Hybrid organizations: how can management controls prevent mission drift? Interview with Lies Bouten
Hybrid businesses are organizations that typically pursue two or more conflicting objectives: for example commercial (profit-making) and social or environmental objectives. Different types of hybrid business models have developed rapidly in recent years as a response to societal and environmental challenges. In France for example, the number of ‘entreprises à mission’ (corporate entities with a stated social or environmental purpose) has passed 500, while the UK has more than 20,000 community interest companies.
As hybrid organizations seek to balance their financial and non-financial objectives – this can create tensions, challenges and contradictions at different levels of the organization. Professor Lies Bouten, professor of accounting at IÉSEG, and her co-author Sophie Hoozée (Ghent University), recently studied how a luxury hotel chain implemented a package of management control practices to help it pursue its dual mission: developing business and financial stability whilst contributing to environmental protection.
Could you very briefly explain what management control practices are?
Management control practices refer to different mechanisms that are used to motivate employees (and other stakeholders) to perform activities that contribute to an organization’s objectives and strategy implementation. There are many different types or categories of controls. These include: administrative controls (such as codes of conduct, rules within an organization, procedures and processes relating to work); rewards and compensation controls; and planning controls (i.e. employee participation in strategic and action planning). They also refer to different types of cultural controls which relate to the way an organization or company communicates and portrays it values, culture etc. for example through its mission statements and other activities. Cybernetic controls, one of the most important, entail performance measurement (e.g. the Balanced Scorecard, KPIs) and feedback to achieve outputs.
Why did you choose to study control practices for hybrid organisations and particularly a hotel chain?
In traditional for-profit organizations, there is generally one overriding financial objective. Hybrid organizations, meanwhile, look to balance profitability with another objective such as fostering environmental conservation or social inclusion. Importantly, the non-financial goal is not regarded as a means to maximizing profits.
We imagined that having two objectives would bring new challenges in terms of management control practices. Employees are likely to be forced to take decisions that may contribute to one objective, but may endanger the other. Therefore, we wanted to study how organizations could design a package of controls that contribute to successfully maintaining the ‘dual mission’.
Through some of our previous research, we had observed that this hotel chain did not pursue its environmental objectives as a means for profit, but rather an end itself. So, we saw this as an opportunity to study the potential tensions and challenges and how these can be overcome.
Imagine that staff working in the hotel restaurants of the hotels are faced with different targets: for example one focusing on financial objectives and the other stressing the importance of using local products. As local products can be more expensive, this can impact the profit margins of the restaurant. Hybrid organizations, therefore, need to think about the targets they set and how these can create difficulties or stress for their staff.
How did you carry out your study?
We interviewed people at all levels of the hotel chain from the CEO, the CFO, the COO, to restaurant managers, environmental coordinators and even chambermaids. We quickly understood that motivating employees to act in line with the environmental objective was key. We looked to understand how the package of controls it had introduced fostered the uptake of the environmental goals, and more widely the dual mission. We turned to self-determination theory (a theory focusing on human motivation) which helped us to delve deeper into the motivations of employees.
What were the main findings of the study?
A first important observation was that top management, in particular the CEO, understood that staff may be inclined to prioritize financial goals over environmental ones when they are faced with conflicting targets or goals. Therefore, they looked to remove some of these potential tensions through different mechanisms.
Firstly, through the structure of the organization. Specific staff members were given responsibility for pursuing environmental objectives (for example through environmental coordinators and an environmental committee) while others were in charge of the financial objectives (hotel managers).
A second mechanism was ensuring that staff had the necessary autonomy and motivation to deal with everyday tensions that may arise when balancing financial and environmental goals.
Different administrative controls (such as environmental audits) were put in place and employees were invited to participate in the design of an environmental action plan. However, one key cultural control mechanism was the communication from management and supervisors on the importance of environmental values and best practices. Likewise, we noted that exemplary behavior of managers, and the CEO, was very important: in essence ‘walking the talk’ and stressing the importance of conserving the environment for the next generation. This helped contribute to creating a real ‘community’ feeling where environmental concerns were central to activities.
Thirdly, the chain recognized that it was important for managers to share with their teams how they balanced objectives and dealt with challenges that arise. This helped employees to understand how to act when in similar situations.
These mechanisms (which constitute a package of controls) helped to regulate the balancing of objectives which is crucial for a hybrid organization.
What would be your recommendations to organizations with a hybrid mission who are creating or reviewing their control practices?
My principal recommendation would be to advise organizations not to develop separate control practices for financial and non-financial objectives.
They should really focus on developing a package of controls, and look at how these can create tensions and how they can be developed to encourage employees to balance their objectives.
Furthermore, our work also highlighted that it may not be desirable to shield employees from all strains that can arise (when pursuing conflicting goals). We found that when they have the autonomy to deal with such challenges this can actually contribute to their overall engagement and well-being at work.
*”Hybridity in a hotel chain: designing a package of controls to sustain a hybrid mission”, Lies Bouten & Sophie Hoozée in the Accounting, Auditing & Accountability Journal (2022)