Beyond Budgeting: What Really Motivates Employees

www.nhh.no

November 1 2011Paul Gooderham NHH – The Norwegian School of Economics

What Really Motivates Employees? LESS 2011 Stockholm

What Really Motivates Employees?

•Findings from two research projects:

– ‘GOLD’-project - what motivates employees in multinational companies (MNCs) to share knowledge?

• Gooderham, P.N., Minbaeva, D, Pedersen, T. (2011) Journal of Management Studies

–‘ELITE-student’ project – what are elite business students seeking to obtain from their employment?

• Work-in-progress

08.04.2023 Fornavn Etternavn, [email protected] 2

‘GOLD’-project - what motivates employees in multinational companies (MNCs) to share knowledge?

• Theoretical background (1): Changes to driving forces behind MNCs.

• The traditional driving forces behind MNEs

• Access to cheap labor – –subsidiaries are ”off-shores”

• Access to markets – –subsidiaries are ”servers”


Assumed knowledge contribution to the MNC

Degree of knowledge in subsidiary

Off-shores

Servers

LOW HIGH

LOW

HIGH

The new driving force • Increasingly firms are investing abroad to enhance and augment their knowledge

• MNCs are trying to buy into foreign created knowledge assets

• MNCs aim to increase their core competencies by incorporating the knowledge of their subsidiaries.

• Subsidiaries are knowledge sources: –“enhancers” & “centers of excellence”

Assumed knowledge contribution to the MNC

Degree of knowledge in subsidiary

Off-shores

Servers

Centres of excellence

Enhancers

LOW HIGH

LOW

HIGH

Theoretical background (2): RBV• Resource-based view (RBV) of the firm (Jay Barney; 1991)

• Competitive advantage is explained by resources that are

– V - Valuable, – R - Rare, – I - Imperfectly imitable, – N - Non-Substitutable

– Externally available resources do not confer competitive advantage (i.e. the “market”).

– Most RBV scholars argue that it is intangible resources - such as firm-specific knowledge - that confer competitive advantage

(i.e. the “firm advantage”)


The ”Firm Advantage” – The Knowledge Based View (KBV) of the Firm

• Kogut and Zander (1993): MNCs as “social communities”–Qualitatively different to markets

• “Shared identities” and “established routines of cooperation”

• Through transfer and sharing - new & unique knowledge can be created

–BUT! declined to explore the finer details of the organizational capabilities peculiar to the efficient transfer and sharing of knowledge.

8


Typical ”early” research questions• Given that each business unit across the MNC has particular

knowledge strengths:

• Typical early research questions:

– Why is knowledge so difficult to transfer between units?

–Why are knowledge synergies - via “sharing” - that could generate product innovation so difficult to create?

Knowledge as a ”thing” that is transferred from one person (the sender) to another (the receiver) through ”pipelines”

Sender Receiver

Knowledge flow

Potential barriers

Knowledge that confers competitive advantage is ”Collective” and therefore locally “Embedded”

11

Individual Social

Explicit Conscious Objectified

Implicit or Tacit Automatic Collective

Spender, 1996

Collective knowledge can only be shared through the dynamic interaction of groups of people

No sender or receiverKnowledge is shared between groups of people – through interaction

Barriers: lack of networks; lack of trust, lack of shared mindset.

Valuable knowledge?

Three dimensions of social capital(Nahapiet & Ghoshal, 1998)

• Structural: linkages; networks

• Cognitive: shared understanding and shared norms

• Relational: trust, identification, relationships

Enhanced Social Capital across

the MNC

Enhanced Performance for the

MNC

Enhanced Knowledge Sharing across

the MNC through interaction

Social Capital Where are we now?

• “We still don’t know nearly enough about what processes & practices are important for building & sustaining social capital & in what contexts”

– Janine Nahapiet, GOLD Workshop, NHH, November 2008

• But what we do know is that because of:

– cultural, institutional and physical distance

• MNCs are particularly demanding contexts in which to develop social capital - and facilitate knowledge transfer.

Our contribution

• We look into the black box of how social capital emerges and is developed

• We propose knowledge governance mechanisms that can be deployed to promote social capital and ultimately intra-MNE knowledge transfer

• We conduct empirical testing of the developed model

Governance Mechanisms

• Three governance mechanisms are available to managers (cf. Adler & Kwon, 2002).

• These will impact on social capital.

• Based on different exchange mechanisms:– Market-based relations:

• The pecuniary exchange of products or services: mechanism e.g. bonuses

– Hierarchical relations:• The exchange of obedience to authority for security: mechanism e.g. rules

– Social relations:• Free exchange of favors: mechanisme.g. acknowlegement

Social capital

Hierarchical

mechanisms

Socialmechanisms

Market-based

mechanisms

The hypothesized model

+Knowledgesharing

Social capital

-

-

+

Hierarchical

mechanisms

Socialmechanism

s

Market-based

mechanisms

Data• Two Danish MNCs operating in the same industry - food ingredients

• (Internet-based) survey distributed via the respective firm’s internal email system

• Individual respondents – Danisco: 77.94%; 219 respondents– Chr. Hansen: 72.75%; 251 respondents – Multiple respondents within the same unit

• I.e. we are measuring individuals’ perceptions.

Knowledge sharing and social capital – examples of items

• Knowledge sharing: –To what extent have:

• You used knowledge from colleagues in other departments?

• Colleagues in other departments used knowledge from you

• Social capital: – In my company:

• People cooperate across departments• Sharing of knowledge is valued


Governance mechanisms – examples of items• Hierarchical mechanisms

– In my company, people are expected to stick to rules and procedures even when there are better solutions.

• Social mechanisms – To what extent are you currently rewarded for transferring

knowledge in your company…• by acknowledgement of your contribution?

• Market mechanisms – To what extent are you currently rewarded for transferring

knowledge in your company…• by increments/bonuses?


Results (LISREL)

0.47***Knowledge sharing

Social capital

-0.16**

-0.12*

0.56***

Hierarchical

mechanisms

Socialmechanism

s

Market-based

mechanisms

-0.23***

0.53***

Conclusions• Social governance mechanisms - involving

acknowledgement practices - clearly promote social capital

• Excessive use of hierarchical control – “perfunctionary compliance” - has the opposite effect

• The effect of market-based mechanisms – e.g. bonuses - is more mixed

• Implications for management of knowledge-intensive organizations

• Weakness: Cross-sectional data; Scandinavian MNCs

Cultural values• In the 1970s Geert Hofstede identified 4 value dimensions along

which national cultures can be grouped.

– Power Distance– Uncertainty avoidance– Individualism-collectivism– Masculinity-femininity

Masculinity-femininity

•Masculine societies value assertiveness, competitiveness and materialism. –Organizations are task oriented.

•Feminine societies: harmonious relations with a strong emphasis on social partnership. –Organizations are process-oriented.

Use of ‘calculative’ HRM

source: Cranet: 2009 survey of firms

USA NorwayFormal appraisal system for:Management 92% 54%Professional 96% 44%Clerical 94% 44%Manual 72% 42% Performance related pay for:Management 77% 32%Professional 74% 20%Clerical 67% 15%Manual 52% 10%

Research strategy• Matched samples for Norway and the USA. • Preferably individuals

– that have not been socialized into any particular company culture

–who can choose either to maximize materialistic-oriented outcomes or socially oriented outcomes

–who will potentially engage in knowledge sharing

• ”Elite” business-school students– NHH-The Norwegian School of Economics– Equivalents in USA

•


www.nhh.no28

Business Students in Norway and the US: Job-related Values and Preferences

Paul Gooderham, Odd Nordhaug, Olav Kvitastein

www.nhh.no29

The US and Norway samples: Schools

At NHH data was collected from 360 students in their final year of the bachelor degree program January 2009. In the US, data was collected from approx. 290 students in either the final year of their BA program or year on or two of their Masters programs. Thus, resp. rates of approx. 77% and 63% for NHH and the US schools respectively

School Bachelor Master Missing TotalDuquesne 59 3 4 66Indiana 0 16 0 16Michigan 39 3 3 45NHH 264 13 3 280TCU 30 23 3 56Total 392 58 13 463

Degree program

www.nhh.no30

The US and Norway samples: Gender

Gender US NorwayFemale 33.0 31.3Male 67.0 68.7Total % 100.0 100.0N = 182 278

Country

Job-related Values and Preferences

• On a scale from 1 (not important) to 10 (very important)

–The importance of 25 job-related factors when choosing one’s first job after graduation


32

Rotated factor matrix

Cronbach's 1 2 3 4 5 6 Alpha

Individual, performance-based bonuses 0.788 Stock options for managers 0.780 Employee stock ownership 0.769 0.873Cost-sharing schemes 0.709 Performance-based team bonuses 0.687 Pay based on individual performance 0.629 There is a friendly culture 0.798 Employer cares about employees as individuals 0.735 0.784Good personnel policy 0.630Good social relations among colleagues 0.627 A lot of variety in work tasks 0.746 Interesting work 0.722 A lot of freedom to work on your own initiative 0.598 0.744Scope for creativity in the job 0.558 Good opportunities to develop competence 0.545 Clearly defined annual targets to work towards 0.858 Clearly defined annual targets to be evaluated on 0.849 0.770Frequent feedback on work performance 0.431 Opportunities to move around in the organization 0.707 Opportunities for long-term career progression 0.667 0.715Systematic career planning 0.559 Opportunities for personal development 0.516 High annual earnings/salary 0.704The position has a high status 0.685 0.744Opportunities for getting fast promotion 0.630

Component

Instrumental work orientation

Social orientation

work orientation

Fast-track orientation

Expressive

Well-defined task

Career opportunities

33

Factors expressed as summates, i.e., as means over items involved, and sorted by magnitude:

Note:10 = Very important, 1 = Not important

Factor Label Mean Std. Dev.f2 Social orientation 8.14 1.205f3 Expressive work orientation 7.82 1.106f5 Career opportunities 7.47 1.238f4 Well-defined tasks 7.03 1.384f6 Fast-track orientation 6.90 1.422f1 Instrumental work orientation 5.96 1.620N = 463

Ranking of factors by country USA Norway

• Social orientation 1 1• Expressive work orientation 2 2• Career opportunities 3 3*• Well-defined tasks 5 4• Fast track orientation 4 5*• Instrumental work orientation 6 6*


Conclusions• Implications for management of employees who “ought” to

engage in knowledge-sharing

• Social governance mechanisms promote social capital and knowledge sharing

– Socially oriented values are ranked highest

• Hierarchical control has the opposite effect– Well-defined tasks are ranked low

• Market-based mechanisms also has a negative direct impact on social capital and knowledge sharing

– Instrumental work orientation is ranked lowest.

36

Rotated factor matrix

Cronbach's 1 2 3 4 5 6 Alpha

Individual, performance-based bonuses 0.788 Stock options for managers 0.780 Employee stock ownership 0.769 0.873Cost-sharing schemes 0.709 Performance-based team bonuses 0.687 Pay based on individual performance 0.629 There is a friendly culture 0.798 Employer cares about employees as individuals 0.735 Good personnel policy 0.630 0.792Good social relations among colleagues 0.627 High job security 0.491 Employer has a dynamic approach to business 0.419 A lot of variety in work tasks 0.746 Interesting work 0.722 A lot of freedom to work on your own initiative 0.598 0.744Scope for creativity in the job 0.558 Good opportunities to develop competence 0.545 Clearly defined annual targets to work towards 0.858 Clearly defined annual targets to be evaluated on 0.849 0.770Frequent feedback on work performance 0.431 Opportunities to move around in the organization 0.707 Opportunities for long-term career progression 0.667 0.715Systematic career planning 0.559 Opportunities for personal development 0.516 High annual earnings/salary 0.704The position has a high status 0.685 0.744Opportunities for getting fast promotion 0.630

Fast-track orientation

Expressive

Well-defined task

Career opportunities

Component

Instrumental work orientation

Social orientation

work orientation

37

Factors expressed as summates, i.e., as means over items involved, and sorted by magnitude:

Factor Label Mean Std. Dev.f2 Social orientation 7.96 1.121f3 Expressive work orientation 7.82 1.106f5 Career opportunities 7.47 1.238f4 Well-defined tasks 7.03 1.384f6 Fast-track orientation 6.90 1.422f1 Instrumental work orientation 5.96 1.620N = 463

Note:10 = Very important, 1 = Not important

Education

Beyond Budgeting: What Really Motivates Employees