CEMP The Creation of European Management Practice

A Research Programme Supported by the European Union

Executive Committee: Professor Lars Engwall, Sweden (chair), Professor José Luis Alvarez, Spain, Professor Rolv Petter Amdam, Norway, Dr. Matthias Kipping, United Kingdom.

Executive Secretary: Dr. Cecilia Pahlberg, Department of Business Studies, Box 513, SE-751 20 Uppsala, Sweden telephone: +46-18-4711362; fax: +46-18-471 6810; e-mail: Cecilia.Pahlberg@fek.uu.se

Home-page: http://www.fek.uu.se/cemp

CEMP REPORT No. 16

July 2001

Consultancies and the Creation of European Management Practice

by

Matthias Kipping University of Reading, UK

and Universitat Pompeu Fabra, Barcelona, Spain

TSER Contract SOE1-CT97-1072

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Table of Contents 1 Introduction ......................................................................................................................... 4

1.1 Overview of Research Objectives and Results........................................................................ 4 1.1.1 The industry level .....................................................................................................................4 1.1.2 The organisational level ............................................................................................................7 1.1.3 The project level .....................................................................................................................10

1.2 Consultants and Organizational Change: A Theoretical Framework .................................... 12 1.2.1 The existing literature .............................................................................................................12 1.2.2 An integrative framework (Hallgeir Gammelsaeter and Matthias Kipping) ...........................15

1.3 Focus, Methodology and Structure of the Report.................................................................. 20 2 Surveys of Management Innovations in Europe ............................................................... 22

2.1 Introduction (Celeste Amorim and Matthias Kipping).......................................................... 22 2.1.1 Management innovations as ‘new’ resources..........................................................................22 2.1.2 Characteristics of management innovations............................................................................24 2.1.3 Integrating external management knowledge .........................................................................25

2.2 Germany and Britain (Simone Strambach) ........................................................................... 28 2.2.1 Introduction.............................................................................................................................28 2.2.2 Sample and methodology........................................................................................................29 2.2.3 Number and types of organisational innovations implemented ..............................................30 2.3.4 Motives for organisational innovations...................................................................................32 2.2.5 Internal and external knowledge in organisational innovation processes ...............................34 2.2.6 Differences in organisational innovation patterns...................................................................37 2.2.7 The Influence of institutional contexts....................................................................................41 2.2.8 Conclusions and implications .................................................................................................44

2.3 Spain and Portugal (Celeste Amorim)................................................................................... 47 2.3.1 Introduction.............................................................................................................................47 2.3.2 Research Method and Data Collection....................................................................................48 2.3.3 Number of Innovations ...........................................................................................................49 2.3.4 Distribution over time .............................................................................................................51 2.3.5 Main characteristics of the innovators ....................................................................................52 2.3.6 External consultants ................................................................................................................54 2.3.7 Discussion and conclusion ......................................................................................................63

3 Case Studies....................................................................................................................... 69 3.1 The M-form in Norwegian Companies (Rolv Petter Amdam and Hallgeir Gammelsaeter) . 69

3.1.1 Context – the diffusion of the M-form....................................................................................69 3.1.2 The four cases .........................................................................................................................70

3.1.2.1 Norsk Hydro 70 3.1.2.2 Aker 73 3.1.2.3 Hafslund 74 3.1.2.4 Glamox 77

3.1.3 Discussion...............................................................................................................................79 3.1.4 Conclusions.............................................................................................................................83

3.2 Organizational change in Dutch banking (Doreen Arnoldus and Joost Dankers) ................. 85 3.2.1 Introduction.............................................................................................................................85 3.2.2 Background I: The Dutch banking sector, 1950-1990 ............................................................86 3.2.3 Background II: Management consulting in the Netherlands...................................................87 3.2.4 Dutch banks consuming consultancy services ........................................................................88

3.2.4.1 American consultancies at the commercial banks 88 3.2.4.2 Consultants at the co-operative Rabobank 93 3.2.4.3 In search for unity: consultants at the savings banks 99

3.2.5 Concluding remarks ..............................................................................................................105 3.3 Consultants in German consumer chemicals (Susanne Hilger)........................................... 107

3.3.1 Introduction...........................................................................................................................107 3.3.2 A brief history of Henkel ......................................................................................................108 3.3.3 Shifts in the attitude towards external consultants ................................................................109 3.3.4 The major SRI project, 1966-1969........................................................................................112

3.3.4.1 Phase I: Diagnostic 113

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3.3.4.2 Phase II: Developing company strategy and planning 113 3.3.4.3 Phase III: Divisionalization 119 3.3.4.4 Phase IV: Ongoing support 122

3.3.5 Conclusion and outlook ........................................................................................................124 3.4 Human Resource Management in Italy (Cristina Crucini) .................................................. 127

3.4.1 Introduction...........................................................................................................................127 3.4.2 The background of the Italian work organisation .................................................................129 3.4.3 The development of Human Resources since the 1950s.......................................................132 3.4.4 Discussion and conclusions ..................................................................................................140

3.5 TQM in Spain and Portugal (Celeste Amorim)................................................................... 144 3.5.1 Introduction...........................................................................................................................144 3.5.2 Pressure for standardisation ..................................................................................................144 3.5.3 Methodology.........................................................................................................................146 3.5.4 Differences and similarities in TQM programmes................................................................147 3.5.5 Explanatory variables............................................................................................................151

3.5.5.1 Involvement of external actors 151 3.6.5.2 Interaction with externals 153 3.5.5.3 Knowledge / practice specificity 159 3.5.5.4 Firm specificity 160 3.5.5.5 Country specificity 163

3.5.6 Conclusion ............................................................................................................................164 3.6 TQM in Public Management in Britain and France (Denis Saint-Martin) .......................... 168

3.6.1 Introduction...........................................................................................................................168 3.6.2 Promoting consultancy: the State and the quality movement ...............................................170

3.6.2.1 Britain: Thatcherism and the New Enterprise Culture 171 3.6.2.2 France: From Dirigisme to Disengagement 173

3.6.3 Using consultancy: TQM ideas in the public sector..............................................................175 3.6.3 Britain : From Managerialism to Quality 177 3.6.3.2 France: The 1986 Policy on Quality and Innovation 180 3.6.4 Conclusion: the industrial policy origins of public sector reforms 183

4 Overall Conclusions ........................................................................................................ 186

5 References ....................................................................................................................... 189

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1 Introduction The CEMP research project has proceeded in three steps to assess the contribution of the

different carriers of management knowledge (business education, management publications,

management consulting and multinationals) to the increasing similarity of management

practices in Europe (Engwall et al. 1997). The first step examined the extent to which each

carrier field has become dominated by a few actors, namely of American origin. The second

step looks inside a few selected examples for each of the carriers to see how they deal with

management knowledge and find out to what extent they standardise it across national

borders. In the final step, the project has focused on a limited number of management ideas

(multidivisional structure, quality management and shareholder value) to find out whether the

implementation of these ideas –with or without the help of the carriers– has actually

contributed to an increasing similarity or homogenisation of management practices across a

range of companies from different industries and countries.

Thus, research within the CEMP project in general and the consultancy part in particular has

proceeded on three different levels: (1) the field level, (2) the organisation level and (3) the

project level (cf. also Engwall and Kipping 2002). The first part of this Introduction will give

an overview of the research objectives of the different levels and summarizes the results

obtained so far for the first and the second levels as well their implications for the subsequent

research. It will also outline the major questions for the examination of the third level. The

second part of the Introduction will provide a brief review of the existing literature regarding

the international homogenisation of management practices and then sketch an integrative,

theoretical framework for the examination of the consultancy-client interaction and its

outcome in terms of organizational change. The third and final part of the Introduction gives

an overview of the methodology and sources employed in the research carried out for this step

of the CEMP project.

1.1 Overview of Research Objectives and Results

1.1.1 The industry level On the first level of analysis, we related to the traditional studies of industries, which in recent

years in organisation studies have been labelled as populations (e.g. Hannan and Carroll 1992)

or fields (e.g. Powell and DiMaggio 1991), and in the more economics oriented literature are

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usually referred to as industries (e.g. Scherer 1970 and Porter 1980). In so doing we took an

interest in the development over time of consultancies as a group. Basic questions within the

framework of the CEMP project concerned the extent to which this field/industry in Europe

had become increasingly homogenized, i.e. whether a few, highly visible actors had come to

dominate the consultancy group and who these actors were.

Our research revealed that there are indeed strong trends for convergence and American

dominance across Europe (Kipping and Armbrüster 1999). Historically, consultancies of US

origin had played an important role in the diffusion of scientific management or Taylorism

during the first half of the century and the introduction of American models of corporate

strategy and organisation in the post-war period (Kogut and Parkinson 1993; Kipping 1996

and 1999). Our research has shown that many of the above mentioned strategy consultancies

continue to hold strong positions in the European markets at the turn of the millennium, with

McKinsey, AT Kearney, The Boston Consulting Group and others figuring among the top

firms in Europe as a whole and in most individual countries. But our work also shows that the

most striking phenomenon during the 1990s has been the rapid expansion of consultancy

service providers linked to large Anglo-American accountancies, widely known as the “Big

Five”. While the consultancy market as a whole has grown considerably during the last

decade of the twentieth century, most of them have grown much faster, taking market shares

away even from the successful and well-known strategy firms. In Europe, their expansion has

occurred mainly to the detriment of the larger national consultancies, which became

increasingly marginalized and in many instances were actually bought up by the more

successful service providers (cf. the country chapters in Kipping and Armbrüster 1999 for

details).

At the same time, however, it would be wrong to conclude from these developments that the

consultancy fields across Europe have become identical. Our research also shows that

considerable differences continue to persist. They concern for example the level of

development, measured in consultancy revenue relative to GDP where there is still a kind of

North-South divide within Europe. Another source of differences among the European

markets are the numerous small and medium-sized consultancies, which seem to have

flourished in many countries during the last decade, even though the absence of detailed and

reliable statistics makes it difficult to size this phenomenon (cf. also Keeble and Schwalbach

1995). Differences also concern the types of consultancy services, with certain markets

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dominated by operational and IT services and other by advice on strategy and organisation

(cf. Kipping and Armbrüster 1999).

The opposite is true for small and medium sized consultancies. At first sight their national or

even local focus might seem to provide a barrier against a possible convergence of

management practices. But quite on the contrary, it is also feasible that that they actually

translate foreign knowledge into something that is easier to adopt and implement for locally

embedded small and medium-sized clients (Kipping et al. 1998/99). In addition, as suggested

by Engwall (1999), they also might play in favour of homogenisation because they are often

set up by former executives from large companies or by consultants who were working in

larger consulting firms. In other words these individuals end up reproducing what

characterises the knowledge and the approach of large corporations and consultancies, thus

acting as homogenising agents (cf. also Crucini and Kipping 2001).

Thus, there is also no doubt about continued diversity, namely with respect to small and

medium sized service providers, even if these might actually act as ‘hidden’ homogenisers.

At the same time, there is no doubt about the emergence of dominant actors, usually of US

origins, in the consultancy industry/field in Europe, both at a European level and in each of

the countries studied. But at this step of the research, an important question remained

concerning these dominant actors. The fact that the national offices of these large service

providers carry the same ‘brand’ name and belong to the same global consultancy firm does

not in itself constitute a sufficient proof for the fact that they disseminate identical models or

templates in each of these countries. Thus, as an earlier comparison of the French and

German consultancy markets has shown, the same consultancy does not provide necessarily

the same services in two different countries, even though they sometimes use the same

terminology. For example, what is called strategy consulting by McKinsey does not have the

same meaning in Germany and in France (Sauviat et al. 1994).

Hence, it should not be easily assumed that the knowledge coming from the centre of a

consultancy –in our case usually the United States– would automatically be adopted by the

peripheral offices of a consultancy. It is not even sure that such a centre actually exists. In

order to take advantage of economies of scales, many international consultancies today are

organised by so-called practice areas, which are co-ordinated from offices located in different

countries (Kipping and Scheybani 1994). The logical next step in our part of the CEMP

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project was therefore to look inside the black box of consulting and to identify the ways in

which consultancies generate, codify and disseminate management knowledge internally and

to what extent this knowledge was similar among the different national offices.

1.1.2 The organisational level

Thus, our subsequent report (Kipping and Armbrüster 2000) examined the knowledge

management and dissemination inside consultancies, based on the study of selected consulting

organizations of different national origins and different sizes as well as an analysis of their

websites (since their intranets were not accessible for research). It tried to understand the

processes by which consultancies generate, codify and disseminate knowledge. The ability of

the consultancy organization to share information and knowledge internally obviously

constitutes an important source of competitive advantage. Some of this has been explored in

the literature, but many of the related questions had remained unexplored for example

regarding the incentives for consultants to share their knowledge with colleagues or the

knowledge management in smaller, nationally based consultancies. The current literature on

knowledge management focuses almost exclusively on the large consulting firms and also

does not try to identify possible differences between the knowledge management systems in

different countries.

A related even more important issue from the point of view of the CEMP research concerned

the national origin of the past practices, codified and transferred through internal knowledge

management systems. In many of the large consultancies, these are likely to come from

countries other than the ones in which they are applied (in many instances they probably

originate in the United States). The question here was to what extent, if at all, they are

adapted to the different national contexts in which these consultancies operate and, if this is

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indeed the case, how this was done. The report therefore examined in particular the

differences between small and large consultancies and the influence of the national context.

Regarding the large and small consultancies, our research showed significant differences in

the ways they manage knowledge. Large consultancies, that is the traditional, large strategy

consultancies, the consulting arms of the big five accounting firms, and the IT-based service

providers have established systematic knowledge management systems which comprises

groupware software, document management, groups of specialization (called ‘competence

centres’ or similar), etc. The knowledge management of medium-sized and small domestic

consultancies is much more hands on. There is no software-supported knowledge

management and ‘knowledge’ is more centred on the around the consulting experience and

expertise of individuals, namely the most senior among them. Knowledge management in

consultancies, therefore, has two extreme ideal types: professionalised systems in the large,

international consulting firms and hands-on knowledge management, or no knowledge

management at all, in medium-sized and small domestic consultancies. The former rely on

different systems (increasingly IT-based) to extract the knowledge from individual

consultants, store it and disseminate it internally. For the latter, the costs of such a system are

clearly prohibitive. Their advantage is expertise, based in individuals. As a result, the scope

of the experience and expertise provided by the small consultancies remains limited – which

is why they had to develop some original forms of knowledge sharing.

Regarding the influence of nationality, our comparison between the knowledge management

in large firms in Sweden, Germany / Austria and Italy suggested that the differences between

them were fairly limited. This is quite understandable, since all of the firms studied in-depth

were global service providers of Anglo-American origin which can be expected to standardise

their knowledge management systems worldwide. We rather found some differences

depending on the type of firms, i.e. the traditional strategy consultancies, those originating

from the big five accounting firms or from computer software and solutions companies – with

the latter two relying more on IT-based solutions, which could be seen as function of their

larger size and their origins. With respect to small consultancies, nationality appeared to

matter more, in the sense that the service providers from different countries seem to have

developed different models to share and combine their knowledge and refer clients to each

other when they cannot offer a particular service. In Sweden, the incentive to refer clients

seems to be a kind of finders fee, i.e. the small consultancy or individual practitioner making

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the referral expects some “cut” of the overall revenue. By contrast, knowledge sharing and

exchange in Germany seems largely based on central actors such as semi-public associations

and foundations. The small consultancy sector in Italy has been particularly vigorous, due to

a large numbers of spin-offs and many regionally or locally based small, often individual

service providers. As our interview- and questionnaire-based research has shown, many of

these small consultancies have developed informal networks to share knowledge and work

together for small and also large client organisations – usually based on frequent or even

permanent co-operation. In the Italian context, professional associations also play a certain

role, namely as a meeting place and forum for the exchange of experiences.

These results from the second step in the CEMP research had important implications for the

question whether consultancies contribute to an increasing similarity among organisation in

Europe. It seems clear that the large, international consultancies have very efficient ways to

spread knowledge throughout the world, both with their organisation and outside. And there

is no doubt that they have achieved a fairly high level of standardisation of their methods and

tools and the dissemination of ‘best practice’. All of this has without doubt contributed to an

increasing standardisation of discourse or ‘labels’ among consultants and managers – a fact

which has been recognised and highlighted by much of the earlier research. To what extent

and how this has shaped managerial practice, is the subject of this report which summarizes

the third and final step of the CEMP research, which focused on the role of consultants in the

implementation of selected management models.

However, research at the second step already suggested two notes of caution regarding the

homogenisation of management practices in Europe. One concerned the widely made

assumption that homogenisation means Americanisation. This is not self-evident, because the

consultancies’ show different degrees of centralisation and their ‘competence centres’ etc. are

not necessarily based in the United States. Also, in most of these firms, there are actually

more consultants based and working outside the US than in the US. Finally, there are

examples, such as ‘Time-based competition’ where the knowledge disseminated by a

consultancy of American origin did not originate in the US, but elsewhere (in this case Japan).

A second note of caution derives from the distinction of different types of knowledge

introduced in this report (cf. also Armbrüster and Kipping 2002). If the consultants focus

indeed on the type of knowledge which they actually develop themselves, namely change-

oriented knowledge, basically process management, they are more likely to reinforce the

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specificity among their client organisations, by focusing on the internally available resources

and externalising existing knowledge. Only the research on the consultancy-client

interactions, some of it presented in this report, will be able to shed more light on this issue.

With respect to the possible homogenisation of management practices in Europe, our research

in the second step has highlighted an important, and rather unexpected role of small and

medium-sized consultancies. As the detailed studies of the Swedish and Italian cases clearly

show, in their discourse and selling strategy they highlight their distinctiveness and also the

fact that they provide solutions which are not the same for everyone, but adapted to the

particular situation. But, as our work on their knowledge management shows, the reality is

rather different. Because small consultancies rely on one or at best a few experts, the range of

solutions they can offer is actually fairly limited. As mentioned above, this can be

compensated partially by knowledge networks. Thus, what kind of knowledge they

disseminate depends to a large extent on the background, training, and experience of these

individuals, which needed to be elucidated by biographical research. We therefore decided to

study one particular consultant in more detail for this third and final stage of the research

project (see below).

Taking all of the above findings together, we had some indications about a possible

standardisation of management knowledge in Europe. They appeared somewhat less

pronounced than expected for the large, international consultancies (because they seem to

make efforts to adapt to the context in which they are operating); and a bit more pronounced

than expected for the locally based individual consultants or small consulting firms (because

of their background and their limited availability to develop original knowledge). However,

only the research analysing the actual interaction between consultancies and clients, i.e. how

consultancies manage to transfer management knowledge into client organisations, could shed

some more light on the question to whether and how consultants actually contribute to the

creation of European management practice and to what extent this practice is of ‘American’

origin.

1.1.3 The project level

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To understand what is going on at the level of a consultancy project is of course the most

crucial step for assessing the impact of consultancies on management practice. There have

been a growing number of empirical studies examining consulting projects (e.g. Shapiro et al.

1993; Bloomfield and Danieli 1995; O’Shea and Madigan 1997; HBR 1997; Fincham 1999).

However, much of this literature has focussed on difficulties between consultants and their

clients. Two recent surveys also highlight a rather critical attitude of client organizations

towards consulting advice. In a survey among alumni of the London Business School, 68 per

cent of those who had used external advice believed that consultancy projects made a valuable

contribution to their business, but less than 30 per cent of them thought that consultants

provided good value for money (Ashford 1998: 267, 270). And in interviews with the CEOs

of the ten largest Swedish companies, Engwall and Eriksson (1999) obtained highly critical

answers about consultants, although all of the companies actually employed at least one,

usually several consultancies at the time of the interviews.

Historical case studies confirm this impression. One example is the introduction of scientific

management during the first decades of the twentieth century, which was often conducted

with the help of consultants. Several authors examining these cases have stressed the

resistance of workers, and occasionally foreman, against the implementation of these methods

(e.g. Littler 1982; Egolf 1985; Downs 1990). Similarly, company histories that contain

descriptions of consulting projects concerned with changes in strategy and structure also

highlight the rather critical reaction of the client organization towards external advice (e.g.

Church 1969; Pasold 1977; Holmes and Green 1986; Pugh 1988; Public Histoire 1991;

Cailluet 1995; Cailluet 2000; Kipping 2000). These studies point out that middle or even

senior management often considered the recommendations as too radical and opposed their

implementation. Frequently therefore, companies introduced consultancy suggestions only

partially or gradually.

However, while highlighting critical sometimes even hostile reactions towards the consulting

recommendations, none of these studies explicitly deals with the issue of whether or not these

consultancy interventions resulted in an increasing similarity between different organizations.

The only indications regarding the role of consultants in the homogenisation of management

practice can be found in some more theoretically oriented approaches in organization studies.

These will be examined briefly in the next part of the introduction, before presenting an

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integrative theoretical framework, which attempts to build on these approaches, but also to

transcend them.

1.2 Consultants and Organizational Change: A Theoretical Framework

1.2.1 The existing literature

Probably the most clear and, by far the most influential, statement regarding the role of

consultants in the processes which lead organizations to adopt increasingly similar

management models or templates can be found in the seminal article by Powell and DiMaggio

(1983: 152), where they examine the different mechanisms (coercive, mimetic and normative)

leading to this isomorphism:

Large organizations choose from a relatively small set of major consulting firms,

which, like Johnny Appleseeds, spread a few organizational models throughout

the land. Such models are powerful because structural changes are observable,

whereas changes in policy and strategy are less easily noticed. With the advice of

a major consulting firm, a large metropolitan public television station switched

from a functional design to a multidivisional structure. The stations’ executives

were sceptical that the new structure was more efficient; in fact, some services

were now duplicated across divisions. But they were convinced that the new

design would carry a powerful message to the for-profit firms with whom the

station regularly dealt.

As the last part of this quote shows, in line with their more general argument about the

‘rationality’ within a given organizational field, according to Powell and DiMaggio the appeal

of consultants is not due to the efficiency of the solution they offer, but to the visibility and

legitimacy it provides the managers with respect o other, namely outside actors. More

recently, Kieser (2002; cf. also Ernst and Kieser 2002) has driven this logic to a certain

extreme. Combining a neo-institutional framework with the literature on (management)

fashions, he suggests that consultants exploit the need of managers to achieve control or at

least a semblance of control over their organizations in order to promote their services. He

relates this need for control on the one hand to the outside environment in which they operate

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and, on the other hand, to the fundamental uncertainty of managers (cf. for the latter also

Abrahamson 1996).

By constantly launching new management fashions, consulting firms increase managers’ fear

of being out-of-date or being left behind their competitors. When hiring consultants, these

managers alleviate these fears and take a relatively low-risk strategy, because they are

following what is widely perceived as ‘best practice’. They cannot be wronged and even in

the case of failure, which is as difficult to measure as success, it is difficult to blame them

personally, since they only did what the consultants suggested and what everybody else in the

industry did. However, the relief remains temporary, since will soon launch a new

management fashion, often only a slightly modified version of the previous one, and the

whole cycle starts again. In this way, consultants have been able to make all but a few

exceptional managers dependent on their services or, as he puts it provocatively, ‘marionettes

on the strings of their fashions’. While Kieser does not explicitly address the question of a

possible standardisation of organizational practices following this fashion-driven process, it

seems fairly obvious that the consultant-dependent managers will tend to behave in a rather

similar way.

By contrast, the so-called business systems literature suggests that the national environment

provides a set of fairly rigid constraints for organizations (e.g. Lane 1989 and 1991; Whitley

1992; Whitley and Kristensen 1997; Whitley 1999). These constraints derive from what has

been called ‘background’ institutions (fairly general cultural values and norms) and from the,

more important ‘proximity’ institutions, which include the education system, the industrial

relations system, the role of banks and financial markets and the involvement of government.

Managers have to ensure that their organizations ‘fit’ into a given context in order to ensure

their survival. While organizations within one national context will therefore resemble each

other closely, they will differ significantly from those operating under a different set of

constraints. Homogenisation across national boundaries therefore only appears possible if the

above-mentioned institutions would become increasingly similar. Given that they are the

deeply rooted in cultural and social values and have evolved historically, such a development

seems unlikely – at least in the short run. Within these national business systems, there is

little room for consultants to operate as homogenizing agents. They only role they could play

would be to help organizations achieve a better ‘fit’ with their environment – but this is never

explicitly explored in any of the above-mentioned literature.

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In his book on the spread of new management models in the United States and several

European countries, Guillén (1994) has offered an interesting modification of this approach,

which leaves somewhat more room for the operation of consultancies (and other carriers or

management knowledge). In general, he also highlights the importance of the national

institutional context for explaining patterns of adoption and rejection of new management

ideas. However, his framework is slightly different. He distinguishes between the ideological

and the more technical aspects of these management models and sustains that one can be

adopted with out the other. Thus, consultants can play a role in transfering ideas from one

business system to another -- either in the form of simple tools and techniques or as an

ideology, i.e. at a fairly high level of abstraction (cf. also Lillrank 1995). This distinction

between talk and action has a long tradition in social science research and organization studies

(cf. Sturdy and Fleming 2001). The debate about whether and how long managers can

actually maintain such a distinction is far from being resolved.

The so-called Scandinavian institutionalism seems to offer a certain answer to this question

and also a possibility to integrate the opposing views regarding the homogenisation of

organizational models and management practice – at least to a certain extent. While

recognizing the pressure on managers to adopt ‘fashionable’ concepts, it suggests that these

ideas will be adapted gradually to the specific organizational (rather than national) context, a

process often referred to as ‘translation’ (e.g. Sahlin-Andersen 1996; Czarniawska and

Joerges 1996). If mentioned at all, consultancies appear to play a rather minor role in this

process. In a way they are seen to ‘plant’ the ideas. In terms of standardisation, the outcome

of their involvement therefore appears less certain even if the ideas they spread are fairly

similar. However, the image of ‘translation’ suggests a rather smooth process and largely

neglects the implications from the literature on the consultancy-client relationship, which

highlights the fact that in many cases the ideas introduced by consultants were contested and

resisted from within the client organization. Only Roevik (1998) appears to at least consider

this possibility when he introduces a ‘virus’ metaphor for new ideas. Theoretically a virus

includes the possibility of rejection, even if this aspect is barely discussed in his work.

What all of these approaches have in common is that they are somewhat deterministic. They

leave little choice to the actual managers who are either driven by the desire or need to imitate

others (reinforced by consulting firms), by the ideas which consultants and other carriers of

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management knowledge plant in their organizations or by the national system in which they

operate. (As mentioned above, the only choice they might have in such a scenario, at least

according to certain authors, is to ‘de-couple’ their talk from their action.) All of these

approaches therefore stand in a fairly stark contrast with the empirical research, which has

revealed considerable debates and, sometimes, serious conflicts not only between the clients

and their consultants, but also, and possibly more importantly, among the different actors

within the organizations that employed the consultancies.

In order to better understand the consultancy-client relationship, its influence on the changes

in organizational practices and its outcome in terms of standardization, we therefore need a

more actor-based framework. At the same time, such a framework has to incorporate the

constraints under which all of these actors operate, as identified by the above-mentioned

approaches. The following section will sketch such a framework.

1.2.2 An integrative framework (Hallgeir Gammelsaeter and Matthias Kipping)

As mentioned above, most of the existing frameworks which look at the homogenisation of

management practices in different countries, have a rather deterministic character. By

contrast, the framework suggested here puts the decision-makers in organizations at its centre

and, while acknowledging the (internal and external) constraints under which they are

operating. The reason to make these organizational actors the focus of attention is the fact that

they are the ones directly confronted with the pressures for the increasing similarity of

organizational practices in Europe: they are the ones who decide to hire consultants

(regardless of the latter’s efforts to make them dependent); and they are the ones who have to

implement and routinise the organizational changes after the departure of the consultants (cf.

Kipping and Armbruester 2002).

Thus, our approach stands in contrast to neo-classical economics which is based on single,

atomised actors who calculate the benefits of different strategies and act accordingly. It is

closer to the above mentioned neo-institutionalist tradition within organization sociology (e.g.

Meyer and Rowan 1977, Powell and DiMaggio 1991) which sees economic actors as

embedded (cf. Dowd and Dobbin 1997) and in pursuit of strategies on the basis of widely

shared and implicit assumptions rooted in socio-historical contexts. According to neo-

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institutionalists, the idea of the existence of optimal means to every end permeates the modern

economic worldview. Economic actors therefore seek to discover optimal means (Meyer

1994) that are recast as manifestations of natural ‘law’ and thereby institutionalized. Thus, in

the view of the neo-institutionalists economic actors behave according to a belief that they are

operating in a world where means and ends can be optimised. However, in reality this world

is a social creation in which the relation between means and ends is far less calculable and

controllable than those actors prefer to believe. Consultants attempt to thrive on this

uncertainty, because they offer managers temporary relief by disseminating widely recognized

‘best practice’ (see above).

Following the same logic, neo-institutionalists have also highlighted that organizations

basically are identity-seeking entities that constantly make comparisons between their own

structures and those of “others” (Meyer 1994). Since identity is conceived of as relational,

organizations are constantly trying to imitate their role models and to differentiate themselves

from organizations they do not identify with (Røvik 1996, 1998; Sahlin-Andersson 1996). In

this context, consultancy can be viewed as one of the means by which organizations compare

and refurbish themselves, and the recent success of the consultancy industry can be

understood as the effect of its increased ability to commodify and market its products in the

face of the more complex and dynamic environments meeting modern identity-seeking

organizations.

However, while the neo-institutional critique of the neo-classical, calculating economic actor

has been most warranted, neo-institutionalism is itself not fully convincing in explaining how

organizations receive management knowledge. To some extent this stems from the weak

empirical basis of some of its basic tenets, including the thesis that organizations are so

embedded in their social contexts that decision makers take new organizational recipes for

granted (Davis, Diekman and Tinsley 1994). By taking this thesis itself for granted, the neo-

institutional school has largely neglected the role of agency and interests (DiMaggio 1988;

Aldrich 1992; Hirsch and Lounsbury 1997), the importance of interaction and the role of the

recipient in general in the diffusion of knowledge (Sturdy 1999). The thesis of organizations

as basically identity-seeking largely runs into the same inadequacies. Furthermore, the

conception of management as the primary representative of the organization tends to be that it

is united and monolithic. There is no tension between managers, managerial echelons or

expert groups. They seek the same identity. The focus on the persuasive diffusers and the

- 17 -

corresponding neglect of the receptive actors not only lead neo-institutionalism to depict the

diffusion process as a linear process. It also tends to portray managers as indulgent and as

‘gullible victims to clever tricks’ (Sturdy 1999).

Since neo-institutionalism focuses on institutional environments, its depiction of the diffusion

of structural forms tends to disregard the endogenous countervailing forces often found in

organizational values and cultures, informal actions, vested interests, coalitions etc., in short

the mechanisms of obstruction and action treated by institutionalists à la Selznick (1949,

1957, 1996). This also means that the embedded actors of the neo-institutionalism are

portrayed as more embedded in institutional environments than in the contexts of the

organization they represent. Thus, paradoxically, neo-institutionalism is a-contextual as seen

from an old-institutional perspective.

Admittedly, this assertion ignores the mechanism of de-coupling (Meyer and Rowan 1977)

which promises to solve this contradiction by attributing change to the managerial structure

while the operational core is unaffected (cf. also above). This explanation is argued to be

inadequate, however, both because adopted ideas have been showed to influence core

activities and because of its implicit assumption that managerial structures - in contrast to core

activities - are easy to change (Gammelsæter 1991,1994). It follows that neo-institutionalism

do not explicate the interaction between consultants and the organizational actors receiving

management knowledge.

Thus, the study of the interaction between consultants and organizational actors specifically

takes into account that the actors has to answer to both inner and outer contexts (Pettigrew

1985). The outer context can be conceived of as exogenous events, processes, structures, and

social rules that circumscribe yet not determine organizational action. This would include the

cultural dimension (e.g. Hofstede 1980), the socio-political environment and tradition (e.g.

d’Iribarne 1993) as well as the different business systems in which managers are formed and

where they operate (e.g. Lane 1989 and 1995; Whitley 1992; Whitley and Kristensen 1997).

The inner context can be understood as the values, vested interests, enacted views and

patterns of action connected to the existing organization structure (cf. also Nelson and Winter

1982). Like the outer context, this inner context also circumscribes, yet does not completely

determine action.

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Carriers of knowledge, such as consultants, primarily operate in an outer context as seen from

the organization level. Consultants appear as a media through which the cognitive rules and

rationalities of the outer context are (re)produced and transmitted. The raw material for their

production activity will often be found in the inner organizational context, however (Dowd

and Dobbin 1997), and in the face of resistance in organizations the consultant may also be

tempted to accept redefinitions of the problem at issue presented by the organizational actors

(Jackall 1988). Yet, external advisors cannot be completely embedded in the internal context

(cf. Kipping and Armbrüster 2002). Even if they can be used, they cannot become real players

in the organizational power game (Fincham 1999).

Similarly, organizational actors can be conceived of as primarily embedded in the specific

context of their organizations. Following Selznick (1957: 16-17), by taking on a distinctive set

of values ‘beyond the technical requirements of the task at hand’ – and understanding

institutionalization as a process that ‘happens to the organization over time’ - the organization

acquires a unique identity it strives to preserve. For management it is a vital role to define and

defend this identity. After all, as Stinchcombe (1968: 107) pointed out, an institution is ‘a

structure in which powerful people are committed to some value or interest’. If the

organization structure in fact is a neatly developed power structure defending the identity of a

powerful management, it must be expected that management, rather than adopt whatever

recipe is presented to them, will resist or otherwise make sure that structural changes do not

threaten their own status and power (cf. Willcocks and Grint 1997; Jaffe and Scott 1998).

Rather than assuming that the management in organizations is completely united, research

indicates that tensions may arise, for instance between (often) younger and lower level

managers and older and higher level managers because the former are more liable than the

latter to initiate changes that violate established strategies and structures (Kanter 1982;

Burgelman 1983). This was also discovered by Chandler (1962: 303) in his seminal work on

the invention of the M-form. Older and higher level managers are probably more prone to

value the privileges derived from long tenures (Stevens, Beyer and Trice 1978), the relational

context in homogenous and stable groups, isolated from their task environments (Katz 1980,

1982), and the established structure as an expression of their own creation (Gammelsæter

1991) than are lower level managers. Accordingly, organizational openness to restructuring is

more likely when organizations undergo top management succession (cf. Helmich and Brown

1972, Tushman and Romanelli 1986, Ford and Baucus 1987, Wiersma and Bantel 1992,

- 19 -

1993). New top managers are often expected to create their own management teams, new

patterns of formal interaction and new values and norms to be built on.

Thus, rather than assuming that a united management is persuaded by eager consultants to

adopt and implement ‘new’ management knowledge, it is suggested that the pattern of

interaction between consultants and management, and the influence of the first on the latter,

also depends on the power structure of the inner context. A general proposition would be that

the influence of consultants will be greater, and the interaction across contexts tighter in times

of instability in the inner power structure. Destabilization often leads to changes in

management and is itself caused by the inability of organizations to meet performance

requirements or by the publicity of events that bring the standards of ethics, security, quality

or environment etc. of organizations into question. At other times, the replacement of top

managers follows natural incidents like retirements, illness or deaths, or strategic actions like

acquisitions or divestments that are so commonplace in business world of today. This

suggests that the inner context is at its most malleable when it is destabilized and new

managers are taking power. In such situations the interface between the inner and the outer

context is being reshaped. The new management often has no need to identify with former

strategies or structures. On the contrary, with new management in office, stakeholders often

expect changes. As a consequence, in periods of destabilization, institutionalized inner

contexts are weakened and representatives of the outer context can be expected to have great

influence on the choices of management. This does not mean, however, that these changes

will take hold automatically or easily, because new managers might find it difficult to

implement them (cf. Kipping and Armbruester 2002).

But interaction between organization management and consultants will not only occure in

times of organizational instability. They are also commonplace in times of inner context

stability, because management knowledge is often presented in guises of rationality, and as

‘neutral’ with respect to the existing top management, However, in these situations we would

expect management to translate the suggestions of consultants in such a way that their

implementation is not violating the power structure of the inner context. This means that the

influence of consultants will be less immediate and more circumscribed by the values, norms

and vested interests of the institutionalized organization.

- 20 -

Thus, in this report, we attempt to understand how the interaction between the pressures and

constraints emanating both from the outer and the inner context have influenced the decisions

of European managers in terms of adopting and implementing new organizational practices.

1.3 Focus, Methodology and Structure of the Report Thus, this report will investigate to what extent European organizations have adopted similar

management models or organizational templates, what role consultants have played in this

process and to what extent these templates were modified to fit with the external (namely

national) context in which these companies were operating and their own internal power

structure. Overall this should enable us to reach some conclusions about the possible

contribution of consultancies to the creation of European management practice.

Two main types of research methods were used to explore these issues. The examination of

the adoption of management innovations in European companies relied mainly on survey

methodologies, based on questionnaires and/or semi/structured interviews. Two groups of

countries were studied:

(1) Britain and Germany, both highly industrialized, but with very different to a certain

extent almost opposite business systems, namely in terms of regulation. As our

previous research has shown, both countries were among those with the highest degree

of consultancy use (‘consulting intensity’) in Europe. They displayed nevertheless

significant differences in terms of the concentration of the consultancy markets, with

Germany showing a significantly larger share of smaller and medium-sized

consultancies.

(2) Spain and Portugal, countries which were much less industrialized, but have been

catching up with the rest of Europe during the last decade of the twentieth century.

While similar in terms of business culture, they differ considerably in terms of the size

and, to a certain extent the orientation of their economies. Consultancies developed

late in both countries, but foreign service providers have made significant inroads

recently, especially in Spain

The second part of this report consists of in-depth case studies, examining the interaction

between consultants and client organizations in the adoption of new management practices.

These case studies cover a wide variety of management models (namely the decentralized M-

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form, post-merger integration, human resource management and TQM), a broad range of

activities (from both the private and public sector) and many European countries. While not

representative strictly speaking, this variety should make it possible to gain some more

general insights in the interaction between consultants and their clients in the process of

organizational change and its outcome.

Research for each of the case studies (or sometimes multiple case studies) has relied on

different methodologies, including the exploration of internal (confidential) records or

published documents as well as face-to-face interviews and participant observation. Each of

these methodologies has their advantages and disadvantages. Thus, the more historically

oriented, archive-based studies can rarely include the present situation (for reasons of

confidentiality). But at the same time, they can have a fairly clear view of the actual outcome

of the client-consultancy interaction. By contrast, interview- and participation-based studies

usually examine a process which is still ongoing and where the result will not be known for

some time to come. However, they make it possible to capture this process at a level of detail

and insight which it is not possible to achieve with studies solely based on written material.

Once again, the combination of a wide range of case studies, based on a wide variety of

research methodologies should make it possible to reach some more general conclusions

regarding the role played by consultants in the adoption and/or adaptation of similar templates

across European organizations.

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2 Surveys of Management Innovations in Europe 2.1 Introduction (Celeste Amorim and Matthias Kipping)

There has been an increasing awareness that many of the critical success factors that underpin

a firm’s competitiveness are modern management practices. Compared to previous decades,

in the 1980s and 1990s there has been rapid succession of management “recipes” which have

become increasingly broad and intangible. The adoption of innovations is highly dependent

on firm specific factors. These affect on only the decision to innovate but also affect the way

firms innovate, i.e. how they integrate internal and external knowledge available from outside

its boundaries. In addition, and despite arguments of an increasing international

homogenisation of managerial practices, the adoption of management innovations cannot be

detached from underlying national context in which firms operate. These contextual variables

underpin the drivers and obstacles for change at firm level.

2.1.1 Management innovations as ‘new’ resources

In the 1990s there was a fundamental change in the dimensions of management models.

Compared to previous decades there was not only a rapid succession of different management

innovations, but they also became increasingly broad and intangible, going beyond production

and production-related functions. These affect all the functional areas of the firms, and

include firm governance and control. They also include internal and external interfaces with

the environment, having a crucial impact on firms’ ability to create, develop, identify, absorb

and use internal and external knowledge. Management aspects are thus understood as the

intangible dimension of innovative capacity of the firm. In a context of increasing

competition, a firm’s capacity for continuous change –and the management aspects

underlying it– are increasingly important for creating and maintaining competitiveness.

Management practices are highly firm specific. Yet, they are also rooted in national system of

innovation, as can be seen from studies in evolutionary institutional economics. These studies

made significant contribution to a systemic and path-dependent view of the innovations. They

are understood as the result of cumulative interaction and learning processes involving

different actors, constrained to the institutional and socio-cultural context in which the actors

are embedded. The systemic conditions have a substantial impact on a firm’s capacity to make

- 23 -

innovation decisions and on the kind of innovations they introduce. The emerging knowledge-

based view of the firm has also revitalised interest in the means by which firms acquire

knowledge from outside the firm’s boundaries (Nonaka 1994). Within the growing sources of

management and organisational knowledge, and of growing policy significance are

management consultants (cf. Havelock 1969; Barley and Kunda 1992; Fridenson 1994;

Guillén 1994; Bessant and Rush 1995). Their empirical-analytical capabilities and the

dissemination of knowledge among consultancies own staff across continents, countries,

industrial sectors and functional domains are assumed to provide the supply of information

necessary for successful strategies and change processes of their clients, including on the

introduction of technological innovation (Hansen et al. 1999).

Thus, there is a strong case for mobilising this resource within the framework of regional and

national policies designed to promote development of new competencies (e.g. technological),

especially in the case of small and medium-sized enterprises (SMEs). Indeed, governments

increasingly got actively involved in some way in supporting management and organisational

innovation using the most diverse mechanisms. In addition to the traditional package of loans

and subsidies for investment, they adopted complementary instruments; one of these has been

the increasing use of consultants as part of an emerging strategy of technological competence

building at a national and regional level. There has been several attempts from different

European governments to involve the consulting sector, leading to an increase in consultancy

use even amongst SMEs, traditionally less open to the use of external consultants (Bessant

and Rush 1995; Bryson 1997). Initiatives have been taken on both the demand and supply

side. A typical example of the kind of consultancy-based schemes now operating in many

countries is the UK’s Enterprise Initiative launched in 1988, or the business link initiative

launched by DTI in 1992. In this regard, Bessant and Rush (1995) summarised the major roles

played by consultants as part of large promotion and diffusion policy programmes, ranging

from capability building to decentralisation of operations.

Behind the general trends, consulting use largely depends on the culture of the organisations,

internal politics, nature of the expertise required and so. And these also differ across national

contexts. Thus, comparative studies on the characteristics of their activities are of great value

and timely. Important differentiating characteristics are related to type of service providers,

areas of expertise, barriers on implementing changes during consulting assignments and

evaluation of their of their activities.

- 24 -

2.1.2 Characteristics of management innovations

Management innovation is a much broader concept than technological innovation. It can be

understood as a significant change in strategy, structure and processes of an organisation,

which can vary in its scope (from one to all management areas. It thus has a multidimensional

character. Some firms engage in significant management change introducing in simultaneous

a number of management innovations. In this line, management innovation can be

differentiated accordingly to its scope. The scope is “narrow” if the innovations covered only

a limited range of management areas. Management innovation with “broad” scope indicates a

comparatively broad range of managerial areas. A broad scope change might depart

significantly from current firm practices, reflecting what Normann (…) termed “radical”

innovation.

The adoption of an innovation is a choice made by a particular firm. It follows that differences

between firms may have a potentially important role to play in explaining patterns of

management innovation. Thus, one first aim with many innovation models is to identify

interesting and relevant firms characteristics which impact on innovation adoption (Rogers

1962; Geroski 2000). Firm size turns out to be a very commonly explored variable in the

empirical literature on diffusion literature. Specifically concerning management practices,

firm size has been found positive related to adoption of new employment involvement

practices (e.g. Lawler et al. 1992), BPR (Newell et al. 1999) and M-form (Fligstein 1985;

Whittington and Mayer 2000) for example. Yet, the link between size and organisational

innovation is not so clear-cut. As argued by Hannan and Freeman’s (1984) population-

ecology theory, as organisations grow, the potential costs of change also grow implying

structural inertia. Similarly, their perspective argues that as organisations age they tend

towards structural inertia. Insofar as the Hannan and Freeman argument is applicable to

innovations such as BPR and TQM, one would expect younger and smaller firms more likely

to adopt management innovations than older and larger ones.

Company business is also expected to influence innovation. Chandler (1962 and 1990) as

argued that certain industries were more likely to adopt the M-Form for example. Certain

industries are more prone to diversification strategies, and this will lead them to adopt the M-

Form. Most innovations considered in the thesis have traditionally been applied in

- 25 -

manufacturing organisations and have only recently begun to influence service organisations.

Quality management is a case in point (Benson et al. 1991) in this regard. Nonetheless,

Newell and colleagues (1999) found high adoption rate of BPR in service industries than in

manufacturing for example. Firms’ international exposure (e.g. MNEs subsidiaries) has been

also pointed out as an important distinct variable for innovation (Lindvall and Pahlberg 1998;

Veuglers and Cassimano 1999). Due to their organisational complexity and intra-MNE co-

ordination practices, subsidiaries of MNEs are more exposed to a broad range of external and

internal stimuli. Supposedly, they are also endowed with ample resources to fund their

activities, and hence have the capacity to innovate more. Finally, macro national

environmental differences impact on diffusion of innovations (Nelson and Winter 1982;

Abrahamson 1996; Robertson 1996; Casper and Hancké 1999).

2.1.3 Integrating external management knowledge

The supply of management advice has expanded rapidly, leading to the emergence of a large

variety of consulting providers, ranging from the large international to the domestic

consultancies, individual consultants and even others such as public, professional and

academic institutions (EU), some of them sponsored by the government. The international

consultancies seem to have been the main beneficiaries from the development of the

consulting business. The new business environment combined with their aggressive market

approach lead to astonishing expansion and development of their businesses over the 1980s

and 1990s.

However, there is also the case that domestic markets are characterised by the presence and

relevance of domestic consultancies, either large or small, some one shop man. They coexist

with large international consultancies (EU 1986-92; Tordoir 1995; Armbrüster and Kipping

1999). From the demand side perspective, it has been suggested that a dual economy might be

emerging, with SMEs using mainly small and medium domestic consultancies (SMC) and

large and MNEs firms using mainly international consultancies (Tordoir 1995). Country

characteristics may also interfere with the use and assessment of consultants. Despite an

increasing homogenisation in terms of consultancy markets, country specific conditions are

still important. On the one hand, demand side conditions are affected by economic cycles,

country specialisation and tradition in the use of consultants. Tordoir (1995) argues that

tradition is the main explanatory variable explaining the low level of use of external support

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in Germany. On the other hand, characteristics of the supply should also be considered. The

supply of management consultancy developed in different countries with relative time lags,

and enjoyed different levels of reputation across countries (Kipping 1996 and 1999; Kipping

and Engwall 2002). As a result, the dominant players in each market may also differ (Kipping

et al. 1998).

Consultants may be playing distinct roles on the management innovation process. One the one

hand they can play the conventional roles of “experts, extras or facilitators” (Tisdall 1982). In

this perspective their role ranges from pure catalysts for change to fully implementers of

innovations and/or auditors. They can stimulate innovation by presenting new management

ideas to potential customers in seminars, demonstration session, publications for example.

Managers might also decide to introduce some managerial innovations following training

provided by consultancies for instance. In many circumstances consultancies can also be

employed as “analysts” to provide a mere diagnosis on a particular issue (e.g. QAS compared

to standard norms, HR evaluation, company SWOT analysis). Otherwise, consultancy

assignments can be very similar to an “architect’s” job (Tordoir 1995). In this case the

consultant suggests changes and drivers for action, and might even plan the implementation.

However, the client decides and presides over the implementation process itself. A more

ambitious service is that in which the consultant acts as “doctor of management” (Nees and

Greiner 1985) getting actively involved with the implementation of managerial innovations.

The consultant sits next to the client in designing and controlling the assignment, and ensures

that its suggestions are indeed going to be implemented. Especially in this case there is

normally a rich interaction between external and internal staff and knowledge transfer might

be more effective. Finally, firms can also use external consultants for post-implementation

auditing purposes.

Yet, criticisms to consultants work flourished, and public policies promoting their use have

been increasingly challenged (Micklethwaite and Wooldridge 1996; Bennettt and Robson

1999; cf. also above). Amongst the numerous factors affecting decisively the consulting

assignment are those related internal barriers for change during the assignment. Change

programmes not only affect companies’ systems and procedures but also their people

(Gilgeous and Chambers 1999). Firms’ activities are of routine type (Nelson and Winter

1982; cf. Kipping and Armbruester 2002) and difficult to change. On the one hand, there is a

natural internal resistance to change due to inertia and “not-invented here” syndrome. On the

- 27 -

other hand, consulting assignments may fail due to lack of absorptive capacity, i.e.

capabilities to learn, interpret and implement knowledge and practices induced by consultants.

Another factor concerns client managers’ commitment to the project. They are the ones that

ultimately have the capacity to introduce changes. Indeed, the lack of client involvement has

been often found critical for the success of any consulting assignment. In addition,

coordination within the project team is also a critical factor (Tordoir 1995; Shapiro et al.

1993).

A final issue concerns the evaluation of consultants’ job. This however it is not an easy

neither objective analysis. “The outputs of business service advice and use of information are

a change process, not an instantaneous transfer like the purchase of a good” (Bennett and

Robson 1999, referring to O’Farrell and Moffat 1991). The outcome is often long-term,

inherently intangible, and its effects difficult to separate from other influencing factors. Thus,

we focus our evaluation here on clients’ satisfaction with several issues of past consulting

experiences. This type of methodology has been used in previous studies, such as those

evaluating the services from business shop and business connect services in the UK (Bennett

and Robson 1999). Satisfaction offers considerable advantages over impact assessments

because it does not require control and comparison groups (cf. Bennett and Robson 1999,

referring to DTI 1997).

Investigating management innovation and the role of consulting advice is thus arguably of

central importance for understanding contemporary economic change. The issue is of greater

importance from the point of view of peripheral economies urging to catching-up in terms of

new management and organisational forms. Yet, the issue has been empirically analysed

mainly within the most developed economies, while lesser developed economies remained

largely overlooked by scholars. The following parts of this chapter will therefore report on

surveys of management innovations during the 1990s, in two of the most developed European

economies (Germany and Britain) and two of those which have been catching up during the

same decade (Spain and Portugal).

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2.2 Germany and Britain (Simone Strambach) 2.2.1 Introduction1 The aim of this chapter is to analyse the effects of the different systemic socio-economic

contexts, which shape the national and regional innovation systems, on the processes of

interaction and learning in relation to organisational innovation in firms.

The German and the British systems have different patterns of economic structures, industrial

relations, research and education and training systems, labour market institutions, and

governance structures. A comparative study of organisational innovations in Great Britain and

Germany is interesting because this type of innovation would appear to have been introduced

earlier in the British system. Many of the models for organisational innovations in the 90s,

like lean management or business process reengineering, originated in North America and

were imported from into the European countries. The big international consulting firms

played a major role in this process (Eims 1996). There is plenty of evidence which suggests

that organisational ideas were taken up first in Britain. The similarities in the innovation

systems of the Anglo-Saxon economies (Porter 1991) and the fact that the countries are socio-

culturally close have probably been contributing factors here.

International comparative studies have shown that the absence of organisational innovations

in Germany contributed to the loss of competitiveness and innovativeness in the early 90s.

Because of the path dependence of learning processes and the inertia of institutionalised

structures, it is very difficult to reconstruct existing organisational structures and processes. It

seems that, in the past, the institutional arrangements of the national system reinforced the

focus on technological reorganisation at the firm level and this meant that the non-technical

potential for increasing productivity, such as firm and work organisation , was not sufficiently

exploited (Bender 1996, Dreher et al. 1995, Priewe 1997). Drawing on empirical studies of

industrial companies, Meyer-Krahmer (1999) speaks of ‘organisational conservatism’ when

referring to management that is unwilling to adopt new concepts.

1 The author is grateful for the financial support of the Federal German Research Association (DFG) as part of the research programme ‘Technological Change and Regional Development in Europe’. Particular mention should be made of the help given by Dr. Matthias Kipping, University of Reading, for his support with the collection of data in the UK and for the fruitful discussions at the empirical stage of the project.

- 29 -

With this as background, the present study considers two questions.

- What differences can be established between the innovation patterns of firms in the two countries? and

- To what extent are these differences rooted in the systemic conditions of the different innovation systems?

The chapter reports the empirical results of a survey of firms in the two countries, examining

differences and similarities in organisational innovation patterns. The relationship between the

institutional environment and the innovation processes of the firms is analysed. The focus of

the final section is on the policy dimension and some implications for innovation policy

which follow from the empirical results.

2.2.2 Sample and methodology

The structural difference between the areas of the study - the Stuttgart region in Baden-

Württemberg in Germany and the Greater London region in south-east Britain – was the

reason for their selection. Stuttgart, whose structure is still dominated by industry, is

representative of the German innovation system; the service economy of the London region is

representative of the advanced structural changes in the British economy.

Table 2.2.1 Response rate

Stuttgart region (absolute)

London region (absolute)

Total (absolute)

Questionnaires 27 23 50 Interviews∗ 21 22 43 Total 48 45 93 Net-Sample 141 147 288 Reply rate % 34.7 % 30.6 % 32.3 %

∗ In addition to the interviews with the companies, 11 further interviews were conducted with intermediary institutions in both countries. Source: own data A mixed method with two instruments was used to analyse the question in the survey. First, a

standardised written questionnaire was used in both countries to obtain primary information

about organisational innovations that took place in the 90s. In a second step, qualitative face-

to-face interviews with firms, politicians and intermediary institutions were carried out in both

countries.

The firms were selected using the ‘theoretical sampling’ method. A statistical probability

theory sampling procedure could not be used as there are no data sources, either for Germany

- 30 -

or for Britain, which contain valid information about the implementation of organisational

innovations and therefore could allow the parent population to be determined. This is why

representativeness could not be the criterion for inclusion in the study as it was in the case of

the quantitative method. Instead, the criterion had to be how suitable the cases were for

answering the theoretical questions. The present study used two criteria for the inclusion of

firms – the branch and the size of the firm. Firms were chosen from the branches typical of

the respective regions in both the industrial and service sectors. A minimum firm size of 150

employees was set because organisational innovations are mainly important for the larger

firms. The particular structures of small and very small firms means that their organisational

problems can be solved often on an ad hoc basis.

Table 2.2.2 Response by sectors

Stuttgart region London region Total Sectors absolute % absolute % absolute Manufacturing Industries

30 62.5 22 48.8 52

Service Industries

18 37.5 23 51.2 41

Total 48 100 45 100 93 Source: own data 2.2.3 Number and types of organisational innovations implemented

The organisational innovations of the nineties, such as total quality management systems,

implementation of process oriented re engineering, or empowerment of units of the firm, are

changes which do not focus only on technological optimisation of the firm’s material

transformation processes. Essentially, these kinds of innovation alter the interaction and

communications relationships within the firm and at its interfaces with the environment. The

particular kind of firm organisation influences the way external and internal know-how

resources are integrated, how the linking of competencies and their applications take place.

Organisational innovations therefore influence the learning capacity of the firm. As the results

of the survey show, this kind of innovation is increasingly relevant for the firm’s ability to

adapt to the rapid changes in its markets and environment and to increasingly intensive

international competition. In the years from 1989 – 1998, the firms in both countries made a

major organisational change every two to three years, which corresponds to an average of 4.3

changes implemented by each firm. There are no significant country-specific differences in

the number of organisational innovations implemented between Germany (4.5 changes on

- 31 -

average) and Great Britain (4.1 changes on average). In both countries, only 2.2% of the firms

had carried out none of the organisational restructuring measures listed in figure 3.1.

Fig. 2.2.1 Percentages of organisational changes implemented (own graph). Differentiating the projects implemented by type of organisational innovation shows that the

most common innovation is the introduction of a total quality management system (TQM).

84% of firms in the sample have now changed their organisation to focus on quality. This

means here we can speak of a change that is already well established. Priorities in both

Germany and Great Britain in the 90s were total quality management systems (TQM),

followed by lean production/lean management, downsizing, and process oriented re-

engineering. The components of these measures are rather similar and include customers

orientation, full understanding of quality, orientation towards processes, decentralisation of

decision making and communication structures, and development of human resources in order

to increase performance. It can be concluded that both countries consider the same

organisational principles appropriate for increasing the adaptability and productivity of the

firms in the present period of structural change.

0 10 20 30 40 50 60 70 80 90

[in %]

Others

Merger and Acquisition

Making unitsindependent

Outsourcing

ContinuousImprovement (CI)

Group and Team Work

Re-engineering

Downsizing

Lean Management/Lean Production

Total QualityManagement

- 32 -

The interviews with the firms showed that, in both Britain and Germany, organisational

changes in the firm do not only take place sequentially, they are also sometimes carried out in

parallel. It is often a case of ‘both at once’ rather than ‘either or’. Firms link and combine

different organisational restructuring principles, e.g., TQM with process oriented re-

engineering and downsizing. Different models are often used in different parts of the same

firm and these are sometimes based on contradictory principles so that their effectiveness is

reduced. Moreover, the people in the firm who are responsible for the changes interpret and

implement the models differently. Firms can implement TQM as a higher level framework

within which a process of change affecting the whole firm takes place or they can introduce

TQM as a subsidiary concept within a much more comprehensive innovation concept (e.g.,

lean management).

A major finding of the study therefore is that the importance and content of individual

organisational innovations are determined by the firm-specific context in which they are

introduced and applied. Compared to technological innovations, which for maximum

performance are also adapted to the individual company, organisational innovations are to a

much higher degree social constructs, whose content has to be seen as context dependent.

Organisational innovations therefore cannot simply be imitated or copied from other firms.

This can also explain why their diffusion and implementation is often so difficult.

2.3.4 Motives for organisational innovations

There are many reasons why the firms surveyed implemented organisational innovations.

However, in all cases, the trigger was a crisis situation, which could differ in quality, and have

different causes, but which nevertheless was seen by the firms as a crisis and a problem

situation.

Management and organisational research has shown that the processes of organisational

learning and innovation are, on the one hand, introduced as a reaction to external

environmental changes and the resulting insecurity, but that, on the other hand, factors

internal to the organisation can also be responsible for their introduction (cf. Chandler 1990,

Dodgson, 1993). In many cases, internal and external factors influence one another and are

- 33 -

closely interrelated. One main point emerges clearly when firms talk about the problem

situations they see as inducing change.

Problem situations internal to the firm obviously were less frequently given as the reason for

organisational learning processes than external factors were. Increasing competition and the

serious economic recession at the start of the 90s were given by the firms in both countries as

major reasons for introducing organisational adaptations. In most cases, changes were made

necessary by tougher competition, shrinking markets, a declining customer base, and the

resultant fall in earnings. In addition, there was increasing pressures on prices caused by

international competition. Quantitative economic indicators, such as sales revenue and profits,

were what made most of the firms aware of the existence of a problem situation which made

changes necessary.

Customers’ new requirements provide the second important external incentive for

organisational innovations, especially for supplier chains. This applies particularly to quality

related innovations. Customers, directly or indirectly, encourage their suppliers to set up

particular quality control systems in their organisations. These can include quality control by

certification according to ISO 9000 or systems defined by the customers themselves. The

automobile industry, which appears to exert considerable pressure in this direction on its

suppliers, is a key branch in this respect. This was found to be the case in both Germany and

Britain. In the Stuttgart region, the demands of the car manufacturers were a major reason for

the implementation of quality management systems by firms in the electronics branch and in

the mechanical engineering branch which produce specialised machines for the car

manufacturers. The suppliers in Great Britain, who in many cases had already met the British

quality standard (BS 5750) by the late 80s, cited pressure by their most important customers

as the reason why, in order to obtain this certification as well, they introduced standardised

control systems corresponding to the international standard ISO 9000.

This shows that it is mainly pressure from the organisation’s environment that makes the

necessity for organisational changes and innovation apparent. As this pressure increases, so

too does the willingness to change. This is illustrated by a machine tool manufacturer in the

Stuttgart region, which as late as 1998 did not have a standardised quality management

system as part of their organisation. The reasons given for this were as follows:

- 34 -

Our international competitors are not yet certified, and our customers do not yet demand certification, otherwise, we’d have to catch up. The strength of our company is our international market presence and our structures have been neglected so far, i.e., there have been few organisational changes. However, we do have a problem in that many interfaces are not efficiently integrated. (Interview_D: 19).

The company supplies a niche market and 99% of its sales come from the export of customer-

specific machines to Asia. The company’s positive economic situation means that it is not

willing to introduce organisational innovations, even though internal problems are seen to be

quite important. This result accords with a pilot study of the international transfer of

organisational innovations. The study makes the general observation that firms which had

some awareness of a crisis situation were more open to implementing the processes of change

(EIMS 1996, p. 85). The interviews showed not only that external pressure is the

trigger/stimulus for learning processes, which could be called adaptive learning, they also

showed that this organisational processes of learning and innovation stimulated differ in their

depth and intensity.

2.2.5 Internal and external knowledge in organisational innovation processes Firms largely rely on external expertise for the complex learning processes associated with

organisational innovations. In both countries, 80% of the firms which participated in the

written survey used external knowledge to different degrees and from various areas of

knowledge in the implementation of organisational innovations. The percentage was even

higher for the participants in the interviews. By far the most common way of obtaining new

knowledge is to ‘buy’ expertise primarily from private knowledge-intensive service firms and

this results in a transfer of knowledge between the consulting firms and their clients. By

contrast, relatively few firms in Germany or in Britain acquire external knowledge by

employing specialists who have the innovative know-how and experience with the processes

of organisational innovation.

Universities and research and technology organisations are seen as the important actors in

innovation systems. Differentiated technology and knowledge transfer institutions are

characteristic of the innovation systems in both the countries.

Table 2.2.3 Firms’ external knowledge sources in organisational innovation processes

- 35 -

External institutions Number of cases

%

Private knowledge-intensive business services 40 80 Public/semi-public institutions 9 18 Private and public institutions 9 18 Private institutions only 31 62 Public institutions only 0 0 Private knowledge-intensive business services belonging to the own firm group

8 20

No external knowledge 10 20 Source: own data There are many different research and technology institutions which carry out a wide range of

tasks and services including basic research, technology transfer, and applied research. In

Germany, these intermediary institutions have a long tradition and are mainly industry and

technology oriented. Numerous regional science studies have shown that the widespread

decentralised knowledge and technology transfer structure in Baden-Württemberg is a major

strength of the regional innovation system (cf. Cooke/Morgan 1994, Pyke/Sengenberger

1992). In the research area, universities , technical universities Max-Planck Institutes and

Fraunhofer Institutes are considered to be the most important actors at the local level. In the

area of technology and knowledge transfer, the Steinbeis Foundation, the German Economy

Rationalisation Committee, and the Chambers of Industry and Commerce are the important

actors.

Since the end of the eighties efforts have also been made in the UK and a number of

organisations has been created whose task is to support at the local level the capacity of firms

to innovate (cf. Bennett/Wicks/McCoshan 1994). The institutions cover research and

technology transfer and also provide support in the fields of training and management issues.

Universities, colleges, business schools, government laboratories, business links, training and

enterprise councils (TEC’s), and enterprise agencies were identified as functionally equivalent

institutions in the UK.

The firms were asked about their utilisation of, and participation in, these intermediary

institutions in order to discover the role they played in organisational innovation processes. In

Table 2.2.3, the answers relating to the different intermediary institutions and organisations

were aggregated under the heading of public and semi-public institutions. Knowledge

obtained from public and semi-public institutions seems less relevant for firms’ organisational

innovation. None of the firms surveyed, in either the Stuttgart or London regions, had had

- 36 -

assistance only from public or semi-public institutions. A number of firms used this assistance

in conjunction with that from private suppliers, in most cases as part of certification

processes, because the certificates are obtained from these institutions (cf. Table 2.2.3). Public

institutions play a minor role in the intermediation process and thus in the transfer of

knowledge. Knowledge transfers in the context of organisational innovation processes mostly

take place in the private market, directly between the customers and the knowledge intensive

service firms.2 One reason is certainly that, with organisational innovations, what is needed is

not primarily pure technological knowledge, other areas of knowledge in the fields of

economics and the social sciences are also important for innovative problem solving. The

close connections the firms surveyed have with the external knowledge-intensive service

suppliers shows how very relevant external expertise and competencies from different areas

of knowledge are for organisational innovations. It is not only business and management

consultants whose competence is in the organisation and management of firms who

participate. So too do knowledge-intensive service firms from other fields of knowledge.

These include firms which can provide external knowledge in data processing, training and

further education, and technical engineering (cf. Table 2.2.4). The knowledge required, which

goes beyond individual disciplines and fields, cannot normally be obtained from public

institutions.

Table 2.2.4 Use of external knowledge-intensive services Area of knowledge Absolute % Organisation and Management 22 56, 4 Data processing 16 41, 0 Further education, training 11 28, 2 Technical engineering services 10 25, 6

Source: own data These indicators show the multi-dimensional character of organisational innovations, the

interdependence of organisational and technological changes and the resulting higher

demands on employees. Various external firms are involved in the projects, which take on a

wide range of different roles and the functions associated with them. The set of roles ranges

from information suppliers, and catalysts who mobilise internal sources, to diagnostic,

training, and process associated functions. These roles are normally filled by different

suppliers but they can also be filled by a single consulting firm which switches roles in the

2 Current studies of technology transfer in Germany in general also show that these take place mostly between the customers, the technology using firms, and the suppliers, where the suppliers of technology are mostly other firms(cf. Rheinhard/Schmalholz 1996).

- 37 -

course of the innovation process. The number of external service and consulting firms

involved depends on the extent and scope of the projected changes and also on the size of the

firm and the organisation-internal knowledge. Table 2.2.5 provides a general outline of the

extent to which external firms are involved. Above all for large companies, and company

wide changes, the range can extend to more than 20 external knowledge carriers.

Table 2.2.5. Number of external knowledge-based service companies Number of external companies

Number of occurrences

%

1 to 2 cases 13 44.8 3 to 4 cases 11 37.9 5 to 10 cases 3 10.4 11 to more than 20 cases 2 6.9 N* 29 100.0

* 11 of the 40 companies who used external service companies did not indicate how many. Source: own data The number and the different branches and fields of knowledge of the external firms involved

show the complex interaction and communication processes associated with organisational

innovations which occur within and between firms. The kind and amount of external

knowledge required often shows up only during the innovation process. A detailed analysis of

the learning processes is beyond the scope of this paper. However, it can be said that there is a

large variance in the results for the same organisational innovation in different firms, both in

the Stuttgart and the London regions. It is obvious that the quality of the results is strongly

influenced by the quality of the interaction and learning processes which occur during

implementation. The results of the organisational innovation projects are determined by the

quality of the two main actors – the customer and the service firm. The competence and

experience of the latter is important, but so too is the ability of the customer to use the

external knowledge and to integrate it into its own organisation and, not least, the ability of

both actors to design the interaction process.

2.2.6 Differences in organisational innovation patterns A lack of organisational innovation proved to be a crucial factor in the loss of competitiveness

by German companies at the start of the 90s (cf. Naschold 1994, 1996, Braczyk 1994).

Various efforts were made to implement technical innovations but organisational innovations

were neglected, as is shown by comparisons between companies in the USA and Japan

(Jürgens/Naschold 1994, Schienstock 1997). International comparisons of the structural

- 38 -

changes at the macroeconomic level indicate that in Germany business -related service

functions, in particular, tend not to be transferred to outside firms. The significant difference

of Germany is not in its general services deficit, it is in the different institutional organisation

of business related service functions (DIW 1996, Strambach 1997a). The business services

segment is also under represented in Baden-Württemberg compared to the national level.

Even in 1997 Baden-Württemberg was not yet at the national level, its business services share

of employment of 5.5% was still a little lower. (Strambach 1997b, 1998). Empirical studies of

the outsourcing behaviour of firms in Baden-Württemberg conclude that outsourcing has only

taken place on a small scale and that a large potential outsourcing still exists (cf.

Zahn/Soehnle 1996). Substantial empirical research in main industry branches of Baden-

Württemberg point out that, by focussing mainly on technological reorganisation, the non-

technical potential for increasing productivity had long been neglected (cf.

Braczyk/Schienstock 1996, Cooke 1996, Morgan 1996).

Certainly, regional innovation systems are not simply small scale national systems because

they combine elements that are specifically regional, national and even international, but the

corresponding empirical indicators on the national and regional level let suggest, that the

framework of constraints and incentives of key national infrastructural institutional set up, the

industrial relations, the labour market institutions and the education and training system,

determine the innovation patterns of organisational innovations. Comparing the two countries

in this study in terms of the period in which TQM was introduced shows that 60% of the firms

which had begun to introduce this far reaching change before 1991, i.e. relatively early, are

located in Britain. Moreover, at the start of the 90s, more British firms than German firms

were implementing TQM. Only in the second half of the 90s did German firms have a larger

share (cf. Figure 2.2.2.). These results show that firms in the London region implemented

TQM earlier than those in the Stuttgart region.

- 39 -

Fig. 2.2.2 Percentage of companies in Germany and Great Britain, which have implemented Total Quality Management (TQM) in the 1990s (own graph) There are significant differences between Germany and Great Britain in the way three kinds

of organisational innovation are implemented - The introduction of cross-functional group and

teamwork, process oriented re-engineering, and outsourcing (cf. Table 2.2.6). The largest

difference was noted in the area of organisational changes related to outsourcing. More than

87% of the firms which introduced outsourcing in the 90s were German, while only 12.5%

were located in Britain.

Table 2.2.6 Organisational innovations implemented in Germany and Great Britain

Projects Germany Great BritainOrganisational innovations Total % %

Total Quality Management TQM

42 52.4 47.6

Continuous Improvement systems

22 50.0 50.0

Lean Production/ Lean Management

29 55.2 44.8

Downsizing 27 55.6 44.4 Cross-functional group and teamwork

23 60.9 39.1

Process-oriented re-engineering

25 60.0 40.0

Making units independent 14 50.0 50.0 Outsourcing 16 87.5 12.5

100

0

10

20

30

40

50

60

70

80

90

Before 1991 1991 and 1992 1993 and 1994 1995 and 1996 1997 and 1998

TQMGermany

TQMGreat Britain

- 40 -

Mergers and Acquisitions 14 42.9 57.1 Others 5 80.0 20.0 Total Projects 217 57.1 42.9

Source: own data There are numerous indicators which show that the difference observed is the result of the

firms in the Stuttgart region catching up. Looking at the years in which outsourcing was

implemented, it is obvious that none of the German firms in the study made this kind of

organisational change in the late 80s. 1993 is the earliest year mentioned for outsourcing by

the German firms in the Stuttgart region. Further evidence can be deduced from the

organisational structures of the firms. 68% of the firms which had an above average number

of internally differentiated functional areas were German and less than a third were British.

The proportion of German firms that implemented process oriented re-engineering projects is

20% higher than that of British firms. Here too, a catching up process seems to have taken

place. According to a survey by the Fraunhofer Institut für Arbeitswirtschaft und Organisation

(Fraunhofer Institute for Labour Economy and Organisation) only 5% of the firms surveyed in

Germany were implementing re-engineering projects in spring 1994. However, 45% claimed

that they were planning such projects and 50% were discussing possible projects (cf.

Bullinger/Roos/Wiedmann 1994, Fraunhofer Institut für Arbeitswirtschaft und Organisation

1995). The results of the present study show that, only four years later, the share of firms

involved in re-engineering had increased twelve-fold. It can thus be said that process

orientation as a basic principle of design and organisation had now become widely accepted

among German firms. These results also throw some light on the speed with which

organisational innovations have spread.

Organisational innovations generally take a long time. Even though the time needed to

implement projects is influenced by the extent and scope of the individual measures, it can

nevertheless be seen from table 3.7. that most projects took on average from two to three

years to complete. Picto/Böhme (1995), who examined business process re-engineering

projects, also found that, while in some cases more than four years were necessary, in general

the average period was two years.

There is a marked difference between the countries in terms of the time taken to complete

projects. British firms indicate significantly shorter implementation times for the different

- 41 -

organisational innovations. According to the average project times shown above, British firms

need six months less time for TQM and CI projects. For outsourcing and process oriented re-

engineering the times were respectively eight and seven months shorter. The biggest

difference between British and German firms is with the introduction of lean production/ lean

management. The completion time for these projects in Britain is more than one year less than

the average for the firms as a whole.

Table 2.2.7 Average time to complete projects for organisational changes Organisational innovations Duration in years

and months Total Quality Management TQM 2, 7 Continuous improvement systems CI 1, 8 Lean Production/ Lean Management 2, 8 Downsizing 2, 0 Cross-functional group and teamwork 2, 2 Process-oriented re-engineering 3, 1 Making units independent 3, 3 Outsourcing 1, 8 Mergers and Acquisitions 2, 3

Source: own data In summary, it can be said that by the end of the 90s there was no evidence, from the survey

or the interviews, that the German firms were still lagging with regard to organisational

innovations, at least from a quantitative point of view. The situation had clearly changed since

the discussion about their competitiveness which had dominated the early 90s. However, the

empirical results show that, with regard to the time dimension, the patterns of innovation in

the two countries are different. It is quite evident that the British firms adopt the

organisational innovations earlier, and the more rapid completion, which stems from the

shorter implementation stage, indicates that the organisational learning processes are

different.

From a systemic point of view firms’ organisational learning processes take place in the

interaction with their institutional environment. The question now arises of how much the

different innovation patterns in the two countries are related to the different socio-economic

frameworks and the systemic features of the innovation systems in which the firms are

embedded.

2.2.7 The Influence of institutional contexts

- 42 -

The different labour relations and labour market conditions faced by the firms in the two

countries provide one answer to the question of which factors are responsible for these

differences. In Britain the deregulated labour market allows organisational restructuring

measures to be implemented quickly and flexibly, although this often has drastic

consequences for employees. For example, this is shown by the following quote of the

manager of an industrial supplier for large electronics and telecommunications companies in

London:

Since much of value added in the current businesses is labour, we pay much attention to downsizing (or increasing) the workforce in line with the business cycles. Decisions in this respect are based on the forward order book. It allows a quicker reaction than the management accounts which only look at the past. Reducing the work force is relatively simple since those who have been with the company for less than two years only require one week’s notice. The notice period increases by one week for each subsequent year. Following the downturn in 1996, the company introduced lean management, by cutting three of the middle management positions. (Interview_UK: 8).

The conditions under which German firms operate are different because the laws which

govern the labour market, which provide protection from dismissal and the right of employees

to co-determination, limit the firms’ scope for action. The works councils have to be informed

about dismissals and have the right to be consulted about restructuring (cf. Ebbinhaus/Visser

1997). Extensive organisational innovations usually modify existing work rules, working

hours, and wage structures. The works councils have a co-determination right in these matters

and are required to participate as representatives of the interests of the employees. In contrast

to Great Britain, the institutional regulation of labour relations in Germany means that the

interest groups affected must be informed and negotiate an agreement before organisational

innovations can be implemented. This interaction process takes far more time than a ‘top

down’ strategy, where only the efficiency of the firm is considered, and more time than a

short-term market oriented strategy, that considers only the requirements of the market, both

of which the deregulated labour relations make possible in Britain.

Other explanations factors for the shorter implementation periods for organisational

innovations in Great Britain are the different work and management cultures, which have

been observed in comparative international studies of European business systems and

analyses of the respective corporate governance structures (cf., Becker/Vitols 1997,

- 43 -

Heidenreich 1998, Hickson 1993, Lane 1992, Soskice 1996, Whitley 1992,

Whitley/Kristensen 1997).

In Great Britain conflicts have traditionally been resolved to a much larger extent at the firm

level. The different institutional regulation of employer-employee relations means that

negotiations at the branch level are relatively unimportant. The system makes higher demands

on management in terms of its responsibility for human resources management. Involving

colleagues, dealing with opposition and conflict, and motivating workers, whose job mobility

is high, are abilities which have far more influence on the education and career paths of

managers in Britain than in Germany. The value of a general management education, which is

reflected in the institution of the ‘Business School’ shows that management know-how is

valued far more highly in the British system than in the German system.3 By contrast, in

Germany management is not considered to be an separate generally definable activity that can

be learned (Lane 1992, 1997, Heidenreich 1998). The results of comparative empirical studies

show that the organisation of work and the ‘management culture’ in Germany are influenced

more by specialised expertise, mostly technical and technological. Management as such is not

considered a specific function, it is carried out by managers who have mostly attained their

positions and functions in the firm by virtue of their technical qualifications (cf., Lane 1992,

Warner/Campell 1993).

These differences are particularly relevant for organisational innovations. Organisational

innovations require a far greater knowledge of management and social skills than

technological innovations do in order to initiate organisational restructuring processes and to

guide and accompany the different levels of the complex learning processes which cut across

functions and interfaces. Knowledge of economics and the social sciences is thus crucially

important for organisational innovations. The need to integrate social skills and management

know-how with technological education and training only began to be widely discussed in

Germany in the early 90s (cf. Mai 1994, Weber/Seltz 1994). Human resource management

has, in contrast, been an integral part of the British system for many years. These differences

in the work and management cultures, and the resulting differences in action orientation, must

be seen as explanatory factors for the shorter implementation times of the organisational

innovation projects.

3 For a historical view of German management education cf. Kipping 1998.

- 44 -

2.2.8 Conclusions and implications Organisational innovations are associated with complex interactions and learning processes

both within and between firms. Although the firms in the two countries consider the same

organisational principles, – customer orientation, full understanding of quality, process

orientation, and decentralisation of decision making and communications structures – to be

suitable for increasing flexibility and productivity, these have very strong firm-specific

features. The decision to introduce such an innovation is the starting point for learning and

adaptation processes at different levels and dimensions of the firm. At the end of the process

the organisational innovation implemented is often different from the model planned at the

start. The organisational learning processes connected with the changes ultimately not only

define the specific details of the innovation, they also determine whether the performance

potential of the innovation can be exploited.

A valid question can now be asked with regard to innovation policy. Is it necessary to include

organisational innovations as a factor in the development strategies relating to innovation

policy at the European, national, and regional levels? Interventions in the area of innovation

and technology policies in recent decades have focussed primarily on technology and research

intensive areas of the economy and on technological innovations. In the emerging knowledge

economy, value creation and competitiveness appear to be increasingly linked with the

production of new knowledge and access to, and the reconfiguration of, knowledge from all

over the world. Thus the ability to learn and to innovate is becoming crucially important even

for the traditional industries and the so-called low and medium tech industries (cf. OECD

1996, Lundvall/Borras 1997, Lundvall/Johnson 1994, Malmberg/Maskell 1999).

The intensification of international competition in the current situation of global structural

change and the associated external pressure on firms from rapidly changing market demand

and new demands from customers require the ability both to respond to change and to be

creative. This is one of the main reasons for integrating organisational innovations with

innovation policy strategies. They make an initially ‘intangible’ contribution to increasing the

ability of firms to innovate and learn. This is apparent in dimensions other than the classical

short-term cost oriented efficiency calculations. The strategic effects of reorganisation

measures, such as increased customer satisfaction, positive effects on employee motivation,

- 45 -

and the ability to react more quickly to qualitative market changes, are only realised in the

medium to long run. The large number of realised organisational measures in this study, and

also numerous empirical case studies (cf. Andreasen/Coriat/den Hertog/ Kaplinky 1995) show

the importance of these innovations for increasing the flexibility of firms and their ability to

react and adapt.

It is now clear that an essential task for innovation policy interventions is to create awareness

of how important and relevant organisational innovations are for the firms’ ability to learn and

to innovate and also awareness of the necessarily multi-dimensional character of this kind of

innovation. They are not only linked to organisational and technological changes in structures

and processes, they also have a definite sociocultural dimension. They require major changes

in the employees’ attitudes and behaviour. Especially firms which have only limited

experience with organisational innovations tend to overlook or underestimate the importance

of the necessary sociocultural changes for the success of the innovation, as this study shows.

It cannot be assumed that companies are aware that parallel development of strategy, structure

and culture, which are mutually supportive, is required for organisational innovation projects.

Here we have an important field of action for political actors – to increase the knowledge of

the importance of sociocultural innovation on a wide basis.

This leads to a further question. What kinds of measure are usually appropriate to promote the

initiation of complex innovation processes? Without going here into action concepts, it is

nevertheless obvious that the tasks go far beyond the present forms and instruments of

technology transfer and scientific- technical collaboration. The challenge for the political

actors is to initiate the firms’ self-organising and learning processes in the area of

organisational innovations. The different innovation patterns in firms in Great Britain and

Germany indicate that the systemic conditions in which the firms are embedded the different

country-specific industrial relations and labour market regulations, the different work and

management cultures, strongly influence the collective interaction and learning processes. In

contrast to the USA, Europe has a large variety of different national and regional innovation

systems. Measures to promote organisational innovations can only be effective if they are

adapted to the particular institutional context of an innovation system. Political actors could,

for example, develop institutional leading models which can document and disseminate the

importance of values. Stimulus for organisational learning processes can proceed from this

kind of leading model in the environment of the firm. They will be able to take on orientation,

- 46 -

motivational and co-ordination functions for firms in the context of complex organisational

innovation processes, and provide support for self-organising processes.

- 47 -

2.3 Spain and Portugal (Celeste Amorim) 2.3.1 Introduction The issue of management innovations and there adoption has been empirically analysed

mainly within the most developed economies. By contrast, catching-up economies remained

largely overlooked by researchers. For these reasons this chapter explores these phenomena in

the cases of Portugal and Spain. For historical reasons both countries remained relatively

closed to internationally popular management trends, but since the 1990s a major managerial

turnaround process seems to be in place. Various efforts were made in the post-EC accession

period to spur a necessary catching-up process in both economies. In a “first catching-up

stage”, which lasted up to early 1990s, the diffusion of technological innovations were a

priority, while management innovations were largely neglected by both, political and business

domains (e.g. Ferreira, 1991, Boisot, 1993, Inácio and Weir, 1993, Simões, 1995, Buesa and

Molero, 1998, Carreras and Tafunell, 1997).

Overviews on Portuguese and Spanish management domains (e.g. Bruton, 1994, Cunha and

Marques, 1995) often refer to managerial conservatism when referring to management that is

unwilling to adopt new management concepts. It seems that the institutional arrangements of

the national systems reinforced the focus on technological reorganisation at the firm level and

this meant that the non-technical aspects, such as firm organisation, were not sufficiently

exploited. As a result, the lack of management innovation proved to be a crucial factor in the

loss of competitiveness by Iberian companies at the start of the 1990s and a critical constraint

for the necessary catching-up of both economies (Simões, 1995, Buesa and Molero, 1998).

The recognition of this fact led to an increasing attention by policy makers and within the

business sphere towards managerial aspects of firms. Within this context Iberian companies

are expected to have initiated a “second stage” in their catching-up process, this characterised

by significant changes at managerial level. Within this context, Iberian firms are expected to

have initiated a substantial catching-up process with leading European economies in the use

of a number of management innovations such as total quality management (TQM hereafter),

business process reengineering (BPR hereafter), downsizing, lean management, teamwork or

outsourcing- and some of its underlying tools and practices- which are said have became

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widely diffused (Engwall, 1999). The extent and veracity of this assumption has not yet been

empirically investigated however. Our analysis attempts to overcome this caveat.

The increasing consulting activity suggests that consultants are playing an important role in

catching-up process. Despite developing later, the Portuguese and Spanish consulting markets

caught-up fast in the recent decade and the market structure does not seem to differ

substantially from that in other European countries. Also in these two economies governments

have put in place consultancy-based schemes as part of broader regional and national

development policies. Yet, country specificity on the supply-side still exists. As shown by

Amorim (2001), domestic consultancies for example, seem to have a more predominant role

in Spanish consultancy market, while in Portugal ICs may dominate the segment of large

firms. Thus, country effects shall also be considered in the demand-side analysis. The use and

assessment of these developments in the two markets has not yet been analysed in detail.

Hence, our analysis constitutes a starting point to evaluating current and past experiences with

consultants, and it also provides guidance for consultancy based schemes within future

regional and national policies designed to promote development.

Thus, this chapter discusses firm-specific and contextual variables surrounding the

introduction of management innovations in the Portuguese and Spanish cases, where various

efforts were made in the post-EC accession period to spur a necessary catching-up process. It

provides empirical results from a questionnaire (QIMI), which addressed the introduction of

management innovations and the integration of external knowledge in the process of

innovation. After describing the research method and data collection, the paper provides

empirical results from a survey questionnaire, the chapter first identifies the innovations

introduced and then explores if differences in firm type and geographical location affect

adoption of management innovations. In the subsequent section it investigates the use of

management consultants by firms located in the Iberian Peninsula. It also explores whether

consulting use largely depends on national or firm idiosyncrasies. The overall results enable

the development of a better understanding of the characteristics of firms and contexts in

relation to management innovation and use of consulting advice in the process.

2.3.2 Research Method and Data Collection

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The study on the demand side of the consulting business is based on a survey questionnaire. It

was mailed in April 1999 (follow-up in June 1999) to 300 firms in Portugal and 450 in Spain.

The firms in the sample were selected randomly among the 500 largest firms in Portugal in

1997/8 (Exame Maiores Empresas 1998) and the 3,000 largest in 1997/8 in Spain (Actualidad

Economica Maiores Empresas 1998). All in all, the survey comprises 115 valid

questionnaires, 66 from Portugal and 49 from Spain, i.e. total answer rate of 15.3%, 22% and

11% for Portugal and Spain respectively.

Companies were asked to indicate from a list of alternatives which management innovations

they have introduced in the last decade. The innovations suggested correspond to the most

popular concepts and ideas that swept across the management scene over the 1980s and 1990s

(Lindvall, 1998). Total number of innovations was used as basic measure of scope of

innovation. We then investigated the innovation activity related to firm type and geographical

location. Companies were then asked which type of consultants they have used in the past,

and to rank in a scale of 1 (no impact at all) to 5 (very high impact) in which and how did they

impact in a number of management practices. Barriers for change during consulting

assignments were also evaluated using a 5-point Likert scale.

Firms were asked to evaluate to which degree internal resistance, lack of internal skills, lack

of internal motivation and involvement and problems of coordination within the project team

had been a problem for the implementation. They were finally asked to evaluate their level of

satisfaction with a number of issues related to their past consulting experience. We then

investigated the innovation activity related to firm type and geographical location. Firm type

is defined in terms of size (in number of employees /1994 and company sales in EUROS /

1998), age (number of years since its foundation in Portugal) and company business (services

(0) / manufacturing (1). Finally we also considered firm ownership (domestic (0), MNE (1))

and the local geographical context, i.e. whether the firm is located in Spain (0) or Portugal (1).

2.3.3 Number of Innovations

The results from the survey show that prominent management innovations are increasingly

relevant within the Iberia. In both countries companies made major management changes over

the 1990s, reporting an average of 7.64 management innovations out of the 14 suggested in

the questionnaire (Table 2.3.1). Compared to other studies from leading European economies,

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the result is considerably high. In her empirical study on the diffusion of similar prominent

management innovations in Britain and Germany (summarized in this report), Strambach

found, for example, that companies had introduced an average of 4.5 management innovations

over the period 1989-1998 (Table 2.3.1). Comparatively, a catching-up process seems to be in

place in Iberia.

Similarly, the result clearly signals to the multidimensional character of management

innovation. It covers a wide range of management areas within the firm, and in the interfaces

with the environment. Innovations in quality related practices and in IT were the most

popular, with changes reported by more than 80% and 70% of the companies in both

countries respectively. Practices related to human resources management (i.e. training and

motivational practices), to supply chain management, as well as lean management and BPR

were found to be also widespread, with more than 60% of the firms using them.

Table 2.3.1 Management Innovations: total, by host country and ownership By Country Strambach’s results Total Portugal Spain MNE M S.D. M S.D M S.D M Total Innovations 7.64 2.81 7.20* 2.99 8.22* 2.47 4.3

Percentage of adopters (multiple responses allowed)

Management Innovation Total Portugal Spain UK and Germany Quality Practices 86 83 90 83 IT Systems 74 74 73 N/a Motivational Practices 69 61** 80** N/a Purchasing and Distribution processes

68 61* 78* N/a

Training Practices 66 62 71 N/a Lean Management 62 64 59 57 Reengineering 61 59 63 48 Downsizing 53 42*** 67*** 52 Team Work 53 50 57 45 Outsourcing 44 45 43 30 Business Portfolio 40 32** 51** N/a Alliances / Joint Ventures 35 27* 45* N/a Mergers and Acquisitions 30 21** 41** 25 Split up of Business Units 25 38*** 8*** 25 Notes: significant different at *** p < 0.01; ** p< 0.05; *p<0.1 Tested using t test for independent samples, and Mann-Whitney test for two group comparisons. Overall these levels of adoption per practice seem to be comparatively high, which sustains

the catching-up process argument. For example, in Newell et al. (1999) study on the diffusion

of BPR in France, Germany, Netherlands and UK, only 29% of the firms (out of 1277 firms)

indicated to have adopted BPR. Strambach more recent study has found relatively lower

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values of adoption of adoption in Britain and UK for most of the innovations (with the

exception of M&A) (Table 2.3.1). By contrast, the less reported innovations were split-up of

business units, M&A, establishment of alliances and/or joint venture and changes in business

portfolio, with less than 35% of the firms indicating to have adopted them. Compared to the

developments in Germany and UK, our results seem to indicate that Iberian firms, especially

Portuguese, are still lagging in terms of M&A.

2.3.4 Distribution over time A clear sign of the catching-up effort is reflected from a time analysis. As shown in the table

in the Appendix and in Graph 2.3.1, the innovations were adopted largely in the 1990s.

Time distribution of management innovations

02468

10121416

<198

0

1980

-1986

1987

-1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Year

%

There is a clear concentration in late 1990s, with 55 per cent of the innovations being

introduced in the period 1995-1998. This time distribution confirms our expectations about

Portuguese and Spanish increasing awareness and interest on new management practices. If

we look in detail for the average distribution of the different management innovations in time

(cf. the Appendix), it is clear that management innovation in the firm do not only take place

sequentially. Several management innovations are sometimes introduced in parallel, which

adds complexity to the changing process. It is often the case of many innovations at once

rather than an either or. Firms link and combine different innovations, e.g. TQM and BPR, IT

and downsizing. Furthermore, innovations introduced at the same time are sometimes based

on contradictory principles, which adds to complexity related to managerial innovation.

Otherwise, there seems some rationality in the time distribution of the innovations.

Teamworking being the innovation with the earliest report (1975). Indeed, amongst the

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suggested innovations, teamworking is one of the oldest, which has been in the management

scene for decades. The need to motivate workers, to restructure internal processes and

business portfolio seems indeed a natural follow-up from the “cutting” period. This was

dominated by lean management, downsizing, splitting-up of business units and outsourcing.

Subsequently, companies became increasingly aware for the need to look for competencies

outside the firm, leading to the growth of inter-firm agreements and collaborations. This is

reflected in the dynamism at the level of alliances and joint ventures (AJV) and M&A. More

recently, training, IT and supply chain management gained increasing attention as target areas

for adding value to the company. When we look at the most popular innovation, Quality,

catching-up is even clearer.

The analysis then considered the relationship between a number of firm structural variables,

geographical location and innovation.

2.3.5 Main characteristics of the innovators By contrast to the population-ecology predictions, large and older firms do not seem to be less

innovative, instead we found size and age significant positive correlated to number of

innovations introduced. The number of innovations is significantly positive correlated to

company size when measured both in Sales (1998 Euros) and number of employees. Both

appear positive related IT and to quality innovations, TQM in particular. Size in sales also

appears significantly positive related to outsourcing, AJV, M&A and supply chain

management, and size in n. employees to decentralisation/decentralisation of activities. Age

appears positive correlated to innovation, in particular to outsourcing (P<0.05).

Table 2.3.2 Correlation of total innovations and firm type

TOTALINO N. employees SALESEU AGE TOTALINO 1.000 0.162* 0.261*** 0.237** N. employees 0.162* 1.000 0.520 0.168* SALESEU 0.261*** 0.520*** 1.000 0.070 AGE 0.237** 0.168* 0.070 1.000 We found also significant differences across countries. As shown in Table 2.3.1 there are

significant country differences considering the average number of innovations and the

adoption of a number of individual innovations (Table 2.3.2). Spanish firms reported

significant higher number of innovations in an average than did their Portuguese counterparts.

Downsizing, purchasing and distribution practices, changes in motivational practices,

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business portfolio, joint ventures and M&A have been significantly more reported by Spanish

firms. By contrast, “split up business units” was significantly more used by Portuguese firms.

Table 2.3.3 Management innovations by firm ownership Management Innovation MNE Domestic Average number of innovations 7.91 7.40 Quality Practices 90.6 82.3 IT Systems 81.1* 66.1* Motivational Practices 71.7 66.1 Purchasing and Distribution processes

75.5* 61.3*

Training Practices 66.0 66.1 Lean Management 64.2 58.1 Reengineering 66.0 56.5 Downsizing 67.9** 40.3** Team Work 58.5 48.4 Outsourcing 37.7 50.0 Business Portfolio 34.0 45.9 Alliances / Joint Ventures 32.1 37.1 Mergers and Acquisitions 30.2 29.0 Split up of Business Units 15.1** 33.9** No support was found for the view that MNEs use more innovative practices. MNEs

altogether (7.9) reported slightly higher average number of innovations than domestic firms

(7.4), but the difference is not significant. An analysis per type of innovation revealed few

significant higher adoptions by MNEs: downsizing, motivational practices and IT (p<0.1)

(Table 2.3.3). By contrast, the practice “split up of business units” is significantly more

popular amongst domestic firms.

In order to separate both country and ownership effects, differences between MNEs and

domestic were tested within each country (Table 2.3.4). While in Portugal MNEs adopted

higher number of innovations in an average than domestic firms (7.62 against 6.93), this is not

the case in Spain (8.19 against 8.27). However, the differences are not significant. In Portugal

significant differences exist in IT, supply chain management, downsizing, split up of business

units, and quality initiatives. In Spain there were only differences in the changes of business

portfolio, with domestic firms reporting significant higher innovations.

Table 2.3.4 Average number of innovations, by country and firm ownership Total

Portugal Spain

N M S.d N M S.d N M S.d Domestic 62 7.40 2.93 40 6.93* 3.15 22 8.27* 2.29 MNE 53 7.91 2.68 26 7.62 2.73 27 8.19 2.65 Total 115 7.63 2.81 66 7.20* 2.99 49 8.20 2.47

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In order to eliminate the ownership effect, Spanish and Portuguese domestic firms were

compared and then the same procedure was applied for the case of MNEs. Significant

differences were found when comparing domestic firms across the two countries. The average

number of innovations is significantly higher for Spanish domestic firms (8.27 for Spain and

6.93 for Portugal). The later have also reported significant higher adoption of downsizing,

changes in business portfolio and adoption of quality innovations. Portuguese firms otherwise

reported significant higher adoption of “split of business units”. Otherwise, there were no

significant cross-country differences when comparing only MNEs. Spanish MNEs adopted

higher number of innovations in an average (8.16 for Spain and 7.62 for Portugal), but the

differences are not significant. Few significant differences emerged in motivational practices

and mergers and acquisitions, more adopted by Spanish MNEs. Finally, firm business does

not seem to have a significant impact on number of innovations. Firm business appears

positive related only to quality practices (<0.01).

A finding from this analysis therefore is that the scale of management innovation is limited to

a certain degree to firm-specific characteristics. Size and age were the most significant

variables. Country is a significant variable with Portuguese domestic firms lagging in terms of

management change when compared to their Spanish counterparts. Yet, MNEs seem to have

largely overcome country specificity. This result adds to the suggestion that they are leading

the international diffusion and homogenisation of management practices.

2.3.6 External consultants In both countries about 70% of the companies had employed consultants recently (Table

2.3.5). Thus, firms largely relied on external expertise for the complex innovation process.

Yet, the value is still below the 80% found by Strambach study in Germany and Britain.

Table 2.3.5 Type of consultants (total, by country and firm ownership) Type of consultants Total Domestic MNE

Total P S Total P S Total P S Used consultants, in percent of total 70.0 70.0 71.0 72 70 77.3 67.9 69.2 66.7 In number of firms (81) (46) (35) (45) (28) (17) (36) (18) (18) Of which (%of those using consultants) International consultancy 60.5 67.4 51.4 55.6 60.7 47.1 66.7 77.8 55.6 Domestic consultancies, of which: 52.8 48.9 57.1 40.0 39.3 41.2 67.7 61.1 73.5 Small national consultancy 33.3 28.3** 40.0** 15.6 17.9 11.8 55.6 44.4* 66.7* Large national consultancy 18.5 19.6* 17.1* 24.4 21.4 29.4 11.1 16.7 5.6 Individual consultant 19.8 19.6** 20.0** 22.2 17.9 29.4 16.7 22.2* 11.1* Academic or research institutions 12.3 8.7** 17.1** 15.6 10.7* 23.5* 8.3 5.6 11.1

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Financial institutions 7.4 10.9*** 2.9*** 8.9 10.7* 5.9* 5.6 11.1 Professional or technical association 6.0 11.0*** *** 4.4 7.1 8.3 16.7 Public institution 4.9 4.3** 5.7** 6.7 7.1* 5.9* 2.8 5.6 Notes: *** p<0.01, **P<0.05, *p<0.1. Tested using Mann Whitney test and t test for two group comparisons. Using consultants appears significantly positive correlated to firm size measured in number of

employees (Table 2.3.6). This variable however, is statistically significant only for domestic

and Portuguese firms. There were no significant differences in the use of consultants when

controlling for company ownership and business (Mann-Whitney test for two group

comparisons and Kruskal for more than two, not reported here).

Table 2.3.6 Correlation using consultants and variables of company size Ownership Host economy

Total Domestic MNE Portugal Spain Used consultants 1.00 1.00 1.00 1.00 1.00 SALESEU -0.003 0.17 -0.16 0.13 -0.22 Number of employees (1994) 0.22** 0.26** 0.13 0.24* 0.17 *** p<0.01, **p<0.05, *p<0.1 In terms of service suppliers, about 60 per cent of the firms using consultants referred to have

employed international consultancies (ICs). However half of them also used domestic

consultancies. Within the later, small consultancies predominate, with 33% of the firms

reporting to have used their services. The use of individual consultants by all types of firms is

worth noting, while academic institutions are moderately used.

Especially after the accession of Portugal and Spain to the European Union in 1986, both

governments included development and business support organisations within its regional and

industrial development policies. These played an important role for the development of the

consultancy market. The Institute for Support of Small and Medium Manufacturing

Enterprises (IAPMEI) launched in late 1980s is a case in point. It increasingly expanded its

activities, and from simple information provider assumed an active consulting role, including

specialised offices for the creation and accompaniment of new enterprises. Other important

initiatives took place in the 1990s. We can highlight the creation of DATE for example,

launched under the PEDIP II.4 In other cases the government integrated existing organisations

to pursue its policy aims. The Portuguese Association for Quality and the Portuguese Institute

for Quality are cases in point. Largely sponsored by public funding, they assumed a leading

role on the quality movement “spiral” (Amorim, 2000a).

4 PEDIP stands for Plano Estrutural para o Desenvolvimento da Industria Portuguesa.

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Similarly, in Spain, there was also a boom in terms of public and semi-public bodies aiming at

the promotion of R&D, the strengthening of greater communication at the European level and

the simplification of often bureaucratic management structures (Bruton, 1994). By contrast to

the Portuguese centralised system, such structures in Spain were to a large extent launched by

regional governments. The Governments of Catalonia, Madrid and Basque Country have been

particular active in this regard. Since 1981 that the SPRI, Sociedad para la promocion y

reconversion industrial, SA, launched by the Department of industry, trade and tourism of the

Basque country has been supporting the implementation of Basque Government Industrial

Policy. In the present decade particular relevance has been given to consulting for business

star-ups. It is also linked to a network of Business Innovation Centres, Industrial Promotion

Societies and local agents in the work of promoting new business. In addition to programs of

economic support the centre also offers Training. The department of industry, trade and

Tourist of Catalonia launched similar initiatives under the Linea CIDEM. Within this centre,

in the 1990s direct consulting and training is provided for firms in the process of

internationalisation (by COPCA), or for small businesses start-ups (through Catalan Small

Business Support Agency). This is linked to a network of Vivers d’empreses. By 2000 there

were about 23 of these centres for small business start-ups.

Despite these actions, there is low use PTAs and PIs. Large firms do not seem to use these

agencies to a large extent. From the results it can be assumed that these organisations may not

be in direct competition with consultancies in the large companies market,5 but they are

important competitors for those whose clients are mostly PYMES (SMEs).6 These

organisations have been important players as suppliers of basic consultancy-type competing

directly with the consulting firms, particularly in application for funds and in economic-

viability studies. In addition they stimulated the consulting business by suggesting the use of a

network of “certified” consultancies or consultants.7 As a result, there has been an increase in

consultancy work with small and medium-sized enterprises (SMEs), even in traditional and

less technically advanced sectors (Silva 1997).

5 Interview with E. Mendicutti. 6 This fact was mentioned during the interview with the Director of Portugal’s leading firm in the glass industry. The company asked the “Sociedad para el Desarrollo Industrial de Extremadura” for help in setting up their operations in Spain. 7 Some of the interviewees mentioned that their consultancies had been selected by APQ or IAPMEI as “official” consultants for small and medium enterprises in particular topics, e.g. quality, human resources.

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Concerning firm size, ICs appear significant positive related to size variables, i.e. employees

1994 and sales, in both countries. There are also-cross country differences. On the one hand,

and by contrast to the Portuguese case, in Spain there is not hegemony of ICs. 57% of the

firms have used either small or large domestic consultancies (SMCs), against the 51% for ICs.

This result is mainly due to the high relative use of domestic consultancies by MNEs in Spain.

On the other hand, it is worth noting the significance of ARIs and PIs in Spain, and of FIs and

PTAs in Portugal. These results are in line with what we know about the role of business

schools in Spain and of professional associations in Portugal. Their use is however rather

limited.

The differences emerge due to cross-country differences between both MNEs and domestic

firms. Spanish domestic firms reported the higher use of consultancies, and there are

significant differences at the level of ARIs’, PTAs, PI and FIs. The first is more used in Spain,

while the later in Portugal. In the MNEs market country-specificity is also clear. The use of

small domestic consultancies by MNEs is significantly higher in Spain. In Portugal ICs and

individual consultants are relatively more important for MNEs. Concerning the use of

additional consultancy providers it also reflects country specificity: higher use of ARI and PI

in Spain and of FI and PTA in Portugal.

By contrast to what is often suggested, few significant differences exist between foreign-

owned and domestic firms. Furthermore, as shown in Table 6, domestic consultancies are

relative important suppliers in the market for MNEs, and apparently even more than for

domestic firms. As shown in Table 2.3.7, domestic SMCs and ICs were employed by 67% of

the foreign-owned companies. For domestic firms, 55% used international consultancies but

only 40% used domestic SMCs. The use of individual consultants by all types of firms it is

also worth noting. MNEs however reported less use of other sources such as ARIs, FI and PIs,

but higher use of PTAs. There were no significant differences when considering for firm

business. Considering international and domestic consultancies, some degree of market

segmentation might exist at the level of the practices they are involved in.

Table 2.3.7 Type of consultants used for quality innovations (%) Type of consultants

Total MNEs

Total P S Total P S Used consultants, in percent of total MNEs 53 50 57 53 54 52 In Number of firms (61) (33) (28) (30) (14) (16)

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Of which (in percent of those using consultants) International consultancy 41.0 48.5 32.1 39.3 50.0 28.6 Domestic consultancies, of which 41.0 36.4 46.5 46.4 28.5 64.2 Small domestic consultancy 24.6 21.2 28.6 39.3 21.4 57.1 Large national consultancy 16.4 15.2 17.9 7.1 7.1 7.1 Individual consultant 14.8 15.2 14.3 14.3 21.4 0.0 Academic / research institution 6.6 3.0 10.7 7.1 0.0 14.3 Professional / technical Associations 3.3 3.0 3.6 Public Institutions 1.6 3.6

Notes: *** p<0.01, **P<0.05, *p<0.1. Tested using Mann Whitney test and t test for two group comparisons. No significant differences between MNEs and domestic firms. T test and Mann-Whitney. Our results confirm for example the strength of domestic firms on quality related innovations.

As shown in Table 2.3.7, the same percentage of clients used either international or domestic

consultancies level. In Portugal ICs still dominate but their relative weight has decreased.

Furthermore, in Spain the advantage of domestic over international has increased.

Table 2.3.8 Consultants impact by management area

Total

Management area Total Portugal Spain Domestic MNE M 4,5 M 4,5 M 4,5 M 4,5 M 4,5

Quality systems 3.42 48.1 3.33 43.5 3.53 54.3 3.40 49.9 3.45 47.2 Information technologies 3.15 46.9 3.18 52.2 3.10 40.0 3.26 51.2 3.00 41.7 Operations and processes 2.99 40.7 3.02 41.3 2.94 40.0 3.02 40.0 2.94 41.7 Strategy 2.76 34.8 2.67 34.8 2.87 37.2 3.12*** 51.2*** 2.30*** 16.7***Organisation 2.87 32.1 2.81 30.4 2.94 34.3 2.98 37.7 2.74 25.0 Human resources management 2.55 22.2 2.51 21.0 2.60 22.8 2.63 24.4 2.43 19.5 Training 2.63 22.2 2.75 22.9 2.45 20.0 2.65 20.0 2.60 25.0 Marketing / Market studies 2.21 18.5 2.33 19.6 2.04 17.2 2.45** 23.4** 1.90** 11.1** Supply chain management 2.26 14.8 2.31 15.2 2.19 14.3 2.53** 20.0** 1.90** 8.3** Finance 2.20 14.8 2.10 13.1 2.34 17.1 2.25 17.7 2.13 11.1 Business Portfolio 1.98 11.1 1.88 8.7 2.15 14.3 2.23** 20.0** 1.62** ---** Notes: *** p<0.01, **P<0.05, *p<0.1. Tested using Mann Whitney test and t test for two group comparisons Mean and percentage of firms reporting high (4) to very high (5) impact. Surveyed firms were asked about the impact from management consultants in eleven areas,

ranging from IT to market studies. It is evident from the results that consulting is a lot more

than the strategy consulting that is often mentioned in the literature. By far the highest

reported impact from consultants was at the level of quality systems and IT (46.8 and 48.1%

respectively). This is not surprising given the growth in specialised software packages

targeted at the corporate sector (e.g. SAP and BAAN), and the popularisation of quality

systems in the Iberian economies (Amorim, 2000a and 2000b). Operations and processes

(40.7%) is the next area in which consultants had high impact. This might be linked to the

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implementation of new quality systems, which should ultimately lead to changes in company

internal procedures and routines. The significance and need for restructuring at these levels is

a recurrent theme in most surveys of Portuguese and Spanish companies performance. They

were also amongst the most reported innovations. The practices in which consultants had less

impact were those related to changes in business portfolio, finance and supply chain

management.

Ownership is an important variable explaining differentiation in terms of areas of impact. As

shown in Table 2.3.8, domestic firms reported in an average higher impact from consultants

than foreign subsidiaries. They diverge mainly in what concerns the use of consultants for

strategic issues, supply chain management, marketing and market studies, and business

portfolio. MNEs seem to use consultants to a less extent for these practices. MNEs

subsidiaries might relay on intra-firm assistance on these practices. These results suggest

consultants and internal knowledge as complementary sources of knowledge in terms of

management area. This evidence gives strength the view that MNEs subsidiaries practices are

also dependent on other sources of knowledge apart from its own parent firm. The availability

and development of such sources in host markets is thus an important variable to explain its

performance and development.

Table 2.39 Correlation per management practice and firm characteristics Firmb2 SALESEU Emp.1994 EM94CLASOrganisation -.158 -.056 .143 .189 Operations and processes -.013 .009 .059 .027 Supply chain -.201* .095 .049 .046 Human resources management -.205* .201 .115 .211 Training -.280** -.028 .113 .192 Business portfolio -.103 .026 .144 .119 Information technologies -.189 -.070 .264** .181 Quality systems -.039 -.123 -.060 -.070 Finance .004 .116 .169 .186 Strategy -.138 -.035 .175 .192 Marketing / Market studies -.036 .016 .132 .166 * Correlation is significant at the 0.05 level (2-tailed). ** Correlation is significant at the 0.01 level (2-tailed). Impact by management areas also appears related to firms business (Table 2.3.9). Service

firms reported significant higher impact from consultants, with particular relevance for supply

chain management, HRM and Training. Finance is the only area in which consultants had

highest impact for manufacturing firms. These results are in line with studies on the

consulting market which suggest service firms (financial institutions in particular) as being

behind much of the growth of the consulting business. Larger firms (in number of employees)

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have used more consultants in IT related projects, but there are no further significant

differences. Overall cross-country comparison did not reveal significant differences either.

Therefore, company size and host economy do not seem to explain variance in areas of

impact, which gives strength to the homogenisation hypothesis, i.e. that consultants are

apparently doing the same across firms and countries.

Consultants had strong impact not only as “architects” but also at the implementation level.

By contrast, consultants` role as pure auditors, catalysts and analysts is much weak, with less

than 25% of the firms reporting that consultants had played major role on such activities

(Table 2.3.10). These results are not surprising. As general management knowledge becomes

an abundant resource, and easily accessible from alternative sources, consultants advantage

relies mainly on their capacity to adapt general ideas to specific cases by suggesting, planning

and implementing the innovations. Overall however, the impact of consultants as

implementers is lower than that of architects.

Table 2.310 Use made by clients of consultants – type of intervention Total Type of Total Portugal Spain Domestic MNE Intervention Survey question M 4,5 M 4,5 M 4,5 M 4,5 M 4,5 Catalyst Realise the need for change 2.88 25.2 2.74 22.8 2.94 28.5 2.98 40.0 2.76 30.6 Analyst Diagnosis of the initial

situation 3.10 23.0 3.28 28.7 2.70 16.3 3.05 31.1 3.16 36.1

Architects 1. Suggested changes 3.51 44.3 3.68 53.0* 3.12 32.7 3.64* 71.1 3.33* 52.8 2. Planning implementation 3.41 36.6 3.52 40.9* 3.12 30.6 3.29 48.9 3.54 55.5

“Doctor” Implementation 3.01 29.6 3.11 31.8 2.75 26.5 2.93 40.0 3.12 44.5 Auditor Assessment post-

implementation 2.83 18.3 2.82 16.7 2.72 20.4 2.73 24.4 2.94 27.8

Notes: *** p<0.01, **P<0.05, *p<0.1. Tested using Mann Whitney test and t test for two group comparisons. The limited impact at implementation level raises some doubts on consultants role on the

transfer of non-codified operational know-how, i.e. “how to” type of knowledge that cannot

be transmitted in a codified form. Previous researchers (Shapiro at al., 1993, Bennett and

Robson, 1999a and 1999b and 2000, Schein, 1999) have argued that consultants involvement

at implementation level has a high level of significance in influencing the outcome of

consulting assignments. It can be also hypothesised that in this case firms can better customise

the changes to company own characteristics, or they may even forget implementation

altogether (Schein, 1996). This issue is dealt in chapter 3.6 below with case study analysis.

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There are significant differences when considering host economy and ownership. Portuguese

firms, both domestic and MNEs, reported higher impact than their Spanish counterparts,

especially regarding the role of consultants as “architects”. In Spain by contrast, the difference

in the mean values for “doctor” and “catalyst” are relatively smaller. These cross-country

differences are to a certain degree explained by differences in MNEs policies towards

consultants. Compared to domestic firms, foreign MNEs were significantly less affected by

consultants’ suggestions, but placed relatively more relevance to their roles as analyst,

planning implementation and as “doctors”. These differences between domestic and foreign

firms are clearer in the Portuguese case. Thus, the result suggests that especially domestic

Portuguese firms are not making the most out of consultancy use. Concerning MNEs across

countries, they show similar patterns of behaviour, supporting the idea of their relative

independence from country-specificity. There were no significant differences and correlation

when considering firms business and firm size.

Table 2.311 Client- type barriers for success Total Portugal Spain Domestic Foreign firm M % M % M % M % M % Internal resistance to change 3.25 48.4 3.09 43.0 3.47 57.0 3.27 51.1 3.23 47.2 Lack of internal skills 2.87 22.2 2.98 28.0 2.72 14.0 2.95 33.3 2.76 8.3 Lack of internal involvement 2.17 12.3 2.30 16.0 2.00 9.0 2.07 15.5 2.29 8.4 Lack of co-ordination within the project team

2.32 12.3 2.36 11.0 2.27 14.0 2.14* 13.3 2.54* 11.1

Mann-Whitney test for two group comparisons: significant at ***ρ<0.01; ** ρ<0.05; * ρ<0 A critical challenge for the firm from a management viewpoint is that of governing the

integration of the knowledge available outside its boundaries Kogut and Zander (1992). Table

2.3.11 shows that internal resistance to change is by far the most significant barrier in the

process. Nearly 50% of the firms considered it to have been a high to very high problem

during consulting assignments, followed by lack of internal skills for the implementation.

Lack of internal involvement and co-ordination within the project team were less reported.

Indeed, 33.3% and 22.2% of firms reported that these issues did not represent any problem at

all. This order of importance is similar across the distinct firm types.

There were no significant country differences. Excluding the lack of co-ordination within the

project team, domestic firms report overall higher barriers. But differences were not

significant. Firm business influence only for co-ordination within the project team, there are

no differences when considering size. This again contradicts the population-ecology

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predictions that large firms are more difficult to change. It may be so, that they also have

more resources to allocate to large scale changing processes.

Table 2.3.12 Level of satisfaction with consultants service

Total Portugal Spain Domestic MNE M % M % M % M % M %

Skills of the external organisation 3.72 64.2 3.78 73.8 3.65 51.4 3.91** 71.1 3.49** 55.6 Cost of the service 2.78 18.5 2.78 21.7 2.78 14.3 2.73 17.8 2.85 19.5 Timing to implement suggested changes

3.32 37.1 3.39 41.3 3.23 31.4 3.29 31.1 3.35 44.5

Final result compared to the expected

3.38 42.0 3.44 47.9 3.29 34.3 3.48 44.5 3.26 38.9

No significant differences across countries, in total neither within each type ownership. Significant differences at the level of evaluation of skills of external organisation. ( p<0.010) between domestic and foreign.

As shown in Table 2.3.12 satisfaction levels with consultants’ service have a relatively wide

range, from 18.5% to 64.2%. They all fall short of the suggested English DTI targets (cf.

Bennett and Robson, 1999). However, none of the DTI targets are precisely comparable with

the measures of satisfaction assessed in this survey. An important methodological explanation

for the low values might be the fact that companies have been asked to evaluate their past

consulting experiences without making a division per type of provider. Maybe for this reason

satisfaction levels tend to be reported at a lower level. Tordoir’s (1995) study in the US for

example found that almost 60% of the firms report good to very good experiences with

outside professional services. Yet, 8% of the firms had “rather bad” experiences. In our

survey only 1.2% of the firms reported to be totally dissatisfied with consultants.

Despite criticisms on consultants “actual knowledge and skills”, the respondents classified the

skills of the consultants quite positively. This point received the highest level of satisfaction

of over 64% satisfaction. The other measures ranked low in level of satisfaction. Less than

half of the respondents were satisfied either with the result when compared to the expected, or

with the timing for the implementation. In our study about only 42% (mean 3.38, 0.75

standard deviation) of the respondents affirmed to be very to totally satisfied with results

when compared to the expected (Table 2.3.9). The result does not seem considerably good

when compared to other studies on consultants’ assessments. Tordoir (1995) study in the US

for example found that almost 60% of the firms report good to very good experiences with

outside professional services. Yet, 8% of the firms had “rather bad” experiences. In our

survey only 1.2% of the firms reported to be totally dissatisfied with consultants. Price is the

lowest ranked in satisfaction level of less than 19%.

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Table 2.3.12 also assesses differences in satisfaction levels by firm type. The most important

conclusion to be drawn is that there are few statistically significant differences between firms

in their satisfaction levels, which suggests that the quality of consulting business is a generic

issue rather than varying between each specific type of client. Spearman’s correlation

coefficient reflects few statistically differences between firms when considering size.

However, smaller firms overall classified more positively consultants services. Larger firms

reported higher level of satisfaction with the skills of the consultants, but were more

dissatisfied at all the other measures. It is worth noting that only skills of the organisation

appears positive and significant related (Spearman’s rho 0.194, p<0.1) to class of employees

and the satisfaction with the cost of the service appears significant negative correlated to

number of employees in 1994 (Spearman’s rho -.200, p<0.1). This may suggest that

consultants were indeed more efficient at smaller firms. Due to the scale and complexity of

the operations consultants may have more difficulties at larger firms. Otherwise, smaller firms

may also have less critical approach towards externals.

Table 2.3.13 Correlation between level of satisfaction and firm characteristics SALESEU N. employees in

The plant (1994) EM94CLAS

Skills of the external organisation 0.16 0.12 0.19* Cost of the service -0.08 -0.20* -0.18 Timing to implement suggested changes -0.09 -0.11 -0.09 Final result compared to the expected -0.01 -0.02 0.04 Considering firms business, excepting for “skills of the external organisation”, manufacturing

firms appear more satisfied with consultants services. Satisfaction with “costs of the service”

and “timing to implement changes” are significantly higher for manufacturers.

Table 2.3.14 Level of satisfaction with consultants service by firm business

Services %4,5 Manufact. %4,5 Skills of the external organisation 3.90 76.2 3.64 60.5 Cost of the service 2.50* 13.6* 2.89* 22.7* Timing to implement suggested changes

3.05* 29.6* 3.42* 44.2*

Final result compared to the expected

3.35 45.0 3.41 46.3

2.3.7 Discussion and conclusion The chapter shows that, at least conceptually, several of the internationally popular

management ideas also found their way into the Iberian countries. Portuguese and Spanish

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companies underwent major management changes over the 1990s, reflecting their efforts to

catch up with leading industrialised economies. In a context of increasing competition and

openness of both economies, such large changes seem to reflect their reaction to increasing

external pressures on companies for organisational modernisation. Similarly, firms seem to

have understood that mere “hard” technology concerns are only one aspect of the catching-up

process. To a certain degree, both countries may have initiated in a second stage of their

catching-up process. The first stage was characterised mainly by technology concerns, while

in this second stage “soft” aspects such as managerial solutions became more prominent. In

this regard, both countries industrial policies seem to have had some degree of effectiveness.

Quality innovations are a case in point (Amorim, 2000a). Over the 1990s policy-makers

increasingly stimulated and created awareness quality management innovations and these

have been indeed the most diffused.

Nonetheless, the catching-up process has just initiated, which calls for deeper attention to

organisational innovations as a factor in the development strategies relating to innovation

policy. Interventions in the area of innovation policies continue focused primarily on

technological innovations. In the emerging knowledge-based economy, and in a context of

increasing international competition, firms competitiveness and value-added seems to be

increasingly related to firms ability to reconfigure firm internal and external co-ordination and

governance forms. The advantages of such ability maybe translated in terms of internal and

external customers satisfaction, and ability to integrate knowledge from firm outside

boundaries. These are medium and long-term sustained competitiveness advantages, rather

than classical short-term oriented costs-efficiency calculations. It is thus clear that an essential

task for innovation policy interventions is to create awareness of how important and relevant

organisational innovations are, and awareness for the complex and multidimensional character

of this kind of innovation.

The results also have some implications for the homogenisation debate. Organisations to an

increasing degree appear to use similar organisational philosophies. It appears likely that this

process will lead to a standardisation of practices across countries and firms, following the so-

called isomorphism. However, caution is in order before getting at such a conclusion. There is

some evidence that those in control of organisations were constrained by firm characteristics

and national contexts. Size and age in particular were found significant variables. Size is

probably such a general measure related to several dimensions that favour management

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innovation, e.g. total resources, greater likelihood of employing professional “gatekeepers”

who can import the latest ideas management innovations, solve problems of control.

Furthermore most of the management innovations emphasise large-scale organisational

redesign, hence are also geared more heavily towards large organisations. Furthermore, some

firm characteristics impact on the adoption of certain practices in specific. We have seen that

for the case of quality, firm business is a significant variable. Despite its increasing popularity

amongst services, manufacturing firms continue having more likelihood of adopting them.

Concerning cross-country differences, despite being significant in the overall analysis, MNEs

overcome country specificity to some extent. We did not find significant cross-country

differences between MNEs, but there were significant differences when comparing domestic

firms across countries. In this regard, we found some support for the view that MNEs are

playing a leading role on an international process of harmonisation of practices. By contrast,

domestic Portuguese firms reported the lowest levels of innovation. On the other hand, while

the least referred innovations correspond to objective discrete movements, the most reported

innovations (of which Quality Innovations is an example) are conceptually vague and open to

different interpretations (Czarniawska and Joerges, 1996, Westphal et al., 1997). Under

“labels” such as BPR or TQM firms might be using a plethora of unrelated management

practices and principles, some of which are simultaneously features of different the

management “labels”. This helps to explain firms reporting to be using several of them in

simultaneous. It is thus worth analysing “what is behind those labels?

This chapter reported one of the largest surveys of consultancy use and satisfaction in Spain

and Portugal available to date. It has also been able to compare differences across countries

and different type of users of these services. It identified a web of external relationships

between innovator firms and providers of outside expertise. Increasingly a blurring of firm

boundaries is occurring. The results further reflect not only the expansion of international

consultancies, but also the development of the domestic supply, even in the segment of large

sized and multinational companies. These results give support to Kipping, Furusten and

Gammelsaeter (1998), which pointed out that the consultancy field does not only contain the

global players. By contrast, they contradict the results from another studies, which suggest the

existence of a dual economy and market segmentation, i.e. large companies and MNEs

working mainly with international consultancies and SMEs companies working with the

domestic consultancies (Tordoir, 1995). It can be argued that this market segmentation might

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exist but only at the level of SMEs. As proved by Bryson (1997) SMEs tend to use mainly

small and medium sized consultancies, mostly of domestic origin. Behind these general

trends, host country and firm specificity do matter.

Table 2.3.15 Summary on main explicative factors for variance Dependent Independent Use non-use consultants N.employees Type of consultants Country

Size Management practice

Management practice Ownership Business

Consultants role Country Ownership

Barriers ...... Satisfaction level Only for skills: Ownership, Size

Business

The findings suggest that client characteristics must be taken into account when analysing the

consulting business. The demand side analysis revealed that use of consultants is related to

size, suggesting that smaller firms use less external business providers then large ones. There

is therefore a need for policy intervention improvements in this regard in order to create equal

opportunities across potential users. Actions on the demand side became prominent with

programmes stimulating the use of consultancies by smaller firms and/or by those located in

less privileged regions. There are some initiatives on the supply side, based mainly on the

establishment of public lead institutions oriented to the SMEs market and located in more

peripheral areas. The survey results however did not show a significant use of public

institutions. Therefore, more emphasis should be put on the qualitative development of such

initiatives. Closely associated with this is the possibility of providing some form of training of

users in how to make use of consultants, and of consultants in how to work with different

types of clients. Similar schemes already exist, for instance in Norway and Ireland, and with

marked positive effects.

The research also found however considerable country specificity in terms of service

providers. Country specificity mediates mainly the type of agent and scale of impact by them.

In this regard, even MNEs show country patterns (e.g. type of consultants used).They suggest

a greater development of the Spanish domestic supply of management consultancy when

compared to the Portuguese one. These external sources of knowledge are driving innovations

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in a wide range of management areas, especially in IT and quality systems. Ownership and

firm business in particular were found significant variables to explain differentiation in terms

of areas of impact.

One issue follows on from the previous discussion on how to make the best use of consultants

and it is related to the degree of involvement of consultants. Consultants’ role as “architects”

seems to be predominant over that of implementers, especially for Portuguese owned firms.

This limited involvement at the implementation level raises the potential for a decoupling

between concepts or formal adoption and actual practices, or firms may even forget

implementation all together (Amorim, 2000b). Otherwise, it further highlights the need to

develop a strategy to train managers so that they are able to make the most effective use of

external expertise. Multinational and Spanish firms seem to be a step ahead in this regard.

They put more emphasis on the implementation stage. Yet, even if the studied agents do not

get involved with the implementation of the ideas they help to diffuse, the very process of

contacting with them will force the company to reconsider its current practices which is good

for the continuing success and performance of the Portuguese and Spanish firms. Thus, the

development of the links with them provides opportunities for the transfer of management

ideas and innovations between individual companies as well as countries.

Internal resistance to change is by far the most significant barrier during consulting

assignments, followed by lack of internal skills for the implementation. There were no

significant differences considering firm type or location. These results go in line with the

evolutionary economic predictions on the path dependent change process. Seemingly they

highlight that the people element must be actively managed and failure to do so may result in

a less than successful outcome. Finally, there is the issue of quality control. From the

satisfaction analysis, the overall conclusion to be drawn is that the level of satisfaction

achieved so far by consultants is relatively disappointing (e.g. compared to the English DTI

targets). For most points, almost equal numbers of clients are very satisfied or very

dissatisfied. Clearly quality variation is high, and the results are significantly independent

from client type. Thus, variations in satisfaction might be much related to differences in

consultant quality and not differences in the type of client. This evidence raises the question

how to maintain high standards, especially within a business involving a number of active

consultants within a sector or country. As more agents get involved in the process, so the risk

increases of poor quality service and even of fraud and other dishonest practices. This is of

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particular concern for policy initiatives involving consultants: the damage which such poor

service can inflict is not only to individual projects but also to the credibility of the whole

programme. There is thus the need for some form of quality assurance within the system, to

vet prospective suppliers of consultancy services, to monitor their performance and to

improve the long term operation of such consultancy based schemes.

Governments can act to establish acceptable standards and to restrict support for consultancy

services to those suppliers who can demonstrate capacity and integrity, for example, by

operating some form of qualification of approval process. Closely associated with this is the

possibility of providing some form of training of users in how to make use of consultants, and

of consultants in how to work with different types of clients This is of particular relevance in

Portugal, where there is any active association of consultants which could make advances at

these level. In Spain otherwise, the national association for consultancies has potential to take

the lead in this regard. This evidence highlights the need to develop a solid base of

consultancy providers.

Appendix

No. Minimum Maximum Mean Team Work 60 1975 1999 1993 Lean Management 71 1984 1999 1994 Downsizing 60 1989 1999 1994 Outsourcing 50 1989 1999 1994 Business Units 29 1989 1999 1994 Reengineering 69 1989 1999 1995 Motivational Practices 78 1985 1999 1995 Business Portfolio 45 1988 1999 1995 Alliances / Joint Ventures 39 1989 1999 1995 Mergers and Acquisitions 33 1987 1999 1995 Centra- Descentralisation of Activities

78 1990 1999 1996

Training Practices 76 1989 1999 1996 IT Systems 80 1984 1999 1996 Quality

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3 Case Studies

3.1 The M-form in Norwegian Companies (Rolv Petter Amdam and Hallgeir Gammelsaeter) This paper presents four Norwegian cases of adoption and implementation of the M-form.

Two of the cases appear when the M-form is judged to be relatively new in the relevant

organization fields. The other two appear when the M-form is more firmly established as the

way companies organise their activities.

3.1.1 Context – the diffusion of the M-form

The M-form was developed in the US in the 1920s (Chandler, 1962) and became, according

to Oliver Williamson, ‘American capitalist’s most important single innovation of the

twentieth century’. After World War II, the M-form was introduced in several industrialised

countries (e.g. Kogut and Parkinson, 1993, 1998;Whittington and Mayer 2000) although the

timing and the extent of its spread varied from one country to another. It can, however, be

described as the most typical organisational form for large corporations in the US and Europe

in the 1970s and 1980s. This pattern of international diffusion on a wider scale makes it a

good case for studies of the globalisation of organizational models. In the United States, 50

per cent of the top hundred companies had introduced the M-form before 1960 (Fligstein

1990, table C.4). In Europe, the M-form first got foothold in the UK where more than 50 per

cent of the top hundred companies used that form in the late 1960s. The spread was slower in

France and Germany, but in the 1970s the M-form came to be the dominant organization form

among the largest industrial companies also in these countries (Whittington and Mayer,

2000).

For the Nordic countries comparable statistical data is not available, but different sources

indicate that the patterns is not dissimilar to that observed in Germany and France. In

Denmark, a survey of the 100 largest industrial companies in 1985 showed that 39 companies

were divisionalized, but when foreign companies and the agriculture industry dominated by

cooperatives were excluded 66 per cent of the remaining companies was divisionalized

(Nielsen 1987: Figure 12). In Finland, the M-form was adopted by 73 per cent of the 100

largest manufacturing firms in 1983, according to a study by Räsänen (1987). In Sweden,

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divisionalization was introduced in the larger companies from about the mid 1960s. This is

according to the introductory statement of the book Divisionalisering och därefter

(Divisionalisation and after that) by Edgren et al. (1983) which in the lack of statistical

studies, seems to be the main secondary source on the introduction of the M-form in Swedish

business. But for one of the seven companies covered in the book (Esselte that set up a

divisionalised structure in 1964) divisionalization in the rest of the cases took place between

1970 and 1977.

In Norway, the shipbuilding company Aker Mek. Verk, the chemical company Norsk Hydro,

and the electro-chemical company, Elkem all introduced the M-form in the mid 1960s. Some

other large companies, like the aluminium company Årdal og Sunndal Verk followed in the

mid-1970s. But it was not until the mid-1980s that the M-form really began to dominate

among the largest companies. In the 1980s industrial companies like Nycomed, NEBB, STK,

and Selvaagbygg divisionalized. At the same time the largest banks, like Kreditkassen, and

insurance companies, like UNI-Storebrand, introduced the divisonalized model. The M-form

also spread to state own organisations, like the Norwegian Post Office (Amdam 1999;

Gammelsæter 1991; Myrvang 1997).

Altogether, the data on the Nordic countries quite clearly indicates that the M-form was

institutionalized as a template in this part of Europe during the 1970-80s. Since there is no

reason to believe that the M-form has yet become de-institutionalised, although this can be

argued for the often accompanying diversification strategy and the conglomerate (Davis et al.

1994), this also means that for two of the cases presented in this paper (Hafslund and

Glamox) the introduction and implementation of the form has taken place in a periode when

the M-form can be conceived of as an institutionalised template, whereas the two other

companies, Aker and Norsk Hydro, started to divisionalize long before this periode, namely

early in the 1960s.

3.1.2 The four cases

3.1.2.1 Norsk Hydro Formally, Norsk Hydro decided to divisionalize the company in 1964 (Gammelsæter 1994;

Rønning 1997). Norsk Hydro was at that time the largest industrial company in Norway with

9,500 employees, all of them in Norway. At that time, the production of fertilizers, which had

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been the company’s main product from its foundation in 1905, was dominating with

approximately 70 per cent of the turnover value, and it had several production units in

Norway (see Table 1). However, Hydro had to some extent begun to diversify in the mid-

1960s. During the 1950s the company had differsified into producing other chemicals.

Already in the late 1940s the company had decided to go into the production of metal

(magnesium), and in 1963 it was decided to extend this activity into the production of

aluminium (Eliassen and Strøm 1989). In 1963 the company also decided to participate in a

joint-venture to search for oil in the North Sea (Løland 1997).

We could argue that these obeservations support the idea that internal organizational pressure

(diversification) or external institutional pressure (the fact that some international key actors

in the chemical industry had introduced the M-form) may explain the decision to divisionalize

Hydro. However, this arguments is based on a functional view, claming that there is a

correlation in time. We will argue for the need to go beyond the functional level and

investigate the concrete decision process that took place. If we do that, we will see that the

Hydro case shows a very strong elements of searching for new organizational models as well

as elements of changing the model. If we look closer at what went on inside Hydro, we see

that the decision to divisionalize was a result of a searching process for a new organisational

model. From the early 1950s, several committees were appointed within Hydro in order to

make organizational changes. One of them led to the establishment of the HRM department in

1953 (Moseide 1999). In 1958 a committee led by the secretary of the board, Hugo Berentzen,

noticed that Hydro`s structure was very centralized. As a result of this work Hydro set up

three permanent committees, one for each of the company’s main businesses; fertilizers,

magnesium, and plastics. These worked across the strong functional departments that

dominated Hydro. Even though the concept ’division’ was not mentioned in the debate, and

the new committees did not have any strong or independent position, they represented a

forerunner to the divisionalized company.

In February 1962 a new organizational committee was appointed. It was this committee that

one and a half years later suggested to adopt the M-form. The purpose of the committee was

to suggest changes in how the headquarters should be organized, and especially consider

whether several tasks should be decentralized. The committee started to search for ideas of

how to organize. As a first step, three Norwegian companies were visited, namely Aker and

the mechanical companies Kværner and Christiania Spigerverk, but the committee did not

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find any new ideas, it reported. The next step was to visit some larger Swedish chemicals and

mechanical companies. At that time neither of these Swedish companies had divisionalized,

and the visits did not seem to have had any impact on the committee. The third step was to

visit nine chemical companies in the US, among which seven were listed at Fortune’s top 500.

The committee noticed that seven out of nine companies had introduced the M-form. It was

the meetings with these companies that made the committee suggest that Hydro should

divisionalize.

This process was a real searching process. When the process started, management did not

have any clear idea on which organizational form to chose. We should also add that there

were no consulting firm pushing – or advising – Hydro to divisionalize. It was first after the

decision was made, that management called upon a couple of consultant firms to help the

company implement the new organizational form. At Hydro, there were some changes among

managers below the CEO prior to the decision to divisionalise. The General Manager, Rolf

Østby, was appointed in 1956, and he had this position till 1966. However, in the first four

years of the 1960s, several other members of the internal board were appointed. One of them

was Johan B. Holte, who in 1960 was appointed the director of R&D and in 1966 became the

company’s new General Manager. Another was Rolv Heggenhougen, who was appointed the

technical director. Fredrik Sejersted was appointed director of legal affairs, and Reidar Tank-

Nielsen the new HRM director. Odd Narud was appointed the director of finance, and Ulf

Paust the marketing director. It could be argued that the decision to introduce the M-form was

an expression of a generation shift within the company’s excecutive management.

What is striking about the Hydro case is that the decision to introduce the M-form was

primarily an on-the-paper-decision. Initially, the M-form was only partially adopted, since it

was only the magnesium activities that were divisionalized in 1964. The other businesses

remained within a functional structure. One year after the magnesium division was

established, the other parts of the activities were reorganized into one plastics and one

fertilizer division. However, we will argue that this also was mostly on-the-paper. Even

though Hydro formally divisionalized, the old functional organization was not dissolved. The

divisions were thinly equipped with their own staffs, and consequently very dependent on the

still strong functional departments. As a matter of fact the decentralization of decisional

power, and the division between strategic and operational decisions, first took place in the late

1970s after Hydro had established divisions for oil and aluminium production respectively.

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3.1.2.2 Aker Aker also decided to divisionalize in the mid-1960s. The shipbuilding company Aker Mek.

Verksted had from the mid-1950s expanded rapidly by acquiring several independent

shipyards both at the east and west coast of Norway. The expansion meant that the company

extended its production line from building what could be described as tailor-made liners to

also building standardized oil tankers. It also diversified into the production of ship motors. In

1964 management decided to participate in the search for oil, and in 1965 the company

invested in electronics. During this period of expansion and diversification the staff function

at the head quarter level expanded both in activities and number of employees. When the

company in 1965 bought the second largest shipbuilding company in Norway, Bergens Mek.

Verksteder (BMV),8 the central administration was not able to handle the organization

anymore. According to the historian Håkon With Andersen, merging BMV with Akers Mek.

Verksted, would tear the existing centralized organisation apart. Therefore, management

decided to divisionalize (Andersen 1989:379).

There are several similarities between the Hydro and the Aker case. In both companies the

decision to divisionalize came after a period of diversification, and the organizational change

could be seen as an expression of a new generation of managers’ interest to define a new

organizational platform for their activities. In the beginning of the 1950s all four members of

the board of directors were appointed directors before the Second World War. When the

1960s began, the typical top manager of the firm was engineers in their forties that was

appointed some times in the 1950s. The CEO was Martin Siem. He was appointed CEO in

1958 after having been technical director for four years and vice-CEO for another four.

Martin Siem was personally strongly involved in promoting organizational changes. Like in

Hydro management began to search for new organizational models to replace the strongly

functional and hierarchical organization with limited use of external help. The process started

in the 1950s when Siem strengthen the production planning department and also established a

HRM department. In a way, this process strengthened the functional aspect of the

organizations since it resulted in an increase in the size of the headquarters. When Siem took

over as CEO in 1958 he redfined the task of the staffs. The size of the staffs increased from

8 The numbers of employees was approx. 8200 at Akers Mek. Verk and 3.100 at Bergens Mek. Verksted (Norges 500 største bedrifter,1968)

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152 in 1960 to 346 in 1965 when Aker decided to divisionalised. We may say that Siem in

1958 tried to solve the organizational challenges created by diversification and acquisitions by

creating a more strictly defined functional organization.

In 1965, however, when Aker bought BMV, management realized that it was no longer

possible to continue the policy of centralizing power as the company expanded and became

more complex. The decision to establish three divisions could be interpreted as a dramatic

change compared to the tendency of centralism in the early 1960s. This interpretation is

however modified by the fact that Siem in several speeches from the late 1950s explicitly

defended a stronger decentralization and delegation of power in companies. This

contradiction between speech and practice could be explained as an expression of Siem’s lack

of knowledge about alternatives to the functional form. Another modification is that the

changes in practice were much less radical than what they looked like on the paper. Even

though the company introduced the practice that each division should have their own staffs,

management seemed to have problems in believing one hundred percent on the M-form as an

ideal. Actually, after a couple of years Aker reintroduced the functional organizational form.

3.1.2.3 Hafslund Hafslund divizionalized in 1982-83. Throughout its history this company had been producing

and distributing electric power, engineering power stations and operating a small smelting

plant. In the 1960s the number of employees averaged 750, but in 1981, when

divisionalization was under way, the number of employees had fallen to just over 600, largely

due to the adoption of new computer technology in power stations. Neither was it strategic

diversification that led to introduction of the M-form. The company was searching for

business alternatives, however, and a few years after the reorganization it acquired a

conglomerate unrelated to Power's previous businesses. This acquisition increased the number

of employees to about 2,000 in 1986 (Gammelsæter, 1991).

The introduction of the M-form was the outcome of a political process that had started in the

mid-1970s. At that time a process had begun whereby retiring managers were being replaced

mainly by external recruits. The company was still led by a tier of managers who had spent

most of their working careers (three decades on average) in Power, and it was characterized

by stable markets, a centralized structure and an authoritarian leadership style. New middle

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managers joining the company found the organization structure and managerial style old-

fashioned and restrictive, and some was indeed well acquainted to the operation of the M-

form. Criticism and proposals for change was expressed as the part of a formal strategic

planning process taking place in 1976-1977. But the gauntlet thrown down was not picked up

by the top managers.

In early 1979 similar criticism was voiced again, and the executive management agreed to set

up a committee to analyse the situation and to suggest organizational changes in the electric

energy sector. The company was facing greater uncertainty in this sector, related to changes in

government regulations. These had been known for three years, however, so the company’s

response was not rapid. The committee consisted of middle managers only. As well as

suggesting that the company's energy business be organized as a semi-autonomous division,

the committee went beyond its mandate and suggested that the entire company should be

reorganized along divisionalized lines. When the proposal that was put forward in late 1980

gained the support of the executive management, an important explanation can be found in the

changes in the executive team itself. The former general manager had retired, and the

youngest of the team of four that had been in charge of the company during the 1970s had

succeeded him. The introduction of the M-form can be seen as the outcome of the struggle

between older top managers and younger middle managers over the organization structure.

The Engineering Manager, the most prominent representative of the engineering profession in

the company, was certainly not too happy about the reform. Indeed, one implication of the

change was that the Engineering Department would be split up and that its traditional

hegemony would be undermined.

During 1983 several divisions were set up in Hafslund. The traditional businesses, the power

production and the smelting plant, were both organized as separate divisions and gradually

equipped with their own accounting and personnel staffs. Parts of the engineering department

were organized as a Power engineering division and even a Finance division was established.

The transition to the new organization form was seemingly quick, but deviations from the

template was made. For instance, the Engineering manager kept his formal position as leader

of a functional department at HQ, and the division managers at Power production and Power

engineering was formally reporting to him, not to the General manager. Interestingly, this was

not displayed in the organization chart, and although the arrangement annoyed the division

managers it lasted until the Engineering Manager retired three years after the reorganization.

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There is reason to believe that the special arrangement derived from the historically close

relationship between the General manager and the Engineering manager. Division managers

also complained that in reality the divisions did not get their autonomy in important matters

like the negotiation of wages and the operations of the plants. The involvement of the General

manager was closer than the division managers expected, and these conflicts exposed

different translations of how the M-form should be operated in practical life.

In 1985 Hafslund acquired a divisionalized multi-business firm that was larger than Hafslund.

Hafslund had established a relationship with McKinsey already in 1982 and the consultants’

analysis and advice on corporate strategy included both the investment of capital in new

businesses and the adoption of a holding company type of the M-form [Clark, 1999: 158].

Although the old businesses were not immediately turned into subsidiaries in legal terms,

boards were set up for each division already in 1984. And following the aquisition in 1985,

Hafslund soon found itself operating both divisions with their own boards and subsidiaries

organized as limited companies. It may not come as a surprise that McKinsey assisted

Hafslund in the merger process. Within very few years (1983-1986) Hafslund was

transformed from being a very conservative functional company in which the executive

managers involved themselves in detailed matters, to a divisionalised conglomerate that

largely decentralized decisions to divisions or subsidiaries.

Whereas this transformation can be traced back to the strategic planning process and the

initiatives of middle managers in the last half of the 1970s, it is also interesting to note that the

General manager in this period was the youngest of the quartet of executives that denied even

the slightest development in this direction in the 1970s. With the gradual dissolution of this

long-tenured team, the General manager used his new won power to embark on what he

perceived as the modernization of the company. However, in some respect he ends up in a

role reminiscent to the last Soviet leader Gorbatchov who also emerged from the

nomenclatura: He started a revolution that he in the end was unable to control. While in the

first two years there was clear indication that his translation and implementation of the M-

form was heavily influenced by his embeddedness in the old regime, the acquisition of the

larger multi-business company brought in not only McKinsey, again, but also changes in the

board and in executive positions. From the old Hafslund management there was now none left

but some of the critics of the executive team ten years earlier. In the clear light of hindsight, it

looks like the natural order of things when the General manager had to step aside in 1987.

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3.1.2.4 Glamox Glamox divisionalized and re-divisionalized in the period 1997-2000. The company was

established in 1946, based on the invention of a chemical process applied to the treatment of

lighting reflectors. Later it started production of electric heaters and also acquired national

competitors within this business. By 1990 the company employed about 1000 people, a

number that increased to about 1300 in 2000. Until 1992 Glamox was a functionally

organized company based on the operation of a domestic plant complex but also several sales

and production subsidiaries mostly in Northern Europe.

In 1992, following the take-over of a new general manager, a new structure was established

according to the idea that the separation between production and sales companies be

cultivated and the relations between them be determined by the logic of internal market. This

meant that most activities were organized in either production or sales companies (wholly

owned limited companies) respectively. These were depicted as customers selling and

purchasing products and services to and from each other, in contrast to the past when the

transactions between the mother and the daughter companies were not systematically

invoiced. Another idea behind the new structure was to separate more clearly between

strategic and operational management. Therefore a group management was organized as a

separate owner company. The group management was functionally organized (Marketing,

Finance, Technical, and Business Development Directors) under the Managing Director.

Gradually the areas of responsibility of the group directors became market based. Through

1996 two sales and marketing directors supervised Europe and Scandinavia respectively,

while the responsibilities for three production directors were organized according to product

markets. Interestingly, four principles were now blended in the design of the overall structure:

1) the formal separation between strategic and operational management, 2) the separation of

sales and production, 3) the geographical markets separation, and 4) the product markets

separation. But for the separation of sales and production these principles are all well known

in M-form companies. In 1997 there was a formal divisionalization in the sense that three

product-markets were designed and divisional responsibilities allocated to former group

directors. There was no elimination of the divide between production and sales companies,

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but merely an allocation of the separate companies to the now Heating division, Lighting

division and Marine/offshore division respectively.

Due to controversies concerning strategy in the executive management, the executive team

dissolved in the autumn of 1997 and a new management was installed. A former McKinsey

consultant and IBM executive was recruited as general manager. The new management took

steps to revitalize the company and in some way reversed the development in organization

structure. An intensive strategic process resulted in efforts at re-engineering the value chain,

which included the centralization and integration of all IT and logistics resources in order to

implement one company-wide computer system, and also a restructuring and cultivation of

business segments and production lines across subsidiaries. In terms of overall structure two

market/sales divisions (Heating and Marine/Offshore) and a Production and Supply division

was created in 1998 and later, in 1999, a process oriented matrix structure based on both

functional and market principles was created while the group management was again

functionally organized. In 2000 the M-form was re-installed with two product-market

divisions after the sale of the heating business in 1999. The former legal company status of

the sales and production subsidiaries was abolished and all companies integrated in either of

the divisions. Thus the principle of clearly separating sales and production - a cornerstone in

most of the structures in 1990s - was forcefully rejected. Compared to the previous divisional

structure, the divisions were now organized with their own staffs, whereas several functions

was still retained at corporate level, included the value chain management.

In terms of business strategy Glamox did not diversify in the course of the 1990s. However,

lighting products for marine and offshore installations increased in importance relative to the

onshore market where Glamox run into trouble. At the start of the decade the offshore market

was small compared to the onshore market, but at the end of the decade the turnover of the

marine/offshore business equalled that of the land lighting business. Nevertheless, although

the turnover of the company increased almost year by year, in terms of profit the upturns

hardly levelled the downturns. At the largest production site the production of heating and

lighting products for both on- and offshore markets was more or less integrated. Historically

the idea of getting synergies from the different product lines and levelling vacillations in the

different seasonal markets were an important idea. On the one hand, this made it difficult to

cultivate the product market principle on the floor level. One the other the separation between

sales and production companies had caused almost insurmountable problems connected to the

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negotiating of inter company prices. Although the companies were interdependent within the

same value chain, they behaved more as competitors in a market than allies integrated within

a corporation. Irrespective of the external markets, their results also depended heavily on the

prices that could be obtained between them and consequently much energy was put into price

negotiations. Thus, the gradual development towards product divisions can be understood in

the light of the need for tighter integration of the companies and the activities in the value

chain.

Inside the company the suspension of the M-form structure in the late 1990s is explained

firstly by the need for re-engineering the value chain, including the integration of sales and

production, and secondly by the need to separate but still cultivate the value chains within

each product-market segments. This was first accomplished for the heating business which

was subsequently sold out because it was defined secondary in both prospects and focus. In

the remaining businesses the processes are more intertwined, and although great progress has

been made there is presently still work to do in terms of separating and purifying the value

chains. Whereas the aim of the re-engineering process has been to create more efficient

businesses, the process has also given birth to an ambition to find separate industrial partners

for each division since the specific combination of the marine/offshore and the land lighting is

unique to Glamox and hardly of strategic interest to possible partners. This also drives the

process towards a more clear-cut separation between the divisions.

3.1.3 Discussion

With reference to the descriptions on the spread of the M-form in Europe and in particular in

the Nordic countries, it can be argued that both Hydro and Aker were in the forefront of

introducing M-form ideas at least in the Nordic countries. It is obvious that both these

companies had to search actively for alternatives to the structures they already operated. This

indicates that the M-form was not very institutionalized at the time, although Hydro found the

form to be common in the US chemical industry. At home ground it was hardly experienced

by anyone.

It is also quite obvious that the processes experienced in Hydro and Aker was far from a full-

fledged adoption process in which the M-form as template was implemented quickly and with

radical changes in both management and operations. On the contrary the approach of the

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management in both companies was marked with caution. This can be read as a lack of

experience with the form as well as hardly any references from the domestic and Nordic

industrial environment. Despite the fact that both companies also experienced important

changes in their management in the periods previous to the structural changes, the changes

were less radical than might be expected. In many ways the changes were more on paper than

in practice, indicating what might be translated as de-coupling processes. Because both these

companies were experiencing organizational problems before they were aware of the M-form,

let alone the lack of awareness of the form in their business environments, it is problematic to

argue that their introduction of the template and the obvious discrepancy between practice and

the template as it is generally taught (the management in Hydro at least was aware that the

practice of the US companies were much more radical than their own) was a result of a

strategy to show their stakeholders that they were modern whereas operations were kept apart.

In the same vein, the data do not support the idea that the processes were translational in the

sense that the companies were searching for identities that were both modern and unique at

the same time. This is logical, however, since the M-form was not institutionalized in their

environments and as such probably did not represent a very obvious token of modernity. What

is more sensible is to understand the way the form were put into practice as a process of

translation in which the new ideal was translated through the lenses of the old functional form

which was still the platform of the managers controlling the reforms. Although the managers

that decided to introduce the new ideas were quite new in their positions and as such not

responsible for the old structures, they were also generally internally recruited and in many

ways brought up as managers within these structures. Since there were also few if any role

models it was probably natural to be cautious and advocate an incremental change strategy. It

is also noteworthy that the prominent positions these managers held were functional, and to

advocate a radical devolution of responsibilities and tasks to operational units could mean

undermining their own positions. Thus, it can be suggested that the kind of translation that

was in operation was as much political as it was purely cognitive, and the type of modelling

involved more readily be characterised as incremental adaptation rather than transformational.

Although the structures that were being operated in Hydro obviously were hybrids, the

direction of development over the years was towards implementation of the more

decentralized ideas of the template (Gammelsæter 1991). In Aker, the direction was the

opposite, with a return to the functional form.

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In contrast to the processes of divisionalization in Hydro and Aker, the M-form was well

known and fairly institutionalized in the relatively small Norwegian business milieu when

Hafslund and Glamox formally divisionlized. In Hafslund, the struggle for greater freedom

from detailed executive supervision brought middle managers to discuss alternative

organization structures, and it was observed that other companies operated divisionalized

structures at least around the middle of the 1970s (Gammelsæter 1991). The instance of de-

coupling took place in 1983-84 when the Engineering department was omitted from the

organization chart although two divisions was reporting to its leader can also be taken as

evidence of the institutionalization of the M-form at the time. In the light of the modernization

motive of the General manager, this deliberate omission indicates an awareness of how the

company should display its structure. At the turn of the century the interesting question is

perhaps whether the M-form has not become de-institutionalized. At present we have no

indication that it has. On the contrary, the form seems to spread further as it has in the last

decade been propagated in the former eastern economies [Clark, 1999: 158].

If we accept the premise that both Hafslund and Glamox operated in environments in which

the M-form was well institutionalized, we still have to question the idea that organizations

adopt organizations forms in the sense that a complete template is taken for granted and

organizations - at least the managerial structure - subsequently are designed after the template.

What we witness in both these companies is that the formal introduction of the M-form has a

fairly long prehistory. In Hafslund important actors in the middle tiers of management are

prepared for this change many years before it happens, and when divisions are introduced it is

the General manager and his care for old fellows that slows the pace of the transition, not

managers at lower levels. This is also what caused the short period of obvious de-coupling

that took place in Hafslund. Compared to the divisionalization in Aker and Norsk Hydro the

transition from the old to the new is certainly more rapid, but to conceive of it as a quick

adoption process seems misplaced. After all, the period from 1977 when the formal strategic

planning process began and the idea of decentralizing power from HQ to operational units

first was formulated in writing, till 1984-5 when boards were set up for the divisions and the

Engineering Director retired, is quite long.

Similarly, in Glamox important principles underlying the M-form was introduced already in

1992 - foremost the idea of separating accountable business units from a strategic level - even

though they were mixed up with the idea of separating sales and production units. Some years

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later the product-market idea in particular was given higher priority in organizing the group

management, and the image of divisionalization was becoming more distinct. It is noteworthy

still that the general manager that introduced the separation between sales and production

companies never rejected this principle, but instead tried to combine it with principles of the

M-form. This can be conceptualised as a translation process in which modelling is modified

and uniqueness is preserved or an incremental process in which management find it hard to let

go of principles that have been fundamental to their regime and therefore their authority.

We do not know whether the purification of the M-form in Glamox depended on the change

of management, but whereas the re-engineering of the value chains was not regarded a

prerequisite for establishing a divisionalized structure by the former management, this was

exactly the motive for the reversion of the process made by the new management. The

intermezzo of suspension of the divisional structure most likely must be understood as a

symbolic break connected to the use of another template, the Business Process Reengineering

that forcefully advocates ’starting over’ (Hammer and Champy 1993) as a basic principle in

radical organization change. Thus the formal re-introduction of the M-form in 2000 can better

be understood as the ’end’ of a process of divisionalization rather than the ’start’ of it. In

particular, there is reason to believe that its implementation was made easier by its prehistory

in the company and not to forget the elimination of the principle that many middle managers

found most improper, namely the separation and competition between production and sales

companies.

Despite the dissimilarities of the divisionalization processes in Hafslund Glamox, describing

both as processes of adapting to the idea of the M-form catches the events more succinctly

than does the term adoption. At least in these companies this also rules out the understanding

of modelling as de-coupling as a permanent change strategy. Given the high

institutionalization of the M-form in the 1980s and 1990s this is noteworthy. Having said this,

the de-coupling mechanism appears to operate in Hafslund as a device for smoothing the pain

of transition for long-tenured managers while at the same time demonstrating the modernity

of the company. In this company at least it did not work long, and the only reason it was

accepted by division managers was probably the certainty that is was provisional. In this sense

it can hardly be interpreted as a process of translation either. The deviation between the

organization chart and what was actually practiced was deliberate, and together with the

expressed displeasure with the arrangement on the part of the division managers, it is difficult

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to understand the instance as a purely translational process in which the company tries to

carve out a new identity that is at the same time both unique and modern.

3.1.4 Conclusions

We have briefly described the introduction and implementation of the M-form in four

Norwegian manufacturing companies; two of the forerunners and two late ’adopters’. The

divisionalization processes are seen in the light of recent theoretical approaches to the

diffusion of management technologies and the concomitant inferences that can be made on the

relevance for implementation processes in organizations.

The understanding that can be derived for the cases is first that organizations do not adopt but

adapt to ideas and templates. This is hardly a controversial conclusion, but it points in the

direction that what we have to study more is the process of adaptation which can be

understood as the use of both de-coupling mechanisms and translational mechanisms that are

cognitively and/or politically informed and possibly giving different patterns of development

in different organizations. At this stage we would suggest that adaptation involves both de-

coupling and forms of translation, but the case of the M-form also suggest that in spite of the

local transformations and designs that are arrived at in specific organization at different times

there is a remarkable cohesion to the template which the companies that we study either

conform to (over time) or alternatively reject altogether (cf. Aker).

This makes us think of the adaptation process as a relatively long iterative translation process

(even in companies that model their structure from a template that is very institutionalized) in

the sense that managers both adjust their organization structure to the template and

simultaneously translate the template according to their own situation, including their

relations to colleagues. Such processes can include the use of de-coupling mechanisms as a

deliberate device and will almost necessarily lead to local designs that at times can be

presented as or conceived of as unique to the organization in question, as was the case in

Glamox for instance. However, since there are many trivial and non-trivial mechanisms that

change the composition of management in organizations, now and then instances occur in

which the relation between the template and the actual structure is reinterpreted, or

understandings that has been arrived at an earlier point can be put into practice. This in

particular can be connected to shifts in management, if not exclusively so.

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One of the main merits of this study is the comparison of divisionalization processes in

companies that introduced the form at quite different points at what might be seen as a

institutionalization cycle. We will generally recommending this approach also in the study

other templates or ideas of management technology, not the least because the analysis made

here is based on the implementation on the M-form which is a template that possibly is

different from many other modern templates or more loosely connected ideas on the

management of organizations.

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3.2 Organizational change in Dutch banking (Doreen Arnoldus and Joost Dankers) 3.2.1 Introduction In this chapter, we present the results of case-based research on the role of consultancies in

organisational change in the Dutch banking sector in the second half of the twentieth century.9

The banking sector of the Netherlands is an interesting economic sector for analysing the role

of consultancies as carriers of management knowledge, because of its large size compared to

the country’s GDP and its high degree of internationalisation. In addition, the Dutch banking

sector consists of banks from a wide variety of origins. We have used this variety in our

selection of the cases. The choice of the case studies is based on the proposition that the role

of consultants is dependent on the organisational structure of the client. We therefore selected

different types of banks - both in terms of ownership and organisational structure and with

respect to market orientation. We selected commercial banks, which were limited companies,

agricultural banks, which were co-operations, and savings banks which were organised in a

federative organisation. This selection enabled us to compare the interaction between

consultant and client and to evaluate the influence of the organisational structure of the client

banks.

In the late 1950s the formerly specialised Dutch banks started to diversify their services. This

led to a fierce competition in the banking sector, which in its turn stimulated many bank

mergers in the period 1964-1975. Until now historical research has overlooked the role that

consultancies played in the transformation process in the Dutch banking sector following this

merger wave. This neglect was probably due to the fact that consultancies generally only

came in after the decision to merge. It was in the post-merger integration phase, however, that

consultancies had the chance to put their mark on the eventual outcome and success of the

mergers.

We will first give an overview of the developments in the banking sector and in the consulting

industry in the Netherlands from 1950 to 1990. Next, we will present the case studies that

9 This chapter is based on original research carried out in the archives of the banks studied. For the detailed references see Sluyterman et al. (1998), Arnoldus (2000) and Dankers et al. (2001). Research was partially funded by the CEMP project. The authors are grateful for this support and would also like to thank Ton de Graaf and Stefan de Boer, corporate historians of ABN AMRO Bank and Rabobank, and Jos van der Linden, Angela van Son, and Jozef Vos from the University of Utrecht. The usual disclaimer applies.

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were pursued in three banking categories: commercial banks (Amro Bank, ABN Bank, and

their joint successor ABN AMRO), agricultural co-operative banks (Rabobank and their

predecessors Raiffeisenbank and Boerenleenbank) and municipal savings banks which

ultimately integrated into two conglomerates (VSB and SNS). As we will argue in this paper,

these differences had implications for the manner the banks dealt with the services of

management consultants. Using the (secret) minutes of the meetings of the Managing Boards

in the period 1950-1990 and the correspondence between the banks’ management and the

consultancies, as well as reports and other documents concerning the consulting assignments,

we were able to reconstruct the interaction between consultants and clients, as well as analyse

how different levels within the banks perceived the contributions of the consultants.

3.2.2 Background I: The Dutch banking sector, 1950-1990

In the beginning of the period the boundaries between the different types of banks were well

defined. The commercial banks, the co-operative banks and the savings banks each provided

their own market segments. The four big commercial banks provided short-term loans to trade

and industry; the many rural credit co-operative banks focused on the provision of medium-

and long-term credits to the agricultural sector; and the numerous savings banks aimed at the

local nickel-and-dime savers. Other market segments such as the small and medium-sized

businesses and the housing market were catered for by Nederlandsche Middenstandsbank

(NMB) and several independent mortgage banks respectively. Around 1990 all these types of

banks had converged in terms of the banking services they supplied and the wide range of

customers; most banks had become general banks that aimed at both the retail and wholesale

markets. However, for the banks under study we will use the labels commercial, co-operative

and savings banks for the entire period because even though the banks’ services converged,

their organisational structure and market orientation remained distinct.

The transformation of the Dutch banks from a highly segmented market to a market in which

all banks were direct competitors started in the late 1950s when the commercial banks

changed their credit policy in response to the increasing demand for investment and export

credit of Dutch enterprises. The commercial banks started to provide medium- and long-term

credits. To fund this increased lending they attempted to tap the swelling reservoir of private

savings that were another result of the prosperity of the late 1950s and 1960s. Apart from

very wealthy clients, private customers had never belonged to the commercial banks’ clientele

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because private savers traditionally kept their savings at the co-operative banks,

Rijkspostspaarbank (the postal savings bank) or, of course, the savings banks.

Tapping household savings thus required specific investments of the commercial banks. The

new consumers market was approached aggressively; to attract clients from the middle and

lower classes higher interest rates at savings accounts were offered as well as other services

such as consumer credits. In addition, the commercial banks had to invest in branch networks.

In this way retail banking gradually became a new core activity of the commercial banks; a

goal in itself rather than a mere method to attract funds. The expansion of the commercial

banks - commercially as well as geographically - brought these banks in direct competition

with co-operative and savings banks that traditionally had a strong local presence in the

country-side and aimed at the non-rich private customers. The savings banks were naturally

most affected by the entrance of the commercial banks in their sheltered niche market. The

co-operative banks, however, were also disturbed because savings were their only source for

the credit provision. Consequently these two types of banks expanded their banking services

into retail banking as well.

The diversification of the formerly specialised Dutch banks led to a fierce competition, which

in turn stimulated many bank mergers in the period 1964-1975. It is remarkable that this

process of concentration took place within the traditional categories of commercial, co-

operative and savings banks. This shows that in spite of the fact that all banks were

developing towards general banks, the organisations were still worlds apart.

3.2.3 Background II: Management consulting in the Netherlands

Before the Second World War Dutch consultants - ‘efficiency engineers’ as they called

themselves - primarily focused on issues such as rationalisation, efficiency, and time and

motion studies. The economic policy of the post-war reconstruction, the ‘controlled wage

policy’ of the 1950s boosted the further development of consultants. In order to increase

competitiveness the Dutch government wanted to avoid sudden increases in wages. Individual

companies could only get permission for an increase in wages if this was constructed in a

tariff system based on merit rewarding. Hence there was a great demand for consultants who

could perform time and motion studies to determine the norms for rates of pay. In the

gradually tightening labour market consultants were used to prove that labour productivity in

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a particular firm was relatively high which could legitimize breaking through the norms of the

controlled wage policy. Such assignments were therefore called ‘breaking-through

assignments’. The step-by-step abandonment of the controlled wage system (1959-1963)

finished with this attractive consulting market.

From the 1960s onwards consultants expanded their activities to broader themes such as

strategy and organisation development. This was certainly enhanced by the establishment of

Dutch branches of US consultancy firms such as McKinsey (1964) and A.T. Kearney. As a

side-effect the consulting industry also became less than previously focused on the

manufacturing sector, which might explain why we did not find earlier consulting

interventions in the banking sector. This is not to say that the first consulting assignments in

banks were supply-driven. As we will see below, the entrance of the first management

consultants in the banks under study was related to specific developments within the banking

organisations. In the following sections we will analyse the consulting interventions in the

different banks by describing and comparing the nature and impact of the consultancy

services as well as the relationship between the banks and their advisors.

3.2.4 Dutch banks consuming consultancy services

3.2.4.1 American consultancies at the commercial banks Amro Bank was in 1968 the first Dutch bank to hire management consultants. The other large

commercial bank in the Netherlands, ABN Bank, engaged its first consultants in 1972. In both

cases external experts were commissioned for similar reasons and at a similar stage in their

organisational development. Both banks had been formed through mergers in 1964. Only one

week after the announcement of the merger between Nederlandsche Handels-Maatschappij

(NHM) and Twentsche Bank (DTB) into Algemene Bank Nederland (ABN Bank), the other

two major commercial banks, Amsterdamsche Bank (AB) and Rotterdamsche Bank (RB)

announced their amalgamation into Amsterdam-Rotterdam Bank (Amro Bank). It was no

coincidence that the four largest commercial banks merged at the same time. Although the

individual banks did not all four have an equal urgency to look for merger partners, once the

game of merger negotiations had been started by NHM and DTB - for whom merging was of

vital interest - the other two banks could not stay behind. The complex merger negotiations

might as well have resulted in other combinations, but a mixture of business and personal

factors eventually led to the formation of Amro Bank and ABN Bank.

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Apart from the hiring of external accountants who had to value the potential partner’s capital,

external advisors played no role in the merger negotiations. Intermediaries were not needed

because the directors of the commercial banks often met each other. Bankers met each in

interbanking meetings such as the Nederlandse Bankiersvereniging (the present Nederlandse

Vereniging van Banken - Dutch Association of Banks). They often also held positions as non-

executive directors (commissarissen) in Dutch companies and as such they met each other in

the network of industrial decision-makers. In addition, the executive and non-executive

directors were very keen on leading the merger process themselves, because their personal

ambitions and future positions were at stake.

Personal factors remained important in the post-merger period. At Amro Bank the new

Managing Board was chaired by C.A. Klaasse, the former president of AB. Until 1967 many

functions within the board were occupied simultaneously by two men of both old banks.

Klaasse’s retirement in 1968 marked the end of the first phase of the post-merger integration

and was viewed a good moment to think about restructuring the top level organisation. Unlike

the earlier phases of the integration process this would now directly concern the members of

the Managing Board themselves. This, and the uneasy relationship between the two chairmen

J.R.M. van den Brink (formerly AB) and C.F. Karsten (formerly RB) - the dual chairmanship

had been decided upon during the merger negotiations - made external advice necessary and

paved the way for the first assignment of the management consultants of McKinsey & Co.

The events at ABN Bank followed a similar course. After the retirement of the new President

H.W.A. van den Wall Bake (formerly NHM) in 1969, the executive directors were headed by

a Presidium of three men, chaired by J.C. Wurfbain (formerly DTB). With the retirement of

the latter in 1972 the old leaders of the separate blood groups were gone. This created the

opportunity for an evaluation of the top structure of ABN Bank. Indeed, in the meeting of the

Managing Board in which the post-Wurfbain period was first on the agenda, the idea to hire

an independent consultancy was immediately suggested. The parallel with Amro Bank was

even more manifest when Wurfbain was succeeded as President of the Presidium by the two-

headed chairmanship of A.F.J. Dijkgraaf (formerly DTB) and A. Batenburg (formerly NHM).

The relationship between these two directors was somewhat strained as well, which made it

difficult to direct the delicate reorganisation of the top level from inside and necessitated

external consultation.

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Thus, at the two commercial banks the first management consultants were commissioned

because post-merger integration had moved upward from the lower organisational levels and

had reached the highest level of the banks’ hierarchies. The executive directors had managed

the reorganisation of the lower strata of company officials themselves. They were uncertain

about their capability to lead this process at their own level, which insecurity was possibly

intensified by the fear of power games because of the forced situation of the dual

chairmanships. Both Managing Boards decided to hire the most prestigious management

consultants, i.e. American consultancy firms.

At Amro Bank chairman Karsten was a strong advocate of the use of external advisors. At

Rotterdamsche Bank he had already shown that the executive director of a bank should not

only be a banker but also a manager of the organisation. He had displayed a great interest for

the management of organisational change and under his leadership RB - in contrast with the

other large commercial banks - had commissioned external experts for issues such as public

relations, financial reports, cost price calculation and the administration department. Karsten,

who was greatly interested in the American way of business and who had early in his career

written a dissertation on the American banking sector, probably also suggested the choice for

McKinsey, one of the few American consultancy firms in the Netherlands in 1968.

When ABN Bank searched for a suitable management consultancy firm a couple of years

later, they also approached McKinsey. Not because intentionally they attempted to mimic

their rival Amro Bank, but because it was the obvious choice for any organisation that did not

even consider the possibility of a Dutch consultancy firm. Amro Bank, however, after being

informed by ABN Bank itself, intervened and urged that McKinsey would not accept the

assignment. McKinsey’s withdrawal imposed restraints on ABN Bank. Firstly, because ABN

Bank was confronted with increasing searching costs because they had to put out the

assignment to tender. The other restriction was formed by the language barrier since there was

only a limited number of American consultancies with an office in the Netherlands and with

Dutch-speaking consultants. The assignment was eventually given to Arthur D. Little

(established in Brussels), an American consultancy firm which had stressed in its letter of

proposal that three consultants out of five of the core team spoke Dutch as their mother

tongue.

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The working procedures of the two consultancies McKinsey and Arthur D. Little were

different. The assignments given by the banks, however, did not vary essentially; in both

cases it was asked to redesign the (top) structure of the organisation in order to be better

equipped to reach the strategic goals. At both banks the consultants interviewed the first two

hierarchical levels (the Managing Board and the general managers) and only occasionally

someone of the third level. McKinsey, however, also interviewed a selection of the large and

medium-sized clients of Amro Bank. The executive directors of Amro Bank closely

monitored these interviews; they spent a lot of time in selecting the clients and asked for more

interviews at the third management stratum. At ABN Bank the consultants of Arthur D. Little

interviewed a smaller number of people, which may be the result of the limits in time and

expenses that ABN Bank had set. The working procedure of McKinsey led to more contacts

between the consultants and the client. There were numerous moments of feedback, with the

result that the final reports were indeed co-products of the consultants and the Managing

Board. This, of course enhanced the acceptance of the final advice. The process of feedback

was taken seriously by most executive directors, amongst whom was Karsten. Progress

reports were studied critically and checked on earlier amendments or remarks.

The style of Arthur D. Little turned out to be more confrontational. The first preliminary

memorandum of Arthur D. Little, for example, aroused a great deal of commotion at the

Managing Board of ABN Bank, because the consultants suggested that the bank changed its

articles of association on the point of responsibilities of the executive directors. According to

the consultants a collective responsibility of the Managing Board within the own organisation

could not be maintained. It is not clear whether the foreign consultants were aware of the fact

that this was quite normal according to Dutch corporate law. During the whole year of 1973,

the Managing Board of ABN Bank needed many internal meetings to discuss the ideas and

implications of Arthur D. Little’s preliminary recommendations. During several weeks the

project was daily on the agenda. One thorny subject was the composition and the

specification of responsibilities of the supervisory board (the board of non-executive

directors). It was obvious that the number of commissarissen had to be reduced. In order to

prevent that the lack of consensus between the Managing Board and Arthur D. Little on this

point would become known to the supervisory board itself, it was eventually decided that the

consultants would refrain from an advice concerning these non-executive directors, in contrast

with their earlier assignment.

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At both Amro Bank and ABN Bank the final recommendations of the external advisors were

largely implemented. The Managing Board of ABN Bank hesitated about commissioning

Arthur D. Little for a follow-up assignment of the implementation of the reorganisation plans.

Firstly, because the earlier experienced language barriers were supposed to play a larger role

in the implementation process. Secondly, because the Board thought that the implementation

was actually their own responsibility. It was decided that Arthur D. Little would be

commissioned to support the first phase of the implementation, and in later stages would only

support on an ad hoc basis.

In its further history ABN Bank only consumed consulting services in negligible quantities.

This was largely due to the management’s perception and elaboration of their responsibilities.

In comparison to their colleagues at Amro Bank the management had a firmer grip on the

organisation. The corporate culture of ABN Bank was also more cautious and more cost

conscious than at Amro Bank, which also diminished the inclination to hire consultants.

Berendsen describes an anecdote which clearly illustrates the difference in company culture

that was still noticeable in 1990 at the time of the merger of the two banks into ABN AMRO

Bank. To celebrate the announcement of the merger, the executive directors of both banks

decided to have dinner together and exchange presents. ABN Bank had understood that Amro

Bank wanted to spend around “twelve-fifty” on these gifts. Not being able to find a suitable

present for such a low sum, ABN Bank decided to raise their sum and buy a box of chocolate

of twenty guilders for each Amro executive director. Only when they received in return sets

of gold cuff links of their Amro colleagues, it dawned upon the ABN directors, that twelve-

fifty had meant 1,250 guilders in stead of 12.50!

Amro Bank, by contrast continued to hire consultants and became a regular client of

McKinsey. Occasionally other, Dutch, consultancies were hired for very specific subjects,

such as automatic data processing or the cost management of large building projects. But for

the issues with a strategic dimension, McKinsey was chosen. Of the 23 years from the first

assignment in 1968 to the year of the merger with ABN Bank in 1990, only in 4 years

McKinsey did not leave a trace of a consulting intervention in the corporate archive. This

does not preclude the possibility that McKinsey invoiced Amro Bank in those missing years

for small services on an ad hoc basis such as assistance at an evaluation session of an earlier

reorganisation process. McKinsey for example had assisted at two meetings of the Managing

Board when this evaluated the reorganisation project of 1968. Amro Bank hired McKinsey

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for large operational projects such as the organisation of the branch network (1969), the

organisation of domestic banking activities (1973), and cost management (1976-77) but also

for the development of new strategies such as the project to come to an international strategy

(1977-78) or a special strategy for the United States (1983-84). The management of Amro

Bank was very susceptible to the way McKinsey carefully built its relation with its first major

banking client in the Netherlands. Not only did McKinsey constantly attempt to create the

urge for new assignments by underlining in their final report the complexity of the problem of

the current assignment or glancing at a related subject, the consultants also invested heavily in

the trust basis of their relation. In this process, Amro Bank was not a passive party. In fact,

management of the Amro Bank claimed that the bank had special rights as a client and

effectively attempted to monopolise “their” consultancy firm McKinsey. Until the late 1980s

Amro Bank prevented that McKinsey developed long-term consulting relationships with any

other large Dutch bank. As we have seen above this started with ABN Bank, which might

have developed a different attitude towards management consultants if they had got involved

with McKinsey.

3.2.4.2 Consultants at the co-operative Rabobank Similar to the commercial banks, the first assignment of management consultants for co-

operative banks was also related to a merger. The position of consultants, however, differed

considerably in this case. This can be explained by the different nature of the co-operative

merger, stemming from its particular history.

In 1896 at the end of the agricultural depression the first agricultural credit co-operative of the

German Raiffeisen type was founded in the Netherlands. The modernisation of the

agricultural sector stimulated the establishment of co-operative banks. During the first

decades of the twentieth century the rural credit co-operatives spread rapidly and a dense

network of small provincial agricultural banks was created. In the 1920s the number of

account holders almost matched the number of farms. The success of the credit co-operatives

was built on the central position of these banks in the small communities which gave access to

informal information about the credit-worthiness of local farmers.

As early as 1898 two banker’s banks for the agricultural banks, the so-called Centrales, were

founded. The creation of two separate central organisations was, apart from personal conflicts

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and geographical distances caused by the river delta, due to the pillarisation (verzuiling) in the

Dutch society. Different groups of the population defined by religion or ideology, for example

the emancipating Catholics, increasingly organised themselves separately from other groups.

Consequently there were independent societies such as trade unions and political parties. This

societal process also hampered the creation of one central bank for all co-operative banks.

Thus, the Centrale Coöperatieve Raiffeisenbank was established with a head office in Utrecht,

and the Centrale Coöperatieve Boerenleenbank was founded in the southern town Eindhoven.

The latter was officially based on the Christian religion in general, but was in praxis for the

Catholic-oriented banks, which were mainly established in the southern part of the

Netherlands. The Centrale Coöperatieve Raiffeisenbank in Utrecht had a neutral basis, but

attracted more banks of a Dutch Reformed orientation.

In the course of the years the Centrales developed into more than mere banker’s banks.

Although in the co-operative structure the Centrales were subsidiaries of the combined

mother-banks (i.e. the local banks), they became increasingly important in the development of

policy. In the organisational culture of the Centrale Coöperatieve Raiffeisenbank (Utrecht) the

autonomy of the member-banks was emphasised more than in Eindhoven where the structure

was de facto more centralised. However, in the eyes of most ordinary clients of the local

banks - who decreasingly were members of the co-operation - the local banks were simply

branch-offices.

The diversification in the Dutch banking sector especially the inroads the commercial banks

made into the traditional client-group of the co-operative banks, led to a fierce competition

between both organisations. Both expanded, at considerable costs, their already very large

networks of branch-offices. On top of this, the automation which was necessary to enhance

the service for the already numerous clients, was very expensive. For that reason, in the years

1967 to 1970 the two central banks were drawing together when they attempted to limit their

competition on the local level. This turned out to be the first phase of a long and cautious

merger process; in 1970 the banks announced to prepare the establishment of a merged co-

operative bank. Both central banks had to win their members (the local banks) for this plan.

Three years were scheduled for this process which would partly be led by the newly

established Coöperatieve Raiffeisen-Boerenleenbank WA, established in Amsterdam (and

later in Amstelveen). The official motivation for this location was that Amsterdam was the

financial centre of the Netherlands. The actual reason, however, was that the obvious choice

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for the centrally situated city of Utrecht, where the Raiffeisenbank was settled, was deemed

too sensitive for the Boerenleenbank (with its head office in Eindhoven).

Much sooner than expected, in May 1972 the members of both central banks voted in favour

of the merger. A couple of months later most member banks had joined the new central bank

Coöperatieve Raiffeisen-Boerenleenbank GA. This concluded the official merger process.

The relatively long genesis of the merger between the two Dutch agricultural banks in

comparison with the two mergers of the commercial banks in 1964 was a direct result of the

co-operative structure. Although the Centrales had increased their leading role in the course of

the decades, it was only after consultation with the member banks that such a far-reaching

decision could be taken. The name of the new bank was easily found in the acronym

Rabobank, a name that paid tribute to the historical roots. More delicate was the housing-

question of the new central bank. Even before the official approval of the merger by the

member banks, the Managing Boards (Raad van Beheer and Hoofddirectie) of the combined

central banks had hired one of the oldest Dutch consultancy firms, Berenschot, to advise them

on this matter. After a short research Berenschot advised to lodge the new central

management in Utrecht, whereas the old headquarters could remain in Utrecht and

Eindhoven. Since the executive directors of the central bank were convinced that the housing

in Amstelveen had only been a temporary solution, they were happy to be backed up in this

by the independent consultants.

Berenschot was requested to formulate its advice within two months. The consultancy firm

realised that the assignment gave them a foot in the door and consequently emphasised in its

report that although the firm understood that the urgent housing-question could not be

postponed it should have been preceded by an in-depth study of the structure of the merged

banks. Therefore, the consultants had somewhat extended the strict assignment and had

included some starting-points for a potential future structure of the merged organisation in

their recommendations. Berenschot's plan worked. Immediately after the first assignment, the

consultancy firm was commissioned for a more elaborate task; Berenschot was asked to

design a new organisational structure for the Centrale, while originally it was planned to make

this internally.

Thus, similar to the two commercial banks the first consultancy assignments at Rabobank

were related to post-merger issues. However, Rabobank hired consultants at an earlier stage.

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In addition, there was a major difference in the post-merger integration process itself which

had implications for the use of consultants. The merger of the co-operative agricultural banks

were in fact mergers at three levels. At the local level, many of the member banks of

Raiffeisenbank and Boerenleenbank that operated in the same area were supposed to merge as

well, but because of their autonomy they could not be forced to. It is not plausible that these

local banks hired management consultants for their mergers, because the local co-operations

could get assistance of the central bank.

The most complex part of the merger process was the integration of the two complete

organisations, which included the relation between the local member banks and the central

bank. Because of the co-operative structure of Rabobank the total organisation was less

hierarchical than the commercial banks. Although the old Boerenleenbank had been more

centralised than the old Raiffeisenbank where local autonomy had always been highly valued,

in both organisations the final authority had been with the local banks and not with the central

bank. Consequently, plans that concerned the entire organisation of the co-operative banks -

especially the relation between the central bank and the local bank members - could not be

simply dictated by the Managing Boards. The need to get approval of the members of the co-

operation made the potential role of external advisors in this part of the post-merger

integration very limited. Indeed, instead of making use of external experts numerous internal

committees attempted to reach a consensus in lengthy discussion and consultation rounds.

Especially the so-called Structure Committee (1975-1976) played an important role in this

integration process.

A third level of the merger was the integration of the two Centrales, the top co-operation. As

we have seen above, the initiative to hire the Dutch consultancy firm Berenschot was taken by

the highest management level, the Managing Boards (the Raad van Beheer and the

Hoofddirectie). The assignment of Berenschot was restricted to this central level; the

consultants were only commissioned to advise on the internal organisational structure of the

central bank. Therefore, we will only look at the role of management consultants at the level

of the top co-operation.

In contrast with the commercial banks, in the early 1970s Rabobank was hardly

internationally oriented. This was also illustrated by the choice for Berenschot. Still, this

choice for a well-established Dutch consultancy firm could not prevent misunderstanding and

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disagreement about the distinctive character of Rabobank. Even though the Berenschot-team

interviewed at more levels in the hierarchy of the (central) organisation than the consultants at

the commercial banks did - they interviewed managers of the first three levels, and

occasionally also officials of the fourth stratum - the preliminary ideas of the consultants

about the desired structure of the central bank were criticised by both the Raad van Beheer

and the Hoofddirectie. The criticism focused on the fundamental and delicate point of the

distinctness of the co-operation. The Berenschot consultants were accused of looking at the

Rabobank as an ordinary, commercial organisation. Apparently the consultants had not got

away from the usual concern-construction with holding companies and subsidiaries. However,

so Rabobank argued, the power was not at the top but at the basis of the organisation. In short,

the consultants were criticised of neglecting the historical and emotional background of the

co-operation. Berenschot, however, argued that from a rational point of view the central bank

was a “going concern”, and the legal, historical and emotional characteristics of the co-

operation were not essential for the structure of the central bank. Technically speaking, the

consultants maintained, the banking activities were the same as those of the commercial

banks. Eventually, during a retreating-weekend organised by Berenschot the Managing

Boards officially decided that the consultants’ advice on the structure should be based on

rationality only. This was mainly a practical decision to keep the assignment workable for the

consultants. It certainly did not mean that Berenschot’s opinion was internalised. For

example, the Hoofddirectie rejected the statement of Berenschot in the final report that

although it was unquestionable that the Rabobank organisation had a specific position in the

Dutch banking sector, the market behaviour of Rabobank was not any different from the

general banks.

Notwithstanding these differences in opinion, the final advice of Berenschot to structure the

organisation of the central bank along five parallel divisions was adopted. The five divisions

would be led by five directors, who would form the Hoofddirectie on the basis of equality.

However, the number of managing directors was not restricted to five, in contrast with the

recommendations. This prevented not only the forced retirement of some of the current

directors, it also created the opportunity that two directors could dedicate their time to internal

relations within the co-operative organisation and external relations with co-operative firms.

This was another manifestation of the importance that the Rabobank directors attached to the

co-operative structure of their organisation.

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Within two years it was clear the top structure of the central bank as proposed by Berenschot

did not work. One of the problems was that both partners had to be represented on an equal

base in the top. As it was said that Raifeissenbank brought the money to Rabobank and

Boerenleenbank contributed the brains, this proved not easy at all. Apparently it was not held

against the consultants, because the same Berenschot was asked to advise how the top

structure could be made to work. In their diagnosis the management consultants implicitly

defended themselves by including a theoretical argument about the fundamental difference

between a form of management by equality as had been recommended and management by

unanimity as the Hoofddirectie had falsely interpreted it. Both management styles were based

on the Dutch legal principle of collective responsibility of the Managing Board (see also

above), but taking only unanimous decisions clearly hindered the efficiency of the Managing

Board. Some minor changes in the structure of the central bank and more essential changes in

the division of tasks of the Managing Board were proposed and implemented.

The relationship between Rabobank and the consultancy firm Berenschot did not further

develop into a close consulting relationship. In fact, Rabobank in the 1970s made only limited

use of consultancies. In 1982 the Centrale prepared a long term cost-management project with

the name “Opvoering Toegevoegde Waarde” (OTW; Increasing Value Added). It was decided

to hire McKinsey because this consultancy firm had made name with its Overhead Value

Analysis (OVA) and its experience in the banking sector. McKinsey’s involvement in 1983-

84 was based on the do-it-yourself concept; the consultants instructed a Rabobank team,

which would teach the methods to assess costs and effectiveness to the approximately eighty

units that were involved in the organisation-wide project. In addition, McKinsey assisted the

Rabobank teams during the first phase of the project, and probably would extend this

assistance to the phases to come.

Because of their special relationship with Amro Bank, McKinsey reported the assignment to

this bank, at the same time informing Rabobank about the restrictions that their services to

Amro Bank imposed on them. Nevertheless, the underlying idea was that the consultants

participation during the first phases of the OTW-project would lead to a multi-year

involvement of the management consultants, since these were all non-strategic issues

concerning operational improvement. However, it was exactly this non-incidental character of

the consultancy service that Amro Bank abhorred. Consequently, after the first phase of the

OTW-project early 1984, Amro Bank asked McKinsey to withdraw from Rabobank.

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Chairman R.J. Nelissen of Amro Bank personally intervened by calling his Rabo-colleague P.

Lardinois After consultation between all parties, McKinsey indeed left Rabobank. The OTW-

unit in New York, however, kept working with McKinsey on the cost-management project.

Ironically enough some months later, this relationship was also ended, because of the very

high costs involved for the Rabobank.

3.2.4.3 In search for unity: consultants at the savings banks The increased competition of banks in the 1960s also affected the savings banks. One of the

reactions of the savings banks to deal with this, was engaging a consultancy firm to

investigate the possible forms of co-operation between the numerous savings banks. The

decision to hire a consultancy was taken in 1968, almost simultaneously with Amro Bank

hiring McKinsey. To understand why the consultants at the savings banks had less impact in

comparison to their colleagues at the commercial banks, it is necessary to look at the

historical background of the savings banks.

Savings banks belong to the oldest financial institutions in the Netherlands; the first savings

bank was founded in Haarlem in 1817. Savings banks primarily aimed at promoting thrift

among labourers, small craftsmen and servant girls. The number of savings banks grew

rapidly in the course of the nineteenth century, although the deposits made were still relatively

small. The aims of savings banks were not primarily financial but rather idealistic. Thrift was

encouraged as part of the civil moral which formed a firm base for the Dutch society. In the

second half of the nineteenth century the record number of nearly 300 savings banks was

reached. However, one can make some critical remarks on the success of the savings banks

movement. Both the daily management and the board of the savings banks, which all operated

independently, were formed by local dignitaries. There was a big discrepancy between the

target group that the savings banks had in mind and the actual depositors. The ones who

benefited most from the savings banks were small traders and the reasonably well-off middle

classes, not the ordinary labourers who were supposed to be encouraged to save. Another

point of criticism was the uneven geographical spread: savings banks were especially active in

the cities and not in rural areas; notably in the Catholic south there were hardly any savings

banks to be found.

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Therefore, the government intervened with the founding of Rijkspostspaarbank (RPS, the

postal savings bank) in 1881. The immediate success of RPS forced the private savings banks

to recognise the need for renewal and professionalisation. The emerging agricultural co-

operative banks formed an extra challenge for the savings banks, because these banks entered

the savings market as well. It gradually transpired that in many cases savings banks were

dated institutions, driven “first and foremost by the desire for solidity and as a consequence

averse to new roads,” as a critic put it. The increased size of the banks called for professional

management and stricter inspection. This modernisation development led to the conclusion

that closer collaboration was inevitable. Hence in 1907, the Netherlands Federation of

Savings Banks was established. However, the scope of activities of the new Federation was

limited due to refusal of many individual banks to join. This was a result of the strong sense

of autonomy of the managements formed by local dignitaries. Many of them were not

prepared to give up part of their independence for the benefit of a central organisation.

Individual savings banks could choose to stay out of the Federation, because it was not a

central bank. Unlike the agricultural co-operative banks, savings banks did not provide credits

and hence were not forced to co-operate in a central bank that diminished the risks. This

individualism, which was remarkably strong among savings banks, later also considerably

limited the chances of co-operation and concentration.

It was government intervention that eventually brought all savings banks together in the

Federation. The Credit Control Law of 1952 gave De Nederlandsche Bank (DNB, Dutch

central bank) the authority to issue regulations regarding the solvency and liquidity of banks.

The Dutch central bank entrusted the financial monitoring of the savings banks to the

Federation of Savings Banks. This enhanced the importance of the Federation because all

savings banks were now legally obliged to join. Attempts to found a central bank, however,

still met with strong opposition from savings banks. They cherished their autonomy, which

would be undermined by the creation of a strong central organisation. In addition, they feared

that the creation of such a central bank might bring along exceptionally high costs. As a

result, the organisation of savings banks remained highly decentralised.

The diversification in the banking sector in the 1960s set new challenges for the savings banks

with their traditional target groups and social aims. The rise of commercial banks came

entirely at the expense of the share of the savings banks and RPS in savings balances. These

developments forced savings banks to participate in the emerging process of diversification.

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They responded by entering the personal loans and mortgage market and by searching for

customers outside their original clientele. All banks entered the retail market by offering their

customers personal accounts, continuous credit, and a wide range of other banking services.

The diversification into retail banking put the profit margins of the savings banks under

pressure. Therefore, savings banks looked for ways to reduce costs and simultaneously

strengthen their competitiveness. Especially the formation of ABN Bank and Amro Bank in

1964 impelled the savings banks to discuss their future. Co-operation and concentration were

seen as the best way to improve the position of the banks. Several common institutions were

established such as a Co-operative Investment Fund (already in the 1950s), a Management

Development Institute and a Central Administration System. Nevertheless it was clear that a

more structural reorganisation was inevitable.

The Federation attempted to stimulate regional co-operation and mergers of local savings

banks, but refused to press its members to more concentration, because it was well aware of

the historical roots of the savings banks. The process of concentration was furthermore

complicated by the growing antithesis between the local dignitaries as members of the board

and the professional managers of the savings banks who became more influential. The board

often feared to be outmanoeuvred by the management. Nevertheless the urge for co-operation

became stronger as the savings banks lost ground. For that reason in 1968 the General

Meeting of the Federation, in which all savings banks were represented, decided to hire the

Dutch consultancy firm Berenschot to advise the banks on the future structure of their co-

operation. The formal assignment to Berenschot was given by the board of the Federation.

The board asked Berenschot to study the mutual relations between the Federation and the

other central institutes on the one hand and the relation between the Federation and the

individual savings banks on the other.

Thus, while at the two commercial banks Amro Bank and ABN Bank, as well as at the co-

operative Rabobank the first consultants’ assignments were given after the decision to merge

and restructure the entire organisation. In the case of the savings banks, the expertise of

consultants was requested before this kind of strategic considerations was supported by the

collection of savings banks.

Berenschot produced an advice in two separate reports which were of a different nature. The

first report was produced in close co-operation with the staff of the Federation. The

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development of the financial sector and the consequences for the position of the savings banks

were described. It made clear why structural changes were necessary to realise a more

uniform and adjusted policy for the savings banks. It also gave some recommendations on the

future structure of the savings banks and their policy. Regarding their policy more uniformity

was strongly recommended. The different savings banks had to offer a more uniform service,

adopt a common name and trademark and a uniform administration. It would be necessary to

discuss voluntary co-operation between neighbouring banks under supervision of the

Federation. In general the banks would have to accept more influence from the Federation on

their local operations. Regarding the board of the individual banks it was recommended that it

would give more responsibility to the manager. The board should function more like a

supervisory board and refrain from intervention in daily affairs. Moreover members of the

board would have to retire at a certain age and were no longer allowed to combine their

membership with other functions in the financial world. The first report only made some

general remarks about the central institutions. It was stated that the functioning of these

institutions was hampered by their geographical dispersion and the fact that they all had their

own organisational structure with their own membership and board. It was clear that strong

co-ordination of marketing, financial policy and organisation was impossible in this situation.

The second report was presented half a year later and was based on more intensive research of

the existing situation. Berenschot visited different banks and interviewed managers and

members of the board of these banks. The consultants learned from these interviews that the

autonomy of the individual banks had to be respected. For that reason it was not considered

expedient to reach integration by transferring powers from local banks to the federal board.

Moreover Berenschot discovered there was a lack of mutual trust between the banks and

especially there was a divergence of interests between smaller, medium sized and big banks.

Therefore, an important condition for the future organisational structure was an adequate

communication between the different banks and their common organisation. To realise this

Berenschot advised to create a federal council which was constituted by regional circles of the

local banks. This council in Berenschot's vision would have a primarily advisory function. It

was to be consulted by the federal board in a number of cases that affected the organisation as

a whole, but also the individual banks. On the other hand the council would inform, through

its circles, the individual banks of the plans and issues the board was discussing. The council

would represent all different interests in the Federation and thus mirror the General Meeting.

In this way the board, which in Berenschot’s proposed structure was responsible for the long

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term policy, would create more support in the organisation. The board in the new structure

was not the representative meeting it used to be. It was a relatively small board which

consisted of specialists who were primarily chosen for their capacity to formulate an effective

policy. The position of the board would also be strengthened because the different central

organisations in the new structure would be incorporated in the Federation. Daily

management would be entrusted to one or more professional executives. What would emerge

was a strong central organisation which in its structure in general resembled that of the later

Rabobank.

To avoid conflicts and strains Berenschot explicitly stated that the board and central

organisation in their contacts with local banks would not operate in a high-handed and

hierarchical way, but would be stimulating and encouraging. Berenschot envisaged that the

reorganisation would be difficult and drastic. It was considered important that the process

would be smooth and with the consent of all parties interested. For that reason Berenschot

proposed to coach and advise on different projects that would contribute to the reorganisation.

The board of the Federation was indeed very anxious to avoid conflicts but it did not

commission Berenschot. Before proposing implementation of the Berenschot reports it

consulted the general meeting and also send questionnaires to all local banks. After a lengthy

consultation in which all parties were involved, the board proposed in the General Meeting in

1970 a rather drastic statuary reorganisation. In the new organisation which was created many

of the recommendations of Berenschot were realised. A federal council was created which

represented the local banks through ten regional circles. This council was expected to enhance

the communication between the Federal institutions and the local banks, but also was intended

to form the basis for future integration into regional banks. Some of the central institutions

were integrated in the Federation, but several others, among which the Central

Administration, kept a relatively independent position. The Co-operative Investment fund was

integrated into the newly formed Federal Central Bank (Bank der Bondsspaarbanken), which

was still to a high extent independent from the Federation. Another essential difference was

the function of the board. The General Meeting kept its position as the highest decision-

making body. The board remained a representative body which was responsible for daily

management and only executed the decisions of General Meeting. It was not able to initiate its

own policy.

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The recommendations of Berenschot thus were only partly implemented. The fact that the

board did not get policy-making powers, proved to be decisive for the future of the

Federation. The discussion on the structure of the Federation went on, also because the

savings banks continued to lose ground on the savings market. This was an alarming situation

which in 1975, five years after the first report, impelled the Federation to ask again the advice

of Berenschot. This time Berenschot was commissioned by the Federation not for an

organisational advice, but to analyse the earning capacity of the savings banks. It was clear

that the remunerativeness of the savings banks was decisive for their survival, as was

underpinned by the title of the report ‘Earning capacity and continuity’. To check the position

of the savings banks a random test of ten representative banks was done by Berenschot.

The conclusions were rather alarming. It was clear that the banks were confronted with a

substantial and continuous rise in their costs. These mounting costs were caused by rising

wages, the necessity to invest in automation and the development of most savings banks in the

direction of retail banks. This caused substantial expenses which were not in all cases

remunerative. As long as the interest rate continued to rise, these expenses were compensated

by the rising margins. But it was clear that once the interest rate would begin to decline the

savings banks were in trouble. Another menace was caused by the rather steep rise of the

savings entrusted to the banks. To handle the risks of their operations the capital of the

savings banks would also have to grow. It was however, as the margins were already not too

broad, impossible for the savings banks to set aside more to their reserves. As their share in

the market was under pressure, their costs were rising and their margins were insecure, it was

clear that the continuity of the savings banks was threatened. Berenschot once more

emphasised the necessity of a strong central organisation with substantial power.

This conclusion was shared by DNB (the Dutch central bank), although DNB criticised some

of the data Berenschot had produced. DNB also questioned the random test Berenschot had

done, because it was clear the majority of the banks included were performing rather well.

Nevertheless, the advice to create a central organisation that could formulate a common

policy and in some cases overrule the local banks was welcomed by DNB. It only regretted

Berenschot did not give more detailed advice on the structure of this central organisation.

This, however, was clearly beside the commission Berenschot was given this time. The

Federation and its member banks in 1975 were not ready for a new round of integration and

further concentration in a common central organisation. In fact a growing number of savings

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banks sought to fight the competition of the general and co-operative banks in further co-

operation on the local level. As a result of a continuous process of local mergers between

1960 and 1980 larger units of regional savings banks emerged. In the long run two

conglomerates of savings banks emerged, VSB and SNS. In the 1990s they merged with

insurance companies to form all-round financial institutes. In this integration process the local

banks with their autonomous boards after more than 150 years completely disappeared. The

position of the Federation was marginalized as the savings banks grew bigger and more

powerful. The Federation ultimately had only two members, VSB and SNS, was therefore

dissolved in 2000.

3.2.5 Concluding remarks

The described case studies of commercial, co-operative and savings banks confirmed the

proposition that the organisational structure of the client bank had an impact on the role of

management consultants. Consultancy intensity and the type of consulting firm contracted

(American vs Dutch consultancies), for example, differed between the categories of banks.

Commercial banks tended to choose American consultancies, whereas co-operative and

savings banks preferred Dutch consultancies.

The most striking differences between the three types of banks were caused by the different

authority structures within the bank organisations. In the hierarchical, top-down decision

structure of the commercial banks Amro Bank and ABN Bank the implementation of the top-

structure designed by consultants was much easier than in organisations in which autonomous

members take decisions based on consultation and consensus, such as the co-operative

Rabobank and the Federation of savings banks. The cases of the commercial banks indicate

that the advice of consultants can be a valuable instrument in the hands of an hierachical-

organisation management that fears internal power games.

The potential role of consultants in consensus-driven organisations was more diffuse.

Decisions in the federative and co-operative boards (of the savings banks and the co-operative

banks respectively) were taken bottum-up. The Federation of the savings banks attempted to

use consultants to push the organisation towards the necessary process of concentration and

centralisation. This did not work, however, because in a loose organisation in which

autonomy is a central value such a process cannot be enforced by external experts It took until

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the 1980s before the process of concentration really started, and this was not a result of

interventions of consultants. The limited role of management consultants was far better

understood by Rabobank than by the savings banks. Rabobank commissioned consultants

only to advise on the internal structure of the central organisation and consciously left the

relation between the central organisation and the autonomous members outside the

assignments.

All Dutch banks faced the same challenge of increasing competition, caused by the decrease

of the segmented structure of the financial sector. Consultants, however, could not simply

apply a standard centralised organisation for all banks, because the category of the banks

demanded an adaptation of the design to the (historical) context of each specific bank. It was

expected that it was easier for consultants to implement standardized techniques at the

different banks, such as McKinsey’s device for cost management, the Overhead Value

Analysis. However, we discovered a peculiarity of the Dutch market that prevented such an

easy diffusion of ideas through consultants. Because of the above mentioned higher likeliness

of the effectiveness of consultants advices in hierarchical organisations, it was more probable

that long-term consulting relationships developed between the commercial banks and their

consultancies. Indeed, Amro Bank grew very attached to “their” consultancy firm McKinsey

& Co. From 1964 to 1990 Amro Bank even managed to claim a special relationship with the

consultancy firm. This relationship (called “prime client status”) was shaped by a mutual

dependence between client and consultant. It had major consequences for the use of

consultancies in the rest of the Dutch banking sector, since Amro Bank actually hindered

McKinsey to spread management ideas in the whole sector.

A new merger wave in the early 1990s brought considerable changes in the Dutch financial

sector. Banks not only merged with each other (ABN AMRO Bank) but also with insurance

companies, as was the case with the savings banks VSB and SNS, that were products of

mergers itself. In combination with the deregulation and the rapid internationalisation of the

Dutch financial sector, these mergers changed the Dutch banking sector as a consulting

market. The attitude of the different banks towards consultants converged, as the importance

of differences in organisational structure seemed to diminish.

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3.3 Consultants in German consumer chemicals (Susanne Hilger) 3.3.1 Introduction

In 1999 management consultancies had a turnover of 21,3 Mrd. DM in the German market, an

increase of 13.3 per cent compared to 1998. In absolute terms, Germany is today by far the

most important consulting market in Europe in revenue terms. Most of the large service

providers in Germany and Europe as a whole are of American origin (cf. Kipping and

Armbruester 1998). They started their expansion to Western Europe in the late 1950s, when

firms like McKinsey, Arthur D. Little (ADL) and Booz Allen & Hamilton established offices

in the United Kingdom and subsequently, from the mid-1960s onwards, on the Continent and

came to play a significant role in reorganising and modernising European companies

(McKenna 1997; Kipping 1999) However, as has been pointed out, the “majority of German

firms” remained “suspicious or even hostile towards consultants until the mid-1970s”

(Kipping 1996).

Among the first companies in Germany to employ a US consultancy during the second half of

the 1960s was the consumer chemicals producer Henkel. This case is remarkable for at least

two reasons. First of all, as a family firm with a long tradition, Henkel was followed a

cautious and well-considered business policy, which manifested itself in a relatively closed

attitude towards outside influences, for example concerning external capital owners. In

addition, during the 1950s the company was dominated by a conservative business culture and

had proved reluctant to embrace American management and marketing techniques (Hilger

2002). At first sight it appears therefore rather surprising that Henkel was so early in hiring

American consultants. Secondly, unlike many other German companies, Henkel did not hire

McKinsey or ADL, but the Stanford Research Institute (SRI). This chapter will attempt to

elucidate these “mysteries” and also give some indication of the results of the co-operation

between Henkel and SRI.10

The chapter consists of three parts. The first part summarises the history of Henkel from its

foundation in 1876. The second part will give a brief overview of the activities of business

consultants at the company through the 1950s and attempt to explain the reasons of the

10 It is based on ongoing research by the author in the company archives. For detailed references see Hilger (2000).

- 108 -

company to hire the Stanford Research Institute. The third and main part of the article

examines the major consultancy project of SRI from 1966 to 1969, which can be subdivided

into several phases. The concluding part tries to assess the long term implications and

consequences of this consulting project and also givers an outlook of further consultancy

activities at Henkel.

3.3.2 A brief history of Henkel

The Henkel KGaA and its subsidiaries are today one of the worldwide leading specialists for

applied chemistry. Founded in 1876, Henkel & Cie established a market for detergents at the

beginning of the 20th century. The development of Persil, the first "self-active" detergent, in

1907 brought international growth for the company, yet the outbreak of the First World War

endangered this competitive position. The supply of key raw materials inlcuding water glass,

phosphate, soda and quartz was disrupted through wartime regulations and through the

isolation from world market for raw materials. Thus the company management had to procure

the needed materials through the incorporation of raw material firms such as the Duisburg

soda producer Mathes & Weber (1917).

The growing domestic demand and the rising export activities in the 1920s resulted in the start

of new businesses and the incorporation of more subsidiaries into the parent company. At the

height of the inflationary cycle in 1921, Henkel founded a subsidiary in Genthin near

Magdeburg. Three years later, it took a majority shareholding in the Krefeld soap producer

Dreiring. With the takeover of Thompson in 1933, Henkel completed the move into

household cleaning business. The rising sales posed not only new challenges in product

development, but also in sales and marketing as well as in packaging technology. Henkel

reacted from the beginning of the 1920s with the foundation and acquisition of paper- and

pulp-processing firms. From the end of the 1920s, the so-called "fat-gap" became noticeable

in the production of soap and detergent products. The situation worsened during the Third

Reich due to the National Socialist autarchy policy. The procurement of natural and synthetic

fats and oils therefore moved into the centre of Henkel's acquisition strategy, resulting in co-

operation with the German Hydrierwerke Gesellschaft (Dehydag), and the establishment of

the Erste Deutsche Walfang Gesellschaft (EDWG) and the German Fettsaeurewerke (DFG).

- 109 -

Henkel continued its expansion and diversification after 1945. Henkel had started the

production of adhesives after the First World War, when it had been difficult to procure Leim

for the making of the detergent packets. This line of business was expanded after the Second

World War, for example through the takeover of the Sichel company in Hannover (1962) and,

more recently, the acquisition of the American producer Loctite (1997). The same is true for

P3 production, a collective term for products and procedures for industrial cleaning and

disinfecting agents, which was pushed ahead after 1945 through the acquisition of firms like

Collardin (1955) and Ecolab (1989).

Analogue to the growth of the domestic business, Henkel also expanded international. Only

ten years after its foundation, Henkel had opened its first foreign sales office in Vienna in

1886. Business relations with the Netherlands, Italy, England, and Switzerland were also

established before the turn of the century. As the first foreign subsidiary, the Swiss firm

Henkel & Cie. was founded in Pratteln near Basle in 1913. After the First World War, branch

offices followed in Denmark (1923), Czechoslovakia and Belgium (1929), Finland (1930),

and the Netherlands (1932). One year later, in 1933, the Societa Italiana Persil S.p.A. in

Lomazzo was established to cover the Southern-European market. By contrast prior to 1945

Henkel was hardly represented outside Europe. This was mainly due to the strong

oligopolistic market for detergents in the United States, which was divided among Unilever,

Procter & Gamble, and Colgate. In the 1930s, Procter & Gamble and Henkel came to an

agreement establishing regional spheres of interest, focusing Procter’s business on the US and

Canada and leaving Henkel to pursue its business interests in Europe. The situation changed,

however, after the Second World War, when the American soap producers expanded

aggressively to Western Europe.

3.3.3 Shifts in the attitude towards external consultants

Since the 1920s Henkel had engaged external auditors for the purpose of drawing up its

balance sheets and providing tax consultancy services. But there is hardly any evidence for

the activities of other external consultancy in the field of administration and organisation

before the Second World. The company was run like an “oversized craftsman’s enterprise”

and its management had for a long time closed its mind to external influences, instead giving

preference to the advice of “friends of the family”, as was typical of family firms at the time.

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To keep its independence the Henkel family also avoided external financing. Thus, the

company was scarcely affected by the influence of banks and the capital market. A similar

picture presented itself with respect to the company’s sales policy. Although Henkel ranked

among the forerunners of modern product marketing in Germany, the company did not begin

strengthening its advertising impact by engaging external advertising agencies until the

second half of the 1950s – a move triggered by the rapidly expanding international

competition.

After the Second World War, external consultants sometimes supported reorganisation

measures in the fields of finance and accountancy. Their tasks included helping with the

changes resulting from the German currency reform in the late 1940s or supporting measures

to increase productivity and efficiency on the shop floor and in the administrative offices. The

age of computerisation also raised a host of questions from the 1950s onwards, often leaving

the headquarters and the management of companies at a loss. Before bookkeeping and other

corporate divisions could be switched over to the new punch card systems, they needed to be

reorganised to ensure a “more simplified and effective cooperation”.

For the 1950s Henkel’s attitude towards external influences can therefore be described as

observant and in parts reserved. The co-operation with an American consultancy from the

mid-1960s onwards was clearly a break with the past, both in terms of its duration and its

scope. One of the reasons for what therefore seems like a rather surprising decision was the

expansion and diversification of the company in the post-war period. In the early 1960s,

Henkel’s top management realised that there was a growing awkwardness of the organisation,

which stood in the way of a flexible market policy. Modern management theories saw

company planning and organisation as the basic preconditions for a “systematic expansion”.

As the “economic environment” of the company became more and more complex and its

business activities were increasingly transferred to the European markets outside Germany,

production, marketing, and financing methods had to be used which “diverge somewhat from

the traditional ones”.

Probably even more important was a significant decline in the earnings in Henkel’s main

business. The company’s management recognized that this was due to the appearance of the

American competitors on the German market. Its business in branded products relied to a

large extent on Persil, Dixan and Pril, and there was a growing risk “that the market position

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of these three articles will be strongly attacked by Procter and Colgate”. As a result, the

company became “aware, that the detergents market was endangered, and that is why we had

to look for new ways”. Thus, to become better acquainted with the modern management

techniques applied by many large international corporations, Henkel decided to look for an

American consulting firm. There are a numerous other examples, where the pressure from US

competitors led European companies to question their own practices and ask American

consultancies for help.11

Another reason for the more open-minded attitude towards US consultancies might have been

due to a “new generation of top managers” who “had experienced a significant American

influence during their formative years since 1945” (Kipping 1996: 120). According to the

company’s former chairman, Helmut Sihler, up to the beginning of the 1960s a “conservative

wing” dominated top management. Things changed with the appointment of Konrad Henkel

as chairman of the board in 1961. Driven by the belief that “we have to be modern, we have to

come to the top”, he succeeded in overcoming the strong conservative opinions in the

management team – however not without difficulties. Apparently, in the preliminary stages of

negotiations with the US consultants there had been an internal struggle (“interner

Machtkampf”) between the “progressive” and the “conservative” members of the executive

board.

Remains to be explained why Henkel, in contrast to other companies, did not hire McKinsey,

despite its reputation for divisionalising numerous European and US companies. Instead the

company contacted the Stanford Research Institute (SRI) in the early 1960s. Founded in 1946

by a group of Californian industrialists in conjunction with Stanford University, SRI was

located in Menlo Park in the high-tech region of Silicon Valley. During its “take-off-days” in

the second half of the 1940s, the consultancy focused on military and technical equipment.

Operating worldwide branch offices in Washington D.C., London, Zurich, and Tokyo, its

mission up until today is to “promote and foster the application of science in the development

of commerce, trade, and industry”. But SRI not only specialised on technical issues. It also

became known for the working on company strategies and the implementation of the

necessary technical, administrative, and organisational facilities in government and

commercial business. Thus, since 1958, the institute offered a “Long-Range Planning

11 Kogut and Parkinson (1993: 192) also underline the fact that at the same time “some of the widespread imitation of American firms was driven by attempts of European firms to compete in the United States”.

- 112 -

Service” (LRPS), which focused on the economic changes and their consequences for the

individual industries. In 1970 SRI separated from Stanford University because of its “excess

weight” with 3.000 employees at the time.

One of the reasons why Henkel preferred SRI might have been its more technical orientation,

which was more familiar to the background of the company and its management. Another

reason could lie in the fact that Henkel did not want to put its cards completely on the table.

Because of the SRI’s academic background and non-profit-status at that time, Henkel might

have expected a more sensitive and discrete treatment of the company’s affairs. Whatever the

reasons, Henkel commenced its co-operation with SRI in May 1963. The consultancy

arranged a meeting on “company planning for industrial growth” for the members of the

executive board in Düsseldorf. Subsequently, the company issued and circulated an internal

paper on the purposes and methods of long-range planning. It contained detailed instructions

on the approach to follow. First came an advanced analysis of plants and markets, followed by

the determination of profit targets. Profit component planning was next, i.e. the overall target

had to be broken down into objectives for markets, products, and investments.

To implement such an approach, in 1966 Henkel established a department for long-range

planning (LUP), which was to create planning cycles for the Henkel group at home and

abroad. The underlying objective of these efforts was to achieve a better “transparency” of

the entrepreneurial risks. Against the background of growing competition, LUP was designed

to help “recognize the market of tomorrow and its determining factors”. However, Henkel

apparently found it difficult to carry out these changes internally. In March 1966, the

company therefore contacted the SRI office in Zurich and asked for support “during the

realisation of planning activities in our company”. Henkel hoped that SRI would facilitate and

accelerate the implementation and operation of planning activities in the company.

3.3.4 The major SRI project, 1966-1969

SRI took up its work at Henkel with a team of four consultants at the end of October 1966.

Their efforts concentrated on the systematic set-up of the LUP, long-range company

strategies, diversification of activities as well as information systems and information

steering. In addition to developing the framework of “a strategic plan for the future

development of the company as a whole” SRI was supposed to present “an organisational

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structure of the corporate headquarters”. By implementing these management innovations

Henkel hoped to “meet the growing and changing demands made on the management”. The

whole consultancy project can be subdivided into several phases: phase I from autumn 1966

to spring 1967 provided a company analysis; phase II from spring 1967 to autumn 1967 dealt

with strategic planning; phase III in the summer of 1968 saw the implementation of the

planning system and organisational changes; and phase IV which lasted until the end of 1969

was used for the supervision of activities after the main work had been done.

3.3.4.1 Phase I: Diagnostic The first phase of the project was “more diagnostic” than “therapeutic” and was to serve as a

starting point for drafting strategies. During a three-month-period “a general analysis of the

company’s situation” was carried out, dealing with the market situation, the mix of products,

the geographical spread, its financial viability, business policies and plans as well as with the

company’s management concept and controlling systems.

According to the consultants, Henkel’s strengths were its market position in Germany and its

human resources policy. SRI particularly felt that the company’s sound marketing experience,

its highly developed technology, and its “excellent r&d capabilities” provided numerous

possibilities for diversification. By contrast, the consultants criticised the lack of coordination

and systematisation in the company’s structure, operating activities, and long-range

orientation. To achieve long-range goals, SRI considered “improvements” in the areas of

planning, profitability, and efficiency of the top management “indispensable”.

3.3.4.2 Phase II: Developing company strategy and planning The second phase started in May 1967. It concentrated on the development of a company

strategy and the implementation of the long range planning in the individual business

functions of the company. SRI determined some “key problems” concerning products and

markets, operational processes, the attitude of the company’s management and “particularly

[...] of the owners”, which had to be solved before an a planning system could be

implemented. Thus “the drafting of the company’s operational plan and its corporate

development plan” which represented “the practical implementation of the long-range

corporate planning” did not commence until summer 1968. The implementation of long

range planning was seen as a precondition for the further expansion of the Henkel group and

- 114 -

had to integrate all business units. Whereas all questions concerning long range planning were

to be discussed by top level of management, the realisation of the planning projects was

delegated to planning representatives in each function and unit. To prepare them for their

tasks, SRI trained these representatives in special planning methods and techniques.

However, before implementing a planning system, the company needed to develop a

corporate strategy as a framework for its future growth. In July 1968, at the request of Konrad

Henkel, SRI submitted a strategic plan, which listed the company’s goals and missions. It also

discussed the tools necessary for realizing these ideas. The formulation of Henkel’s “business

character, mission and goals” was to direct the company’s business policy over the years to

come and was to set a standard for further business ventures. These basic statements on the

company’s character, formulated in 1968, were to be seen as a supplement to the company’s

standing rules and were based on the premise that Persil/Henkel would be considered “as an

integrated whole”, be managed “as an international company”, and “be brought to achieve

very specifically set profit targets”.

With respect to the internationalisation of business activities, SRI had the impression that

Henkel was “undecided about its future corporate character”. In order to answer the question

“what the company wanted to represent in the future”, profit expectations, the level of

internationalisation, and the company’s self-image as a family firm were to be factors of vital

importance. The head of the company, Konrad Henkel, ensured the observance of the

company’s mission. He exhorted all members of the management “to review each project to

ensure it matches the corporate mission and business target”. The contents of the company’s

development and operational plans were also oriented towards these guidelines, yet the paper

was not meant as an “irrevocable dogma”, but was supposed to enable “adjustments to a

changing environment”.

Subsequently, in July 1970 SRI proposed modules for a corporate strategy, which were seen

as the framework for the individual divisional strategies. They contained guidelines on the

company’s future potential in terms of market opportunities, production capacities, human

and financial resources, and foresaw a stronger focus on “non-detergent” activities and the

setting up of regional centres of development. According to SRI, Henkel had for too long

stuck to the goal of a 50 per cent market share for full detergents. This, the consultants

argued, would not be sustainable in light of expanding international competition.

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Furthermore, the concentration on traditional markets and portfolios bore a high risk, as one

had to reckon with the fact that new competitors would undertake diversification efforts in

this direction. Thus SRI recommended that Henkel adopted alternative measures to give “new

products and markets a chance”. Such measures included diversifying into other consumer

goods industries such as food, cosmetics, or disposable products, which were strongly related

to Henkel’s operative businesses.

Yet the consultants criticised Henkel‘s “obvious lack of diversification guidelines or

programmes” which led to the fact that “each opportunity [was evaluated] on a case-by-case

basis” and promising possibilities were rejected “because of the high capital investment

needed”. In SRI’s estimation, “the company’s fundamental decision to limit debt financing to

a minimum, the lack of shares which could be exchanged in the event of making an

acquisition, and an aversion against participating in joint ventures and cooperations with other

companies had hitherto clearly inhibited Henkel’s diversification activities”. The consultants

tried to convince their client that a successful diversification into new markets did not

necessarily require full ownership and sufficient investment capital. They recommended

entering into cooperation projects and joint ventures, since Henkel, due to its technological

superiority, would be able to “keep control”.

SRI also recommended that Henkel implement scientific management techniques at the

production level, which were already extensively used by “leading U.S. producers to achieve

the optimal combination of production factors and maximisation of profits”. Such techniques

for measuring and monitoring work productivity, for simplifying work procedures, for

optimising the distributive function of warehouses, and for cutting back production and

material costs through the use of EDP, Operations Research, systems engineering, and

industrial engineering had hitherto apparently only been used by Henkel to a limited degree.

The function “production/engineering” was supposed to support all the firms within the group

in adopting rationalisation measures and was to “provide group-wide advice on the newly

generated branches” in order to “maximise usage of machines and plants, premises, work

force, and investments.

With regard to Henkel’s brand marketing, SRI became a transmitter of new trends from the

United States. The consultants considered the significance of the marketing of packaged

consumer goods in the US for future marketing structures in Europe, and especially in

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Germany, as being very high. SRI informed Henkel not only of the distribution channels and

of the competitive consequences of the concentration tendencies among the retailers; it also

provided an evaluation of marketing trends concerning trademarks, as opposed to

manufacturer’s brands. This was of particular interest to Henkel as the company had hitherto

always blocked the creation of trademarks.

In the field of sales, SRI encouraged Henkel to concentrate much more on research

possibilities “outside the laboratory”, for example by conducting market research, in order to

keep up with the competitors. This was seen as an urgent necessity since Henkel had yet to

develop an efficient marketing strategy for foreign markets. Its close contact to regional

markets was seen as being of decisive importance since consumer habits differed from

country to country. To exploit these growth potentials the group had to pursue “a standardised

marketing policy and an improved information policy [...] in order to respond quickly to the

trends on the individual markets”.

Source: HA 251/1, SRI, Implementation of a binding long-range planning for Henkel/Persil, Phase I, April 1967

Although Henkel’s foreign detergents sales were growing considerably, the sales revenues

remained relatively small, since company’s foreign market shares were far below the level

achieved in the German market.

Henkel, Market Shares in Heavy Duty Detergents in Europe in 1966

0

50

100

150

200

250

300

350

400

450

500

W-Germany Italy Austria Netherlands Belgium Spain Switzerland Danmark Sweden

in M

DM

- 117 -

Source: HA 251/1, SRI, Implementation of a binding long-range planning for Henkel/Persil, Phase I, April 1967

The unsatisfactory performance of Henkel on foreign markets resulted, according to SRI,

from the fact that market entries often “required a considerable level of marketing

investments”. Because of its lack of investment capital, Henkel had hitherto “not given

sufficient prominence” to a number of markets such as France, Great Britain, the USA, Japan,

Canada, and Australia.

In general, SRI considered a qualified top management as one of the preconditions of the

efficient implementation of its recommendations. But the consultants as well as several

members of the company’s executive management worried about the lack of management

trainees, because the company “obviously did not train qualified staff in advance” and did not

dispose of a management development system. SRI recommended “on-the-job training” for

forthcoming top managers such as job rotation, participation in planning activities, and the

assignment of profit responsibility since the academic training of managers-to-be in Germany

“placed emphasis on merely the scientific subjects, to the exclusion of practice-oriented

business management”. However, it was not before the middle of the 1970s that Henkel

nominated management trainees and developed individual career plans and job rotations to

broaden the insight of the trainees into different business units.

Henkel, European Heavy Duty Detergents Market, Sales revenues in percentage, 1966

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

W-Germany

Italy

Austria

Netherlands

Belgium

Spain

Switzerland

Danmark

Sweden

in p

erce

nt

- 118 -

Moreover, the owner family was supposed to delegate managerial functions, especially with

respect to decision-making processes. Hitherto “too few people” had tried “to make decisions

in too many fields” with the result that “members of the company’s central management are

completely overworked”. The reorganisation measures had already taken this circumstance

into account: the establishment of a central executive management made it possible for the

directors to deal intensively with “the true questions of corporate policy” such as issues

independent of day-to-day business.

Due to Henkel’s strong hierarchical structure, the company did not fully exploit “the strength

and expert knowledge of its middle management”, a factor which SRI assessed as being a

major weakness. According to the consultants, an efficient management of growing

enterprises required more transparent forms of delegation, communication, and information,

whereas Henkel suffered from a “lack of communication throughout the whole company”. In

their view, “the secrecy of information might have been justified during the late 1940s and at

the beginning of the 1950s. Currently, however, it was responsible for insufficient

management performance”. Criticising the “established official channels”, they called not

only for “a freer communication” among Henkel’s top managers but also for a better

coordinated “management information”. To this end, more easily accessible channels of

communication were to be established throughout the whole company.

The company made some efforts to implement these suggestions. Thus, the number of

meetings and conferences bringing together top and middle management increased. As

Konrad Henkel observed, these meetings were something “totally new” and provided the

opportunity “to discuss factual issues and ensure a sufficient level of information on both

sides”. Following his suggestion, a workshop on in-house information was set up in the

summer of 1969, in order to develop detailed ideas for improving the communication between

the top management and all other levels of the company. However, it took much longer to

make more substantive changes. The first executive manager of the KGaA who was not a

family member, Helmut Sihler, was only appointed in 1980. And Henkel was still busy

delayering hierarchies in the 1990s.

The financial policy of family-owned companies was traditionally geared to staying

independent of the external influence of banks. Internal financing was thus of high importance

for Henkel, because “a wrong investment and expansion policy” could have hindered “the

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possibility of further self-financing”. The line taken was that the equity capital of the group

worldwide was not to fall below 40 percent. This requirement mirrored the “risk-aware

attitude of a family firm”, as most German chemical joint-stock companies had an equity ratio

of below 30 percent. About 70 per cent of Henkel’s annual profits were supposed to serve as

“the substantial source of financing to sustain the present position”, whereas loans provided

by the owners or public utilities were preferably to be used to fund expansion activities rather

than turning to “long-range loans provided by banks, insurances, or other institutions”. The

latter were also to be kept as low as possible in future, unless they were considered “essential

for the company’s continuity or the profitable establishment of a significant new business

portfolio”.

As the policy of spreading risk through product and geographic diversification could not be

accompanied by short-term profit maximisation, SRI particularly identified the ownership of

shares by non-family members as a significant factor determining the future course of the

company in the long run. In the light of the general directive “to only use a minimum degree

of debt financing”, the restricted availability of investment capital for expansion activities was

bound to represent an impediment for the implementation of the company’s strategic

guidelines. SRI recommended that at least parts of the business be transformed into a public

joint-stock company. It took almost two decades for the owner family to make significant

steps in this direction. In 1976, Henkel & Cie. GmbH was changed into a “limited partnership

on shares” (KGaA) and ten years later the company went public. However, only preference

shares without voting rights were issued.

3.3.4.3 Phase III: Divisionalization The third phase, which started in the summer of 1968, dealt with the implementation of the

planning system. Henkel sent staff members to SRI seminars in California to get informed

about the constituent elements and the practical operation of company planning. The

attendance aimed at the procurement of “practical suggestions on methods, training

techniques and organisation of LRP” as well as at information on aims, growth,

diversification and acquisition activities of the company.

Since an efficient organisational structure was also considered to be a basic condition for the

successful expansion of the company, SRI was asked to submit a proposal for a new

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organisation. Thus, one of the main results of the consultancy intervention was the

implementation of the divisional organisation. Since its foundation, the company’s

organisational structure had grown more or less unsystematically, parallel to the functional

expansion of the group. As of 1947, Persil GmbH functioned as a holding company and was

charged with controlling and administrative tasks, whereas its associated company, Henkel &

Cie. GmbH, remained in charge of running the production plants.

The multidivisional structure or M-form can be traced back to the 1920s, when a number of

American corporations decentralised their activities along product lines. Whereas the M-form

had been almost unknown in Germany up to the 1950s business, 50 out of the 100 largest

German firms had already adopted it by 1970. As SRI told Henkel in 1969, the divisional

structure was “newly” picked up by companies which show “a wide production program and

work a multitude of markets”. A divisional organisation was seen as an efficient base for

management delegation, since each division was run as a profit centre, individually

responsible for product development, r&d, production, and marketing. Thus in the spring of

1969 Henkel replaced its functional structure with a divisional organisation. It had six

divisions according to the product groups inorganic products/adhesives, cosmetics, foods,

house care products, organic chemicals, packaging and detergents, each of them covering

markets at home in Germany and at the European level.

The company as a whole had a number of internal service functions such as

finance/accountancy, research/development, logistics, organisational/scientific management,

personnel and social affairs, production/engineering, law, and corporate planning and

development. The functional units encompassed consultative and coordinating tasks and were

responsible worldwide for setting guidelines for the associated enterprises of the group. The

regional function meant taking care of overseas business whereas the Henkel subsidiary

Henkel International was entrusted with the European business. As a special field of executive

management, six staff positions were established which supported the headquarters on issues

such as “contact to European industries” or “International public relations” and underlined the

company’s international standing. In doing so, Henkel failed to follow completely the SRI

proposals, which had suggested eight divisions, nine functions, and two regions. The reason

for this was the necessity of transitional solutions in some cases. Thus “double divisions”

were implemented temporarily with the “final goal” to fully implement the organisational

principles proposed by SRI.

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The “product-group” organisation of the Swiss Geigy Group, implemented in January 1968,

had obviously served as a model for this organisational structure. Since “[...] the situation

which had brought about Geigy’s reorganisation was [similar] to the one we are currently

facing”, Henkel had started an exchange of experience with the Basle company at the

beginning of June 1968. Geigy, which had been advised by McKinsey during the

implementation phase, had characterised its reorganisation as “the most important and

beneficial decision since the founding of the company”.

SRI emphasized that there was no “general formula” for the organisation of a company, but

that it was to be created “in consideration of the particular conditions” (product range,

markets etc.). Thus, the first step before the implementation of the new structure was the

“divisional coordination” which was realized “at once without any organisational

amendments”. All firms belonging to a division were to pursue a “concerted policy which

concentrated on the division’s goals”. This was to train the “thinking in divisions” which was

supposed to address the most important issues of the restructuring. The implementation of the

divisions was then relatively uncomplicated, because the existing subsidiaries already worked

within the scope of the new divisions.

Spartenorganisation 1969

Henkel GmbHZentral-Geschäftsführung (ZGF)

Dr. K. Henkel, Vorsitzender Dr. W. Manchot Prof. Biedenkopf Kobold Malitz Dr. Sihler Dr. Werdelmann

Anorga-nische

Produkte/Klebstoffe

S-AK

Kosmetik

S-KOS

Organ.Produkte

S-OP

Ver-packung

S-VP

Wasch-mittel

S-W

Wohnungs-pflege-

mittel u. Nahrungs-

mittel

S-WONA

Finanzen/Rechn.-wesen

F-FR

ForschungEntwick-

lung

F-FE

Logistik(Einkauf/

Transport/Lager)

F-LOG

Organisa-tion/

Wissen-schaftl.

Unterneh-mensführ-

ungF-OW

Personal-und

Sozial-wesen

F-PS

ProduktionIngenieur-

wesen

F-PI

Rechts-wesen

F-RE

Außer-europ.Länder

R-HI

Stabstellen

PublicRelations

ST-PR

Unterneh-mensplan.

u. -ent-wicklungST-UPE

ZGF-Sekretariat

ST-S

Revision

ST-R

Industrie-Kontakte

ST-IK

Henkel & Cie GmbHEuropa

Henkel International GmbHÜbersee

Sparten Funktionen Region

- 122 -

As a result of the reorganisation, Henkel GmbH, together with all its subsidiaries and

portfolio companies, was treated as an “integrated whole”: all firms working within a

particular segment were to pursue a common policy orientated to that segment’s objectives.

Moreover, in the opinion of Henkel’s management, the divisional structure supported “the

growing international orientation of the company’s objectives in the future” since it “placed

the newly developed research-driven and market-demand-oriented product […] at the centre

of efforts geared to activities in the international markets”.

Seen in the long run, however, the divisional structure succeeded only partially. The different

divisions competed with each other for the opening of new markets. For example, the

chemical division protested against the expansion of the cosmetic division, because it worried

about the loss of transactions with big customers such as Beiersdorf or Schwarzkopf. As a

consequence, in the second half of the 1970s the divisional structure was modified by

transferring the divisions to new business units.

3.3.4.4 Phase IV: Ongoing support In the fourth phase, which lasted from June to December 1969, SRI provided the company

with ongoing support in all its planning activities and also submitted recommendations for the

expansion of the company’s non-European businesses. In detail, the consultants were given

the tasks to (i) support Henkel in defining its core objectives and operational targets, (ii)

outline its business strategies and operation plans in order to open new portfolios, and (iii)

supervise the expansion of the company’s business outside Europe.

Henkel made considerable efforts to implement the changes and institutionalise the

innovations in planning, strategy and organisation. In March 1969, an organisation committee

(“Organisationsausschuss”) was formed in order to oversee the implementation of SRI’s

recommendations in the different divisions and functions. Henkel also created internal

advisory departments in several divisions and functions to help with the implementation

process. In 1970, the planning activities passed from LUP to a new business function, UPE

(F-UPE). The new unit also dealt with market entry projects, including “scents and flavours”,

“adhesives USA”, “body care products Italy”, “food/healthy food”, “paints and finishes” as

well as “disposable products”. Since 1972, it was supported by a “committee on

diversification activities” (DIA). This was to guarantee a more effective and systematic

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organisation of the diversification efforts. These efforts concerned, for example, projects “for

research, production or sales” of animal feed additives (fats and emulsifiers), aromas for

cosmetic products, home and plant care products, but also health care products and pet food.

In the end many of these projects were not realised. Apparently, the most important lesson

Henkel learnt from these efforts was that one should “stick to one’s core fields of expertise”.

SRI did not terminate its activities completely after the end of Phase IV. It continued to

provide advice to the company until the end of the 1970s. J. Cavender, one of the consultants

who had been involved in the project since the beginning, came to Düsseldorf several times

each year for some weeks during the 1970s. For example, in 1972 he worked on topics such

as corporate communications, administration and controlling of acquisitions, as well as more

general organisational questions.

In general, Henkel displayed a remarkable openness towards the recommendations made by

the consultants, despite the fact that some of them represented a considerable break with

Henkel’s tradition. In the opinion of SRI, the company showed an “encouraging willingness

to adapt its management structures to the new requirements arising from a changing

environment. Thus, the Henkel board agreed to “most of the strategic suggestions which had

been made by SRI for the single units”. However, in most cases it took several years until the

detailed measures based upon SRI’s recommendations were adopted. For example, a “long-

range corporate strategy” was only defined in 1977. Subdivided into products, product

quality, product markets and regional markets, production, r&d, financial resources,

management, human resources, and associated companies, this strategy covered all central

fields of business policy.

In some instances, the recommendations SRI submitted to Henkel were ahead of their time by

more than 20 years. In the light of the expected growth of the European markets SRI had

already suggested in the 1960s that “a second plant analogue to Holthausen be set up

somewhere in the EEC”, which was to effect cross-border production. As of the 1970s,

Henkel started joint ventures and strategic alliances which had been suggested by SRI, but

strongly rejected by the company up until then. One of the first examples of this is Henkel’s

cooperation with the Clorox company in Oakland/USA, in 1974. Henkel had realised that “not

all goals [...] [are] to be realised by oneself” but by way of so-called “partnership strategies”.

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The opening of new financial resources, also a subject of the SRI-project, was realised in the

mid 1980s when Henkel finally went public.

At the same time, some of the changes introduced in the 1960s did not last. For example, the

planning activities initiated by SRI became more difficult in the 1970s. In retrospect one can

say that “not all intentions and plans” were realised, some developments did not turn out as

expected, and some decisions proved to be wrong. Thus on several occasions Henkel started

into a business venture, “without properly assessing the scope of the task ahead of us”. Losses

such as those made in the French brand-article business or in parts of the German cosmetics

business were the consequence. Henkel board member Helmut Sihler, speaking before the

family meeting at the end of 1978, warned against exaggerated expectations of the company’s

“planning philosophy”. “Planning”, he argued, did not mean “prognosis” but the making of

“the right well-timed decisions for the future”. “The value of planning systems”, he said, “is

not only to be measured in terms of having achieved the forecast figures but if such planning

has actually been conducive towards making decisions for the future”.

General economic factors such as the oil crisis, inflation, and the economic stagnation

experienced in the 1970s and 1980s led to the modification of strategic and planning

requirements. When Henkel’s return on capital decreased from 15.7 per cent in 1970 to 13.9

per cent in the following year, the strong discrepancy between target and actual profits

became obvious. Because of the recession and increasing costs, the group’s performance of

7.8 percent in 1972 represented the lowest sales margin since 1959. Henkel now had to

assume “that the present level of activities are not sufficient to achieve the growth-rate targets

specified in the corporate goals”. Gradually, SRI seems to have lost the support of Henkel’s

top management. Thus, at the end of the 1970s J. Cavender complained “about the inadequate

information flow between myself and the executive management; written and verbal”. He

found it difficult to consult “when one does not have the opportunity to give comments to the

central management in any of its meetings”. From the end of the 1970s there are no further

hints on the appearance of SRI at Henkel. The consultants, nevertheless, had left a very strong

imprint on the company.

3.3.5 Conclusion and outlook

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The German family firm Henkel, which will celebrate its 125th anniversary in 2001, belongs

to the big international suppliers of consumer chemicals. It is probably not exaggerated to

conclude that the consultancy firm SRI created many of the preconditions for the process that

ultimately turned Henkel into an internationally diversified company in the aftermath of the

Second World War. The SRI consultants assisted the company in the formulation of a

business mission, the drafting of a corporate strategy, the development of planning systems,

the divisionalisation of the corporate organisation and the diversification of business

activities. They also made suggestions regarding production, sales, finances, and human

resources. Based on these recommendations, Henkel began to diversify geographically,

developed new product portfolios, introduced a divisional organisation, revised its financing,

and modified its personnel and public relations policies. The co-operation with SRI during the

second half of the 1960s can therefore be seen as one of the most decisive management

offensives in Henkel’s development after 1945.

Even after the end of the co-operation with SRI, Henkel had a lot of work for other

consultancy firms, given the difficult economic climate during the 1970s and 1980s, the

company’s international expansion, and its activities in new market segments. McKinsey ran

cost saving programmes on a quasi regular basis since the 1970s. In the 1980s the Boston

Consulting Group (BCG) also appeared in Düsseldorf. Following a period of continuous

expansion, the most important challenges of the 1980s were the reduction of complexity and

bureaucracy, and the globalisation of the core businesses. With regard to the necessary

business expansion and to protect competitive advantages BCG recommended to reduce the

dependence on the European business and to globalise the successful divisions. BCG

subdivided Henkel’s core competences in chemical businesses, brand articles and fats and oils

and worked out specific strategies for each of them. The creation of the single European

market by 1992 prompted Henkel to look for new ideas for bundling production and

optimising business locations. The company followed BCG’s “Euro-plant concept”, built

around a “basic international supplier function” of the individual business locations which

were to be specialised according to their technological expertise. These individual “centres of

competence” were to transfer their know-how in production, process engineering, and

marketing to other business locations via “roll outs”.

All in all Henkel’s corporate policy, initiated by American consultancies in the late 1960s,

stood the test of time. “Carefully planned diversification from within” and the risk-aware

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financial policy can be seen as Henkel’s distinctive characteristics. At the end of the 1970s,

Henkel boasted a well-balanced portfolio mix both in terms of brand articles on the one hand

and chemical products on the other as well as in terms of foreign and domestic business. This

twin-track strategy, generating growth through sector-based diversification and the

internationalisation of activities, particularly paid off in the light of the series of crises (energy

crisis, inflation, current account deficit) experienced as of the 1970s, when Henkel put up a

better performance than any other chemical company in Europe. Henkel has been well

prepared for the challenges of globalisation by the far-sighted corporate policy developed in

co-operation with American management consultants since the 1960s.

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3.4 Human Resource Management in Italy (Cristina Crucini)

3.4.1 Introduction

This chapter aims at analysing how a specific consulting practice, in this case Human

Resources, has evolved from the 1950s in relation to the specific conditions and pressures

exerted by the Italian systemic context. Italy appears particularly interesting as a case to

examine in this respect. It is a country where American management ideas had a significant

influence; in this process, consultancies of U.S. origin or Italian consultants with American

connections have been playing an important role ever since the 1950s (Faliva and Pennarola,

1992; Crucini, 1999/2000). Nevertheless, the Italian consultancy market continues to be a

heterogeneous reality composed by very different consultancies, maybe reflecting the

“diversity” or “specificity” of the Italian context emerging from economic and business

history, as well from management studies on Italy.

The management consulting field in Italy initially evolved along two main streams, the first

one connected to the scientific management and the second to accountancy; between the two,

scientific management was undoubtedly the most popular. Similarly to what happened in the

US first, and in Europe later from the 1920s onwards, also in Italy the early history of

management consulting focused around work-methods improvements in factories. Bedaux

opened his Italian branch in 1927, chronologically second in Europe (contemporary to the one

in Germany) after the first one opened in England in 1926. In 1931 twenty-one plants in Italy

employed the Bedaux system, and their number grew to forty-nine in 1937 (Kipping, 1999).

Already in 1929, the Bedaux system was being criticised by workers and trade unions

claiming that “it did not represent a benefit for the national production” (Sapelli, 1975:120)

and in 1935, together with other methods of work intensification, it was banned from Italian

factories by the fascist regime (Crucini 1999). In spite of this, it seems possible to say that the

focus on production and consequently on those methods that could help saving resources, has

represented a main issue in the history of Italian industrialisation. Some Italian historians

have pointed out that in Italy Taylorism was in fact mainly seen as a kind of “authoritarian”

means for the control of both costs and workers, resulting in the predominance of the

productive function above all the other components involved in work organisation (Sapelli

1997, Bigazzi 1997). This situation seems also to have had a significant impact on the

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evolution of Human Resources Management as a practice in Italy. In fact it has somehow

shaped the contents of this practice for almost twenty years (1950s and 1960s), focusing

around shop floor-related problems and production related aspects and thus delaying the

diffusion and implementation of other practices.

This chapter focuses therefore on the historical evolution of Human Resources practices in

Italy and on how this process was influenced by the specificity of the Italian context in which

it developed. Attention will be focused on the evolution of Human Resources practices in the

last fifty years, and on the role played by the “thoughts and actions” of some pioneers in the

development of this field, trying also to relate such developments to the wider case of

management consulting in Italy. Human Resources Management, more than other

“standardised” consulting practices, such as for example Information Technology or Total

Quality Management, appears more country-specific and less homogenised. Human

Resources Management can in fact be included in that group of activities that are “encoded

into people’s actions”, resulting more flexible and leaving more space for adaptation to the

surrounding environment, given that both the background of the consultants and the clients

might influence its contents (Crucini and Kipping, 2001). For these reasons, this analysis at

“micro level” (meaning a specific practice) might enhance the understanding of how the

systemic context has actually shaped the consulting field in Italy, which consequently results

somehow embedded in it.

In order to support the assumptions stated above, besides referring to the existing historical

literature on work organisation and management consulting in Italy, this paper will include

the professional history of one of the Italian pioneers in this field, Silvano Del Lungo.12 His

case appears in fact particularly representative in this respect, given the range of experiences

in which he was directly involved. His educational background and first professional training

took place soon after WWII, a period characterised by the coexistence of a rather closed

University world and the cultural influences coming from the US through the Marshall Plan.

He was among the first social researchers in psychology of work, specialising in the study and

application of time measurement techniques (with respect to piecework), in performance

measurement, in personnel selection and work organisation. In addition, Del Lungo was

12 This is work in progress from the author’s PhD research on the evolution and role of management consulting in Italy, funded by the CEMP project. The author gratefully acknowledges this support and would also like to thank Silvano Del Lungo for his help for this part of the research.

- 129 -

involved in some of the first selection and professional training initiatives in Italy before

going into consulting, first as an employees and later setting up his own company in 1967.

Moving from Del Lungo personal experience and using his own recollections, as well as

various materials produced during the last thirty-three years of professional activity, this

chapter will focus on two main aspects. First, it will attempt at describing the evolution of

Human Resources practices, and of the consulting field whenever possible, in relation to the

Italian systemic context highlighting the influences shaping this process. Secondly, it will

also attempt at showing how the role played by some pioneers through their initiatives,

research and personal networks, actually contributed to the development of the Human

Resources field. In order to do so, this paper will first have a background section on the

evolution of work organisation in Italy up to the 1950s. The subsequent section will start

from the changes taking place from the 1950s onwards. It will also try to highlight the role

played by consultants (or other experts) in this process and focus on Del Lungo experience.

3.4.2 The background of the Italian work organisation

A number of business and economic history studies have pointed out that Italy was a

latecomer in the Second Industrial Revolution (Castronovo, 1980; Zamagni, 1990; Amatori,

1997). At the beginning of the Twentieth century, the Italian industry was characterised by

few large groups, a very small domestic market with low competition and territorial

unbalances between the North and the rest of the country. It was only after the Great

Depression and the subsequent economic crisis of the early 1930s, the isolation and autarchy

policy during the Fascist government and World War II that the Italian industry experienced

its real take off during the1950s.

For what concerns the evolution of work organisation in the Italian industry, the shift towards

the mechanisation of production systems took place from the beginning of the Twentieth

century, and as Pedrocco (1980:29) claims “to the development of mechanisation

corresponded a stricter exploitation of the working force”. In his study on the Italian

industrial organisation from Giolitti to Mussolini, he points out that the increase in

productivity in that period was accompanied by a decrease in production costs (with respect to

labour), and by a dequalification of the working force replaced by specialised machines and

tools. In 1915 Taylor’s work “The Principles of Scientific Management” was translated into

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Italian. Scientific management was seen as an effective tool to reach an efficient industrial

organisation; in addition it was quite clear from the beginning that it also represented a

mechanism diffusing a stricter subordination of human to machines’ work (Pedrocco 1980,

Bigazzi 1997, Sapelli 1997). Because of its “scientific connotation”, tayloristic methods of

production had also a sort of “legitimising function” that could back up industrialists’

decisions with respect to job regulations.

World War I prompted a first big transformation in the Italian industrial system, as the

conflict imposed a significant expansion of production. These circumstances could have

represented a good chance to enlarge the limited borders of the Italian national market if

followed by a deep re-organisation of work methods and of management structures, but such

transformations did not take place (Sapelli, 1997:922). After the war, the need for radical

change in the national productive structure with respect to both technology (Italy was

backward compared to other countries) and the nature of the relationships between employers

and employees became increasingly necessary to maintain high levels of production also in

peacetime. At the same time, because of quite many elements implicit in the Italian

industrialists’ mentality, (paternalistic behaviour, dislike of delegation, propensity for

hierarchies, etc.), “the scientific organisation of work appeared as the most appropriate tool

for such needs” (Pedrocco 1980:42). These considerations might explain why work

organisation in Italy was, still at the beginning of the 1950s, characterised by bureaucratic and

technical-scientific connotations rather than by more conscious and effective organisational

concerns (Sapelli 1997).

On the other hand the “taylorization” of production started to stimulate some concerns about

the possible deskilling of workers in the long-run, as the majority of them was more and more

excluded from an active involvement in the production process. Besides, war production had

led to an increase in low-skilled work (through female and minor employment). The

scientific organisation of work needed indeed the presence of new production technicians,

thus the issue of “an optimal utilisation of human resources through careful selection and

promotion processes” (Bigazzi 1997:955) started to arise more and more frequently. In other

words it started to be felt as necessary to observe the individual characteristics of workers, in

order to allocate them in the part of the production process in which their skills could be

maximised. In order to achieve such results it was first of all necessary to promote and

diffuse a general technical-professional education which, combined with the training on the

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job and similar learning mechanisms provided within the working environment, could allow a

real change in the production organisation. As observed by Sapelli (1997:629) “a country

economically backwarded like Italy could not catch-up with the more advanced ones without

creating a wide and organic scientific and technological educational system […] that required

an active and systematic involvement of the State”.

A first attempt to break away from the predominant “productive approach” linked to taylorism

within Italian firms had been carried out by Adriano Olivetti, through a series of initiatives

attempting at promoting the firm as a “social place”. In his idea, the firm was “the ideal place

for development and transformation processes, […] an experimental lab for new cultural and

scientific values” (Castronovo, 1997:1283). Surrounded by a group of engineers and social

scientists Olivetti was trying to achieve a “humanisation of the work” (ibid.). In order to do

so, he invited a group of social scientists led by Cesare Musatti to set up, within Olivetti, a

Centre for the Psychology of Industrial Work (Centro di Psicologia del lavoro industriale).

The centre was a research reality endowed with specialist libraries and classrooms aiming at

merging industrial activities and cultural development within the working environment of the

firm. This experience though, remained rather an isolated experiment and was not neither

fully understood or reproduced anywhere else in the Italian industrial environment of the

time.

Starting from the end of WWII, concepts such as “human factor” started to be used to indicate

the need to reshape the scientific organisation of work taking into account the “human

relations” theories, as if, someone argued, there existed “non-human relations” (Bigazzi,

1997:963). In spite of this, the Marxist component in the Italian culture was still impacting on

most of the practical applications of the social sciences, generally “condemned under the label

of American ideologies” (Castronovo, 1997:1286). Generally speaking, the initial

backwardness of the Italian industry, the specific connotations of industrialisation process, as

well as the general social and political situation of the country at the time exerted an influence

on the development of work organisation. Only slowly therefore, the diffusion of American

organisational and management theories, as well as other foreign influences and “models,

could take place in post war Italy.

Trying to interpret the main features of work organisation in Italy up to the 1950s, it seems

possible to say that besides efficiency concerns, the predominance of scientific management

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methods appears strongly linked to the need of “controlling” the workforce as well as of

“legitimising” the role of entrepreneurs. These facts might be also interpreted as an attempt,

done by industrialists, to conceal their “paternalistic” and authoritative inclinations under the

flag of efficiency. At the same time, it seems also possible to say that even the later attention

for the “human factor” was indeed linked to the will of maximising the effects of tayloristic

efficiency. Starting with education and training of workers, the work organisation in Italy

slowly shifted attention from production only to include a focus on human resources

selection, training and qualification. As a result, slowly from the end of the 1950s, human

resources emerged as a new and independent area of interest for the management of firms.

3.4.3 The development of Human Resources since the 1950s

The first significant innovative practices in the Italian organisational culture started to appear

from the 1950s. In fact, on a general level, “during the 1950s and 1960s Italy, like all

European countries, found itself influenced by an influx of technology and managerial

methods imported from the great US corporations” (Zamagni, 1993:349). The American

influence in Italy appears strong in this phase, the main reasons being related to the Marshall

Plan and those initiatives such as productivity missions, training programs, and exchanges of

managers between Italy and the US. These initiatives played a major role in spreading

modern, “efficient” methods of management and production in Italy. In addition to this, the

first foreign consultancies started to operate in the country during these years and American

business schools became a model for the establishment of similar institutions in Italy (Crucini

1999/2000). For what concerns more specifically the work organisation, this phenomenon of

change was partly linked to the spread of the Human Relation theories during the 1950s, later

compared to the U.S. (where this had happened already in the 1930s) and again partly linked

to the Marshall Plan. As Sapelli points out, the Human Relations experience in Italy (with an

evident catholic component) represented a moment in the reconstruction process of the

management power within Italian firms and in the wider antisocialist and anticommunist

offensive (Sapelli, 1997:678).

Sapelli (1997:680) goes further identifying four main elements marking the renewal of the

Italian organisational culture of the time. Firstly, the setting up of institutions and

organisations, under the direction of professional or trade unions associations, for the study of

the problems connected to the management of firms. Secondly, the institution of

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specialisation courses, held by universities and polytechnics, sponsored directly by some

industrial sectors interested in developing better selection practices within firms. Thirdly, the

foundations of institutes, directly by some industrial groups such as IRI, Finsider, Pirelli, etc.,

aiming at providing both a specialist preparation for new managers, as well as improving the

skills of the managers already employed. Last but not least, the emergence of post-University

institutes and schools, such as Ipsoa and Isida, aiming at analysing the organisational,

technical, administrative and social aspect of management.

These changes took place against the background of almost complete “closure” and

“immobility” that had characterised both the educational and working environment in Italy in

the previous years. Many of the new formative experiences of the time, including the first

management schools such as Ipsoa and Isida, had to clash against the conservative model

represented by Italian universities, which did not recognise the new schools as proper

educational institutions . In this “very closed world, where those trespassing the given

boundaries were looked at with suspiciousness” , Del Lungo was among the strange ones

especially given his interest for Psychology (the subject of his dissertation), a discipline that

did not yet exist as University degree. Del Lungo remembers how almost no sources and

books were available to students and researchers, while the first American sources (books and

journals) on this subject, as well as on other “new disciplines” like management-related

issues, were only available through the American embassy. According to him, this lack of

information was not completely compensated by the role of institutions like the Ford

Foundation, very active in promoting exchange of people between Italy and the US but not in

the diffusion of printed materials, which could have reached a wider number of people.

Outside University, another phenomenon starting from the middle 1950s was the growing

attention given to the field of “orientamento e addestramento professionale” or professional

orientation and training for workers. At the time, Del Lungo remembers, two different

institutions were involved in this process, with very different views and approaches. On the

one side there was Ministry of Education, the “conservative” component, claimed that the

work offer should have remained unaffected by the demand and most of all that aim of the

educational system was to form “men” and not “workers”. Therefore, professional orientation

was not considered as useful. On the other side, the Ministry of Work, which represented the

“progressive” component, aiming at using professional orientation as a tool for allocating and

training the working force in an optimal way (from interview on 19/12/2000). On this base,

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in 1955 the Ministry of Work launched the “Legge sull’apprendistato” (Professional Training

Law), in order to integrate the workers’ educational experience with a specific professional

training linked to the working reality in which they would have operated. This new attention

for the “human factor” appears mainly related to two causes. The first one was connected to

the “Marshall Plan’s modernisation package” that included the Training within Industry

programme aiming at “introducing the logic and the style of human relations inside factories”

(Bigazzi, 1997:967). The second cause stemmed from inside the industrial world itself and

was strongly related to what has been previously mentioned about the increased

consciousness, among Italian industrialists, of the need of an optimal allocation of trained

workers.

It was through one of the initiatives promoted by the Ministry of Work that Del Lungo starts

his professional career. In 1956 he is selected to take part in a six months course for work

psychologists sponsored by ENPI (Ente Nazionale Prevenzione Infortuni) in Rome. This

course represented indeed a sort of innovative experience given that there was a basic lack of

tests on these topics and no centre of this kind existed in Italy at the time, with the exception

of the Centre of Psychology inside Olivetti. The main subjects taught in the course were Job

Analysis, Work Characteristics and Professional Profiles, Psychometric Psychology, and their

aim was to prepare both the so called “orientatori professionali” (those that would have

worked in the professional orientation process) and “selezionatori” (those that would have

worked in selection). In this respect it should be mentioned that these professions did not

exist before and were in the process of being created themselves. Selection in particular

started only from 1957, as before there was a law forbidding the selection of “operai comuni”,

that is to say the general workers without any specific qualification. In addition, if necessary,

the police provided information on people in the process of being hired (from interview on

19/12/2000).

An idea of the conditions, in which these first human resources practices evolved in Italy, can

be derived from the first professional experiences made by Del Lungo in this field. After the

course, he worked in ENPI Psychology School for two years (1956-57), mainly involved in

selection processes for large clients, given that they were increasingly in demand. In this

early stage, the selection activity was largely based on scientific tests including regression

techniques and optimal coefficient evaluation. One of the major problems that the first human

resources experts had to face was to overcome the diffidence and closure of clients. Del

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Lungo remembers how, during his engagement in Palmolive, he was never allowed to visit

the plant for which he was selecting workers, and it took him some months before meeting the

person in charge of the hiring process and asking which roles the new employees would have

covered. This fact appears indeed quite “surprising” because, considering that Palmolive was

the Italian branch of an American multinational, it would have been possible to expect a much

more open and progressive attitude to external experts. A possible explanation is that the

national context and its limitations to a certain extent, affected even foreign companies. The

fact that, in order to overcome the working legislation of the time on personnel selection,

Palmolive had arranged a kind of “trick” hiring and firing workers the same day in order to let

them undergo the selection process, seems to confirm this assumption.

Differently from private companies, because of the State involvement, the large public

companies were “more open” towards the new initiatives involving human resources

practices. This attitude was mainly due to the fact that the top management in these

companies had a longer-term perspective to achieve goals and objectives, being “away” from

market pressures and “close” to the political power. At the same time, and maybe for the

same reasons, these same companies very often did not follow and implement the solutions

recommended by human resources experts. This was the case, in Del Lungo’s experience

with the Terni steelworks in 1957 and with Rai (the national Television Company) ten years

later (from interview on 19/12/2000).

The positive economic cycle of the 1950s and 1960s (with the exception of 1963-64) favoured

the growth of the national consultancy market and the arrival of foreign consultancies, mainly

American and French. At the beginning of the 1960s, American consultancies introduced two

main “innovation” in the Italian organisational panorama, the “M-form” and the “line-staff

distinction” (Faliva and Pennarola, 1992; Crucini, 1999/2000). At the same time, in order to

overcome the relative backwardness of the consulting field, Italian consultancies often set up

different kinds of co-operations with foreign companies. Many examples could be provided,

such as the Pietro Gennaro & Associati setting up a joint venture with the French Sema first

and the Boston Consulting Group later (Faliva and Pennarola, 1992; Crucini 1999/2000). In

the specific field of human resources Progredi was setting up a Human Resources company,

Loghea, and had chosen a French company as a partner, A. Vidal & Cie, which was

connected to the Centre de Psychologie Appliqueé in Paris. It seems possible to say that

French consultancies had what could be called a “cultural” competitive advantage in Italy

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compared to Anglo-Saxon operators, as France was considered by Italian industrialists

culturally more similar to Italy than the United States, especially concerning managerial

knowledge and methods (Crucini, 1999/2000).

On the other hand, despite most of the human resources interventions up to that time had

focused around productivity issues, “the fundamental problem of shop-floor regulation had

remained unsolved” (Piore and Sabel, 1984:155). The often mentioned “paternalistic”

attitude of Italian industrialists (Gagliardi, 1997; Derossi, 1982) had prevented any serious

reform in personnel organisation and human resource management for a long time. Del

Lungo’s professional experiences in the early 1960s offer a quite comprehensive picture of

the main phenomena of the time. The employment at the Psychology Centre within Olivetti

(1960-62) represents a measure of how pervasive was the tayloristic approach even inside the

more “advanced” realities such as Olivetti, “where the factory, the psychology and sociology

research centre and the library where facing each other” (from interview on 19/12/2000).

Inside Olivetti Del Lungo was assigned to a specific task: checking the work organisational

aspects in assembly lines. In fact, Olivetti had adopted the scientific management principles

for its production procedures, which had shortened considerably the various phases of the

assembly process. On the other hand, for what concerned the piecework, the Bedeaux system

had been refused and replaced by an alternative one elaborated internally.

According to this system, once the production criteria had been established, a team of

“medium-high-skilled” workers called “allenatori” (trainers) would have tested them in order

to measure their times and use them as a base to “measure” the other workers. Because of

some doubts linked to this system and to the production organisation overall, the effectiveness

of these arrangements had to be checked. Results showed indeed the need of a partial re-

organisation of the work at the shop-floor level , but the recommended changes were only

partially implemented. This was partly because Del Lungo left Olivetti, partly because

despite its being a progressive and exceptional environment in the Italian industrial

environment of the time, even Olivetti was not unaffected by “some internal power logics to

which everyone had to adapt” (from interview on 19/12/2000).

Del Lungo subsequent professional experiences took place in consulting firms. In 1962

through an old acquaintance met at ENPI he was employed by Progredi, one of the largest

Italian consulting companies of the time. Reflecting the enlargement of human resources

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practices that was taking place in the middle 1960s, the two most significant consulting

engagements made by Del Lungo in this period, differently form the previous ones, did not

involve production-related aspects but focused on problems more related with the workers.

The first one was a project aiming at measuring the “climate” of the working environment,

that is to say the workers’ satisfaction level on the base of parameters such as absenteeism,

complains, number of accidents, trade union affiliation, and so on (from Loghea internal

report). The other engagement concerned the analysis of the role of “capi intermedi”

(intermediary heads), a professional figure typical of the steel industry that had emerged from

the previously mentioned Training within Industry Programmes. These figures represented “a

communication channel through which, in a sense orders reach workers and on the other sense

the problems and needs of these last ones reach the top management” (Bigazzi, 1997:967).

In this first decade of activity (from the middle 1950s to the middle 1960s) the development

of the human resources field in Italy seems to maintain a sort of “individual dimension”.

With the exception of institutional initiatives such as those promoted by ENPI, all the major

developments in this field appear very much linked to a group of individuals. According to

Del Lungo, one of these individuals, “the long lasting effects of the first ENPI initiatives have

been to set up a network of people, some of whom became academics, some other expert in

the field, but all of them re-connectable” (from interview on 19/12/2001). These initiatives,

aiming at forming new professional figures, actually brought together a group of people with

different levels of expertise and educational background, who will continue to involve each

other in a series of initiatives promoting the development of this area. The first generation of

human resources pioneers, such as Del Lungo, Di Castro, Butera, Bontandini etc., grew

professionally through a series of common formational and professional experiences (e.g.

ENPI, Olivetti, Ifap, PGA). Given the closure of the environment in which they operated,

they maintained and enlarged their network over time, resulting in many cases in the

foundation of consulting firms or in their involvement in various institutes for management

education (Faliva and Pennarola, 1992). This networking trend, largely based on individual

networks, reflected similar and contemporary phenomena that were characterising the

development of the consulting market, as well as of the first management schools and

consulting professional associations in Italy (Crucini, 1999).

All these “consultants-researchers” had a common interest in the understanding of the social

and psychological dynamics displaying themselves in the working environment and had

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studied texts and researches done outside Italy, where human resources theories and practices

were more advanced. Surprisingly, given that the human relations school had originated in

the United States, they did not only focus on the “classics” coming from the US, but also on

studies and researches done in Europe especially within the Tavistock Institute in London, for

example by the psycho-analyst Elliot Jacques. As for “real models” to follow, Del Lungo

remembers how especially Sweden was taken as a model with respect to industrial relations

and job organisation. At the same time he claims that most of these experiences were too

advanced for the Italian industrial situation, still very confused and turbulent in the late 1960s.

Because of this contingent situation, the first experts working in this area had a sort of big

power, as they were sometimes seen as “technical mediators among the conflicting parts, but

at the same time they had to operate under “unique conditions” requiring a continuous

adaptation of what was being experienced elsewhere” (from interview on 29/12/2000). This

is why, according to Del Lungo, the “school of thought” behind most of human resources

practices can be defined as “typically Italian, the creature of a specific time and context”.

After the individual “start-up phase”, the social changes that took place in the second half of

the 1960s compelled the industrial world to start serious reforms and favoured the growth of

management consultancies focusing on human resources management, as well as the range of

the services they offered. Among the Italian names there were Praxi 1965, Studio Staff 1967 ,

ORS 1968 and Prospecta 1969, in 1970 they were joined by Hay Management Consultants

and by other foreign consultancies, such as Egon Zendher, the first “head-hunter” company in

Italy (Faliva and Pennarola, 1992). These developments seem closely connected to the fact

that from 1969 onwards, when the power of personnel departments increased significantly,

the implementation of new organisational systems as well as the redefinition of working roles

started to be increasingly in demand. At the same time, they confirm once again the

backwardness of the Italian business organisation and the delay in the adoption of any

organisational changes.

According to Del Lungo, the conflicting nature of industrial relation in Italy had a significant

impact on the development of human resources practices, which up to 1970, were dominated

by interventions linked to the shop floor rather than to other organisational aspects (from

interview on 29/12/2000). In most cases, up to that time management consulting was a

synonymous of Bedeaux, with a few exceptions anticipating organisational and information

systems. In fact, the majority of the Italian companies of the time were “production

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enterprises” in which “job” itself constituted the central element on which human resources

were organised, evaluated and remunerated. Roles were fixed, and these companies were

“internally immobile” (from interview on 29/12/2000). This is why the crisis investing the

tayloristic organisation of work at the end of the 1960s, mining the traditional conceptions of

work job analysis and job description, stimulated a major interest and acceptance, among

clients, for human resources interventions. This phase, remembers Del Lungo, paved the way

for Italian human resources consultants to study, experience and then propose to clients new

ideas and solutions. In his case, given the “never lost” interest for the psychoanalytical

aspects of the work organisation, he took part in some innovative experiences such as the so-

called T-Groups that were being held in Italy in those years. They had originated in the US at

the end of the 1940s with the aim of offering people an exploration of groups’ dynamics and

behaviours, and represented a big training innovation that provided the base for what is

nowadays called “team building” (from: http://www.ntl.org). The image of human resources

management and of consulting in general was finally de-coupled from the previously

pervasive productive function. As a result, the human resources activities of the following

decade (1970-80) mainly focus around various aspects of work organisation and profession

and competence analysis, job measurement & compensation .

The later developments in this field required an ulterior enlargement of human resources

practices to face the new complexity linked to clients’ demand and. Despite the fact that,

according to Feaco estimates, there has been a decline at international level in the percentage

of consulting engagements in human resources in the last five years, the percentage of

engagements in Italy remains higher than in the UK, Germany and Spain (Feaco reports,

1997, 1998 and 2000). Results from an investigation carried out by the author in the last three

years show that human resources services are still highly evaluated by Italian clients,

especially in the areas of selection and education & training.13 In these areas, the most

requested consulting interventions aim at allowing the growth of internal resources (not only

in theory but also by training on the job in simulative projects). Increasingly common are

those

13 Results have been derived from semi-structured interviews and questionnaire research. Between October 1998 and December 1999, the author interviewed twenty-four senior representatives of consulting firms operating in Italy. These included large as well as small and medium-sized consultancies, both of foreign and national origin. Subsequently, detailed questionnaires were sent to 600 members of the two major professional consultancy associations in Italy, APCO and ASSOCONSULT. 91 replies were received, representing a response rate of 15.2 per cent.

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projects in which senior consultants act as “mentor” to young and inexperienced

entrepreneurs, especially in relation to succession processes within family firms (Crucini and

Kipping 2001). At the same time, many engagement carried out in the 1990s have included

the international benchmarking of human resources, either according to sectors or to their

qualification. In general, these kinds of engagements are in fact very much in demand by

Italian companies involved in the process of internationalisation and therefore looking for a

competitive human resources strategy when approaching foreign markets.

3.4.4 Discussion and conclusions

This chapter has attempted at showing how the development of human resources practices

took place and was influenced by the specificity of the Italian context. It has first presented

an overview of the background characterising the Italian work organisation to move on, in the

following part, to present the main changes taking place in this field from the 1950s onwards.

Some significant examples from the professional history of Silvano Del Lungo, one of the

“pioneers” that has worked in human resources since the very beginning, have been provided

in order to enhance the understanding of the conditions under which this development

occurred.

Three main assumptions were discussed and tested in the chapter. Firstly, it has been argued

that the development of human resources practices in Italy has been strongly influenced by

the specificity of the Italian context. Its initial backwardness, the attitudes of industrialists

and the “productive focus” of the main national industries all had a strong impact on the

evolution of the human resources field. Strictly connected to the first, the second assumption

was that the origin of human resources practices in Italy has to be closely related to the

evolution process of the production function and of work organisation within Italian firms.

Finally, is has been suggested how the personal initiatives of some consultants and

researchers have helped the development and growth of this field in two major ways:

compensating the scarce involvement of institutions and sometimes acting as “mediators” in

the conflicting relationship characterising the history of Italian industrial relations.

These assumptions seem confirmed from the analysis carried out in the paper. A first strong

fact that has emerged is that the specificity of the Italian industrialisation pattern and its main

characteristics had a strong influence on the development of the human resources field. More

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in detail, a number of social, political and economic phenomena contributed to give to the

industrial (and to a certain extent managerial) organisational culture a strong and long lasting

technical-scientific connotation. In concrete terms this means that almost every operation

within Italian industries, including human resources and organisation, was for almost twenty

years (1950s and 1960s) subordinated to the productive function. The need for efficiency

soon after WWII, in order to catch up with the more advanced economies, seems to have

justified the implementation and maintenance of scientific management and Bedaux methods

despite the fact that, already in the 1930s, they had provoked a strong reaction of workers and

trade unions. Behind this “efficiency shield”, scholars claim, Italian industrialists were trying

to maintain their control of the factory and to legitimise their function. This attitude of

“closure” seems to have delayed, in the long run, the interest for the development of other

areas of organisational and managerial concerns within the Italian industry, as well as having

contributed to the conflict nature of industrial relations. Del Lungo’s experiences offer some

examples of this “closure” that characterised the first consulting interventions in the human

resources (or proto-human resources) field in the 1950s. He mentions, for example, how the

clients of the time very often did not facilitate the job of consultants and even more how, once

the consulting engagements were finished, they ignored the changes recommended by the

experts.

Outside the industrial world, institutional actors such as the State and the educational system,

especially Universities, seem to have been unable to stimulate a more diffused and effective

consciousness of the importance of these issues. The academic world has maintained for a

long time a detached and uninterested position concerning many initiatives aiming at

diffusing a modern managerial and organisational culture in Italy. This fact has also been

related to the failure of the first management schools, such as Ipsoa and Isida, in Italy in the

1950s (Gemelli 1997; Crucini 1999/2000). On the other hand, also the State seems to have

not been sufficiently involved in the promotion of new management and organisational ideas

and methods. In fact, if on one side the State was indirectly involved in some innovative

experiences, such as ENPI through the Ministry of Work, on the other hand it did not interfere

with the “conservative attitude” of the Ministry of Education or, even more significantly,

change the existing restrictive labour legislation. Del Lungo’s recollection of his first

professional experiences in selection represent a significant indicator in this respect,

describing how even those clients that showed some interests in the new practices, had to find

“illegal tricks” to overcome the existing labour laws. Last but not least, Trade Unions also

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seem to have played a significant role in this context contributing, as for example Piore and

Sabel (1984) suggest, in maintaining shop floor relations rather problematic up to 1970s.

What can be added though, in the light of the facts presented in this paper, is that they did not

seem to be involved in promoting the diffusion of new organisational methods and practices

inside Italian firms, on the contrary they often opposed them on an “ideological base”.

All these factors constituted the specific environment in which human resources practices

evolved in Italy in the last fifty years. Initially linked to scientific management, in the

continuous search for efficiency and optimal utilisation of resources, selection processes,

training programmes and professional orientation were the first human resources services to

be developed in Italy. Only later, from the 1970s onwards, new attention will be given to

other aspects such as work organisation, groups’ dynamics, competency analysis,

differentiated training programmes, job measurement & compensation and so on. Given this

kind of initial “detachment” between the new ideas concerning human resources and their

actual application within the working environment, in other words between “theory” and

“practices”, it appears less surprising that those involved in this area called themselves

initially “social researchers” and only later “consultants”. Disregarding their names, these

people as in the case of Silvano Del Lungo, contributed with their personal initiatives and

research “to invent a new profession that did not exist in Italy” (Gallino, 1997:1316) and to

the development of the human resources field. With the scarce involvement and support of

external institutions they had to count, in most cases, on their personal network in order to get

access to information, to promote new initiatives and to promote their activities and expertise

“by words of mouth”. As emerges from Del Lungo’s narration, personal relationships have

evolved in many cases in long lasting professional partnerships. In his specific cases, friends

and colleagues met in the initial stages of his career at ENPI, such as Di Castro, or at Olivetti,

such as Butera, represent a sort of network aiming at developing human resources as a new

area of research and expertise.

On the base of these facts it seems possible to conclude that the development of the human

resources field in Italy has been a strongly “context dependent phenomenon”. Despite foreign

influences coming from the US but also from Europe (e.g. France, UK and Sweden), a fact

this last one that appears often underestimated by the existing research on the diffusion of

management ideas and methods, it seems possible to agree with Del Lungo when he claims

that “human resources practices in Italy are an Italian creation”. According to Del Lungo, in

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fact, “the industrial culture in Italy has always exerted a resistance against foreign influences

because they cannot understand the real meaning of the hierarchical and family connotations

of the national business tradition” (from an interview on 18/12/98). In this sense, the first

generation of human resources consultants had to act and mediate between the more advanced

theories and practices in the human resource field coming from other countries and the

“constrictive” reality of the Italian environment. This included dealing with secretive clients

putting at danger the completion of their engagements or having to accept that their ideas and

solutions would not be implemented, without stopping researching and working “to match the

idea of industrial democracy with the need to maintain efficiency and productivity”. These

attempts, according to Del Lungo, symbolise the original meaning of human resources

management in Italy (from interview on 9/01/2001). On a more general level, these facts

confirm what seems to be true for the development of the consulting field in Italy as a whole,

that is to say that the systemic context exerted a strong influence in “filtrating” foreign

influences and shaping the consulting field in Italy also, and sometimes mainly, through the

role played by individuals.

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3.5 TQM in Spain and Portugal (Celeste Amorim) 3.5.1 Introduction

This chapter examines the diffusion of management practices to small of medium automotive

suppliers located in two peripheral economies. It looks at the shape of their TQM programmes

and then explores if and why cross-firm differentiation actually emerged. Finally it points out

some remarks to the diffusion literature and standardisation argument, and managerial

implications for potential adopters of TQM.

The case of quality innovations within the Portuguese and Spanish automotive industry

provides an interesting focus for studying this topic. First, at least at conceptual level, quality

issues became highly standardised and institutionalised (e.g. Amorim, 2000, Walgenbach and

Beck, 2000), especially in the automotive industry. Building on the ISO 9000 norms,

international automobile assemblers developed their own industry-group specific quality

systems (e.g. VDA 6.1, QS 9000) which are imposed on their direct suppliers, independently

from the country where they are located, which in turn impose them on the second tier

suppliers. Secondly, the automotive industry in both economies gained increasing relevance in

the last decades, and its firms have been highly pressured to “catch-up” regarding their

management practices in general, and quality management in particular. They therefore seem

to have fully embraced the quality movement in the 1990s, when quality approaches in the

automobile industry had reached a high level of institutionalisation and standardisation.

Against this background, doubts exist about the effects from these developments upon

Spanish and Portuguese small and medium suppliers management practices, and therefore for

the standardisation argument.

3.5.2 Pressure for standardisation

As for many other management innovations, TQM can potentially include many different

routines that can be combined in different ways. However, from an institutional point view,

some combinations would become more popular leading to the emergence of a standard or

normative, presumably legitimate, form of adoption. In this perspective TQM definitions

become increasingly narrow. Subsequently, later adopters will implement the standard, and

presumably legitimate, quality programme (Westphal et al. 1997). Conformity to the standard

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involve, for instance, the selection of quality systems, practices and tools most commonly

used, and the adoption of a standard and accepted TQM model such as the EFQM or other

nation-wide guides. Several actors stimulate firms to move in the same direction.

Multinationals and management consultants have been identified amongst the most important

actors that have the ability to influence companies` management innovation. They play an

important role for the diffusion of ideas and transmission of management knowledge.

The adoption of TQM programmes by automobile assemblers is a clear example of that effect.

International automobile assemblers impose standard quality assurance systems and practices

upon their own suppliers. Suppliers which are subsidiaries of MNEs are further pressured by

parent firm to adopt group-wide practices. Furthermore, these actors and consultants may

wield tight and intrusive actions upon automobile suppliers during the implementation, and

audit post-implementation. In this cases organisations are further pressured to conform and to

standard forms. Both international buyers and/or multinationals have a vested interest in

suppliers and/or own subsidiaries management practices and the necessary power to influence

them (see, for example, Szulansky, 1996, Kostova, 1997, Inpeken and Dinur, 1998, Grant and

Almeida, 2000 for the case of intra-MNE relations, and Linlcoln et. al., 1998, Brennan, R. and

Turnbull, 1999 for buyer-supplier relationships). In a first instance, a parent firm or a foreign

buyer can act as “catalyst” for change by serving as role model or by enforcing the

implementation of innovations. They can also play the role of “architects”, suggesting

changes and drivers for action, and might even plan the implementation. A more ambitious

service is that in which the foreign firm acts as “doctor of management” getting actively

involved with the implementation of managerial innovations. Especially in this case there is

normally a rich interaction with firm staff, crucial for an effective transfer of knowledge and

meanings (e.g.Kostova, 1997, Grant and Almeida, 2000). Finally foreign firms can also play

the role of auditors of their partners and/ or subsidiaries practices.

Similarly, external consultants participate on the diffusion of popular management ideas

(Tordoir, 1995, Schein, 1999, Faust, 1999, Bessant and Rush 1995). Consultants can play the

conventional roles of “experts, extras or facilitators” (Tisdall, 1982), satisfying the short and

long terms needs of both small and large enterprises . They develop standard models and

stimulate innovation by presenting them to potential customers in seminars, demonstration

session, publications or training, for instance. In many circumstances consultancies work as

“analysts” providing a diagnosis on a particular issue (e.g. QAS compared to standard norms,

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HR evaluation, company SWOT analysis). Otherwise, consultants can be very similar to

“architects” (Tordoir, 1995). In this case the consultant suggests changes and drivers for

action, and plans the implementation. A more ambitious service is that in which the consultant

acts as “doctor of management” (Nees and Greiner, 1985) getting actively involved with the

implementation The consultant sits next to the client in designing and controlling the

assignment, and ensures that its suggestions are indeed going to be implemented. Especially

in this case there is normally a rich interaction between external and internal staff (Schein,

1999). Finally, firms can also use external consultants for post-implementation auditing

purposes.

Thus, exposure to such international interactions and to consultants impact on firms`

behaviour contributing for standardisation of practices. Thus, one would expect high degree

of similarity amongst suppliers TQM programmes, especially considering that they suffer

equal coercion from their buyers. Yet, it is needed to ascertain the extent to which and the

ways in which meanings are being implemented (McCabe and Wilkinson, 1998) in a

globalised industry such as automotive. Thus, the next section looks at the shape of

automotive suppliers` TQM programmes. Two groups of firms were identified: G1 following

a standard TQM approach, and G2 which does not seem to follow a standard model. It then

explores why cross-firm differentiation actually emerged. Finally it points out some remarks

to the diffusion literature and standardisation argument.

3.5.3 Methodology

For the purposes of this chapter we focused on the quality initiatives of seven automobile

suppliers located in Portugal and Spain. These were amongst the companies that in a broad

questionnaire survey (Amorim, 2000) reported to have implemented broad quality

programmes. Appendix Table 1 provides additional details accounted for when analysing the

implementation and form of quality programmes. All sites are small and medium firms,

producing automotive components. However they differ at the level of share accounted for by

this industry, their position within the automobile industry value chain and ownership.

Automobile accounts for less than 50% of C5, C1 and C4 sales. In addition three firms (C5,

C7, C4) are second tier suppliers. C2, C3 and C4 are foreign owned subsidiaries. The analysis

investigated whether these differences had major influence at the level of the implementation

process.

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The complexity of organisational change and implementation of management innovations

implies data of qualitative type. In these cases, and considering the intrinsic nature of the

process, the case study approach is a suitable methodology (Yin, 1994, Miles and Huberman,

1994). For the purposes of this paper, the case studies data were analysed according to the

practices recommended by Miles and Huberman (1994), with a variety of graphical and

tabular formats for structuring the analysis process. Using the principle of triangulation it uses

a combination of 1 to 3 interviews per firm lasting an average of three hours, archival and

business press data to document the process of management innovation in the sample

companies.

3.5.4 Differences and similarities in TQM programmes

All the firms reported to have implemented TQM programmes in the last two decades,

contributing to a sustained modernisation of their practices and process (Appendix Table 2).

A deep analysis reveals that firms` quality programmes were indeed consistent with basic

TQM principles in strengthening internal quality assurance practices and relation with

suppliers and customers, using teamworking to solve problems and carry out specific projects,

and in investing significantly in training in quality related tools and practices. When asked for

detailed interventions all firms started by referring to the implementation of standard quality

assurance systems (QAS). QS9000 and VDA 6.1. certificates are also becoming popular.

They also adopted a significant number of industry specific statistical measures, but these to a

less extent. Thus, at a first lance, these results seem to confirm the argument that from the

original statistical ideas of Deming and Juran, TQM incorporated less technical elements with

unclear meanings, and expanded into a diffuse, increasingly unclear concept (Hackman and

Wageman, 1995, Zbaracki, 1998, Zeitz et al. 1999).

The quality literature, by and large, supports the proposition that ideal quality management is

universal and suggests that the expectations regarding quality management should be the

same regardless of the context (e.g Juran et al., 1988). However, a detailed analysis of the

major innovations introduced by focal companies reflects that cross-firm differentiation at

three levels: i.e. different combination of practices, same practices but different meanings,

decoupling, i.e. only formal adoption, thus contradicting the homogenisation hypothesis.

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Table 3.5.1 Cross-firm differentiation regarding quality programmes

1 – Different combination of practices 2 – Same practices but different meaning 3 – Limited to formal adoption

Of all the sites, C1, C2, C3 and C4 presented the clearest evidence of having achieved higher

infusion of standard TQM philosophy. They not only use more systematically popular tools

and practices, but also follow popular, standardised, total quality management model.

Furthermore, their programmes go beyond implementation of simple compulsory QAS

practices. In addition these firms provided further evidence for the effective use of the

practices and change of routines.

C1 is a well established Spanish firm producer of fasteners, cold stamping of metal parts from

strip steel and wire, which quality management programme evolved to the adoption of EFQM

in the 1990s. Similarly, C4, an established Spanish wire and cable manufacturer acquired by a

large MNE in late 1980s, initiated a broader TQM programme, and since 1998 also adopted

EFQM. In the same line, C2 C3 foreign MNEs initiated their TQM projects as early as 1985

and early 1990s, and continued broadening it throughout the 1990s. Major steps for C2

included the ISO certification in 1994, followed by QS9000 and VDA 6.1 and the

implementation of “Chaining”. C3 moved from a non-standard quality programme, which

included the Q101, EAQF and ISO9002 certificates received as early as 1992 and 1993, to

adopt in 1998 the Balanced Scorecard as model for excellence

C5, C7 and C6 by contrast, are the firms reflecting a less standard approach. Their integration

into tighter production schedules lead to the introduction of a collection of quality

management practices in a somewhat isolated manner, usually as a simple way to reduce

uncertainty in supplier relationships. They might have the quality certificates but they do not

appear to have a broad quality framework within which the last are part off. C5, a well-

established family owned paint manufacturer and distributor, was the first Portuguese paint

company to get the ISO 9002 certificate in 1992. It moved further into the ISO 9001 (1993),

and from a continuous improvement programme to the Portuguese Excellence Prize Model

(PEX). Both projects were not successful, however. In early 1990s, C7, a established Spanish

producer of electric appliances, embarked in an ambitious process towards total quality. Yet,

the main steps have been the QS 9000 certification, after the ISO certification (ISO- 9002 in

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1996, and the IS0 9001 in 1999). Similarly, C6 producer of auto seats established in 1988,

soon gained reputation in the market supplying diverse automotive assemblers. The

development of its quality programme has been reduced to the achievement of diverse quality

certificates.

From a neo-institutional point view, some combinations of practices should have become

more popular leading to the emergence of a standard or normative, presumably legitimate,

form of adoption. Subsequently, later adopters would implement the standard, and

presumably legitimate, quality programme (Westphal et al. 1997). Conformity to the

standards involve, for instance, the selection of quality systems, practices and tools most

commonly used, or the adoption of standard and accepted TQM forms such as the Excellence

models (e.g. EFQM or other nation-wide model). There is some degree of standardisation for

the case of compulsory practices within QAS or enforced by clients. Yet, the lack of a broad

framework by G2 became clear in the interviews. Only G1 firms reported to have a broad

approach to quality management. When asked for their background TQM literature, guides

and frameworks, only C3 implementing the Balanced Scorecard, C1 and C4 using the EFQM

model provided anything.

Similarly, in-depth analysis of the practices revealed that practices have different meanings

for different firms, and often did not follow exactly its original rules. For example, firms

tended to include under the label “team system” a variety of team activities, without

distinguishing their different aims and functioning. Lorenz and Lazaric (2000) study on the

transfer of Japanese practices to French and British-establish Japanese affiliates found clear

differences about the meaning of Kaizen. Task forces were the most reported tools, but

diversity dominates. While in five of the cases their functioning is formally defined, in other

cases (C7 and C5) they are not formalised, i.e. there is not a predefined form on the way they

work. This evidence raises doubts about the actual use of task forces. In fact, while in C7 we

were shown evidence about their actual existence, in C5 no evidence was found. In these

cases team-work does not seem to be associated with higher worker autonomy or enrichment

of workplace. By contrast, workers continued with very detailed task descriptions, strong

division between conception and execution remained and the new system seems like a mean

of maintaining hierarchical relations between managers and workers. Curiously, these have

been found on the introduction of the ISO series in the French car industry (Casper and

Hancké, 1999).

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Intensification of relations with clients and suppliers emerged amongst the most frequent

changes within quality programmes. Concerning relations with clients for example, most sites

reported to estimate client level of satisfaction through a similar index, based on a multiplicity

of indicators, such as delivery schedule, client complains or returns, PPMs (defective parts per

million). However, firms in G1 are more active in this regard and introduced additional

practices aiming at deepening the relation with clients. C1 and C3 for example reported to

conduct client surveys. C1, C3 and C4 have direct contact with them, while for the case of the

foreign owned firms C2 the contact is mainly conducted by the parent firm. Conceptually, the

deepening of the relations with suppliers is one of the pillars of any TQM programme.

However, in most cases organisations did not do much than to give preference to certified

suppliers, and to adopt of a simple “suppliers evaluation index”, largely based on the control

of supplies at the reception. At least three firms do not even audit their own suppliers, and

only one (C1) introduced “suppliers assistance system”. C5 also attempted to go further using

“clients` seminar days” and joint teams (internal staff and clients). However, so far, the

system is neither structured nor formalised, for which most of the actions are reduced to

sporadic events without long term effects.

In addition to the latent diversity, some aspects of firms’ quality programmes do not exactly

fit with the core ideas of TQM. On the one hand scientific methods were clearly understated,

and, on the other hand, there was an increasing reliance on performance measurement and

performance-related rewards to motivate and control employees. All but one firm reported to

use statistical techniques, however a detailed analysis reveals that they use only a small

number of scientific statistic methods. The adoption and/or development of these techniques

was in all cases related to the implementation of standard quality assurance systems ultimately

imposed by clients, and its actual implementation had been confirmed through audits.

However there was not clear evidence that all sites were actually using them for management

purposes. Especially in the case of the two Portuguese firms they seem to be more used to

reduce variability by reducing the autonomy of the workforce. In addition, in G2 quality

control remained largely off-line, with a quality control service operating between section

lines, and conducted mainly by technicians. This evidence largely resemble Casper and

Hancké (199) findings for the impact of ISO 9000 on the French auto industry.

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Concerning management of relations with employees, despite the interventions aiming at

promoting their participation and motivation on the quality programme, few actions were

taken at the level of identifying their needs and satisfaction. Only two firms conducted

internal surveys covering these issues, and even in these cases it was not a systematised

practice. By contrast there was greater concern in assuring employees participation. C1, C3

and C4 for example introduced structured, well-defined rewarding systems linked to team

performance and to suggestions leading to quality improvements.

Despite the high number of reported innovations, some were adopted only formally, while

firm processes and internal routines remained practically unchanged. For example, in a first

instance C5 and C7 highlighted the major turnaround that had occurred in “company culture”.

However, later in the interview they also expressed considerable frustration and recognised

that in fact “….the organisational practices changed very little. The quality system brought

mainly formalisation and systematisation of the things we were already doing”. C6 quality

manager did the same comment. In the other cases, such as G1 firms, C2, and C4, managers

started by arguing how things had changed little, but brought to light numerous changes that

had occurred with the broadening and deepening of firm quality programme. This dichotomy

between adoption and rethorical adoption is also implicit in the study conducted by Rosett and

Rosett (1999) in the US. As they have shown, six out of fifteen firms have adopted one form

of TQM, but without incurring the costs associated with major organisational change.

From the above it is clear that when compared to G2, G1 firms achieved higher level of

infusion of TQM philosophy. Following Miles and Huberman (1994) the study identified

factors contributing most for the differences. They are described in the following section.

3.5.5 Explanatory variables

3.5.5.1 Involvement of external actors International buyers and parent firms played the role of (1) catalyst for change by imposing -

or strongly suggesting- standard quality assurance systems and practices. Firms were further

pressured to conform through inspection at the level of operational routines. Indeed, within

the automobile industry, and concerning quality programmes in particular, buyers` audits

became a common place . Because the norms and buyers` requirements apply equally to all

automobile suppliers, the external auditing process is likely to enforce standardisation of

practices across firms, even in these two peripheral economies. International buyers had a

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further impact by getting actively involved with the (2) implementation of quality

innovations. Yet, at this level, firms counted with the support from two other type of agents,

namely consultants, and foreign parent firms for the case of foreign MNEs.

The typology proposed recently by Kipping and Armbrüster (1998) (M&A in the Table)

seems to be especially relevant to understand the process. If applied to the case of quality

innovations in the automotive industry (Table 2), this typology shows the role of the referred

actors in complementing the skills of the “receivers” (1) by familiarising them with general

quality concepts and ideas; (2) by providing them with additional quality-related know-how

applied to the automotive industry; and (3) with skills of the procedural type to carry-out the

implementation. While the first two types of knowledge are more explicit and endemic,

capable of codification and therefore of communication, procedural knowledge is mainly of

experimental and existential nature. Its transfer is slow and costly, its acquisition requiring

careful interpersonal contact and extensive learning by doing.

Table 3.5.2 Management knowledge: applied to quality in automotive K&A (1998)

Example for the case of TQM in automobile

General Total quality management concepts applicable to a wide and diverse range of organisations, …

Specific Knowledge

Industry specific total quality management concepts, e.g. industry standards, best practice guidelines, …

Procedural How to change the organisation, how to integrate high context embedded practices such as quality circles into a new organisation (e.g. quality circles)

Consultants contact with many firms, across industries and contexts and were at advantage as

source of general management knowledge, but regarding specialist knowledge, buyers and

foreign parents were good alternative sources of know-how. They provided the “receiver”

with “blue prints” “best practice” or “benchmarks” based on the collective knowledge of the

automobile industry and its specific quality programmes. These have been provided mainly

through demonstrations, seminars and detailed manuals, quality assurance and improvement

studies. In addition, specific knowledge was also provided by international buyers and parent

forms through training, but this has been rather limited.

Knowledge of the codified type (e.g. explicit or endemic) is easy to transmit, yet further skills

are needed to undertake a total quality project. Firms need knowledge of procedural type.

Companies themselves obviously also have procedural knowledge, but this is “routine” type

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knowledge, i.e. it is carried out repeatedly and only evolves very slowly (Nelson and Winter,

1982). Consultancies, by contrast, develop processes which they apply to change the existing

routines in companies. But if companies want to appropriate this knowledge, they need to

work in close relationship with the external experts during the implementation process. High-

intensity, inter-personal contact were especially important for transfer of tacit type of

knowledge (procedural, and experimental) (Keiser, 1998). Furthermore intense personnel

contact reduced the potential for different interpretations of codified information expressed in

manuals (Nees and Greiner, 1985, Schein, 1999). In addition to transfer of knowledge, there

was transfer of meaning, thus promoting standardisation across adopters.

International buyers and parent firms also provided such type of consultancy support. Large

automotive customers developed “suppliers support offices” which worked temporarily with

the suppliers exchanging with them detailed information, and even personnel. Yet, the

acquisition of tacit knowledge from international buyers and parent firms has been rather

limited, which explains the frequent use of external consultants on the implementation of

quality innovations. Firms received support either from their own multinational automotive

clients, parent firms or/and from external consultants. These agents provided firms with

generic and specialised information, thus driving them to implement popular practices and

tools. In addition they were used to overcome firms` lack of operational capacity and to push

the new practices against organisational inertia. The direct involvement of external agents also

speeded-up the implementation. They brought to bear new general concepts very fast. In

applying these ideas they have considerable authority, derived from their role as external

observers and/or from their power as an important partner. The intensity and quality of

relationships was one first filter contributing for different quality approaches.

These findings are in line with Sturdy (1997) and Fincham (1999) who have also called

attention for the quality of the consultant-client relationship. In our case studies, companies

with richer interactions show higher levels of conformity with standards.

3.6.5.2 Interaction with externals Group 1 firms show a rich interaction with external actors. Consultants are considered by each

of the firms as a necessary condition for maintaining their competitiveness, as a means for

implementing the firm overall strategic direction, and the use of consultancy is a regular

activity. Often it is directed at solving a particular technical problem or at complex projects

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that represent the basis for future developments and affect crucial areas of expertise, which lie

outside its normal range of activities and beyond its existing resource base. Consultants are

used as providers of short-term extra resources, to provide external support and momentum

for courses of action already favoured within the firm, or to provide a mechanism for

implementing unpopular measures. Examples here include the use of consultancy to integrate

quality practices, to introduce new broader concepts (e.g. Taguchi, quality function

development, TPM).

Another underlying assumption in this market is that users have considerable experience of

consultants and can manage the process well. Normally, internal staff works together with

external consultants in an equal basis. Noteworthy too was the suggestion that the relationship

between client and consultant brought benefits to both sides. It also corresponds to one of

interdependency between consultants and the other external actors, i.e. client and/or parent

firm. They are not dependent on consultants as sources of external skills, but play an

important role by bridging the gap between internal capacity and the need to implement

group-wide policies and clients requirements.

C1 is probably the one showing clearer long-term complementary interaction between both

consultants and foreign clients. Since the 1950s that its automotive clients provided stimulus

and support for the introduction of quality innovations. Ford seems to have had a particular

role in this regard. Even in the 1990s it provided not only the manual, but also training and

support to implement TQM. Additionally C1 employed consultants for its implementation.

Meanwhile the company`s total quality programme has also graduated from a non-systematic

TQM model to the present EFQM. Continuous and informal contacts, joint quality teams, and

visits to foreign clients continued being a good source for further advances. Seat and Nissan

for instance, supported the implementation of “task forces” (1996/7).

Consultants also had a complementary role for the majority of the foreign owned subsidiaries.

Their practices have been highly determined not only by consultants and foreign clients, but

also, and, more importantly by group-wide policies and international intra-firm diffusion of

knowledge.

C4 reflects consultants role on the implementation of practices coercively imposed by clients

and parent firm. In late 1980s the MNE C4 acquired a small participation of this long

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established Spanish wire and cable manufacturer. They immediately implemented a few

innovations, amongst which the ISO 9001 model (1991), with consultants. Yet, only in 1993,

when MNE C4 acquired the remaining company equity, did the Spanish unit adopted a more

aggressive and ambitious management stance. To a certain degree it reflects foreign parent

strategy, and its increasing interventionist style by strongly suggesting the introduction of new

management practices and tools (e.g. MBO in 1993 or the EFQM model in 1998). The

advances in C4 quality practices also reflect to a large extent the influence from its

automotive customers. However, both intra-firm and inter-firm exchange has been

predominantly documentary based. Thus, firm started using consultants more strategically

and for more ambitious projects in the quality field. The first step of its TQM programme was

probably the implementation in 1993/4 of continuous improvement groupings with the

support from a University Professor. Meanwhile C4 continued using SMC domestic

consultancies mainly for training and auditing. By last, they started with the EFQM project

with the support from English consultants in 1998. In this case the practice and the

consultants were “imposed” and selected by the parent firm, which reflects that C4 is

increasingly using new mechanisms to transfer knowledge within the group.

The remaining two foreign owned subsidiaries by contrast provide probably the best examples

on the complementary between consultants and intra-firm international diffusion of ideas.

Despite separated for almost a decade, both C2, tyre manufacturer, and C3 , started operations

in Portugal by acquiring two decadent long established Portuguese firms, leading to a

profound restructuring process. This started with the transfer of a massive package including

new technology and production processes, organisational structure and management tools. In

both cases the company processes and organisation, the design of the quality programme in

particular, were modelled on group-wide best practices.

Initially, intra-firm exchange of personnel became the principal mechanisms for the intra-firm

transfer of knowledge. Codified knowledge was transferred mainly in the form of

documentation, intranet and formal training. Knowledge of tacit type implied exchanges of

managers and technical staff. In C2 a total of 14 expatriates, including the top and functional

managers (production, finance and quality), staff and engineers, were permanently transferred

to the Portuguese plant. In C3 expatriates also occupied crucial positions of control and

definition of company operations, finance, industrial, production and quality management.

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This “…helped to reduce misunderstanding due to lack of knowledge and language barriers”

(C3, 04/09/1999).

Consultants also played its role even in the early days of plant operations. They played a

bridging and determinant role for the implementation of TQM in C2 group. They provided

training and support on the implementation of JIT (English consultants) and SPC (an

American professor). The strategy followed by both firms and the type of mechanisms used

for transfer of practices seem to have been assertive. They needed small adaptations in order

to satisfy the QAS that meanwhile had been increasingly enforced by its clients, both directly

or indirectly through the parent firm. C3 got Q101, EAQF and ISO9002 as early as 1992 and

1993 and C2 got the ISO 9001 in 1994: “..we did not have to introduce any major innovations

in order to get the ISO certificate in 1994 because our quality system was already very much

advanced…” (C2, 01/07/1999).

Firms’ quality programmes evolved continuously reflecting market demand pressures. Basic

knowledge for the implementation of such practices has been transferred through “quality

manuals and requirements, or while negotiating quality development plans, and during

clients` audits. In a few occasions clients also provided some training. However, know-how

sharing has been mainly informal and there has been few potential to the transfer of more tacit

type knowledge. In addition, in both cases the contact with the clients has been conducted by

the parent firm, for which the subsidiary does not have much direct contact with them. Thus,

their quality programmes evolved relying to a large extent on the know-how transferred from

the group. Company wide total quality programmes are based on the diffusion of best

practices, by annual audits from an internal international auditing team, by providing training,

or simply by imposing new practices. These have been further stimulated over the 1990s. In

this regard, both groups decided to implement QS9000 and VDA 6.1 and imposed the

certification on their subsidiaries. The parent company provided all the necessary information

and support, including training (e.g. for C3).

In addition, both firms stimulate the diffusion of such know-how through temporary

exchanges of employees and managers, and international training programmes for managers

combining formal and on-the-job training. Our interviewee at C3 for example attended the

international training for managers, which included formal training, and six months on-the-job

training at one Plant in Germany. He returned to the Portuguese plant as quality manager and

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will probably become production manager. C2 also has this type of training. At the time of the

interview, C2 had six managers abroad. In C3, diffusion of best practices also occurs by a

subtle control through the creation of pressures on managers at plant level to behave in certain

ways: these included external and internal benchmarking comparative studies. The first

consists on evaluation studies conducted by external consultancies. For instance in 1997 the

Group hired an international consultancy to compare group subsidiaries against best practices

in the industry. Each plant received its own evaluation referring to its weak and strong points

compared to the average in the industry. This study has been used as departing point for

further improvement. The second type of benchmarking has been further stimulated in 1998

with the adoption of a “Balanced Scorecard” system against which all plants are classified.

Both companies counted with consultants for developing its quality system. They have been

used for pontual initiatives, including in situ training (e.g. for auditors), as well as for the

implementation of broader projects and new practices. The most recent innovation at C2 has

been the diffusion of “Chaining” as a tool for continuous improvement. C2 plants have been

receiving training and support for the implementation from an individual consultant from

Germany. The Portuguese C3 plant also worked with foreign consultants for external

benchmarking studies and on the implementation of TPM. For the last the Group hired the

consultancy working with the guru Hartman. Their role included diagnosis, training, planning

and follow-up the implementation. The subsidiary itself has sufficient autonomy to hire

consultants for other quality initiatives, and it has in fact used them, for instance for the

design, implementation and analysis of a client survey in 1999.

By contrast to G1, the quality programme of firms in G2 has evolved slowly, consisting

mainly on the implementation and upgrading of standard quality assurance systems (e.g. ISO,

QS9000, VDA 6.1), being the quality certificates the final aim. For these firms clients proved

to be an important catalyst and an alternative source of knowledge for introducing quality

innovations. The flow of know-how occurred mainly formally through clients` audits,

“suppliers quality manuals”, and while negotiating yearly quality development plans. Visits to

clients and training did occur, but they are rare. Most of the exchange of know-how occurs

informally, mainly within the relations between firms` quality and production managers.

Despite the simplicity of their programmes, consultants were here obligatory passage points:

need for extra-capacity and expertise in the QAS and application for public funding for its

implementation.

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Consultants worked here as analysts, i.e. identify costs of inefficiencies in the existing quality

system compared to a standard, and architects, i.e. suggested how to overcome the

weaknesses. They further worked as “doctors”, formulating and implementing the necessary

innovations, as well as the management of the project itself. In addition, they contributed with

basic training and introduced new routines in the area of processes and quality management

practices. These consisted mainly on the systematisation of firm internal procedures, and on

the compulsory practices accordingly to each QAS. A common feature of these firms is that

using consultants became even more attractive considering the quality programmes public

funding policies, which include funding for consultancy support.

C5 largest client, a JV between a Portuguese and a Japanese automotive assembler, was the

catalyst for the implementation of ISO as early as 1991. They provided mainly explicit type of

know-how and limited support with designing the system, planning and implementing. After

this first push, clients became mainly catalysts for change, while providing limited knowledge

for the implementation. This in turn could have been acquired from consultants, however their

involvement was rather limited. C5 for example worked with consultants for the subsequent

ISO 9001 project, and after on PEX and CIG in 1995 and 1997/8 respectively. They were

employed mainly for diagnostics and training however. For C6 and C7 knowledge sharing

with the automotive buyers has been considerable important for posteriori development of

firm quality practices, while being very sceptical about consultants. C7 for example, hired a

consulting firm for the ISO 9002 project, but it was not before 1996 that they got the

certificate. Since then C7 received pontual support from an individual consultant for ISO

9001 and QS9000 certificates. Yet, he is much less involved with implementation. C6 also

hired an individual consultant, but the process for certification was slow and confrontational,

and the quality manager and consultant never worked as a team. Recently, C6 decided to work

on the QS9000 without consultants.

Auditing scope

There is evidence that external quality audits in particular pushed firms to actual adoption of

standard quality practices. All focal organisations reported that changes were introduced

either ex ante or a posterior the audits. However the process did not totally preclude

differentiation. First, due to high subjectivity at normative level the audit report depends to a

great extent on the auditing team itself. Most buyers and parent firms recognise accreditation

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from independent auditing, and if following industry standards the evaluation continued

dependent on auditors approach: “…TRW audited us just a few months after Keiper, and they

did not consider at all the results of the later (…) Keiper classified us with a C and a couple of

months after Lear classified us with an A.” (C6, 6/09/1999). “However clients differ from

each other, and even auditors from the same client have different behaviour.” (C3,

10/08/1999).

While scope for differentiation seems to have increased with the proliferation of accredited

institutions, there has been increasing intra-industry standardisation supported by normative

detail, by auditors experience and their industry specialisation: “In the beginning the IPQ

auditors were a bit lost. Tended to go into details about the ISO norm…and we implemented

things we were strictly obliged to. Meanwhile auditors gained more flexibility and they are

able to interpret the norm from our industry point of view” (C3, 4/09/1999).

Secondly, the dubious relation between audited firm and auditors reduces pressure for

standardisation. These effects are easily identified at the three levels of auditing, and both

groups reported similar experiences. Repeated contact with the same auditors might have also

hampered standardisation (e.g. C6 for ISO and C7 for QS 9000). Furthermore, in a few cases

the same external auditors were -or had been- used as consultants/ optional external auditors

for other quality related projects. In both countries the legal constraints have not been so far

efficient to preclude these events. This “dubious” relation between firms and auditors created

again possibility for decoupling between formal adoption and operations.

3.5.5.3 Knowledge / practice specificity Firm specificity seemed highly related to the embeddedeness of the practices involved.

Certain quality tools such as quality circles for example are highly embedded (Chai and

Gregory, 2000) and therefore difficult to transfer. In our cases, we found that even when

externals participated on the implementation process, firm product and production system

barrier cross-firm standardisation. During the ISO project (1995) an individual consultant

attempted to implement at C6 “SPC practices, such as 8Ds and FMAs, widely used in the

automobile industry”. However, the interview with the C6/S quality manager revealed that

subsequently they had abandoned that system because “…in this industry the SPC per

attributes is not applicable”. He continued arguing that “… is not a problem of our firm, I

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Know several other textile firms which attempted to introduce it without success.” (C6,

6/09/1999). The Portuguese producer of auto seats C6 for example has also shown particular

needs. Chrysler requirements, for example, were negotiated because of product specificity:

“..their system demands control over the noise of the component when being used! How can

one ensure that a seat made with sponges and leather will not make noise when someone seats

on it? I discussed with them and fortunately they understood”.

Considering that the Portuguese independent component industry is still relatively

unsophisticated with production focusing on the manufacturing of low technical products, C6

experience might be quite representative of the Portuguese situation. By contrast, considering

their specialisation, Spanish auto component producers might have less problems in this

regard. It must be highlighted that the impact of product specificity on the transfer of practices

has been found in many contexts, from supplier-buyer relations (e.g. Brennan and Turnbull,

1998) to transfers within MNCs.

3.5.5.4 Firm specificity Lack of absorptive capacity

Companies used external consultants and received external support; however, pre-existing

operational relevant knowledge, both at the managerial and employee level, facilitated the

compliance with standards. While some organisations had capacity to absorb, interpret,

circulate and utilise the knowledge, others revealed great difficulties. All companies reported

to have invested strongly in training, both at management and employee level, but often they

lacked operational know-how to implement it. G1 firms in particular developed such

capabilities over time, and their absorptive capacity was stimulated directly by sending

personnel for advanced training, or by recruiting new managers, for instance.

C4 for example, embarked in a continuous improvement programme in mid 1990s. They went

through several stages, and their efforts to carry on looked like experiments. They started by

implementing a collection of tools and practices rather than a coherent broad quality

programme, and a few actions failed to produce long-term results. Internal staff continued

receiving intensive training, in both organisational and technical aspects of quality

programmes. Finally, by 1997/8, C4 adopted the EFQM model, following worldwide group

strategy, and starting working strategically with external consultants. Accumulated

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capabilities also made the difference for C1. The quality manager revealed they have

“…achieved a third stage characterised by active acceptance and enthusiasm (.…) one of the

secrets was for sure the flexibility and experience of the people leading the project” (C1,

14/06/1999).

By contrast, the lack of operational experience blocked C5 “excellence programme”, initially

introduced by external consultants. Their continuous improvement programme, suggested and

developed by a well-known international consultancy, had a similar end: “…the consultants

should have supported us for longer because we had not acquired the necessary operational

skills to carry on” (C5, 14/04/1999). They invested strongly in training in quality tools and

practices for their employees, but these often ignored them. Unfortunately, other firms (e.g.

C7) shared the same experience. Such disappointments result from problems at the training

level and management approach. They were particularly strong when training had been

mainly of theoretical type and given by external consultants, for which employees continued

lacking operational skills to take-on the new practices.

Prior knowledge has been found a determinant factor in other studies as well. Benson at al.

(1991) study on 20 companies the US for example, found it to be a determinant for explaining

and predicting quality management practices. In addition, it has been highlighted in many

studies on the transfer of know-how within firms (e.g. Szulansky, 1996). Higher experience

was associated with easier acquisition and use of new knowledge, especially for smaller

“receivers”.

Lack of resources and management motivation

Firms suffered from some “natural” inertia (Nelson and Winter, 1982) not only because

existing routines were difficult to change but also because organisation members found

difficult to integrate them with existing practices. Group 1 firms managed to overcome

organisational inertia reaching deep organisational change. The incapacity to overcome

organisational inertia seemed much related with two main factors, scarcity of resources and

managers’ lack of motivation.

Organisations are often caught in situations of rapid change, and having to deal with multiple,

often conflicting, situations (e.g. company growth, change in internal structure). Organisations

with a large pool of resources found easier to actually implement new practices. G1 firms

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show fewer problems at this level, whereas G2 firms were more strongly affected. Even if

they had internal know-how, G2 firms often lacked the resources to fully implement certain

new practices. The quality programmes depended less on financial resources and more on the

human capital. C7 provide the best example on how rapid company growth and consequent

scarcity of human resources delayed the changing process. As we referred earlier it took C7

more than 6 years to standardise its system accordingly to ISO 90001. Apart from the firm

cultural barriers, “… the company was growing at a fast pace (in five years with doubled the

production and sales) and as a result there was no time to structure internal processes” (C7,

16/06/1999). Despite the support received from clients and consultants, C6 quality manager

also argued that he was “….too involved in other issues and let the time to pass bye”. As a

result, practices demanding higher commitment and enforcement were dropped.

Additionally, while in some firms top managers were actively involved with the

implementation of new quality practices (e.g. G1 firms), whereas in some others (G2 mainly)

the lack of management` commitment with the implementation was more than clear. Often, in

interviewees` statements was implicit that new practices were seen as a new ways for others

to work. Top managers would define teams, set-up their aims and reward systems but they

would not participate on the implementation. C5 C.E.O., for example., clearly revealed

detachment towards quality programmes: “…ISO is a fashion… the certification itself is

bullshit. It consists in writing up what was already being done ...” (C5, 23/03/1999)

This background helps to explain why C5 attempts to embark in a broad quality programme

did not go far. C6 by contrast, seems to have learned with its own mistakes. In 1994/5 the lack

of management commitment seriously affected the progression of its quality programme

(process for ISO certification). As mentioned by the consultant working for C6 (and

confirmed with C6 internal managers): “I gave training but things would not be applied

mainly because there was lack of involvement and commitment from the top-managers”.

Since then things changed considerably, and the quality programme gained a new boost.

Administrators took the lead of the ISO process and nowadays they are actively involved in

different quality teams. However, this firm has decided to develop its programme relying

mainly on internal resources, for which it has been a slow, step-by-step process. Rosett and

Rosett (1999), Benson at al. (1991) also found that that leadership, management commitment

and motivation for change was a critical factor on the adoption of TQM. Sull et al. (1997)

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have also shown that managerial commitment played an important role in US tire makers

response to radical technological change, thus supporting the view that commitments should

be considered with competencies in examining how firms respond to technological change.

This interpretation of the key role of the leaders is in line with findings of Penrose (1959) and

the work of Schumpeter on the theory of the firm (1990).

3.5.5.5 Country specificity Under TQM employees should have numerous opportunities to demonstrate initiative,

initiative and leadership. In this regard, a few firms implemented a well-defined rewarding

system linked to employees contribution to continuous improvement. Yet, some country

specificity may exist. Our findings suggest that in Portugal and Spain TQM has not been used

as a method of identifying employees eligible for promotion, which contrasts with the

findings of Rosett and Rosett (1999) for the US case. In this regard, Rosett and Rosett (1999)

found that subjective rewards (e.g. public recognition) and promotion were the main type of

rewards. This particularity might reflect Iberian countries management specificity in terms of

promotion and rewarding systems. These are often said to be based on subjective evaluations,

and preferential relationships. Thus, even for firms using standard forms of TQM, there seems

to be some country adaptation concerning relation with employees. In this regard, Lorenz and

Lazaric (2000) found that Japanese multinationals operating in Britain and France have

experienced only partial success on the transfer of Japanese employment practices. This was

mainly due to features of job grading, career and training systems which wee specific to each

national setting. This effect in the Iberia has yet to be further explored with a higher number

of cases.

A detailed cross country comparison reveals the implementation of quality innovations was

also shaped by different societal models of industrial specialisation, reflected in labour

markets and development of business support industries.

In the 1980s and 1990s, the Spanish automobile suppliers benefited to a greater extent from

the existence of a pool of skilled workforce and specialised business services (e.g.

technological centres and professional associations). Portuguese companies by contrast could

hardly find local sources of specialised know-how and often they has to search it abroad. :

“…in early 1990s there were no business supporting industries because automobile was a new

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manufacturing industry in Portugal”...and despite very positive developments “the automobile

is still an emergent industry”. As others, this firm had to “…use Spanish consultants when

implementing QS9000 (…) VDA because there were no alternatives in Portugal”. Even for

auditing of industry-specific systems Portuguese located firm has not alternative than to use

foreign institutions. In this regard, it is safe to argue that the automobile industry developed

earlier and more in Spain than in Portugal, and this partly explains, the belated development

of automotive-specific business services in Portugal. This result is in line with Kostova

(1997), which also found that the Portuguese Institutional profile was less supportive for the

implementation of TQM practices than the Spanish one.

Attention should be given to the strategic actions firms put in place to counteract the

environment lock-in. Some organisations seemed far more able to do that. In this context, the

support received either from multinational clients and/or from parent firm became crucial

sources of industry-specific know-how. Multinational subsidiaries (C2, C3, C4 all G1)

counted with the know-how and support from parent companies, being much less dependent

(compared for instance to G2 firm C6) on local supply of know-how. They could exploit

group best practices and resources, and their capabilities partly reflect their enjoyment of the

skills and institutional strengths of their parent firms.

Bringing all forces together, it is easy to understand why C1, C3, C4 and C2 reached higher

level of standardisation and infusion of TQM philosophy. External actors and firm specificity

complemented each other for the implementation of popular tools and practices. The four

firms ranked highly the role of external actors and showed less concern with the barriers in

the process. They have shown higher absorptive capacity, and greater ability to overcome

organisational inertia. In addition, C3 and C2 overcome the environmental lock-in by having

access to its foreign parent know-how. G2 firms highlighted much more barriers for the

implementation of popular tools and practices. C5 in particular has not been able to put in

practice a broad “quality programme” despite frequent participation of external experts. The

barriers for implementation were clear in this case. Lack of absorptive capacity, lack of

managers commitment were the main filters. C7 and C6 gave more relevance to internal

sources of know-how and show poor interactions with externals.

3.5.6 Conclusion

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The findings to a certain degree contradict the predictions of the new-institutional theory. The

case studies show that conceptually organisations have all adopted quality programmes.

However, by focusing on what is actually implemented, the paper highlights that the adoption

of popular management ideas, and that the so-called standardisation, is neither automatic

neither natural. The study revealed a number of factors or ‘filters’ which influenced the

outcome in each of the cases. They are summarized in the following table.

Table 3.5.3 Filters for the implementation of TQM Type of factors Force Direction of the pressure External actors

Consultants Customers Parent firm

Standardisation

Interaction with externals Quality of relations Audit scope

Low quality relationship Subjectivity and dubious relations

Customisation

Knowledge specificity Technology embedded Customisation Firm specificity Lack of absorptive capacity

Lack of resources Management positioning

Customisation

Country specificity Organisational context less supportive: Industry development, labour market, business services

Customisation

Thus, despite the evidence that total quality programmes are being adopted by numerous

organisations, the problem is that what many organisations are actually implementing is a pale

or a highly distorted version of the TQM philosophy. In response to institutional arguments

that institutional processes generate an increasingly narrow definition of TQM, evidence here

from quality programmes in use suggests just the opposite: definitions of TQM grow

increasingly broad. The key distinction here lies in TQM as adopted and TQM as used and

understood. A number of interventions, related to the original TQM philosophy or not, are

increasingly being herded under the TQM banner. Every intervention has been reported as

part of TQM. The most frequently chosen add-on interventions (e.g. performance-contingency

rewards, work redesign and empowerment) reflect that the boundaries of the management

programme became blurred as more and more initiatives are launched in its name. TQM has

been criticised because this increased broadness. However, it seems to rely precisely on being

flexible and not too radical, and therefore easily installed in everyday life of the organisation.

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The results confirm that international buyers, foreign parent firms and consultants drove firms

to implement popular quality tools, practices and models, but firms` experiences differ. From

a micro perspective, we have seen at adoption of TQM it is a complex, multi-level process,

and that management practices and tools were not easily transferred between dissimilar

environments. This is a question of practical relevance and strategic importance within the

context of organisational change. The implementation of those ideas was often filtered, and in

some cases espoused changes appeared to “have failed”, i.e. did not lead to actual

modification of existing routines. This might be because in fact they never got implemented.

Most changes may be more rhetoric than real, as in a programme that exhorts people to alter

their behaviour but the ultimate interest is the achievement of a quality certificate. Despite

mimetic, normative and coercive forces for the adoption of quality innovations, what “quality

programmes” came to mean to each organisation depended mainly on the interplay between

(i) interaction with external actors (ii) product, firm and country specificity. International

exposure and use of consultants by itself did not necessarily lead to standardisation. By

contrast to poor interactions, rich interactions within which knowledge and meanings are

transferred fostered indeed conformity to standard TQM approaches. These were

complemented by top management commitment and absorptive capacity in particular.

It was also highlighted that variation across firms and across countries must be treated

explicitly in the context of the evolution of industries. The perspective developed above

accepts this recognition, with the twist that some of this variation is attributable to the effects

of firm specificity. We referred to foreign branches of MNEs, for example, which benefited

from group best practices and resources, largely counteracting the environmental lock-in.

Finally, the chapter has also important policy implications. Nations are characterised by

particular modes of institutional governance, and by the national focus of policies, laws and

regulations. Together, they contribute to shape the organisational and technological context

within which each economic activity takes place. In a sense, they set the opportunities and

constraints facing each individual firm process of innovation. In this context governments

direct firms innovative paths by using policies favouring particular charters for instance.

However, caution should be in place to ensure that such “innovations” go beyond formal

adoption, and lead to effective change of routines and mentalities. Our evidence shows that

innovation policies may suffer from important shortcomings that need to be addressed. First

the financial incentives must be complemented with a set of conditions facilitating the access

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to sources of know-how and firms capacity to use and implement such knowledge. Within the

latter we include, for example, the availability of complementary skills, information and

intermediate inputs and capital goods. The lack of local specialised sources of know-how was

more evident in Portugal. This event propelled firms either to develop their quality

programmes mainly with internal resources, to use less industry-specialised sources or foreign

located institutions. This is particularly important considering that domestic firms (especially

those with less resources) are the ones` more affected by the contextual variables. Secondly,

caution should be in place at the level of auditing. There is the need to ensure that firms are

actually changing routines and not adopting the practices merely formally, for the purposes of

accessing to subsidies, or/and formal certificates. Ignoring factors that affect firms behaviour

will lead to inaccurate assessment of the effects of policies.

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3.6 TQM in Public Management in Britain and France (Denis Saint-Martin) 3.6.1 Introduction

This chapter seeks to offer an alternative interpretation to account for the rise of the New

Public Management (NPM) and of the new “entrepreneurial” culture in government by

studying and comparing the adoption of Total Quality Management reforms in the British and

French public sectors in the mid-1980s. The NPM is shorthand for the group of management

ideas and techniques imported from the business sector that dominated the bureaucratic

reform policy agenda of OECD countries since the 1980s (Hood, 1991). The NPM is closely

linked to Total Quality Management ideas (Ingraham, 1995). Like the “excellence” stream

made influential by two McKinsey consultants in the 1980s (Peters and Waterman, 1982), the

NPM focuses on decentralization, empowerment, de-layering, and on getting close to citizens,

re-defined as “clients” or “consumers” of public services.

Existing approaches seeking to explain the development of the NPM or the new

“entrepreneurialism” in government are very much “business-centric” (Saint-Martin, 2000).

Both the entry of NPM ideas in government and of the private sector consultants who acted -

to use Max Weber’s term - as the “social bearers” of these ideas, are generally seen as an

extension of developments that took place independently of the state and that have their

origins in the more innovative and dynamic private sector. Since NPM ideas come from

commerce and industry, and since these ideas have entered the state on the “shoulders” of

management consulting interests who also come from the business sector, the process by

which government is supposedly becoming more “entrepreneurial” is primarily seen as a

private sector-driven phenomenon. In this interpretation, policy-makers are more or less seen

as passive actors who are simply following – often with a considerable time lag - external

developments in the business sector upon which they have no real or direct influence.

Of course, it is certainly not false to argue that the NPM reflects the perceived superiority of

business management methods and values (Kirkpatrick and Lucio, 1995). It is true that the

NPM “emanates from sources external to public mangement per se, namely the literature on

private sector or business administration” (Aucoin, 1990: 117). And the “latest wave of

business managerialism”, as two senior partners in the London office of what is now

PriceCoopers themselves recognize, has indeed been “mainly brought into the public sector

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by management consultants” (Foster and Plowden, 1996: 1). But this almost exclusive focus

on the business sector as the sole source of administrative innovation and change has eclipsed

the more active role played by the state in the promotion and diffusion of new management

ideas and practices. It is true that new management ideas such as those related to TQM were

imported into government once consultants had popularized them in the business sector and

once they had penetrated private industries (Pollitt and Bouckaert, 1995). Thus, is one thing to

say that, in reforming its administration, the state imported management ideas from the

private sector. Yet this says nothing about how these ideas got into the private sector in the

first place.

During the 1980s businesses increasingly incorporated TQM ideas into their management

practices but, as we shall see, they did so partly because of state policies. During the 1980s,

under the right-wing governments of Prime Minister Thatcher and Chirac, the British and

French central state played a key role in influencing both the diffusion and penetration of

TQM ideas in private industry, especially in the sector of Small and Medium Enterprises

(SMEs). The central argument developed here is that in reforming the public sector, policy-

makers in government did not simply follow the private sector: many of the new management

ideas and practices that businesses adopted during the 1980s were actively sponsored by the

state. In the context of the formation of the European Union, both Britain and France launched

in the mid-1980s industrial policies and nation-wide “quality initiatives” that sought to bolster

industrial performance and create a new “enterprise culture” by providing to SMEs money to

buy management consulting services as a way to modernize their administrative practices and

increase their efficiency and competitiveness. These policies not only contributed to the

growth of management consultancy. Through their implementation, consultants also built

channels of communication and networks of expertise with the state, which subsequently

created opportunities for consultants to participate in the process of public sector reform and

apply to government the same “entrepreneurial” approach that the state was at the same time

actively sponsoring in private industry.

Building on the theoretical insights developed by historical-institutionalists (Steinmo, Thelen

and Longstreth, 1992), the approach I take in this paper gives a more state-centred account of

the rise of the new “entrepreneurial culture” in the 1980s. To do so, the paper stresses the

“permeability” of policy sectors (Weir, 1992) as it seeks to understand the direct antecedents

of TQM innovations in the field of public sector reform by studying initiatives formally

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classified in the industrial policy arena. This permeability is partly based on the fact that

policy-makers in both the industrial and bureaucratic reform policy sectors share a relatively

similar concern with management and organizational issues. And for civil service reformers in

Britain and France, this concern became especially important following the election of New

Right leaders in the 1980s, who believed that private business management was superior to its

public sector counterpart and who sought to improve government by borrowing its

management techniques. As the political support for making government more ‘business-like’

became stronger - and as this ideology downplays the differences between public and privator

sector management - the boundaries, both intellectual and institutional, separating the

industrial policy arena from the bureaucratic reform policy sector became less clear and more

porous. And as we shall see, this opened new possibilities for policy learning processes to

take place across the two sectors and for management consultants to help transfer TQM ideas

from the industrial policy area to the field of public sector reform.

The chapter is divided into three parts. The first looks at the Quality Initiative launched by

Britain and France in the 1980s, stressing how industrial policy-makers in the two countries

mobilized management consultants as a way to enhance the efficiency of SMEs and improve

their competitive location in the European Union market. The paper then moves on to the

analysis of public sector reform, showing how management consultants played a key role

developing and implementing TQM policies in the British and French governments. Finally,

the paper concludes on a more theoretical note, discussing the relevance of studying

relationships between policy areas that are often viewed as separate. In the case of TQM,

industrial policy - even if formally belonging to another sector of governmental activity -

nonetheless shaped both the type of approaches used in, and the politics of, public sector

reform.

3.6.2 Promoting consultancy: the State and the quality movement

For the past twenty years or so, TQM has been a growth industry for management

consultancy (Drummond, 1992; McKinsey & Co., 1989). The emergence of TQM in Europe

followed in the wake of growing American interest in Japanese manufacturing pratices which

were proving to be so successful in the world product markets of the 1970s. At this time,

quality management was identified as a major contributing factor to Japan’s competitive

advantage and, as a consequence, the Japanese model of quality management began to diffuse

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into Western nations (Pastor, Meindl and Hunt, 1998). The original American quality control

experts, Juran and Deming, became major agents for the spread of TQM to international

management audiences (Oakland, 1989). Consulting firms, as well as government agencies,

through their publications and other type of activities, stimulated interest in TQM and became

the main vehicles for the promotion of TQM in countries such as Britain and France. In both

countries, policy-makers promoted TQM as the key solution to regain competitiveness in the

world market.

3.6.2.1 Britain: Thatcherism and the New Enterprise Culture One of the major problems faced by the Conservatives when they came to power in 1979, was

the effect of Britain’s long-term economic decline on industry and employment. For the

newly elected government, excessive state intervention and trade unionism had made British

industry uncompetitive and weak. The solution was to unleash the entrepreneurial spirit which

Mrs. Thatcher believed had been shackled by years of governmental interference in the affairs

of industry. A new “enterprise culture” had to be created in the country which would

stimulate a more efficient and productive market (Keat and Abercrombie, 1991).

For much of the post-war period, successive governments had provided financial aid, advice

and policy frameworks in trying to produce a modern and internationally competitive

industrial sector (Tiratsoo and Tomlinson, 1993; 1998). But given its opposition to state

intervention, the Conservative government originally sought to reduce its role in industrial

policy. For the new Secretary of State for Industry (Sir Keith Joseph, Mrs Thatcher’s free-

market guru), the government’s role would be restricted to ensuring that the right external

conditions for the self-revival of the market prevailed and that any constraints over its full and

unrestricted operation would be effectively removed. But in the context of the 1980 downturn

in the world economy, Sir Keith found it politically difficult to institute a wholesale

withdrawal of the state from the industrial arena. In 1981, he was replaced as Industry

Secretary, and thus the “limited interventionism” that characterized most of post-war British

industrial policy did not disappear altogether (Atkinson and Lupton,1990: 46).

In 1983, the Department of Trade and Industry (DTI) launched the National Quality

Campaign, with the goal of improving the performance of British industry by increasing its

general awareness of TQM (Lascelles and Dale, 1989). A series of publications and videos on

TQM was produced by DTI and by 1987, DTI officials estimated that since the beginning of

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the Campaign, direct contact had been made with over 50,000 companies concerning

information about certification and quality management more generally. The Campaign was

strongly supported by the British Quality Association (BQA), a group of consultants and

businessmen from large corporations (like ICI and Unilever) founded in 1980 to help spread

TQM concepts and practices in industry, and which started in 1984 to administer the British

Quality Award to reward excellence in British business (British Quality Foundation, 1995).

The BQA is the ancestor of the British Quality Foundation, a not-for-profit organization

created with the support of the DTI to improve organizational efficiency through the

promotion of TQM practices.

The 1983 National Quality Campaign was subsequently incorporated into a new policy, the

“Enterprise Initiative” introduced in 1988 following the publication of a White Paper that

relaunched DTI as The Department for Enterprise (Cmnd 278). The DTI was to be at the

cutting edge of Mrs Thatcher’s revolution, championing free-market ideas and encouraging

industry to adopt new attitudes and practices. This was to be achieved by emphasizing the

importance of management, education and technological innovations. An essential element

was the creation of a Single European Market which would provide new opportunities for

British exports and force British industry to become more efficient and competitive.

Discussing the White Paper, the DTI Minister (Kenneth Clarke) argued that “the main role of

the DTI… must be… to influence attitudes and to encourage open markets in order to

promote enterprise and prosperity” (Hansard, vol.125, col.145, 12 January 1989). The 1988

White Paper also placed considerable emphasis on the importance of small and medium

businesses as one of the key growth sectors of the economy, and introduced a range of new

incentives to encourage their development. Among such incentives, the “Enterprise Initiative”

provided financial support for small businesses seeking management consulting services in

key areas such as organizational design, marketing and quality management (Hughes, 1993).

Between 1988 and 1995, the DTI received over 138,000 applications from small businesses

seeking financial assistance for the use of management consulting expertise. During this time,

the government spent more than £300 million on the Enterprise Initiative (OECD, 1995: 145).

Under the Initiative, which was later re-named the “Consultancy Scheme”, management

consulting firms could bill up to approximately £5 million a year for consultancy assignments

carried out for the DTI (Burt, 1988: 99).

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The Management Consultancies Association (MCA), the trade organization that represents the

business interests of the largest consulting firms in the UK, strongly supported the Initiative

(Hosking, 1987). As we shall see in greater detail later, the MCA developed in the mid-1980s

a lobbying strategy designed to inform Whitehall officials about how member firms could

help build the entrepreneurial culture that the government wanted to foster in the UK. For

instance, the MCA began to hold a series of meetings (four or five a year) attended by

member firms and Permanent Secretaries. The purpose of a such meeting was to receive an

authoritative update on activities within a particular sector of government policy. These

meetings were supplemented by a series of small monthly lunches consisting of senior staff

from member firms and policy-makers. For the MCA, these luncheons “provided an ideal ‘off

the record’ opportunity for wide ranging discussions on subjects of particular interest to both

guests and hosts” (MCA, 1996: 5). In the past, the MCA guests included the head of the

Prime Minister’s Policy Unit, senior Treasury officials, and DTI representatives. The MCA

increasingly sought the company of DTI officials for these occasions as the government began

to develop its new industrial policy in the mid-1980s. As one observer noted soon after the

adoption of that policy, “management consultancy services have recently been given a

considerable shot in the arm through the launch of the Enterprise Initiative to provide

financial assistance for firms with a payroll of fewer than 500 to use the services of

consultants in various areas” (Burt, 1988: 98). In his annual report, the MCA Chairman wrote

that “My association welcomed the recent White Paper DTI -The Department for Enterprise

... This should lead to significant benefits for our clients and thus further opportunities for our

members” (MCA, 1987: 3).

3.6.2.2 France: From Dirigisme to Disengagement In the mid-1980s, after having been elected on an heavily statist or dirigiste platform, the

Socialist government switched its macroeconomic policy from Keynesian expansionism to

stricter monetary policy, as France was implementing the measures required by the European

Union in terms of the opening of borders, the lifting of price controls, the abrogation of most

barriers to competition, and so forth (Hall, 1990). After the resignation of Prime Minister

Mauroy and the resignation of the four Communist ministers from the governing coalition, the

government undertook in 1983 a “Great U-turn” in the management of the economy and

adopted a policy of economic austerity to dampen inflation and reduce the deficit – the size of

which had significantly increased as a result of the nationalization programme introduced in

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1981 (Durupty, 1988). This shift in policy signalled the beginning of a major transformation

from a state-directed economy to a more market-oriented one (Schmidt, 1996).

A reflection of this shift was the growth, in the early 1980s, of an important movement

promoting TQM and the implemention of quality circles in private sector organizations

(Chevalier, 1991). At the heart of this movement was the Association française des cercles de

qualité (AFCERQ), an organization created in 1981 by management consultants and staff

managers in large companies. In 1983, about 360 companies were members of the AFCERQ,

whose mission was to promote TQM ideas and to help companies develop quality circles

(Juran and Gryna, 1988: 35 c.7). During that period, some of the largest French-based

management consulting firms were very active in diffusing TQM ideas by publishing “recipe

books” designed to help managers introduced quality circles in their company .

Starting in 1984, the Ministère de l’Industrie adopted a number of measures for raising the

awereness of TQM in industry. For instance, the Department introduced the Fonds régionaux

d’aide aux conseils (FRAC) - or the Regional Funds for Aid to Firms Calling on Consultancy

Services - to provide financial support to small and medium enterprises (SMEs) so that they

could use management consulting services as a way to improve their efficiency. When it was

established in 1984, the FRAC was supposed to help SMEs to call on consultants to

implement initatives in the area of TQM (OECD, 1995: 121). Generally, more than 40 per

cent of the money spent for FRAC aid went to projects in the area of quality management

(OECD, 1995: 124). In 1993, 3,060 applications for FRAC aid were approved for a total

amount of 173 million francs distributed among the consulting firms involved in FRAC

operations (OECD, 1995: 124).

In the process of developing its FRAC policy, the Department of Industry found that French

businesses were not using management consulting services as much as their American, British

or German counterparts (Saint-Martin, 1998). The lack of professionalism in consulting was

identified as one reason why the demand for such services was not strong in industry (Sauviat,

1991). So while the FRAC were intended to act on the demand side of the equation by

providing financial aid for buying consulting services, the government also sought to act on

the supply of consulting services by helping to develop the professionalism of consultants

(Salvall, 1992). It is thus that the operation Développement du professionnalisme des

consultants was born in 1985 and that the Office Professionnel de Qualification des Conseils

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en Management (OPQCM) started its activities in 1987. The OPQCM is a certifying agency.

It is under the responsibility of the Department of Industry, and its purpose is to promote

management consultancy and to act, vis-à-vis potential clients, as a reference to facilitate the

selection of management consulting firms.

The FRAC are administered locally by municipal governments. They are part of the new

functions devolved to local governments as a result of the 1982 decentralization policy, which

transfered from Paris to local authorities new powers in policy sectors as varied as regional

economic planning, industrial development, social services and so forth (Schmidt, 1991). The

1982 decentralization reforms gave to local governments new financial resources directly

through the transfer of state taxes and guaranteed others through a system of block grants

(Richard, 1988). As a result, the financial capacity of local government became much more

important than in the past. Total local government expenditures almost doubled in six years,

from 300 billion francs in 1981 to 600 billion in 1990. Following the 1982 decentralization,

local officials increasingly sought the services of management consultants to help them

develop the practices and systems needed for managing the new functions and resources they

inherited from the central state. As one article on management consultants noted in Le

Monde, “la décentralisation a ouvert aux consultants le marché des collectivités locales”

(Chirot, 1993: 17).

3.6.3 Using consultancy: TQM ideas in the public sector

If TQM ideas became influential and widely used in commerce and industry, this was not

purely because of of their innate or intellectual qualities alone. As the previous section

showed, state policies played a major role in facilitating the dissemination of TQM techniques

in small and medium businesses. And to spread the TQM gospel, governments in both Britain

and France mobilized management consultants, encouraging private entrepreneurs to use

their services as a way to enhance organizational efficiency and performance. In the eyes of

consultants, government promotion of their services, was a “recognition of the benefits of

consultancy” as the Chairman of the Management Consultancies Association (MCA) in the

UK argued after the adoption of the Enterprise Initiative (MCA, 1987: 3).

Not everyone agreed about the “benefits” of management of consultancy, however. In the UK

for instance, soon after the introduction of the Enterprise Initiative, the Labour Party’s

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research organization, the Labour Research Department (LRD), released a very critical study

on management consultancy arguing that consultants were being used to bypass trade unions

and weaken bargaining power. The LRD study (based on a survey of trade union

representatives) said that consultants were politically biased and that in many cases, they were

a “total waste of money” (LRD, 1988). The study found several instances where the

consultants’ own lack of expertise resulted in “chaos” (Naughton, 1988).

Whether management consultancy “creates wealth” as consultants themselves like to claim, or

leads to “chaos” as critics argue, is an open question. What this shows, however, is that

management consultancy is a highly contested field of activity and knowledge. One only

needs to look at the titles of popular books such as The Witchdoctors, Con Tricks or So-

Called Experts to see that consultants suffer from a significant credibility problem. But while

not everybody agrees about the usefulness of management consultancy, both Britain and

France clearly “took a side” in that debate by implementing policies that made a direct causal

connection between the use of management consultancy and improved industrial efficiency

and competitiveness. Through such policies, the French and British state played what

organizational sociologists call a “social legitimation” role vis-à-vis management consultancy

(Alvarez, 1996: 81). It is important to stress this legitimating role in the social construction of

management consulting expertise precisely because it is not a real profession. Unlike other

fields of social scientific knowledge (law, accountancy, etc.), the credibility or relevance of

management consultancy is not established through professionalization processes: the

existence of professional associations that would license –on behalf of the state- as competent

only those who have the proper qualifications. There are long established prejudices against

consultants. Management consultants are often regarded with mistrust and suspicion. Their

claims to authority are often disputed and this has a major impact on whether clients will take

their ideas and advice seriously. In the absence of any real professional status that would help

consultants deal with the credibility problem they often face, the state’s social legitimation

role thus becomes crucial. In the case of management consultancy, this role essentially took

two forms: direct promotion in the industrial policy sector as we have just seen; and use by

government officials of consulting services to help develop and implement TQM practices in

the public sector.

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3.6.3 Britain : From Managerialism to Quality Two distinct trends can be seen in the reforms that were introduced in the public sector during

the Thatcher-Major years. The first set of reforms, which began after 1979 until about the

mid-1980s, is frequently referred to as “managerialist” and is characterized by a greater

emphasis on efficiency, privatization, downsizing, cost-cutting, improved responsiveness to

elected officials, and “a tremedous emphasis on new accounting procedures” (Pollitt, 1990:

181). The second trend, which started with the 1988 Next Steps policy, is clearly more

influenced by TQM ideas, and focuses on improved quality of service, improved service

delivery, and greater customer satisfaction. It also emphasizes expanded employee

participation in decision-making. As one leading student of British public administration

noted, “the somewhat crude thrust toward economy and efficiency that was typical of the

1980s in the UK… has been replaced by a more balanced package that also emphasizes

quality, standards, and the ‘empowerment’ of front-line staff” (Pollitt, 1998: 48).

In Britain, the more “managerialist” approach to bureaucratic reform was led by Sir Derek

Rayner, Chief Executive of Marks & Spencer, appointed by Mrs Thatcher in 1979 to advise

her on ways of improving efficiency and eliminating waste in central government. Rayner

was given carte blanche to bring the market disciplines, cost consciousness and most

important, management techniques of the private sector to government. To do so, Rayner was

supported by a small unit known as the “Efficiency Unit”, based in the Prime Minister’s

Office. The Efficiency Unit had a small staff of career civil servants and management

consultants (Metcalfe and Richards, 1990: 9).

One of the most important reform policies that came out of the Unit’s work was the Financial

Management Initiative (FMI), which sought to decentralize decision-making to line

departments and give managers responsibility for managing their own budgets (Cmnd 8616).

To lead the FMI, the government created the Financial Management Unit (FMU) - a small

organization like the Efficiency Unit - located in the Cabinet Office. The FMU was created to

provide the “access to expert advice” that the FMI promised to give to managers and this

expertise largely came from management consultants who formed the majority of those

recruited to work in the FMU. The FMU consisted of six civil servants and eight consultants,

all from MCA member firms : Arthur Andersen, Coopers & Lybrand, Peat Marwick and Hay-

MSL (Russell, 1984: 146-7).

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With the implementation of the FMI, “the Management Consultancies Association (MCA)

moved swiftly to consolidate its position by developing its network of contacts within the

civil service” (Smith and Young, 1996: 142). In the early 1980s, while the Department of

Trade and Industry was launching its “National Quality Campaign”, the MCA created within

its organization a “Public Sector Working Party” (PSWP) to develop of a more co-ordinated

strategy for the promotion of management consulting to major government departments.

According to the MCA, “the Group dealing with the public sector has established close links

with departments employing management consultancy services with the intention not only of

establishing a better understanding within Whitehall of the services that we can offer, but of

equal importance, ensuring that our membership is aware of the needs and constraints faced

by Ministries” (MCA, 1989: 4).

The role of the PSWP is to develop channels of communication with, and to promote

consulting to, key actors in policy areas such as industry, health, defence, and government

reform. In the words of the MCA Director, the PSWP ensures that there is “a regular dialogue

between the MCA and members of Cabinet and with senior officials” (MCA, 1995: 3).

Following the example of their business association, MCA member-firms began in the 1980s

to organize various lobbying activities targeted at Whitehall officials and created

“Government Services Division” within their organizational structures. These GSDs are often

made up of public officials who have been hired by consulting firms to consolidate links with

civil servants and to help sell the firm’s ideas (Bakvis, 1997).

It was in the context of the activities planned by the PSWP that the MCA began to organize

the kind of monthly meetings and lunches with key government officials that were briefly

mentioned earlier in the first part of the paper. For the MCA, such events “provided an ideal

‘off the record’ opportunity for wide ranging discussions on subjects of particular interest to

both guests and hosts” (MCA, 1996: 5). In addition, the PSWP is involved, each year, in

putting together half day seminars for public officials on how management consultancy can

help them achieve program objectives. In the past, such seminars were sometimes attended by

no less than 200 civil servants (MCA, 1995: 3). Thus, starting in the mid-1980s, the PSWP

provided a new forum or institutional site through which management consultants and

government officials from various departments could come together on a regular basis to

discuss, learn from each other, and exchange ideas on policy topics of shared interests. As the

DTI was developing its Enterprise Initiative, and as a number of MCA member firms were

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intimately involved in the implementation of the FMI, the meetings with government officials

organized by the PSWP began to cover both industrial policy and public sector reform issues,

thus facilitating the transfer of ideas from one policy sector to the other.

This transfer, and the process by which TQM ideas “spilled-over” from the industrial policy

sector to the area of public sector reform, is best reflected in the Next Steps initiative launched

less than a month after the publication of the 1988 White Paper which, as discussed earlier,

sought to place the DTI at the cutting edge of the “new entreprise culture” that the

government wanted to create. The 1988 Next Steps initiative was very much influenced by the

same “new entrepreneurial” thinking that underlied DTI’s White Paper. The Next Steps also

sought to cut bureaucratic regulation as a way for “improving quality of service to the

customer” (Greer, 1994: 124). And like the government’s new approach to industrial growth,

the Next Steps mobilized management consulting knowledge to help unleash the

entrepreneurial spirit of the civil service.

A Treasury guide on Seeking Help from Management Consultants was issued for those

concerned “with the use of consultants for such subjects as... the setting up of Next Steps

agencies” (HM Treasury, 1990: 1). According to the Guide, consultants “can help make

dramatic improvements to the work of Departments” (p.9). Price Waterhouse which, since

1986, had the Prime Minister’s Efficiency Unit former chief of staff as one of its senior

partners, was closely involved in the development of the Next Steps (Greer, 1994: 129). In

1989, Price Waterhouse created within its organization an “Executive Agency Team” which

publishes every year Executive Agencies: Facts and Trends, a document that evaluates the

Next Steps policy and makes recommendations to policy-makers on how to improve the

performance of agencies. In addition, Price Waterhouse has set up a jury that awards an

annual prize for the best managed Next Steps agency (Auditor General of Canada, 1993: C-9).

For big firms like Price Waterhouse and others, such initiatives to promote the firm’s public

sector experience became increasingly important marketing tools as the government became

in the mid-1980s a growing source of revenues.

The Next Steps policy was followed by two other initiatives: the Competing for Quality

programme, and the Citizen’s Charter, both of which were heavily influenced by TQM ideas

and implemented in 1991 by the new Major government. “Management consultants”, the

government subsequently recognized, “have made a significant contribution to the

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achievement of several important Government objectives” (Efficiency Unit, 1994: 3). In

1994, Prime Minister Major ordered a review into the government’s use of management

consultants. Entitled the Government’s Use of External Consultants one can read in the report

that

Over the last ten years the Government has substantially increased its use of external consultants. This has happened for a number of reasons. The initial stimulus came in the mid to late 1980s… from several major changes in Civil Service structure and operations - particularly the creation of Next Steps Agencies [and] the Competing for Quality Programme” (Efficiency Unit, 1994: 19).

Throughout the Thatcher-Major era, British government not only encouraged the use of

management consultants in private industry, but also in its own sphere (Saint-Martin, 2000a).

Greater efficiency was the key motive at work. The government basically applied to the

public sector the same logic that it promoted in private industry and during the 1980s, policy-

makers increased their use of management consultants in their attempts at making the

administration of the state more ‘business-like’. Articles appearing in various issues of

Management Consultancy, a monthly journal published by the MCA, noted that “public sector

consultancy is big business” (Corneille, 1994: 27), and that government has become “the most

important source of fee income to the consultancies” (Abbott, 1994: 1). In the late 1980s,

public-sector consultancy grew faster than private sector business and by 1995 was providing

around 25 per cent of the total fee income of the largest consulting firms (James, 1994).

3.6.3.2 France: The 1986 Policy on Quality and Innovation Following the 1982 decentralization policy, local officials increasingly sought the services of

consultants to help them develop the practices and systems required for managing and

coordinating the new powers that came from Paris. Some of the most important players on the

local government scene include firms such as Bossard, CEGOS, Ernst & Young and Price

Waterhouse (Chirot, 1993: 17). According to two senior managers in the Price Waterhouse’s

Paris office, “An increasing number of large local authorities are employing auditing and

consulting firms to advise them on specific areas of their own activity or the activities of their

companies or other related bodies which they control” (Paquier and Towhill, 1991: 13).

French consultancies like Bossard and CEGOS have created in the 1980s “Local

Collectivities Division” within their internal structure and these divisions employ around 30

management consultants each (Abiker, 1996: 22). The use of consulting services by local

authorities became so important in the late 1980s that local officials and consulting firms

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began to organize annual conferences entitled “Collectivité locales, du bon usage des

consultants”, intended to share experiences and best practices in the area of local government

consulting (Chirot, 1993: 17). Similarly, in the late 1980s and early 1990s, a number of

publications intended for local government officials began to publish numerous articles

(written by consultants) on how to build successful partnerships with management

consultants.

In the public sector, local governments were the first to experiment with TQM ideas (Pochard,

1995: 49). The introduction of TQM ideas into local government was said to be an almost

“natural” consequence of the decentralization which sought to improve the quality and

responsiveness of public services by making their delivery closer to the citizen-users

(Orgogozo, 1985: 23). Quality circles were first introduced in municipalities such as Lyon,

Angers and Amiens, and also spread in regions, departments and public organizations such as

the Caisse des dépôts (Chevallier, 1988: 133). In experimenting with quality circles, local and

regional bodies were helped by the Association française des cercles de qualité (AFCERQ),

an organization created in 1981 by management consultants and senior executives in large

companies to promote TQM ideas. By March 1985, the number of quality circles

implemented in local governments had become sufficiently large to organize the first national

conference on Les cercles de qualité dans l’Administration (Orgogozo, 1985: 23). The

conference was sponsored by the AFCERQ and attended by management consultants, local

and central government officials, and by the Socialist Minister responsible for Administrative

Reform.

In 1985, following the conference on quality circles in government, the Minister responsible

for Administrative Reform promised that his officials would study the applicability of TQM

ideas for the central administration (reported in Chevallier, 1988: 134). Subsequently, in

January 1986, the AFCERQ created within its organizational structure a “Civil Service

Group” designed to study the transposition of TQM ideas from the local to the central

administration. The translation of these ideas into policies was greatly facilitated when, in

April 1986, following the election of the right-wing coalition of Jacques Chirac, the

government appointed the two consultants who led the AFCERQ as its senior policy advisors

on bureaucratic reform.

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Under the Chirac government, administrative reform policy took on first and foremost the

guise of a quality and innovation strategy essentially aimed at enhancing the quality and

productivity of services delivered to the public (Orgogozo, 1987). One month after its

election, the government commissioned studies from two leading private sector management

consultants on innovation and quality in the public service (Orgogozo and Sérieyx, 1989).

One study on quality was directed by Gilbert Raveleau and the other on innovation, by Hervé

Sérieyx. Both were senior partners of the management consulting firm Eurequip and founding

members of the AFCERQ. One management consultant (Raveleau) was appointed as advisor

on quality to the Minister of Economy, Finance and Privatization, Édouard Balladur. The

other (Sérieyx) served as advisor on innovation to the Minister for Administrative Reform,

Hervé de Charette.

On the advice of the two consultants, the policy introduced by the government in 1987 was

primarily based on employee participation in the operational definition of administrative

duties, intra-departmental communication and improved relations with users of public

services (Barouch and Chavas, 1993: 38-9). The new policy was influenced by TQM and

participatory management theories. It was intended to facilitate: (i) the introduction of

“administrative statements” clearly specifying tasks and objectives, and defined by each

departmental head; (ii) the development of “quality” indicators to improve understanding of

user satisfaction; (iii) the setting up of quality circles to impel information flows between the

different statement participants and, finally (iv), the linkage between individual performance

and ancillary monetary awards through the introduction of an employee incentive plan

stemming from “performance contracts” (Rouban, 1989: 455).

Largely implemented by departments themselves, the innovation and quality policy was

loosely supervised by two new organizations: the Observatoire de l’innovation et la qualité

located in the Cabinet office, and the Comité interministérielle sur la qualité made up of 20

ministries operating under the aegis of the Minister of Finance (Rouban, 1989: 460). The

Observatoire was responsible for the diffusion of information pertaining to the introduction of

new management methods in government, private sector and in other countries (Barouch and

Chavas, 1993: 40). The Observatoire consisted of senior officials and representatives of the

AFCERQ, which at that moment was chaired by one of the management consultants

(Raveleau) advising the government on its quality and innovation policy. Following the

creation of the Observatoire, one public administration scholar argued that the penetration of

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TQM ideas into the French administration had been greatly facilitated by “la nomination des

dirigeants de l’AFCERQ au coeur de l’appareil d’État” and that the government discourse on

quality was, in fact “que la reproduction, à l’identique, du discours tenu depuis plusieurs

années par l’AFCERQ, promue au rang de laboratoire d’idées” (Chevallier, 1988: 134).

On the surface, the innovation and quality policy has had far-reaching effects, with the

development of several hundred quality circles throughout the French administrative system.

It was estimated that 3,000 quality circles were in existence in the central administration by

1988 (Pochard 1995: 49). Budget appropriations for the development and implementation of

the innovation and quality initiative rose from 10 million Francs in 1987 to 13.6 million in

1988. A portion of that money was spent on management consultants whose services were

increasingly sought by the civil service to appraise the functioning of the quality policy in

departments (Rouban, 1989: 457).

3.6.4 Conclusion: the industrial policy origins of public sector reforms This chapter has tried to present a de-compartmentalized view of the policy process that

stresses the links and connections between industrial policy changes and public sector reform

initiatives. To understand the origins of TQM innovations in the public sector, it has been

important to examine developments that occurred during the 1980s in the industrial policy

sector. Students of public policy often seek to understand changes in a given policy sector by

looking at previous measures or decisions taken in that same policy sector. Students of

economic policy changes will look at the institutions that have jurisdiction over economic

policy-making and study what decision-makers and officials in these institutions have done

before (Furner and Supple, 1990), while others will study how the possibilities for changes in

the education system today are strongly shaped by the legacies of past educational reform

initiatives (Goedegebuure et al., 1993). Policy making is indeed a historical process in which

actors learn from past experiences, but these past policy experiences can be multiple, and they

can come from a variety of policy sectors, not just one.

Industrial policy and public sector reform may, in the past, have been policy sectors very

different and distant from one another, in terms of their concerns, the type of interests they

represent, and the kind of ideas, norms, or intellectual frameworks that guide their policy

thinking. But if such a distance truly existed in the past - and this remains to be seen - it has

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undoubtedly been reduced in the 1980s by the ideological rise of the “government should run

like a business” mantra (Beckett, 2000). With the emergence of the New Right in the 1980s,

political leaders such as Thatcher in the UK and Chirac in France came to office convinced

that government had become too big and inefficient. Each sought to improve government by

importing into the public sector management ideas and techniques borrowed from the world

of commerce and industry. Throughout the 1980s, TQM ideas were very popular in the

private sector and, as we have seen, policies designed by government officials in the British

and French Department of Industry played an active role in spreading the TQM gospel in the

two countries. In the process of implementing these policies, industrial policy-makers

mobilized management consultants, with regard especially to measures intended to improve

the perfomance and competitiveness of small and medium businesses. For consultants, these

policies sent a clear signal that policy-makers in government saw their knowledge and

services as important resources to be mobilized in their attempts at fostering a new

‘entrepreneurial culture’. In other words, industrial policies in the 1980s created incentives for

management consultants to organize themselves into associations designed to lobby

government officials. As a result, consultants established channels of communication to the

government and increased their access to decision-makers. And since policy-makers in

government were already convinced of the apparent usefulness of management consultancy in

improving efficiency, it was not long before they applied to the public sector the same or

similar policy approach that they had previously used in the case of TQM and industrial

policy.

Thus, in trying to re-structure the public sector along the lines prescribed by TQM theories,

government officials did not simply follow the lead of the private sector because – in the case

of TQM – the private sector was itself, at least to some extent, led by government. The story

of TQM innovations in the 1980s is not only a private sector-centred story. It is not only a tale

about the successful entrepreneur who is using her/his creativity, skills and imagination to

invent new ways of improving her/his business. It’s also a tale that involves the state and

active government intervention.

History teaches us that there is nothing really new in this (Searle, 1971). At various times of

important socio-economic changes, in order to maintain its competitive location in the world

economy, the state has been involved in the promotion of what Mauro Guillén calls

“management models” (1994). And at least since the birth of Taylorism, efficiency experts

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and the other disciples of scientific management who contributed to the foundation of modern

management consultancy have frequently acted as the agents of diffusion of the management

models promoted by the state (Djelic, 1998). So what happened in the 1980s with TQM is not

radically different. But what is new is that this happened in a political context that was anti-

government, even if – paradoxically – government was itself the active promoter of the new

‘entrepreneurial culture’ that celebrated business entrepreneurs and demonized government.

The growth of TQM in the private and public sectors is much less business-centred than one

is led to believe by the political rhetoric of the New Right.

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4 Overall Conclusions Not unexpectedly, the overall conclusion of this report regarding the contribution of

consultancies to the creation of European management practice is mixed. On the one hand

there is clear evidence (derived mainly from the surveys, but also from some case studies) that

organizations in Europe have adopted increasingly similar managerial models and templates,

especially during the 1990s. On the other hand, most of the case studies show that the

outcome of this adoption process is far from being homogenous and that considerable variety

remains. This variety – and that is an interesting and possibly unexpected outcome of this

research – is not only nation-, but also to a considerable extent organization-specific. This

finding confirms the importance of internal decision-makers/actors in the process of

management innovation, highlighted in our conceptual framework.

To a certain extent, this overall conclusion is probably a result of the different levels of

analysis. As we have proceeded in our research from the industry to the project level, the

similarity was likely to and has indeed decreased, because the differences become

automatically more apparent when individual cases rather than whole industries or fields are

analysed (cf. Engwall 2000). Nevertheless, the research results presented in this report, allow

us to go beyond this ‘mixed’ conclusion and to make some more specific comments regarding

the role of consultancies in a process which might lead to increasing similarity of

organizational practices in Europe.

First of all, the surveys presented in the first major part of the report showed that the type of

management innovations adopted in European countries has become increasingly similar

during the 1990s and that some of the countries which started this process somewhat belatedly

caught up fairly quickly and intensely during this decade. This is not only the case of the

lesser developed European economies of Spain in Portugal, but also true for Germany which

was widely seen as lagging behind in new management practices at the beginning of the

1990s. At the end of the decade it had not only caught up, but had partially surpassed Britain,

where organizations had had been earlier in adopting most of these practices. It also seems

without doubt that external agents, namely consultants but also public or semi-public

agencies, played an important role in disseminating these management innovations. The case

study on total quality management in the public sector (chapter 3.6.) shows that these

innovations spread beyond the private sector. While government had been originally a

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promoter of these measures, it subsequently became an avid adopter and rather intensive user

of consultancy services.

However, the increasing similarity of adoption patterns does not mean that the national

context in which this process takes place has no influence. On the contrary, it appears that

namely the regulatory framework (for example labour legislation) determines not necessarily

whether a management innovation is adopted but to what extent and how this is done (for

example whether or not this involves massive redundancies). As the case of TQM shows,

these differences in national business (and administrative) systems also played a role in the

dissemination of these management innovations to the public sector.

As mentioned above, overall the detailed case studies presented in this report suggest more

caution regarding the increasing similarity of organizational and managerial practices in

Europe and the role of consultancies in the process. Where it is possible to assess the

influence of country variables (namely in the two TQM cases), these seem indeed to play

some role, namely in France and Portugal where the institutional context was less supportive

for the adoption of TQM and for consultants playing a role in this process. More importantly

however, our research shows that the outcome of the adoption process is to a large extent

shaped by the specific conditions within each organization and that it is defined in a complex

process possibly involving external agents (namely consultants), but certainly different actors

from different levels (including management and workers) within the given organization.

The fact that the role of consultants might not be quite as important as widely assumed is

namely highlighted by the Dutch case. Here, banks with a very different history and

sometimes diametrically opposed practices ended up resembling each other fairly closely (by

becoming integrated commercial banks), despite significantly different levels of outside

involvement. Some of them hired American consultants, others Dutch consultants and one

bank, largely refrained from calling in consultants after an initial, rather negative experience.

The case of TQM in the Spanish and Portuguese automobile suppliers leads to a similar

conclusion, form the opposite end. Here, the companies adopted rather different practices,

despite most of them paying lip service to the quality gospel. But once again, this outcome

seems largely independent from the involvement of consultants in the process. It appears that

without the firm commitment of management to introduce a quality control programme, the

use of an external consultant had little to no effect.

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In terms of the actual outcome of the adoption process, other variables might therefore be

more important than the involvement of consultants. One of them might be the size of the

‘reference group’: small and national in the case of Dutch banking and Norwegian companies;

small, but international in the case of consumer chemicals – which favoured the adoption of

similar models across national boundaries (cf. for a similar occurrence in the oil industry

Cailluet 2000). Another important variable might be the management model in question.

Since most of the present fashions are little more than fairly vague templates, it is left to the

adopting organization to fill it with meaning. Consultants certainly play a role in this, but they

are only one part of a process involving many other internal and external actors. This is

obvious in the case of TQM, and also becomes apparent in the development of human

resources in Italy. Here, however, personal networks between managers and consultants seem

to have played a considerable role (possibly comparable to the role of Kenning in Norway, cf.

Kvålshaugen and Amdam 2000). If, by contrast, the management model has more stringent

rules, as in the case of certain TQM practices, there is little room for either consultants or

managers to diverge from these. This is especially true, if there is a certification process, in

which consultants actually can come to play an important role.

Regarding future research therefore, it seems to be time to refocus the attention on managers

and other actors within organizations (rather than on consultants) in order to gain further

insights into the creation of European management practice.

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