THE INFLUENCE OF PERCEIVED FORMALITY OF MANAGEMENT CONTROL SYSTEMS ON INDIVIDUAL INNOVATIVE BEHAVIOR

Master Thesis MSc Business and Administration:

Strategic Innovation Management and Organizational & Management Control

THE INFLUENCE OF PERCEIVED FORMALITY OF MANAGEMENT

CONTROL SYSTEMS ON INDIVIDUAL INNOVATIVE BEHAVIOR

Author: Jorden Kay Vogel Student number: s1889427 Email: jordenvogel@gmail.com

Phone nr +31 6 20237911

Supervisor 1: dr. J. D. van der Bij Supervisor 2: drs. M. M. Bergervoet

January 18, 2016 Word count: 12446

Abstract

While scholars investigated the influence of MCS on innovation, results remain inconsistent and research at an individual level is lacking. This thesis investigates the relationship between the perceived formality of MCS and individual innovative behavior and the moderating effect of the perceived leadership style on this relationship. The hypotheses are tested by applying quantitative analyzes to data collected from 183 employees of several organizations in the consulting sector, corrugated packaging sector, and a ministry. Surprisingly, the results show that the perceived formality of MCS is positively related with individual innovative behavior and the perceived the leadership style reports a negative moderating effect on this relationship. Our findings are consistent with the results of a number of scholars which argue that individual innovative behavior is stimulated when individuals experience formal MCS and we identify the adequate leadership style in this specific situation. Our thesis provides a starting point for cognitive research on the relationship between formal MCS and individual innovative behavior.

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T

ABLE OF

C

ONTENTS

2.1.1 Individual innovative behavior ... 5

2.1.2 The perceived formality of Management Control Systems ... 7

2.1.3 Perceived leadership style ... 8

2.2 Hypotheses ... 10

2.2.1 Effect of perceived formality on individual innovative behavior ... 10

2.2.2 Moderating effect of perceived leadership style ... 11

3. Research methods ... 13

3.1 Research design ... 13

3.2 Sample and Data Collection ... 13

3.3 Measurements and Validation of Constructs ... 14

3.3.1 Dependent variable ... 14

3.3.2 Independent variable ... 15

3.3.3 Moderating variables perceived leadership style... 15

3.3.4 Control variables ... 15

4. Analyses & Results ... 17

4.1 Descriptives and Correlations ... 17

4.2 Factor and Reliability analysis ... 18

4.3 Hypotheses testing ... 20

5. Discussion ... 22

6. Conclusions and Recommendations ... 24

6.1 Conclusion ... 24

6.2 Limitations and Further research ... 25

7. References ... 26

8. Appendixes ... 31

8.1 Appendix I ... 31

8.2 Appendix II: Survey information ... 32

1. I

NTRODUCTION

Nowadays companies are operating in hypercompetitive markets (Wiggins & Ruefli, 2005) where the pace of change is constantly accelerating (Jansen et al., 2006). This has made it extremely hard to sustain a competitive advantage and companies have to establish a sequence of advantages in order to survive (Wiggins & Ruefli, 2005). Wiggins & Ruefli (2005) argue that one way to establish such a sequence is by engaging in innovation. According to the Netherlands Statistics (CBS), governments are increasing R&D spending and almost half of all the Dutch companies between 2012 and 2014 were engaging in some form of innovation. However, according to Davila & Oyon (2009) firms do not achieve the intended level of innovation when engaging in innovation. They found that incremental innovation crowds out radical innovation and jeopardizes the long-term survival of the company. The use of certain performance measures is responsible for this bias which is intimately related to accounting and control (Davila & Oyon, 2009, p. 278).

Management control systems (MCS) are systems that are designed and intended to motivate managers and employees in order to ensure that organizational goals are accomplished (Cuguero & Rosanas, 2011, p. 1). MCS provide guidance and direction and aim to align organizational goals with managerial and individual goals and motivations (Merchant, 1985; Merchant & Van der Stede, 2012). This influences individuals when performing their job as they are required to follow certain procedures, meet targets and deadlines, and are evaluated on certain KPI’s. As managers are aiming to improve innovation outcomes and organizational goals in general, MCS might be a helpful tool. However, the relationship between MCS and innovation is unclear (Davila et al., 2009, p. 323).

In order to understand the relationship between MCS and innovation, it is essential to investigate what enables innovation (Scott & Bruce, 1994, p. 580). At the organizational level, it has been found that a shared vision and shared commitment stimulates innovation (Senge et al., 1994; Daellenbach et al., 1999). At the individual level, innovative behavior can be stimulated by possible image gains (Yuan & Woodman, 2010), leader-member exchange (Scott & Bruce, 1994; Kheng et al., 2013) and individual problem-solving style (Scott & Bruce, 1994). Furthermore, it was found that when the organizational climate is perceived as ‘pro-innovation’ it stimulates employees’ innovative behavior (Scott & Bruce, 1994; Kheng et al., 2013). The perceived organizational climate is determined by the closeness of supervision, the control standards, job requirements and descriptions, and communication frequency between employees and their supervisors (Churchill, Ford, & Walker, 1976). Therefore, one of the important aspects of the perceived organizational climate is the degree to which the employee feels controlled by formal rules and procedures: the perceived formality of MCS.

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In order to understand innovative behavior, ‘we need to get ‘inside the mind’ of the innovator’ (Thompson, 2004, p. 1082). Individuals are found to be the main driving forces of innovation (e.g. Chen et al., 2010; Nezad et al., 2015), however, there is a lack of academical attention in this driving force of innovation (Thompson, 2004). Therefore, this article will focus on the individual innovative behavior and how this is influenced by the perceived formality of MCS. Since this research focusses on the influence of perceived formality of MCS on individual innovative behavior, one needs to understand an individual’s perceptions. The perceptions of an individual can be explained by the cognitive categories that perceivers use to classify information and behavior (Lord & Maher, 2002, p. 5). A person's perception is formed by a constructive cognitive process in which expectations and predispositions form a mental judgment of, for example, a control system (Fiske, 1980; Forgas & Bower, 1987). The psychological climate theory argues that an individual is more likely to respond to perceptions of the environment than to the actual presentations (James & Sells, 1981), which is why this thesis will focus on the perceptions of individual employees. Accordingly, a cognitive approach will be adopted.

As mentioned before, this thesis aims to find out how individual innovative behavior is influenced by the perceived formality of the MCS, which leads to the first research question: 1.WHAT IS THE INFLUENCE OF THE PERCEIVED FORMALITY OF MCS ON AN INDIVIDUAL’S INNOVATIVE BEHAVIOR?

In addition, to the previously discussed relationship between perceived formality of MCS and individual innovative behavior, this thesis aims to find out whether the perceived leadership style has a moderating effect on this relationship. Leaders adopt a leadership style depending on various situational determinants such as the authority level or seniority (e.g. Katz & Kahn, 1978) and personal traits such as intelligence (e.g. Stogdill, 1948). This thesis distinguishes two leadership styles, namely: enabling and coercive leadership style.

A number of scholars have highlighted the importance of appropriate leadership styles and the influence of leadership styles on the effect of perceived formality of MCS and individual innovative behavior. For example, the perceived task uncertainty can determine the severity of the relationship between the perceived formality of MCS and individual innovative behavior. Interacting with the employee and discussing how things need to be done (Yukl, 2005), might decrease the negative effect of the task uncertainties on the relationship between the perceived formality of MCS and individual innovative behavior. As research on the moderating effect of leadership has been remote, this thesis will explore whether the perceived leadership style influences the relationship between the perceived formality of MCS and individual innovative behavior. Accordingly, the second research question states:

2.DOES THE PERCEIVED LEADERSHIP STYLE MODERATE THE RELATIONSHIP BETWEEN THE

MCS AND INDIVIDUAL INNOVATIVE BEHAVIOR?

this relationship. In other words, if an individual perceives that rules and procedures are strictly enforced, it will influence the individual’s ability to engage in innovative behavior. The outcomes of this thesis answer this debate. In addition, this thesis contributes to our understanding of the perceived leadership style by identifying the adequate situation for a perceived enabling leadership style and a perceived coercive leadership style. Our findings indicate that the signals that an individual perceives from the organizational climate, in this case, the perceived formality of MCS and the perceived leadership style, should be consistent. An online survey was used to collect data from 183 employees working at multiple organizations operating in three different sectors namely: management consulting, corrugated packaging, and a ministry. This variety of companies will provide a generalizable result which will guide us to a greater understanding of an individual’s perception of formal MCS and the effect it has on individual innovative behavior.

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2. T

HEORETICAL FRAMEWORK

In the subsequent section, the concepts of individual innovative behavior, perceived formality of MCS, and perceived leadership style will be explained by means of a literature review. In section 2.1, the dependent variable individual innovative behavior will be described. Afterward, the independent variable perceived formality of MCS and the moderator variable perceived leadership style will be discussed. This will lead to the conceptual model which will be present accordingly. In section 2.2, the relationships between the variables will be emphasized which will result in two hypotheses.

2.1 T

2.1.1 Individual innovative behavior

In this paragraph, the dependent variable individual innovative behavior will be explained. The variable will be defined and relevant antecedents will be assessed.

Multiple scholars have defined the concept of individual innovative behavior. Individual innovativeness can be seen as a willingness to change (Hurt et al., 1977, p. 64). A more explicit definition has been stated by a number of scholars which will be adopted by this thesis:

’Individual innovative behavior is an act of generating, promoting and application of innovative thinking for personal performance as well as organizational performance purpose, which enables employees to use innovative ways of thinking quickly and accurately respond to customer demand changes’ (Scott & Bruce, 1994; Woodman et al., 1993; Li & Zheng, 2014).

The concept of individual innovative behavior can be seen as a multi-dimensional overarching construct that includes all behaviors through which individuals can contribute to creating novel ideas, products services or stimulate new product development (De Jong & Den Hartog, 2007, p. 43). Employees can generate ideas by engaging in behaviors to explore opportunities, identify performance gaps or produce solutions for problems in order to initiate innovations (De Jong & Den Hartog, 2007). More specifically, these ideas include the development of new product ideas or technologies, alterations in administrative procedures, and the application of new ideas and technologies in work processes which are intended to significantly enhance effectiveness, efficiency and work relations (Kleysen & Street, 2001, p. 285).

These new and possible beneficial ideas abide a process that is characterized by three interrelated behavioral tasks: (1) idea generation, (2) idea promotion, and (3) idea realization (Scott & Bruce, 1994). Idea generation relates to the formulation of an idea of any sort which is valuable to organizational conduct (Amabile et al., 1996; Kanter, 1988; Woodman et al., 1993). The second identified task is idea promotion, which is characterized by ‘an innovative

individual seeking sponsorship for an idea and attempts to build a coalition of supporter’ (Scott

expected to be ‘involved in any combination of these behaviors at any time’ (Scott & Bruce, 1994).

Antecedents of individual innovative behavior

In order to understand the concept of individual innovative behavior properly, it is essential to investigate what motivates or enables individual innovative behavior (Scott & Bruce, 1994, p. 580). Scott & Bruce (1994) argue that leader-member exchange, work group relations, and individual problem-solving style affects individual innovative behavior. In addition, Yuan & Woodman (2010) have investigated why employees engage in innovative behavior at their workplace. They found that whether or not an individual will engage in individual innovative behavior depends on the employee’s official work role expectations, possible image gains as well as job characteristics. Employees feel more confident if managers and colleagues will regard their novel ideas as valid and well-grounded (Yuan & Woodman, 2010, p. 328), and therefore are more likely to engage in innovative behavior when the job characteristics or requirements are favorable or when they are likely to generate an image of being innovative (Yuan & Woodman, 2010). Finally, Kheng et al., (2013, p. 50) found that ‘a social

relation-working network that is bounded by mutual trust, understanding, support, and shared values and behaviors’, enables individual innovative behavior.

In addition, the perceived organizational climate has been argued to be highly influential to individual innovative behavior (Scott & Bruce, 1994; Yuan & Woodman, 2010; Kheng et al., 2013). This climate can be regarded as the cognitive interpretation of the current organizational situation in which an individual is operating (Gavin & Howe, 1975; James & Sells, 1981). Yukl (2005) addressed the organizational climate as the assumptions, beliefs, and shared values of a group.

Firms with an organizational climate that is perceived by the employees as ‘pro-innovation’ are expected to improve individual innovative behavior (Kheng et al., 2013). These climates will encourage individual innovative behavior by authorizing experimentation (West & Wallace, 1991), creating psychological support for trial and error while performing individual innovative behavior (Ashford et al., 1998), and generate the experience that doing things differently and creating novel ideas is appreciated (Farr & Ford, 1990; Yuan & Woodman, 2010).

Furthermore, the perceived organizational climate also influences individual characteristics such as the systematic problem-solving style (Scott & Bruce, 1994). A person who adopts a systematic problem-solving style relies on predefined sets of routines and complies with rules and disciplinary boundaries (Scott & Bruce, 1994). According to Scott & Bruce (1994), adopting this problem-solving style will stimulate individual innovative behavior. MCS are designed to control these boundaries and align individual and organizational goals (Merchant & Van der Stede, 2012).

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2.1.2 The perceived formality of Management Control Systems

This paragraph will elaborate on the independent variable, the perceived formality of MCS. A definition of MCS will be stated, the relevant types of MCS will be elaborated and what influence this has on individuals. Additionally, the concept of perceived formality of MCS will be introduced and we will elaborate on an individual's perception as well.

Multiple scholars have defined Management Control Systems (MCS) and identified several typifications of MCS (e.g. Ouchi, 1979; Simons, 1995; Anthony et al, 1998; Merchant & Van der Stede, 2012). This thesis focusses on formal MCS which can be defined as: ‘purposefully

designed, information based and explicit sets of structures, routines, procedures and processes’

(Maciarello & Kirby, 1994). MCS perform two complementary and interdependent roles. They exert control over the attainment of managerial goals and enable employees to search for opportunities and solve problems (Ahrens & Chapman, 2004; Simons, 1995; Mundy, 2010). Several types of individual MCS can be used to attain these goals and enable employees. The most individual way is to directly control for unfavorable behavior (Merchant & Van der Stede, 2012). The majority of the MCS operate by constraining individuals from engaging in undesired behavior. This can be accomplished by using physical constraints such as passwords, locked desks or limited access to certain areas. Other examples of individual MCS are targets, deadlines, dress codes, and planning boards (Merchant & Van der Stede, 2012). By implementing these MCS, the manager will be able to ensure that the employee behaves appropriately and achieves individual goals which are aligned with organizational goals (Cuguero & Rosanas, 2011).

Anthony et al. (1998) refer to some of these controls as task controls which involve the control of the efficient and effective performance of individual tasks. Managers can use this kind of controls through interaction with the individual (Anthony et al., 1998) such as performance evaluations or job appraisals. In addition, this manager can use data recorded from an automated process to evaluate the respective employee such as whether personal (e.g. financial) targets are met or other personal goals achieved.

These formal individual MCS can have different influences on employees. Merchant & Van der Stede (2012) state that when individuals are unable to cope with controls or poor MCS are used, individual can defraud or try to circumvent these MCS. According to Folkman (1984), targets or deadlines can influence the perceived controllability of a task which can determine stress levels. In addition, different rules, targets, or constraints can stimulate exploitation of existing knowledge (e.g. Jansen et al. 2006) but can also restrain individuals from exploring new knowledge (Jansen et al. 2006). This thesis argues that this depends on the perception of the formal controls that individual is confronted with.

specifically, individuals respond primarily to perceptions of environments ‘rather than to the

environments per se’ (James & Sells, 1981).

Perceptions can be explained by cognitive categories that perceivers use to classify information and behavior (Lord & Maher, 2002, p. 5). Perceptions are sometimes referred to as filters, approximations (Simon, 1959) or cognitive interpretations (Tessier & Otley, 2012). More specifically, a perception is an employee’s interpretation of the circumstances, the environment, or in this case, the employee’s interpretation of the controls at hand (Simon, 1959; Fiske, 1980; Tessier & Otley, 2012). Moreover, a person’s perception is formed by a constructive cognitive process in which categorizations, expectations, and predispositions form a mental judgment of for example an object, situation, environment or control system (Fiske, 1980; Forgas & Bower, 1987; Simon, 1959).

According to Scott (2001), control systems are not perceived the same by all employees. The presentation of controls acts as a bridge between the intentions of the managers and the employee’s perceptions (Tessier & Otley, 2012, p. 175). According to Adler & Borys (1996), an employee’s attitude towards MCS depends on the attributes of the type of MCS that they are confronted with. However, the perceiver processes selected aspects of the stimulus array presented by another person (Fiske, 1980, p. 889). Hence, not all attributes that the employee is confronted with will be fully processed by the employee’s cognitive process and, therefore, might not all confronted attributes affect the employee.

Now the concepts of MCS and perceptions have been discussed, the definition of our independent variable – the perceived formality of MCS – can be formulated as follows: ‘The

extent to which a person perceives an explicit set of structures, routines, procedures and processes as clearly specified and standardized’.

2.1.3 Perceived leadership style

In this paragraph, the moderator variable perceived leadership style will be discussed. The concept of perceived leadership style will be explained as well as the different styles, which are based on the Adler & Borys model (1994). As this thesis focusses on the perceived leadership style, some leadership characteristics will not be accounted for because not every action or policy used by leaders is perceived by the employees.

Leadership styles have been investigated by numerous scholars (e.g. Bass & Stogdill, 1990; Bass, 1991; Eagly et al., 2003). Adopting an appropriate leadership style is essential when affecting employees’ performance (Cummings & Schwab, 1973) and influencing individuals towards achieving their desired outcome (De Jong & Den Hartog, 2007). Wide varieties of definitions have been used by different scholars and multiple scholars have investigated these varied definitions of leadership (e.g Barker, 2002; Rost, 1993; Winston & Patterson, 2006). Our definition of perceived leadership style will be based on the definition of Yukl (2005) and will be as follows: ‘The perception of the style in which a leader is influencing others to understand

and agree about what needs to be done and how to do it, and the process of facilitating individual and collective efforts to accomplish shared objectives’.

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integrity, and (5) execution. Multiple management scholars recognize that individuals approach leadership tasks differently as leaders adopt these five elements differently. For example, leaders adopt different ways of setting the vision and communicating it to employees, such as different approaches to communication, variance in the extent to which employees are empowered, and differences in the way in which the vision is implemented through monitoring and control choices (Abernathy et al., 2010). These different approaches of leaders are explained by the personality and behavioral traits of managers which can be summarized as a leadership style (Yukl, 2005).

Our categorization of the leadership styles is based on the Adler and Borys model (1996). Two opposing leadership styles are identified: perceived enabling leadership and perceived coercive leadership. Based on the articles of Bass (1991), Adler & Borys (1996), Ahrens & Chapman (2004) and Stogdill & Coons (1957), an enabling and coercive leader can be described as follows.

An enabling leader prefers transparent decision making and sets a clear vision while relying on both top-down as well as bottom-up communication. This leader empowers people, applies decentralized decision making and when something needs to be done, this leader tries to stimulate the intrinsic motivation of subordinates. In addition, an enabling leader allows discretion over the use of control systems because he or she focusses on the purpose of the organization as well as on the well-being of the followers. Hence, an enabling leader has the following characteristics: allows discretion, transparent, sets a vision, decentralized,

empowers, and relies on intrinsic motivation.

Contrary, a coercive leader can be characterized as a classical leader with a preference for a strong hierarchical environment, has a strong focus on controlled discipline, and prefers stimulation through extrinsic motivation. Promotion prospects are primarily based on formal performance measurement systems and when something needs to be done, the leader sets strict rules. These rules, as well as other changes or messages, are primarily top-down communicated. To sum up, a coercive leader is characterized by the following characteristics: prefers

hierarchical order and centralized decision making, sets rules rather than a vision or goal, uses top-down communication and relies on extrinsic motivation.

Figure 1: Conceptual model

2.2 H

In the subsequent section, the relationship between the variables will be elaborated and the hypotheses will be stated accordingly.

2.2.1 Effect of perceived formality on individual innovative behavior

Scholars have investigated the effect of perceived control on innovative behavior. Montani et al. (2014) discussed individual and contextual determinants of innovative behavior. They found that learning goals orientation and planning shapes innovative behavior (Montani et al., 2014). Furthermore, Ward et al. (2004) and Ward (1994) found that providing guidelines to people that are engaging in idea generation leads to more novel creations. Ward (1994) performed a number of experiments concerning structured imagination, which is a form of imagination consisting of guidelines, instructions and tasks constraints, and found that it leads to a greater use of their knowledge framework. By improving the use of their knowledge framework, individuals were more likely to find a novel solution. This indicates that imposing some form of control, could be beneficial to individual innovative behavior.

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In addition, the perceived formality effectively reduces employees’ possibilities to perform discretionary behaviors and create a setting that forces employees to comply to certain approaches and manuscripts (Hall, 1999). This can hamper individual innovative behavior. Abraham and Windmann (2007) investigated the constraining effect of the obligation to comply with some characteristics of the examples when imagining a new toy. They found that participants tend to highly conform to the exemplars they were shown. However, the degree to which the ideas generated by the participant incorporate the features presented, acted as a constraint which resulted in a low degree of novelty of their developed ideas.

Moreover, March and Simon (1958) argue that the reliance on rules and procedures hamper experiments and ad hoc problem solving. Furthermore, the perceived formality can constitute a frame of reference that constrains individual innovative behavior by hindering exploration efforts and reduces the likeliness of employees deviating from structured behavior (Weick, 1979). Hence, high perceived formality of MCS constrains individuals’ dispositions (Tett & Burnett, 2003). Therefore, we expect that when an individual perceives a high degree of formality of the MCS the individual innovative behavior will be low.

As discussed, several scholars have found varying results when investigating the relationship between perceived formality of MCS and individual innovative behavior. The only positive arguments argue that some guidelines, tasks instructions, and learning goal orientation can stimulate novel creations. This primarily covers the creativity aspect of individual innovative behavior. Moreover, the types of MCS used in these researches can be regarded as moderate on the degree of perceived formality. On the other hand, the negative arguments show that enforcing procedures, reliance on rules, and obligations to follow manuscripts hinders novel creations, imagination, discretionary behavior, as well as individual innovative behavior in general. These constraining arguments concern MCS that is expected to be perceived as highly formal and deterring all behavioral task that comprises individual innovative behavior. Therefore, it is reasonable to expect that the perceived formality of MCS hinders individual innovative behavior. Hence,

Hypothesis 1: The degree of perceived formality of the MCS is negatively related to individual innovative behavior.

2.2.2 Moderating effect of perceived leadership style

Until this point, the relationship between the perceived formality of MCS and individual innovative behavior is discussed. Additionally, this thesis argues that the strength of the negative effect of the perceived formality of MCS on individual innovative behavior depends on the perceived leadership style. In this paragraph, this expected moderating effect is discussed.

uncertainties will be reduced and thereby undermining the negative effect of perceived formality of MCS on innovative behavior.

Furthermore, one of the characteristics of enabling leadership is the degree of empowerment. Jung et al. (2003) found that the degree of empowerment could moderate the relationship between control and innovative behavior. Jung et al. (2003) argue that this is caused by individuals who are restrained from making risky decisions because they fear the possible negative consequences. When an individual is restrained from taking risky decisions by the strict rules and procedures it negatively influences innovative behavior. A leader can moderate this by tolerating imperfection and ambiguity (Galuska, 2014). An enabling leader allows discretion over the use of control systems and focusses on the purpose on the well-being of the followers as well as organizational purposes. When this leader does so, the negative effect of the perceived formality of MCS on innovative behavior will be lower. However, when a leader applies a coercive style and thereby not tolerating ambiguity and restrict diverging from the standard procedures, it will cause the negative relation between perceived formality of MCS and individual innovative behavior to be more severe.

Accordingly, the expected negative effect of the perceived formality of MCS on individual innovative behavior will be less strong when the perceived enabling leadership style is high. On the other hand, when the employee’s perceives a low degree of enabling leadership style – a coercive leadership style – the expected negative effect of the perceived formality of MCS on individual innovative behavior will be more severe. Hence,

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3. R

ESEARCH METHODS

This chapter will describe the methods used to test the formulated hypotheses. First the research design will be described followed by the sample and data collection. Finally, a detailed description will be given of the measurements and constructs used.

3.1

R

The emphasis of this research is to explain the relationship between variables which makes it an explanatory survey research (Crano & Brewer, 2002). Survey research has several inherent strengths in comparison to other research methods (Bhattacherjee, 2012). As a large sample was required for this quantitative study and the possible participants were located throughout Europe, an online survey is ideally suited (Bhattacherjee, 2012, p. 73). In addition, this type of research is an excellent vehicle for measuring attitudes (e.g. behavior), beliefs or perceptions because of the unobtrusive nature and the possibility for respondents to respond at one’s convenience (Bhattacherjee, 2012, p. 73). Therefore, this research method was adopted. However, survey research is prone to several biases. First the non-response bias, this was overcome by chasing the respondents and using trusted people who stimulated the respondents to fill out the survey. For example, in one of the companies a managing director requested the subordinates to fill out the survey. Second, the survey did not contain any questions that asked for identifying information (e.g. names) in order to secure the confidentiality of the participants to minimize the social desirability bias (Crano & Brewer, 2002). In addition, in the instructions as well as the supporting email it was clearly stated that the answers would remain confidential and that this thesis has no commercial purposes whatsoever. Lastly, self-reported ratings of individual behavior may result in misleading interpretations due to common method bias (Podsakoff et al., 2003). We tested for this bias accordingly and the result indicated that a common method bias was controlled.

3.2 S

D

C

The empirical research was conducted at multiple organizations operating in two commercial and one non-commercial sector. These sectors were selected in order to find out if there will be differences in the results among these sectors and because of response expectations in these specific sectors. The non-commercial sector was also included in order to broaden the scope of this research. The sectors are management consulting, paper-based packaging and a ministry. An online questionnaire was used to gather the data. The questionnaire was built using an online survey tool called Typeform which was distributed via email which contained the link. In each of the participating companies, a contact person was approached which was willing to operate as a middleman. This person distributed the questionnaires internally by email, promoted the survey among colleagues and sent a reminder in order to stimulate responses. An email of this contact person and the investigators provided the required instructions and assured the participants that they would remain anonymous, their responses would remain confidential, and these responses would only be used for research purposes.

and (2) they had to be employed in one of the following sectors: management consulting, corrugated packaging or at the selected ministry. The respondents fulfill different ranks throughout the companies and are stationed in different European countries. Approximately 420 persons were contacted of which 288 visited the website of the questionnaire. Of these individuals, 183 filled out the questionnaire which reports a completion percentage of 44%. Of the total number of participants, 54 participants were operational in a leading corrugated packaging company, 60 participants were operational at different departments of the ministry, and 69 respondents reported that they were employed in the consulting sector. The vast majority of respondents working in the consulting sector are employed at a number of leading management consulting companies and three middle sized consulting companies.

The average completion time of the survey was 10:37 minutes. Appendix 1 contains a table with the devices used to fill out the survey.

3.3 M

V

C

The survey was established by existing constructs from the existing literature which were used whenever possible. In case there were no appropriate scales that fit our purpose, items were derived from examples and similar scales in the existing literature. Because two of the three scales were developed by this thesis, they were tested. Because of time restraints we pre-tested the survey with 4 individuals, working in the three different sectors. A protocol method was used and the participants were asked to think out loud as they completed the survey (Hunt, Sparkman Jr., & Wilcox, 1982). The verbalization and the thinking process of the participants were recorded. The analysis of the pretest and the records led to alterations in the wording of the survey as well as the instructions presented prior to the start of the survey. In addition, we had the scales reviewed for appropriateness by two professors of the University of Groningen. Moreover, before any statistics are calculated, negatively formulated questions are rescaled in order to achieve positively related items for each scale. Appendix II contains a list of all measures used.

3.3.1 Dependent variable

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Responses were made on a seven-point Likert scale ranging from 1 = ‘completely disagree’ to 7 = ‘completely agree’ in order to guide respondents away from answering primarily neutral (Colman, Norris, & Preston, 1997). The six items of the individual innovative behavior scale were averaged to create what we call: individual innovative behavior.

3.3.2 Independent variable

In order to measure the perceived formality of MCS, we created a partially new scale. We build upon the formalization scale of Desphande & Zaltman (1982) which contains a high reliability. Jansen et al. (2006) used this scale in their study where they investigate the influence of formalization on innovative behavior on the unit level, which is why we deemed the scale relevant as a basis for the scale used to measure perceived formality of MCS in this study. However, as the research of Jansen et al. (2006) was at the unit level, we had to revise the items to make them applicable to our individual level research.

In addition, some of the items were not appropriate as they concern an organizational level MCS, which individuals are unlikely to perceive on the work floor, e.g. the company's strategy. Instead, we developed questions that concerned control systems that employees might experience in their daily work. Some examples of our items were: ‘I think that everything I do

will be somehow recorded’; and ‘I consider my job as highly influenced by a lot of strict deadlines.’ Responses were made on a seven-point Likert scale ranging from 1 = ‘completely

disagree’ to 7 = ‘completely agree’. The five items of the scale were averaged in order to create our independent variable: perceived formality of MCS.

3.3.3 Moderating variables perceived leadership style

Furthermore, we developed a scale in order to measure the moderator variable: the perceived leadership style. In addition, an active-oriented scale was developed which was deemed more appropriate to this research than for example the widely used MLQ scale. We looked at the literature and found that the enablement and coerciveness were crucial factors in the relationship between the perceived formality of the MCS and individual innovative behavior. Therefore, the literature was reviewed and based on the articles of Bass (1991); Adler and Borys (1996); Ahrens and Chapman (2004); and Stogdill and Coons (1957), we developed a new scale with a better fit for this research. The employees rated the perceived leadership style according to the perceived use of enabling or coercive characteristics of their supervisor. Responses were made on a seven-point Likert scale ranging from 1 = ‘completely disagree’ to 7 = ‘completely agree’. Some examples of the items were: ‘My supervisor includes me early on in the decision

making’; and ‘My supervisor provides me a lot of autonomy when performing my tasks’.

3.3.4 Control variables

In our analysis, we controlled for a number of demographic characteristics, which can potentially affect the outcome of our study. The control variables we use are stage in the innovation process, age, gender, education level, seniority, and firm type.

an employee can engage in activities that concern both the initiation stage as well as the implementation stage. For practical reasons, the respondents had to indicate the stage in which they were ‘performing the majority of their activities’.

Second, this thesis controlled for age and seniority as it may reflect personal knowledge and expertise, which can both influence individual innovative behavior (Ng & Feldman, 2013; Zahra, 2005). In order to find out the seniority level we used open question: ‘What is your job

title?’ We coded the seniority level as follows: (1) intern; (2) junior or analyst; (3) consultant;

(4) manager; and (5) senior manager or managing director.

Third, the model was controlled for gender which has been found to be related to individual innovative behavior (Janssen, 2000; DiTomaso & Farris, 1992).

Fourth, we controlled for educational level as empirical studies have shown that educational level has a significant effect on individual innovative behavior (Gong & Huang, 2009; Tierney & Farmer, 2002). In addition, it has been found that educational level influence capabilities, skills, knowledge (Amabile, 1988) and innovativeness (Mumford & Gustafson, 1988). The educational level was obtained by self-report from respondents and coded as follows: (1) intermediate vocational education (MBO); (2) college (HBO); (3) university (WO); and (4) Ph.D.

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4. A

NALYZES

&

R

ESULTS

This chapter will discuss the performed analyzes and the results of these analyzes which were performed using SPSS. Paragraph 4.1 will elaborate on the descriptive statistics and correlations, 4.2 will elaborate on the factor analyzes, and 4.3 will include the results of the regression analyzes which were performed in order to test the hypotheses.

4.1 D

C

Table 1 is stated below and presents descriptive statistics which includes the means, standard deviations and Pearson correlations between the variables. The mean of the dependent variable and the perceived leadership style are quite high. The respondents rated their individual innovative behavior on average as 4,81 on a scale from 1 to 7. The perceived leadership style reports a mean of 5,23 which indicates that in general an enabling leadership style is perceived in the sample companies. Furthermore, the mean of perceived formality of MCS 3,55 which implies that overall a neutral degree of formality is perceived of the MCS used in the investigated companies.

The distribution of the respondents over the stages in the innovation process was practically an even split (see Appendix III). The age of the respondents varies between 21 and 64 with an average age of 37. Moreover, the average seniority level is 3,04 which corresponds to consultant or manager, whereas the mean of the education level was 2,71 which indicates that the average education level lies between college and university.

The standard deviations of the dependent, independent and moderating variable are quite similar. The standard deviation of the dependent, independent and moderator variable are respectively (0.93), (1,10) and (0,91).

Table 1. Descriptive Statistics Mean (Standard deviation) 1 2 3 4 5 6 7 8 9 10 1. Individual innovative behavior 4,81 1 (0,93) 2. Perceived formality of MCS 3,55 -0,03 1 (1,10) 3. Perceived leadership style 5,23 0,15* -0,30** 1 (0,91) 4. Stage in innovation process 0,55 -0,25 0,14 -0,14 1 (0,50) 5. Age 37,23 0,25** -0,20** 0,06 -0,05 1 (11,92) 6. Gender 0,64 0,14 -0,04 0,11 -0,09 0,37** 1 (0,48) 7. Seniority 3,04 0,23** -0,16* 0,10 -0,12 0,74** 0,31** 1 (1,37) 8. Education level 2,71 0,01 0,04 -0,01 -0,17 -0,37 -0,15 -0,24 1 (0,60) 9. Ministry & Packaging 0,32 0,13 -0,22** -0,01 0,04 0,56** 0,18* 0,41* -0,10 1 (0,47) 10. Consulting 0,38 -0,25** 0,08 0,01 0,09 -0,73** -0,18* -0,69** 0,27** -0,54** 1 (0,49)

*. Correlation is significant at the 0,05 level (2-tailed). **. Correlation is significant at the 0,01 level (2-tailed).

4.2 F

R

Before testing the hypotheses, we performed a principal factor analyzes on multi-item scales and retained the measures for each construct. The following criteria were used: (1) each measure must have a loading greater than 0,5; (2) each measure must not have a loading in more than one factor which measures higher than 0,4; and (3) each measure must load in the appropriate factor. This resulted in the exclusion of two items from the perceived formality of MCS scale and four items from the perceived leadership style scale. The final factor loadings are presented in Table 2.

In order to compute the composite scale of each variable, we use the respondents’ ratings of the relevant items of each construct and divided them by the number of items used. Next, the moderator variable was mean centered, as suggested by Aiken & West (1991). Table 3 contains the reliability statistics of the final scales used. The final set of scales is provided in Appendix I.

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Table 2. Factor Loadings from Factor Analysis Individual innovative behavior Perceived formality of MCS Perceived leadership style IB4 0,81 0,10 -0,08 IB5 0,72 0,02 0,16 IB6 0,71 -0,06 0,04 IB3 0,65 0,06 0,01 IB2 0,62 -0,12 0,14 IB1 0,59 -0,05 0,07 PF5 -0,01 0,89 -0,01 PF6 0,02 0,86 0,01 PF2 -0,19 0,63 -0,10 PF7 0,16 0,54 -0,33 PF1 0,02 0,48 -0,37 LS1 0,14 0,02 0,71 LS2r 0,04 -0,24 0,69 LS6 0,03 0,02 0,69 LS4 0,08 -0,17 0,49

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.

a. Rotation converged in 5 iterations.

Table 3. Reliability Statistics

α N

4.3 H

In order to test our hypotheses, we used multiple regression models. Table 4 displays the multiple regression models with individual innovative behavior as the independent variable. The first model contains the independent variable and seven control variables. The model shows an R-squared of 0,15 and a significant (p < 0,001) F-value of 4,25. Model 2 contains the seven control variables as well as the dependent variable perceived formality of MCS. The second model has an R-squared of 0,15 and a significant F-value of 3,74 (p < 0,001). Model 3 contains the seven control variables plus the perceived formality of MCS and the moderator variable perceived leadership style. Model 3 shows an R-squared of 0,22 and a significant F-value of 4,73 (p < 0,001) which means that all cases, the model as a whole have statistically a high significant predictive capability.

The results of Table 4 reveal a number of interesting results. First, in model 2 and 3 the direct effect of the perceived formality of MCS on individual innovative behavior projects a positive coefficient instead of the predicted negative coefficient. Therefore, H1 is rejected. However, model 3 projects a positive significant coefficient (p < 0,1) for the effect of perceived formality of MCS on individual innovative behavior.

Second, in model 3 a negative and significant result is shown (p < 0,001) for the moderating effect of perceived leadership style in the relationship between the perceived formality of MCS and individual innovative behavior. Our hypothesis expected a positive moderating effect instead of a negative effect. Therefore, we reject H2. Surprisingly, we also found a positive significant effect (p < 0,1) for a direct relationship between the perceived leadership style and individual innovative behavior.

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Table 4. Regression Analyses

Model 1 Model 2 Model 3

Intercept ***4,35 ***4,19 ***3,75

(0,57) (0,63) (0,62)

Perceived formality of MCS 0,04 †0,12

(0,06) (0,07)

Perceived leadership style †0,16

(0,07) Perceived formality of MCS * Perceived leadership style ***-0,22

(0,06)

Stage in the innovation process **-0,37 **-0,38 **-0,36

(0,14) (0,14) (0,13) Age 0,01 0,01 0,01 (0,01) (0,01) (0,01) Gender 0,09 0,09 0,02 (0,15) (0,15) (0,14) Educational level 0,12 0,17 0,13 (0,12) (0,12) (0,18) Seniority 0,08 0,09 0,10 (0,08) (0,76) (0,07) Ministry -0,06 -0,04 0,02 (0,18) (0,18) (0,17) Consulting -0,30 -0,28 -0,21 (0,22) (0,18) (0,21) F value ***4,25 ***3,74 ***4,73 R² 0,15 0,15 0,22

Dependent Variable: Individual innovative behavior † p<0,10

* p<0,05 ** p<0,01 *** p<0,001

5. D

ISCUSSION

What is the influence of the perceived formality of MCS on an individual’s innovative behavior? In response to this debate, this thesis developed a conceptual model in which the perceived leadership style moderates the relationship between the perceived formality of MCS and individual innovative behavior. In our model, we controlled for several demographical characteristics: stage in the innovation process, age, gender, educational level, seniority, and firm type (consulting, packaging, and ministry).

This thesis found a positive significant relationship between the perceived formality of MCS and individual innovative behavior. This implies that deadlines, targets, enforced rules, and procedures, providing sufficient guidelines, and using a proper planning enhances individual innovative behavior. This result is in correspondence with Ward (1994) and Montati et al. (2014). Our results are also partially in correspondence with Scott & Bruce (1994) who found that systematic problem-solving styles have a positive significant effect on individual innovative behavior. Formal controls force individuals to use structured guidelines, procedures and planning, which is by definition required for a systematic problem-solving style.

This finding stimulates the debate about when an organizational climate is perceived as supporting innovation. Our results suggest that a ‘pro-innovation’ climate is characterized by sufficient rules and procedures in order to provide guidance for the creation of novel ideas and challenging targets that stimulate an individual to find creative solutions in order to meet these targets.

Does the perceived leadership style moderate the relationship between the MCS and individual innovative behavior? In our model, we tested the direct effect of the perceived leadership style on individual innovative behavior which resulted in a positive significant result. This implies that our results indicate that leaders have a powerful source of influence on the employee’s, which corresponds to the arguments of Yukl (2005. More specifically, our findings contribute to Yukl (2005) by finding that the perceived leadership style has a powerful source of influence on the employee’s innovative behavior. Moreover, Pieterse et al. (2010) found that a leadership style with a number of similar characteristics as an enabling leader, positively stimulates the individual innovative behavior, which corresponds with our findings as well.

We hypothesized for a positive moderating effect, instead, we found a negative moderating effect of the perceived leadership style on the relationship between the perceived formality of MCS and individual innovative behavior. This implies that in the situation where a high perceived formality of MCS stimulates individual innovative behavior, an enabling leadership style is unfavorable. On the other hand, in a situation when a low perceived formality hampers individual innovative behavior, a coercive leader makes the relationship more severe.

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It has been argued that employees' attitudes to leadership depend on the attributes of the type of leadership they are confronted with (Adler & Borys, 1996). However, our results suggest that the attributes the employees are confronted with the need to be consistent with the degree of perceived formality of MCS. When a leader adopts a leadership style that is inconsistent with the situation, employees will experience inconsistent signals from their supervisors and the MCS. This will result in either a more severe negative effect of perceived formality of MCS or a restraining effect on the positive influence of the perceived formality of MCS on individual innovative behavior.

Furthermore, this thesis investigated the perceived formality of MCS on individual innovative behavior, moderated by leadership style in three sectors in order to find differences. Even though the consulting variable reported a negative correlation with individual innovative behavior, it was not found significant in our regression models.

6. C

ONCLUSIONS AND

R

ECOMMENDATIONS

In this chapter, we will summarize our main findings and state our contribution to existing literature. In addition, we will indicate the limitations of this thesis and state our recommendations for further research.

6.1 C

The purpose of this research was to establish a better understanding of what the role of MCS entails when aiming for a stimulation of individual innovative behavior. First of all, this thesis provides empirical evidence for our contingent framework where the perceived leadership style moderates the relationship between the perceived formality of MCS and individual innovative behavior. This thesis clarifies the debate about whether or not individuals should comply with strict rules and procedures when engaging in innovative behavior and what leadership style is appropriate in which situation. The results indicate that managers should use MCS with a high perceived formality in order to stimulate individuals to perform innovative behavior. The high perceived formality of MCS provides employees the required guidance, resources and direction that stimulate individuals to generate novel ideas and solutions, help to promote ideas and coordinate the idea implementation.

Moreover, this thesis made a clear distinction between the intention of the MCS and the perceptions of MCS by employees, as this was lacking in the existing management control literature. The existing literature argues that an employee’s attitude towards MCS depend on the attributes of the type of MCS that they confronted with. We argue that not all attributes that the employee is confronted with will be fully processed by the employee’s cognitive processes and, therefore, might not all confronted attributes affect the employee. This knowledge can guide us to get a better understanding of the full potential of MCS.

In addition, theory stresses the need for certain leadership styles in a specific situation. Our results contribute to the existing literature by finding that an adequate leadership style is required in a situation that is characterized by a high perceived formality of MCS which stimulates individual innovative behavior. When this situation arises, a leader with perceived characteristics such as a preference for hierarchical order, centralized decision making and enforcement of strict rules are beneficial. This coercive leadership style is consistent with the signals that the high perceived formality of the MCS sends to the employee. On the other hand, when an employee experiences a situation that is characterized by a lack of perceived formality of MCS, which will hinder individual innovative behavior, a coercive leader will make the situation worse and, therefore, an enabling leader will be needed.

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6.2 L

F

This thesis might function as a starting point for future cognitive research that investigates the effect of our perceptions of formal MCS on individual innovative behavior in order to get a better understanding of the role of MCS in innovation. However, just as any research is this thesis bound by research limitations.

First of all, as this thesis investigated the perceived leadership style, the questions were formulated as if it was to measure the actual leadership instead of the perceived leadership. This might have resulted in people answering to the question: what leadership characteristics are actually used? Instead, they should have responded to the question: what leadership characteristics do you experience or perceive. In addition, the reliability of the leadership scale was moderate. Future research should slightly revise the scale, could spend more time on pre-testing and focus on formulating the questions in a way that the respondents review their perceptions of the leadership instead of the actual leadership style used.

Second, the control variable education level was measured on a four-point scale which is technically not a Likert scale. We recommend future research to build a five-point Likert scale or dummy variables in order to improve validity.

The premise of this thesis provides directions for further development on employee’s perceptions of individual MCS and the effect on innovative behavior moderated by the perceived leadership style. A suggestion for future research would be to investigate why individual innovative behavior is more likely to occur in the initiation stage. Future studies could identify specific MCS that individuals specifically perceive as stimulating their innovative behavior. Contrary, the lack of what specific MCS hampers innovative behavior could also be interesting to investigate. Also, future research could investigate what personal traits individuals contain that perform innovative behavior or what type of individuals perform high levels of innovative behavior when they are bound to use strict guidelines. Finally, future research could test whether different degrees of perceived formality of MCS are favorable in the initiation stage than in the implementation stage.

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