Although the enabling and coercive formalization framework was introduced in the context of equipment technology (Adler & Borys,
1996), scholars have applied the framework to various other settings including work teams (Proenca
2010), school structures (Hoy & Sweetland,
2001), and new product development (Jørgensen & Messner,
2009). Several studies have applied the framework to management control systems (Ahrens & Chapman,
2004) and in particular to performance measurement systems (Jordan & Messner,
2012; Wouters & Wilderom,
2008). These studies consider management control and performance measurement to be a form of formalization. While this emerging line of research on enabling and coercive systems tends to adopt the perspective of those in lower organizational positions that are subject to the system (Bisbe et al.,
2019), the effect of an enabling, versus a coercive, system on employees’ attitudes toward the system has been left largely unexplored.
Several scholars have investigated the characteristics of management control systems that make people experience them as more or less fair. These studies have focused on a range of characteristics including subjective versus objective systems (Bellavance et al.,
2013), diversity of performance measures and a focus on outcome versus effort in performance measures (Hartmann & Slapniçar,
2012), bonus payments (Voußem et al.,
2016), and participation in goal setting (Groen
2018). Some also highlight the importance of the management control system for procedural fairness and, for example, emphasize that an important dysfunctional consequence of a management control system can be that the system is not experienced as fair by the employees (see e.g. Cugueró-Escofet & Rosanas,
2013). These authors further emphasize the importance of fairness by referring to the work of Folger and Cropanzano (
1998): “when individuals perceive a lack of fairness, their morale declines, they become more likely to leave their jobs, and may even retaliate against the organization. Fair treatment, by contrast, breeds commitment intentions to remain on the job and helpful citizen behavior that go beyond the call of formal duties” (Folger & Cropanzano,
1998 preface xii; as referred to in Cugueró-Escofet & Rosanas,
2013).
While these studies provide relevant insights into how management control influences procedural fairness, we focus on characteristics of the management control system previously not studied. As such, our research complements these studies by examining the effects of enabling and coercive performance measurement on procedural fairness. In addition, while the literature often refers to several normative procedural justice principles that can usually be traced back to the work of Leventhal (
1980), Hartmann and Slapniçar (
2012, p. 17) comment that “these are not observable or designable characteristics of the performance evaluation themselves”. As a consequence, there is still only limited understanding of what the actual design and development process of the performance measurement system should be to achieve procedural fairness and, more broadly, a positive attitude toward the performance measurement system. Unlike procedural fairness, which has been studied in the management accounting and control literature (e.g. Groen
2018; Hartmann & Slapniçar,
2012), the red tape concept that we include as another outcome variable in our study has not been well addressed.
Although the concepts of procedural fairness and red tape are related, they capture different elements of quality. Procedural fairness, i.e. the perceptions that decision-making procedures are fair (e.g. Lind & Tyler,
1988), is known to influence a wide range of citizen and employee attitudes and behaviors (Colquitt et al.,
2001). For example, previous research has shown that procedural fairness improves satisfaction and the acceptance of unfavorable procedural outcomes (e.g. Dolan et al.,
2007). Red tape refers to perceptions of unnecessarily burdensome organizational rules (Bozeman & Feeney,
2011; Kaufmann & Feeney,
2014). Here, organizational rules that lack effectiveness and efficiency, and that have excessive compliance burdens (Borry,
2016) have been found to unfavorably impact organizational performance (Brewer & Walker,
2010), as well as employee alienation (DeHart-Davis & Pandey,
2005) and satisfaction (Kaufmann & Tummers,
2017). Both procedural fairness and red tape relate to how employees perceive the procedures in place, and particularly to employees’ attitudes to the performance measurement system they are subject to. As such, we study the effects of an enabling, versus a coercive, performance measurement system on both perceived procedural fairness and perceived red tape.
In the framework by Adler and Borys (
1996), an enabling design is characterized by four generic characteristics, namely repair, flexibility, internal transparency, and global transparency. A design lacking these formalization characteristics is viewed as coercive (Adler & Borys,
1996).
Repair refers to the ease with which employees can fix the formal system in the event of a problem, while
flexibility has to do with how much leeway exists for employees to deviate from the formal system.
Internal transparency relates to the extent to which employees are able to understand the logic of the formal system itself, and
global transparency refers to how much insight is provided into how the system fits into a broader organizational context. Each of these characteristics is expected to contribute to an enabling performance measurement system’s effect on employees’ perceptions of procedural quality, as captured by procedural fairness.
Repair means that the performance measurement system facilitates employees to respond to inevitable contingencies in the workplace and that employees are implicitly trusted to actively provide suggestions for improvements (Ahrens & Chapman,
2004) since some freedom for the employees is needed to determine the appropriate course of action in a set of given circumstances (Chapman & Kihn,
2009). In a coercive logic, there are no repair options. Under this logic, deviations from the formal performance measurement procedures are seen as suspect since the main purpose of coercive formalization is to ensure that employees’ actions are compliant. Furthermore, coercive systems do not allow employees to repair procedural breakdowns themselves but instead require help from experts (Jorgenson & Messner,
2009).
Performance measurement that excludes repair opportunities limits employees’ autonomy and discretion, making it more likely that such a procedure is perceived as unfair. Evidently, the opposite dynamic holds for enabling procedures that include repair options. Providing repair opportunities makes it possible for employees to resolve issues in the procedures that follow from unforeseen circumstances (Ahrens & Chapman,
2004), thus making it more likely that employees consider the procedures as fair, i.e. that perceived procedural fairness is high. This line of reasoning is seen in the procedural fairness literature, where correctability is viewed as a determinant of procedural fairness (Cugueró-Escofet & Rosanas,
2013; Groen,
2018; Leventhal,
1980; Leventhal et al.,
1980).
Flexibility is concerned with the extent to which formalization provides options for employees to modify the system to best suit their own needs (Adler & Borys,
1996). Flexibility gives employees choices when addressing problems (Dowling & Leech,
2014). A flexible system assumes that deviations from procedures can provide learning opportunities and can make it easier to make decisions when confronted with emerging events (Chapman & Kihn, 2011; Wouters & Wilderom,
2008). In contrast, a coercive procedure forces employees to follow a specific sequence of steps. Deviations are not allowed unless the employee first gains approval from the supervisor (Adler & Borys,
1996). Although there is a risk that too much flexibility comes at the expense of consistency (Hartmann & Slapnicar,
2012)—another important condition for procedural fairness (Leventhal et al.,
1980)—relevant information needs to be taken into account as much as possible to increase accuracy (see also Leventhal et al.,
1980). As such, a lack of flexibility in formalization, and similarly in performance measurement, is likely to lead to negative outcomes, including low perceived procedural fairness. Ensure that decisions are based on as much good information and informed opinion as possible.
Internal transparency relates to the visibility of the system’s internal workings and the extent to which the logic behind the system is understood by employees. A thorough understanding is also necessary to make the repair characteristic of the system useful (Chapman & Kihn,
2009). In contrast, coercive procedures are “formulated as lists of flat assertions and duties” (Adler & Borys,
1996, p. 72) and are designed to help supervisors rather than employees. In a coercive logic, it does not matter whether employees properly understand the system that they are working with, as long as they adhere strictly to the specified formal procedures. However, if the functioning of the system is known, employees will view it in a more positive light (DeHart-Davis,
2009), and the procedures are likely to be perceived as more consistent and free from bias, which are important conditions for procedural fairness (Colquitt & Jackson,
2006; Leventhal et al.,
1980). As a result, perceived procedural fairness is likely to be higher.
Finally,
global transparency refers to the comprehensibility of the overall context within which employees are working. In other words, global transparency provides an understanding of how an employee’s tasks fit into the organization as a whole (Ahrens & Chapman,
2004). If employees are allowed to adjust the system to unexpected contingencies, it is important that they understand how their work fits the larger organizational strategy and agenda (Chapman & Kihn,
2009). An enabling performance measurement system provides employees with a wide range of information that goes beyond their own domain (Wouters & Wilderom,
2008), thus helping employees to interact with the broader organizational context (Adler & Borys,
1996). In a coercive system, tasks are partitioned, and employees are only given access to information about the specific areas for which they are personally responsible. In such a system, global transparency is “a risk to be minimized” (Adler & Borys,
1996, p. 73) and employee compliance with organizational policies is forced without facilitating understanding (Dowling & Leech,
2014). DeHart-Davis (
2009, 373) finds that “learning a rule’s purpose could transform it from being perceived as a bad rule into a good rule”, which can be applied in a performance measurement context as well. Against this background, a performance measurement system that is globally transparent is expected to lead to higher procedural fairness.
To summarize, we argue that performance measurement systems with enabling design characteristics lead to higher procedural fairness than coercive performance measurement systems that lack these design characteristics. This leads to our first hypothesis:
An enabling orientation of a performance measurement system is not just reflected in its design, but also in its development process. Generally speaking, the development process of a performance measurement system can be considered as a mutually constituted and iterative process (Wouters,
2009; Wouters & Wilderom,
2008). An enabling development process encourages employee involvement, while a coercive process excludes such input from employees. Two particularly relevant elements of employee involvement in the formalization development process identified in the literature are building on employee experience and experimentation.
Wouters and Wilderom (
2008, p. 493) argue that an experience-based development process “involves the identification, appreciation, documentation, evaluation, and consolidation of existing local knowledge and experience” and enhances the enabling nature of the system in place. It is particularly relevant that providing employees with the opportunity to test, review, and refine formal procedures also results in more positive attitudes towards the system because employees will have a better understanding of the procedures’ intended meaning (Wouters & Wilderom,
2008). As such, experimentation will favorably affect assessments of procedural fairness. For example, Wouters and Roijmans (
2011) showed how experimentation during the process of developing a performance measurement system could help managers to integrate accounting information in an enabling way.
Part of an enabling development process is providing individuals with opportunities to participate in a decision-making process by giving them voice. Previous studies convincingly show that involving employees and giving them voice increases the perceived fairness of procedures (e.g. Colquitt et al.,
2001; Groen,
2018, Lind & Tyler,
1988). The enabling process also ensures that the opinions of various groups affected by the decision are taken into account, which is an important condition for procedures to be perceived as fair (Leventhal et al.,
1980). We therefore expect adopting an enabling development process for a performance measurement system to have a positive impact on perceived procedural fairness.
The above rationales are in line with other work showing that an enabling development process can lead to positive outcomes, improving organizational learning and employee motivation in particular (Groen et al.,
2012; Jorgenson & Messner,
2009; Wouters,
2009; Wouters & Wilderom,
2008). This leads to our next hypothesis.
The four generic design characteristics of enabling formalization (repair, flexibility, internal transparency, and global transparency) also play a part in determining perceptions of red tape.
First, a lack of repair options in procedures will inevitably bring the work process to a halt (Adler & Borys,
1996) and subsequently result in administrative delay which is a key red tape indicator, especially in the context of a significant administrative burden (Bozeman & Feeney,
2011). A lack of repair options in a performance measurement system may thus cause procedural delays that result in a higher level of perceived red tape. In contrast, if employees have the opportunity to repair procedural breakdowns themselves, which is part of an enabling performance measurement system, perceived red tape is likely to be minimized.
A flexible performance measurement system allows deviations from the procedures. If a system does not allow employees to ignore, or bypass, a specific sequence of steps it will be perceived as over-controlling (Adler,
1999), and the associated inefficiencies will likely result in a negative assessment of procedural quality. In this light, DeHart-Davis (
2009) notes that optimally-controlling rules are flexible, whereas over-controlling rules are inflexible. A lack of flexibility, as observed in coercive systems, can be linked to managerial and political control (Bozeman,
1993), and, in turn, to perceived red tape (Bozeman & Anderson,
2016).
A performance measurement system design that lacks internal transparency is more likely to be perceived as red tape, as perceptions of red tape are usually not the result of the existence of rules and procedures per se, but of their perceived ineffectiveness (Kaufmann and Feeney
2014). This line of reasoning also applies to performance measurement: if employees feel that a performance measurement procedure involves unnecessary compliance burdens, and could be redesigned to increase its effectiveness, it is likely to be associated with higher levels of red tape.
Finally, global transparency, which relates to the understandability of a rule’s objectives, can be considered an important determinant of an individual’s assessment of rule effectiveness. With a lack of global transparency, a failure on the part of the rule-maker to communicate the rule’s objective to the people expected to comply with it may result in a higher level of perceived red tape (Bozeman,
2000; Bozeman & Feeney,
2011).
To summarize, the presence of enabling formalization design characteristics is hypothesized to lead to less perceived red tape.
With an enabling development process, employees are involved in the development of the performance measurement system. Since they have the opportunity to experiment with the procedures that are part of the system, they usually have a better understanding of the procedures’ intended meaning (Wouters & Wilderom,
2008). This results in more positive attitudes towards the system and therefore in less perceived red tape. An enabling development process is also expected to lead to a lower level of perceived red tape because such a process can help prevent what is known in the red tape literature as rule-inception red tape, i.e. rules that are dysfunctional at their origin (Bozeman
1993,
2000). Rule-inception red tape is caused by various reasons, such as a misunderstanding of the problem at hand by the people designing the rules, or rules that are introduced by managers to compensate for a lack of control (Bozeman & Feeney,
2011). In an enabling process of developing a performance measurement system, employees can use their work experiences to identify salient organizational problems, and shortcomings in performance measurement procedures. As such, an enabling development process can help prevent rule-inception red tape. Based on the above, we expect an enabling development process to lead to a lower level of perceived red tape than a coercive development process. This leads to our final hypothesis:
Note that our experiment design enables us to disentangle the effects of design characteristics of the performance measurement system and of the development process of this system. As a consequence, we can also assess whether one of these factors moderates the other. Insights from motivational psychology, and in particular from self-determination theory, suggest that a management control system which is perceived as controlling—as an extrinsic motivator—may have a negative effect on employees’ autonomous motivation (Van der Kolk et al.,
2019; Wong-on-Wing et al.,
2010). Depending on the extent to which such an extrinsic motivator is internalized, it may also have a role in fostering autonomous motivation and positive outcomes (Deci & Ryan,
2000; Pfister & Lukka,
2019). Given that an enabling development process leads to an increased understanding of the underlying purpose of the performance measurement system as a result of the involvement of the employees (Wouters & Wilderom,
2008), employees may also internalize the value of the performance measurement system. The negative effect of systems with a coercive design on the employees’ attitude toward the system (addressed in H1a and H2a) would thus be attenuated through an enabling development process because the conditions would be shaped for employees to internalize the external motivator. With such an enabling development process, a coercive design is thus likely to lead to a higher level of perceived procedural fairness and a lower level of perceived red tape than with a coercive process.
In contrast, however, one could argue that the increased understanding of the performance measurement system increases the appreciation of the enabling design characteristics. Moreover, a performance measurement system that is developed with an enabling process is likely to reflect the knowledge and concerns of the employees that were involved. The rules and procedures are thus more likely to be based on a good understanding of the organizational setting and the problems at hand. One might thus expect that the enabling design characteristics could be used to their full potential. For example, the repair options will be such that employees are in a good situation to fix any breakdowns themselves. One would then expect stronger effects if there were both an enabling design and an enabling process. In light of the above, while it may seem that an enabling development process can protect against the negative effects of a coercive performance measurement system design, the opposite may occur. Given these uncertainties, the interaction effects of development process and design are examined in an exploratory way rather than by testing hypotheses.