentioned shortly in §1.3. De Jong et al (2003) gathered most of the factors which I use in this thesis. This section describes each factor which might differ between NPOs and FPOs. The factors can be tangible and intangible and are divided into three groups. Internal direct strategic capability factors, Internal indirect strategic
capability factors and External conditions influencing organisations.
As stated previously in §1.3: both NPOs and FPOs are organisations. Managing the process and development of training courses aims at the organisational level. A comparison of both organisations can therefore be made by looking at the same stated factors.
2.4.1 Internal direct strategic capability factors
Internal direct strategic capabilities are factors that can be best controlled by the firm and have a direct relation with the performances and evaluation of the training organisations. De Jong et al. (2003) divided the factors into four groups namely People, Structure, Resources and
Networking. Each group has multiple factors that can be related to the group they belong to.
People (HRM) Structure Resources Networking
Front-line
employees Rules and procedures
Financial resources Interaction with clients Innovative roles
Task description and rotation
Information
technology External focus Expertise Multifunctional teams
Assignment of co-workers
Co-operation with other parties
Internal co-operation Pre-launch testing
Reward system Market launch
Reputation
The groups of factors are used differently by NPOs and FPOs to reach their strategic objectives. Below all groups are discussed shortly, this will help understand how organisations deal with the factors. Differences in how organisations apply and use factors create differences in how organisations manage their development and training delivery. 2.4.1.1 People (HRM)
Managing the staff is according to de Jong et al. (2003) an important factor. Employees are critical when creating new training courses as is explained in §2.1.3. Especially highly trained employees are an important factor in developing new courses (de Brentani 2001). They are the contact with the customer and must understand his needs. At the same time they can also be a strong force of resistance when changes and improvements are planned. Changes and developments can provide employees with extra workload which they refuse to do (Easingwood 1986). FPOs objectives can generate extra workload and work pressure for their employees, NPOs objectives are assumed not to generate extra workload for the staff.
Innovative roles such as champions within the organizations are therefore needed to promote change (Howell and Higgins 1990;Markham 1998). The champion is responsible for the adjustment and cooperation of the other staff members in order to create new training courses faster and with less resistance. He mostly heads the development group (de Jong et al. 2003). FPOs will need to change fast and efficient to reach their stated objectives. Innovative roles are therefore expected to be more present at FPOs than NPOs.
costs of delivering training are salary wages of employees which are variable costs; these costs are much higher than the fixed costs of the organisation. Therefore, organisations that have a profit goal will manage their HRM with much more detail for costs and efficiency than NPOs do. Managing staff will have influence on how efficient organisations operate.
The proposition of this section is therefore:
3. FPOs manage their human resources more efficient than NPOs, driven by the goals to lower costs and make a profit
People (HRM)
HRM management can create effective training delivery and lower the costs of the organisation
Goals of the organisation can create additional workload and extra pressure on the organisation staff
2.4.1.2 Structure
A clear structure with formal rules and procedures is important to successfully manage the process and delivery of training courses. Managers tend not to formalize the process of training creation very carefully. Standardization creates efficiency and will lead to cost reduction during the process (Dolfsma 2004). Ad hoc creation of courses is not the best way. Structure will increase the speed and will lower the errors of employees. Rules and procedures are created and are known to the employees to improve the speed of development (Froehle et al. 2000). A good task description with task rotation can also be used to let employees understand what they need to do and to improve the development (Amabile 1998). Cross training and job rotation enables employees to better understand the whole picture of development and to identify the problems more easily (Sanchez and Perez 2003). Formalization of the process is a factor that differs between NPOs and FPOs. This in combination with the use of multifunctional teams which will contribute to more effective development of training courses and create differences between NPOs and FPOs (Gallouj and Weinstein 1997). FPOs have goals that relate to the increasing of profit and lowering costs. It is therefore possible to say that FPOs will have a more formal structure than NPOs since a formal structure decreases costs and increases efficiency. In NPOs, job rotation will be more likely to prevent extra work pressure.
to know if such goals are within reach. Differences in strategic goals of NPOs and FPOs as stated in the previous section create different reward systems.
Alternative use of the system to reward staff influences the process of delivering training courses. If reward systems promote the creation of training, employees will be triggered to create the best training with the highest performances for the organisation (Johne and Storey 1998). Formalization of the process increases efficiency and will lower costs (Glisson 1980). These authors state that when decision power is concentrated and people know what to do formalization facilitates productivity and efficiency. This is of more importance for FPOs to reach their stated objectives.
The proposition therefore is:
4. The structure factors of the process are more formalized for FPOs than for NPOs .
Structure
Formalization and standardization create cost effectiveness
Goals of organisations influence on the structure and reward system of the organisation
2.4.1.3 Resources
Resources can create sustainable competitive advantage and are classified in three categories: physical capital, human capital and organizational capital (Barney 1991). These categories are based on product producing organisations. For service producing organisations the resources described by de Jong et al (2003) will be used.
As stated in previous paragraphs, resources of NPOs and FPOs become more similar. Firstly financial resources, these resources are needed to develop new training courses. In the beginning of the development stage financial resources are important to show employees trust whenever they have new ideas. Financial resources will motivate the employees to continue to try to improve the training course (Elfring and Foss 1997). When resources are allocated to a new training development, more and better performances will be created. NPOs can use different and more divers financial resources. FPOs must use their financial resource more effectively compared to NPOs since FPOs do not have the additional financial recourse non profit organisations have.
the speed of development, by faster communication, better sharing of information and standardizing the information. No differences between NPOs and FPOs are expected for the use of this resource.
Besides the use of champions and operation, a training company needs to assign co-workers explicitly toward a new training development (de Jong et al. 2003). Especially in the beginning of a development, employees must be able to focus primarily on the development of the new training. Whenever employees can develop a new training part-time, longer development times occur and a priority towards the development will lack (Vermeulen 2004). FPOs are expected to be more effective based on their goals and are therefore expected to be better able to assign their employees explicitly towards training development and delivery. Resources have a significant influence on managing the development and delivery of training courses. Resources allocated to the correct development projects will get better return and higher monetary efficiency. NPOs will have more resources and are therefore better able to create more training courses. FPOs must manage the resources more efficiently and will assign their staff more explicitly when developing training courses.
The propositions are:
5. NPOs are able to develop more training courses than FPOs due to more availability of resources
6. FPOs will manage resources more efficient and effectively than NPOs, due to a more explicit and formalized assignment of resources
Resources
FPOs must use their financial resources more effectively than NPOs The use of technology will be the same for NPOs and FPOs
The right assignment of co-workers is more important for FPOs than for NPOs
2.4.1.4 Networking
Training organisations must cope with many other organisations, in an organisational web. All the organisations together can be called a network. Networks are especially used by non profit organisations (Provan et al. 2005). Provan (2005) stated that organisations can draw a broad range of information and expertise provided by other organisation in the network. They also state that working together improves the efficiency and effectiveness of services and enhance the capacity of the network to solve problems together.
about the expectations that the company needs to fulfil with the provided training (Kline and Rosenberg 1986). Developments which are initiated intuitively have more often a lack of relevance towards the customer. As can be seen in §2.5.1; the initiative for developing a training course differs between NPOs and FPOs. Identification of the needs of the customers is important and must be checked trough interaction with the clients (de Brentani 2001). When the training initiative is different, the external focus for the training also differs. FPOs will focus on demand while NPOs will focus more on supply as stated in §2.5.1. Whenever organisations create training intuitively, most of the courses will not fit the desires of clients; if the organisation will check the relevance of a developed training it will be able to see such differences. It is vital to keep contact with clients and to find out if the training matched expectations (de Jong et al. 2003). The initiatives for training development are different for both organisations; therefore the use of the network to check relevance also will be different. External parties are a useful source of information and knowledge (de Jong et al. 2003). Good training programs can be purchased from competitors, or even sold. But training courses can also be copied by competitors easily, see §2.4.3.3. Courses tend to be easy to imitate, a possible sale of the training course will increase its value. FPOs’ focus on possible sale, good protection of their developed training courses will be more important since profit is their major goal.
Customer contact is of major importance for the success of a training (Martin jr and Horne 1993). Martin Jr. and Horne (1993) collected various studies showing that pilot testing services at customers is leading towards success. The collected studies state that customer testing should take place during each step of the development process. Although pre-testing is impossible since production and consumption are simultaneously. Piloting a new training course with early-adaptors and use their feedback for improvements can help the company to improve the training for later majority groups. Using the network for a pre launch test can indicate mistakes in the course and enables the organisation to adjust the course for future use. This factor connects with the market launch of a training course. The launch of a training course must be coordinated in such a way that it will fit the firms marketing competences to be able for the customer to easily identify the new training with the right provider of the course (de Brentani 1991;Martin Jr. and Horne 1993). No differences are expected between NPOs and FPOs. Both organisations provide the same type of good and find similar difficulties in pre-testing the developed training course.
of the quality of a service (Bowen & Ford 2002). Both types of organisations will manage this factor therefore differently.
Proposition is:
7. FPOs use their network more intensely than NPOs to check relevance and increase trust and reputation
Networking
NPOs and FPOs use their network differently.
Use of external knowledge and pre-launch testing are similar for NPOs and FPOs Trust in the organisation creates different ways of management by NPOs and FPOs.
2.4.2 Internal indirect strategic capability factors
Besides the internal direct strategic capability factors, de Jong et al. (2003) listed indirect strategic capability factors. The factors culture & leadership and strategy do not have direct influence on the performance; they influence the organisation and the delivered service indirectly. As stated in §2.3, the culture of organisations can differ, and moreover the mission and vision and therefore also the strategy. The factors discussed in this section are shown in the table below.
Culture and leadership Strategy
Management support Business vision
Open culture Innovation objectives
Internal communication Fit with overall strategy Autonomy of co-workers
The two groups described here are all factors which, when changed, do not directly affect the performances but only over a period of time. The culture of the organisation and more over the strategy set out by the management will have as stated previously an impact on how organisations manage the process and delivery of training courses.
2.4.2.1 Culture and leadership
In the agency theory paragraph §2.3.1 a distinction is made between NPOs’ and FPOs’ managements focus. Differences in this focus create variations how management desires to lead the organisation. Management support is an essential factor to implement new management ideas fast and correctly (Johne & Storey 1998) and to create creative behaviour and idea generation (de Brentani 2001). Without management support a poor working climate will occur in the organisation which will influence the organisation completely (Cooper and Kleinschmidt 1995). Management support is strongly linked with the resource allocation factors described previously in §2.4.1.3. As stated then, FPOs must use their resources more effectively and management must choose the right development projects more carefully than NPOs’ management. The work pressure increases with a culture of performance and profit goals (Oliva 2001). Work pressure seems to be high for FPO staff given that there is pressure by the management to make the right selections of development projects.
Culture between organisations differ and each organisation culture creates different goals, employees make decisions based on the culture and goals of the organisation (Barney 1986). When organisations demand high turnover and highly effective training, culture will be based on such demands. In an FPO, consultants will be more active in creating the training which fits the best demand of the organisation, as explained in §2.3.1. Creating a new course requires an open environment which supports creativity, openness and doing things differently (de Brentani 2001). Management should share their knowledge and ideas with the staff and stimulate the internal communication to improve the motivation of the staff (Johne & Storey 1998). Management support to create openness and willingness to change are expected to be present in both types of organisations.
Differences in culture and leadership create differences in demands of the organisation (Barney 1986). When the culture is very competitive, and employees are rewarded for competitive behaviour, higher performances can be reached. When employees create a new training, the culture of the organisation and how the organisation is led will have effect on the decision pattern of the person creating and managing the development and implementation process of the training.
The proposition is:
2.4.2.2 Strategy
Strategy and moreover corporate strategy can be seen as “the pattern of decisions in a company that determines and reveals objectives, purposes or goals, produces principal policies and plans for achieving those goals, and define the range of business the company is to pursue. The kind of economic and human organisation it is or intends to be, and the nature of the economic and non economic contributions it intends to make to its shareholders, employees, customers and communities.”(Andrews 1997). This definition explains very broadly what corporate strategy is. Strategic management consists out of 5 tasks; 1.Developing a mission and vision,
2. Setting objectives, 3. Crafting a strategy, 4. Implementing and executing the strategy.
5. Evaluating the performances, reviewing the situation and initiating corrective adjustments (Barney 1997;Strickland and A Thompson 1992;Thompson and Strickland 2003). This thesis looks if NPOs and FPOs differ during the process. In the previous paragraphs differences
between FPOs and NPOs were described, in this paragraph the effects of the differences are explained for the first three points in the figure. Task 4 is discussed in §2.5 and task 5 is discussed in §2.6.
A clear business vision creates clear plans how to advance in the future, and provide the company a direction to focus its activities and developments on. A clear vision by the higher management is vital for a successful development of training courses (Collins and Porras 2004). In most companies a vision is being translated into a mission statement. A mission can play an essential role in motivating and influencing the behaviour of the staff and a more Culture and leadership
The culture and management focus of NPOs and FPOs differ
Management of FPOs is more focussed on effective management than NPOs management FPOs have a more competitive culture than NPOs
focused allocation of resources (Bart 1996;Bart, Bontis, & Taggar 2001). Bart (1996; 2001) stated that the ability of a firm to develop high performing services and therefore also training courses expand whenever the company is able to communicate its mission statement to its employees. The mission statement must be clear and forceful. A good and clear mission statement will guide the staff of the organisation to reach the goals set. Resource allocation is an important strategic capability for FPOs (Bart 1996; 2001). Creating a clear and strong vision and mission will therefore be of more interest for FPOs.
Next, both types of organisations need to set clear objectives with clear goals for the development of training courses, and these objectives need to fit with the overall strategy (Johne & Storey 1998). Objectives are based on the vision and mission of the organisation. Stating a strong vision and mission helps organisation set clear objectives (Thompson & Strickland 2003). Objectives must prevent the organisation wasting resources when ideas of the staff are screened and evaluated. They help employees to make decisions which help the organisation. Ideally no new resources or expertise must be attracted for the development of the new training course. The new development must in addition fit with the overall strategy, because a good fit will only increase the added value of the new development (de Brentani 2001;Martin Jr. & Horne 1993;Menor and Roth 2007). This is a strong focus for a for profit organisation, as stated previously. FPOs vision and mission will be clearer and more focused on effectiveness and efficiency management than NPOs vision and mission will do.
The strategy of the organisation is influenced by the vision and mission and the objectives set by the management. It is important that the training courses provided by the organisations fit the overall strategy such as the availability of resources (de Brentani 2001).
The proposition is:
9. The strategy of FPOs enables to achieve set objectives more effective and efficient than NPOs strategy
Strategy
FPOs visions and missions are clearer and have more effect on the effectiveness on how organisations manage the process and delivery of training courses
Missions and vision of NPOs and FPOs differ
2.4.3 External conditions influencing organisations
External conditions are conditions that are important for a company to understand how attractive a market is. Many external conditions can affect the creation and development process of a firm. Such conditions cannot be controlled directly by the company itself but must be monitored (Hitt et al. 2005).
Normally external environment factors are know to be the DESTEP factors11, but since this thesis is about the creation of services specifically, the external conditions provided by de Jong et al. (2003) will be used. The groups are: Market conditions, Knowledge
infrastructure and Government policy. In principal the external factors are for both types of
organisations the same. The purpose of this section is therefore not to explain the differences but more to explain how both organisations use the external factors in their advantage.
Market conditions Knowledge infrastructure Government policy
Non-price
competition Public knowledge infrastructure Appropriability Technological
change Private knowledge infrastructure Taxes and subsidies
Demand pull
Other policy instruments
2.4.3.1 Market conditions
Market and economic conditions have a strong influence on how new developments in training courses are managed (Drew 1995). Non-price competition is competition which is not focused on price, this type of competition creates differentiation instead. De Jong et al. (2003) state that “in markets without price competition, profit margins tend to be more attractive. This decreases the risks when innovation fails.” FPOs are more likely to be more active on non-price competitive markets than NPOs do.
As mentioned in §2.5.1; suppliers can initiate training courses. The technological change can have an effect on how well and how fast new developments occur from supplier to customer. New software can create a different training courses such as e-learning courses (Friedman and Deek 2003;Lau and Bates 2004). The suppliers of for example e-learning initiates’ new courses, these courses are called supplier initiated training courses. As explained in §2.3.2,
11
NPOs have more possibilities to develop new training courses with less pressure to make a profit and will therefore use more of the technological innovations created by the market. Next, the probability a firm will have more training developments will increase when the demand pull is high (de Jong et al. 2003; de Brentani and Ragot 1996). Organisations with demanding customers will try to fulfil the demands by creating and delivering new training methods. When demand is low firms will not rush to create new training courses because the firms feel that customers are not willing to try out new courses. FPOs create training trough client initiatives and NPOs through supplier and own initiative as stated in §2.5.1. Client initiative is caused by demand pull. Strong demand pull creates shorter development times. Clients of NPOs are mostly less informed about the service and will therefore be less demanding.
The propositions are:
10. FPOs are more active on non-price competition markets than NPOs 11 NPOs incorporate technological change more rapidly than FPOs
12. Development time shortens more due to external pressure for FPOs than for NPOs
Market conditions
The focus of FPOs is on non price competition markets
NPOs make more use of technological change and developments than FPOs
FPOs development time is shorter due to the strong demand-pull from their customers
2.4.3.2 Knowledge and infrastructure
Organisations can use public and private knowledge infrastructures to gather external knowledge which is absent in the organisations. Public knowledge infrastructure is knowledge that can be accumulated through, universities, sector organizations, research institutions etc (Hertog 2000). Training organisations with strong ties to such knowledge institutes can obtain advantages such as access to new information and knowledge for the creation of new training courses. Improving the content of courses can be achieved by using knowledge from the knowledge infrastructure.
The knowledge intensive organisations are most often part of a knowledge network. The training organisations can also be part of the network by supplying or acquiring knowledge. Since each party has its own knowledge and competences which can be used by other members of the co-operation. It will not only increase the knowledge of the group, but also lower the risks of developing a new training (Provan, Veazie, Staten, & Teufel-Shone 2005). There is no clear distinction between the usage of private of public knowledge infrastructures by NPOs or FPOs. Both types of organisations can use the same knowledge suppliers.
Knowledge and infrastructure
Both types of organisations use knowledge infrastructures in the same way.
2.4.3.3 Government policy
External factors are for both types of organisations the same, how they deal with them can differ. This is also the case with the governmental policy. How organisations make decisions according to how the government sets its policy depends on how well the training organisation is able to make the best use of the policy. One of the important decisions a training organisation has to take in consideration is; how to protect the added value from competitors with help of government policy.
Training courses are services and are therefore difficult to protect, the ad hoc nature of creating a training is partly the blame of the weak appropriability regime of services (Teece 1986). With low appropriability, defending the value of training course becomes difficult. As a result training courses can be easily copied by rivals or from rivals (Johne & Storey 1998). If appropriability is strengthening, developments will most likely occur more often. A training course consists of no actual physical content, design patents therefore do not apply, nor do trademark laws if no symbols are used (Dolfsma 2004). It is as a result important to work with symbols and trademarks and use the copyright law in order to protect the service (Reitzig 2004).
