measurement systems: an analysis of formal documents
and perceptions of internal stakeholders
By Jeroen Dunnink University of Groningen Faculty Economics and Business
Master of Business Administration: Organizational and Management Control June, 2015 Ir.J.Nijsinghstraat 22 7715 PE Punthorst 06-16125280 jeroen_dunnink@outlook.com S2590727 Abstract
This study investigates the formal documents of a PMS and the perceptions of stakeholders within a division of a large construction company in the Netherlands. The PMS is characterized by using the enabling vs. coercive framework of Adler & Borys (1996). A case
study is used for obtaining and analyzing data. The thesis has 2 main findings. First, no difference exists in objective of formal documents and perceptions of stakeholders and second, there is no significant difference between perceptions of the various stakeholders. It
appears that this is caused by informal controls and other factors such as age, tenure and structure.
Keywords:
Enabling, coercive, PMS, stakeholders, perceptions, formal documents
Page 2 of 39
1. INTRODUCTION
In recent literature a lot of attention has been paid to performance measurement systems (PMS) (Choong, 2013), because they have the ability to align organizational and individual goals (de Haas & Kleingeld, 1999) and to communicate strategy (Lockamy & Cox, 1995). According to Choong (2014), the field of PMS has not change much during the past 30 or more years. He noted a need for a stakeholder approach in studies towards PMS. The stakeholder approach has been used by Atkinson, Waterhouse & Wells (1997) in their study towards strategic PMS. They distinguish between the use of PMS in top-level management, middle-level management and lower levels.
The necessity for recognizing internal stakeholders in PMS research is also partly named by Tessier & Otley (2012). They revised and developed the framework of Simons (1995). In their avenues for further research they mentioned the difference that can exist between perceptions of control systems of different stakeholders. Tessier & Otley (2012) also suggest the possible difference between managerial (or formal) intentions and perceptions of these stakeholders. For example, they argued controls can be interpreted differently by employees due to the dual role of controls. Or, as Scott (2001) stated, the concept of perception of control implies that controls can be perceived differently by different stakeholders. Because Malmi & Brown (2008) consider a PMS as a control system, this difference in perception can count for a PMS.
The dual role of control systems indicates a tension between flexibility and efficiency and this tension has been investigated in academic literature. For example the levers of control framework (Simons, 1995), organic vs. mechanistic control systems (R. Chenhall, 2003; Ouchi, 1979) and enabling vs. coercive formalization (Adler & Borys, 1996) are examples of these taxonomies. The enabling and coercive framework is examined in the context of management control and accounting (Ahrens & Chapman, 2004; Chapman & Kihn, 2009; Free, 2007) and more specifically, in the context of PMS (Jordan & Messner, 2012; van de Belt, Groen, & Wilderom, 2012; Wouters & Wilderom, 2008).
Page 3 of 39 PMS. Another reason for using this framework is that the present inquiry answers the call of Tessier & Otley (2012), who also use the enabling and coercive framework to describe the dual role of controls.
Adler & Borys (1996) posit that coercive procedures are designed to force reluctant compliance and to extract recalcitrant effort (Adler and Borys, 1996: 69). In contrast, enabling procedures help committed employees do their jobs more effectively and reinforce their commitment (Adler and Borys, 1996: 83). They differ on four features, namely repair, internal transparency, global transparency and flexibility, which are used to argue whether a PMS has more enabling elements or more coercive elements. The generic features are examined in three different stakeholder groups, namely top-level managers, middle-level managers and lower-level employees. Other researchers using the stakeholder approach also distinguish between these three groups (Atkinson et al., 1997; Beringer, Jonas, & Kock, 2013) and therefore it is plausible for this study to elaborate on this.
In sum, the goal of this thesis is to review possible differences in perceptions between various internal stakeholders and compare it with the objective description in the formal documents, by using the enabling and coercive framework. This will contribute to science and practice for four reasons. First, it facilitates our knowledge about the perceptions of a PMS of different stakeholders and the objective of formal documents. Second, it will deepen and enrich our understanding of coercive and enabling PMS. Third, it can explain why (if any) a difference between the perception and formal description of a PMS exists, regarding enabling and coercive elements. Lastly, it integrates three areas of research by using a stakeholder approach in a study towards PMS within the context of enabling and coercive formalization.
For all of these reasons, the research question and sub questions are:
RQ: How do the perceptions of various internal stakeholders regarding elements of enabling and coercive performance measurement systems differ from the formal documents?
Several sub questions are developed to answer the research question and they defined as follows:
Page 4 of 39 2. How are the performance measurement systems perceived by different groups of
stakeholders?
3. Why do the employees perceive the performance measurement systems in such a way? These questions are answered by using a case study. The case organization is a
multinational construction company in the Netherlands with several business lines. This study investigates a division called Energy within the infrastructure business-line. The case
organization itself has implemented a PMS by several official documents, called Performance Management. The data is obtained by doing qualitative interviews to ensure and develop a rich body of information and to capture all possible perceptions of employees. The
interviewees are depicted in one of the three stakeholder groups and are positioned throughout the division. The data is analyzed in order to make claims about differences and the reasons behind these differences and compared to the objective of the formal documents
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2. LITERATURE REVIEW
The literature review is structured around three main elements. First, it discusses PMS literature and taxonomies in academic literature. Second, it delves further in the enabling and coercive dichotomy. Lastly, the literature review integrates these two sections with a
stakeholder approach in the last section.
2.1 Performance measurement systems
Most simple, a performance measurement system (PMS) is a concise sets of metrics,
which may be financial and/or non-financial, long and/or short term, internal and/or external, ex post and/or ex ante (Bisbe & Malagueño, 2012). However, this definition does not give a complete picture of the concept. Rather, as Bourne, Mills, Wilcox, Neely & Platts (2000) noted, a PMS is much more than only an individual set of metrics because it also reviews, refines and discusses this performance regarding the metrics. Therefore, in the present study, a PMS is a concise set of targets and indicators which is periodically reviewed and discussed. A lot of researchers came up with aims and conceptualizations of a PMS. Dossi, Patelli, & Zoni (2010) mentioned that PMS are designed to identify and connect the
organization’s strategic objectives and align the individual behavior towards them. Lockamy & Cox (1995) find that a PMS offers a mean for communicating strategy and achievements throughout the firm and assures the effective use of organizational resources. Henri (2006) defines a PMS in three roles, which are coordinating, monitoring and diagnosing. The coordinating role refers to the use of PMS to direct and focus decision maker’s attention on the primary and secondary objectives of the organization. The monitoring aspect is associated with the measurement and reporting of performance in meeting stakeholders requirements. Lastly, the diagnostic role refers to the assessment of the cause-and-effect relationships among process performance, organizational learning and organizational performance (Henri, 2006).
Henri (2006) presumes that a PMS should have a balance between the aim to monitor
and to provide input for decision making. Hence, combining these three papers, the aim of a PMS is to coordinate, monitor and diagnose activities and behavior of individuals towards the objectives and goals of an organization.
Page 6 of 39 accepted by many researchers (Bisbe & Otley, 2004; Tuomela, 2005; Widener, 2007).
Another related distinction is made by contingency researchers as Chenhall (2003). He based his study towards organic and mechanistic control systems on work of various researchers (Ouchi, 1979; Perrow, 1970).
These studies have much in common because they distinguish between two polar
forms of systems. They polarize freedom, creativity, discussing and learning on the one hand and on the other hand efficiency, control, monitoring and correcting. More interestingly, the focus is different from each other. The work of Simons (1995) is on the use of control systems or PMS, which can be diagnostically or interactively and the organic vs. mechanistic
dichotomy is about the type of control.
Another interesting finding of recent academic literature is that it is not purely one form. For example, a diagnostic PMS can be used interactively and vice versa (Adler & Chen, 2011). Chenhall (2003) noted that it is not solely organic or mechanistic, but it is a balance between both controls. In a similar vein, Brown & Eisenhardt (1997) find that an organization will not design and implement a system with purely mechanistic/coercive or organic/enabling characteristics; instead, they will balance between both views. For the present study this indicates that a PMS can have a monitoring role and a coordinating and helping role simultaneously.
In the light of Tessier & Otley (2012), the dual role of a control system as a PMS is clearer in an enabling and coercive sense. In their paper the difference is made between the quality (good or bad) and the role of the control system. There is no such thing as a bad control and therefore they aimed at describing the dual role of control in an enabling and coercive/constraining manner, based on the framework of Adler & Borys (1996). As Malmi & Brown (2008) characterize a PMS as part of management control package, this dual role also applies to PMS. The enabling and coercive framework will be elaborated in the next section.
2.2 The enabling and coercive framework
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In a more general sense, enabling procedures help committed employees do their jobs
more effectively and reinforce their commitment (Adler & Borys, 1996: 83). In contrast, coercive procedures are designed to force reluctant compliance and to extract recalcitrant effort (Adler & Borys, 1996: 69). In other words, an enabling approach is referred as a bottom-up approach and coercive as a top-down approach (Ahrens & Chapman, 2004). Both extremes can be compared by looking at four generic features. Repair refers to the
breakdown of control processes, providing capabilities for fixing them (Chapman & Kihn, 2009:152). Internal transparency is about understanding of the working of local processes (Chapman & Kihn, 2009:152). Global transparency denotes the extent to which managers understand the up- and downstream implications of their work (Jordan & Messner, 2012:546).
Flexibility attends to the organizational members’ discretion over the use of control processes
(i.e., to the extent that they can turn them off) (Chapman & Kihn, 2009: 152).
Adler & Borys (1996) contrasted enabling and coercive types of formalization along three dimensions: (1) the features of the system, (2) the process of designing the system, and (3) the implementation of the system (1996: 69). It depends on the four generic types if a procedure (or a PMS) is enabling or coercive. Subsequently, the implementation of a control system and the design of a system influence the four generic features. The interplay between them indicates that in the current research the whole picture has to be taken into account. In other words, besides initializing the four features regarding the PMS, the design and
implementation of the PMS has to be considered.
According to Chenhall, Hall, & Smith (2010), the bureaucratic approach of control taken by Adler & Borys (1996) explains how formal controls can be depicted with
bureaucratic structures. Chenhall et al. (2010) also compare the three previously taxonomies of control systems. In this sense, they confirm the idea of the present study that a PMS can be polarized in an enabling or coercive sense.
Besides the fact that Tessier & Otley (2012) use the framework of Adler & Borys (1996), the other reason is the wide applicability of the framework. It has been studied in general management control literature to see how organization pursuit goals of efficiency and flexibility (Ahrens & Chapman, 2004) and how organization manage the tension between efficiency and flexibility (Jørgensen & Messner, 2009). It is examined in the field of supply chain accounting in relation with collaboration (Free, 2007). These studies do not focus on PMS but deliver insights in enabling and coercive control systems and confirmed our
presumption that the work of Adler & Borys (1996) is applicable to the specific field of PMS.
Page 8 of 39 literature. For instance, Wouters & Wilderom (2008) look at characteristics of a development and designing process that result in the PMS being perceived by employees as enabling of their work, rather than a control device used by senior management. The study notes that when the process is experience-based, allows for experimentation and builds on employees’ professionalism, the PMS will be perceived as enabling (Wouters & Wilderom, 2008). Chapman & Kihn (2009) finds that an enabling approach to budgeting has direct effects on direct system success and performance. They focus mainly on the enabling side of the dichotomy and develop some interesting understanding of how the generic features can be integrated with PMS. Furthermore, they find no conclusive correlation between all four generic features.
From another perspective, Jordan & Messner (2012) investigated incomplete
performance indicators. Incompleteness is caused by an ill-conditioned PMS and can result in dysfunctional behavior and dissatisfaction (Lillis, 2002). Jordan & Messner (2012) find that the attitude of managers can change over time. Their case organization shows how a flexible use of indicators becomes more difficult to sustain once top management signals an increased importance of the indicators. Incompleteness then becomes a more pressing concern for managers (Jordan & Messner, 2012). A move from enabling to a coercive control system (and the other way around) does not seem to be exceptional.
A recent study of Englund & Gerdin (2015) investigates how operational knowledge interacts with accounting information as performance indicators. They build on the
knowledge of Wouters & Wilderom (2008) and find that an enabling PMS is created through an interaction with other control systems, which give the middle-managers freedom to develop measures and use the PMS in an enabling manner.
All these studies deliver insights in the relation between the enabling and coercive framework and a PMS. The focus of the mentioned inquiries is on the designing and
implementing part of a PMS, but also on the characteristics of the PMS. This understanding helps to see whether a PMS is perceived and characterized with enabling or coercive
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2.3 Stakeholder perspective on enabling and coercive PMS
According to Zimmerman (2001), official documents are not binding. In a similar
vein, Tuomela (2005) noted that formal control systems are balanced by informal controls. This indicates that a formal PMS described by official documents can interpreted differently. As Wouters & Wilderom (2008) argued, a PMS can be seen as a form of formalization. Thus, it can be expected that formal documents are used to describe the PMS, which can be enabling or coercive. Put it differently, a PMS can be designed and implemented to serve
higher-management needs and control employees behavior or it support employees to do their work better.
Tessier & Otley (2012) stated the possible difference between managerial intention and employee perception. Looking from another angle, the managerial intention and the objective of the formal documents can also differ, especially in big organizations, due to the fact that managers do not always design or implement the system in these organizations. Rather, the formal documents describe the characteristics of the PMS in an objective way. Documents are free from interpretations, because it describes how it is designed and
implemented. Hence, documents are ‘hard’ evidence and is free of interpretations (Marginson, 2002). Comparable to this, Mundy (2010) studied the balance between enabling and
controlling aspect in control systems and uses interviews and archival data such as documents to collect subjective and objective data.
Ferreira & Otley (2009) expect a PMS to have formal mechanisms and processes which are assisted by informal controls. These formal controls are presumably described to ensure a correct documentation, but these informal processes are not extensively described. Some of these informal controls are not even described, but only experienced by employees. By comparing this experiences of employees with the objective of the formal documents (or the formal system), it can be seen how effectively a system is implemented and designed. It also gives key insights in which informal controls come into play.
By using a stakeholder approach, this study dissociates from other PMS researches. Atkinson et al. (1997) defines three groups of internal stakeholders, namely the top-level managers, the middle-managers and the lower-level employees. They argued that a PMS has a different role for each stakeholder group and every stakeholder has to deal with a PMS
(Garengo, Biazzo, & Bititci, 2005).
Combining these insights with the literature on PMS and enabling and coercive
Page 10 of 39 (2012) stated, the constraining or coercive type of a PMS can be experienced negatively by employees. It makes logical sense that organizations will avoid this negative perception and therefore provide a positive view in the formal documents. However, as a PMS is also designed to monitor behavior (Henri, 2006) and to align organizational behavior with
individual behavior (de Haas & Kleingeld, 1999), the documents will explain this controlling part of the PMS. Thus, formal documents are expected to describe the PMS in an enabling way to prevent negative associations, but balanced by some coercive elements. This expectation is confirmative to findings of Widener (2007) who argued there is a balance within a control system.
As formal documents are not binding, comparing it with perceptions of the three stakeholder groups will deliver insight in how the formal PMS is experienced. Scott (2001) argued that this perception differ along stakeholder groups. As argued, the formal part is mostly covered by official documents, but the informal system and processes are encapsulated in day-to-day business of employees. Therefore, the balance mentioned by Widener (2007) can be perceived differently by employees.
Atkinson et al. (1997) defined a different role for a PMS for each of the defined stakeholders. Top-level managers are concerned with strategy; it measures how the other employees and the organization fit with the strategy. Middle-managers use the system more operable, they evaluate their subordinates and check if the PMS achieve the targets that are set beforehand. Lower-level employees regard the PMS as a supporting and assisting system. The PMS shows how they perform and they can check whether they fit in the strategy of the organization in a controllable and constraining manner. Therefore, examining these groups of stakeholders is justifiable because it focus on different positions and roles of a PMS within a division.
Relating it towards the main framework of enabling and coercive formalization of this thesis, it seems clear most researchers do not include this stakeholder perspective. Wouters & Wilderom (2008) focus on the design and implementation of the system and do not consider various stakeholders. However, their findings indicate whether a PMS has enabling or
Page 11 of 39 Using this information, some expectations are drawn. For instance, when looking at flexibility, the formal documents are expected to describe some sense of participation and responsibility, in order to avoid incompleteness. On the other hand, the formal documents can also mention the importance of aligning individual behavior towards organizational behavior and focus on the controlling aspect of a PMS. Top-level managers are nearest to the formal documents (Jordan & Messner, 2012). Middle-managers are responsible for lower-level employees and their performance. It can be expected they experience the PMS less enabling regarding flexibility, because middle-managers are concerned with managing the operations and the PMS and feel direction of the top-management (Marginson & Ogden, 2005). Lower-level employees are expected to have even less flexibility, because they only use the PMS as supporting and assisting in their daily tasks and can hardly deviate from the PMS. In other words, from a top-down perspective the perception will be more towards a coercive PMS. Due to the explorative character of the study, it is hard to suggest why there is a difference in perception. Factors as culture and structure (informal controls) and position in the organization are discussed. Tessier & Otley (2012) also mentioned the possibility to decrease the gap between intention and perception by presenting the control system properly. Lastly, it makes logical sense that individual characteristics influence the perception.
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3. METHODOLOGY
In this section the research design is described and after that, the selection of the case organization is explained. Third, the data collection process is described and in the end, the data analysis process is presented.
3.1 Research design and selection of the organization
According to the literature gap, this research aims to understand the possible difference in perception of a PMS of various internal stakeholders and compare it to the objective as pointed out in formal documents in the context of enabling and coercive formalization. Therefore, this research is placed in the theory development category.
Yin (1994) argued that a RQ starting with how and why can be answered by doing a
case study. According to Eisenhardt (1989), a case study is a research strategy which focuses on understanding the dynamics present within a single setting. It can involve either single cases or organizations and multiple cases.
Concerning epistemology and ontology, the research is placed in the interpretative corner of the framework of Burrel & Morgan (1979). An interpretative study creates a better and more holistic view of the perceptions of stakeholders and gains more knowledge about the different realities that exists among various stakeholders. Therefore, the interpretative approach matches the research question.
3.2 Selection of the organization
According to Eisenhardt (1989), the selection of organizations is an important aspect of a case study. In this thesis, the selected case organization is investigated by analyzing perceptions of stakeholders of one division. By using this approach, replication in another division is achievable because the data is obtained in only one division of an organization. In the light of Glaser & Strauss (1967) theoretical sampling is used.
One organization and division is included, to increase the possibility of getting in-depth information and insight into perceptions of various stakeholders. The organization must be of considerable size, due to the aim of obtaining data of several internal stakeholders on several levels. Another key point is the existence of a PMS, with preferably written and formal documents. The investigated organization and division meet these criteria and fits well in this inquiry.
Page 13 of 39 organization is listed on the AEX in Amsterdam as a group and is seen as one of the largest companies in Europe. Due to this scope, the group is responsible for thousands of projects each year. The organization has around 23.000 employees and their annual sales are approximately 7 billion euros in 2013.
The group is ramified in various operating companies, which are subject to business lines. The specific division is positioned in the infrastructure business-line and is accountable for project in the energy sector. Throughout the rest of the thesis the name of the division will be Energy. Energy works in the energy industry together with other related partners and delivers performance in the fields of design, renovation, construction, commissioning and maintenance of power stations and related plants. They offer the client a comprehensive service package.
3.3 Data collection
To answer the first part of the RQ and the first sub question, it is important to evaluate the objective and formal documents in place about PMS. These documents were available in the organization and are shown by table 2.
Table 1 Documents used for analysis
These documents (except the annual accounts) are part of the actual PMS in use within Energy, called Performance Management. The focus of this PMS is on the individual, as the human aspect is constantly emphasized. Most of the documents show how agreements, targets and plans are created and monitored. In short, performance management within Energy is a cycle of discussions between subordinate and manager. Three interviews are held each year and a personal development plan is created. In this plan the targets are written down and other goals and issues are mentioned. Besides the three official moments, the documents mention other, more frequent meetings to assist the employees in their work. Hence, recalling our definition of a PMS, the PMS includes also appraisals, weekly meetings and individual review sessions.
Furthermore, after exploring and understanding the company documents and the
Document Title Content
Annual accounts Geïntegreerd verslag 2014 Public information about performance management in the organization
Introduction presentation Performancemanagement Presentation to inform managers and subordinates of the new PMS
Performance Management Performancemanagement: bouwen aan mensen Official description of the PMS, written by employees and managers
Indicators for result agreements Voorbeeld resultaatgebieden en prestatie-indicatoren Examples of indicators per result area
Personal development plan Persoonlijk jaarplan Example of such a plan
Appraissal form Beoordelingsformulier BAM Example of how the appraissal is conducted
Supporting interview d.n.a. Interview with HR manager to explain the official documents
Page 14 of 39 formal PMS, it was important to acquire other data sources. Interviews are well suited for understanding phenomena within their context, uncovering links among concepts and
behaviors, and generating and refining theory (Cooper & Morgan, 2008; Miles & Huberman, 1994). The interviews are held in a semi-structured way to standardize all the interviews, as well as to explore new ideas that could have been brought up during the interview (Myers, 2008). Due to these reasons, interviews are a proper method to gain in-depth knowledge and comprehend the perceptions of the various stakeholders.
The interview guide is given in Appendix A. The goal of the interview was to gather information about the perception of the stakeholder in terms of enabling and coercive elements of a certain PMS. This indicates that, after asking an open first question, the questions were structured around the four generic features as mentioned in the literature review. The respondents have the possibility to openly discuss or answer the questions, which is ensured by the questions. The design of the interview fits in the purpose of theory
development, because it delivers flexibility and in-depth knowledge in the context of the information. The demographics of the interviewees are listed below in table 3.
Table 2 Demographics of the interviews
3.4 Data analysis
The data analysis provides insights of the collected data. As argued, two data sources are analyzed. First, the formal documents are analyzed to achieve knowledge of the PMS in use and to understand if these documents describe the PMS in an enabling or coercive way. Second, 10 interviews are held to investigate the perception of various internal stakeholders. The documents are analyzed by using an initial list of codes regarding enabling and coercive elements (Appendix B). These deductive codes are used as a starting point. Through a process of reflection and a constant connection between the literature and the data, other possible themes, patterns and codes became clear. The combined use of different inductive
Interviewee Job description Education Organizational tenure
1 Top-level manager WO 7
2 Top-level manager HBO+ 14
3 Top-level manager HBO 4
4 Supporting employee HBO 3
5 Middle-manager HBO 4
6 Supporting employee HBO 4
7 Middle-manager HBO 6
8 Supporting employee MBO 2
9 Supporting employee HBO 35
Page 15 of 39 and deductive tools allows to better comprehend the information domain and to design more targeted analysis processes (Greco, Masciari, & Pontieri, 2001).
Hence, the use of abduction is notable, which is defined as constantly moving from the empirical to the theoretical dimensions of analysis. It increases the meaning and credibility of case study research because there is constant connection between theory (deductive) and empirical material (inductive). Due to the timeframe of the study it was important to use the time efficiently and by analyzing the collected data immediately, possible adjustments are directly made, to ensure an overlap between data collection and analysis (Eisenhardt, 1989). The steps in the analyzing process are loosely based upon the work of Eisenhardt (1989). At first, the documents are analyzed to understand their rationale and the supporting interview with an involved policymaker ensured that the documents are properly
comprehended. Secondly, the interviews are analyzed and analyzed directly. The interviews are read and re-read and interesting quotes (based upon the deductive and inductive codes) are marked. Afterwards, some general conclusion per interview is prepared. The underlying logic behind this is to get familiar with the data in the perspective of each stakeholder as a stand-alone entity (Eisenhardt, 1989). This yields a worksheet with more than 450 quotes, related to the number of the interviewee, the job-description and the generic features.
The third step was to see if there are patterns, themes and (dis) similarities between the same stakeholders. For that, the raw data is read again and the resulting quotes and general conclusion are consulted. In the end, each feature is analyzed through the eyes of three or four different internal stakeholders. This eventually results in comparing the insights of the
analysis with existing literature and search for new understandings of the phenomena. This analysis is used to answer the research question and to conclude how the perception of control can differ between various stakeholders and official documents, related to the
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4. RESULTS
In this section each feature is separately treated and the results of the document analysis and the results of the interview analysis are integrated.
4.1 Repair
Looking at the documents, performance management in Energy is made up of three
conversations between the employee and the manager. The first one is the planning interview, where the personal planning of the employee is discussed. After a few months, the progress is discussed in another interview and in the end the appraisal is held. This process of three interviews provides the employee to discuss possible problems, although three times in a year is relatively infrequent. However, as argued by the HR manager, the system encouraged managers to have a session with the employee weekly, to discuss the upcoming week and other work-related issues. The HR manager argued:
Repair is too late if you do it three times in a year. Repairing you do weekly
The employees can use the system and these interviews to discuss problems rather frequently. By emphasizing the importance of the discussion between both parties, Energy ensures a willingness to be open about the issues the employees face. Put it in another the way, the HR manager stated the following:
Every week the manager and the employee have to have a feedback session to adjust or to verify the performance. It could be the target is unrealistic and the target should be adjusted
The official documents regarding performance management and the
introduction-presentation pointed out the interest of the organization to facilitate self-control and
ownership of the employee. This indicates the employee has received freedom in executing his tasks and, in this sense, in solving problems. The system fosters this self-control by giving the employee the possibility to raise their problems to their supervisor. As Wouters &
Wilderom (2008) argued, this developmental approach leads to an enabling PMS.
In a similar vein, the book Performance Management argued the PMS is not a repair
toolkit but a development toolkit with respect to competences and behavior of the employee. This shows the potential for the employee to give feedback about the system and about their work. This self-control and ownership is ensured through a process of continuous feedback and does include participation of the employee.
Page 17 of 39 want to let the employee solve the problem due to other interests that are in play.
Top-level managers agreed upon the necessity of discussing problems, which is
facilitated by the system. As they all argued, the weekly meetings between managers, subordinates and supporting personnel are used to adjust and moving with the current situation. In other words, when problems are identified all employees are encouraged to mention this and to solve these issues. As one of them noted:
We must constantly thinking ahead, thinking along with others and adjust
Moreover, one top-level manager sees the system as a roadmap in which they secure
issues and makes their work more structured. The system gives guidance and support to solve problems and to observe these issues. Another point they all mention regarding repair, is the culture within the division. They experience a flat structure with short lines, so discussing problems is not a barrier.
A second group of stakeholders, the middle-managers, do not differ much from this
perception. In their view, the responsibility and self-control they have are crucial aspect for the need to debate about problems. Another important platform for raising concerns are the informal meetings they have with their subordinates and with their managers. Due to the short lines in the division, talking about issues becomes less difficult. Quoted from a middle
manager:
Problems should always be negotiable. If you do so, you can solve them
Key in achieving this openness is communication. Middle-managers prefer to have
short lines and frequent communication both up and down in the organization. They also recognize the way how the division approach these issues. It is not about sanctioning and compliance because most of the problems are not caused by employees themselves but by other factors. Even as the problems are caused by employees, the middle-managers feel not threatened to discuss these problems. The reason is given by one of them.
Often there is a reason for why it did not work or why it went wrong
Two middle-managers also acknowledge the guidance and support the system give.
Throughout the interviews it appears these middle-managers encourage their subordinates to talk about issues and they expect the same treatment from their managers.
Page 18 of 39 hesitance for using the platform for mentioning problems. They feel free to speak and feel encouraged, facilitated by the attention their supervisor give to them on a weekly basis. As one of them noted:
The formal system do not really encourage discussing problems, but you must pick use the informal moments wisely
By using the system wisely, it is possible to retrieve guidance from it. It also helps the lower-level employees to have a voice in the organization. Confirmative to the findings of Tuomela (2005) this is created by the formal and informal PMS. Three of the lower-level employees experience a fundamental need to mention issues in order to solve them. The following lower-level employee emphasizes this.
If there are problems, report them, consult with each other and solve it
In conclusion, all lower-level employees are encouraged and trusted to solve troubles by themselves or in consultation with their manager. The system, informal and formal, facilitates them in these aspects. This view is supported by the middle-managers and the top-level managers, who argued that discussing problems is important in achieving the best solution. These perceptions are congruent with the objective of the documents.
4.2 Internal transparency
The formal documents emphasize the learning loop which has to be ensured by the
PMS. The organization invests in employee development and this development is captured by a personal learning and development plan. By this plan and throughout the book Performance Management the employee can understand the PMS and the reasons behind it. Again, the PMS delivers insights into the individual’s duties as well as to idea behind the systems itself. One of the principles of the PMS is the way how the organization steer on the results (the What question) but also on knowledge and behavior (the How question). Thus, the PMS not only determine the target and goals, but also the way how this can be achieved in terms of knowledge and behavior. Therefore, the PMS ensures an understanding of the tasks through the meetings and the agreements and how to achieve them by using targets on behavior and competences.
Page 19 of 39 makes logical sense that this is not possible if the employee has no knowledge about his or her work. As the introduction presentation describes it, when every individual is doing her or his job properly, the organization is performing better. The result, knowledge and competence agreements the employee and manager discuss about regarding the PMS are related to this. The job profile takes into account tasks and processes of the employee to the extent he or she can influence them. These aspects make sure the employees can learn and develop themselves through the system.
In the eyes of top-level managers the system helps them in telling their employees what is expected of them. The targets and agreements also help the top-level managers in knowing what they exactly do. Congruent with the documents, the hard and soft targets interact with each other to explain what, why and how to do tasks and duties on a daily basis. The meetings they have are crucial for achieving this transparency. As one of them stated:
Within these moments we discuss and watch everything, so everything becomes clear
The top-level managers experience, because of their duty to measure performance of their own employee, a tendency to know the system and how it works. They acknowledge that the How-question in the appraisals is necessary for helping people in their work. This also counts for the other way around, as these top-level managers use the targets, meetings and discussions to know their daily tasks.
Interestingly, all top-level managers emphasize the system itself. In their opinion it is important to know the system in order to work with it. The PMS always subject for
improvements. For a system to be effective, they argued the system must be constantly reviewed and improved. In this sense the system becomes challenging and is being transparent. As one of them argued:
When I learned the system, I started working with it
Another viewpoint has been taken by the middle-managers. All four confirmed the
top-level managers and the documents that working with the system properly help them to know what is going on. The targets, meetings, planning and agreements are increases the transparency of their daily work.
Page 20 of 39 The agreements and targets give them an opportunity to debate about the planning in these meetings. Throughout the open culture that exists in the organization, middle-managers know exactly what they expected to do and when it is not clear, the system facilitates and solves this. One of the middle-managers said the following:
It is important, because everyone needs to know what have to be done. This is created by using the system because it enables us to consult each other to see what the best method is for achieving good work
However, since the middle-managers are responsible for the operations, they highlight the importance for compliance. Though, they all mentioned it is not about sanctioning
employees, but for knowing the cause of the failure and to improve the process. The middle-managers argued the system supports them in these duties.
Lower-level employees all value the formal and informal meetings, because this enables them to know their work and their duties. The meetings give them the opportunity to think about their tasks and daily work. They feel more committed to the work and, different from the middle-managers, they do not feel a need for compliance. They noted that keeping agreements is important, but they feel not coerced or forced to do so. The flat structure assists them to ask questions, which is shown by the following statement.
You are constantly busy with each other and you steer each other. In the end you want to have a good product or good work
In short, the lower-level employees use the system to know how they are performing and what they need to do. Most of this is supported by the system and therefore they feel assisted by the system in their daily tasks. Their view is supported by the top-level managers, who also argue that knowing the system is important to work properly with it. The middle-managers agree with both perceptions, although they mentioned the need for compliance. These perceptions are in line with the objective of the formal documents.
4.3 Global transparency
In Energy the annual accounts emphasized the importance of performance
Page 21 of 39 related to the divisional and, eventually, to organizational goals. This translation is
documented in individual development plans. As the HR manager noted:
From the top management the goals are set. These goals are translated to a lower-level manager and from there it goes lower into the division. The old PMS was mainly top-down, but now the organization has developed a more bottom-up PMS where lower-level employees have their own responsibilities
The balanced scorecard creates a comprehensive understanding of how individual
targets in each perspective are related to wider goals. The way how the PMS is developed assists in that, due to the fact that employees are involved in creating this PMS. Englund & Gerdin (2015) also find that involving employees is important for having an enabling PMS. The organization must assure that the involved employees have access to all available information. The organizations acknowledge this and therefore they argued in the book the PMS should be clear about the strategic objectives of the organization and the managers should adjust their way of managing in a more open and transparent manner.
At last, the continuous meetings increase the transparency. In these meetings progress and performance is evaluated and discussed. Within this process the PMS must be clear about the divisional targets and the employee have to agree about their own targets. Because these targets are linked towards each other, the employee knows how he can influence the
divisional objectives.
Top-level managers have access to all information, which indicates the transparency throughout the organization is high. The divisional goals are relatively similar to the goals of these top-level managers. The system is developed to explain why and how some of their tasks are important in the bigger picture. One argued the following:
The best thing of the system is the following. It is coupled towards behavior the organization desires, there is a philosophy behind what the organization expects of its employees
A key aspect in their eyes are the weekly and monthly meetings they have with their supervisors and their subordinates. These meetings assure an exchange of information on a different level, because they explain how the division is performing. The information they have are mainly based on controllability. In other words, when the top-level managers cannot influence the numbers, the information becomes irrelevant. In a similar vein, some
Page 22 of 39 Throughout the meetings I know where the organization and the division in specific is moving to and how the system will assist in this
Middle-managers see the access to information in the same way. They confirm they
have access to a lot of information. However, as they all argued, most of this information is irrelevant and therefore they do not need it. In their opinion the meetings and the short lines within the division are more important to know what and how the division is going to achieve their goals. Also in informal conversations they get an idea in which way the organization is moving. This platform of meetings enables them to know how their daily tasks fit in the wider organizational and divisional goals. A middle-manager said the following.
Every week I have a meeting about the financial and practical issues of my projects. After these meetings, I do not only know what is going on, but is also helps me in understanding how these projects influence the divisional goals
It turns out the middle-managers have access to much information and know their
daily work fits within the organization, but especially in their own division. In other words, the knowledge of the fit between organizational goals and their individual behavior is not as clear as aimed. They mostly see themselves as a division and the knowledge of the division is available.
We hear from our manager how we performing regarding the revenues and if we meet the targets. But mostly this is for our division. Information of other divisions and organization wide is limited, but I think that is also irrelevant information
The last group, lower-level employees, experiences a wide range of information which they can use. However, most of this information is regarded as irrelevant and not necessary. For lower-level employees there is another dimension, because of their position in the organization they do not have the same access to information than higher positioned employees. According to them, they do not feel unsatisfied with this limited amount of information. One of them defined it as follows.
Within our division everyone knows what needs to be done. What happened in other divisions I do not care about
Page 23 of 39 discussed. They name the influence of knowing the goals and how they can help in achieving them. Or, in words of a lower-level employee:
You know where you stand and where you need to go to
To conclude, the documents point out that there should be a fit between
organizational, divisional and individual goals and that all the information necessary for the employees is available. This view is confirmed by the perception of the top-level managers. However, the middle-managers and the lower-level managers do not agree, because they only retrieve information up to the divisional level. Importantly, both stakeholder groups see other information as irrelevant and unnecessary.
4.4 Flexibility
According to the documents, the employees of Energy have self-control, involvement
and responsibility. Especially self-control seems to be related to flexibility, because the employees have ownership in setting individual targets. After setting the targets in the planning interview, the targets can be adjusted or removed when it turned out to be unrealistic, uncontrollable or irrelevant. This indicates some degree of flexibility with the system. Employees are able to make decisions on their own regarding the targets. Because learning and development are key components of the PMS, Energy enables their employees to achieve this learning cycle by giving feedback about changes and by having frequently
discussions. As the HR manager noted:
The appraisal is not the end: the PMS can analyze the reason behind the score.
This statement confirmed the importance of analyzing, learning and developing people with the use of the PMS. By using the PMS in this way, the organization tries to make their employees conscious about their self-control. The PMS aims to let employees think along with the organization by giving them power and responsibility. However, looking from another perspective, the PMS and all the documents exactly prescribe formally how to use the system. Eventually, the steps in the performance management cycle are defined and formally required and for that reason aggregations of this roadmap are not expected. The documents represent that fundamental changes towards the PMS are not appreciated.
Page 24 of 39 registered. It looks like the top-level managers do not see much flexibility regarding the system, but they also looked at it from another viewpoint. As a top-level manager noted:
There is a formal part and in addition there is an informal part with opportunities to judge people and have conversations and that is allowed to do
This statement recognizes the formal part as described with the system, but it is not prescribed to only focus on this formal part. Instead, the system allows for an informal cycle around the system. In words of a top-level manager:
We have the framework or the formal part, which is clear and within this framework you can move Lastly, they recognize their own influence in setting targets and their responsibility to learn from the information the system provides. If there is something wrong, they are free to speak openly about it and they are encouraged to think along for improvements and learning opportunities.
From another perspective, middle-managers see the system as a solid framework.
However, just like the top-level managers, they confirmed the freedom in establishing other informal systems to measure performance. They also see the system as a basis, a framework from which they can deviate. All four middle-managers experience formal requirements, like the appraisal forms, but they also have the freedom to deviate from it. As one of them
summarized:
You have a lot of responsibility, a lot of freedom and a lot of control over your own work Keywords like responsibility, freedom, self-control and own input are frequently mentioned in their answers. It appears that what the documents describes, is also experienced by the middle-managers. From their viewpoint, this flexibility is used for learning and
developing people, confirmed by the following quote:
Every week we discuss the previous week and ask ourselves: what have we done? Sometimes it is disappointing and we want to know why this is the case. Then you are learning.
Lower-level employees also confirmed the perspectives of the former two groups. They all see the system as the framework in which they are enabled to move in and deviate of. One of them argued:
Page 25 of 39 They can arguably have a need to know how they perform in order to learn from it and to develop themselves. Therefore, they all agreed that a human-being is never too old to learn. If they make a mistake, they use it as learning material. This learning-loop is facilitated by the informal system.
You can easily communicate why you are doing something. You learn a lot from that In sum, the lower-level employees use the system as a format for learning and
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5. DISCUSSION
This study focuses on the objective of the formal documents and the perceptions of various groups of internal stakeholders of a PMS in an enabling and coercive context (Adler & Borys, 1996). To investigate this phenomenon, three sub questions are developed in order to answer the main question.
The first sub question is about the formal documents and the PMS. In terms of repair, the system delivers the opportunity to mention problems through frequent meetings and by giving the employee responsibility, self-control and ownership. When looking to the next feature, internal transparency, the results indicates a strong emphasis on learning and
developing through the system. The PMS does not only set and measure hard targets, but also takes into account how these targets could be achieved.
In terms of global transparency, Energy constantly emphasized the fit between organizational, divisional and individual goals and targets, in which the PMS assists by common meetings and providing a lot of information. However, the documents are not clear about in what way all this information is available for lower-level employees. Regarding flexibility, the results are twofold. On the one hand, self-control and involvement in
combination with frequent meetings are indicators of a flexible PMS, but on the other hand the system is prescribed in detail, thus deviations of the system are not valued.
Overall, the documents describe the PMS in an enabling way. However, it is not purely an enabling or coercive system but a combination of both extremes (Adler & Chen, 2011; Brown & Eisenhardt, 1997; Chenhall, 2003). The PMS as described by formal documents has a strong tendency towards more enabling elements. It seems logical that a PMS is developed to coerce compliance, but in the main the PMS aims at stimulating and developing employees. It enables employees to learn from their performance, it helps employees to do their work more effectively and will eventually lead to an increase in commitment. The developmental approach to enabling formalization as investigated by Wouters & Wilderom (2008) is confirmed by the results of this study.
Page 27 of 39 argued that the system is a framework in which they can move and their own input is
emphasized.
Regarding repair, middle-managers acknowledge that the system facilitates and
encourages problem discussing and problem solving. Looking at internal transparency, they all use the system to stay up-to-date about their own work. The informal communication is mostly used to accomplish that. However, middle-managers all agree that some form of compliance is necessary and to keep promises. Regarding global transparency, they have access to much information but they do not need that access. Therefore, they see some of this information as irrelevant, because they mostly care about their own division. In terms of flexibility, they emphasized the freedom, self-control, responsibility and own input they have in their work and the potential to learn from it.
Regarding repair, lower-level employees feel free to discuss their problems, mostly initiated by the weekly meetings. These weekly meetings also help in terms of internal transparency, due to the fact that within these meetings it is communicated what needs to be done. Global transparency is also facilitated in these meetings, but mainly towards divisional level. They have access to the information they need and other information they experience as irrelevant. In terms of flexibility, they feel responsibility for their work and the freedom to deviate from the formal system. They use the whole cycle to develop themselves, because the system supports them to do so.
In sum, the top-level managers describe the PMS in an enabling way. However, it is not that clear as the documents describe it. They emphasized the informal process in which these enabling elements are assured. The middle-managers describe the elements mostly in an enabling sense, but they acknowledge the dual role the PMS have. This double function also counts for lower-level employees. Even as the formal documents, these findings of a balance are in line with findings of Adler & Chen (2010) and Chenhall (2003) and confirmed the propositions of Tessier & Otley (2012) regarding the dual role of controls. In contrast with the results of Chapman & Kihn (2008), it seems that the four generic features interact, i.e. they strengthen each other.
Another remarkable point is the difference within groups, because not every member
Page 28 of 39 factors come into play. This rationale behind the perceptions is the answer of the last sub question.
The first factors that showed up are age and tenure of several stakeholders. Older respondent have a different viewpoint than their younger colleagues. Specifically, older and more tenured workers know exactly what needs to be done and are not eager to learn anymore. Secondly, all the stakeholders put more emphasis on the informal system. They perceive the system as enabling because the informal system supports that perception. In line with Wouters and Wilderom (2008), a developmental approach is needed to achieve this enabling PMS.
Third, as some of the respondents argued, their perception depends on the organizational culture and structure. In their opinion, the structure of the organization is relatively flat, which increases communication. The work of Energy depends on humans and that their output is hard to measure. This relation between structure and control is studied by Ouchi (1979). He found that when outputs are hard to measure and the knowledge of the transformation process is imperfect, the culture is more like a clan. The case organization fit with this type of culture, which increases the effectiveness of the PMS.
At last, the perception does not count for a group, but for an individual. The
interviewees see the PMS as they see it and individual characteristics are important for this perception. One of the respondents stated that for example an ambitious employee who is eager to learn experience the PMS as a platform to learn and develop, which influences his perception.
Another factor that can be of influence but not mentioned by all stakeholders, is the leadership type of the manager. Some of the respondent argued that the current manager of the division emphasized the learning cycle and creates an open and informal atmosphere. This is important for having an enabling PMS. Tessier and Otley (2012) suggest that the
presentation of control systems can decrease the difference in perception and objective. This suggestion is confirmed, because the objective of the formal documents and the perceptions are not significant different, which is partly caused by the enabling presentation of the PMS and the informal elements of the PMS.
Page 29 of 39 environment) seem to be interrelated.
From a different perspective, as the PMS is recently implemented, the perceptions can differ along time, because the description of the PMS is still fresh in the memory of the employees. Another aspect of the studies of Jordan & Messner (2012) and Wouters & Wilderom (2008) is the incompleteness of performance indicators. As confirmed by a top-level manager, they want to avoid incompleteness of an indicator by involving the employee and giving the employee self-control.
More generally, the results of this study confirmed the findings of Malmi & Brown (2008), who stated that different control systems interact with each other. Within the case organization there is an interplay between the various control systems, consistent with the results of Englund & Gerdin (2015). For example, the PMS is related to the reward system and is assisted by cultural and administrative controls. Although this study mostly focuses on a PMS, it shows that the findings of MCS package of Malmi & Brown (2008) are still
relevant for researchers.
Overall, in contrast with the expectations, perceptions between three groups of internal stakeholders do not seem to differ significantly. Perceptions are individual and dependent on various factors. As opposed to the expectations, position in the organization does not matter. Another expectation was related to the difference between the objective of the formal
documents and the perception of stakeholders. Surprisingly, the formal documents and the perceptions are similar to each other. However, in line with Widener (2007) and Ferreira & Otley (2009), the informal processes assist and support the formal PMS.
Thus, as an answer of the research question, the objective of the formal documents and the perceptions of various internal stakeholders do not differ. Instead, the objective and the perceptions are congruent, which is caused by various factors as age, tenure, structure and culture and the existence of informal controls. In the end, perceptions are rather individual and hard to capture in a specific group.
Page 30 of 39
6. CONCLUSION
In this thesis the differences between the perception of various stakeholders and the objective description of the formal documents of the PMS are studied. To measure this difference, the study has made use of the dichotomy between enabling and coercive formalization (Adler & Borys, 1996). The procedure of the study was twofold; first, the various official documents are analyzed to gather a comprehensive understanding of the formal objective. Second, after this in-depth analysis, the perceptions of the stakeholders are investigated by using qualitative interviews. These stakeholders are defined as top-level managers, middle-level managers and lower-level employees. The case-organization uses an extensively described and newly implemented PMS, namely Performance Management. It turns out the formal documents describe the PMS in an overwhelmingly enabling sense. Participation, involvement, self-control, ownership and own responsibility are just examples of frequently recurring words.
When looking at the perceptions of the stakeholders, it appears that there is not a major difference between the internal stakeholder groups. In terms of the generic features, all stakeholders describe the PMS in an enabling sense. A few argued that some form of
compliance is needed and reduces the tendency towards an enabling PMS. Most of the frequently recurring words in the formal documents are confirmed by the findings. The employees of all stakeholder groups feel a degree of freedom in their work, even as self-control, involvement and responsibility.
Surprisingly the middle-managers and the lower-level employees acknowledge the
dual role of controls (Tessier and Otley, 2012). Although they see the elements in an enabling sense, they admit some degree of coercive formalization is needed. The study also reveals some possible explanation for the findings, due to the literature and the respondents. First and most importantly, some factors play a role. Most recurring and recognized factors are age, organizational tenure, organizational culture and structure and the presentation of controls. Second, the formal documents in this particular organization describe the PMS also enabling, but according to the results the perception of the stakeholders is mainly based on the informal moments.
In the end, the findings of Scott (2001) and Zimmerman (2001) are confirmed.
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6.1 Managerial and theoretical implications
The study reveals how managers and policymakers can decrease the difference in
perception of control systems. Within the case-organization, the culture, structure and leadership are congruent with each other, which support the little difference in perception between stakeholders. The fit between these different elements is important for designing an effective PMS. Lastly, this study is congruent with other findings that informal control systems are just as important as the formal PMS.
Theoretically this study has shown evidence of various researchers in the sense that control systems can differ in their nature. This means that a control system with merely enabling elements can have some coercive elements. The study provided an answer for the call of Tessier and Otley (2012). It is one of the first papers that investigated perceptions of a PMS. Much attention is paid towards implementation of a PMS or a different form of a PMS, but the perception of a PMS is undervalued phenomena. This study adds to this by giving a starting point towards investigating these perceptions and rationales for these perceptions.
The thesis included formal documents, which increases our understanding of how
formal documents are actually perceived. It turned out that the formal system is important, but that the informal system is perhaps even more important. The formal documents and
descriptions are not a stand-alone entity and future research should also take the informal elements into account to form a complete picture of the control system.
6.2 Limitations and future research
As every study, this thesis is not free of limitations. First, the evidence is built up from one case organization, which decreases generalizability. However, this thesis provides a first exploration of the subject. Second, the PMS in the case organization is recently implemented. Thus, the system is relatively new and the perceptions of the various stakeholders are possibly not shaped already. Third, as with all interpretive studies, the results and conclusions are not free of interpretations of the author. Through the intensive collaboration with fellow master students and the supervisor this is partly solved. Fourth, each stakeholder group is
investigated by three or four interviewees, which is relatively limited.
A lot of fruitful avenues for further research remain. First and most obvious, the study should be replicated in another organization with a larger dataset. This will increase our understanding of the topic. Future research can also include more levels of internal
Page 32 of 39 answers on both the relation between control systems and the way how this relation is
perceived by internal stakeholders.
Furthermore, new research can investigate whether there is an influence of
implementation date on the perception of stakeholders. This will answer the question if the perceptions of control systems differ along time. Another perspective can be taken by investigating the rationale for perceiving a PMS in an enabling or coercive sense. For
example, this study is named factors as age, culture and tenure, but other factors can also have a role.
At last, future research can explain the balance between enabling and coercive formalization, as this dichotomy turns out to be of interest for various control systems like a PMS. New inquiries can combine the control aspects regarding enabling and coercive formalization with psychological knowledge in terms of perceptions.
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