The Game of Budget Control

G. H. Hofstede

• Publisher: Taylor & Francis
• Year: 2012
• Print ISBN: 9780415513883
• eBook ISBN: 9781135644475
• Edition: 1
• Topic: Medicine
• Subtopic: Health Care Delivery

Tavistock Press was established as a co-operative venture between the Tavistock Institute and Routledge & Kegan Paul (RKP) in the 1950s to produce a series of major contributions across the social sciences.
This volume is part of a 2001 reissue of a selection of those important works which have since gone out of print, or are difficult to locate. Published by Routledge, 112 volumes in total are being brought together under the name The International Behavioural and Social Sciences Library: Classics from the Tavistock Press.
Reproduced here in facsimile, this volume was originally published in 1968 and is available individually. The collection is also available in a number of themed mini-sets of between 5 and 13 volumes, or as a complete collection.

Part I - The Research Subject

Chapter 1

Control. Autonomy and the Budget Process

Summary of this Chapter

The budget control process is one of the forms of management control in general. Management control is a necessity for a business. To understand how management controls, I am presenting some interview data, which clearly demonstrate that control is spread over all levels in the hierarchy : it does not only reside at the top.

Management control within an organization can conflict with the individual members’ desire for autonomy. The control-autonomy balance is of particular interest to social scientists today. It was of particular interest to me in studying budget control processes.

Two inputs into budget systems dealt with the control-autonomy balance, and both of them appeared meaningful for the way a budget system functions. One input is the amount of participation of lower-level management in the setting of the budgetary standards. The other is the creation of an atmosphere of sportsmanship around budget fulfilment: a game spirit among budgetees which presupposes some free scope for them in budget fulfilment. The importance of this latter input has become the main theme of this book.

Control

To an increasing extent the success of a business depends on its management. The essence of management is that it gets things done through its relationships with other people. The effectiveness of a manager depends on the impact of these relationships on the others. The fundamental organizational link between the manager and the other people is the control process. In order for an organization to be successful, its control processes must be effective. What has to be done must be done at the right time, in the right way, with the right quantity and quality, and at the right cost.

Control is not limited to one level in an organizational hierarchy, e.g. top management. Control in various ways and to various degrees can be located at all organizational levels. ‘Control’ in this sense is partly synonymous to the concepts of power¹, ‘say’, authority and, especially, influence (Tannenbaum, 1962 and Mechanic, 1964)². It is definitely not synonymous with its original meaning in French: inspection. In several European languages, as in the writer’s mother tongue, Dutch, the same word exists, but it has kept the original French meaning. This is a source of frequent misunderstandings in translations from the English.³ The research project described in this book provided an enlightening picture of the various ways in which control can be experienced. In a number of interviews with lower-level line managers and their staff counterparts, I used the ‘control graph’ as a research tool (Smith and Tannenbaum, 1963; Bowers, 1964). The method itself is described in Appendix A. It implies the question: “In general, how much say or influence do you feel . .. (e.g. top management, first-line managers, workers) have on what goes on in … (in this case I put: this plant)”, and the answers were scored on a five-point-scale. After having received some spontaneous comments from interviewees explaining their choice, I decided to add another question: “What kind of influence were you thinking of while answering the previous question?” Altogether 78 persons contributed this time, and I analyzed their answers. Some people gave more than one answer; altogether there were 135 contributions. They could be divided into 6 groups:

1. Legislative decision-making (20% of the answers)
   This implied the setting of rules, policies, methods, standards; decisions to invest and to enter a market.
2. Operational control (29% of the answers)
   Playing one’s role in the organizational process. This implied performing, producing, working up to standards, avoiding mistakes, giving support.
3. Hierarchical authority (12% of the answers)
   This was the area of formal leadership and disciplinary action.
4. Participation in higher management decisions by communication on the shop floor (13% of the answers)
   This included group decisions, department meetings, being consulted by one’s superiors, having a superior who listens to one’s suggestions.
5. Participation in higher management decisions by joint consultation (7% of the answers)
   In Holland, every enterprise employing over 25 people is obliged by a law, dating from 1950, to maintain a Works Council, in which chosen representatives of the workers and the various levels of management meet with top management; however, this Works Council has no deciding power. The answers in this group dealt with these Works Councils.
6. Personal, informal influence (19% of the answers)
   This implied informal contacts, knowing people personally, influencing the atmosphere of the plant or department, enthusiasm, conflict, the strength of one’s personality.

Out of this list, 1, 2, and 3 are roughly similar to the ‘legislative’, ‘administrative’ and ‘sanctions’ processes described by Morse, Reimer and Tannenbaum (1951).⁴ Recently, Anthony (1965) has devoted a booklet to a classification of ‘planning and control systems’. He distinguishes between ‘strategic planning’, ‘management control’ and ‘operational control’. His strategic planning and management control are both covered by my group I. His operational control is defined as “the process of assuring that specific tasks are carried out effectively and efficiently” and comes close to my group 2 (my choice of the name ‘operational control’ for this group, made long before Anthony’s work came to my attention, points to an encouraging parallelism in thinking).

The limited percentage in group 3 – answers dealing with hierarchical authority – confirms the thesis of several writers, e.g. McGregor (The Human Side of Enterprise, 1960) about the inappropriateness of hierarchical authority as a means of control in modern industry groups. 4 and 5 are presently a topic of high interest in Holland (e.g. Meynen 1961, Lammers et al. 1965), but also in other European countries (e.g. Kolaja, 1960, Irle, 1963) and in the United States (e.g. Seashore and Bowers, 1962, Patchen, 1965). Category 6, inasfar it applies to the lower levels, is amply discussed by Mechanic (1964). It will be clear that our 6 categories of control were not evenly associated with all organizational levels. Legislative decision-making (I) had its peak for higher management;hierarchical authority (3) for first-line managers ; operational control (2) and participation (4, 5) for workers. Informal influence (6) was relatively important for both higher management and workers, less for first-line managers. Staff departments were seen as exercising influence mainly by 2, 4 and 6.

We may now try to formulate a definition of control. Tannenbaum (1962) defines control as follows: “… any process in which a person or group of persons determines, i.e. intentionally affects, what another person or group or organization will do”. To include more clearly operational control and also impersonal control processes, I will adapt this definition as follows: “Control within an organizational system is the process by which one element (person, group, machine, institution or norm) intentionally affects the actions of another element”.⁵ Control is defined here as a process. The word ‘control’ is also used for the condition to which this process leads: a manager can possess control; his business can be ‘under control’. This meaning of ‘control’ is used by Drucker (1964) who also stresses the difference between the singular ‘control’ and the plural ‘controls’. ‘Control’ with Drucker is an end, ‘controls’ are the means or tools to achieve this end.

Autonomy

As soon as the actions of people are controlled, there arises a controversy between control and individual autonomy. Organizational success asks for effective controls, i.e. a high degree of control in the Drucker sense. It is not this same condition reducing the people controlled to cogwheels in a machine, to yes-men, to ‘organization men’ ? Is it not basically incompatible with the ideals prevailing in a democratic society?

Some people try to deny this conflict, arguing that in business, at least, there is always enough room left for free action and initiative of the controlled. It may be that this is often the case, but again the reason may be that perfectly controlled business organizations are still rare; this fact does not refute the basic character of the conflict. It would be surprising if it did, for the conflict between control and autonomy is as old as organized human group life. Plato dealt with it 2300 years ago (‘Politeia’); Rousseau discussed it 200 years ago (‘Le Contrat Social’). The conflict has probably become even more acute in recent years. This is because of two opposing tendencies. On the one hand, technological development tends to limit the amount of autonomy left to large groups of workers in their jobs (Boers, 1962; Buiter, 1964), and organizations are developing more sophisticated and more perfect controls. On the other hand, there is a worldwide tendency toward democratization. The masses have reached maturity, social norms are shifting in that absolute dependence is no longer accepted; peoples ask for their share in shaping their own destiny. This development is not confined to business; we see it in world politics, in the family, in the church. (Evan, 1963; Groffen, 1963; Slater & Bennis, 1964).

The sharpening of the control-autonomy conflict in business has aroused modern prophets to defend the individual against organizational control: we can think of W. H. Whyte’s ‘The Organization Man (1956), of Argyris’ ‘Personality and Organization’ (1957).

From our previous discussion of the concept of ‘control’ we should recall that control by people at different levels within an organization is a matter of degree. This is clearly expressed by the six categories of control mentioned before: four out of the six are open at least as much to lowerlevel participants as to higher levels (the categories 2, 4, 5 and 6). However, their contribution to total control is relatively smaller (see the Control Graphs in Appendix A). The conflict between control and autonomy is more precisely the conflict between the degree of control available to each member of the organization and the degree of control desirable to him.

In parallel with the definition of control given before, we can define autonomy as “ The degree to which a person within an organizational system is able to affect his own actions and environment”. Autonomy clearly implies to some extent the exercise of control over others.⁶ Like control, autonomy has its part synonyms: in this case independence, freedom, self-determination, initiative, self-expression.

Reconciling Control and Autonomy

Social researchers have tried to reconcile control and autonomy. Using the Control Graph Technique, Tannenbaum (1962) has proved that the total amount of control within a given organization is not limited: control for one level in the hierarchy is not necessarily won at the cost of another level’s control. On the contrary, in a number of cases there is a positive relationship between the control of a superior and that of his subordinates. Participation processes (my control category nr. 4) can lead to improved legislation (nr. 1.) and operation (nr. 2). In these cases, the total amount of control in the organization tends to be positively associated with organizational effectiveness.

Researchers have investigated the motivational aspects of autonomy. They have tried to prove that a control process which kills individual initiative is defeating its own ends, as it is frustrating the motivation of the controlled to really perform; and by asking for individual initiative one actually improves organizational performance (Coch & French, 1948; Likert, 1961, van Beinum, 1963; Hutte 1966). To a certain extent they have been successful. On the other hand, situations are known in which initiative-killing controls work very well (Argyris, 1958; Klein, 1965). Also, sometimes increased autonomy does not lead to higher motivation and performance (Vroom, 1959; French & Israel & Aas, 1960). The relationship between individual autonomy and organizational performance is by no means a straightforward one.

One might classify ‘decentralization’, as it is practised by the larger business corporations (by product and geographical area), as another attempt at reconciling control and autonomy. Top-level management defends it on effectiveness grounds: speed of decisions (Bonham-Carter, 1958). But obviously it is also in line with general democratizing tendencies. Within themselves, however, the decentralized units are generally still so large, that for the lower echelons of the organization the increase in autonomy is nonexistent.

In summary, what research and experience can teach us is that control and autonomy are neither fully conflicting, nor fully consonant. In any practical organizational solution we have to deal with both phenomena. One would like to maximize both control and autonomy. It is doubtful if this would ever be feasible, were it only because of the mathematical impossibility of the simultaneous maximization of two functions of the same variables. So the problem becomes one of optimizing: finding a solution giving an optimal balance of control (as a prerequisite for business effectiveness) and autonomy (as a consequence of our democratic ideals). It is well to remember that in the last resort what we call optimal is a matter of ideology. Managers cannot escape from ideological choices, and even social researchers are influenced by them.⁷

The Limits of the Study: The Impact of Budgets on Lower-Level Manufacturing Management

The research study described in this volume originated from consciousness of the control vs. autonomy polarity. It was designed to investigate management control processes on the one hand, and the possibility of individual autonomy within these processes on the other hand. As the investigation field so defined would be far too wide, three limitations were applied:

1 The budget control process was selected as the particular part of management control to be studied. The researcher knew the budget process from inside experience; in an existing organiza...

Table of contents

• Cover Page
• Half Title page
• The International Behavioural and Social Sciences Library
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Preface
• Contents
• Summary
• Part I: The Research Subject
• Part II: The Research Design
• Part III: The Research Findings
• Part IV: The Research Implications
• Appendix A The Control Graph
• Appendix B Estimates of Operational Control
• Appendix C Documents for the Preparatory Phase
• Appendix D Main Interview Documents
• Appendix E Lists of Factors for the Factor Analysis
• Appendix F Correlation Matrices of Objective Budget Variance and Subjective Evaluations
• Bibliography
• Name Index
• Subject Index