managing organizational creativity motivational … · managing organizational creativity...

Managing Organizational Creativity

Motivational aspects of management control systems for creative employees Isabella Grabner

Wirtschaftsuniversität Wien

Nordbergstrasse 15

A-1090 Wien

Austria

Telephone: +43/1/31336-4201

Fax: +43/1/31336-723

Email: [email protected]

Supervisor: Professor Gerhard Speckbacher

Email: [email protected]

16th EDAMBA Summer Academy

Soreze, France

July 2007

Mag. Isabella Grabner Managing Organizational Creativity

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Abstract:

In strategic management literature, there seems to be broad agreement that inimitable

intangible resources such as a firm’s capability to promote innovation and creativity are key

drivers of competitive advantage [CP05]. Therefore, organizations must place a premium on

employee creativity. In management control literature, the role and importance of

management control has been widely acknowledged. Researchers agree on the imperative for

control mechanisms in order to selectively control employee behaviour. However, there are

negative effects of control on employee performance and intrinsic motivation which cannot be

neglected. In the design of management control systems for creative employees, these “hidden

cost of control” must be particularly considered, because employees’ intrinsic motivation is a

prerequisite for creative performance [Ama88].

Key words:

Management control, control mechanisms, employee creativity, intrinsic motivation, work

environment for creativity, organizational culture, leadership

1. Research objective and motivation:

“At its heart, creativity is simply the production of novel appropriate ideas in any realm of

human activity. Creativity is the first step to innovation, which is the successful

implementation of these novel appropriate ideas [Ama97].”

In strategic management literature, there seems to be broad agreement that inimitable

intangible resources such as a firm’s capability to promote innovation and creativity are key

drivers of competitive advantage [CP05]. To be able to offer innovative products an

organization needs creative employees who are motivated to unfold their creative potential

and generate creative ideas which are the source of innovation and thus the source of an

organization's competitive advantage. Therefore, organizations must place a premium on

employee creativity.

In management control literature, the role and importance of management control has been

widely discussed. Researchers agree on the imperative for control mechanisms in order to

selectively control employee behaviour. However, there are negative effects of control on

employee performance which cannot be neglected. The interaction between control and

employee motivation has been widely examined. There is empirical evidence of the negative

effects of control on intrinsic motivation [FK06]. In the design of management control

systems for creative employees, these “hidden cost of control” must be particularly


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considered, because employees’ intrinsic motivation is a prerequisite for creative performance

[Ama88]. The aim of this dissertation is to link industrial economics and social psychology

and examine the effects of different control mechanisms on employees’ intrinsic motivation

and creativity.

2. Theoretical Framework 2.1 Agency Theory

The assumptions concerning the functionality of organizations and employee behaviour are

built on New Institutional Economics and more specifically, on agency theory. Agency theory

has its roots in information economics and addresses the problem of relationships between

cooperating parties - the principal and the agent - which have partly differing goals and

asymmetric levels of information. The principal (risk-neutral) delegates decision making

authority to a (risk-averse) agent. It is difficult or expensive for the principal to verify what

the agent is doing. The agent possesses private information (e.g. about his effort, the state of

nature, etc.) that is not costlessly available to the principal. Principal and agent are both utility

maximizers. This might lead to goal incongruence between the principal and the agent and

therefore they might pursue different targets. The agent has an incentive for opportunistic

behaviour [Eis89]. A principal can limit the agency problem by incurring monitoring costs or

by designing appropriate incentives for an agent to act in behalf of the principle’s interests

[JM76]. To eliminate agents’ most opportunistic actions, control or incentive devices can be

used. In organizations, control is administered through management control systems.

“Management Control Systems (MCS) help organizations to increase the probability that

employees make decisions and take actions which are in the organizations’ best interest

[CSW99].“

2.2 The social psychology of creativity – a componential conceptualization

The assumptions concerning individual creativity are derived from the “social psychology of

creativity” [Ama83], a theory explaining the interactions of social and environmental factors

with personality characteristics and cognitive abilities and the effects of these factors on

observable creativity. Three major components are assumed to be essential for the production

of creative work: domain-relevant skills, creativity-relevant skills and intrinsic task

motivation. According to Amabile task motivation is the model’s most important component.

“Task motivation makes the difference of what an individual can do and what he or she will

do [Ama83]”. Intrinsic motivation for the task can make up deficiencies in domain-relevant


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skills or creativity-relevant skills, but the lack of intrinsic task motivation cannot be

compensated by any level of domain-relevant skills or creativity-relevant skills.

Consequently, a high level of intrinsic motivation is essential for employee creativity.

2.3 The work environment for organizational creativity

Contextual theories of organizational creativity attempt to identify and analyse dimensions of

work environments that are related to intrinsic motivation and creativity. One of the most

prominent theories of organizational creativity – the componential model of creativity and

innovation in organizations developed by Teresa Amabile [Ama88] - proposes three broad

organizational factors that are assumed to influence organizational creativity: (1)

organizational motivation to innovate, (2) resources, and (3) management practices. In a more

detailed and specific articulation of this componential theory, the following categories of

work environment factors hypothesized to influence creativity have been identified

[ACC+96]: (1) encouragement of creativity including organizational encouragement such as

reward and recognition of creativity, supervisory encouragement and work group supports,

(2) autonomy and freedom – granting employees high autonomy and a sense of ownership

and control over their work, (3 ) resources, (4) pressures including challenging work and

workload pressure and (5) organizational impediments such as rigid, formal management

structures or conservatism [ACC+96]. It is the psychological meaning of environmental

events that largely influences creative behaviour. Thus, the focus of analysis lies on employee

perceptions of the work environment rather than organizational reality.

2.4 Cognitive Evaluation Theory

Cognitive evaluation theory predicts and interprets the effects of external events such as

control mechanisms on intrinsic motivation for interesting tasks by providing an analysis of

the relative salience of informational versus controlling aspects of these external events

[DR85]. Generally, CET predicts that autonomy-supportive or informational events and

contexts would maintain or enhance intrinsic motivation and that controlling events and

contexts would undermine intrinsic motivation. The effects of external events on intrinsic

motivation depend on the functional significance attributed to each external event by an

individual. Cognitive evaluation theory states that if a person's cognitive evaluation of

different external events is varying, these different events would have varying effects on the

person's intrinsic task motivation [Dec71].

2.5 Conclusion


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According to agency theory, employees are assumed to act opportunistically, so management

control systems are implemented to control employee behaviour. This is also relevant for

creative employees. With emphasis on the particular importance of intrinsic task motivation

for employee creativity, the “hidden cost of control” will be the focus of research. The

principles of cognitive evaluation theory and the componential theory of individual and

organizational creativity will be taken into account in the analysis of the effects of different

control mechanisms on intrinsic motivation and consequently, on creativity.


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3. Empirical Design

Sample: creative industries: advertising agencies with more than 20 employees in Austria and

Germany

Non-creative industries: selected companies from different industries which match

with advertising agencies concerning selected control variables such as size,

ownership structure, etc.

Data collection: Questionnaire design, focus of analysis on employee level

3.1 Research Question I – Comparison of management control systems in creative and non-creative

industries

Some types of industries are characterized by task structures of employees that require high

levels of creativity (“creative industries”), while in other types of industries employees are

less required to be creative to fulfil their job demands (“non-creative industries”).

Consequently, due to these different job requirements the design of management control

systems in these two industry groups is assumed to be different.

According to Henri [Hen06], organizational culture is an omnipresent factor which affects

practically all aspects of organizational interactions including the design of management

control systems. Referring to one dimension of organizational culture namely the

control/flexibility dilemma which refers to preferences about structure, stability and change,

two cultural types of organizations can be distinguished: the control dominant type and the

flexibility dominant type. Control dominant types focus on values which refer to

predictability, stability, formality, rigidity and conformity [Hen06]. These organizations

promote tight control of operations, highly structured channels of communication and

restricted flows of information [BS61]. On the other hand, flexibility values refer to

spontaneity, change, openness, adaptability and responsiveness [Hen06]. Flexibility dominant

types promote loose and informal controls, open and lateral channels of communication, and

free flow of information throughout the organization [BS61].

Hypothesis 1a: On the flexibility/ control continuum of cultural types, organizations in

creative industries reflect a more flexibility dominant type, while organizations in non-

creative industries reflect a more control-dominant type.


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According to Amabile [ACC+96], conservative, formal and rigid management structures are

organizational impediments of organizational creativity. Low formalization permits openness,

which encourages new ideas and behaviours [Dam91].

Hypothesis 1b: MCS in creative industries are less formal and rigid than in non-creative

industries.

Fundamentally, three different control mechanisms can be distinguished – output control,

behaviour control and social control. According to Ouchi, the use of these control

mechanisms depends on the measurability of output and task programmability [Ouc79]. If

output is hardly measurable and work procedures are hard to specify, social control is most

likely to be applied.

Hypothesis 2a: In non-creative industries, behaviour control is more widely used than in

creative industries since work procedures for creativity-requiring tasks cannot be specified.

Hypothesis 2b: In creative industries, output control is less likely to be used than in non-

creative industries, because objective evaluation (measurability) of creative performance is

difficult.

Hypothesis 2c: In creative industries, social control mechanisms play a more crucial role and

are more widely used than in non-creative industries, since behaviour and output control

cannot be easily applied.

According to Deci and Ryan [DR85, DR87], supervision that is supportive of employees is

expected to enhance creative achievement, while supervision that is controlling or limiting is

expected to diminish creative performance. When supervisors are supportive, they show

concern for employees’ feelings and needs, encourage them to voice their own concerns,

provide positive, informational feedback, and facilitate employee skill development [DR87].

These actions are assumed to promote employees’ feelings of self-determination, which

increases intrinsic motivation and thus, creativity [OC96]. On the contrary, when supervisors

are controlling, they closely monitor employee behaviour, provide feedback in a controlling

manner and pressure employees to think, feel or behave in certain ways [DCR89].

Supervision which is experienced as controlling decreases employees’ intrinsic motivation

and thus, creativity [DR87, OC96].

Hypothesis 3: In creative industries a supportive and non-controlling leadership style

dominates, while in non-creative industries employees are more monitored (controlling

supervision) by their supervisors.


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As outlined in the theoretical discussion, intrinsic motivation is the most important

prerequisite for employee creativity. There is empirical evidence that intrinsic motivation is

negatively effected by organizational control. According to Falk and Kosmann [FK06],

employees reduce their (creative) performance as a response to organizational control, since

control is perceived as distrust and a limitation of their choice autonomy and thus, intrinsic

motivation is inhibited. According to Amabile [Ama83], choice regarding how to perform a

task can enhance an employee’s intrinsic motivation and consequently, employee creativity.

Furthermore, flexibility and low emphasis on work rules facilitate innovation [Dam91].

Hypothesis 4: Employees in creative industries have more autonomy in organizing their day-

to-day conduct of their work, while in non-creative industries work procedures are more

likely to be specified (via manuals, job description).

Internal communication reflects the extent of communication among organizational units or

groups [Dam91]. There is empirical evidence that internal communication positively

influences innovation and creativity. Furthermore, organizational creativity decreases by

restrictions on information flow and communication channels within the organization

[Dam91].

Hypothesis 5: In creative industries, internal communication is less formal and more open

and the information flow is less restricted than in non-creative industries.

Data Collection:

Aim: Comparison of MCS of these two industry groups.

Questionnaire Design, Focus of Analysis lies on employee level including both industry

types; Questions concerning the actual MCS including output controls, behaviour controls and

social controls, as well as leadership and communication, autonomy and decision rights.

3.2 Research Question II: Effects of control mechanisms on employees’ creative behaviour

Different control mechanisms have different effects on individual employee creativity

according to the “functional significance” attributed to the specific mechanism by one specific

employee. Mechanisms which are perceived as controlling the employee’s behaviour

(controlling effect) will undermine intrinsic motivation and thus, creative behaviour, while

mechanisms which are perceived as a confirmation of an employee’s competence

(informational effect) foster intrinsic motivation and consequently, creative behaviour.


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Data collection:

Aim: Detection of mechanisms which are more likely to have informational effects /

controlling effects; relationship between employee perceptions of mechanisms and creative

behaviour, positive relationship between intrinsic motivation and creative behaviour;

Questionnaire Design, Focus of Analysis lies on employee level including both industry

types; Questions concerning the actual MCS including output controls, behaviour controls and

social controls, measurement of employee perceptions of the work environment including

leadership and communication, autonomy and decision rights, employee perceptions of

control mechanisms and received rewards, intrinsic task motivation and creative behaviour.


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References:

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[Ama88] Amabile,T.M.(1988): A model of creativity and innovation in

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[BS61] Burns, T./Stalker, G.M.(1961):The management of innovation. Tavisstock

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[DCR89] Deci, E.L./Connell, J.P./Ryan, R.M.(1989): Self-determination in a work

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[Dec71] Deci, E.L.(1971): Effects of externally mediated rewards on intrinsic

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[Eis89] Eisenhardt, K. M (1989): Agency Theory: An Assessment and Review. In:

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