Edu Ressum Social Capital Jun2010

8/12/2019 Edu Ressum Social Capital Jun2010

1/8

Social capital The role of management controlsystems in NGOsResearch executive summary series

Volume 6 | Issue 6

Robert H. ChenhallMonash University

Matthew HallLondon School of Economics

and Political Science

David SmithMonash University


2/8

Key ndings:

Non-governmental organisations (NGOs) are being confronted with thecompetitive nature of acquiring funds and need to demonstrate that they haveparticular competencies to funders, while at the same time continuing to adhere totheir traditional welfare or development values.

The evidence shows that developing formal management controls can help NGOsto develop networks with government departments, funding agencies, other serviceproviders and clients. However, formal management controls also have the potentialto damage the internal bonding between employees.

Developing belief systems to incorporate nancial concerns, along with traditionalwelfare goals, would seem a useful starting point in the move towards managing ina more competitive NGO sector.


3/8

Research executive summary Social capital The role of management control systems in NGOs| 1

Overview and objectivesIn recent years non-governmental organisations (NGOs)have become increasingly important in addressing

humanitarian issues relating to welfare and developmentalaid. NGOs face increasing pressure to demonstrateservice delivery in cost efcient ways. This creates tensionover delivering welfare services while operating withinthe constraints of cost management. The application ofmanagement control systems has the potential to help inthe effective and efcient delivery of services, but such anapproach is relatively new and is sometimes at odds withthe customary informal controls that have been appliedin NGOs. For NGOs to be successful, it is also importantto develop close connections with other agencies andindividuals involved in NGO activities, and that agencies andindividuals are committed to aims that relate to welfare anddevelopment.

This report summarises research undertaken within an NGOthat delivers welfare services to the disadvantaged. We usethe notion of social capital to describe how NGOs can beeffective in developing social connections that ensure thedelivery of services. Broadly speaking, social capital concernsthe goodwill that is created through social relations. Thisgoodwill is derived from developing two forms of socialcapital: bonding and bridging. Bonding involves developingclose interpersonal relationships based on shared aims, andbridging is building networks between the NGOs and other

parties. These dimensions act in combination, with bondinginvolving close interpersonal relationships based on commonbeliefs, and that action based on these values is carried outcollectively through networks that connect different agenciesand individuals.

There are several benets to NGOs from developing thebridging and bonding attributes of social capital: Greater access to detailed, condential and ne-grained

information from more extensive networks. Development of solidarity based on social welfare

values, both within the NGO, and between it and other

individuals and agencies across the NGO network. Acquisition of inuence, power and control by the NGO

as a consequence of deciding who should join theirnetworks.

In this way, social capital is a critical resource in enablingNGOs to deliver services in ways that involve commitmentto their fundamental social values. Social capital isparticularly important in NGOs as they typically have morelimited access to nancial resources than prot-seekingorganisations.

Traditionally, the management of NGOs has relied oninformal processes based on the shared norms and valuesof delivering humanitarian services, rather than on coerciveor formalised procedures. The commitment of workers,volunteers and other organisational members has tendedto be facilitated through strong reliance on a shared beliefin the purpose of the organisation, and not primarilythrough nancial control and remuneration based on protmaking. While NGOs have customarily relied on informalmanagement processes to help develop and sustain theirsocial capital, there has increasingly been pressure fromdonors, government and other ofcial agencies for NGOs toshow accountability and managerial competence, therebyenhancing effectiveness and efciency. This has necessitatedthe adoption of more formal nancial controls and business-like management practices. Management accounting has

great potential to assist in: Planning and control when formulating proposals for

funding, often involving networks of partner agencies. Clarifying within the NGO the importance of including

economic efciency as an organisational value alongsidetraditional welfare values.

Linking non-nancial operational performance to nancialconcerns.

For many NGOs it is difcult to make the transition fromvalues-based, informal management practices to an approachthat emphasizes the nancial implications of decisions.NGOs have traditionally been reluctant to import practicesfrom the business sector. An additional challenge concernsthe potential impact of more formal management controlson the ability of NGOs to develop social capital. Little isknown about how formal controls affect the way NGOsdevelop and employ social capital, and how this inuencestheir ability to deliver welfare services with increasedpressure to be more nancially efcient.This studyexamines how formal controls can have both benecialand damaging effects on building and preserving socialcapital in an NGO delivering welfare services.

Our research site is a welfare NGO located in Melbourne,Australia, that comprises three divisions employing 120full-time employees. The division that is the focus for thisstudy, which we refer to as Tennant, comprises a manager,an administrative staff of four, ve programme co-ordinatorsand 32 case workers. There is also a small part-timevolunteer staff; however these individuals do not engage inoperational activities of Tennant. The NGO advocates forsocial change and promotes the health and wellbeing ofdisadvantaged young people, families and communities.


4/8


5/8


Consequently, case workers may experience stressand be distracted from the values of the organisation,which preserves the dignity of all individuals, no matterwhat their backgrounds. This disjunction between theindividual and the organisations values can inhibit ordestroy bonding. Belief systems provided a valuableway of revisiting and reafrming values in ways thatwere supportive of all parties. This helped to reafrmbonding social capital and to enhance solidarity amongstemployees.

Second, we found that well developed formal controls,including nancial controls, helped to demonstrateTennants capabilities in service provision to other serviceproviders and government departments. While many ofthese mechanisms had limited use as operational controls,they helped to reinforce the reputation of Tennant as alegitimate and capable service provider. Importantly, giventhe closeness of connections across the welfare sector,Tennant was seen to have a strong reputation for highquality service delivery. The use of formal controls was away of conrming, articulating, and in a sense, advertisingthese capabilities in a setting of increasing competitionamongst NGOs for welfare funding. We saw close linksbetween these processes and the development of bridgingsocial capital, with outcomes of increased power andauthority for the NGO within its network.

Our third nding was that the use of formal controls inmore participative, interactive ways can be problematicin settings where the customary mode of control is moreinformal and open. Formalising discussion of nancialmatters and their operational implications was seen toprioritise these issues ahead of a primary concern withdelivering welfare services. While many organisations facedifculties in ensuring that nancial matters receive dueattention from managers, the jarring effects in NGOsappears to present an impasse for many employees whodo not see how nancial issues can help them to deliverservices to clients. These tensions were manifested indamaging effects on internal bonding and a breakdownof solidarity, particularly between managers and case

workers. Finally, we see that Tennant is at a crossroads in terms

of how they are managed and the role of managementcontrol systems in this management. From informaldiscussions with other NGOs this appears to be acommon concern. The increasing pressure to corporatisethe structure and management of NGOs can be at oddswith customary modes of operation, which have helped

NGOs to generate bonding and bridging forms of socialcapital. We see an important role for belief systems toincorporate values surrounding nancial efciency andviability, as well as traditional welfare values. Formalcontrols have an important legitimising role, enabling anNGO to develop networks to suit their way of deliveringservices. A signicant challenge facing NGOs with stronglyheld welfare values is how to use formal controls inconjunction with the more informal, customary modes ofcontrol.

Implications for management control systemsOur study has several implications for the managementof NGOs and how management controls can be used topreserve and develop social capital. NGOs foster bridgingsocial capital to develop contacts and networks to ensurethat welfare is delivered to those most in need. To assist inensuring those within networks interact around commonwelfare ideals, NGOs attempt to make sure that participatingindividuals and agencies are bonded by sharing core NGOvalues.

Bridging social capital is about developing connectionswith other organisations while bonding involves developingclose interpersonal relationships based on shared values. Itis important for managers to understand this distinction.Employing management controls can be effective in helpingmanagers to develop connections to suit their purposes

as formal management controls provide information todemonstrate why the focal NGO is more capable thanothers to provide services to a client group, or to be thesenior partner in an alliance. Here controls can include beliefsystems, performance reports to demonstrate a sound trackrecord and competent management, and project proposalsthat can be used to persuade and convince external partiesof the NGOs credentials.

Conversely, the application of management controls tosupport bonding activities presents more challenges. AtTennant, bonding was best served by the pervasive useof belief systems that aligned closely to the values of the

organisation. The belief systems were used actively to clarifyvalues during recruitment, on-going operations and in timesof change when external factors exerted pressure to divertTennant from its primary aims. Our case indicates that NGOmanagers can enhance bonding by the active use of beliefsystems. This should be a dynamic process where beliefsystems are revisited from time to time. This can engageemployees in the process of addressing the importance ofthe NGO to its eld of operations, including contemplating


6/8

4 | Research executive summary Social capital The role of management control systems in NGOs

the relevance of core values. In this way, bonding isencouraged as the organisation engages in a process ofafrming its shared values. It should be noted that whilebonding can encourage commitment to core values andsolidarity, there is a danger that the organisation can becomeinward in its focus. This may inhibit disagreement anddiscussion which can challenge existing ideas and processesand potentially generate new ways of achieving effective andefcient operations.

Our case illustrates a dilemma facing NGOs. On the onehand, NGOs can promote bonding between employees byencouraging commitment to its welfare values. This occursas the aims of the NGO are consistent with the ideals ofNGO employees. On the other hand, the survival of NGOsis becoming dependent on them being able to compete for

scarce welfare funds. This will require careful analysis of thebenets and costs of different programmes and discussionsof possible cut-backs. Inevitably, this will result in a reductionof some services and an inability to service deserving groupsor individuals. To make these decisions, formal accounting isrequired to determine and manage the benets and costs ofdifferent programmes.

Managers of NGOs are faced with two problems. Firstly, howcan they encourage employees to accept the inevitability ofa more economically rational approach to their operations?Secondly, how can formal controls be used to introduce aconcern with economic matters without damaging strongly

held welfare values? At Tennant, attempts to do this wereunsuccessful, with damaging effects on bonding.

From our observations at Tennant, it was clear that thecustomary informal controls had developed symbioticallywith bonding. The informal controls encouraged opendiscussions and the development of trustworthy relationshipswhich nurtured bonding. Bonding provided employees withcondence to contribute opinions and manage operationalissues in ways consistent with shared aims. For managersof NGOs, more generally, this symbiotic relationship is avaluable resource that needs to be cultivated and preserved.There are real dangers to the very identity and potentialsurvival of NGOs if this balance between the mode ofcontrol and bonding around values is lost.

There remains the issue of how to encourage a concern withnancial matters without damaging the internal bondingaspect of an NGOs social capital. Our investigation suggeststhat the use of nancial controls would appear to require,as a precursor, a change in attitudes and values concerningnancial responsibility and efciency. It seems that nancialresponsibility could be encouraged by developing anefciency focus before employing nancial controls, andthen using these controls in a participative way to manage

nancial matters. While this may seem to be common sense,it does highlight a potentially critical, but overlooked, role forbelief systems in shaping values and attitudes towards otherelements of formal controls. Given that belief systems couldag the importance of nancial efciency as a way to delivermore and/or better welfare services, nancial controls couldthen be employed within an approach where much of theresistance to nancial controls had been addressed.

A nal observation is that a difculty that Tennant had withemploying formal nancial controls was a lack of disclosureon the connections between nancial information andoperational matters. This inhibited attempts to develop moreinteractive and participative budgetary processes that weremore in line with the customary open and informal controlsthat suited Tennants culture. That is, while budgetary

processes involved face to face interactions, the budgetsdid not have sufcient transparency to highlight ways thatbudget constraints could be managed, in terms of theireffects on operations. The local implications of budget cutson programmes or of the role of organisation wide overheadswere not disclosed. In addition, discussion of budgetarymatters was restricted to formal, scheduled meetings. Theseformal approaches were inconsistent with the more informalopen-door management style, where emerging issues wereaddressed in impromptu meetings where the opinions ofemployees were actively sought. It is possible that moreinformation to enable informed debate on the connectionsbetween nancial and operational matters would ensurethat budgets became a more active and accepted partof management. Notwithstanding the provision of morerelevant information, a challenge remains in combining theinevitability of a more formal approach to nancial controlswith a culture of open communications and participativedecision making.

ConclusionsNGOs are being confronted with a need to become moresensitive to the competitive nature of acquiring fundsand, as a consequence, the need to demonstrate that

they have particular competencies to deliver services totargeted groups in need of welfare or development aid.In responding to this need, NGOs inevitably are drawnto incorporate business-like management practices andcontrols. In positioning our research around the generationand preservation of social capital, we have been able toshow both the positive and negative effects from efforts toemploy more formal approaches to management control.Our evidence shows that developing formal managementcontrols can help NGOs to develop networks withgovernment departments, funding agencies, other serviceproviders and clients. By demonstrating superior capabilities,


7/8


an NGO can act as a broker between these groups, gainingpower and authority to implement projects in ways that theysee as desirable.

Our study also draws attention to the potential damagingeffects of formal nancial controls on the bonding aspect ofsocial capital. The challenge facing NGOs is how to preservethe critical resource of a closely bonded organisation, whileintroducing nancial controls that are typically seen byemployees as being at odds with the NGOs welfare values.Accepting that concern with nancial matters is criticalto the survival of NGOs; managers should aim to avoid aclash in control cultures that can arise from the prematureimposition of formal nancial management within the

customary informal controls that have operated in mostNGOs. Developing belief systems to incorporate nancialconcerns, along with traditional welfare goals, would seeman essential starting point in the move towards managingin a more competitive NGO sector. Given this approach,NGOs can then engage in training and experimentation toshow how employees can use nancial controls to help themidentify emerging concerns involving the costs and benetsof their welfare programmes. Importantly, the informationcontent of nancial controls should be adequate to enableemployees to contribute to decisions on how to achievethe most effective service delivery within the nancialconstraints of the NGO.

Additional informationWe gathered data over a 12 month period through 16 interviews with key employees within the NGO, as well as a selectionof agencies that had been involved with Tennant and a variety of government departments in the areas of justice and health.We also inspected the documents used within the formal management controls, such as budgets, costing reports, programmemanagement, and performance indicators. Over the period of the study considerable amounts of data were collected. Due tocondentiality concerns, this report is based mainly on interview data with records and documents used to verify informationfrom interviewees. At the end of the project, we were involved, to a limited extent, in discussions as to how formal controlscould be used in the organisation in ways that did not damage internal morale and would enable the organisation to develop itssocial capital. Our study is based on a single case study and while it is representative of welfare NGOs, care should be taken ingeneralising the ndings to the whole sector. Also, while we were engaged with the organisation for a period of 12 months andobserved business over this time, it is likely that the ndings may change in the future as the NGO adapts to its circumstancesand gains experience with management control systems. Notwithstanding these cautions we present ndings that are likely tobe pertinent to many NGOs.

Further readingAdler, P. S. & Kwon, S. W. (2002).Social capital: prospects for a new concept. Academy of Management Review 27(1), 17-40.

Chenhall, R.H, Hall, M. & Smith, D. (2009).Social Capital and Management Control Systems: a study of a Non-governmentorganisation. Research Update, Newsletter of CIMA Research, September, 6-7.

Ebrahim, A. (2003).NGOs and organisational change: discourse, reporting, and learning. Cambridge: Cambridge University Press.

Lewis, D. (2007). The management of non-governmental development organisations. London: Routledge.

Woolcock, M. (1998).Social capital and economic development: toward a theoretical synthesis and policy framework. Theory andSociety 27(2), 151-208.

AuthorsRobert H. Chenhall Matthew Hall David SmithDepartment of Accounting Department of Accounting Department of Accountingand Finance London School of Economics and FinanceBuilding 11E & Political Science Monash UniversityMonash University Houghton Street 900 Dandenong RoadClayton Vic 3168 London Cauleld East Vic 3145Australia WC2A 2AE Australia

United Kingdom

This project is sponsored by CIMA General Charitable Trust.


8/8

ISSN 1744-7038 (online)ISSN 1744-702X (print)

Chartered Institute ofManagement Accountants26 Chapter StreetLondon SW1P 4NP

United KingdomT. +44 (0)20 8849 2285E. [email protected]

May 2010, Chartered Institute of Management Accountants

Documents

Edu Ressum Social Capital Jun2010