INTERPRETATION OF THE
ENVIRONMENT AND CULTURE ON THE
CONTROL SYSTEMS OF DUTCH
CHARITIES
PREFACE
Dear Reader,This Master’s thesis is the final product of my academic quest to become Master of Science in Business Administration, with the specialization Organizational and Management Control at the University of Groningen. The subjects of study in this thesis are Dutch charitable organizations, more specifically: Amnesty International, Refugee work Netherlands, Alzheimer Netherlands and The Dutch Brain Foundation.
This research examines how the interpretation of the external contextual factors and organizational culture of the Dutch charitable organizations affect the choice of the control system by the top management, including the consequences for the fit between the environment and the organizational control systems. As far as I am able to judge, this study succeeded in doing so. To which degree this is the case, is of course open to decide for the reader. Nevertheless, I can say that I am proud of the final product that lies in front of you. First of all, I would like to thank the four interviewees who granted me with their time, openness and useful information. Therefore, I am more than willing to give an oral presentation of the results, analysis and
conclusions as to return the favour.
Secondly, I am much obliged to my first supervisor Drs. M.M. Bergervoet. The constructive feedback sessions that we held were enjoyable. Moreover, I am grateful for the flexibility that he provided to me, the short response time in which he responded to my questions and the much helpful written feedback that he
gave.
Finally, a special thank you goes out to my friend and former fellow student M.Sc. K. Bruinsma. Exchanging thoughts on amongst others, methodological issues and his feedback on draft versions of this thesis have been a major help to me.
Nijmegen, March 2012
Adnan Dzigal
ABSTRACT
Purpose. This study explores the affect of the interpretation of the external contextual factors and organizational culture of Dutch charitable organizations on the choice of the control system by top management, including the consequences for the fit between the environment and the organizational control
system.
Design/methodology/approach. A literature study is performed, followed by four in-‐depth interviews with members of the top-‐management of four different charitable organizations in the Netherlands. Findings. The results from both the literature search and the interviews confirmed one another. The most important environmental factors found are: intensified competition, a call for transparency, a worsened economic state and a self regulatory climate. Together these environmental factors result in a medium to high degree of dynaminism. The organizational culture was interpreted as a clan culture and the organizations are found to employ the clan mechanism of control. In addition, the analysis showed a clear contrast between the non-‐fundraising part and the fundraising part of the organizations. That is, especially for the fundraising parts of the organization a fit between the control system and the environment was lacking.
Research limitations/implications. This investigation leads us to conclude that the fit between the environment and the organizational control system is lacking, especially for the fundraising parts of the organizations. This fit can either be improved upon internally or externally. Either way, it is the question if the funding for the additional resources required is available for the (smaller) charitable organizations.
Originality/findings. There are not many studies that focus on the Dutch charitable sector and this
is the first study that investigates the affect of the interpretation of the environment and the culture on the control systems.
Key words. Charities, control system, environmental dynaminism, culture, managerial interpretation,
fundraising.
Contents
CHAPTER 1 -‐ CHARITIES ... 6
1.1 Introduction ... 6
1.2 The Dutch charitable sector ... 6
1.3 Amnesty International ... 8
1.4
Refugee work Netherlands ... 8
1.5
Alzheimer Netherlands ... 8
1.6
The Dutch Brain Foundation ... 9
CHAPTER 2 -‐ RESEARCH DESIGN ... 10
2.1
Introduction ... 10
2.2
Problem statement ... 10
2.2.1
Research objective ... 10
2.2.2
Key research question ... 11
2.2.3
Conceptual model ... 11
2.2.4
Sub-‐questions ... 11
2.3
The use of literature ... 12
2.4
Research methodology ... 13
2.4.1
Type of research ... 13
2.4.2
Focus and scope ... 13
2.4.3
Data collection ... 13
2.4.4
Data presentation & analysis ... 13
2.4.5
Relevance, validity & reliability ... 13
CHAPTER 3 -‐ THEORY ... 15
3.1
Introduction ... 15
3.2
Organizational strategy ... 15
3.3
Organizational culture ... 17
3.4
Interpretation by top-‐management ... 18
3.5
Organizational control ... 20
3.5.1
Mechanisms ... 20
3.5.2
Systems ... 22
3.6
Organizational control & strategy ... 22
CHAPTER 4 – RESULTS ... 25
4.1
Introduction ... 25
4.2.1
Environmental factors at play ... 25
4.2.2
Degree of change in environmental factors ... 26
4.3
Interpretation of the environment ... 27
4.4
Interpretation of the culture ... 28
4.5
Control systems ... 29
4.6
Fit between environment and control system ... 31
CHAPTER 5 -‐ ANALYSIS ... 33
5.1
Introduction ... 33
5.2
Environmental dynaminism ... 33
5.3
Interpretation of the environment ... 34
5.4
Interpretation of the culture ... 36
5.5
Control systems ... 36
5.6
Fit between environment and control system ... 38
5.7
Conclusion ... 40
5.7.1
Environmental dynaminism ... 40
5.7.2
Interpretation of the environment ... 40
5.7.3
Interpretation of the culture ... 40
5.7.4
Control systems ... 41
5.7.5
Fit between environment and control system ... 41
5.7.6 Relations between the concepts ... 41
CHAPTER 6 – CONCLUSIONS & IMPLICATIONS ... 43
6.1
Introduction ... 43
6.2
Conclusions regarding the results ... 43
6.3
Conclusions regarding the research ... 44
6.3.1
Knowledge requirements ... 44
6.3.2
Problem statements requirements ... 45
6.3.3
Research process requirements ... 46
6.4
Recommendations ... 46
6.5
Limitations ... 47
6.6
Suggestions for further research ... 48
REFERENCES ... 49
Appendix 1 –Interview questions ... 51
Appendix 2 -‐Transcripts ... 54
CHAPTER 1 -‐ CHARITIES
1.1 Introduction
According to the ‘Centraal Bureau Fondsenwerving (CBF)’, in 2009, 95% of the people in the Netherlands gave to charitable organizations; charities play an important role in the Dutch society. In 2005, Dutch households and corporations together donated approximately 4.4 billion Euros (0.9 percent of the GDP) (Meijer, 2009); both households and Dutch companies increasingly take their social responsibility (Heyden & Rijt, 2004). Furthermore, in the annual report of the CBF over 2009, it can be read that for the first time more than 3 milliard Euros has been raised by the 806 charitable organizations in the Netherlands. On the whole, it can be argued that the Dutch charitable sector should not be overseen.
Therefore, in this first chapter, a closer look will be taken at the Dutch charitable sector in general and at the four organizations that are the subjected to further study: Amnesty International (AI), Refugee Work Netherlands (RWN), Alzheimer Netherlands (AN) and The Dutch Brain Foundation (DBF).
1.2 The Dutch charitable sector
In this paragraph we will discuss the factors that currently play a role in the Dutch charity sector. A look will be taken at the degree of competition, the call for transparency, the state of the economy and government regulation. However, before we can proceed, first we need to define what we mean by ‘a charity’. Balabanis, Stables & Philips (1997: 584) define a charity as: “organizations whose purpose is charitable by reference to case law developed by court decisions”. The authors use the term interchangeably with non-‐ profits that have as a main purpose: “to organize and oversee voluntary social action directed at humanitarian problem solving, with a main goal of: 1. attracting resources 2. establishing priorities for social action programmes 3. allocating resources to beneficiaries” (Balabanis et al., 1997: 584). In this thesis the definition of Balabanis et al. (1997) will be followed. In this line, it has to be noted that charities do not issue shares and their missions are not to maximize profit. Subsequently, non-‐profit managers are not accountable to shareholders. Nevertheless, they are accountable to donors and grantors who provide the required capital. As we will see in this section, this exactly is the challenge that the Dutch charities face. Now that we have established a definition, let us proceed by looking at the factors that currently constitute the environment of
the Dutch charitable organizations.
First of all, competition is rising. Balabanis et.al. (1997) argue, based on the British charitable sector that the competition for a donation is increasing due to the expanding number of charitable organizations. In their article, Weir & Hibbert (2000) claim that in the UK the number of charities continues to grow at a rate of 12.000 annually. While not as rapidly, also the Dutch charitable sector expands. The website1 of the CBF currently lists 1391 fundraising institutions, compared to 1070 in 2007. In the annual report of the year 2008, the CBF speaks of a displacement market instead of a growth market. On the contrary, the amount of money provided by donors remained the same in 2009 as it was in 2008: 1.3 Millard Euros. Hence, the number of
charities is rising faster than the amount of fund raised; the competition for donations is increasing. Subsequently, the costs of marketing for funds have increased (CBF, 2009); in 2009 the costs for fundraising by the charities themselves increased with 5.4 % compared to the previous year. As a consequence there is a growth of compassion fatigue (Balabanis et.al., 1997); the feelings developed by the public that there are too many charitable demands on their budgets. Another consequence is that it becomes increasingly important to make an effort to raise funds responsibly (CBF, 2009). That is, raising funds responsibly can lead to positive differentiation, which is in line with the following environmental factor.
Secondly, there is an increasing demand for transparency and donors increasingly scrutinize charities (Pratten, 2004). Lee (2003: 5) explains: “donors are becoming more sophisticated in the manner in which they select charities for support. Increasing amounts of press attention directed towards fundraising and administration costs and the particularly bad publicity attracted recently by a small number of organizations have helped to focus the minds of the potential supporters on suitable bases for comparison between competing organisations”. In a similar vein, in a study of Heyden & Rijt (2004) it was concluded that societal causes should better communicate their business-‐worthiness and the good communications they can offer in return to the profit companies. In addition, Meijer (2009) found that reputation is increasingly important for charities, while it directly affected the amount of donors attracted. However, there are more factors at play in
the environment of the Dutch charities.
Thirdly, the sector faces financial difficulties due to the worsened economic climate (Andreasen, 1982). Currently, the Dutch economy is in recession (CBS2). As an effect, the amount of government support is expected to decrease (CBF, 2009), raising the costs for fundraising. Over the year 2009 the percentage of the costs for fundraising, compared to amount of money raised, already increased with 1 percent (CBF, 2010). In addition to the declining government subsidies it can also be expected that donors will decrease the amount of money that hey grant to charities. Jones & Posnett (1991) found that participation in charities depends on household income. In line with this finding, Meijer (2009) reports that income has a positive effect on the amount of money donated. Hence, with a worsened economic climate the amount and height of donations can
be expected to decrease.
Fourthly, the regulation of the government is an important environmental factor. The Dutch government has not issued a lot of regulation concerning charities. Nevertheless, trough facilitation of fiscal measures, the government does show a positive attitude towards the development of the Dutch charitable sector. A majority of private donations are tax deductible and in some cases companies can also extract the amount of support from its company’s taxes. In addition, the government supports the CBF. Hence, the government wants the sector to regulate itself. (Heyden & Rijt, 2008)
On the whole, looking to the factors discussed in this section, the relevance of having appropriate organizational control systems is underlined (Petrovits, Shakespeare & Shih, 2011).
That is, one way of coping with the intensified competition, the call for transparency, the worsened economic state and the self regulatory climate, arguably is to obtain a competitive advantage and to differentiate by exploiting the benefits of an effective organizational control system.
1.3 Amnesty International
Amnesty International is an independent movement counting 3 million members worldwide, which commits to victims of violations of human rights. Amnesty Netherlands, having 300.000 members, is the first of the two large organizations that will be subjected to study in this thesis. The Dutch division of Amnesty International was founded in May 1968, making it a relative old organization.
The legal form of Amnesty International is an association, having the international members’ council as the highest organ. The international members’ council gets together twice a year and supervises, amongst others, the board. In the international council meeting the members decide on the important policy issues. Moreover, in the international council meeting the members of the board, the financial committee and the appeals commission are elected. The international board consists of nine members who are elected for a period of 3 year. The decisions of the members’ council and the board are implemented by the employees of the national secretary. In the Netherlands, the group of employees consists of 130 workers and 50 volunteers, who plan and coordinate all the activities of Amnesty Netherlands.
1.4 Refugee work Netherlands
Refugee work Netherlands is an independent organization that advocates for refugees and asylum seekers in the Netherlands, from entering the country until integration into the Dutch society. Refuguee work Netherlands, is the second of the two large organizations that form part of this research. The organization was founded in 1979, making it the second oldest organization of the four under study.
Again, the legal form is an association. However, the association only counts 14 members, which are the regional departments of the association. The regional departments in turn are separate foundations and consist of local departments. In total, there are 320 local departments, of which some are entirely made up by volunteers and others also have a few workers on the pay list. The associations’ council, which gets together twice a year, is the highest organ and supervises the 7 headed board. Subsequently, the supervisory board supervises the associations’ council and also represents the 14 regional departments. The daily work of the organization is done by the national bureau.
1.5 Alzheimer Netherlands
1.6 The Dutch Brain Foundation
The Dutch brain foundation commits to realizing and sharing new insights into our brain system, based on scientific research. In addition, the organization informs people about their brains and brain disorders and stimulates the corporation between organisations that are concerned with brains. The Dutch Brain Foundation is the second of the two smaller organizations under study. Furthermore, the organization is the youngest organization from the four; the foundation was established in 1989.
As the name implies, the organization is a foundation, which is lead by one general manager, who rapports to a supervisory board with 6 members and who is advised by an advisory council counting 15 members. Within the Dutch Brain foundation, a group of 30 workers is responsible for the daily tasks. This group is divided in the bureau with 23 individuals and the promoters with 7 individuals.
CHAPTER 2 -‐ RESEARCH DESIGN
2.1 Introduction
In this second chapter, the focus lies on the problem statement and the research methods that will be used in this thesis. Firstly, the problem statement will be elaborated upon, including: the research objective, the key research question, the conceptual model and the accompanying sub-‐questions. Secondly, the use of literature in the theoretical chapter will be outlined. This chapter ends with an explanation of the research methodology in the following order: the type of research, the focus and scope, the data collection, the data presentation & analysis and the relevance, validity & reliability.
2.2 Problem statement
The previous chapter described the Dutch charitable sector expanding. In addition, Heyden & Rijt (2004) argue that in the future societal acceptance and appreciation of fundraising by charities is expected to increase in total; in the non-‐profit sector, in the business community and within the general public. However, despite the growing relevance of the sector, to this date, surprisingly little research has been carried out in this field.
Moreover, recent financial scandals have allegedly shown that there is a lack of accountability and transparency by charitable organizations. For example, ‘Plan Nederland’ in 2002 lost thousands of donors, after making public that an interim manager earned 18.000 Euros per month for a three-‐day workweek (Meijer, 2009). As a consequence the significance of organizational control systems for charitable organizations is highlighted. Nevertheless, as Petrovits et.al. (2011) argue concerning American charities, the sector has not focused much attention on the particular issue of organizational control. The accompanying explanation for the lack of attention for organizational control systems can be the tremendous pressure faced by charities to focus resources on mission-‐related activities (Petrovits et.al, 2011). However, the authors found that underinvestment in, administrative expenses such as control systems, can ultimately have negative consequences on mission-‐related activities. In sum, while not being widely employed, organizational control systems for charities are more relevant than ever for charitable organizations.
Therefore, in this thesis an exploratory study will be done investigating the role of organizational control systems within Dutch charities; to find out to which degree the Dutch charitable sector is dynamic, to study the role that both the interpretation of the environment and organizational culture by top-‐management play in the choice of an organizational control system and finally to research the fit between the environment and the organizational control systems.
2.2.1 Research objective
2.2.2 Key research question
The central research question of this thesis is: what is the influence of the interpretation of the external contextual factors and organizational culture on the choice of control systems by the top-‐management of the Dutch Charitable organizations, including the consequences for the fit between the environment and the organizational control systems?
2.2.3 Conceptual model
The conceptual model underneath (figure 1) is developed to act as a guide for this research.
FIGURE 1: Conceptual model
1.Degree of dynamism in the external environment
4.Choice of management control systems by
top-managment 2.Interpretation of the
environment by top management
5.Fit between the environment and the organizational control system
3.Interpretation of the organizatiional cultural factors
The model above shows that the external contextual factors; the degree of dynamisms in the external environment and the choice of control systems by the top-‐management together determine the fit between the environment and the organizational control system. For example, assuming that the market mechanism of Ouchi (1979) is suitable for an environment characterized by high competition, a choice to use or keep using an organizational control system based on the clan mechanism decreases the fit between the environment and the control system.
In addition, also the effect of the interpretation of these environmental and also organizational cultural factors by the top-‐management is taken into consideration. For example, if the degree of competition is not seen as high, the top-‐management will not choose a control system accordingly. Moreover, it is expected that the interpretation of the organizational culture by the top-‐management also affects the choice of a control system. Hence, if there is a culture of detailed supervision of the tasks of organizational members, the control system will be based on behaviour instead of output.
2.2.4 Sub-‐questions
Accompanying each of the 5 variables of the conceptual model, a sub question has been developed: 1. How dynamic is the external environment of the Dutch charitable organizations?
2. How is the environment of the Dutch charitable organizations interpreted by its top-‐management?
5. To which degree is there a fit between the environment and the control system of the Dutch charitable organizations?
2.3 The use of literature
In this paragraph the focus lies on the theories that will be used in chapter 3. Firstly, the work of Miles, Snow, Meyer & Coleman (1978) will be discussed resulting in four different behavioural patterns that can be used to analyze organizational adaptation and strategy. According to Simons (1990) a firm’s strategy determines the factors that deserve the attention of monitoring by top-‐management (see paragraph 3.6). Hence, the strategy influences the interpretation of the environment.
Secondly, a framework developed by Cameron et. Al. (2006) and an article of Hartnell, Ou & Kinicki (2005) is discussed. That is, four different culture types are described with the accompanying characteristics. With the help of this typology organizational culture can be analyzed. In this thesis, it is assumed that culture plays an important role in, as explained in paragraph 3.6, the degree of interactivity of the organizational control systems. The interactivity in turn is necessary to obtain information concerning the fit between the
organization and the environment. .
Thirdly, after that we have acquired to the knowledge to analyze both organizational culture and strategy, a look will be taken at the study of Daft & Weick (1984). These authors studied the way in which top managers interpreted the world. Daft & Weick (1984) made a quadrant, which distincts four modes of interpretation including the accompanying characteristics. The distinction is made based on the assumed analyzability of the environment and the organizations intrusiveness. Accompanying a specific interpretation mode is one of the four strategies of Miles et.al. (1978). Subsequently, it can be investigated if the strategy selected fits the interpretation mode wielded.
Fourthly, with the work of Ouchi (1979), the concept of organizational control will be defined and three distinct mechanisms of control will be reviewed. As a result, a general understanding of the field of organizational control will be created. In additon, with the work of both Paape (2008) and Feirreira & Otley (2005) we will elaborate upon control systems by presenting an overview developed by Feirreira & Otley (2005) of the relevant parts that together constitute a control system. The framework can be used as a research tool for describing the structure and operation control.
2.4 Research methodology
2.4.1 Type of research
This research is a case study, which according to Cooper & Schindler (2006), places more emphasis on a full contextual analysis of fewer events or conditions and their interrelations, with a reliance on qualitative data. As the authors argue, the emphasis on detail provides valuable insights for problem solving, evaluation
and strategy.
More specifically, this research will be an exploratory case study, which is recommended when a problem is not clearly defined yet. Hence, the Dutch charitable sector lacks study and exploration is needed to learn something about the issues that this sector faces. Therefore, this study should result in both suggestions and questions for further research. Hence, this research will be descriptive (Cooper & Schindler, 2006).
2.4.2 Focus and scope
This study is cross-‐sectional and is carried out in four Dutch charitable organizations; it is done once
and represents a snapshot of one point in time (Cooper & Schindler, 2006). Two of organizations under study are considered to be small and two are considered to be large, respectively: ‘The Dutch Brain Foundation’, ‘Alzheimer Netherlands’ and ‘Amnesty International’, ‘Refugee work Netherlands’. This study focuses on the effect of the interpretation of the top-‐management of the environment and the organizational culture on the control systems of the Dutch charitable organizations.
2.4.3 Data collection
The main method of data gathering is a series of in-‐depth, semi-‐structured, interviews; this thesis is a communication study and has an ex post facto design (Cooper & Schindler, 2006). The interview question, including the references on which the questions are based, can be found in appendix 1.
2.4.4 Data presentation & analysis
The results of the interviews will be prepared and analyzed with help of the techniques described in the book of Baarda & de Goede (2005). Preparing the data will be done by transforming the recorded interviews into transcripts which will be included in appendix 2. For analysis, labelling will be used, which can be defined as: naming, describing or else way coding text fragments (Baarda & de Goede, 2005, p.318). The relationships between the ordered labels will be subjected to analysis. The results of the analysis will be presented in the results chapter in both text and in overview tables.
2.4.5 Relevance, validity & reliability
suggest that both donors and government agencies; important sources of capital for charities, react either directly or indirectly to internal control information. Hence, this demonstrates the importance for the Dutch charitable organizations to obtain more knowledge concerning their control systems. Therefore, this explorative study will provide the suggestions and questions needed as a basis for further research.
Validity can be defined as: “including all aspects of science that ensure that the results of the study are reliable and which can be determined through a description of the exactness, precision and consistency of the research” (de Leeuw, 2003). Firstly, exactness can be defined as the reliability of the study. Reliability implies that if when the research is executed once again, it will lead to the same outcomes (de Leeuw, 2003). Firstly, the same report of the ‘Centraal Bureau Fondsenwerving (CBF)’ and the same articles can be studied, resulting in the same results. Moreover, the in-‐depth interviews are done with the top-‐management. As a consequence it is ensured that the interviewees possess the relevant knowledge that is needed, contributing to the reliability. Moreover, the interviews are held in four different companies, contributing to the reliability. Secondly, precision refers to the specificity of the study; the degree to which the knowledge is applicable to other organizations. While the knowledge that will be collected is firm specific, all the firms are members of the ‘CBF’, making it relevant to the other members of the CBF foundation as well. Finally, consistency will be checked by comparing the results from the in-‐depth interviews and by a final check of the result section by the interviewees.
CHAPTER 3 -‐ THEORY
3.1 Introduction
This third chapter contains the theoretical framework on which this research is based. As explained before, this chapter starts with a discussion of the strategy typology of Miles et.al. (1978) and a typology of organizational cultures by Hartnell, Ou & Kinicki (2005). Next, a look will be taken at a study of Daft & Weick (1984) in which the focus lies on the way top-‐management interprets its surroundings. Subsequently, a general understanding of organizational control will be created with help of the work of Ouchi (1979). In addition, in the same section a more detailed look to the field of organizational control is taken through a discussion of the different control systems presented in the work of both Paape (2008) and Feirreira & Otley (2005). Finally, this chapter ends with a discussion of the work of Simons (1990) who developed a model that shows how organizational control can be used to obtain a competitive advantage.
3.2 Organizational strategy
In their article Miles, Snow, Meyer & Coleman (1978) propose a theoretical framework consisting of alternative ways in which organizations define their strategy and construct structures and processes to construe these strategies. A part of this framework is a strategy typology consisting of four behavioural patterns: defenders, prospectors, analyzers and reactors. Miles et.al. (1978) content that trough these patterns the process of organizational adaptation can be described, analyzed and predicted. Let us review these four
organization types.
Firstly, defenders deliberately enact and maintain an environment for which a stable form of organization is appropriate. The main problem that the management of these organizations tries to solve is how to seal off a portion of the total market in order to create a stable domain. Only a limited set of products is offered directed at a narrow segment of the total potential market. Within the limited domain the defender strives aggressively to prevent competitors from entering, for example trough competitive pricing or high quality products. Trends outside of the domain chosen are ignored. Production and distribution of goods or services is typically done by developing a single core technology that is highly cost-‐efficient. The issue of organizational control is resolved through a combination of structural and process mechanisms that can be described as mechanistic, such as: a top top-‐management dominated by production and cost-‐control specialists, centralized control and communication through formal hierarchical channels. Finally, the downside of this strategic type is that the organization can become unable to respond to major shifts in its market
environment.
to be avoided. The organizational administration is more concerned with facilitation than with control of organizational operations and can be described as organic. The accompanying mechanisms include: top-‐ management dominated by marketing and research and development experts, decentralized control and both lateral and vertical communication. Nevertheless, the cost of is the primary risk of low profitability and over-‐
extension of resources.
Thirdly, analyzers are organizations which attempt to minimize risk while maximizing the opportunity for profit. The analyzer seeks to locate and exploit new products and market opportunities while simultaneously maintaining a firm core of traditional products and customers. Subsequently, this type of organization must learn how to achieve and protect the equilibrium between conflicting demands for technological flexibility and for technological stability. The central control issue is how to differentiate the organization’s structure and processes to accommodate both stable and dynamic operations, which is typically solved with some version of a matrix structure. Again, also this strategic type has its costs. Because the analyzers twin characteristics of stability and flexibility the primary risks are both inefficiency and ineffectiveness if the necessary balance is not maintained.
Fourthly and finally, reactors establish a pattern of adjustment to its environment that is both inconsistent and unstable; this type lacks a set of response mechanisms which it can consistently put into effect when faced with a changing environment. Following, the reactors exist in a state of almost continuous instability. Different from the former three, reactor is a residual strategy, arising when one of the other three strategies is improperly persuaded; it implies that the top-‐management responds inappropriately to environmental dynamics. Miles et.al. (1978) indentify three main reasons why an organization ends up with a reactor strategy: top-‐management did not clearly articulate organizational strategy, the organization’s structure and processes do not fit the strategy chosen and the tendency to maintain the organization’s current strategy-‐structure relationship despite overwhelming changes in the environment. All-‐in-‐all it is clear that an organization cannot keep behaving like a reactor indefinitely, unless the environment is monopolistic or highly-‐ regulated. In table 1 underneath, the argument made by Miles et.al. (1978), elaborated upon in this section, is summarized.
TABLE 1: Overview of the strategy type of Miles et.al (1978)
Strategy Environment Organizational
characteristics
Prospector Innovate, find new market
opportunities, grow, and take risks.
Dynamic,
growing flexible, decentralized Creative, innovative,
Defender Protect turf, retrench, and
hold current market. Stable production efficiency, low Tight control, centralized, overhead
Analyzer Maintain current market,
Reactor No clear strategy; react to
specific conditions Any condition No clear organizational approach; depends on current needs
3.3 Organizational culture
Now that we have learned how organizational strategy can be analyzed, we will aim to achieve the same result for organizational culture. Hartnell, Ou & Kinicki (2011: 677) define culture as: “the set of shared, taken-‐for-‐granted implicit assumptions that a group holds and that determines how it perceives, thinks about and reacts to its various environments”. In their article, the authors discuss the competing values framework (CVF) developed by Quinn & Kimberly. The authors explain that the CVF was chosen because it is an organizational taxonomy widely used in literature; the accompanying measures have been administered in over 10,000 organizations globally. In addition, the reliability and content validity of the measures of the CVF have been empirically supported. Underneath, both a model that shows how the dimensions focus and structure distinct the four cultural types and a summary of the accompanying characteristics can be seen.
TABLE 2: The competing values framework’s four culture types (Quinn & Kimberly,
1984, in: Hartnell, Ou & Kinicki, 2011: 679)
3.4 Interpretation by top-‐management
So far, external environmental dynamism and internal organizational and cultural factors have been discussed. However, to understand the effect of these variables on the organization it is necessary to understand how they are interpreted by top-‐management. That is, as Balabanis et.al. (1997: 601) argue in a study on the market orientation of the top 200 British charities: ”future research should examine the interpretative ability of organizations”. In an article of Daft & Weick (1984) four modes of interpretation are described. The authors define organizational interpretation as: “the process of translating events and developing shared understanding and conceptual schemes among members of upper management” (Daft & Weick, 1984: 286). Let us take a closer look to these four interpretational modes.
Firstly, the enacting mode reflects an active, intrusive strategy and the assumption that the environment is unanalyzable. As a consequence, organizations using this mode construct their own environment. Information is gathered by trying new behaviours and seeing what happens. Hence, they experiment, test, and stimulate and they ignore precedent, rules and traditional expectations. Markets are
Culture
type Assumptions Beliefs Values (behaviours) Artefacts Effectiveness Criteria
Clan Human
affiliation People behave appropriately when they have trust in, loyalty to, and membership in the organization Attachment, affiliation, collaboration, trust and support Teamwork, participation, employee involvement, and open communication Employee satisfaction and commitment
Adhocracy Change People behave
appropriately when they understand
the importance and impact of
the task Growth, stimulation, variety, autonomy and attention to detail Risk-‐taking, creativity, and adaptability Innovation
Market Achievement People behave
appropriately when they have clear objectives and
are rewarded based on their achievements Communication, competition, competence and achievement Gathering customer and competitor information, goal-‐ setting, planning, task focus, competitiveness, and aggressiveness Increased market share, profit, product quality, and productivity
Hierarchy Stability People behave
appropriately when they have clear roles and procedures are formally defined by rules and regulations Communication, routinization, formalization and consistency Conformity and
predictability timeliness, and Efficiency, smooth functioning
constructed rather than waiting for an assessment of demand to tell what to produce.
Secondly, the discovering mode also represents an intrusive organisation, but with an emphasis on detecting the correct answer already in an analyzable environment. Measurement probes, such as market research, trend analysis and forecasting, are used to relay information back to the organization. Formal data determines organizational interpretations about environmental characteristics and expectations.
Thirdly, organizations characterized as conditioned viewing assume an analyzable environment and are not intrusive. These organizations rely on established data collection procedures and the interpretations are developed within traditional boundaries. The environment is seen as objective and benevolent, so the organizations do not take unusual steps to learn about the environment. The environment is viewed through routine documents, reports, publications and information systems.
Finally, undirected viewing again is a passive approach, but without reliance on hard objective data because the environment is assumed to be unanalyzable. Managers act on limited, soft information to create their perceived environment. Instead of formal management systems, these organizations are open to a variety of cues about the environment from many sources.
FIGURE 3: Model of organizational interpretation modes & processes (Daft & Weick,
1984: 289)
In figure 3 above, the four interpretation modes discussed can be found. In addition, the model includes the scanning characteristics, which pertain to the sources of the data and the way in which the information is obtained. Furthermore, the interpretation process is described as the amount of equivocality reduction; the extent to which data are unclear and suggest multiple interpretations of the environment and the amount of assembly rules, procedures or guides that organizations use to process data into a collective interpretation. Finally, the accompanying strategic type of Miles and Snow (1978) is incorporated and the decision process is described in the concepts of leading theorists.
