Management control systems and the extrinsic and intrinsic motivation of employees

(1)

Management control systems and the extrinsic

and intrinsic motivation of employees

(2)

Abstract

The motivation of employees is very important for all organizations. It is very important for the goals organizations want to achieve, because the employees need to be motivated to act according the strategy the company has chosen to realize these goals.Motivation can be divided into extrinsic and intrinsic motivation (Ryan and Deci, 2000).

Deci et al. (1999) states that if the extrinsic rewards have a negative effect on intrinsic motivation, depends on how these extrinsic reward are interpreted by the recipients, which is known as the cognitive evaluation theory. There is already evidence that sales control systems have positive or negative effect on the intrinsic motivation of salespersons. (Mallen and Pullins,2009).

The results of the study show that the management control systems can have a large effect on the motivation of employees. What that effect is depends on how the employees perceive the management control system. If they see them as controlling and they do not understand and agree with the reasons behind this, they will lose their intrinsic motivation and only do their job because they have to. The reason for this is that they perceive the way the management control systems treat them as if they are not to be trusted, because they feel like they are being checked on.

But if the management controls systems are seen as tools that can help the employees to know what they have to do, and it also gives them the freedom to do this in the way they think is best, the employees will be more intrinsically motivated, because they see the way the management control systems treats them as proof of their competence. This will give them more satisfaction and pride when they are doing their job.

Keywords: Management control systems, extrinsic and intrinsic motivation, Cognitive evaluation theory

Name: H.J. Nijkamp

Student number: s2247917

University: University of Groningen, Faculty of Economics and Business Master Program: MSc Business Administration

Specialization: Organizational & Management Control Email: nijkampharry@hotmail.com

Supervisor: prof. dr. ir. P.M.G. van Veen-Dirks Co-assessor: dr. M.P. van der Steen

(3)

1. Introduction

The motivation of employees is very important for all organisations. It is very important for the goals organisations want to achieve, because the employees need to be motivated to act according the strategy the company has chosen to realise these goals. But to get the people that work for a company motivated, it is critical to realise that there are different forms of motivation and to understand the influence these forms have on each other.

Motivation can be divided into extrinsic and intrinsic motivation. Extrinsic motivation is the motivation that originates from external pressure, this can be a reward or a threat or both. People are intrinsically motivated when they feel that doing an activity has its own inherent rewards, and perform better because of these rewards (Deci ,1971). This means that by definition managers cannot directly influence the intrinsic motivation of their employees. Intrinsically motivated

employees will have higher levels of quality-weighted effort then extrinsically motivated employees and can increase net profits for the employer (James jr ,H.S., 2005).

Research has shown that extrinsic motivation can have a negative effect on intrinsic motivation (Deci, 1971), (Frey 2001).They call this the overjustification or crowding out effect. It means that when people who are already intrinsically motivated, receive extrinsic motivation, they will focus more on the extrinsic rewards of doing an activity and will lose the intrinsic motivation.

According to the cognitive evaluation theory mentioned in Deci et al. (1999) extrinsic rewards have a negative effect on intrinsic motivation, depends on how these extrinsic reward are

interpreted by the recipients. If they see this reward as controlling their behaviour, and thus reducing their autonomy, than the reward has a negative effect on the intrinsic motivation. However when the reward is seen as a proof of competence, the need for competence is satisfied and this helps increase the intrinsic motivation and counteracts the negative effect of the reduction of autonomy. There is proof that this also is the case for sales control systems (Mallen and Pullins,2009).

The way that managers can influence their employee’s behaviour is through the

management control systems (MCS) (Merchant and Van der Stede, 2007). MCS can thus be seen as a general system by which managers influence other members of the organization to implement the strategies of the organisation (Anthony and Govindarajan, 2007). But in what way all management control systems of a company can influence the motivation of its employees has not yet been researched, and this information is important, because research has shown that companies benefit from having intrinsically motivated employees (James jr ,H.S., 2005).

That is why this study will answer the question:

(5)

2. Literature review

2.1 Motivation

2.1.1 Conceptualization

Motivation is defined as the psychological force that enables action. Motivation can manifest itself by increased effort and persistence aimed at reaching a goal's desired state or by an increased desire to use proper means in the process of goal pursuit (Touré-Tillery and Fishbach, 2011).

Motivation can be divided in extrinsic and intrinsic motivation. The difference between them is as follows. Extrinsic motivation is the motivation that does not originate from or is not inherent related to the activity done (Ryan and Deci, 2000).Examples of these kinds of motivation are tangible rewards, verbal rewards, threats, deadlines, competition and choice (Deci, 1999).These rewards are used by employers to control behaviour or, but also and, as a proof of competence.

Intrinsically motivated means that people feel that doing activities have their own inherent reward, and they are motivated by this (Deci ,1971). Ryan and Deci (2000) add to this by stating that intrinsic motivation is defined as the doing of an activity for its inherent satisfactions, instead of an external or separable consequence. This means that by definition managers cannot directly influence the intrinsic motivation of their employees. And it is very important to have intrinsically motivated employees, because they will have higher levels of quality-weighted effort then extrinsically motivated employees and, which can increase net profits for the employer (James jr ,H.S., 2005).

2.1.2 Relation extrinsic and intrinsic motivation

There have been many studies regarding the extrinsic and the intrinsic motivation of employees. Some, like the study of Wiechman and Garland (2009) and the study of Deci et al. (1999), found evidence that extrinsic rewards have a negative effect on the intrinsic motivation of people. They call this negative effect “the undermining effect”. The study of Deci et al. (1999) gives a number of different views on the effect of extrinsic rewards on intrinsic motivation. In this paper I will focus on the attributional approach and the motivational approach.

(6)

This effect is also found in other research. The paper of Frey (1997) calls this effect a crowding out effect. The crowding out effect in this article is defined as followed. When there is a crowding out effect, people who are already sufficiently intrinsically motivated to do an activity, receive extrinsic motivation. Because of this extrinsic motivation, they will focus more on the extrinsic rewards of doing an activity then on the intrinsic motivation they had. This means that the people will do activities more for the rewards, and feel less personally linked to successfully

performing an activity.

The motivational approach mentioned in Deci et al. (1999) states that if the extrinsic rewards have a negative effect on intrinsic motivation, depends on how these extrinsic reward are

interpreted by the recipients. If they see this reward as controlling their behaviour, and thus reducing their autonomy, than the reward has a negative effect on the intrinsic motivation. However when the reward is seen as a proof of competence, the need for competence is satisfied and this helps increase the intrinsic motivation and counteracts the negative effect of the reduction of autonomy. This is known as cognitive evaluation theory (CET).

A similar view can be seen in the work of Eisenberg and Cameron (1996). They argue that extrinsic rewards can cause a feeling of helplessness, when the rewards are based on participation, and not on quality. This causes the people to feel that they cannot control the rewards, which cause them to feel more helpless. They also argued that when rewards were dependent on quality, these rewards make effortful activity more rewarding.

This expands the reasoning of CET, which states that rewards only have a negative effect on intrinsic motivation, when they are viewed as controlling and autonomy reducing, by stating the following. Engagement contingent and task-noncontingent rewards undermine intrinsic motivation, whereas performance-contingent, completion-contingent, and verbal rewards for effortful activity leave unchanged or enhance intrinsic motivation. (Eisenberg and Cameron, 1996)

In this paper I propose the relationship as defined in the papers by Deci et al. (1999) and

Frey (1997) which see the relationship between extrinsic and intrinsic motivation as follows. Extrinsic motivation has a negative influence on intrinsic motivation, unless the extrinsic motivation is seen as a proof of competence, which means that the employee considers the extrinsic motivation as a sign from the management that they are doing their work in the way they are expected to. This is also known as the cognitive evaluation theory.

2.2 Management control systems

There are a number of different definitions of management control systems (MCS) in the literature.

(7)

maintain or alter patterns in organizational activity. Using this definition, these systems broadly include the formalized procedures for things such as planning, budgeting, environmental scanning, competitor analyses, performance reporting and evaluation, resource allocation and employee rewards.

Simons (1995) later on expanded on this by stating: “MCSs are the formal, information-based routines and procedures managers use to maintain or alter patterns in organizational activities”. Simons argues that these information-based systems become control systems when they are used to maintain or alter patterns in organizational activities. If not used for this purpose, they only give information for decision-making.

Abernethy and Chua (1996) employ the same line of argument in defining an organizational control system as comprising “a combination of control mechanisms designed and implemented by management to increase the probability that organizational actors will behave in ways consistent with the objectives of the dominant organizational coalition”

Other authors expanded on this by defining MCS as a tool designed to assist the manager's decision-making consisting of both formal and informal forms of controls (Chenhall, 2003).The formal controls are the contractual obligations and formal organizational mechanisms and can be subdivided into outcome and behaviour control mechanisms. Informal or social control, on the other hand, relates to the informal cultures and systems influencing members and is essentially based on mechanisms inducing self-regulation (Ouchi, 1979).

Chenhall (2003) also made a division of MCS, by stating that they range from mechanistic to organic. Mechanistic rely on formal rules, standardized operating procedures and routines, where organic systems are more flexible, responsive, involve fewer rules and standardized procedures and tend to be richer in data.

Other authors define MCS as a system which gathers and uses information to evaluate the performance of different organizational resources – human, physical, financial and also of the organization as a whole – considering the organizational strategies. The main purpose of MCS is to provide information useful for decision making, planning and evaluation (Merchant and Otley, 2007).

Merchant and Van der Stede (2007) separate the management control from strategic control and define management control as dealing with the behaviour of employees. They emphasise that it is the people in the organization who make things happen. Management controls are necessary to guard against the possibilities that people will do something the organization does not want them to do or fail to do something they should do. If all employees could always be relied on to do what is best for the organization, there would be no need for MCS.

(8)

Govindarajan, 2007). This view is also supported in the paper of Malmi and Brown (2008) in which the MCS are seen as the package of systems the management uses to influence the behaviour of its employees. In this article there are five kinds of tools distinguished, these are: Planning controls, Cybernetic controls, Reward and compensation controls, Administrative controls and Cultural controls.

Planning controls can be seen as an ex ante form of control (Flamholtz, 1985). It sets out the goals of the functional areas of the organisation, which will direct the effort and the behaviour of the employees. It also gives the standards of how the goal should be attained, making clear what level of effort and behaviour is expected of the employees. Finally the planning controls also enable goal congruence in the functional areas of an organisation, and with this the management can control the activities of the people of the company (Malmi and Brown, 2008).

Cybernetic controls can be defined by the following five characteristics (Green and Welsh, 1988). The first is that there are measures that enable the quantification of an activity or system. The second characteristic is that there are standards of performance or targets. The feedback process that enables the comparison of the outcome of the activities with the standards is the third

characteristic. The forth one is the variance analysis that arises from this feedback, and the last one is the ability to modify the system’s behaviour of underlying activities.

For a cybernetic system to be considered a MCS, and not only an information support system, the targets have to be linked to the behaviour of the people of the company, and the variations in performance must be accounted to the responsible person (Malmi and Brown, 2008).

Reward and compensation controls focus on motivating and increasing the performance of individuals and groups within organisations by achieving congruence between their goals and activities and those of the organisation. The basic argument is that the presence of rewards and compensation lead to increased effort. (Bonner and Sprinkle, 2002).

Administrative controls direct employee behaviour through the organizing of individuals and groups, the monitoring of behaviour and who you make employees accountable to for their

behaviour, and the process of specifying how tasks or behaviours are to be performed or not performed (Malmi and Brown, 2008). There are three kinds of administrative controls that can be distinguished: The design and structure of the organisation, Governance structures within the firm, and Procedures and policies.

The organisational design and structure can be used as a control, by using a particular structural type an organisation can encourage certain types of contact and relationships (Malmi and Brown, 2008). Flamholtz (1983) also saw organisational structure as a control that works through functional specialization, which can reduce the variability of behaviour and increases its

(9)

The governance structures within the firm include the formal lines of authority and

accountability. They also include the systems which are in place to ensure that representatives of the various functions and organisational units meet to co-ordinate their activities both vertically and horizontally, which directs the behaviour of organisation members (Malmi and Brown, 2008).

The use of policies and procedures is the bureaucratic approach to specifying the processes and behaviour within an organisation (Malmi and Brown, 2008).

Cultural controls are the set of values, beliefs and social norms which tend to be shared by its members and, in turn, influence their thoughts and actions (Flamholtz et al., 1985). We can distinguish three kinds of cultural controls: Value based controls, Symbol based controls, and Clan controls.

Value based controls are the explicit set of organisational definitions that senior managers communicate formally and reinforce systematically to provide basic values, purpose, and direction for the organisation (Simons, 1995).

Symbol based controls can be defined as the visible expressions created by organisations, such as building/workspace design and dress codes, to develop a particular type of culture and influence the behaviour of the employees (Schein, 1997).

Dent (1991) argues that there are distinct subcultures within organisations. These

subcultures can be labelled as clans. Clan controls work by establishing values and beliefs through the ceremonies and rituals of the clan that employees are exposed to, that gives them a set of skills and values (Ouchi ,1979).

I define MCS as a means for managers to influence the employees, because the goal of this research is to find out what the effect is of MCS on the motivation of employees, and to do that I need to look at how MCS are used to influence the behaviour of the employees.

2.3 Relationship management control systems and motivation

The literature states the following about the relationship between MCS and motivation. There is some literature about this subject, but there is not enough to sufficiently give an answer to the question of how MCS affects motivation.

The article written by Mcinnes and Ramakrishnan (1991) researches the relationship

(10)

There are also papers that state that MCS is mostly used to influence the behaviour of employees (Malmi and Brown 2008, Anthony and Govindarajan, 2007). I believe that this influence also must affect the motivation of the employees, because the extrinsic rewards given to employees, that we earlier discussed, are used by the management to control their behaviour and should make them act according to the strategy of the company.

We have seen that there is literature stating that extrinsic reward only crowds out intrinsic motivation, when it is perceived as controlling the employee and lowering the feeling of autonomy of the employee.

There is also literature that states that the relationship between control systems and

motivation is similar to the effect extrinsic motivation has on intrinsic motivation. Mallen and Pullins (2009) argue that it is very important how the employees perceive the control systems with which they are managed. They found out that when employees viewed the control as positive and it gives them a feeling of competence, then it will increase the intrinsic motivation. But when the

management control is perceived as only controlling the behaviour of the employees and decreasing the autonomy, then the intrinsic motivation will diminish. Because this article is about sales control systems and the motivation of sales people, it is not very generalizable to other management control systems. But nevertheless it does give us information about how the relationship probably will be between MCS and motivation.

In the literature we found that there are a number of different kinds of MCS that all have the same goal (Malmi and Brown, 2008). We believe that they all can have different effects on the motivation of employees, this depends on how the employees perceive the influence they have on their behaviour, just like the extrinsic rewards mentioned in Deci et al. (1999) and like the effect the sales control has on the intrinsic motivation of sales people mentioned in Mallen and Pullins (2009). We hypothesise that if they find the MCS controlling and feel like it reduces their autonomy, then it will have a negative effect on the intrinsic motivation. However if the employees perceive the MCS as a token of appreciation of their work and their competence, then it will increase the intrinsic

(11)

3 Methodology

In this chapter the methods the researcher has used to gather the required data will be discussed. First the aim of the study and the approach will be stated, and secondly the justification of the case studies I have done will be discussed.

3.1 Research method

The aim of this study is to create new theory about the relationship between MCS and motivation. To do this, the researcher has chosen a theory development approach. Because there is need for data about the perception of the employees about the relationship between MCS and motivation, I will use qualitative research. Because research shows that qualitative research gives an understanding of social phenomena in the natural setting, from the perspectives of the participants. It is an

investigation of how individuals make sense of the world around them. (Denzin & Lincoln, 2008) Grünbaum (2007) states that researchers must clearly distinguish the units of analysis from the case. This means that I need empirical data about the relationship between MCS and extrinsic motivation and intrinsic motivation as seen by the higher and lower management. I also need information about the extrinsic and intrinsic motivation of them.

To get the empirical data needed to answer the research question and develop new theory, I will conduct a number of interviews with higher level managers who use MSC and the lower level managers that are controlled by these systems. I will base the questions of these interviews on the work of Malmi and Brown (2008), because they have constructed a framework of MCS, where they distinguished all the different MCS systems that influence employees.

The results of these interviews will be analysed by following the following steps. The first step is sorting the data that I have found. The next step will be describing the results and analyse the extrinsic and intrinsic motivation of my case studies, and the effect the MCS have on the employees. This will be followed by an analysis in which the effect the MCS have on the employees will be compared with the reasons the employees are motivated.

(12)

3.2 Data collection

The aim of the study is the development of new theory about MCS and motivation. The researcher has chosen for in-depth interviews, because

3.2.1 Case selection

I have selected the following persons to be interviewed. Because most of them had the condition that the researcher would not give any information about the specific persons and they companies they represented, there is only information about the type of company and the function that the people have.

The study aims mainly on companies that produce and manufacture, because in these companies the controls are very visible and because the companies have the appropriate size, they are all

companies with multiple offices in national and international, they also have both formal and informal MCS systems, which is very important for the completeness of the study. Also the functions range from higher and lower management, which gives the researcher the opportunity to get both the data from the people who mostly use the MCS to control and the people who are mostly being controlled by it.

There are also two companies that are in a completely different branch than the other two, because then the results would be more generalizable and to make sure if the results would be different in these branches.

3.2.2 Data collection method

The in depth interviews were structured as follows. First there were some questions were the interviewee could tell about his job and the responsibilities that come with that job. After that the questions were about the different kinds MCS of their company and how they saw the effect of these control systems on them.

Type of company Function

Poultry meat producer Plant manager (MT)

Poultry meat producer Controller (MT)

Poultry meat producer Production Leader(MT)

Poultry meat producer Production Chief

Manufacturer of machine interfaces Financial controller Manufacturer of bathroom and tableware Lean manager (MT)

Seaport that rents out land and harbor area Manager finance and control Corporation that facilitates the rental of houses Manager Strategy (MT)

(13)

After that the interviewer asked questions about the motivation the interviewee has for his or her job, followed by some general questions about how the interviewee viewed the relationship between the MCS in general and motivation.

(14)

4 Results/Analysis

In this chapter I will discuss the results of my case study. The outline is as follows. First I will discuss the kind of motivation the people I have interviewed have. After that I will discuss the various effects the five kinds of management controls I have used have on the motivation of the employees. Finally I will analyze the results of the study, to determine what the effect is of the MCS of a company have on the motivation of employees. Throughout this chapter I use quotes out of my interviews as examples to illustrate the analysis of the results.

4.1 Motivation

The people I have interviewed all have reasons why they are motivated to do their job. Some of these reasons are different for the different people, but I have also seen a lot of similarity in the answers I have got.

One of the reasons that everyone named as important for their motivation, is the freedom to do the tasks they are required to do in their own way. This is important, because when the

employees get this freedom, they feel that they are being trusted. This does not mean that every employee want complete freedom, they want precisely enough freedom that they are comfortable with. Because too much will result in anxiety, because they get more responsibility than they can handle, which in turn will demotivate the employee.

Lean manager

“I get my motivation mainly by the constant improvement of our company, and the freedom I have to do this in the way I believe is best”

Plant manager

“The most important motivator for me is the way I can do my job. I am only rated by the results I deliver and that gives me the freedom to achieve these results in the way that I think is best. I do not believe that everyone should have so much freedom, because the more freedom you have, the more responsibility you get and not everyone can handle that.”

Manager strategy

“The most important thing about my job is that I can do the things I have to do in my own way, I am being rated on the results and not the actions. I also find it very important that I have a substantial influence on the results of the company.”

(15)

The rewards that the people get are also very important for the motivation, but in a special way. The results have shown that people are demotivated if they see the reward as insufficient enough, but when the reward is more than enough, the motivation does not go up in the long term. It only gives a short-term boost, until the employee is used to the new level of income.

Financial controller

“I am motivated for my job because of the following things. First there is the compensation I receive for the work that I do. The second thing is the freedom I have, to do my job in the way I like it. Finally I also really like the culture of our company. The combination of these factors make that I can do my job with pleasure.”

Manager finance and control

“I am mainly motivated intrinsically. The money I receive is necessary, but not enough for my motivation.”

Another important motivator for the people I have interviewed, is the satisfaction of doing your job in the correct way, even more when this succeeds in spite of setbacks. This gives them pride and energy, and it also shows that the trust their superiors have in them is just.

Production chief

“It is very important to me to support the people that work for me in the best way that I can. So if they are able to achieve the planning and the standards that are set for them, I get a feeling of fulfillment which is very motivating.”

Production leader

“I get my energy and motivation when I am able to achieve my targets, in the most clever and efficient way. I really like it when I am able to make the deadline, in spite of some setbacks. It is also very important to not be overly controlling, because that is very demotivating. This is because too much control gives the impression that we are not being trusted.”

(16)

Production chief

“The people that work for me sometimes struggle with certain aspects of their job, because they do not really see the importance of that job. I think it is crucial for them that they know why they have to do what they do, so that they see the importance and feel more motivated.”

4.2 The effect of management control systems

4.2.1 Planning Controls Long term planning

I have seen in my results of the interviews that the people with a long term orientation of their planning see these planning controls as more motivating than controlling. This had two reasons. The first reason was that these people, because they were more upper level managers, have a reasonable influence in the creation of these controls, which made sure that they did not think of the planning as controlling.

Manager strategy

“For me the planning controls are motivating, because it is my job to create them. This means that I have a great deal of influence on it”

Lean manager

“Because I am a member of the management team, I can assert quite some influence on the planning controls, that is also why I do not think that the planning is controlling”

They saw these planning controls as motivating, because they could decide their own way of achieving the planning. They were only rated on the results they delivered and not on their actions. This helped their motivation, because this meant that they were trusted to fulfill the planning in the way they thought was right. Another reason for a positive effect on the motivation was that the planning is seen as a tool with which the people can determine what is expected of them. The results show that this is very important for these employees.

Plant manager

(17)

Short term planning

The results gave the following insight about the relationship of short term planning controls and motivation. The people view the short term planning as more controlling as the long term, because they do not have much influence in creating the planning, it is much more imposed on them. Production Chief

“I have got the impression that it is sometimes to hectic, because we always have a very tight schedule, this can be very frustrating. I believe that it is because of the market that we are in, but it does mean that we sometimes really need to stress to do our job well.”

They also thought that it was the meaning of the planning to control the employees, to get them to act in the way needed to achieve the organizational goals. It also gives them structure and clarity about what is expected of them

Financial Controller

“I think the planning is mostly meant to control the people, that is also how I see it. It is a way for the management to focus the employees on the things that are important to achieve the organizational goals.”

Manager Finance and Control

“The employees see the planning controls more as controlling, the intensity depends on the supervisor”

Production leader

“The planning I encounter in my job is fairly short term. We use the planning to create structure and control, without it I would not be able to do my job.”

There was also evidence for a motivating aspect of short term planning. This positive effect had two reasons. First there is the feeling of accomplishment employees get, when they are able to do the work they were supposed to according to the planning, this motivates the employees to do their work in the right way. This also means that it has to be possible for the employees to meet the planning, for it to be motivating.

Production chief

(18)

Production leader

“When I can execute the planning in the way it is intended, I feel very motivated.”

4.2.2 Cybernetic Controls Financial Controls

The results of my interviews show that the financial controls do have an effect on the motivation of the employees. On the one hand, these controls can be seen as a way to reduce uncertainty about what is expected of the employees and it can also be motivating to be able to meet the financial standards in your own way.

Plant manager

“I find the financial standards that we use motivating and not controlling, because they can help me to see which way I need to go and what the results are that are expected of me, the same as the speedometer in a car helps me to see how fast I am going.”

Controller

“The financial standards can work as a motivator, when I have enough freedom to meet these standards in the way I think is best.”

On the other hand these financial controls can be perceived as controlling, because the employees are very aware of the fact that these controls are there to influence and control their behavior. They are still motivated by these controls, because the employees say that the controls motivate them to do what they need to do. They also say that this motivation originates from the fact that if they do not perform well, it will be noticed and steps will be taken to avoid this in the future. This is not seen as negative, because the employees think it is necessary that they are influenced to do their work, to let them know what they have to do.

Production leader

“The standards let me know where I stand and what I can do. I do think that these financial standards are controlling, but I do not think that is negative. These controls do not need to be perceived as controlling, even though they are used to influence and control the behavior of the employees.” Production chief

(19)

Non-financial controls

For the non-financial controls, the results show the following. The non-financial standards give the employees more time to react on events, because they are seen as less static. With these standards the employees feel like they can react sooner to events, which makes them feel more in control, which also motivates them.

Lean manager

“I see the balanced score card that we use in our company as motivating, because with this

instrument we can include other perspectives than only the financial. With the non-financial data we can react sooner to achieve the desired financial result.”

These non-financial standards are also seen as a way to achieve the financial standards that are very important to achieve. Another important aspect of the effect standards have on the motivation of the employees, is the freedom the employees have in meeting these standards. The more freedom they experience in choosing their own way to meet these standards, the more the employees are motivated. The reason for this increase in mostly that the feel more competent when they meet the standards in the way they themselves thought best.

“I find the measures that I am rated with motivating, because it focuses on the things I find

important, the activities that I do and improve, not the budgets. I rather focus myself on quality and efficiency improvements than keeping my expenses inside the budget, I find that much more

motivating.” Financial controller

“I am being judged on non-financial standards, like the quality of my work or the punctuality I show when handing in the work I am required to. I do not have a lot of freedom to do my job, I have to follow very strict guidelines, even though I do have some freedom in how I can meet these guidelines. This makes that I am intrinsically motivated to do my work in the right way. I do not feel really externally motivated.”

4.2.3 Reward and Compensation Controls

(20)

Plant manager

“Bonuses did not work in our company, when we tried this in our company we saw that almost every employee received a bonus. The reason for this bonus was often to prevent the demotivating effect of giving someone a bonus and take this bonus away from them later.”

When people get more money than that, they most of the times show a relative short term increase of motivation, but when the people are accustomed to the new level, they will go back to the motivation they had before the raise.

“In our company I have seen that at first a bonus has a positive effect on the motivation of the employees, but this effect fades away after a while. I believe that is because the people soon get used to getting more money, and do not find it special anymore.”

There is a way for bonuses to be effective, that is when the bonus is very clearly bound to the personal performance of the employee, and it should require a very specific amount of effort. This is because then the bonus will not be too easy to accomplish, because then the employee will view it just as regular pay. It also should not be too hard, because this will demotivate the employees. Controller

“The only way a bonus will work motivating, is when the employees have a lot of influence in achieving the bonus. That is the reason a bonus that depends on the functioning of the entire organization will not work, people do not see the connection between the bonus and their personal performance.”

“There is a certain standard that people have to achieve in order to receive the bonus and if they fail that, they receive no bonus and this can be really demotivating, because this can make people feel like they are not good enough to deserve a bonus.”

(21)

Manager strategy

“It is very important that they get enough money to do the things they want to do, to prevent the demotivating effect an less than average salary has on employees.”

The interviews also have shown that the monetary rewards are not enough for the employees, they also need feedback from their supervisor. When the employees know that their work is appreciated, they show a lot more motivation.

Lean manager

“Money is very important as motivator, but it is not enough. People also find it very important that they get good feedback, that their work is appreciated. Money has the most influence on people, in a negative way, when the employees are paid less than they think is fair.”

Production leader

“People get used to getting a bonus, so I do not think it motivates them to do well for a very long time. I think that the involvement of the superiors and the feedback they give to their employees are more important for the motivation.”

4.2.4 Administrative Controls Structure of the company

In the case studies I have found the following relationship between how the organization is

structured and the motivation of the employees. The structure of the company has an influence on the motivation of the employees, positively because it gives them all clarity about the role they play in the organization and what is expected of them and why.

Production leader

“Structure is very important for everyone, I need it and all the employees of this company to. People need structure to function, it influences them to achieve certain results and prevent other. I think it is motivating, because it creates clarity for the employees, they know their roles, responsibilities and tasks.”

(22)

company, and not only of the unit they work in. This is beneficial to their motivation, because this also helps them in seeing why the work that they do is important.

“It is very important that the company is structured in such a way that the people see themselves as a part of the whole organization, and not only of the unit they work in. This is important for the

motivation of the employees, because it will give the employees a better sense of what they are doing and why.”

Formal rules of the company

How the formal rules of a company affect the motivation of employees is influenced by the following factors. Firstly it is important how much freedom the employees still have in spite of these rules, because that lets them know that they are being trusted.

Lean manager

“If the formal rules are seen as less controlling, depends on two things. First it depends on how much freedom the rules give to the employees, which gives them the message that they are trusted. Secondly it is important that the people understand why the rules are how they are.”

But when the employees do find the formal rules very controlling, there is still another way to prevent them from being very demotivated by these rules. This can be done by making the employees understand why the rules are necessary. If they agree and also believe the rules to be necessary, their motivation will not be negatively affected.

Manager strategy

“I have seen that when people do not see the use of all the rules that they need to follow, they become less motivated. This is because the employees will feel like they are being overly checked on, instead of trusted.”

Production chief

(23)

4.2.5 Cultural Controls Mission, vision and strategy

The interviews have lead me to the following results about the influence of the mission vision and strategy on the motivation. When all the employees are aware of the mission and vision and strategy and it is also translated to their personal job, they gain some perspective on why they do what they do and why their job is important, which motivates them.

Manager strategy

“I have noticed in my team that it is a big advantage when the employees have a clear image of what we do and where we want to go with the company. They are motivated to follow the strategy of the company, because it is clear to them why that is important.”

Production leader

“In my opinion it is very important to indicate which way you want to go with the company, translated to every level of the company with the corresponding detail. It is a good motivator for employees to know which way the company wants to go, and what his part in this journey is.” There are also companies that do not want to communicate this to every employee, but only to the managers and supervisors, because they do not see the benefits of everyone knowing where the company will go next outweighing the costs of making everyone understand.

“In our company the mission and vision are not being communicated to all the employees. It is only addressed by the strategy team. I believe this is because we are very practical and rather just get some work done, instead of discussing these things.”

Plant manager

“We do tell the employees what we expect from them, but we do not relate that to the mission and vision of the company. We do communicate the mission and vision to the supervisors, which helps them to see where we want to go with the company and what is important to focus on.”

The informal rules

(24)

“The informal rules are motivating for me, because I agree with them and I like the way it makes the people here work. I think that the way you perceive these rules is very important, because if you do not like the way it works around here, you will become very demotivated.”

Controller

“I see the informal way we interact with each other in this company as motivating, because this way works for me. I also think that the people I work with also see it this way.”

On the other hand there are the employees, that view the rules as only controlling their behavior. How negatively this affects their motivation, depends on how necessary these informal rules are to the employees, similar to the formal rules.

“I do not see these rules as motivating, but more as controlling. That is because in my eyes, they are mostly there to influence your behavior. How this influences my motivation, is dependent on how if I can see the necessity of following the rule ”

Production leader

“Because these rules decide for a large portion how I behave, I see them as controlling. I do not see them as motivating.”

4.3 Analysis of motivation and management control systems

The results of the interviews have shown that employees are most motivated by a number of things. First there is the freedom they want to do their job in the way they want to, they need a certain level of trust that they are capable to do it in the right way.

The appropriate level of freedom is very dependent on the person, because the employees also need structure and clarity about what is expected from them. This helps them prevent the demotivating effect that not knowing what to do has on them. Another important motivator is the pride that comes with doing your job in the way that is expected from you.

They also need enough compensation for their job that they perceive as fair, otherwise they will be very demotivated. If employees find their compensation fair, depends on the level of pay they are accustomed to and also on much the people with similar functions around them are paid.

The case studies have shown us that the five kinds of management control as a whole have a lot of influence on these factors that are important for the motivation of the employees. The

(25)

The way the employees sees these controls is very important for the effect they have, because the same control can have different effects on different people. For a positive effect on the motivation, the employee needs to perceive these controls as not constricting their movement and controlling their every move. This would be very demotivating for the employees , because it feels like they are not being trusted. For these controls to be positive for the motivation, they have to see these controls as tools which help them to do their job in the way it is intended. In the interviews this is done by giving the people a mix of control and freedom that they are comfortable with, suiting their needs and qualities. I have seen in the results that it is not always possible to give every employee the exact mix of freedom and structure that they need. If this demotivates the employee depends on if the employee understands why he is being checked on more than he thinks is necessary and agrees with it.

The reward and compensation controls have a different influence on the employees, it is mostly positive control, rewarding behavior that is in line with the needs of the organization. The results of my interviews have shown the following ways that these controls affect the employees. First there is the compensation that can come in two forms, normal pay and performance pay. The most important thing with normal pay is that it should not be lower than the employees perceive as fair. What level of pay this is depends on the level of pay the employee is accustomed to and the level of pay people receive with similar functions.

(26)

5 Discussion/conclusion

In this chapter there will be a summary and a discussion of the main findings of the study. This will be used to give an answer to the research question. Finally the limitations of this study will be

addressed, and areas of further research.

5.1 Findings

The results have shown us that management control systems have a large impact on the motivation of employees. They influence the employees in numerous ways, by giving them rewards when they are behaving according to the needs of the organization and steering them away from behavior that does not benefit, or even harms, the organization just as the paper of Malmi and Brown (2008)

proposed.

5.1.1 Motivation

I have found all kinds of motivators in the case study. There was the intrinsic motivation, the pride and joy it gave the employees to do their jobs correctly, which corresponds to the definition Ryan and Deci (2000) gave to this kind of motivation.

Ryan and Deci (2000) also defined extrinsic motivation, motivators that have no relationship with the activity. I have also found examples of these. First there is the trust the employees receive when they can do their job in their own way. The compensation the employees received, the positive and negative feedback the employees receive from their superiors and the other ways employees receive structure and clarity from their managers about what is expected of them.

The results have shown me that these extrinsic motivators are all important for the joy the people have in their job. The freedom to do the job in their own way makes the joy and pride of the job more intense, the feedback and the structure and clarity the employees receive can be seen by the employees as the tools the employee can use to do their job better, which would increase their intrinsic motivation

But when the employee perceives these as controlling and do not understand the reason behind them, they are reasons to become less intrinsically motivated. The compensation has a special effect, because it has to be perceived as enough, to keep the people from losing the joy they have in their job. This is in line with the cognitive evaluation theory mentioned in Deci et al. (1999)

(27)

“The informal rules are motivating for me, because I agree with them and I like the way it makes the people here work. I think that the way you perceive these rules is very important, because if you do not like the way it works around here, you will become very demotivated.”

5.1.2 Management control systems and motivation

The paper of Mallen and Pullins (2009) argued that the effect of sales control systems depends on how the employees perceive the control systems. In the results of the case study, there is evidence that this relationship is also present between management control systems and motivation. The different views about the five kinds of MCS systems and what that means for the motivation will be discussed in this paragraph.

Planning controls

The planning controls were seen differently by the different people in the case studies. One group saw them as a tool that helped them to do their job better, because it gave them the information they needed. This helped their intrinsic motivation because of that.

The other group saw the planning as controlling, more as something that was controlling them. They did not find these controls as motivating, but because they accept that they were necessary, they also did not deem them as demotivating. This had a negative or no effect on the intrinsic motivation.

Cybernetic controls

The different views that the people had on the cybernetic controls were as follows. Some of the people I have interviewed see especially the budgets and financial, because they felt that this was primarily there to check up on them. This is negative for the intrinsic motivation.

Others saw these kind of controls, especially the non-financial measures, as a means to discover what was expected of them, and used it, in a similar way as the planning controls were used as a tool, to do their job better. That means that it helps their intrinsic motivation.

Reward and compensation

(28)

The performance pay that some companies use to get their employees to focus their attention on a specific goal, could be extra motivating. But this effect was only long lasting if the bonus was tied to a performance that the employee had complete control over. This also does not have an effect on the intrinsic motivation.

Administrative controls

There were also different views about the administrative controls. Some found them, especially the formal rules, mostly controlling. They found that they did not get enough freedom, that they were not trusted. This feeling was countered in the case study, by giving the people a clear sense of the importance of these rules. This made them see these rules as necessary, but not motivating. When the people understood the necessity, than it had no effect on the intrinsic motivation, otherwise it has a negative effect on the intrinsic motivation.

The others viewed these controls as motivating, because they appreciated them as a means to create clarity about what is expected of them. This is because the organisational structure let them know where they stand in the organisation and gave them tasks, roles and responsibilities. They liked the influence it had on them, because this both gave them structure and freedom to act according to this structure. They saw this as motivating, because it reduces uncertainty about their tasks and roles. This helps the intrinsic motivation, by giving the employees structure and trust to do their job in the way they like to do it, as long as the results are good.

Cultural controls

The cultural controls are seen by most of the people I interviewed as follows. The saw the direction the company was heading, the values and informal rules, that were communicated by the

management, as guidelines as to how they should behave and it gave them a better understanding of why their jobs were important to the company. And because they understand these values and agree with them, they are motivating.

(29)

5.2 Conclusion

This all leads to answering the research question: What is the effect of management control systems on the extrinsic and intrinsic motivation of employees.

The answer on that question is that this effect can be both negative and positive. The kind of influence the MCS have, depends on the perception of the employees. If they see it as controlling and only there to check up on them, then it will have a negative effect on the intrinsic motivation. However if the MCS are perceived as tools that give the employee structure and clarity about what is expected of them, trust of their superiors and enough compensation to make them feel appreciated, than it will increase the joy and satisfaction the employees have in their job, thus increasing their intrinsic motivation.

Theoretical implications

The literature about MCS already has some information about how these controls influence the employees, but not how these controls affect the extrinsic and intrinsic motivation of the employees. This study has aimed to fill in this gap. The result of this is that we have seen that the management control systems can have a large effect on the motivation of employees. What that effect is depends on how the employees perceive the management control system. If they see them as controlling and they do not understand and agree with the reasons behind this, they will lose their intrinsic

motivation and only do their job because they have to. The reason for this is that they perceive the way the management control systems treat them as if they are not to be trusted, because they feel like they are being checked on.

But if the management controls systems are seen as tools that can help the employees to know what they have to do, and it also gives them the freedom to do this in the way they think is best, the employees will be more intrinsically motivated, because they see the way the management control systems treats them as proof of their competence. This will give them more satisfaction and pride when they are doing their job.

Managerial implications

What this means for the managers that are influencing their employees through the MCS is as follows. They should pay close attention to how the employees see the controls, and try to change it when the employees see the MCS as controlling.

(30)

The aim should be to get the employees to perceive the controls as tools that can help them do their job better. To do this the manager should structure the MCS in such a way that the

employee feels that the manager gives them enough structure that they know what to do, and enough trust to do their job in the way they think is best.

Limitations and further research

There are some limitations to this study. All the data was gathered in a very short timeframe, so the results are snapshots. Also because the researcher had to ask for information that can be considered private or shaming, it cannot be guaranteed that the people I have spoken have told me the whole truth.

There is also an issue with the generalizability of the results, because most of the interviews were done in a specific branch. Also the positions of the people I have interviewed, were from higher management to lower management. This means that the effect of MCS on the employees lowest in the hierarchy has not been included in the study. This is an interesting point for further research. This further research should include more other types of companies in other branches to check if the conclusion the researcher based on his results also apply to them

Cognitive factors, understanding of words, lack of knowledge about topics and other

influences from the people involved might have biased the questions, answers and the processing of these. This effect has the biggest chance with the results of the cultural controls, because a

reasonable portion of the persons that were interviewed was not able to give me much data about those. Further research in the cultural controls should be done to make sure the conclusions were accurate.

(31)

References

1. Anthony RN, Govindarajan V. (2007) Management Control Systems. Chicago: McGraw-Hill Irwin;

2. Amabile, T.M., De Jong, W. & Lepper, M.R. (1976) Effects of externally imposed deadlines on subsequent intrinsic motivation

3. Bonner, S.E., Sprinkle, G.B., (2002) The effects of monetary incentives on effort and task performance: theories, evidence, and a framework for research. Accounting Organizations and Society 27

4. Chenhall, R., (2003) Management control systems design within its organizational context: findings from contingency-based research and directions for the future,

Accounting, Organizations and Society Volume 28, Issues 2–3, February–April 2003, Pages 127–168

5. Deci, E. L.(1971) Effects of externally mediated rewards on intrinsic motivation Journal 0f Personality and Social Psychology 1971, Vol. 18, No. 1, 105-115

6. Deci, E. L., Koestner, R., & Ryan, R. M. (1999). A meta-analytic review of experiments examining the effects of extrinsic rewards on intrinsic motivation.

Psychol Bull. 1999 Nov;125(6):627-68;

7. Denzin NK, Lincoln YS. Introduction: the discipline and practice of qualitative research. Denzin NK, Lincoln YS, editors. Strategies of qualitative inquiry. 3rd ed. London: SAGE; 2008. p. 1e43.

8. Eisenberger, R., & Cameron, J. (1996). Detrimental effects of reward: Reality or myth? American Psychologist Vol. 51, No. 11, 1153-1166

(32)

10. Flamholtz, E., Das, T., Tsui, A., (1985). Toward an integrative framework of organizational control. Accounting Organizations and Society 10

11. Flamholtz, E., (1983). Accounting, budgeting and control systems in their organizational context: theoretical and empirical and empirical perspectives,

Accounting, Organizations and Society 8

12. Green, S., Welsh, M., (1988). Cybernetics and dependence: reframing the control concept. Academy of Management Review 13

13. Grünbaum, N.N. (2007). Identification of ambiguity in the case study research typology: what is a unit of analysis. Qualitative Market research, 10 (1): 78-97.

14. James jr ,H.S., (2005) Why did you do that? An economic examination of the effect of extrinsic compensation on intrinsic motivation and performance,

Journal of Economic Psychology 26 (2005) 549–566

15. Malmi, T., Brown, D. A. (2008) Management control systems as a package—opportunities, challenges and research directions,

Management Accounting Research Volume 19, Issue 4, December 2008, Pages 287–300

16. Mallin, M. L. and Pullins, E. B. (2009) The moderating effect of control systems on the relationship between commission and salesperson intrinsic motivation in a customer oriented environment,

Industrial Marketing Management, Oct 2009, Volume: 38 Issue: 7 pp.769-777

17. Marginson, D., & Ogden, S. (2005). Coping with ambiguity through the budget: the positive effects of budgetary targets on managers’ budgeting behaviours. Accounting, Organizations and Society

18. Mcinnes, M. and Ramakrishnan, R.T.S. (1991) A decision-theory model of motivation and its usefulness in the diagnosis of management control systems

(33)

19. Merchant, K.A., Otley, D.T. (2007) A review of the literature on control and accountability, Handbooks of Management Accounting Research Volume 2, 2006, Pages 785–802

20. Merchant, K., Van der Stede,W.A. (2007). Management Control Systems : Performance Measurement, Evaluation and Incentives,

21. Otley D. (2001) Extending the boundaries of management accounting research: developing systems for performance management

British Accounting Review (2001) 33, 243–261

22. Osterloh, M.& Frey, B.(2002) Does pay for performance really motivate employees?

23. Ouchi, W.G.A. (1979), conceptual framework for the design of organizational control mechanisms

Management Science, Vol. 25, No. 9, (Sep., 1979), pp. 833-848

24. Schein, E., (1997). Organizational Culture and Leadership. Jossey-Bass, San Francisco.

25. Simons, R., (1990) The role of management control systems in creating competitive advantage: new perspectives

Organizations and Society, 15(1/2), 127–143.

26. Simons, R., (1995) Levers of Control. Harvard University Press, Boston. Boston: Harvard Business School Press.

27. Touré-Tillery,M., Fishbach,A. (2011) The course of motivation Journal of Consumer Psychology Volume 21, Issue 4, October 2011, Pages 414–423

28. Vallerand, R.J.& Reid, G.(1984) On the causal effects of perceived competence on intrinsic motivation: A test of cognitive evaluation theory

(34)

Appendix A Interview questions

Intro

Als eerste wil ik u bedanken voor dit interview. Ik zou graag beginnen met een korte introductie doen met betrekking tot wie u bent en wat uw functie precies inhoudt.

● Welke vooropleiding(en) heeft u gehad?

● Wat houdt uw functie precies in, wat zijn uw taken en verantwoordelijkheden?

Management controle systemen en motivatie

Het doel van mijn onderzoek is om te ontdekken wat de invloed is van management controle systemen op de motivatie van de werknemers van een bedrijf. In de literatuur is er geen

overeenstemming over wat management controle systemen precies inhouden. Daarom zal ik bij deze aangeven welke definitie in de paper die ik aan het schrijven wordt gebruikt. Met management controle systemen bedoel ik de verschillende systemen waarmee het management het gedrag van zijn werknemers beïnvloed.

Planning (Lange termijn, Korte termijn)

● Op welke manier wordt er voor u of door u gebruik gemaakt van planning?

● Ligt de focus meer op korte termijn of op de lange termijn? Wat is hiervan de reden denkt u? ● Hoe zou u het effect hiervan op uw motivatie benoemen? Heeft u de indruk dat dit vooral

controlerend of motiverend is? Waarom is dat?

Cybernetic controls (Budgeten, Financiële en niet Financiële maatstaven/ hybride systemen) ● Op welke manier spelen budgeten of andere financiële maatstaven een rol bij de MCS van

uw bedrijf? En niet-financiële maatstaven? ● Waar worden deze maatstaven op gebaseerd?

● Wordt u persoonlijk meer op financiële maatstaven beoordeeld of op niet-financiële maatstaven? Wat is hier de reden voor denkt u?

● Ervaart u deze maatstaven vooral als controlerend, of als motiverend?

● Hoe beïnvloedt deze manier van werken uw motivatie? Vooral controlerend of motiverend? Waarom is dat zo?

Reward and compensation (Beloning en compensatie, prestatieloon, bonussen)

● Wordt u ook gecompenseerd in de vorm van bonussen? Waarom denkt u dat dit zo is? ● Wordt er binnen uw bedrijf ook gewerkt met beloningen voor groepen, in plaats van

individuen? Hebt u daar ook persoonlijk mee te maken gehad?

(35)

Administrative controls (Structuur van het bestuur, Organisatie structuur, Beleid en procedures) ● Op welke manier wordt het bedrijf geleid, wat is de organisatiestructuur van het bedrijf? ● Wat is de beoogde invloed van deze structuur op de werknemers in uw ogen?

● In welke mate wordt uw gedrag bepaald door de formele regels van het bedrijf? Wat is hiervan het effect op uw motivatie? Controlerend of motiverend?

Cultural controls (Clans, Waardes, Symbolen)

● Op welke wijze worden de missie en de visie van het bedrijf gecommuniceerd naar de werknemers?

● Is er ook een (informele) gedragscode binnen uw bedrijf? Zo ja, hoe wordt deze gecommuniceerd naar u/de werknemers?

● Zijn er nog meer informele regels binnen het bedrijf die uw gedrag beïnvloeden? ● Hoe komen deze regels op u over, meer controlerend of motiverend?

Motivatie

● Wat vindt u zelf van het belang van uw werk? Waarom?

● Bent u tevreden met de verantwoordelijkheden en plichten die u heeft in uw werk? Wat zijn in uw ogen de betere en minder goede kanten van uw werk?

● Vindt u dat u voldoende mogelijkheid hebt om uw werk te doen zoals u dat wilt?

● Wat zijn in uw ogen de belangrijkste redenen voor uw motivatie voor het werk wat u doet? Waarom juist die?

● Zijn deze redenen ook veranderd in de loop van de tijd dat u hier hebt gewerkt? Wat zou u als reden daarvoor aangeven?

Management control systems and the extrinsic and intrinsic motivation of employees