Managers versus Employees: An analysis of their perceptions of Management Control Systems.

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Managers versus Employees: An analysis of their perceptions

of Management Control Systems.

Carola Carosi - S4161939 c.carosi@student.rug.nl Supervisors: Dr. Wilmar de Munnik

Word count: 12,494 (excl. References, Appendices)

18-01-2021 Master Thesis

MSc Management, Accounting & Control Faculty of Economics and Business

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Abstract

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1 Introduction

The world is changing fast from a production-based economy to a knowledge-based one (Powell & Snellman, 2004). Management accounting literature (Bisbe & Otley, 2004) has always focused on the central role management control systems (MCSs1_{) have in nowadays’ highly uncertain situations, and has proved the} positive relationship between control systems and innovativeness. While much of the earlier literature has focused on MCSs’ design in manufacturing firms, recent literature has paid attention to MCSs’ role in other contexts: such as in knowledge-intensive firms (Ditillo, 2004). These firms are especially reliant on their staff for competitive-advantage, achieved through knowledge-based innovations (Anand, Gardener & Morris, 2007). As a result, it is of utmost importance for those firms to design their MCSs in effective ways that could facilitate the organization’s capacity to derive benefits from such innovations (Bisbe & Otley, 2004; Jørgensen & Messner, 2009). However, current management accounting and control literature still fails to acknowledge the importance of employees’ perceptions of controls in the design of MCSs. These perceptions could hinder the effectiveness of the implemented MCSs (Tessier & Otley, 2012) and, in the long term, the wealth of the organization (Song, Van der Bij & Song; 2011).

As a matter of fact, since the emergence of the Levers of Control (LOC) framework, literature on MCSs has sought to provide evidence on how to achieve the control of the business strategy by balancing the four levers of controls’ forces2_{(Kruis, Speklé & Widener, 2014). For instance, some management accounting and control} studies, followed a contingency-based approach to identify the most effective combination of levers of controls according to different contingency factors (Chenhall, 2003; Bedford, Malmi & Sandelin, 2015; Otley, 2016). While previous studies (Abernethy & Stoelwinder, 1991; Amabile, 1998; Miles & Snow, 1978; Ouchi, 1977) have seen formal MCSs as deterrents for creativity, incapable of coping adequately with uncertainty, contemporary studies highlighted the importance of MCSs in innovation and uncertain environments by acknowledging the role of all yhe levers of controls (Widener, 2007; Malmi & Brown; 2008).

Much of the research in this space follows a contingency approach that focuses on the systematic associations between strategy and particular MC practices (Bedford, Mami & Sandelin, 2016). However, at the same time, it provides an under-socialized account of organizational phenomena (Roberts & Greenwood, 1997), basing its studies on the assumption of economic rationality of organizational individuals. According to management accounting literature (Coase, 1998), organizational actors are assumed to maximize efficiency by choosing the most appropriate governance structure tailored to their needs (Williamson, 1981). This view implies that since organizational agents are economically rational individuals, employees will perceive MCSs the same way as their managers and behave accordingly (Otley, 2016). For instance, Abernethy and Chua (1996) and Flamholtz (1985) define MCSs to be implemented by managers to make organizational actors behave in ways consistent

1_{One single management control system is defined with the abbreviation “MCS”.}

2_{Simons (1995), in his Levers of Control framework, identifies four different control systems: the diagnostic control}

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with the organizational objectives. Similarly, Speklé (2001) states that the primary function of MCSs is the alignment of individual and group behaviors towards intended objectives. However, organizational agents are not always hyperrational (Roberts & Greenwoods, 1997). So, in reality, individuals might not follow a predictable efficiency-maximizing behavior, managers might not choose the most efficient MCSs’ design, and mostly, employees might not perceive these MCSs following managerial intentions (Roberts & Greenwood, 1997). This difference has been already highlighted by Tessier and Otley (2012): who acknowledged the fact that what managers are trying to achieve by implementing a specific control (intentions) might differ from what employees believe the control is for. However, even if employees’ perceptions are considered important in Tessier & Otley’s (2012) framework and mentioned as a separate element, they are not investigated in depth. The authors indeed claim for additional research on these employees’ perceptions as they could impact organizational performance effectiveness.

To address this claim, this study will try to obtain an understanding of how managerial intentions of control systems differ from the employees’ perceptions of them. Based on this, the following research question will be answered: “How employees’ perceptions differ from managerial intentions of control systems?”.

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2 Theory

The following theoretical review will explain the main concepts of the study. The first section is going to introduce management control systems and their benefits to organizational performance. Secondly, the managerial intentions of MCSs will be introduced as explained by Tessier and Otley (2012). Lastly, the study will try to explain employees’ perceptions and their possible influence.

2.1 What are management control systems?

Research on Management Control Systems has always been characterized by a lack of clarity in the definition of MCSs (Fisher, 1998). In fact, many definitions exist, some of which contain overlaps, while others are quite different from each other (Malmi & Brown, 2008). For instance, some authors have used vast conceptions of MCS: Chenhall (2003) defines it as the broader term that encompasses many types of controls. Others have defined MCS as the set of management controls that deals with employees’ behavior (Merchant & Van der Stede; 2007) and that directs organizational actors’ behavior in ways consistent with the objectives of the organization (Abernethy and Chua, 1996). Still, others moved beyond behavioral controls and see MCSs as the means to achieve goal congruence (Flamholtz et al., 1985). What all these definitions have in common is that they are based on the assumption that someone (senior manager/top management team) is seeking to control the behavior of others (middle managers/employees) (Malmi & Brown, 2008). As Zimmerman (1997,2000) states, these controls might be implemented to support individuals’ decision-making process, through the provision of information, or to directly influence their behavior. Among the two options, Malmi and Brown (2008) see MCSs more as the set of tools (e.g. rules, values and practices) managers put in place to direct employees’ behaviors. This definition is broader than the above-mentioned ones (Abernethy and Chua, 1996; Flamholtz et al., 1985) aiming for goal congruence or motivation, as they exclude many ways superiors might influence subordinates, such as explicit formal rules (Malmi & Brown, 2008). Moreover, this definition is akin to Simons’ (1995), on which the Tessier and Otley’s (2012) framework is based. For the above-mentioned reasons, the definition of MCSs provided by Malmi and Brown (2008) will be used along with this thesis.

Today, it is well-accepted in literature that control systems are interdependent (e.g. Merchant & Otley, 2006). For instance, Simons (2000, p.31), in his Levers of Control (LOC) framework, posits that all his four control systems work together and are necessary to provide an effective control environment. According to the author, when the four levers of control are implemented together, a dynamic tension between the “positive3_{” and} “negative4_{” levers of control is created. Contrary to previous management control literature and motivational}

3_{Simons’ Belief and Interactive control, since they are supposed to motivate employees in the search for new}

opportunities, are meant to create positive energy (Simons, 1995).

4_{Simons’ Boundary and Diagnostic control systems are supposed to place limitations on employees’ behavior and create}

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theories5_{(Deci & Ryan, 2008; Adler & Chen, 2011; Baard et al., 2004; Sutton & Brown, 2013), the notion of} dynamic tension not only demonstrates that control features (positive vs. negative) are interdependent, benefiting one another (Widener 2007; Milgrom & Roberts, 1995). It also shows that MCSs’ interdependency is needed to have the right mix between employees’ compliant behavior and creative search effort, necessary for organizational success (Mundy, 2010).

However, to achieve interdependencies among control systems, different MCSs should be implemented simultaneously. That is why Malmi and Brown (2008) do not define control in its entirety as a single system. Rather, they define MCS as a “package of systems”: this way, the authors avoid failing to acknowledge the interdependencies that exist when MCSs are considered in a system. Consequently, this study adopts the MCSs’ terminology of a “package” to get a clear overview of a control system’s totality in the way intended by managers (managerial intentions).

2.2 What are the Managerial Intentions of Management Control Systems?

The following subsection will offer a review of Tessier and Otley’s revised LOC framework (2012). This will try to acknowledge better what managerial intentions are, in contrast to employees’ perceptions.

2.2.1 The Tessier and Otley’ s revised LOC framework.

Tessier and Otley’s (2012) revised LOC framework (Figure 1) is relevant to emergent literature on management accounting not only because it gives a holistic view of control systems, addressing the ambiguities related to Simons’ LOC framework (Tessier & Otley, 2012). Mostly, it is relevant because it is the first study to introduce and differentiate two groups of actors: managers (intentions) and employees (perceptions). These concepts are voluntarily separated in the framework because while, on the one hand, managerial intentions represent what managers are trying to achieve through the implementation of control systems, on the other hand, employees’ perceptions refer to the employees’ interpretation of what the control is for. Consequently, to refine the notion of the dual role of control6_, the authors explicitly address this distinction.

In the revised LOC framework, managerial intentions represent all the different choices managers can make regarding the control system. Analyzing the framework from a micro to macro approach, managers make decisions about the individual controls, choosing among two types of control at their

5_{These theories believed negative MCSs would be detrimental to creativity and product innovation (Deci & Ryan, 2008;}

Adler & Chen, 2011; Baard et al., 2004; Sutton & Brown, 2013).

6_{The revised LOC framework uses the broader notion of “dual role” of controls (instead of positive and negative) to}

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disposition: Social controls, which represent the manageable aspect of organizational culture, and technical controls, that specify how tasks have to be performed. Then, managers choose among four different control systems: sets of individual controls with specific objectives (performance or compliance). Two of them are concerned with performance: the “Operational Performance control

system”, which focuses on performance at the operational level, and the “Strategic Performance control system”, which focuses on performance at the strategic level. Instead, the other two control

systems are concerned with compliance at the operational level, the “Operational Boundary control

system”, and compliance at the strategic level, “The Strategic Boundary control system”. Lastly,

managers stabilize their intentions about the control system enacted or, in other words, they stabilize what they want to achieve with the control system enacted. For instance, managers can decide which control will have the main focus of promoting discussion and learning (interactive use) and which will be looked at only if there is some deviance (diagnostic use). Conversely, managers can also decide whether the control will be used to promote creativity (enabling role) or in a way that ensures predictability (constraining role). Finally, they can decide the consequences (e.g. rewards/punishments) of the achievement (or non-achievement) of performance and compliance requirements. All the choices included in managerial intentions apply to each control system, but more specifically, each system’s individual control.

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However, the framework also includes employee perceptions on which managers have no influence (Tessier and Otley, 2012).

2.3 What are Employees’ Perceptions of Management Control Systems?

The distinction between intentions and perceptions has already been present in literature. However, it has never been explicit: Simons (1995), for example, mentioned that organizational participants could view boundary systems as either constraining or liberating. Ahrens and Chapman (2004) made clear that accounting systems are always subject to a continuous interpretation process. Wouters and Wilderom (2008) investigated whether the process that leads to performance measurement systems is perceived as enabling by organizational participants. However, even though these authors have implicitly addressed the distinction, only Tessier and Otley (2012) explicitly addressed it in their revised LOC framework. Since design choices of a control system are shaped on want managers want to achieve with that control, managerial intentions constitute are the design attributes of MCSs. In the revised framework, the design of controls and their quality might differ from controls’ perceptions. In fact, while design and quality of control might influence perceptions, the latter can also be influenced by other elements, such as the presentation of controls (Tessier and Otley, 2012) that will be further analyzed in the following subsection.

2.3.1 Presentation of controls

Once managers have made all the design decisions of control systems, these are ready to be communicated to the employees, and managers must decide how to present their controls (Tessier & Otley, 2012). The choices related to the presentation of controls, even if they are external to the ones related to managerial intentions, have an important managerial relevance: in fact, the presentation of controls acts as a bridge between intentions and perceptions, and so it can influence and modify how controls are perceived (Tessier & Otley, 2012). Accordingly, Adler and Borys (1996) sustain that employees’ perceptions of formalization of controls surely depend on the controls’ attributes, but also on how these controls are formulated and implemented in a particular context. Consequently, managers have to last make decisions on how to present the controls (Tessier and Otley, 2012). Communication theorist Berlo (1960), in his Sender-Message-Channel-Receiver’s (SMCR) communication model, describes the four components that form the basic communication process7_{. Applying Berlo’s SMCR} communication model to an organizational setting, we find that the four main factors influencing the communication process become: the managers (the senders), the MCS implemented (the message), the ways through which the MCS is transmitted (the communication channel) and the employees (the receivers). Managers are the first element to influence the communication process with their personal attributes (communication skills, attitude, culture) because they represent the start of the communication process and the persons who encode the message. The MCS with all its inherent

7_{Berlo (1977) stated that in finding optimal ways of conceptualizing communication, literature had left us fundamental}

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controls, and the channel of communications used, are the decisions on which managers must reason to influence the receivers’ perceptions in the intended way (Tessier and Otley, 2012): the former represents decisions about the information to provide regarding the control system, the latter instead represent the medium used to convey the message that must be able to be picked up by the sensory system (hearing, seeing, touching, smelling and tasting) (Berlo,1960). Lastly, employees are the persons who receive and subsequently encode (or makes perceptions about) the coded message. The individual attributes of employees are as much as important as the ones of the managers.

In the revised LOC framework (Figure 1), the importance of the presentation of controls is well acknowledged. In fact, it is represented by a distinctive arrow that is external to the managerial intentions part of the framework and that connects managerial intentions to employees’ perceptions, acting as a “bridge” (Tessier and Otley, 2012). This way, the authors acknowledge the importance of the presentation’s decisions that represent the last set of decisions that influence employees’ perceptions.

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3 Methods

This chapter will present the design of the research by focusing on three subsections. Firstly, a comprehensive description of the case setting will be provided. Following, the data collection procedure will be described, also giving the sample’s description. Lastly, the data analysis process will be elaborated.

3.1 Case Setting

To answer the research question “How employees’ perceptions differ from managerial intentions of control

systems?” this thesis will be a qualitative research that uses a case study methodology. Qualitative research

has been chosen for many reasons: firstly, according to Pratt (2009), it is the best means to address “how” questions. Moreover, since this study is interested in the perceptions employees’ have about control systems, qualitative research best serves this scope since it employs the meaning in use by societal members to explain how they directly experience everyday life realities. In other words, it builds social science from members’ “concept-in-use” and focuses on the socially constructed nature of reality (Schutz, 1973). Consequently, it is appropriate to understand the social processes of communication that shapes employees’ perceptions of control systems. A case study methodology also seemed the most appropriate choice to investigate the difference between managerial controls’ intentions and perceptions. In fact, according to literature, a case study is the preferred methodology to build knowledge about organizational phenomenon (Yin, 1992).

The case study setting is the Luxembourgish business unit of one of the largest services & consulting’s companies worldwide, among the Big Four. This unit has been chosen because the author had a simplified access to its HR department. Moreover, according to the company, the Luxembourgish business unit offers unique opportunities8_{to foster the intellectual property needed in today’s’ economy, where “knowledge is} king.” The company will be called “Great Services” (or “GS”) from now on due to anonymization. The consulting industry was an appealing avenue in which to pursue the research question for the following reasons. First, consulting firms represent the epitome of knowledge-based organizations as their main asset is their personnel’s expertise and knowledge (Engwall & Kipping, 2002). Consequently, since consulting firms’ success and competitive advantage heavily depends on their staff (Anand, Gardener & Morris, 2007), it is of utmost importance for them to design MCSs in such effective ways to foster employees’ knowledge-based innovations. (Anand, Gardener & Morris, 2007; Bisbe & Otley, 2004; Jørgensen & Messner, 2009). However, it is also of utmost importance that employees perceive the implemented MCSs in such an enabling way (Tessier & Otley, 2012). Second, successful innovations require the careful negotiations of internal power relations within those firms. Audit partners are responsible for the firms’ overall management and must appropriately distribute their power to control the relationships with the company’s different clients (Hall, 1968). However, the distribution of power hinders the management’s ability to exercise absolute control over strategic initiatives (Anand, Gardener & Morris, 2007). In this context, management control systems must be

8_{For example, Luxembourg’s business unit offers diverse Tax benefits to intellectual property management (e.g. tax}

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appropriately designed, communicated and perceived to achieve the dual role of both empowerment and employee compliance (Mundy, 2010). Third, consulting firms have an inherent imperative for both organic growth and diversification in the context of innovation (Anand, Gardener & Morris, 2007): Consulting firms indeed always try to colonize new knowledge territories, which inevitably leads to the expansion in their scale and scope of activities (Suddaby & Greenwood, 2001). Moreover, a consulting firm’s successful performance depends on the partners’ ability to leverage their reputations with clients by deploying increasing junior staff numbers (Maister, 1993; Sherer, 1995). Again, consulting firms find it necessary to design their work processes and controls in ways that could foster such innovations (Bedford, 2015).

Thereby, the above-mentioned reasons explain why a consulting firm has been chosen to conduct the study. Given its position among the Big Four, the studied company is expected to be successful at managing its MCSs to foster knowledge-based innovations. The Luxembourgish unit has especially been found to promote such knowledge-based innovations, putting effort into fostering the company’s intellectual property. In today’s economy, where “knowledge is king,” management control systems are seen as an important attribute for those knowledge-intensive firms. In this context, differences between MCSs’ intentions and perceptions gain wider importance, as they could decrease the implemented controls’ efficiency.

3.2 Data sources and collection

Since the thesis wants to clarify how employees perceive the control systems differently from managers, not only is the primacy of the “self” a central issue (Ryan and Connell, 1989). Also, the perceived impact on the environment, as perceived by the individual, becomes a central concern. Moreover, as supported by literature (Deci & Ryan, 1985; Ryan & Connell, 1989), primary data sources are the accounts individuals give to describe how they understand their purpose for acting. Therefore, the primary source of this study will be semi-structured interviews (Silverman, 2013) that not only offer the possibility to both have an understanding of the phenomenon by the people directly experiencing it, but also, they enable to analyze a small sample in detail (Flick, Kardorff & Steinke, 2004; Gioia, Corley & Hamilton, 2012). A total of 6 semi-structured in-depth interviews have been intentionally selected (Patton, 2002) to target two managerial hierarchical levels9 representing both managerial intentions and employees’ perceptions. The number of interviews for each management level and each interview’s length are provided respectively in Appendix 1 and 2. Since the paper focuses on achieving a greater understanding of MCS’ intentions and perceptions to increase the effectiveness of MCSs, a small sample of 6 interviewees has been chosen with the help of the HR among the departments that reported the greatest performance in terms of knowledge-based innovations. The choice fell to the audit department of the “Commercial industry and Public Sector” (or “CIPS”) industry or, in other words, to the audit department that serves the majority of GS’ business sectors10_{. To prepare the interviewees for the}

9_{The sample studied reflect the first two level of the company’s hierarchy: Juniors 1 and 2, and their managers.}

10_{The CIPS industry serves many business sectors, including Automotive; Chemicals & Specialty Materials (which}

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interviews and make them feel comfortable, a cover letter explaining the research aim and the interviews’ questions has been composed (Appendix 3). The cover letter has enabled interviewees to talk freely while still focusing on the main research question. The six semi-structured interviews have been conducted over a period of two weeks with the help of an interview protocol composed of open-ended questions. This interview protocol (Appendices 4-5) is structured by three main set of questions: the first questions are rather general to get to know the interviewee. The subsequent questions aim to find out the managerial intentions (employees’ perceptions) of control systems if a manager (employee) is interviewed: this is done by investigating both the social and technical controls present in each of the four control systems11_{of Tessier and Otley’s (2012).} However, this study draws on data triangulation, and so multiple methods were used to investigate the same research problem and to offer a tool for reinforcement and cross validation of data (Jick, 1979). For example, as mentioned above, semi-structured interviews are the primary data source of the study since they give the possibility to refine the interview questions later, as new concepts emerge from data (Horton et al., 2004). However, to refine and re-design the interview questions, other data sources have been consulted to gain a deeper validation and understanding of the emerging topic, ensuring triangulation (Denzin, 2007). For example, company-related articles and documentations were consulted to better understand GS’ implemented rules and policies and refine the questions related to these topics.

The interviews have been conducted through video-calls (e.g. Google meet) because of the impossibility of being in the workplace due to the current Corona-virus pandemic crisis. Moreover, they have been tape-recorded to facilitate later analysis and followed-up by email and telephone conversations for clarifications when necessary. Finally, interviews have been conducted until theoretical saturation (Eisenhardt, 1989) to have an exhaustive overview of how managerial intentions and employees’ perceptions differ in a service company and how this difference is managed.

3.3 Data analysis

To start the analysis, the six semi-structured interviews were formally transcribed to familiarize with the data and to get a first overview (Bennett, Barret & Helmich, 2019). In this stage, keywords and expressions of interviewees have not been changed. Moreover, to be sure that what has been transcribed reflects what interviewees intended to say, the interviewees have been sent a hard copy of their transcribed interview. This process did not lead to any feedback or additional information; therefore, no modification was reported to the transcribed interviews. The company’s articles and documents were also examined at this stage to gain additional information and knowledge on the subject of interest. These findings have been summarized and added as a transcription as well.

Services (which includes the business segment Aerospace & Defense); Retail, Wholesale & Distribution, and Travel, Hospitality & Services.

11_{Strategic performance control system, Operational performance control system, Operational boundary control system,}

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Subsequently, the next step has been the coding of the data, in which transcriptions were analytically coded and analyzed to identify potential patterns. The coding process consisted of reporting all the collected material on Atlas.ti, a software tool that enables to perform the systematic process of open coding, axial coding, and selective coding of the findings (Wolfswinkel, Furtmueller & Wilderom, 2011). The codes were directly attached to text quotes, focusing not to distort the actual meaning of the interviewee’s words. The coding process has been an inductive one, as codes have derived directly from the data itself, following the method of Gioia, Corley & Hamilton (2012). This method enables to analyze data for the development of new concepts, such as how are the differences between controls’ intentions and perceptions.

After the first analysis, a total of 112 first-order concepts emerged. Consequently, all the transcripts and codes were reviewed repeatedly and in an iterative manner to merge similar concepts and codes. This process has been repeated numerous times, and it led to a total of 66 first-order concepts. As research progressed, the analysis continued looking for similarities and differences among the many first-order concepts to form code groups. In turn, these code groups led to seven second-order concepts: labels that faithfully describe the topic of the respective code group. Finally, focusing on each second-order concept and its respective code group, the study tried to theoretically describe what organizational phenomenon is described in those first and second-order concepts. The result of this process is the translation of the descriptive findings into qualitative information that, grouped, forms the three aggregate dimensions of the study, which represents the answer to the research question of the study: “How employees’ perceptions differ from managerial intentions of control

systems?”

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4 Findings

This chapter aims to describe the differences between managerial intentions and employees’ perceptions of Great Services’ management control systems, as described by the firm’s managers and employees. The following table shows the data structure derived from the interviews’ analysis and illustrates the main concepts of this study.

First-order Codes Second-order Codes Aggregate Dimensions

Individual Controls: - Social Controls (S) - Technical Controls (T)

Management Control Systems: - Strategic Performance Control

System (SP)

- Operational Performance Control System (OP)

- Operational Boundary control System (OB)

- Strategic Boundary Control System (SB)

Managerial Intentions

Table 1: Data Structure

Data analysis followed a micro to macro approach to structure the first-order concepts, the second-order concepts, and the aggregate dimensions. This way of proceeding is coherent to the one used by Tessier and Otley (2012) to describe their framework (Page 5). In fact, it enabled to build parallelism between the thesis’ data structure (Table 2) and the revised LOC framework (Figure 1). This is why, starting from the first-order concepts, we can identify the three levels that compose managerial intentions in the data structure. This means that individual controls (social/technical) are identified in the first-order concepts. The four Tessier and Otley’s control systems are identified in the second-order concepts. Lastly, the overall managerial intentions are identified in the three aggregate dimensions. The reason for this parallelism can be traced back to the

Differences on the perceived role of MCSs

Physical Symbols (OP) Desks & Buildings (S)

Codes & Procedures (OB) Code of Conducts (S) Procedures (T) Blended Trainings (OP)

Face to Face learnings (S) Differences on the perceived use of MCSs Blended Trainings (OP) Mandatory learnings (T) Organizational Values (OP)

Vision & Initiatives (S) HR recruitment process (T)

Feedback System (OP)

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interviews’ protocol (Appendices 4-5), which has been intentionally structured in a way to directly investigate the social and technical controls present in each of the four control systems of Tessier and Otely (2012). Consequently, given that first-order concepts are the accounts informants give about the interviewed topic (Gioia, Corley & Hamilton, 2012), social and technical controls are found in the first-order concepts. Similarly, the second-order concepts are the broader conceptualizations12_{of the first-order ones (Gioia, Corley &} Hamilton, 2012). Therefore, at the second-order concepts’ stage, the study individuates the MCSs that comprehend and conceptualize the individual controls present in the first-order concepts. Finally, managerial intentions are the broader scopes managers give to the implemented MCSs (Tessier & Otley, 2012). Comparably, the study tries to conceptualize the overall meaning of the second and first-order codes in aggregate dimensions. Hence, the three managerial intentions are found in the aggregate dimensions as they constitute the overall sense managers give to the implemented MCSs.

To achieve its aim, this chapter will present the collected data in an organized way. In fact, the finding will be presented in three different sections, representing the three aggregate dimensions of the study: differences on the use, differences on the role and differences on the consequences of MCSs. Each section, in turn, will be further divided into subsections to describe the different second-order concepts composing it.

4.1 Aggregate dimension: differences on the perceived role of MCSs

This subsection is meant to describe the main differences in Great Services over the perceived role of management control systems. As it emerges from data, Great Services’ employees perceive three control systems to have a different role (enabling vs. constraining) compared to managerial intentions. These three control systems are the Physical Symbols’ control system, the Rules and Codes’ control system and the Blended Trainings’ control system. To investigate why GS’ employees have different perceptions on the use of these MCSs, we will investigate the social and technical controls present in each of them.

4.1.1 Physical Symbols’ control system

One control system implemented by Great Services is the Physical Symbols’ control system. Physical symbols, using both touch and sights’ human senses, are meant to guide employees’ behaviors and feelings (operational performance control system) appealing to their emotionality (social controls). Physical symbols represent a powerful tool to managers as they focus employees’ attention on specific items, while simultaneously distorting them from the symbol’s real role. This is the case of GS’ physical symbols of desks’ allocation and architecture of the building (social controls). The former symbol refers to the fact that, at GS’ headquarter, management does not assign any desk to any employee: this way, employees can freely choose where to sit because any desk is similar to one another. This physical symbol makes employees concentrate their attention on what they would like

12_{“Conceptualization is the process of specifying what we mean by a term. In inductive research conceptualization is an}

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to see in an organization: an organization with no special treatments according to the hierarchical level, in which they feel encouraged to share their ideas with anyone (enabling role). Similarly, regarding the second physical symbol, GS has recently renovated its headquarter: an important building with appealing open-spaced offices and attractive venues, such as cafeterias and sports facilities, where employees feel they can meet and have informal discussions with their colleagues (enabling role).

“So, these are was one thing that I truly appreciated. Because when I joined, I saw that I was using the same laptop, the same desk of my director and the only difference was with the partner who is the only one who has its own office. Even when we are at the client, it’s the partner who has its own office. Moreover, we are used to

work in an open space.” (Employee)

“We have these common spaces which have been created to let us have a simple communication breaks, or to have discussions and to brain-storming about the new ideas that we would like to implement within the firm, to

understand whether they have the potential to be implemented and adopted by the firm.” (Employee)

However, the above-mentioned physical symbols concentrated employees’ attention only on the features they would like to see in an organization, averting them from the real role of the implemented symbols. In fact, GS management decided not to assign any desk to any employee, not only to enable communication and inclusion, but mostly to move their main asset (employees) in a cost-efficient manner. Therefore, hindering employees’ possibility to settle down in one department, GS improved its ability to respond quickly to market changes (constraining role).

“You’re not expected or supposed to be comfortable with doing the same work or with having a routine. So, if today you are working in SPAIR, tomorrow maybe you’ll be sitting in declared premises, working with different sets of people, and trying to address a different challenge. So, I believe that part of this is a physical

symbol of not having your own desk or not having your own office.” (Manager)

Similarly, GS management intended to build such an important headquarter to facilitate interaction among colleagues and further achieve the goal of talent attraction and retention, therefore restraining any desire to leave the company.

“I think that this (the building) is a sort of incorporating part of what people expect in the organization, right? (…) we are looking forward something that is pleasant, for something that brings you a sort “peace of mind”.

So, I do believe that those symbols are very important for us, as a reminder that GS cares about you, and having this very clearly is what also attracts talent and retains talent: whenever this is not true, we’re at risk of

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4.1.2 Rules and Procedures’ control system

Great Services, in providing its services, must comply with all the audit legal requirements. Therefore, the firm must ensure compliance toward these requirements (constraining role) through a dedicated “Rules and Procedures” control system. To achieve this aim, Great Services makes use of both codes of conduct and binding procedures. Regarding the former, the firm has three important codes of conduct that dictate an employee’s appropriate behavior (social controls) by focusing on organizational values. As for the latter, GS must ensure that its employees follow binding standard procedures when they are providing the audit service. Therefore, GS encloses these procedures in manuals that employees should faithfully follow.

“I would say that we have three very important code of conducts. The first one would be the normal code of conduct on the ethics that we would expect for any business. (…) This one is very well aligned with our main

goal that is to provide trust in the market. So, having such a strong code of conduct in place is what ensures that you are doing the right thing at the right time. Then, on top of that, we have what we call the Great Services policies, or GSP: this GSP is a sort of a breakdown of actions on what to do in any circumstance. (…)

If you apply to GS, you’re automatically compliant with all the all the audit standards requirements: such as the ACC regulation, and this is perhaps one of the most important code of conduct for the auditor.”

(Manager)

“So, we have what is called, in my industry, the “audit approach manual”. It describes how you are expected to hold every single aspect of the client information and how are you expected to understand your client (…).

Now we have a new figure in this whole process, that is called GSWW (…) For example, while our audit approach manual tells you “you are expected to do this and you are expected to do that” to do this, in GSWW

we have, for example, one solution, one tool or one resource that you can use to be able to do this procedure: so this is how everything fits together so that you can achieve the target at the end of the day, that is to perform

the audit and to carry on our service.” (Manager)

Therefore, managers mean these codes and procedures to ensure the firm the correctness of employees’ actions, assigning them standardized proceedings (constraining role). Nonetheless, employees not only believe those codes and procedures not to restrain their creativity. Conversely, even in performing their standardized tasks, they always feel encouraged to bring innovation in their “working papers” (enabling role).

“Obviously we are doing a standardized work because we have to be compliant, and we have to apply the same standards that are that are applied worldwide. That’s why we have to follow the principles, but we can

improve and give something more to the working paper.” (Employee)

“So, one thing that I really like is that we are never 100% satisfied with the work that was already performed: we are always challenging every time! (…)! Updating numbers it’s not this objective and the goal, the

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(Employee)

4.1.3 Blended Learnings’ control system: social controls

Great Services also has a committed training system called “Blended learnings”: since it combines an optimized selection of more (or less) formal trainings techniques to train its people. As mentioned in one of the company’s documents13_{, the firm has individuated that, to succeed, three broad categories} of knowledge and capabilities should be mastered by employees: standard knowledge and theory, technical skills and their application in the day-to-day work, and the attitudinal behavioral traits. However, while the former can be easily taught through digital mandatory trainings14_(technical controls), according to the firm, the other two must be taught through face-to-face learnings (e.g. classrooms and masterclasses). One GS’ article15_{explicitly mentions how face-to-face learnings are} implemented to create a learning organizational climate (social control) in which learners feel free and encouraged to interact by sharing their knowledge and doubts with other participants or subject matter experts. As it emerged from data, employees perceive these face-to-face learnings to foster their knowledge, curiosity, and will-to-learn (enabling role). For example, one employee confessed how she was tempted to attain additional masterclasses because of the presence of important experts on the subject.

“You are really motivated to do a lot of things because you know that without the firm, and without the tools that your firm is giving to you in order to achieve and to improve the quality, you won’t be you will never be

able to propose or to try to put in practice your ideas.” (Employee)

“I had the possibility to request to the learning Department if they could add me to this training which are not usually covered for a J2 level, but they let me this possibility, so even though these trainings do not fall within my category, they will let me join these trainings. Because it’s really important, during this training you will

have the possibility to meet experienced auditors who have a high expertise on that field!” (Employee)

From an analysis of the company’s documents16_{, however, the firm’s professional environment is in} constant evolution. As markets are becoming increasingly regulated and employees’ focus areas change rapidly, the firm’s workforce must gain the appropriate knowledge and understand how to apply it in practice. This is why the corporate learning department— often working closely with the corporate compliance team— seeks the most effective and efficient training system to skill up the company’s workforce. In this way, GS ensures itself (constraining role) its continuous professional

13_{Obtainable in the publicly accessible company’s database.}

14_{Digital mandatory learnings will be investigated in further details in the next subsection.} 15_{Obtainable in the publicly accessible company’s database.}

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development. As emerged from one manager, GS’ “Blended Training” system is also meant to ensure the firm a knowledgeable “pool of professionals”, which can satisfy new market demands.

“So, for example, let’s say that GS has a new client: it’s an airplane manufacturer. I would expect that somewhere in the network, all over the world, there is someone that already has some sort of background with such industry. (…) So, I would say that the strategy is always to depart from the best of the experience that we

have available somewhere in the network, so that will not depart from scratch.” (Manager)

As emerges from the analysis of the Physical Symbols’ control system, of the Code of conducts’ control system, and of the social controls present in the Blended Training’s control system, employees do perceive these MCSs to be used with a different role (enabling role) in contrast to managerial intentions (constraining role).

4.2 Aggregate dimension: differences on the perceived use of MCSs

This subsection is meant to describe the main differences in Great Services over the perceived use of management control systems. As it emerges from data, Great Services’ employees perceive three control systems to be used differently compared to managerial intentions. These three control systems are the Organizational Values’ control system, the Feedback System, and the Mandatory Learnings’ control system. To investigate why GS’ employees have different perceptions on the use of these MCSs, we will investigate the social and technical controls present in each of them.

4.2.1 Blended Learnings’ control system: technical controls

As mentioned above, Great Services has a committed training control system composed of both mandatory digital learnings and Face-to-Face learnings. Mandatory learnings are the ones the firm makes compulsory to its employees (technical controls), as they cover all the topics the specific employee should be working with. For this reason, mandatory learnings are an important control system for managers as they guide employees’ actions and behaviors (operational performance control system). As made present in one of Great Services’ documents, these learnings deliver standard knowledge and theory, improving the organization’s knowledge and quality over the basic audit tasks (interactive use). This type of knowledge can be easily taught through adequately designed reading material or, in a more engaging way, through e-Learnings modules that offer the highest impact at the lowest costs. Employees sign their compliance toward these mandatory learnings in their contracts. Thus, they are expected to be “on board” toward these trainings.

“I expect our teams to do abide to it and do it willingly because it’s done towards a goal. (...) So we are hiring, for example, people who are willing to learn and who are willing to improve. In that sense, I would expect them to be willing to do those trainings because it’s for their own professional and that’s why we had to sign

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(Manager)

“Since the beginning what we do is that we have several e-learnings (…). Each of us has to comply and be compliant with the e-learnings, meaning that we are obliged to follow these e-learnings since there are common based on our position and on the industry in which we work... (…). This because, for sure, they main

objective is, for each training that is held in the organization that it’s covering a specific topic, the goal is to help the people which are working with that topic to improve the quality”

(Employee)

As emerges from data, employees do understand the importance this standard knowledge has for the quality of the audit service they provide. Nonetheless, employees would feel these mandatory learnings to promote their knowledge (interactive use) if only they were more practical. Otherwise, the retained knowledge is felt to be held only on a theoretical base, and so, it is likely to be often forgotten. Moreover, the knowledge retained level is evaluated only through a questionnaire, which can be re-taken indefinite times. Therefore, due to the little engagement these mandatory trainings require, employees perceive this questionnaire as only performance targets to be achieved (diagnostic use). Moreover, as a consequence, they try to finish the mandatory electronic lesson as quickly as possible, rather than focusing on developing their knowledge.

“They’re useful but since we stand in front of our laptop, in order to do them they should be done more, or on a higher percentage, should be done in place… in GS, with the facilitators.”

(Employee)

“So, in my opinion, what is happening with the e-learnings is that they are a lot! There is always the possibility to perform the final assessment as many times as you want of course…However, the fact is that they are they are not so easy! (…) But we don’t have this time, so a lot of times what happens is that (…) you redo it a lot of

times until you haven’t passed!” (Employee)

4.2.2 The Organizational Values’ control system

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“Every time at work, from the very first day that you joined the firm, we have some core values to respect. Serving with integrity it means that you have to foster at the same time not only the quality of the work you

deliver, but how you are implementing and improving the quality! It’s not just the result.” (Employee)

“So, I contacted my managers as soon as possible, without hiding, because this is part of integrity (…). So, I did the mistake, I understood the importance of the mistake, I reached my manager obviously bringing a

solution… and I mean this is one example of integrity.” (Employee)

However, Great Services implements the Organizational Values’ control system also through more forceful controls that, through rules and standards, bindingly define how tasks have to be performed (technical controls). This is the case of the HR recruitment process control. At Great Services indeed, the classic recruitment process comprises two main interviews: the “Business interview” and the “HR interview.” In the former, potential employees are tested over a business case: this enables managers to assess potential employees’ “performance” by assessing their capabilities. However, through the HR interview, managers examine whether the potential employee fits with the organizational values. According to the organizational “70-20-10 philosophy”, employees cannot learn the organizational values of integrity and proactiveness during their work experience. This is why the HR interview bindingly defines who will/will not meet the organizational prerequisites (Diagnostic use of the recruitment process control).

“Great Services uses the 70-20-10 method. So, this philosophy it’s a sort of a methodology in which we considered that 70% of the value of our professionals will come from informal means, like their self-experience and personality; 20% it’s part of the job training (…) 10% is actually the contribution that you get from formal

trainings” (Manager)

“I think it starts from the beginning. I mean we when we do our recruitment (…). However, I would say, you cannot teach integrity: so, we have things stating what can you and what can’t you do, based on the legal

requirements, but integrity it’s a bigger behavior and it is what we look for when we recruit.” (Manager)

As emerges from data, however, employees do not perceive the HR interview as decisive for their employment. Rather, they believe the business interview, in which their technical capabilities are tasted, to be much more crucial in this sense. In other words, they believe this business interview to be the one to determine, in a binding manner, their recruitment results based on restrictive standards. These standards are the ones that GS makes present17_{to be looking for during their recruitment and}

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are the ones of academic background (achieved or on target for a 2.1 honors degree or higher) and work experience (e.g. internships, summer positions, school jobs).

“For example, even though I joined this unit of Great Services with a bachelor degree, I knew that I would have encountered many people coming from… let’s say “higher backgrounds”, people coming from the best universities in Europe, and I already knew that I would have had to catch up with them and with the knowledge

of these people.” (Employee)

4.2.3 The Feedbacks’ control system

Great Services is also implementing a dedicated Feedbacks’ control system to promote organizational learning (interactive use), and the main tool used to do it is communication18_{. The firm is indeed} applying many policies to promote communication and, one of these is the “open-door policy”: a tool used by GS’ managers to foster an inclusive and a collaborative atmosphere (social controls), that could make employees feel safe and encouraged to reach out to their managers.

“So, I think that “the Open-Door policy”, at my Department and in my team, it’s 100% implemented. You can go to the desk of your director, to the desk of your manager, to the desk of your junior or to ones of your

colleagues and ask whatever you want, or to just ask for a coffee break, to talk, maybe to have some feedbacks… you’re never alone.”

(Employee)

As it emerges from data, Great Services employees perceive these communication policies to encourage a discussion among the hierarchical levels, which will foster their personal and professional growth (interactive use). However, Great Services also has more formal ways of delivering feedbacks to their employees. Indeed, managers at GS implement two different standardized feedback procedures (technical controls). Firstly, there are the “check-ins”, meetings held together with employees on a regular basis. In the “check-ins” managers provide employees with feedbacks on what is/is not going well and what should/shouldn’t be improved. The second type of feedback system is the “appraisals”: here, the managers are expected to fulfill a questionnaire over the performance of the employee, asking for feedbacks also from the persons who have worked with him/her. The results of these evaluations will enable the investigated employee to see their performance in a graph compared to his/her colleagues’ performances. Both procedures are meant to stimulate organizational learning by promoting employees’ proactiveness.

“On a regular basis, we organize what we call “check in” sessions, where each employee should reach out to their managers and discuss with them their performance: we do this throughout the year in order to give people a sensor of where they are, and (in order to) discuss with them where they want to be and how they can

do that.”

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(Manager)

“On an annual basis, we have the actual appraisals: where all the managers, that the specific employee has worked will fill in an appraisal questionnaire and then it will give where the employees is located. We do that for each employee and then the result of it is that they can see like, among all the employees of the same rank,

where they are located.” (Manager)

However, contrary to managers’ expectations, employees generally look at those feedback procedures in a much more pragmatic and often economically driven perspective (Diagnostic use). On the one hand, they understand the company needs to achieve determinate performance targets and, consequently, needs to evaluate its personnel performance. On the other hand, they also believe these performance evaluations will define their career path in the organization. This belief causes them pressure, which is detrimental to organizational learning.

“We are supposed to lead the way, we know it and I think our attitude it’s more on improving the quality of our work because we know that there is this performance review of our work. I think that since we have this

performance review (appraisals), sometimes we can feel under pressure.” (Employee)

“We can feel under pressure because of this (appraisal): because maybe my managers are really liking my work in this in this moment, but maybe I can change team, work in the same way with another manager but he

could have a different view of my work and so sometimes this can lead to some bias.” (Employee)

As emerges from the analysis of the technical controls present in the Blended Trainings’ control system and from the Feedback system Control System, employees perceive these controls to be implemented differently (diagnostic use) in contrast to managerial intentions (interactive use). This inconsistency is also present in the Organizational Values’ control system. The technical controls are perceived to be used to promote organizational learning (interactive use), even if they were meant to be used diagnostically.

4.3 Aggregate dimension: differences on the Perceived Consequences of MCSs

The final aggregate dimension regards the different opinions managers and employees have about the expected consequences over the achievement (or non-achievement) of performance and compliance requirements. Therefore, this aggregated dimension is strictly connected to GS’ Feedback control system, which evaluates employees’ performance over set standards.

4.3.1 The Feedbacks’ control system: perceived consequences

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employees perceive these performance evaluations in a much more pragmatic way. This causes some blurring regarding the consequences of such feedbacks. As managers intend to promote organizational learning through the feedback system, an employee’s performance evaluation is not intended to determine rewards or punishments immediately.

“I mean like in those sessions (Check in, appraisals,) where we deliver feedback, we would raise any flags. So, we never leave someone in the dark like throughout the year, and then say: “you did bad, you’re fired”… no! we don’t do that! we try to help the person understand what they are doing wrong and also how they can do to

change.” (Manager)

“At the end of the year or at the end of a cycle you also have a feedback session not only with those that work with you but also with your coach, in which he will help you to translate that, and to understand that and to

design actual points on what to do next for improvement.” (Manager)

However, this feedback system is perceived by employees not only to be used pragmatically, but also to determine immediately rewards or punishments: specifically, they mentioned that the performance evaluation obtained in the appraisals is what determines their bonuses or their promotions at the end of the year.

“At the of the financial year, these snapshots all sum up together to give your point your main points on the graph, and based on this, your bonus be chosen. (…) I think that since we have this performance review,

sometimes we can feel under pressure.” (Employee)

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5 Discussion & Conclusion

In this chapter, the study’s findings will be first discussed in light of the existing body of literature to provide explanations for the obtained results. Then, in the conclusion section, the answer to the study’s research question will be provided, its theoretical and managerial implications will be explained, and the research limitations and avenues for future research will be highlighted.

MCSs Managerial Intenions Employees Perceptions

Physical

symbols Performance control Operational system

To ensure the firm a knowledgeable set of professionals (through talent retention) and to move its primary asset in an efficient manner (Job rotation).

Those symbols reflect what employee look for in a company, therefore they feel their creativity is stimulated by them.

Even though physical symbols have features (e.g. open-spaces) that promote employees’ creativity (enabling role), they were intended to ensure the firm the ability to respond quickly to market changes (constraining role).

Differences and Similarities over the perceived role of MCSs. Codes &

Procedures Operational Boundary control system

To ensure the firm’s personnel complies to the audit legal requirements.

Employees perceive codes and procedures necessary elements of their job. Even if these rules and procedures standardize their tasks, they feel encouraged to bring innovation to their work.

Managers and employees both recognize the importance of the codes and procedures for the audit work. However, while these have been implemented to ensure standardization of actions (constraining role), the workforce feel encouraged to innovate their work (enabling role).

Blended Trainings’ social controls (Face to Face learnings) Operational Performance control system

These social controls ’main role is to stimulate

organizational learning in different topic to ensure the company a knowledgeable set of professionals.

Employees perceive all the face-to-face learnings tools the organization is offering them to foster their personal growth.

The social controls in the Blended Trainings’ control system are perceived to facilitate employees’ personal interests (enabling role), still their wider scope is the one of ensuring the firm a knowledgeable set of professional to respond to market changes. Blended Trainings’ technical controls (Mandatory learnings) Operational Performance control system The mandatory learnings are meant to spread the audit basic knowledge throughout the firm, promoting organizational learning.

Employees perceive the knowledge transmitted in those mandatory trainings of little utility. This makes the mandatory trainings perceived in a diagnostic manner.

In general, the Blended Trainings’ control system is implemented by managers with the scope of increasing the knowledge of the company (Interactive use). However, the mandatory learnings are pragmatically perceived by employees, who tend to focus on achieving a target rather than on acquiring knowledge. Differences and similarities over the perceived use of MCSs. Organizational Values’ technical controls (HR recruitment process) Operational Performance control system

Due to the importance of organizational values, these technical controls bindingly define the organizational performance standards.

Employees do perceive the firm is implementing those values to create an organizational climate that stimulates their inclusion and learning.

Even though the values of integrity, proactiveness and Innovation stimulate an appealing and collaborative work environment (interactive use), those values are used in a pragmatic manner (diagnostic use) by managers to define who will/will not satisfy the organizational targets. Feedback system’s technical controls (Check-ins and appraisals) Operational Performance control system

The feedback control system is implemented to facilitate employee’s personal and professional growth by letting them understand where they stand in terms of performance.

Employees however perceive the feedback procedures (technical controls) to be rigidly used by managers to define who meets the organizational standards.

Managers implement the whole feedback control system to facilitate organizational learning (interactive use). On the contrary, employees perceive the feedback procedures (technical controls) to define who meets the performance targets (diagnostic use).

Feedback system’s technical controls (Check-ins and appraisals Operational Performance control system As managers intend their feedback control system to stimulate organizational learning, they do not attach any consequences to their performance evaluations.

Employees perceive their promotions/downgrades to be defined by these evaluations.

Since managers intend to use the feedback control system in an interactive way, they do not attach any consequence to the feedback performance evaluations. Instead, employees perceive their career path depends on these evaluations.

Differences and similarities over the perceived consequences of MCSs.

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5.1 Discussion

To help the reader cope with the complexity of the argument, a summary of all the findings’ information needed to follow the discussion is provided in the above-reported table (Table 2). The table highlights how managerial intentions and employee perceptions of management control systems sometimes concord, sometimes differ over their use, role, and consequences. However, there are diverse reasons why employees might perceive MCSs, or their individual controls, differently.

Firstly, from the table, all the reported MCSs relate to the operational level (Operational Boundary Control System or Operational Performance Control System). This is because the interviewed sample relates to the first two hierarchical levels of the organization that deal mostly with operational issues. Moreover, we can notice how both the Blended Learnings’ control system and the Feedback control system have been repeated more than once in the analysis. This can be explained by the fact that the choices included in managerial intentions (e.g. role, use, consequences) are not mutually exclusive. Rather, when managers implement a control system, they can attach different intentions to each system’s controls (Tessier & Otley, 2012). For example, as in the case study firm, the Blended trainings’ control system is implemented to have an interactive use, promoting organizational learning. However, its individual controls (e.g. social and technical) are implemented with a constraining role, ensuring its personnel’s knowledgeability. Managers of GS might have intentionally chosen to apply different intentions to the same MCS since, as it happens when different MCSs are implemented together, they can create that dynamic tension that is beneficial to organizational performance (Mundy, 2010).

Managers versus Employees: An analysis of their perceptions of Management Control Systems.