Why do standards enable and constrain innovation

Finally, score tables help to monitor the operational and financial impacts of improvements. The first part of a score table contains the hourly reporting and productivity targets of each employee. The second part includes the KPI targets.

All team managers are allowed to indicate their own targets for KPIs, but quality, time and productivity are required elements for every table.

Currently all our workers […] prepare a detailed analysis of their activities and the time spent on them. Every day, every hour […]. Thanks to this, we can now observe trends and improvements in those activities that add value, and a decrease in non-value adding activities. Employee performance evaluation is biannual and also contains self-assessment and a discussion with a manager about its results. Each variation from targeted indicators versus actual performance is analysed by the employee and the functional manager, and improvements to adverse variances are planned.

The evaluation system is connected with the bonus system, as well as future promotion and job rotation. Employees thus treat it as an important part of their work. Senior Business Analyst. The feedback and measurement system is also used in Cube in an interactive way, which means that operating and senior managers pay regular daily, monthly, and annual attention to it and exchange information with employees. They are actively and frequently involved in interpreting, monitoring, and discussing information from performance measurement systems on the results achieved and the decisions made.

An essential part of the interactive process is regular meetings and discussions between senior and operating managers and employees. These are mainly annual meetings; daily and monthly lean meetings aimed at discussing different performance measures are referred to further in the text as interactive meetings.

During the annual meeting, directors provide each employee with information on the strategy, mission, values and goals, and present the major financial company results against the targeted ones—primarily sales revenue, net profit, and profit margin.

As the long-term goals of the organization are not only to increase productivity and revenue but also to develop people and processes, senior managers show the actual achievements in those areas: the percentage of SLA targets achieved and the increases in employee competences. Well, these [annual] meetings are aimed at communicating our strategy and targets. In addition, Cube organizes an annual competition for employees to demonstrate their knowledge and understanding of the current strategy and how they can participate in its realization.

They are asked to suggest suitable indicators that could measure the realization of the strategy at their level, which could then be incorporated into the performance measurement system. In this way, senior managers involve employees in the design of the performance measurement system itself in order to share information and reduce the knowledge gap. The implementation of lean management enriched the interactive control system with new interactive lean controls such as daily and monthly lean meetings.

The results from score tables are analysed and discussed during a lean meeting held every morning by the managers of each department. Every member of the department participates in these lean meetings. The monthly results from the score tables are presented in aggregated form to senior managers then discussed with them at the monthly lean meeting.

Both the daily and monthly lean meetings aim to support lean implementation and improve processes by joint collaboration. Every day we have a lean meeting with different lean teams in order to discuss their improvements. As the previous section indicates, all the levers of control in Cube are simultaneously used, combining their elements in a reinforcing whole cf.

Simons Since the control system contains countervailing controls, the nature of the levers and their use is analysed in more detail in this section to illustrate how mutual reinforcement becomes both consistent and countervailing, thus balancing between searching for new opportunities and effectively controlling the existing, efficient, standardized processes Curtis and Sweeney In general, employees from all levels in Cube are engaged in innovation-seeking activities for clients and internal processes; all these processes are carefully monitored.

And if there are improvements, then we also reward people. On the other hand, meetings which present values and strategy in Cube are an important element of the control system, underlining the importance of innovation as a core value. Daily and monthly meetings are time-consuming for managers, but they are important for the teamwork and problem solving element.

Directors try to combine the beliefs and interactive controls, engaging themselves and all the employees in learning about the strategy, uncertainties, engagement and innovation see Simons Every day we have meetings with different team leaders in order to discuss problems in the team concerning innovation and solutions. It is evident in the talk of employees representing various levels of management that meetings are an important source of innovative ideas.

I have the power to influence many decisions, suggest new solutions, and implement new ideas. There is great flexibility, and we can thrash out together how the innovation should look. Process Manager 1. Diagnostic controls the performance measurement system, score tables, process maps, competency matrices are combined with boundaries the code of conduct, instructions and procedures as the directors seek to reduce the risk of opportunistic behaviour and information asymmetry while controlling the process and its results in order to fulfil the requirements of clients in a standardized way.

The comment below illustrates that boundaries procedures and diagnostic controls process maps are frequently combined in order to support the improvements of processes. Harmonization and automation need procedures. The rules and principles […] as well as mappings must be clear. Process Manager 4. In accordance with Simons , p. The SLA is a specific control, which contains elements of both boundary and diagnostic systems, providing elements required by clients that are then encompassed by the performance measurement system.

This is a control tool between them [the clients] and us. The SLA gives our clients security and assurance that we will work appropriately and add value. The above-mentioned combinations of levers are mutually reinforcing but consistent, as the first pushes for consistency in innovation, while the second focuses on standardization.

However, the role of the positive and negative elements in constructing countervailing reinforcement is also visible in Cube cf. Curtis and Sweeney The relationship between the diagnostic and interactive systems is extremely important, as operating in tandem these levers reinforce the positive effect of the interactive system on innovation Henri ; Bedford The ability to integrate diagnostic and interactive levers constitutes an important organizational capability in Cube, inducing innovations in a highly standardized environment cf.

Henri The interactive processes play an important role in Cube, as they not only provide information but also integrate the strategic and operational perspectives necessary for the development and implementation of innovative solutions. Regular meetings stimulate dialogue on new solutions, focus attention on innovative effort, and inspire creative leaders, but they are monitored by a standardized diagnostic control in the form of the performance measurement system.

Targets and standards are clearly stated to employees, but the diagnostic system is moderated by workshops and meetings explaining the aim of controls, thus supporting innovativeness. The comment below suggests that during interactive meetings, innovation and improvement targets are not just presented to employees but also discussed with them in order to support problem solving. Senior managers are engaged in these activities, actively participating in discussions on changes to the processes.

Regular interactive meetings also aim to stimulate dialogue and debate among employees. These controls focus attention on the performance measurement system itself and allow it to be challenged. The below comment reveals that although regular meetings with employees are aimed at discussing KPI and targets, senior managers use them in order to provoke disputes among employees and engage them in innovation-seeking activities.

We ask employees how they see their roles in realizing a certain strategy. We meet regularly and try to discuss this issue. Then they try to translate targets into activities and tasks. And we use this idea in all our departments and processes. A good deal of this interaction is introduced by lean management, which specifically connects diagnostic lean controls with interaction in daily and monthly lean meetings focused on improvements and innovation.

Cube appears to combine traditional and lean controls cf. Tillema and Van der Steen Lean implementation merges the countervailing elements of interactive and diagnostic systems.

Adding lean meetings to the regularly held annual sessions with senior management countervails the characteristics of diagnostic controls that are traditionally deemed restricting.

Still, the diagnostic system contains an element of standardization through the variance analysis of a number of financial indicators, such as revenue or profit margin, but it is expanded by nonfinancial indicators concentrated on project improvements and innovation, such as delivery time, percentage of errors, and value added to the process. Discussions on highly standardized diagnostic lean controls such as score tables, competency matrices and process mappings help employees better understand the aims of the organizations with regard to innovation, while engaging them in the realization of the strategy, stimulating lively debate and inspiring improvements and creativity.

The following quite reveals that for senior managers, lean meetings aimed at discussing diagnostic lean controls, though time-consuming and challenging, are a valuable source of local knowledge. Thanks to lean, diagnostic controls contain a social element, introduced mainly by personal development targets for employees and competence matrices. Moreover, the social mechanism Kennedy and Widener brought about by interactive meetings, teamwork and problem solving encourages employee decision making Tillema and van der Steen and fosters innovative behaviour.

Lean KPIs used in performance measurement and lean meetings create a system that is seen by employees as enabling and empowering, rather than restricting. In addition to this, the interactive controls encouraged by the directors are combined with clear boundaries the code of conduct, workshops, procedures, SLA , meaning interactive controls are focused on innovation and are more effective cf.

With regular meetings, directors promote and spur innovative behaviour, but with boundary controls, they establish standards and limits within which employees are expected to perform.

Managers discuss risks and opportunities during daily and monthly meetings, which stimulate engagement, but within an explicitly defined area delineated by quality controls and procedures. We can exchange ideas, discuss a few improvements […] Team Manager 1 […] This makes our […] horizons broader, […] but for every process [of innovation] […] we also have various additional documents for checks, quality and control.

Process Executive 1. Because of the described interrelationships, the boundary system, which is traditionally deemed to be restricting as it is designed to allow employees to deliver their tasks only within a predefined area cf.

Adler and Chen , p. It also empowers employees to seek out innovative solutions for clients. As a result, employees do not perceive standardized procedures and SLAs as restrictive controls but as elements which facilitate their work cf.

Ahrens and Chapman One employee explained the importance of instructions in innovation-seeking activities:. Instruction nicely describes the whole process, but you can also learn many things about the process from instruction. You can use it to improve the process. Furthermore, the code of conduct and training on communication prepares employees to collaborate with colleagues during a meeting and challenge strategy, as well as to take a leadership role.

This element is essential in order to conduct successfully interactive meetings in Cube. There is also some evidence of a relationship between belief and boundary systems, as innovation seeking is built into the beliefs the values in the mission statement , but carefully limited within given boundaries the code of conduct, training, procedures, SLA in order to reinforce effectiveness.

In Cube it facilitates the search for and recognition of innovation without wasting organizational resources and taking too high a risk.

All the innovative tasks must be assigned to the appropriate employees possessing the skills and competences that will enable an effective solution. We want ad hoc tasks [within each project] to go to the right person who has the competences to solve the problems. It is a waste of time if an ad hoc task is sent to an arbitrary employee who then wastes time attempting to solve the problem or looking for someone else who can tackle the task instead.

So we want to divide and group our resources by competencies, so ad hoc tasks are directed to a person with the appropriate competences.

Materials from the training session on values received from the company as well as employee comments confirm that the initial, compulsory training of new staff clearly outlines the behaviour desired.

Team Manager. On the other hand, the SLA, code of conduct and different instructions within the boundary system aimed at establishing limits and standards also underline the importance of innovation and leadership. Therefore, they reinforce the belief system as, training on communication and the code of conduct, for example, helps employees incorporate the mission and values into ordinary activities and everyday interaction with clients and colleagues.

Finally, the belief systems and diagnostic controls are also related. Belief systems communicate the values of a company, which in turn create the framework for strategy. However, in Cube, implementation of strategy engages extensive use of diagnostic control systems that measure not only to what extent the strategy is achieved, but also, among other factors, innovativeness, improvements and value added to the processes, in order to gauge whether process innovations have helped to reach the goals.

Another target is connected with process development, […] aimed at making us work as consultants, suggesting new technologies and new services to the client. This not only provides quality and prompt results, but also […] makes us innovative, inventive […] so adding value to client. Diagnostic controls in Cube are designed not only to monitor and provide input on how processes work, but they also promote learning through a feedback mechanism.

Moreover, the system contains various perspectives that communicate the strategy and translate it into critical success factors that can be measured. Personal development targets, client assessments, as well as lean targets are constructed in such a way as to lead employees to develop their skills and knowledge, seek new solutions and process improvements and thus satisfy the requirements of the customer.

When clients assess their contact with employees, they indicate if the employees are innovative and what improvements they suggested. This element pushes employees towards innovation-seeking activities in their daily contact with contractors. As a result, financial goals can also be achieved. The comment below from a senior manager suggests that this combination of belief systems and diagnostic controls creates a perpetual, repeating pattern of translating strategy into targets, then into tasks and activities necessary to innovate and improve.

Diagnostic lean controls, in particular, such as score tables, process maps and competency matrices, communicate clearly a strategy that translates strategic plans into targets used for standardization and control purposes. Senior managers underline that mapping of the processes especially requires a strategic approach.

We also try to create mapping of future processes. So we take the current mapping of processes, and try to simulate how it should look in the future—of course taking into consideration our strategic aims and targets. Thanks to this countervailing combination with beliefs and lean enforcement, the nature of the diagnostic system works counterintuitively, as suggested by Simons , reinforcing momentum for innovation with standardized procedures Curtis and Sweeney In summary, different combinations of levers create various types of reinforcement.

A combination of only positive or negative levers creates consistent reinforcement, and thus a push for consistency in a single direction: either standardization or innovation Moreover, although some levers, by nature, provide constraints and impose control on employees, when they are combined with levers containing an element which pushes employees towards new solutions and creative thought, countervailing reinforcement occurs.

Table 1 presents a summary of all the identified combinations of control levers and their mutually reinforcing characteristics. Our study has highlighted how management control systems can support the coexistence of innovations and standardization. Although there are many claims made regarding management controls, there remain few empirical studies showing their impact in terms of innovation and standardization.

Thus, our study provides insight into the relationship between innovation, standardization and management control in general. Analysing the relationship between different levers of control and their nature, we found that process and management innovations can coexist with standardization of those processes. This is an important finding as it overcomes the traditional view that standardization represents an organizational control that impede innovation Birkinshaw et al.

We identified radical and incremental processes, as well as management innovations in the studied organization intertwined closely with standardization. We argue that the managing process and management innovations in Cube are highly standardized Wright et al. Standardization is evident in the adoption of lean management at the system level, as its diffusion in the organization is assisted by and reliant on standardized solutions and methods of implementation, such as score tables, process maps and competence matrices Worren et al.

But standardization also predominates at the micro level within the organization Courpasson due to the fact that every process improvement and innovation ends with standardization. Although this narrows the duties of Cube, the relationship between standardization and process innovation is also quite supportive, as it encourages both radical and incremental innovative effort in order to provide new services.

In this way, standards promote local innovation and learning in the organization David and Rothwell Indeed, it was evident in some of the employee comments that a conflictual relationship between standardization and innovation exists at the moment of refreezing the standard in order to improve processes, as well as during the mapping and standardizing of the process due to lean see: Wright et al. Furthermore, we suggest that the combination of control levers enables exploitation of existing organizational knowledge in the form of incremental management innovation aimed at improving the internal processes without crowding out more radical innovation.

This is in contrast to Benner and Tushman , who claim that standardization highlights only incremental innovation. Beyond contributing to the conceptualization of innovation and standardization, the study provides insights into the relationships between different levers, as well as their impact on the coexistence of innovation and standardization. We discovered that in this organization, all the levers are tied to one another and practically each lever supports the achievement of aims by the other levers.

In other words, levers of control are mutually reinforcing Simons However, the way each lever of control interacts with the others is of particular importance in developing the unique potential of the organization studied Henri A combination of belief and interactive controls focuses the attention of employees on innovation, while diagnostic and boundary controls are aimed at standardizing the processes. The lack of dominance of one pair over another constitutes a crucial factor Mundy , as the consistency towards innovation does not, however, crowd out standardization for efficiency and vice versa cf.

Our study also reveals the countervailing combinations of levers that support the coexistence between standardization and innovation, as well as prevent the crowding out of radical innovation in favour of incremental innovations.

As the positive controls beliefs and interactive systems are considered to contribute to more radical innovations, while negative controls boundary and diagnostic systems are related to incremental innovation and standardization Simons ; Bedford , the countervailing combination of levers minimizes such a crowding out effect.

We have found specific controls, such as lean controls, service level agreement, and training, to be of specific importance for that purpose. Indeed, diagnostic lean controls such as score tables, process maps and lean KPIs are focused on the implementation of somewhat incremental management innovations, while the social mechanism brought by lean Kennedy and Widener in the form of lean meetings and personal development of staff through competence matrices and personal development targets spurs radical process innovation.

Lean meetings, in particular, combine other control levers with the interactive systems, as diagnostic lean controls, such as score tables, process maps, competency matrices and lean KPIs are discussed, providing input as to whether the constantly installed new processes are working in accordance with the ways standardized by the company boundary systems. The study would suggest that more countervailing combinations of controls counterbalance the nature of levers, thus moderating the contradictions between innovation and standardization.

This is due to the fact that a lever that traditionally supports either standardization or innovation working in tandem with a countervailing lever changes its nature, reinforcing the impact of the other level and vice versa.

On the other hand, interactions that traditionally stimulate dialogue on new initiatives Simons when discussing the performance measurement system during meetings, focus on the diagnostic system and standards that monitor processes. Furthermore, interactions work in Cube within the limits established by boundaries, but the SLA and procedures are not perceived by employees as restrictive; instead they are encouraged to seek innovativeness and facilitate it.

Combining beliefs with boundaries ensures that innovation is built into everyday activities, albeit carefully delineated by various limits and standards. Diagnostic controls not only translate the beliefs into targets and monitor employees, but also stimulate them to find novel solutions Simons Thus, placing a control within a specific lever is frequently too restricting in Cube, as a control can have characteristics of different levers.

For instance, the SLA represents a boundary control of the nature of a diagnostic lever, and the performance measurement system is used both in diagnostic and interactive ways.

Due to the consistent and countervailing combination of levers, the management control system fosters communication among employees, managers and directors Simons ; Henri , improves cooperation Mundy and develops the creative skills necessary to exploit as well as explore knowledge Benner and Tushman At the same time, though, it steers and monitors activities, in addition to standardizing processes within the company Simons The more levers engaged in the combinations, the stronger the reinforcement that can be achieved see: Simons One limitation of our research is the fact that although the case study method has the advantage of allowing an examination of the management controls, their relationship and impact on innovation and standardization in the organization, the specific context of a BPO company precludes a generalization of the results taking into account different types of companies.

A further limitation of our data is that concerns a single-company case study based on a limited number of interviews.

On the other hand, the interviews were supplemented with presentations, additional materials received from the organizations, as well as observations of the researchers who participated in the daily activities of the company for almost two years, so the qualitative material was rich and extensive, which enabled the study of the nature of levers and the relationship between different types of innovations and standardization.

The aim of this study was to answer the research question of how controls can support the coexistence of process and management innovations with standardization in the context of management accounting services. We collected data at a large department of a BPO company. The department is a supplier of management accounting services where the standardization needed to serve the clients is combined with constant process and management innovation to ensure the continuation of operations.

Having collected the data, we explored the multiple relationships between levers. Set against the traditional view that standards are in conflict with innovation, we argue that both process and management innovations can coexist with standardization at the system level, as well as at the micro level within an organization Wright et al.

Moreover, the different types of innovations identified in the studied organization involve significant standardization, but standards enable or even inspire innovative practices Wright et al. This is due to the fact that standards assist lean management and its implementation in a company, providing a common language for investigation and experimentation, thus encouraging improvements based on learning from previous experience Wright et al. Standardization of processes narrows down the duties of employees and managers, thus creating a strong impetus to encourage innovation.

Our research complements the conceptualization of innovation and standardization by highlighting the role of management control systems in this relationship. The current study contributes to the growing stream of research on how management controls work collectively Simons ; Otley ; Malmi and Brown , and their impact on innovative activities Mundy ; Henri ; Adler and Chen ; Widener ; Janka and Guenther Our primary focus is on process and management innovations Chenhall and Moers ; Lopez-Valeiras et al.

While previous studies have provided some evidence on how countervailing but mutually reinforcing combinations of control levers affect the development of organizational capabilities, they have rarely investigated the nature of those levers and their impact on the coexistence of innovation and standardization.

The present study shows how both standardization and innovation are supported by the simultaneous use of different levers of control. We were able to do this by exploring the controls that constitute these levers.

All of the identified controls enhance one another and reinforce their impact. While mutual reinforcement is consistent with the premises of the LOC framework Simons , the important finding of the present study is in showing categorically what kinds of positive and negative controls may reinforce one another, thus creating both consistent and countervailing reinforcement, in turn enabling the coexistence of innovation and standardization.

Although the interplay between belief and interactive levers reinforces the importance of innovation, the interactions between boundary and diagnostic systems focus on standardization. Moreover, we identified four different combinations of levers that contain countervailing forces, which thus created countervailing reinforcement cf. We found this type of reinforcement was necessary to reduce excessive momentum towards standardization or innovation.

In particular, the interplay between diagnostic and interactive levers enhanced by lean controls plays an important role in spurring controlled innovation. Nevertheless, mobilizing the other combinations of positive and negative levers Simons prevents a crowding out effect. The same controls can be used within different levers supporting both standardization and innovation and therefore the LOC framework may be too restricting in naming the controls within levers.

Therefore, this study contributes to a better understanding of the relationship between levers and their nature, which is not clearly articulated in the original framework Bedford ; Curtis and Sweeney ; Kruis et al. Furthermore, in exploring the nature of levers, we also contribute to the subject literature by showing how lean service management effectively ties the levers of control together Kennedy and Widener ; Fullerton et al.

The description provided in the present paper provides an illustration of how traditional and lean controls may work effectively together, which differs from the findings of Tillema and Van der Steen The study also points to broader implications of controls for adopting incremental and radical innovations.

As positive controls are considered to contribute to more radical innovations, while negative controls are related to incremental innovation and standardization Simons ; Bedford , the simultaneous use of countervailing levers enables the exploitation of existing organizational knowledge through incremental management innovation aimed at improving internal processes without crowding out the more radical innovation necessary for the long-term survival of the organization cf.

Benner and Tushman ; Wright et al. An interesting direction for future research would be to examine how a change in a control system resulting from further lean implementation influences the relationships between levers, and the impact on innovation.

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Management innovation through standardization: Consultants as standardizers of organizational practice. Our research , however, challenges this wisdom and suggests that managers can innovate better by embracing constraints. We reviewed empirical studies on the effects of constraints on creativity and innovation, and found that individuals, teams, and organizations alike benefit from a healthy dose of constraints. Our research suggests that GE engineers were not successful despite these constraints, but because of them.

Constraints can foster innovation when they represent a motivating challenge and focus efforts on a more narrowly defined way forward. According to the studies we reviewed, when there are no constraints on the creative process, complacency sets in, and people follow what psychologists call the path-of-least-resistance — they go for the most intuitive idea that comes to mind rather than investing in the development of better ideas.

Constraints, in contrast, provide focus and a creative challenge that motivates people to search for and connect information from different sources to generate novel ideas for new products, services, or business processes. Therefore, managers can embrace and use a variety of constraints in their arsenal. These constraints take three main forms. First, they can limit inputs e. For example, managers may intentionally cap resources in corporate entrepreneurship initiatives to motivate employees to be more resourceful.

Second, they can enforce specific processes. Examples include procedures on seeking early market and technological feedback e. Third, they can set specific output requirements such as product or service specifications.

But managers also need to be mindful about imposing too many constraints. If the space within which creative ideas are generated becomes too narrow, it is harder to form novel connections and serendipitous insights — both of which are vital for creativity. Hence, the key for fostering creativity and innovation in your organization is to strike a balance by orchestrating different types of constraints. Google illustrates this balance by, on the one hand, providing employees ample freedom to work on innovation projects that they want to pursue e.

Examples of constraints used by Google include strict deadlines for developing prototypes and ambitious performance requirements about products in terms of its usability across different devices e. As former CEO Dwayne Spradlin noted, a typical innovation problem should contain tight output constraints in the form of solution requirements , and typically these are combined with moderate input constraints e. When designing an effective balance of constraints, we recommend that managers take characteristics of the innovation project into account.

As a general rule, the more an innovation requires breakthrough thinking i. Another rule is that interdisciplinary projects often benefit from clearly defined process constraints to govern communication and coordination.

For innovation projects requiring both breakthrough thinking and cross disciplinary collaboration, managers can balance and orchestrate constraints by loosening input and output constraints while tightening the process constraints. In contrast, when the focus is on producing a more modest innovation that squarely builds on the current state of affairs e. We recognize that not all constraints are under managerial control. Some constraints are simply a given, such as those imposed by government regulations or by nonnegotiable budget caps or deadlines.

And even when managers can control constraints, it is not a given that employees will respond positively. Here, it is important to realize that the same constraint may be interpreted in different ways: as a motivating challenge or as a frustrating roadblock. This is where managers may mobilize their leadership abilities and influence how employees interpret constraints through communication and feedback. By framing constraints as creative challenges, managers can build an understanding of constraints as positives, and thus invite more creativity.