Management Control Elements in a Package:

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Management Control Elements

in a Package:

Case study on antecedents causing differences between

Management Control Packages of governmental

departments

Elias Schotsman

University of Groningen

Faculty of Economics and Business

Msc Business Administration:

Organizational & Managerial Control

Word count: 18.856 (excl. references)

January 31, 2014

Supervisor: M. SC. Berend van der Kolk

Second Assessor: Prof. dr. Henk ter Bogt

IJsselstraat 38b

9725 GG Groningen

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Abstract

This thesis contributes to literature by providing insights into the differences in Management Control Packages and the antecedents of the configuration of differences between elements of the control packages. By means of the object-of-control framework from Merchant & Van der Stede (2007) the description of the control packages is structured. Personnel controls, cultural controls, result controls, and action controls are distinguished. Data is provided by a multiple case study in the public sector, conducted at two departments within the same governmental organization. Two control packages are analyzed, which leads to several differences between them. Furthermore, the antecedents are derived from the case environment, in order to determine relations between the differences and the antecedents. Using an inductive line of reasoning the empirical data is translated into theory. This thesis comes up with several antecedents causing one or more differences between control packages, what might support the use of a ‘package approach’ towards management control. It is concluded that three antecedents are influencing differences the most. The activities employees perform, the professionalism displayed within a department, and the power that is exerted by superiors controlling the departments are antecedents influencing the differences between four or more control elements.

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1. Introduction

In a recent policy paper, the municipality of Zwolle mentions their willingness to evolve towards an organization that fits the network society (Gemeente Zwolle, 2012). This willingness supports the organization in dealing with uncertainty, flexibility, diversity and the need for customized services. Several ways to succeed in this evolvement are copied from the private sector. The municipality will be able to make connections between different interests, and to match available solutions towards results desired (Gemeente Zwolle, 2012).

As the previous example underlines, organizations operating in the public sector become more and more ‘businesslike’ (Gendron, Cooper & Townley, 2007; Kurunmäki, 2004; O’Dwyer & Unerman, 2008). They face tension as they struggle to balance the desire to maintain their core values and work processes based on humanitarian ideals with the need to keep up with the cut backs in their budgets (Chenhall, Hall & Smith, 2010; Oakes, Townley & Cooper, 1998). These organizations are constantly searching for tools and techniques for dealing with new governmental regulations and cuts on their budgets (Andrews & Van der Walle, 2013). Governmental organizations become more familiar with results as performance indicator (Cavalluzzo & Ittner, 2004), and efforts to improve governmental performance have placed considerable emphasis on performance measurement as a means to increase accountability and improve decision-making (Ittner & Larcker, 1998).

This movement towards more businesslike and result-oriented organizations is called New Public Management (NPM), which imports ideas, techniques and practices from the private sector. It enables the transformation from traditional public organizations into a model of modern organizations, responsive to and meeting community needs (Petronela, 2012). Hood (1991) mentioned that NPM protagonists recommended the public sector to be opened up to greater private sector influence. This was to be achieved through the implementation of practices which reflected these arguments, ranging from the promotion of various forms of relationships with private firms, such as outsourcing or future partnerships, to the development of complex performance management systems and a customer service orientation (Andrews & Van der Walle, 2013; Pollitt & Boukaert, 2000). NPM supports the notion that such elements need to be incorporated in the public sector.

Implementing new result-oriented Management Control Elements (MCEs) is also part of NPM. Carpenter & Feroz (2001) described the increased emphasis on the process of decision making with governmental organizations, and the underlying theoretical concepts. For instance, they used institutional theory to highlight the characteristics of decisions made regarding adopting accounting principles. Chwastiak (2001) displayed the emergence of planning, programming and budgeting in projects of the United States government. In that paper he describes budgeting as a social rather than a technical process. His research showed the difficulties when transferring businesslike MCEs to public sector environments.

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several elements within a package. The relevance for using Management Control Packages is showed by Abernethy & Brownell (1997):

‘It is clear that organizations rely on combinations of control mechanisms in any given setting, yet virtually nothing is known about how the effects of any one control are governed by the level of simultaneous reliance on other forms.’

Chenhall (2003) mentions the risk that if specific accounting controls are systematically linked with other organizational controls, studies that exclude or do not control for these elements within the research method may report spurious findings. Another reason for this thesis to adhere the package approach is the simultaneous use of a wide range of control mechanisms serving multiple purposes which makes it difficult, if not impossible, to isolate the effect of any specific means of control (Otley, 1980). Therefore, in this thesis, control elements will be viewed as coherent and interrelated rather than separated from each other.

This thesis builds on a research opportunity suggested by Malmi & Brown (2008), who see all MCEs as parts of one package. Several studies worked with this assumption, some regarding the public sector (see e.g. Cristofoli et al., 2010). However, they did not elaborate on the antecedents that led to the package. The research opportunity suggested - to explore the configuration variety of Management Control Packages - is not fulfilled yet. However, because of growing theory about the packages, exploring its configuration enriches science. This in order to enrich science with knowledge about how those packages originate. Further research may try to explore how to influence the process of origination. Therefore, this thesis will try to contribute to the knowledge about packages by filling this gap in literature. An attempt will be made to give an explanation of MCP configuration variety, the factors that affect this variety will be explored. Regarding the case study, local governments work with extremely complex packages, because the characteristics of the package are influenced by both local stakeholders and nationwide politics. This might cause differences in the configuration of the packages. When describing antecedents of the configuration, the gap in literature will hopefully be partly filled. Abernethy & Chua (1996) encourage attempts to fill this gap, stating that ‘future research will continue to explore how accounting and non-accounting controls can act as complements and/or substitutes for each other’.

The practical implications following from this study will support the design of Management Control Packages in a way that it displays the importance of being aware of the underlying characteristics of controls, and the need for these characteristics to be complementary to each other. When elements are complementary, it is more likely that combinations of controls will be internally consistent (Sandelin, 2008). Furthermore, the public sector will profit from new knowledge provided by this thesis, regarding different ways of directing organizations that fit the roles and tasks of local governments. This thesis seeks to provide a better understanding of the controls being holistic and interrelated, which enables organizations or departments to configure the appropriate Management Control Package. The holistic approach holds the idea that characteristics of a system cannot be explained by the sum of just its components (Chenhall & Euske, 2007). This shows the relevance for practice derived from this thesis.

To provide structure in exploring this gap in the literature, a research question is provided. This research question serves as an assessment framework, to test whether actions during the research are relevant to fill the void.

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Finding an answer to the research question serves the explicit demand for theory on relationships and underlying mechanisms of the package (Malmi & Brown, 2008; Cristofoli et al., 2010). In order to answer the main research question, a case study will be performed at department level of a Dutch municipality. Yin (1984) recommends case study research when the research question is a which-question. This type of questions is preferred, because the thesis aims at finding specific antecedents. When the which-question is answered, the how/why-questions become relevant. Merchant (1985) also calls for a case study because of the importance of internal consistency, according to him indispensable for control systems to operate as a package. That way, systems are designed to achieve similar ends. When judging whether the systems within organizations are internally consistent, a case study is the appropriate form of research (Mundy, 2010). Within the departments, observations, document analysis and interviews will provide the data necessary to execute the research and find an answer to the research question. Superiors from two departments within the municipality will be interviewed, mainly regarding the four forms of control, as distinguished by Merchant & Van der Stede (2007). These forms are result control, action control, personnel control and cultural control. The research will focus on MCP configurations present at the department level, and the antecedents of the packages.

This paper will continue with a literature review of the extant literature. Here, the focus lies on the main concepts: Management Control Elements, Management Control Packages, the appearance of those two concepts within the public sector, configurations of packages, and possible antecedents of these configurations. Using literature the prevailing knowledge is scrutinized, in order to give ground for relating antecedents to differences between MCPs.

Next, the research methods are discussed and grounded with arguments for the choices made. A description of the case is given and an explanation about why this case environment, with two departments, is chosen.

The fourth chapter will give the analysis of the data from the case study, data from the document analysis, observations and interviews. This data will be confronted with the extant literature in the following discussion, where a contribution to theory will be made.

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2. Key structuring concepts

Research on management control shows the variety of relevant concepts and the variety of definitions within these concepts. This section defines the most relevant concepts, in order to narrow down the focus towards the case study. The purpose is to give a structured overview of the literature concerning Management Control Packages, and possible antecedents of the configuration of these packages.

2.1 Management Control Elements

When defining management control in organizations, several elements can be derived (Merchant & Van der Stede, 2007). What constitutes management control has been described in various ways in literature (Fisher, 1998; Hopwood, 1976; Langfield-Smith, 1997). Merchant & Otley (2007) use a broad conceptualization of management control, where concepts like strategic control, strategic development, and learning processes are incorporated in the definition. They state that almost everything in the organization is included as part of the overall control system. A narrower description proclaims management control elements as the formal, information-based routines and procedures managers use to maintain or alter patterns in organizational activities (Davila, 2005; Simons, 1994). Furthermore, a narrow conceptualization towards management control elements is derived from Merchant & Van der Stede (2007), defining MCEs as the systems and elements dealing with employees’ behavior.

The different scopes the aforementioned authors used, indicate the necessity of defining MCEs for further use in this thesis. Here, the line of thought of Merchant & Van der Stede (2007) will be followed, because they explicitly refer to behavioral aspects. MCEs should align these behavioral aspects with the bigger picture, as they support organizations in letting its employees make decisions and take actions which are in the organization’s best interests (Chow, Shields & Wu, 1999; Chenhall, 2003; Ferreira & Otley, 2005). This definition demonstrates the relation between employee behavior and the goals of the organization, which gives reason for exploring MCEs.

Because of the abundance of literature on MCEs (Langfield-Smith, 1997; Lee & Cobia, 2013), a categorization is needed to provide some structure. Therefore, the object-of-control framework from Merchant & Van der Stede (2007) is used. This model is favored over the typology from Malmi & Brown (2008). Their typology is build on less prior empirical research, and its reputation of being a generally accepted framework is less widespread. Furthermore, the framework from Merchant & Van der Stede (2007) takes a more narrow view, because it is structured around less versatile concepts. For instance with classifying planning as part of financial result controls, where Malmi & Brown (2008) consider it as a separate form of management control. A narrow view is preferred, because this research aims at subtracting and describing the specific control elements from the case environment. Merchant & Van der Stede (2007) state that management control exists because of three problems; a lack of direction, motivational problems, and personnel shortcomings. Their framework splits control practices into four categories, to wit: result controls, action controls, personnel controls and cultural controls.

2.1.1 Management Control Elements in the Public Sector

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control elements. These elements support the organizations in implementing the strategy, and attaining the goals of the organization; it makes organizations capable of designing effective programs and implementing them efficiently (Anthony & Young, 2003; Spano, 2009). An important feature of those control elements is to overcome the ambiguity of objectives that public sector organizations face (Verbeeten, 2008). This more or less fits the concept of political control from Hofstede (1981), in that the municipality has to deal with hierarchy, when higher authorities or bureaucracies set the objectives for departments or employees lower in the hierarchy.

Difficulties in the use of control elements are partly caused by the responsibility the municipality bears. For instance, when using cultural controls, public sector ethics cannot disregard an evaluation of efficiency and effectiveness, so that the necessary respect of the rules cannot turn into an opportunity and pretext for unjustifiable delays and defaults (Comite, 2011). Further, it requires a decision making process based on a close relationship between the institutional dimension, the political dimension and the corporate dimension in order to make sure that the goal congruence principle is respected (Spano, 2009). Williams et al. (1990) highlight the importance of budgets as a control element, enabling public organizations to achieve their goals. Although there may be a universal set of budgeting control factors that apply with equal facility to both the private and the public sector, they highlighted other organizational variables causing particular combinations to dominate for public organizations. These variables make studying the control elements used by public organizations more relevant.

2.2 Object-of-control framework

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measures is subscribed by Cavalluzzo & Ittner (2004). Thus, although not specifically designed for municipalities, most elements do fit that environment, which confirms the use of that literature in this research.

Since there is no specified relationship between employee inputs or actions, and the resulting financial outputs, organizations cannot only rely on result controls (Widener, 2004). The second form of controls from the object-of-control framework is action controls. Action controls might be seen as the opposite of result controls, in being a direct form of control where employees are told what to do and how they should do it. Hence, it monitors means rather than ends (Efferin & Hopper, 2007). These controls make sure that employees perform certain actions known to be beneficial to the organization (Merchant & Van der Stede, 2007). Examples are the rules and procedures, internal control, handling times, and rules of conduct regarding working with citizens. In this framework, four basic forms are distinguished. These are behavioral constraints, which make it impossible, or at least more difficult, for employees to do things that should not be done. There is the pre-action review, which involves the scrutiny of the action plans of the employees. Third, the action accountability, which involves holding employees responsible for the actions they take. Fourth, the use of redundancy, which means assigning more employees to the task than is strictly necessary. Segregation of duties might be used to control employees. The overall difficulty with these controls is that those rules and procedures need to be optimized, because if not, employees will do the wrong things, despite their doing what they were told by their managers (Merchant & Van der Stede, 2007).

The third form of control in the classification are the personnel controls. These controls deal with the assumption that employees by nature want to control and motivate themselves. The starting point is that employees prefer performing well, and with high quality selection, which might result in organizations performing well (Merchant & Van der Stede, 2007). Besides selection, training, education, career opportunities, and promotions of employees are elements that also form personnel controls. Motivation of employees is an important aspect with this form of controls, which managers can achieve by the aforementioned elements.

The fourth form of control highlighted in the framework are the cultural controls. These controls focus on promoting shared norms and values to induce employee self-control (Efferin & Hopper, 2007). It relies on the ability that groups form the performance of people. As a group, keeping up with the norms and values is easier than when performing individually (Hechter, 2008). When creating, shaping or adjusting culture, codes of conduct and group rewards are among the most important methods of shaping culture, and thus effecting cultural controls (Merchant & Van der Stede, 2007). Other ways to mold the desired culture are inter-organizational transfers, physical and social arrangements, and tone at the top. Where personnel controls aim at increasing employee’ self-monitoring, cultural controls encourage mutual monitoring.

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equally good final state can be achieved by various control system designs in the face of similar contingencies. This holistic perspective supports the idea of not studying elements in isolation, but with a less narrow view. Using a broader view is not a new way of looking at management control. A long-held view in control literature claims that several means of control do possibly complement or substitute each other (Fisher, 1995; Abernethy and Chua, 1996; Ferreira and Otley, 2005; Huikku, 2007). When complementary, elements are related in such a way that if the presence of one element increases, the marginal return of other elements also increases (van Veen-Dirks, 2006; Milgrom & Roberts, 1995). Hence, the holistic perspective on management control is chosen because of the unclear findings and conflicting results empirical management control studies have delivered, caused by only investigating some elements at the cost of more comprehensive and integrative approaches (Sandelin, 2008). This displays the need for a more comprehensive approach towards the elements integrated in the case environment. A contribution to our understanding of the features explaining the functionality of a combination of control elements can be made, by examining the couplings between management control elements (Sandelin, 2008).

2.3 Management Control Packages

In order to contribute to the understanding of a combination of MCEs, this combination of elements will be defined. Several authors mentioned the partial ignorance in literature (Fisher, 1995; Chenhall, 2003; Chapman, 1997), whereupon Otley (1980) came up with the idea of the various management controls as forming a package rather than operating as a coherent system. Other authors continued with this idea where management control packages (MCPs) are not mere functions of a single control element, such as culture or results, but are based on combinations of control elements that can support a particular control orientation or management philosophy, at least in a growth firm context (Granlund & Taipaleenmäki, 2005). Different management control elements do not operate in isolation.

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more like a system (Malmi & Brown, 2008). When emerged, next to each other, by different interest groups at different times, it is more like a package (Malmi & Brown, 2008).

Another frequently cited definition is given by Abernethy & Chua (1996). They state that ‘control elements operate as a package when they are internally consistent—that is, they are designed to achieve similar ends’. The definition this thesis adheres corresponds with Otley (1980), in that several control arrangements of an organization form a package, which can only be evaluated as a whole. It is often impossible to separate the effect of one control element from other controls; they act as a package and must be assessed jointly. The difference with the definition of Abernethy & Chua (1996) is that they give the requisite of being internally consistent, before elements are viewed as a package. Although in line with Otley (1980), this thesis disagrees with Abertnethy & Chua (1996), and sees the all the elements present in an organization as the package. Thus, also because the aforementioned definition of Bedford (2006) is too shortsighted, this thesis uses the view of Malmi & Brown (2008).

When investigating the elements within the package, this thesis makes use of the described object-of-control framework of Merchant & Van der Stede (2007). The reason for this is because it focuses on the coherence of several elements, but still provides sufficient rigidity with the specific control objects of culture, action, personnel, and results (Sandelin, 2008).

2.3.1 Management Control Packages in the Public Sector

Spano (2009) continues with the organizational goals citing Flamholtz (1996), who argue that a mismatch between core control system, organizational structure and culture may determine a failure in achieving organizational goals. He opts for the holistic approach when implementing management control elements, which supports the theory on control packages, and also builds on the holistic approach. Lapsley (2010) mentions the importance of control elements related to accounting, positioned in a complex interweaving of control elements. This paper works with the notion of elements interweaving in the control package of public organizations. Johansson & Siverbo (2011) continued with the work of Cristofoli et al. (2010), describing the design of the governance package, the control package of public service organizations. They applied the configuration approach, because of their interest in the package design as a consistent whole, rather than single elements. Within the control phase, Johansson & Siverbo (2011) distinguish result controls, action controls, and social controls. They state that the effectiveness of elements is expectedly affected by how the package as a whole is aligned to the governance context. The effectiveness depends on the internal fit within the package, as well as the external fit between the governance context and the package (Johansson & Siverbo, 2011). Thus, their definition of the management control package of a public organization meets the aforementioned definition from Malmi & Brown (2008), despite the difference in focus regarding the type of organization.

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municipalities explore, for instance in relationships with their external service providers. Because of the multiplicity and complexity of elements, this paper aims at describing them together in a management control package.

2.4 Configuration of the package

The question remains how such a package arises, and what factors influence its constitution. In this section I will discuss the configuration of the package and how it arises. The next section will discuss its antecedents, specifically those that influence the configuration.

Within the configuration, the principle of equifinality needs to be explained. According to this principle, a system is able to reach the same results, despite differing initial conditions and a variety of paths. This fits MCP, as the package approach allows for more than one optimum. There may be configurations that are equally effective. This supports the idea of Milgrom & Roberts (1995), that the design of the MCP is a likely explanation for the effectiveness of single elements.

Most literature regarding the configuration into packages aims at the contingency theory (Otley, 1980; Malmi & Granlund, 2009; Chenhall, 2003). This theory comes from the assumption that there is no optimal applicable system, but the systems need to adapt to a specific context to be efficient (Schreyögg & Steinmann, 2000). This becomes relevant as the environment - the internal and external context of elements - influences the performance and efficiency of the elements (Pock, 2007). The view comes from a combination of decision-making approaches and the system theory. The first is narrower; the second is more formalistic. From this, contingency theory works with an open system, aiming at relations within and around the organization (Pock, 2007). This provides ground for the general hypothesis with contingency theory, that organizations need to best match their internal features with specific situational demands, in order to achieve the best adaptation (Scott, 1987).

Otley (1980) opts for a contingency theory of management accounting regarding the package approach to MCEs. This because organizational factors have the presence to explain management control elements, although those findings were still rather fragmented (Chenhall, 2003). Eventually, closer contingent elements, other elements than the one studied most specific, do affect the total package. Therefore, Malmi & Granlund (2009) support contingency theory in MCP configuration.

2.5 Antecedents of the configuration

When investigating the case environment, antecedents of the configuration of elements into a package will be scrutinized. Antecedents are concepts that influence the configuration, that were preceding the configuration (Bandury & Nahapiet, 1979). Several possible antecedents are suggested here. However, in the case environment other antecedents could be found.

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& Chua (1996) stated that the organizational control mix is a function of the organization its institutional environment. Thus, both articles agree on that the mix of elements is partially caused by the environment.

Cristofoli et al. (2010) continues on possible antecedents. Regarding professionalism within organizations, they mention that it seems to influence the configuration of control mechanisms through the focus on bureaucratic forms of control. Furthermore, the length of relationships with partners of the organization possibly influences the configuration. It seems to support control elements from a wider spectrum, and couple them with more trust-based mechanisms. With these long-term relationships, ownership within the partner organization grows, which allows organizations to build a relationship based on bureaucratic culture and mechanisms, as well as an informal trust relationship as a control mechanism. This package of control mechanisms comes from the relationships build, which suggests that other organizations also influence the configuration of the package.

The final two possible antecedents of the configuration suggested by Cristofoli et al. (2010) are concerning the power of two stakeholders from the environment, citizens and politicians. These two stakeholders do specifically have influence on control within municipalities, which makes them highly relevant for this research. First, the political visibility, which refers to the amount of citizens’ affected by the public services, that is the final users. The more final users, the more attention is attracted towards the service, which leads to more interventionism. It is suggested that high political visibility creates a need for bureaucratic controls. For instance, users’ complaints become more relevant. Since the relationship between citizens and the city is crucial, politicians are notably sensitive to public evaluation and criticism (Cristofoli et al., 2010). Second, the power of politicians is important in organizations such as municipalities, as politicians are the face of dominant coalitions, and thus are able to affect the diffusion of managerial tools and instruments (Durant & Legge, 2002; Hodgkinson & Hughes, 2012). This way, politicians have power over the use of several managerial control elements. Rautiainen (2010) adds to this by showing that the level of conflicting pressures politicians exposed decision-makers to, affects outcomes and actions. These pressures do influence the MCP.

The final antecedent described here are the cut downs made by organizations, in order to minimize costs and thus economize. Most often cut downs are obliged by governments. The article of Widener (2004) mentions these cut downs as a driver for control through organizational structures. These cut downs precede choices in control elements, and therefore might be an antecedent of the MCP of the case environment.

2.6 Scope of research

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3. Methodology

This thesis aims at giving new insights concerning Management Control Packages. Therefore, a multiple case study within the municipality of Zwolle is performed. This chapter entails a description of the research methods chosen and how the empirical part of the research is executed. Besides the research conducted the selected research site, that is, the case environment is described. The reasoning behind the departments within the municipality chosen is given. This thesis will be build on data obtained with qualitative procedures, because of the fruitfulness and often more depth of understanding which can be derived from it (Berg, 2009).

3.1 Research methods

Case study research is said to be appropriate where literature and existing theories are inadequate or incomplete (Otley & Berry, 1994; Scapens, 1990). This study concerns the control of employees within a public organization. Studying the way subordinates are controlled by their superiors means focusing on the relations between them. Therefore, qualitative research is conducted. As stated by Flick (2009, p. 12), ‘qualitative research is of specific relevance to the study of social relations, due to the fact of the pluralization of life worlds.’ The method of a case study meets the goal of this study, as it attempts to come up with in depth information about the subject (Bryman, 2012). Further, a case study has been named as the most promising mode of enquiry in order to study the controls in use with a comprehensive approach (Otley & Berry, 1994; Ahrens & Dent, 1998). This thesis does not aim at generalizing existing literature, but aims at learning and building theory. That focus makes a case study the appropriate method for conducting the research (Eisenhardt & Graebner, 2007; Flyvbjerg, 2006; Yin, 1984).

Continuing with Yin (1984), when studying practically uncivilized grounds, studied scarcely before, a case study fits the research question. In order to give detailed insights into how the management control package of the two departments are constituted, Weick (2007) proposes a multiple case study to give a comprehensive description of the empirical situation. Lewis-Beck et al. (2004) mention multiple case study as two or more observations of the same phenomenon, for instance Management Control Packages and antecedents. This enables replication, using multiple cases to confirm emerging constructs. This research has carefully selected the departments within the municipality, to give a range of values on chosen contingent variables, while being in control of other variables (Otley, 1980). Another reason for a multiple case study is that the cases can be seen as the result of specific individual socialization against a general background (Flick, 2009), which enables to gain and value data on the right level.

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Conducting the research, a diverse mix of qualitative instruments is used that enable to answer the ‘which’ question on the antecedents of the control package (Edmondson & McManus, 2007; Eisenhardt & Graebner, 2007). The data from the field will be gathered with interviews, observations of meetings and the study of documents (Saunders et al., 2003). With the interviews, the employees are able tell what they think (Myers, 2008), where the researcher is able to ask for explanation of information. The observations executed will present a clear image to the researcher about how the control of employees is designed and performed (Myers, 2008). The documents studied display policies behind actions, and make details from interviews understandable (Flick, 2009). The interviews will provide the most relevant information, where the observations and documents will be used to confirm the data from the interviews. The reason for the use of these three methods is that with the triangulation a complete picture of how employees are controlled is given, because of looking at the same topic from different angles (Myers, 2008; Flick, 2009).

3.2 Data collection and documentation

In the four months of intensive fieldwork, between September and December 2013, all data is collected. During this period, the researcher was present in the organization as an observant, not participating in the daily work activities of the organization. With this single role as observant, the researcher literally stood aside, not interfering with the information given by employees (Flick, 2009). The reason for not only conducting the interviews, but also attending and being present in the organization for a few months is the level of closeness that is reached. This way it is possible to give a clear view on how the employees work, feel, and experience (Mintzberg, 1979). The upside of the high level of closeness is that this interaction with the case environment supports building theory which closely mirrors reality (Eisenhardt, 1989). The attendance at the two departments is divided; the researcher had a working place in both departments. All data is gathered first hand, which preserves for interpretation problems (Myers, 2008).

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departments regarding the way they are controlled. These interviews were arranged because of a research from another researcher.

Interviews: Length: (minutes) Word count

SD Superior 1: Head of Department 100 12.097

SD Superior 2: Unit Manager Development 85 9.077

SD Superior 3: Alderman Development, 1e 50 6.651

SD Superior 4: Alderman Development, 2e 60 8.319

SD Superior 5: Controller 60 6.411

SD Superior 6: HR Advisor 80 11.007

CI Superior 1: Head of Department 90 12.456

CI Superior 2: Public Area Employee 75 9.330

CI Superior 3: Team Lead Outbound 70 10.357

CI Superior 4: HR Advisor 75 9.286

CI Superior 5: Controller 70 7.107

CI Superior 6: Unit Manager Expertise Centre 90 12.267

CI Superior 7: Alderman Expertise Centre 60 7.753

Table 1: The interviews used for the analysis.

The second form of data consists of observations of meetings. This method supports gaining insider’s knowledge of the field (Flick, 2009). With this method, ‘practically all the senses – seeing, hearing, feeling, and smelling – are integrated into the observations’ (Flick, 2009). There was little, if any, interaction between the researcher and the people observed (Myers, 2008). During these observations as many field notes as possible are made, for it is not possible to know what will be relevant later on (Payne & Payne, 2004). These notes are a commentary on what was happening at the time (Myers, 2008). Some meetings and conversations were documented within the diary, and other meetings resulted in specific reports.

The third form of data consists of documents obtained from the municipality, both from employees and from the intranet. Documents benefit the researcher in providing specific details supporting the verbal views of interviewees, and allow the researcher to build a more comprehensive picture than could be obtained by interviews and fieldwork only (Remenyi et al., 1998; Myers, 2008). These documents are used as an additional source of data, complementing the interviews. They make things visible and are traceable (Prior, 2003). Next to providing further understanding of the environment, parts of these documents are analyzed the same way as the interview transcripts. Altheide (1996) suggests studying documents to understand the culture, as a considerably part of culture consists of documents. For instance, regarding the culture of the departments, the work of Lijkendijk (2010) is used. This way, details from the interviews are held against for instance policy documents.

3.3 Data analysis

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When analyzing the data, coding will be used. Using Kwalitan 5.0, the qualitative data is coded. Kwalitan is the appropriate program for these kind of interviews and other data (Peters, 2000). According to Miles & Huberman (1994, p. 56), ‘codes are tags or labels for assigning units of meaning to the descriptive or inferential information compiled during a study. Codes are attached to “chunks” of varying size – words, phrases, sentences, or whole paragraphs, connected or unconnected to a specific setting’. This way, the most relevant parts from the text are distracted. With the analysis, citations will be used to tell the story.

3.4 Case description

The case environment is the municipality of Zwolle. Dutch municipalities and provinces have seen several changes in aspects of their management control, during the 1980s and 1990s, which underlines the relevance of control elements municipalities (Ter Bogt, 2008; Ter Bogt & Van Helden, 2011). The implementation of elements has continued during the past years. For instance, in every municipality the municipal council nowadays determines the outcome budget (Ter Bogt, 2008). This means the municipalities are responsible for deciding which programs and outputs need to be achieved. These changes fit NPM as it could be a response of the Dutch local governments to internal factors like budgetary stress, external changes in expectations, and formal rules (Ter Bogt, 2008).

The municipality of Zwolle lies in the middle of the province of Overijssel, in the middle of the Netherlands. It has a population of 121.527 residents and a surface of 119,36 km² (CBS, 2013). There are several reasons for using a municipality as the case environment. Municipalities in the Netherlands are the second largest employer in the Dutch public sector, with 170.060 employees (Werken in de publieke sector: Feiten en Cijfers 2012). Further, its structure with several departments is suitable for this case study and allows for a comparison between the departments. The municipality of Zwolle consists of seven units, with several departments. The focus of this case study is on two departments within two units. The units are ‘development’ and ‘expertise center’. The first department is a policy department, part of the development unit, and responsible for the design and implementation of the plans concerning the social development of the city. The second department is construction department, part of the expertise center, and responsible for the buildings and installations of Zwolle to be operational.

SD consists of 35 employees, all highly educated, and responsible for writing the policies on several subjects like culture, sports, education, and health care. Their mission is ‘to make sure that the whole society is able to be part of the city of Zwolle’ (Unit Manager Development). The ambition of SD is to be ‘an excellent consultant for the college and the board, and to be the director of the implementation of the policy’ (Department manager SD).

CI consists of 40 employees, both office service and field service. They are responsible for the functioning of the installations and buildings owned by the municipality (Department manager CI). They focus on both maintenance and construction of these installations and buildings. ‘When we don’t hear anything from the citizens, we do a good job’ (Service technician CI).

These two departments were chosen for a reason: their different places in the framework of Ouchi (1979). He defined two scales, measurability of outputs and knowledge of the transformation process, which range from high/perfect to low/imperfect. This results in the use of different forms of control (Ouchi, 1979). The assumption is made that the SD department is rated low/imperfect, the CI department is rated high/perfect. This makes a comparison between the departments interesting.

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4. Analysis

This analysis will give the reader insights in the way the subordinates are controlled by their superiors. Within the research period of four months, the researcher was present at both departments, working between the employees of the SD department and the CI department. The analysis uses the structure of the categorization of Merchant & Van der Stede (2007), with personnel controls, cultural controls, result controls, and action controls. Within the four groups of control elements several headers are used. With every header, the situation of the use of control elements at both departments is described, and there will be a short evaluation on whether the elements are used the same or in a different or less prominent manner. An overview of the MCPs will be provided with a table. After describing the management control package, the antecedents that have influenced the configuration of the package will be described.

4.1 Management Control Packages

The SD department is organized with one head of the department, and four senior employees. They form the so-called ‘backbone of the control of the department’ (Head of Department SD). The seniors focus most on the content part of the job, specifically, writing policies. The head of the department has the main personnel responsibility. The Management Team mentioned that control of SD should not be ‘on the content’, but the people controlling the department do need to have affinity and some knowledge about the content.

The CI department also has one head of the department. Most of the time he controls the inbound personnel, those working at the office. The outbound personnel, the service employees, are controlled by their Team Lead. According to the Head of Department CI ‘because that group needs a little more control and support’. The control at this department is described as ‘both supportive – enabling employees to do their job, and placing the dot at the horizon – determining the direction of the department’ (Unit Manager CI).

4.1.1 Personnel control

When analyzing the way personnel controls are used within the departments, three subjects are relevant. These are the capacities of the employees, the clarity of expectations towards the employees, and the level of self-direction.

4.1.1.1 Taking care of the capabilities needed (P 1)

The most important aspect regarding personnel control at SD is that ‘all employees of SD are highly educated’ (Head of Department SD). In order to direct employees towards the goals of the organization, the municipality of Zwolle offers a large amount of education and training possibilities, and departments make a development plan every year. Education aims at improving knowledge about the content of the job, training aims at improving personal skills important to perform the job. The SD department mainly focuses on training, and hardly on education, as ‘the knowledge about the content of the policies already is with the employees, but some skills need to be improved’, according to the Head of Department SD. The goal of providing these training programs is:

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Depending on the plans for the year, the CI department decides what kind of education and training is needed. ‘They come up with a profile about the content of the work. Depending on what capabilities are needed, they decide about training and education’ (HR Advisor CI). The employees are motivated by the Head of Department CI to participate in training, internal and external education. For instance, service employees sometimes are educated by suppliers of new products and tools to enable the employees to work with it.

Through the use of both training and education, the employees of CI are controlled stronger on taking care of their capabilities and knowledge than the employees of SD. Hence, there is a difference in the MCP of the departments.

4.1.1.2 Employees know what is expected (P 2)

Controlling employees also means making clear what is expected from them. For the SD department, all functions are described in the function manual (Functiehandboek Zwolle, 2013). This document gives an outline of what is expected from the employees. For instance, advisors at SD have different rankings. For an advisor II the manual gives the following characteristics of the function: performs advising/developing proceedings; provides strategic policy advices which nourish the organizational goals; is aware of the presence of political impact; academic work- and thinking level. As displayed, this manual gives abstract and general guidance. ‘Employees do not distract their daily proceedings from this. Therefore they make use of the department plans and the result-oriented appointments made with their superior’ (HR Advisor SD). Employees of SD also have portfolio meetings with the alderman every week, about the headlines of the policies. However, when writing policies, most of the issues and details they have to find out for themselves. No clear expectations about this are communicated, as ‘they are the professionals in their field’ (Head of Department SD).

The functions of CI are also described in the function manual, and this is also called ‘highly abstract and general’ (Team Lead CI). The outbound service employees know what is expected from them based on an information system, Share Point. ‘This system sends notifications when an object needs to be repaired or checked, and gives information about what kind of action is needed’ (Head of Department CI). In general, the service employees take care of several notifications per day. This means, for each of these notifications they know what is expected from them. The inbound employees then support and guide the outbound employees towards their task. Next to these daily reports, the also work for projects out of the year plan. Also concerning those tasks, ‘the employees know what kind of maintenance needs to be done’ (Public Area Employee).

Employees of SD do know the outlines of what is expected from them. This is explicated towards them mostly on weekly basis, certainly not on daily basis. The details they have to come up with themselves. The employees of CI focus on notifications delivered by an information system, with specifics about the actions expected. Through the use of this system, employees of CI are more controlled through clear expectations than the employees of SD.

4.1.1.3 Level of self-direction (P 3)

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as control element fits the characteristic of being professionals and highly educated, in that they have ‘the knowledge to perform and manage for themselves’ (Unit Manager SD).

The Head of Department CI wants the employees to be responsible for at what moment tasks are performed, how they are performed and how this is communicated. Although CI tries to motivate the employees to be self-directing, this is an underdeveloped control element. ‘We still need to make improvements on employees being self-directing, taking responsibility towards their own tasks’ (Unit Manager CI). Several other superiors acknowledged this need for improvements. When talking about self-direction with employees, I noticed various views on self-direction and self reliance exist. This because it is not clearly communicated according to a few employees.

Self-direction is a more important part of the MCP of SD than for the MCP of CI, because SD focuses on the professionalism of the employees more than CI (Unit Manager SD).

4.1.2 Cultural controls

In order to experience the culture, I have been at the municipality for several months. The culture of the SD department was described as ‘individual’, ‘friendly’, ‘closed‘, and ‘build on social motives’, by several interviewees. One alderman said about this: ‘It is not a very open culture, where they can talk about anything. They do more talk about each other instead of with each other’ (Alderman 2 SD). The superiors said they were aware of this level of individuality, and trying to overcome it. Within this perspective, all employees of the department have participated in a program based on the model of colors from De Caluwé & Vermaak (1999). This program provided insights in what type of thinking all employees had individually. Goal was to inform everyone about the differences in thinking, and to keep that in mind when trying to collaborate. The culture of CI is more jointly. Interviewees described it as ‘people oriented’, ‘driven by craftsmanship, ‘concerned with each other’, ‘sharing responsibilities’, and ‘family-like’.

In order to analyze the way cultural controls are part of the MCPs, two things are analyzed here. First, whether specific norms and values are promoted by superiors, and second, whether mutual monitoring is encouraged.

4.1.2.1 Promotion of norms and values (C 1)

In Zwolle they collectively work with the ‘four V’s’ (Lijkendijk, 2010). Four Dutch words (all start with a ‘V’) encompass the values that are promoted most. These are responsibility, trust, craftsmanship, and connections. Every person interviewed mentioned these. Within SD, this method of controlling employees is used in different manners, and is promoted by superiors from different levels in the organization. ‘We promote them with a team day, tomorrow we will discuss making connections and approaching each other’ (Head of Department SD), and ‘We organize activities and trainings to promote them from unit level’ (Unit Manager SD). Next to the four V’s, the aforementioned program of TNO is an important tool to promote norms and values. The two most important lessons from this program, according to the Unit Manager, are to ‘think from the outside to the inside’ and ‘picking the appropriate role in a given situation’ (Unit Manager SD).

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The norms and values promoted are equal, just as the way they are promoted towards the employees. Therefore, no fundamental differences are found here, control through norms and values is constituted the same for both departments. The promotion of norms and values will not be part of the discussion chapter, as this thesis aims at the differences between departments.

4.1.2.2 Encouraging mutual monitoring (C 2)

Mutual monitoring is something employees of SD don’t do by themselves. This is in accordance with the aforementioned individualistic culture. Therefore, the head of the department has made it an obligation for the employees: ‘I tell everyone to get 360 degrees feedback, from at least two persons, from inside or outside the organization. They can hand in filled in feedback forms, which will be input for their appraisal at the end of the year’ (Head of Department SD). Mutual monitoring is not that important with controlling the employees of SD. I also experienced this during a meeting with a few members of SD. Everyone talked about his or her own policy subjects, not aiming at improving the pieces of others. The senior who was presiding the meeting tolerated this.

Regarding the CI department, superiors were clear about it: ‘I work here for nine years, and always heard people say they want to give more feedback. However, even after nine years hearing the same story, I never saw a development’ (Unit Manager CI). The HR Advisor mentioned: ‘This needs improvement. People are too busy being friendly towards their colleagues’. The Head of Department CI brought up TNO again: ‘We practiced with monitoring and giving feedback to each other. There I noticed this being one of the worst developed capacities of our department’.

The HR Advisor of CI claimed that mutual monitoring was practiced barely within the entire municipality. They focus on it with the TNO project, but it leaves plenty room for improvement. No difference is found in the way mutual monitoring is arranged in the MCPs of the departments. Therefore, encouraging mutual monitoring will not be part of the discussion chapter, as this thesis aims at the differences between departments.

4.1.3 Result control

In Zwolle they work with ROA’s, result-oriented appointments. These appointments are made with employees on individual level. Each employee discusses them with the head of the department, within the year plan cycle (YPC). All the superiors interviewed told about these RGA’s, they all mentioned the importance of it. ‘This YPC entails three conversations within a year, the starting conversation, the progress conversation, and the appraisal at the end of the year. This appraisal provides the input for next year’s starting conversation. That’s the year cycle. Within these conversations, the RGA’s are used’ (HR Advisor SD).

In order to analyze the way result controls are part of the MCPs, four subjects are described. These are the determination of the result areas, the measurement of the results, the goal setting of the results, and the rewards and punishments linked to the results.

4.1.3.1 Determining result areas (R 1)

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this should have’ (Unit Manager SD). Thus, the direction and the city council determine the result areas, which are followed by the department strictly.

According to the Head of Department CI, ‘results comprise of successfully completing the daily tasks, the specials, and the exceptional projects’. They work with the relation of ‘client - contractor’, in which the contractor communicates to the client what kind of results are needed on the projects. According to the Unit Manager, various parties determine the content of the ROAs. ‘The employee, together with their superior, decides about the ROA’s. However, also the process owner and the budget owner have a voice in this’ (Unit Manager CI). Nonetheless, most results need to be delivered on daily tasks. These results are not specifically described in the ROA’s.

The results areas of SD are communicated to them more explicit and long-term. For CI, most of the time they respond to a notification, and the result should be that the report is dealt with. For CI it is less complicated. Therefore, determining results areas as a control element is more important for SD than it is for CI.

4.1.3.2 Measuring results (R 2)

Employees of SD draft a project plan around the policy they are writing on. ‘The proceedings are discussed with me, to make sure the result achieved’ (Head of Department SD). Next, results are also measured through conversations with contractors. These contractors can give their opinion about the proceedings. The HR Advisor mentioned the so-called ‘neighborhood-for-neighborhood research’, which delivers both hard and soft figures. ‘Figures that measure results are for instance the amount of unemployment benefits, the amount of people who found a new job, how many volunteers are working within Zwolle, and more’ (Alderman 2 SD). However, the overall problem with measuring results at SD, according to the Unit Manager, is that ‘it is hard to measure the causality between the action, writing the policy, and the effect, progress in the city’ (Unit Manager SD). The social effects are hard to measure, several other superiors interview confirmed this. Therefore, the results are not that important for management control of SD.

CI measures results through the use of information systems. The aforementioned Share Point creates output that generates management information about how the notifications are handled. Another system is One World, which gives insights in budgeting plans. These are all hard data, and are used to show the performances of employees. The Unit Manager of CI mentions that ‘it is about notably concrete and tangible projects, where monitoring on results is executable’. The long-term projects they perform are measured by the contractors. On forehand, the contractors clarify what is expected, and they ‘regularly evaluate the progress, both the physical and the financial progress’ (Unit Manager CI). Afterwards this is measured and communicated by the contractors.

Because of the higher measurability of the results for the CI department, the measurement of results is of more importance for the MCP of CI than it is for SD.

4.1.3.3 Goal setting regarding results (R 3)

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delivered, for instance a finished policy note, we can oversee only the first ten centimeters of the meter. Sometimes that makes it hard to come up with the right goals for our employees’. Goals are set, but remain abstract for the employees of SD. When further in time, goals are adjusted to align to the new circumstances.

For CI, the management team sets the goals for the department. For instance, ‘the goal is set by the management team to make sure that the results delivered do not cause crossing the given budget’ (Controller CI). The Team Lead CI underscores this, and communicates this to the employees. The goals set are not that complicated. The most important goal is: ‘We want everything to work as normal’ (Alderman CI). This is rectilinear and visible.

For CI, the goals set are clear. For SD it is not that simple. Therefore, the control of employees by setting goals is more important for SD than for CI. The employees of SD receive more support and input on this, for instance from their superior and the alderman.

4.1.3.4 Rewards/punishments linked to results (R 4)

The municipality of Zwolle works with some rewards coupled to good results. Examples the interviewees mentioned were ‘diner coupons around 100 euro’s’, ‘gratuities starting at 500 euro’s’, but also smaller rewards like ‘a box of candy for the department’ or just ‘a compliment from the alderman or the contractor of a project’. Rewards are not given on regular base, only incidentally. ‘Our employees are working for the public cause, most of them are not interested in a strict and individual reward system’ (Head of Department SD). The Team Lead CI said: ‘Look, when someone does his or her job, they receive a fair salary for it. I don’t know why we should give rewards on top of that’. Nonetheless, the HR department started a project, called ‘reward awareness’, which focuses on looking for options to link rewards more to individual performances. Maybe in the future rewards will be more important and given more often.

Concepts that are mentioned as punishments are ‘a conversation with a superior’ or ‘a negative rating at the appraisal’. During the appraisal at the end of the year, employees receive a rating, ranging from A to E, where A is bad and E is exceptional. When someone receives a negative rating two years in a row, a trajectory is started which might lead to a transfer inside the municipality, and dismissal ultimately. However, this happens rarely. For both the departments SD and CI these rewards and punishments linked to results are the same.

The important point here is that these rewards and punishments are not mentioned by the superior on forehand, for instance at the start of a project. Employees are not motivated on forehand through this. They do not work harder to receive a reward, nothing is promised to them. Therefore, rewards and punishments linked to results are not an important control element within the municipality of Zwolle and for both departments. Also no differences between the departments are found.

4.1.4 Action control

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planned work, the responsibility of employees towards their own work, logging activities, rewards and punishments coupled to the way work is performed, and segregation of duties.

4.1.4.1 Procedures to follow (A 1)

Employees of SD do have to follow several procedures and routed ways of working. For instance, the process of providing subsidies, the policy cycle, the budget cycle, and the way written policies and other information is delivered to the aldermen. The policy cycle and the budget cycle are called ‘a ruthless mill, there is no escape in that’ (Head of Department SD). However, the department aims at delivering creative advices, and therefore it is possible to deviate from most procedures. ‘Next to following procedures, they also need to be sharp on these, and to do it more easy, faster, or with more risk involved, as long as it is better’ (HR Advisor SD). The ‘80-20 rule’ counts at this department. ‘When 80% of work is following the procedures, and 20% is completed apart from those procedures, that is fine’ (Controller SD).

The CI department has more procedures to follow. Examples are safety procedures, purchase procedures, public tender procedures, and the way notifications from Share Point are handled is also secured in procedures. The head of the department is currently working on this control element. ‘We are aiming at improving the use of procedures, making it more as one. This is one of the things we want to accomplish with the Physical Management Domain, which will be implemented soon’. This domain wants to make clear all the procedure for projects, from start to end, and what role someone has within all this. According to the HR Advisor SD ‘all these procedures need to be followed very strictly’. Four other superiors confirmed this importance of following procedures.

The employees of CI are controlled more through procedures inserted. They are controlled to deal with more procedures than the SD department, and the employees of SD are permitted to deviate from procedures more that the employees of CI.

4.1.4.2 Physical and administrative limitations (A 2)

Employees of SD are confronted with a few limitations. These are administrative limitations. The access to for instance the financial systems, documentation systems, information systems, and personal data are restricted; authorization is required. Still these things are more just a given, than actively controlling employees towards the goals of the department.

On the CI department there is one chamber that is physically locked. This is the SMIC, the Service Management Information Center. From here, among other things Share Point is controlled. Only authorized employees are allowed in here. Administrative limitations are largely the same as for the SD department. However, the control on physical limitations is relevant for the CI department, in that the service employees are the ones that can enter any building the municipality owns in the city. They are controlled by being the people with the least physical limitations.

Therefore, control through limitations, or not being limited, is most relevant for CI. This supports them in doing their job, more than it supports the employees of SD.

4.1.4.3 Checking planned work (A 3)

Management Control Elements in a Package: