Allard J. van Steeg BSc. Rijksuniversiteit Groningen
The Influence of Controls on Motivation
A multiple case study at Yelloo Steigerbouw
Master thesis MScBA:
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Acknowledgements
This thesis is the product of one year of hard work in my academic career. Compared to the rest of the master program this was not the part I was most looking forward to. However, through this process I made a personal development in which I learnt to do things I don’t enjoy and to master it. This thesis would not have been there if the following people not have been there for me.
First of all, I would like to thank my supervisor, Sandra Tillema, for providing me with a lot, but very helpful feedback. I have experienced her feedback as very supportive. In the beginning she refused my research proposal on another subject and advised me to read paper and find what I am really interested in. I am still grateful for this advice.
Second, I would like to send my thanks to Paul de Kloe, who supported me in the process, asked the right questions, encouraged me and provided me with ideas and relevant literature. Moreover, he introduced me to Arjan Jansen, the managing director and owner of Yelloo Steigerbouw.
Third, Arjan Jansen, who provided me with the opportunity to perform this research at Yelloo. We had some inspiring conversations and he provided me with all the freedom I needed to bring this research to a good end.
Fourth, I would like to bring tribute to Berend van der Kolk, who as a friend was there for me in important decisions, hard times and celebrations. But as a researcher provided me with additional feedback, ideas and relevant literature.
Fifth, I would like to thank the government for partly funding my study.
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1. Introduction ... 5
2 Literature study ... 8
2.1 Management control theory introduction ... 8
2.2 Relevant theories of man with respect to motivation ... 9
Agency Theory ... 9
Stewardship theory ... 11
Agency vs. Stewardship ... 11
A richer model of man ... 12
2.3.1 The different types of motivation discussed in literature ... 14
2.3.2 The costs and benefits of the different forms of motivation ... 16
Benefits ... 16
Costs ... 16
2.3.3 What are the determinants of the different forms of motivation? ... 18
Determinants of intrinsic motivation ... 18
Determinants of extrinsic work motivation ... 18
Summary determinants of motivation ... 19
2.4.1 Management control systems ... 21
Beliefs systems ... 21
Boundary systems ... 21
Diagnostic control systems ... 21
Interactive control systems ... 22
2.4.2 What is the relationship between the different forms of motivation and the different types of control? ... 23
The effect of a diagnostic control system on motivation... 23
The effect of a boundary system on motivation ... 23
The effect of a beliefs system on motivation ... 24
The effect of an interactive control system on motivation ... 24
Conclusion ... 24
2.5 What can be learned about the design of control systems based on the literature on control and motivation? ... 25
3. Research Methodology ... 26
Introduction ... 26
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3.2 Number of cases ... 27
Single case study ... 27
Multiple case study ... 28
Consideration of the two alternatives ... 28
3.3 Selection of the case ... 28
3.4 Sources of information ... 29
3.4.1 Content of the single case study at Yelloo Steigerbouw ... 29
4. The influence of control on motivation at Yelloo Steigerbouw. ... 31
4.1 About Yelloo Steigerbouw ... 31
4.2 The influence of control on employee motivation (board perspective) ... 32
4.3 The influence of control on motivation (employee perspective) ... 37
4.4 Conclusion ... 41
4.5 Limitations and recommendations for further research... 44
References ... 45
Appendices ... 48
Appendix 1 Interview with management ... 48
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1. Introduction
Evidence-based Management, fact-based decision-making, result control, Performance Measurement Evaluation and Reward Systems (PMERS) are just some regular terms in the literature on control theory in the past decade. According to Gunasekaran and Kobu (2007), performance measures and metrics receive a growing amount of attention both in theory and in practice. According to Lawson (2009) the economic crisis created another need for transparency and therewith communicable results. The question can be asked whether or not this is a desirable development for management control.
Management control is concerned with controlling the behavior of employees to assure the organization as a whole is moving in the right direction by realizing key objectives, mission and vision (Merchant and Van der Stede, 2003). The development of more measurement and rewards based on performance seems to be helpful in controlling employee’s behavior (Kurunmaki and Miller, 2006). The logic then is: Upper management knows what the key results are for the organization to grow, lower managers are made responsible for the results they are able to influence and are rewarded based on these results. This will enhance their motivation and they will be more likely to obtain these results. This positive effect of rewards on lower management’s motivation is called the price effect. Since the price paid for results is higher, the lower managers are more willing to exert effort into the tasks affecting these results.
However, in research on motivation among volunteers, children and in the public sector an opposite effect is found: the crowding-out effect. The crowding-out effect here means that rewards based on results undermine intrinsic motivation, where motivation is defined to be intrinsic if there is no apparent reward except for the activity itself or the feelings resulting from the activity (Deci,1972). The following three examples illustrate that in some cases the crowding-out effect is larger than the price effect. Three examples of this reverse effect are given.
First, Titmuss (1972) found that paying for donating blood not only decreased intrinsic motivation, but it even has a negative net effect on the supply of donated blood. The willingness for donating blood was lower among the volunteers offered a monetary
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to positively affect intrinsic motivation on donating blood. The crowding-out effect was not only found among volunteers in donating blood, but also among children in other areas of life.
As a second example, Lepper et al. (1973) investigated the effect of rewards on intrinsic interest on drawing among preschool children. In this experiment three groups were
formed. The first group received no reward, the second group received an expected reward and the third group received an unexpected reward. The time drawn in the free-choice period, 15-minute “juice” break, was measured. Their results showed that intrinsic interest on drawing was lowest in the second group. Lepper et al.(1973) hypothesized this crowding-out effect as an overjustification, because another reason for performing the task is
introduced besides the initial interest. The children learn to draw not only for the sake of enjoying the activity, but as well for the reward given. When the reward is taken away then, the interest is lower than in the initial state.
The third and last example is about the placement of a waste repository in Switzerland. In his experiment, Frey (1996) asked citizens whether or not they would agree on placement of a waste repository in their village without a monetary reward offered. More than half of the respondents gave permission for the placement. But when a monetary reward was offered as compensation less than one fourth of the respondents agreed on placement.
Frey (1996) has put these two effects, the price effect and the crowding-out effect (the crowding-out effect can be called the undermining effect or hidden costs of rewards, but crowding-out effect is used in this work from now on for the sake of consistency) together in one model in his book Not just for the money. He discusses psychological processes
influencing a positive or negative effect of external mediation on intrinsic motivation. He calls the man behaving not just for the money the Homo Oeconomicus Matures. The economic literature suggests two alternative theories: the agency theory and the
stewardship theory, where the agency theory views people as individualistic, opportunistic and self-serving and the stewardship theory views people as collectivistic, pro-organizational and trustworthy. These different views on men with opposite assumptions have an
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opportunistically might be controlled in another way than the behavior of an employee who is assumed to be trustworthy.
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2 Literature study
In this chapter we try to bring together theory on control and theory on motivation. The first section discusses what control theory is about. Subsequently, a model of man is chosen from a subset of alternatives to explain the relationship between control and motivation. In the third section, theory on motivation is discussed more in depth. The fourth section is an analysis of the relevant parts of control theory. Lastly, this is brought together to give answer to the question what the influence of the different controls on the different types of motivation is.
2.1 Management control theory introduction
Management control is concerned with directing and controlling the behavior of employees in order to prevent an organization from major unpleasant surprises and to ensure that the organization moves in the right direction(Merchant and Van der Stede, 2003). Otley(1999) presents management control concerning five central issues: Key objectives, plans and strategies, target setting, incentives and feedback. This is the way an Management Control System operates according to Otley (1999). If the organization asks itself what the answers to these questions are, that will be helpful in accomplishing their mission and realizing their vision.
Merchant and van der Stede(2007) discuss three forms of management control problems, reasons for the need for control:
Lack of direction
Lack of motivation
Lack of skills
The first lack, lack of direction, is due to the fact that the employee doesn’t know what to do. The second lack appears when an employee is not willing to exert effort into certain tasks. Lack of skills means that the employee is not able to perform certain tasks. The focus of this study will be on the lack of motivation, more precise, on the effect of a Management Control System on employee motivation.
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According to Merchant and Van der Stede(2007) motivation related control problems occur because of self-interested behavior of employees. So at the base of this theory there lies an assumption about who we are and how we relate as a result of that assumption. But
because there is no agreement in literature in the next section three important theories of man are discussed and one is chosen.
2.2 Relevant theories of man with respect to motivation
Control theory, especially with respect to motivation, is highly dependent on the view on who we are. According to Eccles (1998) the Latin root of motivation, motivare, means ‘to move’. Other translations of motivare are: ‘to justify’ and ‘to cause’. In all senses it gives an answer to the ‘why’ of actions. What moves us or what causes us to act? In control theory motivation plays a central role, since the superior wants to influence the subordinate’s behavior. Various theories are developed to explain human behavior in a
superior-subordinate-relationship. In this part three important theories are discussed: Agency theory, Stewardship theory and A richer model of man. The first, a dominant theory in the economic literature on the relationship between control and motivation, is the Agency Theory.
Agency Theory
Agency theory describes the relationship between a principal, who delegates work, and an agent, who performs that work. According to Eisenhardt (1989), agency theory is concerned with resolving two problems: conflict of interest and risk sharing. Because, in agency theory, people are assumed to be self-interested, different goals and preferences between the principal and the agent will lead to a conflict of interest. The assumption of different risk attitudes stands for the principal being risk neutral and the agent being risk averse. The problem here is that as a consequence of the different attitudes towards risk, the two parties might consider different actions. The solution proposed for these problems is a contract; a contract to compensate for the carried risk and to align the interests of the principal and the agent. The interests are aligned by a compensation offered to the agent based on the results achieved in the interest of the principal. One of the relevant
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“When the contract between the principal and the agent is outcome based, the agent is more likely to behave in the interests of the principal”
Jensen and Meckling (1976) assume the same problem of a conflict of interests between principal and agent. Related questions examined are what incentivizes the investor (principal) and the manager (agent) and what determines their contract. Jensen and Meckling (1976) do not discuss the assumptions about the actors in the agency theory in depth. The only assumption they explicitly name about the principal and the agent is that they are both utility-maximizers.
Kunz and Pfaff (2002) wanted to test the agency theory because they explored a possible contradiction with findings from Deci (1975) that hidden costs of rewards or crowding-out effects exist. Hidden costs of rewards are the negative side-effects of rewards on intrinsic motivation. These effects are not included in agency theory. They state that agency theory is not lacking any validity, because intrinsic motivation is a hypothetical construct; there is no evidence for it to be in existence. They further state that hidden costs of rewards, or crowding-out effects, only exist under specific conditions and if they exist they are easily avoidable. Therefore their conclusion is that agency theory does not have to be revised. Ekanayake (2004) states that management control is based on the agency theory in that sense that interests have to be aligned because employees are self-interested and likely to act opportunistically.
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collectivism in the Eastern cultures (See: Hofstede, 1983 for a more in depth discussion on cultural differences).
Stewardship theory
Davis et al (1997) find the agency theory too limited with respect to the assumption about the actors. They present the stewardship theory. The stewardship theory describes the same relationship as the agency theory, but in this model the “agent” is a steward. The steward differs from the agent in three aspects. The steward is assumed to be: collectivistic, pro-organizational and trustworthy. This different approach to the relationship has
consequences for control theory. The behavior of the steward can be trusted more and controlled less.
Agency vs. Stewardship
Principal’s perception of subordinate’s role Agent (trust and risk level
low)
Steward (trust and risk level high) Sub or d in ate’s rol e c h oi ce
Agent (trust and risk level low)
Minimize potential costs Manager acts opportunistically
Steward (trust and risk level high)
Principal acts opportunistically
Maximize potential performance Davis et al. (1997) combine the agency and stewardship theory into a matrix. The principal has assumptions about the agent and decides to treat the subordinate as an agent or a steward. The subordinate decides to act as a steward or as an agent. The sort of relationship they both choose is based on the level of trust. From the principal’s point of view: if the principal sees the subordinate as an individualistic, self-serving opportunist, the principal is less likely to trust the subordinate and will treat him as an agent. If the principal sees the subordinate as a steward, he is more likely to trust him and will treat him as a steward. From the subordinate point of view: he can choose to act either as an agent or a steward.
12 A richer model of man
Frey (1996) presents a model of man richer than the homo oeconomicus, the homo
oeconomicus matures. Where the homo oeconomicus, the same as the agent in the agency theory, is interested in maximizing wealth, the homo oeconomicus matures has a more refined scheme of motivation build up from four propositions: 1. Intrinsic motivation is an important determinant of human behavior; 2. Monetary incentives crowd-out intrinsic motivation; 3. Other external interventions i.e. commands, non-monetary controls and punishments may also crowd-out intrinsic motivation; 4. Under some conditions a positive effect of external intervention on intrinsic motivation might exist (i.e. crowding-in effect). Whether an external intervention crowds in or out intrinsic motivation depends, according to Frey (1996), on whether or not the subordinate sees the intervention as a supportive one. He comes up with a list of determinants for the enhancement of crowding-out. These
determinants are all related to the psychological processes that explain the effects. He proposes three psychological processes:
1. Impaired Self-Determination has to do with the perceived locus of control, shifting from the subordinate to the superior. The subordinate perceives this as an
undermining of his self-determination which negatively affects his motivation. 2. Impaired Self-Esteem occurs when the existing intrinsic motivation of a subordinate is
not acknowledged and thereby effectively rejected. For example offering a
subordinate a reward for performing a task that he was already willing to perform (intrinsically motivated). The effort is reduced because of lower self-esteem. 3. Impaired Expression Possibility is when the possibility of a subordinate to show his
intrinsic motivation to other people is reduced. The subordinate is then likely to let go of his inner motives and act according to external motives.
13 Summary of the models of man
All the three theories explain something about the relationship between a superior and a subordinate and how the superior might motivate the subordinate. The agency theory states that an agent is self-interested and needs a conditional compensation in order to align his interests with the interests of the superior. The stewardship theory has deviate assumption about the subordinate or steward: the steward acts in the interests of the principal and therefore has to be entrusted more than compensated. The third theory combines the extrinsic motivation part of the agency theory and the intrinsic motivation part of the stewardship theory in a richer model of man; a human being acting not just for the money. In his analysis, Frey(1996) focusses on the psychological processes underlying the effects of the different types of control on motivation. The effect of the controls on these processes determines how motivation is affected. The third model shows that human motivation consists of several parts and is determined by several causes. This theory is the most suited for this research because it discusses motivation in particular. Agency theory is about
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2.3.1 The different types of motivation discussed in literature
Intrinsic motivation is defined as valuing an activity for its own sake, without an external intervention (Kunz and Pfaff, 2002). Amabile (1993) stated that people are:
intrinsically motivated when they seek enjoyment, interest, satisfaction of curiosity, self-expression or personal challenge in the work.
extrinsically motivated when they engage in the work in order to obtain a goal that is apart from the work itself.
This is the common dichotomy in literature on motivation. Kunz and Pfaff (2002) however questioned the existence of, the hypothetical construct, intrinsic motivation. Although there is growing attention for intrinsic motivation, it is not proven to exist. Because the existence of intrinsic motivation might undermine the agency theory Kunz and Pfaff (2002)
investigated this issue. They concluded that intrinsic motivation does exist, but that the agency theory does not have to be revised, because the crowding-out effects of intrinsic motivation in a business setting rarely occur and can be avoided easily. So Kunz and Pfaff (2002) state that intrinsic motivation exists but is not of great enough importance to deserve so much attention.
Ryan and Deci(1985) present the distinction between intrinsic and extrinsic motivation in a continuum from amotivation to intrinsic motivation, where amotivation is not having the intention to act or acting passively and intrinsic motivation is doing an activity for its own sake. Extrinsic motivation is displayed in the middle of these two forms of motivation and subdivided in four types of extrinsic motivation. The more internalized the extrinsic motivation is the more close the type is to intrinsic motivation. From less to more internalized, the types are categorized as follows: External regulation, Introjection,
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and developed it into the Work Extrinsic and Intrinsic Motivation Scale (WEIMS). They conclude that this scale is reliable, valid and applicable in a business environment.
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2.3.2 The costs and benefits of the different forms of motivation
It might seem attractive to have intrinsically motivated employees, but this form of motivation has also some drawbacks. In this part the costs and benefits of intrinsic motivation compared to extrinsic motivation are discussed.Benefits
The most important benefit of intrinsic motivation is that it is better for the health of employees. According to Ryan and Deci(2000) and Frey(1996) intrinsic motivation ensures better mental and physical health. Frey(1996) assigns this to higher life and work satisfaction than under externally determined work. Ryan and Deci(2000) state that it prevents an employee from passivity, alienation and psychopathology.
Intrinsic motivation is under some circumstances also more effective. Oosterloh and Frey(2000) state that intrinsic motivation is more effective in situations where people perform creative tasks. The pressure of a sanction leads to less creative working and a lower ability to fulfill complex tasks.
Closely connected to the sort of task is task defining. Intrinsic motivation prevents a superior from the problem of defining tasks precisely. According to Holmstrom and Milgrom (1991), intrinsic motivation helps to overcome the multiple task problem as some jobs might be hard to describe precisely, it can be hard to conditionally reward the employee or extrinsically motivate him.
There are limits in motivating employees with rewards. Ariely et al.(2009) state that higher rewards do not necessarily mean better performance. So even when the tasks are defined precisely, the height of the reward in order to be effective might be hard to define.
Intrinsic motivation does not only have advantages, but disadvantages as well compared to extrinsic work motivation:
Costs
Intrinsically motivated employees are difficult to guide. It takes a lot of effort to become to know why they are motivated and what they are motivated for. Employees that are
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Intrinsic motivation might be better for the health of the employee but it does not mean a better content of motivation than extrinsic work motivation. If someone’s intrinsic
motivation is harmful for his environment, the organization or the organization’s environment, he might be highly motivated but bring serious damage.
Whether or not intrinsic or extrinsic motivation is more suited depends on the
circumstances. Intrinsic motivation works better for motivating creative employees for complex tasks, extrinsic motivation is more effective for motivating employees for more narrowly defined tasks. Intrinsic motivation is better for the health of employees, but
extrinsic motivation is easier to guide, since the tasks, the employee is accountable for, have to be clearly specified. So, not one of the forms of motivation is better, but a more
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2.3.3 What are the determinants of the different forms of motivation?
Determinants of intrinsic motivationA central and leading theory in intrinsic motivation is Deci’s Cognitive Evaluation Theory. Cognitive evaluation means that the actor questions himself why he is performing the activity. Frey (1996) discovered three underlying psychological constructs that determine a change in intrinsic motivation (see section 2.1 a richer model of man for a description): self-determination, self-esteem and expression possibility. When these needs are acknowledged in the perception of the employee, intrinsic motivation grows and when these needs are neglected, intrinsic motivation reduces.
Although conditional rewards and regulations are a form of extrinsic motivation, they might also be a determinant of intrinsic motivation, because they affect the underlying
psychological constructs. The reward or regulation contains an informational part that tells the employee something about, for example, the level of trust of the superior in the
employee. This interpretation of the informational part of the intervention affects the three constructs, the valuing of the activity itself and thereby intrinsic motivation. External
intervention might affect intrinsic motivation both positively and negatively as a result of the effect of the intervention on the underlying constructs. When this effect is positive, this is called a crowding-in effect and when negative, this is called a crowding-out effect. Lepper and Greene (1978) support this theory as they state that the effect of an external
intervention on intrinsic motivation depends on the employee’s perception of the
intervention. If the intervention is seen as supportive, it will enhance intrinsic motivation, if it is seen as controlling it diminishes intrinsic motivation. Further there are possible spill-over effects. If intrinsic motivation for one task is diminished because external intervention for one task is perceived as controlling this might also have negative effect on the intrinsic motivation for other tasks.
Determinants of extrinsic work motivation
Kominis and Emmanuel (2007) focus in their research on the relationship between
manager’s perception of elements of the Performance Measurement Evaluation and Reward System(PMERS) and motivation. Starting point for this research is the expectancy valence model.
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(perceived value) of an outcome and the expectancy (perceived probability) of achieving that outcome.
The employee has to value the outcome attached to the effort and the probability of the outcome to result from the effort has to be high enough to motivate the employee. The link between effort and rewards is built up of three parts:
The perceived attainability of the standards (EP), the chance that Effort will lead to Performance.
The perceived accuracy (PEP), whether or not Performance is closely linked to Evaluated Performance.
The perceived dependency (EPER), the perception of the dependency of the Evaluated Rewards on the Evaluated Performance.
When there is a close link between effort and rewards, employees are likely to be motivated more by means of rewards. According to Kominis and Emmanuel (2007) there are two other important determinants of extrinsic motivation: the level of attainment has to be challenging but achievable and the rewards should be based on individual performance.
Kominis and Emmanuel (2007) do not deny intrinsic motivation, but focus in their research on extrinsic motivation. The model they present presumes that there is no interrelationship between intrinsic and extrinsic motivation and therewith no crowding in or out of intrinsic motivation. However, as we have seen, there is quite some evidence for the existence of the interrelationship. On the other hand, this model is useful for the explanation of the extrinsic motivation on a stand-alone basis.
Summary determinants of motivation
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are affected. This is in line with work of Bénabou and Tirole(2003) who say that there not only a direct effect of monetary incentives, but as well an informational indirect effect on motivation. The monetary incentive might contain information about how the superior sees the employee or about the attractiveness of the task. The external intervention, in that way, affects intrinsic motivation.
The extrinsic part is determined by the perceived value of the reward and the perceived chance of obtaining that reward. In order to achieve that, the PMERS has to be designed so that the effort leads to results favorable to the organization and the employee has to be rewarded for that.
Now the different forms of motivation, their determinants, their costs and their benefits are discussed we can discuss in more depth the Management Control System and how it
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2.4.1 Management control systems
Simons (1994) distinguishes four types of Management Control Systems, he calls levers of control (LOC): Beliefs systems, boundary systems, diagnostic control systems and interactive control systems.
Beliefs systems
Beliefs systems are formal ways of defining, communicating and reinforcing the core values of an organization. It empowers shared beliefs and gives direction to the organization as a whole. The employees’ shared values and beliefs determine their behavior in a broader sense; it forms the culture of the organization and ensures that employees control
themselves and have the right to adjust each other’s behavior. Merchant and van der Stede (2003) call this control system cultural control, where cultural control is the natural tendency of the workforce to control or motivate themselves. Ouchi (1979) calls this clan control. Boundary systems
The second type of control systems discussed by Simons (1994) is the boundary systems. A boundary system is a set of rules or limits to influence employee’s behavior. These rules or limits are normally formulated in negative terms or as limits. The boundary system is used to avoid the risks an organization is facing. Ouchi (1979) has defined this form of control as a bureaucracy and Merchant and van der Stede (2003) call this action control, but action control can be defined positively as well.
Diagnostic control systems
A diagnostic control system is a formal feedback mechanism used to monitor the
organizational outcomes compared to the targets set. This system works as a thermostat and is often used in management by exception leadership styles. To influence the diagnostic control system, the critical performance variables can be analyzed. Because employees are given feedback based on their results this is comparable to Merchant and van der Stede’s (2003) result control. Result control is directing based on the results of employees by means of punishments and/or rewards. In order to realize an effective result control the following requirements have to be met:
Knowledge of the desired results
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Ability to measure controllable results effectively
Knowledge of the desired results means that it is known what results are desired in order to succeed and to communicate these result in an effective way to the responsible employees. The second requirement is that the employee must be able to influence the results in an effective way. The third requirement is that these results can be measured in an effective way. In order to measure the results effectively the measures have to be precise, objective, timely and understandable. From an employee point of view, he has to know what is of value to the organization, he has to be able to turn his effort into these results and he has to be recognized for these results.
Motivation is highest when set targets are challenging but achievable. Incentives are used to create extra effort among employees and to ensure that tasks that are unattractive are performed.
Interactive control systems
The last control system discussed by Simons is the interactive control system. This is defined as the involvement of a superior in the decision activities of a subordinate on a regular and personal basis. A diagnostic control system can be made interactive by frequent
management attention. When making a diagnostic system more interactive learning in the organization is enhanced by dialogue.
The configuration of the four LOC determines the effectiveness of the framework. There is not one best system, but a contingency approach is suggested.
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2.4.2 What is the relationship between the different forms of motivation and
the different types of control?
The central aim of a Management Control System is to support an organization in moving in the right direction, in attaining the key objectives. One of the management control problems discussed in literature is the lack of motivation. Controls are put in place to overcome the problem of a lack of motivation among employees. To formulate this positively, controls aim at motivating employees. In this section the relationship between the different controls and motivation are discussed.
The effect of a diagnostic control system on motivation
A diagnostic control system motivates employees by rewarding and punishing them based on the results they accomplish. According to Kominis and Emmanuel (2007), in the PMERS there has to be a close link between effort and rewards in order to be effective. So with result control there has to be a close link between effort and results. Employees working only for the rewards given, or for the avoidance of punishments, are by definition
extrinsically motivated. But the type of control does not determine the type of motivation of the employee for a certain task, but the answer to the question why the employee puts effort into a certain task. The difference between the two is that the type of control is the way a superior tries to influence or control the behavior of the subordinate and motivation is why a subordinate is performing a task. Though the answer to the question why a
subordinate is performing a certain task might be affected by the type of control. An
example might clarify this: Suppose a superior tries to control the behavior of a subordinate with a diagnostic control system, but the subordinate is motivated by the relationships with colleagues at work. A diagnostic control system creates an environment wherein the
employee is enabled to be extrinsically motivated. Whether or not and how intrinsic motivation is affected by the diagnostic control system depends on the employee’s
perception of the control. If (s)he sees it as supportive it will enhance intrinsic motivation, if (s)he perceives it as controlling it will harm intrinsic motivation (Frey, 1996).
The effect of a boundary system on motivation
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change in motivation. Extrinsic motivation might be encouraged by the threat of being punished or being fired for undertaken strictly forbidden actions. There might be a negative effect on intrinsic motivation because of an outward shift of the locus of causality; the employee’s behavior is less self-determined. It might as well be perceived as helpful in guiding the employee what to do. Then it will enhance intrinsic motivation.
The effect of a beliefs system on motivation
A belief system is concerned with letting employees control themselves or each other. In their job, study or training they learn how to perform their tasks; how things are done in that specific organization. This form of control might affect the self-esteem of the employee. (S)he might feel a sense of belonging through positive feedback on acting according to the culture of the organization. This will increase intrinsic motivation. If the control is perceived as controlling it might lower the perception of self-determination of the employee and therewith undermine intrinsic motivation.
The effect of an interactive control system on motivation
As Simons (1994) defines an interactive control system as a superior being involved in the decision activities of subordinates, again the perception of the subordinate is the
determinant of the effect of this system on intrinsic motivation. If the involvement is perceived as supportive it will enhance intrinsic motivation and if it is perceived as controlling it will decrease intrinsic motivation.
Conclusion
In all types of control the perception of control plays a central role. The perception of control might be highly affected by trust of the subordinate in the superior. Trust has been defined by Hartmann and Slapnicar (2009) as “the belief that subordinates hold about the
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2.5 What can be learned about the design of control systems based on the
literature on control and motivation?
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3. Research Methodology
Introduction
In the previous part the gap is made clear where this research fits in. Where a Management Control System is, among other reasons, designed to overcome the problem of a lack of motivation, the accounting literature pays only little attention to the relationship between control and motivation. Therefore, this research focusses on how the different forms of motivation are affected by a Management Control System. In this part the methodology of this research is discussed.
3.1 Research design
In accounting research a general distinction is made between quantitative and qualitative research, where qualitative research focusses on the exploration of relationships,
quantitative research validates these relationships, according to Blumberg (2005, p.192). In this research qualitative research seems to be the most appropriate, because the question is how control affects motivation. There is not one relatively simple quantifiable relationship to be researched, but merely an undiscovered field, which requires an exploration in order to build a framework for further research. There already are several models that try to explain the relationship between control and motivation (agency theory, stewardship theory), but the literature is still inconclusive about what specific controls motivate us and how.
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In establishing the appropriate research method several choices have to be made. In order to come to the appropriate research design the framework of Yin (2009) is used.
Table 3.1 Research Designs
Design Form of research question Requires control of behavioral events? Focusses on contemporary events?
Experiment How, why? Yes Yes
Survey Who, what, where, how many, how much?
No Yes
Archival analysis Who, what, where, how many, how much?
No Yes/No
History How, why? No No
Case study How, why? No Yes
Based on the previous choice for a qualitative study, the survey and archival analysis are not an appropriate research design. The conclusion based on table 3.1 can be drawn that the most appropriate research approach is the case study. First, because of the form of the research question: how does a Management Control System affect the different forms of motivation? Secondly, because the research requires no control over the behavioral events in order to obtain the relevant information to answer the research question. Thirdly, because the research focusses on contemporary events.
3.2 Number of cases
Now that the case study has been selected as the appropriate method for this research, the number of cases has to be selected. Not one approach is the best, but the fit of the approach with the research question. There are several reasons for investigating a single case, but there might be reasons for studying multiple cases. First these two forms are discussed, and then the most appropriate one is chosen.
Single case study
A single case study, as the term suggests, investigates a single case: an event, an
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thought of as being a closing critical one in a series of studies on the discussed subject. A second reason for a single case study is that it investigates an extreme or unique case. Lastly, a single case study might be appropriate for pragmatic reasons.
Multiple case study
A multiple case study investigates more than one case and contains therefore information about the subject in more than one environment and can be thought of as more reliable. For this reason a multiple case study is usually more appealing than a single case study.
Consideration of the two alternatives
In order to make a choice between a single and multiple case study, first the question of what a case is has to be answered. Since the conclusion of the literature part of this thesis is that the effectiveness of a control system with respect to motivation depends on the
employee’s perception of the control, one employee must be seen as one case.
The three reasons for a single case study cannot be applied to this research. Every employee might perceive control in another way and might have different reasons for that. A multiple case study contains more information and might therefore give more insight into the subject and it allows for comparison. This research will be performed within one organization in order to create a stable environment for this research and gives more value to the comparisons between the different cases within this organization. On the other hand, a research within one organization gives a need for more cautiousness in the conclusions, because the results are based only on cases within this organization.
3.3 Selection of the case
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reason this company being suitable for this research is the freedom the owner is willing to offer to perform this research.
3.4 Sources of information
Because information about the motivation of employees is in themselves, interview is the leading source in conducting this research. Documents, e.g. formal responsibility forms and the code of conduct, in combination with these interviews will be used to picture the effect of a control system on motivation. A semi-structured interview method is used to get insight in the respondents’ viewpoint with respect to the relationship being investigated. The semi-structured method helps as an interview guide and a memory list, so that all relevant subtopics are discussed. The questions asked depend firstly on the aim of the research and secondly on the answers of the respondent, the course of the conversation.
3.4.1 Content of the single case study at Yelloo Steigerbouw
The first semi-structured interviews are held with the top manager and with the branch manager on the subjects of control, motivation and the interrelationship between the two. The goal of this interview is to get a clear picture of how the Management Control System is intended and designed at Yelloo, and how it affects motivation according to the managers. Which systems of Simons (1994) can be recognized and how are employees affected by these systems according to the managers?
For the questions on the subject of control, the analysis of Widener (2007) is used. The author has built a survey for recognizing the four control systems of Simons (1994) within an organization. These survey questions were used in the semi-structured interview with the managing director. The survey questions are modified so that these are suited for the interview. The interview questions are included in the appendix.
The other five people interviewed form a cross section of the company, board-members excluded. The three subjects discussed in these interviews are: their perception of the way they are controlled by their superior and what motivates them.
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The seven interviews were held on two days and took 30 minutes on average. All the interviews were recorded using a voice-recorder. Subsequently, the interviews were typed and relevant statements were highlighted. After that, the answers and relevant statements were put into a database in order to get an overview per question or per person
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4. The influence of control on motivation at Yelloo Steigerbouw.
This chapter contains the findings from the case study conducted at Yelloo Steigerbouw Zwolle. In order to obtain a clear picture of the influence of control on motivation at Yelloo this chapter has the following structure. First, a brief general description of Yelloo is given. In the second section, the control system described by the managing director of Yelloo, and a board member/branch manager are discussed. This section also contains their perception of the influence on employee’s motivation. The third section describes the interviewed
employees’ perception of control and their perception of the influence on their motivation. The fourth section compares the findings from the literature review of this thesis with the findings from the interviews. The fifth section shows the limitations of this research and recommendations for further research.
4.1 About Yelloo Steigerbouw
Yelloo Steigerbouw, founded in 1995 under the name Jaston, is specialized in steel and aluminum scaffolds, suspension bridge installations and construction elevators. According to their website, Yelloo is a flexible organization with respect to the wishes of the customer and focusses on renewal and innovation. The vision as formulated on their website is: “Yelloo is a serious and trustworthy service company that creates high relation satisfaction and
employee satisfaction.” Their mission is: “From a stable enterprise with involved employees we overcome gravity with scaffolds to obtain satisfied relations.” Their strategy is a
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4.2 The influence of control on employee motivation (board perspective)
In this section the influence of control on employee motivation, according to the managing director/owner of Yelloo and a board member/branch manager, is discussed.
The top manager thinks his employees see his leadership style as extraordinary, because of a high degree of responsibility and freedom imposed on them. The top manager regards the company not as his company, but as a group of people with a joint effort, which might explain his management style. The branch manager confirms the high degree of freedom and responsibility for the employees at Yelloo. For example, a salesman wants to start late, because he wants to bring his children to school. He receives this freedom from the board. An example w.r.t. responsibility: an employee came to the top manager and said, “I do not receive the freedom to be a leader in my work.” The top manager answered: “From whom do you not receive the freedom? You don’t take the freedom. Work on it and if there is someone who keeps you small, tell him.”
Management Control System
Beliefs system
The beliefs system is an important part of the control system, according to the top manager. He communicates the vision and the mission of the company in various ways: In the Yelloo, the magazine of the company that is published three or four times a year, on the website, on the flash screens in the canteen and at every meeting (every employee has ten to twelve meetings a year). Furthermore, every decision on management level has to fit the mission and the vision of Yelloo.
This beliefs system has a strong positive effect on employee motivation, according to the manager: “In order to be motivated, everyone wants to know what to do it for. If people don’t know what the purpose of the company is you’ll get death in the pot.”
The branch manager thinks the core of the beliefs system is communicating to the
33 Boundary system
The second control type, boundary system, is clearly prescribed at Yelloo. There is a red booklet with a description of all behavior that is unacceptable, e.g.: no drugs and alcohol, no sexual harassment. Furthermore there are risk assessments for every new work. Every employee is considered to direct him/herself and report unacceptable or risky behavior of other employees to their superior. For some customers there are specific risks that are written and signed by all people involved so that everyone knows how to handle the risks. The influence of the boundary system on employee motivation is present and significant, according to the top manager. This effect can be positive, because we show that we are interested in the safety of the employees. Some rules w.r.t. safety might also be perceived as patronizing. Especially when the employees do not have much experience working for
Yelloo. After the job is done the employees say: “It was good that we took action to avoid certain risks.” The top manager says: “We actually never do things because we are obliged to.”
According to the branch manager there are two important risks at Yelloo. Risk of falling and risk of making an offer to a customer that results in a loss. With respect to the risk of falling, Yelloo focusses on safety; employees know why there are certain rules and procedures. That is why employees are motivated to follow the rules.
With respect to the risk of making an offer that is too cheap, CTA’s (commercial technical advisor) have to check their own calculations and afterwards there is feedback from the branch manager to the CTA’s about the profitability of the work. CTA’s are allowed to make mistakes, as long as they learn from it. Providing the CTA’s with feedback motivates them, because it shows the result of their behavior, and enables them to learn how to avoid financial risks.
Diagnostic control system
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The limits are expressed in turnover/worked hour for the jobs the employees are involved with. The upper limit is set in order to remain stable. For example, if a CTA arranges too many orders, the other workers come under greater pressure and do not give enough attention to the work, which is harmful to the organization. The results, turnover/worked hour, are shown on the flash screen in the canteen, visible for every employee. The results are compared with other employees with the same function. Only for the CTA’s there is a reward if they reach their target. For the other employees there is no reward attached to the results. The top manager believes that employees have to be judged based upon their
deployment and he believes in a strong link between deployment and results. If results are lagging the manager always wants to know the cause. Up to now, the manager has always found the reason for lagging results. The diagnostic control system is put in place to show the employees what the consequences of their behavior are. “Employees that start working at Yelloo perceive showing the results sometimes as controlling, but after a while they start to see it as supportive.” They first believe there is a too strong focus on results and that their deployment is ignored, but after they worked a while for Yelloo they start to see the
diagnostic control system as supportive in showing the consequences of their behavior. The top manager believes this system to have a positive effect on employee motivation in two ways. First, if people perform below standard, they are provided with an incentive to organize their work more efficiently. Second, no one wants to end up at the bottom of the list.
The branch manager believes that the diagnostic control system has a large positive effect on employees’ motivation. Showing the results makes the employees willing to be the best. Mutual competition is a good thing, according to the branch manager. It creates a ‘we are the best’-mentality.
Interactive control system
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the responsibilities of the employee are written down in the form of a process. Another example, if the employee faces problems that (s)he is not able to solve, (s)he is expected to come up with it him/herself. With respect to the interactive control system, it can be said that at Yelloo there is a high degree of responsibility for the employees. The board clearly shows their subordinates what their responsibilities are and what they have to accomplish. The subordinates are mostly free to choose when and how they do this provided that it does not harm the organization as a whole.
According to the top manager, the employees are, between the upper- and lower limit, free to determine what they do as long as they do not harm the interest of the team. And the teams are free to determine what to do when, as long as they do not harm the interest of the organization as a whole. If the mechanics want to start late or leave early or are able to do their work in less time, they are free to do so. The employees at the office do their work how they want it and when they want it. However, the effect of this control system is not clear and not the same for every employee. Some employees need a lot of freedom and other employees cannot handle a great amount of freedom. An involvement that is too tight might have a negative effect on their motivation, but an involvement that is too loose might result in boundless behavior, which is equally undesirable.
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Motivation
According to the top manager there are various reasons why the employees are motivated. Their work is challenging, they receive a lot of freedom, their colleagues are nice and management is clear; communicates transparent and honest. The pay at Yelloo is neither high nor low. As an extrinsic motivator, the pay plays merely the role of a non-negative motivator, which means that without payment or with low payment the employees would be less motivated, but the pay is not used as an extra motivator. There are almost no conditional rewards in use at Yelloo. Providing employees with freedom plays a central role in motivating them. Challenging work is an intrinsic motivator, because it makes the work itself more attractive to the employees. The same applies to freedom, nice colleagues and transparent communication.
The branch manager believes that a personal approach, clear expectations and providing the employees with a lot of freedom are the causes for the employees to be motivated. Also the branch manager gives an answer that has no form of extrinsic motivation in it, to the ques-tion why the employees are motivated.
Conclusion
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4.3 The influence of control on motivation (employee perspective)
The management style described by the managers is confirmed by all the interviewed employees. They all experience a high degree of freedom in their work. Also, all the
interviewed employees find themselves motivated. The five interviewed employees form a cross section of Yelloo with the following functions: Scaffolding foreman, repository
foreman, administrative assistant, commercial technical advisor, repository worker.
Management Control System
Beliefs system
A striking result from the interviews is that, where the board members underline the importance of communicating the mission and vision, not a single employee is capable of telling what either the vision or the mission of Yelloo is. They know when and how it is communicated and have an idea of what it is about, but are not capable of reproducing the statements. However, three out of five believes that it motivates because you know where you do it for and then you are willing to work harder.
Boundary system
The three important risks that can be identified from the interviews with the board members are: unacceptable behavior, unsafe behavior and financially risky behavior. The booklet providing rules regarding to sex, drugs and alcohol are perceived as reasonable rules and therefore have no significant effect on motivation.
The second risk is related to unsafe behavior. The rules with respect to the risk of unsafe behavior motivate two of the three employees involved with these rules to work safely. Because they know why the rules are set, they know the importance of following the rules. The third employee gets a little fractious when he receives feedback on not fully complying with the rules. This might well be related to the complexity of the task. The employee that gets a little fractious performs less complex work.
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talk with his superior about how to reduce the damage and how to avoid reoccurrence in the future. This has a positive effect on his motivation. CTA: “To be made aware of my mistakes motivates me to do it better in the future.”
Diagnostic control system
With respect to diagnostic control systems a distinction can be made between employees who have to perform clearly specified tasks and employees who work with upper and lower limits. For the employees that perform clearly specified tasks (repository foreman,
repository worker and administrative assistant) there is no diagnostic control system. They simply have to follow the orders. For the other employees (scaffolding foreman and CTA) at Yelloo there is a diagnostic control system.
The lower limit, expressed in turnover per worked hour, is set as a clear boundary for the individual employee. If an employee ends up below the lower limit three times, the work will be taken over by other employees and there will be held a conversation on how to come back above the lower limit. If there is not enough confidence, either management or the employee comes up with resignation.
The results of all employees working with the diagnostic control system are displayed in flash reports which are sent to all employees and displayed in the canteen weekly. Their results are compared to the results of the other employees with the same function. This is perceived by the employees as valuable feedback to improve their work. The scaffolding foreman is always curious to view the results: “Am I the best?”. This implies that he wants to be the best and is therefore motivated. On the other hand, an employee at the bottom of the list might see the diagnostic control system as a denial of his effort, but also as an incentive to organize the work in another way. The interviewed employees say that they perceived the diagnostic control system as controlling when they started working at Yelloo but after a while they started to see the feedback system as supportive in improving their work. They say feedback motivates them.
Interactive control system
The employees at Yelloo feel a high degree of freedom in their work. Only the important decisions have to be discussed with the manager. The employees understand why the
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decisions with a high impact are discussed with the manager.” To the question how the involvement of the manager affects motivation, the employees answer that it either has no effect or that the freedom the manager gives has a positive effect.
Motivation
All employees say that they are motivated. According to the answers given in the interviews, there is not one single determinant of motivation for all employees. To the question what motivates the employee the following answers are given: Freedom in my work, solving problems, nice colleagues, challenging work, enjoying the content of the work, varied work and working for a unique and specialized company. The freedom is the most important motivator for the employees with complex tasks, the work itself is seen as a motivator for the employees with clearly specified tasks and problem solving is a motivator for employees with a combination of less and more complex tasks (i.e. directing and working with a group of people with clearly specified tasks). Avoidance of punishments or dismissal was never mentioned as a determinant of motivation. Neither were salary or rewards said to be motivators. So, extrinsic motivation is according to the employees not an important motivator, but thereby should be mentioned that all the employees’ salaries are fixed and there is just one contingent reward at Yelloo, which is for the CTA for reaching the target of the total turnover of the orders made. The CTA says that this bonus does not motivate him to try to get more orders.
Extrinsic motivation is to engage in work in order to obtain a goal apart from the work itself. The only two motivators, mentioned in the interviews that fit within this definition are getting a compliment and being promoted. However, getting a compliment is perceived as part of feedback, opposed to be addressed for mistakes, in order to improve the work. Ambition to be promoted is a motivator for the repository foreman. However, problem solving is the most important motivator for him.
Conclusion
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41 4.4 Conclusion
The literature part of this thesis contains five building blocks. First, a description of
management control theory that serves as a framework where this research fits in the field of management accounting. Second, a description of the different views on the relationship between the superior and the subordinate is given in order to get better insight in why subordinates have to be controlled. Third, the different types of motivation and their determinants are discussed in order to make it possible to see where control affects motivation. Fourth, the LOC-framework of Simons(1994) and its effect on employee motivation is discussed. The literature part ends with a conclusion about what can be learned from the literature with respect to the influence of control on motivation.
There are drawn some conclusions from this literature study. Management control theory is concerned with controlling behavior within organizations to overcome a lack of motivation, skills and knowledge. All these lacks have to be overcome in order to be a successful
organization. Motivation is therefore an important subject in the field of management accounting. Psychological scientists did a lot of research on motivation, especially on intrinsic motivation. Intrinsic motivation has benefits and costs with respect to extrinsic motivation. Psychological literature suggests that rewards have a positive effect on the results on clearly specified and less complex tasks but has a negative effect on more creative and complex tasks. Since there are a lot of complex tasks within organizations, intrinsic motivation cannot be ignored, but within management accounting literature there is little attention for it.
The literature part of this thesis shows that the psychological constructs, self-determination, self-esteem and self-expression possibility, are important determinants of intrinsic
motivation. The influence of a MCS on employee motivation depends on these constructs and whether the MCS is perceived as supportive or controlling.
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Another result from this research is that, with respect to the boundary system, higher educated employees are more interested in why the rules are there and lower educated employees are more interested in what the rules are or how they are expected to follow them. The higher educated employees get motivated by getting an answer to the question, but for the lower educated employees perceive a negative or no effect from the boundary system.
In more general terms, the answers given in the interview indicate that on a scale from employees with complex tasks to employees with clearly specified task, the employees are dealing with different questions. The higher educated employees with complex tasks deal with the question why to do things. Freedom enables them to think about this question and therefore motivates. The employees with a combination of complex and less complex tasks deal with the question how to do things and get motivated by solving problems. The
employees with clearly specified tasks deal with the question what to do and therefore get motivated by the work itself. This can be seen as a circle with three layers, where the core forms the basis for the second layer, and the second layer for the outermost. Figure 4.1 illustrates this.
Figure 4.1 Why, how, what-circle.
The results show a relationship between the degree to which employees are enabled to deal with the questions they want to answer and their motivation. This might mean that a
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able to answer in order to overcome a lack of motivation. An example might clarify this. Suppose a high educated employee, capable of dealing with complex tasks only gets strict orders to follow. His or her motivation might decrease, because he or she sees better ways of performing the task or questions why the task should be done in the first place. The other way around might also work demotivating. If a lower educated employee is asked to work on a mission or vision he or she cannot because it is outside his or her frame of reference. Table 4.1 shows an overview of the trichotomy within Yelloo, based on the results obtained from the interviews.
Table 3.1 Trichotomy at Yelloo
Why? How? What?
Function Leader Manager Subordinate
Type of task Complex Combination Clearly specified
Education Higher Intermediate Lower
Motivated by Freedom Solving problems Work itself Level Mission/Vision Strategy/Key success
factors
Tasks/Actions
A Management Control System seems to have a positive effect on motivation when it enables the employee to deal with the right type of question. This enhances the
determinants of intrinsic motivation: self-determination, self-esteem and self-expression possibility. Extrinsic motivation play just a little role at Yelloo, therefore the effect of rewards cannot be discussed in dept. However, Frey (1996) states that for simpler tasks rewards have a positive effect on motivation.
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4.5 Limitations and recommendations for further research
There are several limitations to the conclusions that can be drawn from this research. Since this research is done at one organization this conclusion might not be applicable to all other organizations, because they all operate under the same management. The second limitation is that the way of measuring might be unreliable, because information is obtained by directly asking the employees. There might be a difference between what the respondent thinks and says, and even what the respondent thinks might be unreliable. The third limitation is that there are used seven interviews, which results in soft conclusions. However, this fits the purpose of this research.
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