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Responsibility Center Budgeting and Responsibility Center Management: Implications

for internal structure and strategic management of North American universities

By

Darren Deering

A thesis submitted in conformity with the requirements for the degree of Doctor of
Philosophy, Graduate Department of Leadership, Higher and Adult Education, in the
University of Toronto

Copyright by Darren Deering (2015)


UMI Number: 3709058

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Responsibility Center Budgeting and Responsibility Center Management: Implications
for internal structure and strategic management of North American universities

Doctor of Philosophy, 2015

Darren Deering

Department of Leadership, Higher and Adult Education

University of Toronto

ABSTRACT

Responsibility center budgeting and responsibility center management [RCB/M]

are tools that have been applied within the higher education context for four decades.

The research focussed on RCB/M to date has been predominantly descriptive and

normative in nature. This study presents a three-factor model of internal structure and

applies the concept of management control systems, through diagnostic and interactive

control forms of governance, to provide a theoretical model that is used to further

investigate the institutional outcomes of RCB/M use in four public universities.

Grounded organizational design, accounting, RCB/M, higher education and

management control systems literatures this study focuses on the levels of coordination

and cooperation between units, and between units and the central administration of

higher education institutions. By examining the governance control form employed at

four sample universities this study considers how RCB/M structures affect vertical and

lateral coordination and consequently, institutional mission and goal achievement.

Findings suggest that predominately interactive governance control forms encourage

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high levels of vertical and lateral coordination while allowing for high levels of unit

autonomy. Through the use of interactive governance control forms it was found that

the central administration is able to guide and direct unit-level decision making towards

the achievement of both unit- and institution-level goals.

Methodologically, this study employs qualitative research techniques that

included comprehensive document analysis and 55 semi-structured interviews with

senior academic and administrative leaders at four public universities, two in the United

States, and two in Canada. The data collected provides a detailed portrait of the

relationship between units, and between units and the central administration at these

institutions. This study is significant because it presents a new model of internal

structure that is applicable to a broad organizational set. Additionally, through the

application of management control systems, it provides an innovative approach to the

study and understanding of budgeting and management of modern universities. When

this model is applied in conjunction with governance control forms it may provide

significant value for institutions deliberating the implementation of RCB/M structures.

Additionally, this model is useful for institutions undergoing a review of an existing

RCB/M structure.

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DEDICATION

To my loving wife Rachel. Without your support this would not have been possible.

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ACKNOWLEDGEMENTS

I would like to acknowledge the four institutions and fifty-five individuals who were

gracious enough to participate in this study.

I wish to thank my committee chair and advisor Dr. Creso S for his expertise, guidance,

and support. I am grateful to my other committee members Drs. Dan Lang and Glen Jones

whose advice and direction was essential in the completion of this study. In addition, I want to

express my gratitude to Drs. Leesa Wheelahan and Jim Hearn who have provided valuable

comments and critiques that have helped me craft a better dissertation.

I would also like the thank Dr. Robert Basso. Without his guidance this journey would

not have taken place.

To Nathan Halaney, your help and guidance were invaluable. I cant thank you enough.

Finally, I want to thank my wife, my parents, and EBM for their love and support.

Although I have dedicated this study to you, it is a small repayment for all that you have given

me.

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TABLE OF CONTENTS
DEDICATION ....................................................................................................................iv
ACKNOWLEDGEMENTS ....................................................................................................v
LIST OF TABLES ............................................................................................................... xii
LIST OF FIGURES ............................................................................................................ xiii
LIST OF APPENDICES ...................................................................................................... xiv
LIST OF ABBREVIATIONS ................................................................................................. xv
CHAPTER ONE .................................................................................................................. 1
FRAMING THE ISSUE........................................................................................................ 1
SECTION 1.1 INTRODUCTION .......................................................................................................... 1
SECTION 1.2 OVERVIEW OF THE PROBLEM ..................................................................................... 3
SECTION 1.3 - RESEARCH CONTRIBUTIONS ...................................................................................... 11
CHAPTER TWO ............................................................................................................... 13
LITERATURE REVIEW ..................................................................................................... 13
SECTION 2.1 - INTRODUCTION ......................................................................................................... 13
SECTION 2.1.1 BUDGETING IN HIGHER EDUCATION INSTITUTIONS ......................................... 14
SECTION 2.1.2 - CONVENTIONAL FORMS OF UNIVERSITY BUDGETING ....................................... 15
SECTION 2.2 - RCB/M: AN INTRODUCTION ...................................................................................... 19
SECTION 2.2.1 - RCB/M IN INDUSTRY ........................................................................................... 22
SECTION 2.2.2 - RCB/M IN HIGHER EDUCATION .......................................................................... 24
SECTION 2.2.3 - FORCES THAT COMPEL THE USE OF RCB/M BY HIGHER EDUCATION
INSTITUTIONS ............................................................................................................................... 27
SECTION 2.2.4 - CRITICISMS OF RCB/M ........................................................................................ 32
SECTION 2.3 - GOVERNANCE IN DECENTRALIZED HIGHER EDUCATION INSTITUTIONS .................. 37
SECTION 2.3.1 - MANAGEMENT CONTROL SYSTEMS................................................................... 39
SECTION 2.3.2 - LEVERS OF CONTROL .......................................................................................... 44
SECTION 2.3.3 - TRENDS IN HEI GOVERNANCE: DIAGNOSTIC AND INTERACTIVE CONTROL ....... 48
SECTION 2.3.4 - DIAGNOSTIC AND INTERACTIVE APPROACHES TO GOVERNANCE IN RCB/M
INSTITUTIONS ............................................................................................................................... 52
SECTION 2.4 - THE CONCEPT OF ORGANIZATIONAL INTERNAL STRUCTURE ................................... 56
2.4.1 - THE IMPACT OF INTERNAL STRUCTURE ON INSTITUTIONAL CONTROL MECHANISMS .... 60

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SECTION 2.5 - MEASURING INSTITUTIONAL GOAL AND MISSION ACHIEVEMENT .......................... 63
SECTION 2.6 - SUMMARY ................................................................................................................. 65
CHAPTER THREE ............................................................................................................ 66
THEORETICAL CONSIDERATIONS AND RESEARCH QUESTIONS .................................... 66
SECTION 3.1 - INTRODUCTION ......................................................................................................... 66
SECTION 3.2 - THREE-FACTOR MODEL OF INTERNAL STRUCTURE................................................... 66
SECTION 3.3 - PRIMARY RESEARCH QUESTION ................................................................................ 68
SECTION 3.4 - OPERATIONALIZED RESEARCH QUESTIONS AND CORRESPONDING PROPOSITIONS 69
3.4.1 - RESEARCH QUESTIONS REGARDING LATERAL AND VERTICAL COORDINATION ............... 69
3.3.2 - RESEARCH QUESTIONS REGARDING UNIT AUTONOMY.................................................... 72
3.3.3 - RESEARCH QUESTIONS REGARDING DIAGNOSTIC AND INTERACTIVE CONTROL FORMS OF
GOVERNANCE ............................................................................................................................... 74
CHAPTER FOUR .............................................................................................................. 76
METHODS AND METHODOLOGY................................................................................... 76
SECTION 4.1 - INTRODUCTION ......................................................................................................... 76
SECTION 4.2 - THE CASE STUDY DESIGN........................................................................................... 76
SECTION 4.3 METHODOLOGY ........................................................................................................ 80
SECTION 4.3.1 - DOCUMENT ANALYSIS ........................................................................................ 81
SECTION 4.3.2 - INTERVIEWS ........................................................................................................ 83
SECTION 4.3.3 CASES ................................................................................................................. 85
4.3.3.1 - CENTRAL CANADIAN UNIVERSITY .............................................................................. 85
4.3.3.2 - MIDWESTERN U.S. UNIVERSITY.................................................................................. 89
4.3.3.3 - EASTERN U.S. UNIVERSITY .......................................................................................... 94
4.3.3.4 - WESTERN CANADIAN UNIVERSITY ............................................................................. 96
SECTION 4.4 - INFORMANTS........................................................................................................... 100
SECTION 4.5 - INTERVIEW PROTOCOL ............................................................................................ 104
SECTION 4.6 - DATA ANALYSIS........................................................................................................ 105
SECTION 4.7 - VALIDITY AND RELIABILITY AND THEIR RELATION TO THIS STUDY ......................... 106
SECTION 4.8 - LIMITATIONS OF THIS STUDY .................................................................................. 110
CHAPTER FIVE .............................................................................................................. 112
FRAMING VERTICAL COORDINATION.......................................................................... 112

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SECTION 5.1 INTRODUCTION ...................................................................................................... 112
SECTION 5.2 - MIDWESTERN U.S. UNIVERSITY............................................................................... 113
5.2.1 - THE ROLE OF THE CENTRAL ADMINISTRATION ............................................................... 114
5.2.2 - THE IMPACT OF CENTRALLY HELD FINANCIAL RESOURCES ............................................ 114
5.2.3 - FORMAL AND INFORMAL PROCESSES THAT ENCOURAGE VERTICAL COORDINATION .. 117
5.2.4 - CENTRAL ADMINISTRATION ACTING AS A RESOURCE .................................................... 120
5.2.5 - HYBRID GOVERNANCE AND OVERSIGHT ......................................................................... 122
5.2.6 - SUMMARY ....................................................................................................................... 124
SECTION 5.3 - CENTRAL CANADIAN UNIVERSITY ........................................................................... 126
5.3.1 - THE IMPACT OF CENTRALLY HELD FINANCIAL RESOURCES ............................................ 127
5.3.2 - FORMAL AND INFORMAL PROCESSES THAT ENCOURAGE VERTICAL COORDINATION .. 128
5.3.3 - CENTRAL ADMINISTRATION ACTING AS A RESOURCE .................................................... 130
5.3.4 - THE BUDGET REVIEW PROCESS ....................................................................................... 132
5.3.5 - EVOLVING OVERSIGHT AND MANAGEMENT .................................................................. 133
5.3.6 - HYBRID OVERSIGHT AND MANAGEMENT ....................................................................... 134
5.3.7 - SUMMARY ....................................................................................................................... 135
SECTION 5.4 - EASTERN U.S. UNIVERSITY ....................................................................................... 136
5.4.1 - A STATE OF OVER DECENTRALIZATION ........................................................................... 137
5.4.2 - THE ROLE OF THE CENTRAL ADMINISTRATION: A TRADITION OF DIAGNOSTIC CONTROL
.................................................................................................................................................... 139
5.4.3 - A NEW BEGINNING? ........................................................................................................ 142
5.4.4 - SUMMARY ....................................................................................................................... 145
SECTION 5.5 - WESTERN CANADIAN UNIVERSITY .......................................................................... 146
5.5.1 - OVER-DECENTRALIZATION AND DIAGNOSTIC CONTROL ................................................ 147
5.5.2 - THE ABSENCE OF TRANSPARENCY AND VERTICAL COMMUNICATION ........................... 149
5.5.3 - THE CENTRAL ADMINISTRATION AS A RESOURCE FOR UNITS ........................................ 153
5.5.4 - A LACK OF BUDGET OVERSIGHT ...................................................................................... 154
5.5.5 - SUMMARY ....................................................................................................................... 155
SECTION 5.6 - PROPOSITIONS ON VERTICAL COORDINATION ....................................................... 156
5.6.1 PROPOSITION ONE ......................................................................................................... 157
5.6.2 PROPOSITION THREE ...................................................................................................... 159
5.6.3 PROPOSITION FIVE.......................................................................................................... 161

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5.6.4 PROPOSITION TEN .......................................................................................................... 162
CHAPTER SIX ................................................................................................................ 164
LATERAL COORDINATION ............................................................................................ 164
SECTION 6.1 - INTRODUCTION ....................................................................................................... 164
SECTION 6.2 - MIDWESTERN U.S. UNIVERSITY............................................................................... 165
6.2.1 - THE ROLE OF THE CENTRAL ADMINISTRATION ............................................................... 165
6.2.2 - INTERDISCIPLINARY PROGRAMS AND RESEARCH INITIATIVES ....................................... 168
6.2.3 - THE IMPACT OF RCB/M ................................................................................................... 170
6.2.4 - INTER-UNIT COMMUNICATION ....................................................................................... 173
6.2.5 - SUMMARY ....................................................................................................................... 174
SECTION 6.3 - CENTRAL CANADIAN UNIVERSITY ........................................................................... 174
6.3.1 - THE ROLE OF THE CENTRAL ADMINISTRATION ............................................................... 174
6.3.2 - THE IMPACT OF RCB/M ................................................................................................... 177
6.3.3 - INTER-UNIT COMMUNICATION ....................................................................................... 178
6.3.4 - SUMMARY ....................................................................................................................... 180
SECTION 6.4 - EASTERN U.S. UNIVERSITY ....................................................................................... 181
6.4.1 - PROCESSES THAT ENCOURAGE COORDINATION ............................................................ 181
6.4.2 - INTER-UNIT PROGRAMS .................................................................................................. 185
6.4.3 - THE IMPACT OF RCB/M ................................................................................................... 186
6.4.4 - THE AUSTERITY NARRATIVE ............................................................................................ 188
6.4.5 - A NEW PATH FORWARD .................................................................................................. 190
6.4.6 - SUMMARY ....................................................................................................................... 190
SECTION 6.5 - WESTERN CANADIAN UNIVERSITY .......................................................................... 192
6.5.1 - INTER-UNIT PROGRAMS .................................................................................................. 192
6.5.2 - THE IMPACT OF RCB/M ................................................................................................... 194
6.5.3 - TRANSPARENCY, FAIRNESS AND TRUST .......................................................................... 197
6.5.4 - SUMMARY ....................................................................................................................... 200
SECTION 6.6 PROPOSITIONS ON LATERAL COORDINATION ........................................................ 201
6.6.1 PROPOSITION TWO......................................................................................................... 201
6.6.2 PROPOSITION FOUR ....................................................................................................... 203
6.6.3 PROPOSITION FIVE.......................................................................................................... 207

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CHAPTER SEVEN .......................................................................................................... 209
UNIT AUTONOMY ........................................................................................................ 209
SECTION 7.1 - INTRODUCTION ....................................................................................................... 209
SECTION 7.2 - MIDWESTERN U.S. UNIVERSITY............................................................................... 210
7.2.1 - TREND OF CENTRALIZATION ........................................................................................... 210
7.2.2 - THE FINANCIAL POSITION OF UNITS ............................................................................... 212
7.2.3 - DEAN CENTRIC MODEL .................................................................................................... 213
7.2.4 - THE UNIVERSITYS FINANCIAL POSITION......................................................................... 213
7.2.5 - SUMMARY ....................................................................................................................... 214
SECTION 7.3 - CENTRAL CANADIAN UNIVERSITY ........................................................................... 214
7.3.1 - TREND OF CENTRALIZATION ........................................................................................... 215
7.3.2 - DEAN CENTRIC MODEL .................................................................................................... 216
7.3.3 - SUMMARY ....................................................................................................................... 217
SECTION 7.4 EASTERN U.S. UNIVERSITY ...................................................................................... 217
7.4.1 RADICAL DECENTRALIZATION ......................................................................................... 217
7.4.2 FISCAL CONSTRAINTS ..................................................................................................... 218
7.4.3 TREND OF CENTRALIZATION ........................................................................................... 219
7.4.4 - SUMMARY ....................................................................................................................... 221
SECTION 7.5 - WESTERN CANADIAN UNIVERSITY .......................................................................... 221
7.5.1 REVENUE AND ENROLLMENT GROWTH ......................................................................... 222
7.5.2 TREND OF CENTRALIZATION ........................................................................................... 223
7.5.3 CAMPUS ALBERTA .......................................................................................................... 224
7.5.4 - SUMMARY ....................................................................................................................... 225
SECTION 7.6 - PROPOSITIONS REGARDING UNIT AUTONOMY ...................................................... 225
7.6.1 PROPOSITION SEVEN ...................................................................................................... 226
7.6.2 PROPOSITION EIGHT ....................................................................................................... 227
7.6.3 PROPOSITION ELEVEN .................................................................................................... 228
CHAPTER 8 ................................................................................................................... 229
CONCLUSION ............................................................................................................... 229
SECTION 8.1 INTRODUCTION ...................................................................................................... 229
SECTION 8.2 - SUMMARY OF MAIN FINDINGS ............................................................................... 230

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SECTION 8.3 IMPLICATIONS FOR THEORY ................................................................................... 233
SECTION 8.4 IMPLICATIONS FOR FUTURE RESEARCH ................................................................. 236
SECTION 8.5 IMPLICATIONS FOR PRACTICE ................................................................................ 238
SECTION 8.6 SUMMARY CONCLUSIONS ...................................................................................... 241
REFERENCES ................................................................................................................ 243
APPENDIX 1: Budget Typology Table .......................................................................... 267
APPENDIX 2: Public Higher Education Institutions in the Times Higher Education North
American Rankings and Corresponding Budgeting and Management System .......... 269
APPENDIX 3: Walter et al.s Three Factor Model of Organizational Effectiveness ..... 270
APPENDIX 4: Lateral Coordination and Governance Control Form Matrix ................ 271
APPENDIX 5: Vertical Coordination and Governance Control Form Matrix ............... 272
APPENDIX 6: Method-Process Graphic ....................................................................... 273
APPENDIX 7: Steps and Phases of Study ..................................................................... 274
APPENDIX 8: Interview Protocol ................................................................................. 276
APPENDIX 9: Contact Letter to Potential Participants ................................................ 278
APPENDIX 10: Ethics Approval Letter.......................................................................... 280
APPENDIX 11: Interviewee Consent Form .................................................................. 281
APPENDIX 12: Informed Consent Letter ..................................................................... 282
APPENDIX 13: Matrix for Case Comparisons............................................................... 285
APPENDIX 14: Coding Scheme Start List ..................................................................... 287
APPENDIX 15: Triangulation Matrix for Research Questions...................................... 288
APPENDIX 16: Three Factor Model of Organizational Effectiveness for Midwestern U.S.
University .................................................................................................................... 289
APPENDIX 17: Three Factor Model of Organizational Effectiveness for Central Canadian
University .................................................................................................................... 290

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LIST OF TABLES

Table 1: Management Control Systems Package

Table 2: A Comparison of Diagnostic and Interactive Control Form Use

Table 3: Webers Six Steps of Document Analysis

Table 4: Yins Tactics for Case Study Design

Table 5: Governance Control Form and Corresponding Levels of Vertical Coordination

Table 6: Oversight and Influence of Decision-making and Governance Control Form

Table 7: Levels of Vertical Coordination and Organizational Goal Achievement

Table 8: Vertical Coordination, and Cost and Revenue Incentives

Table 9: Governance Control Forms and Levels of Lateral Coordination

Table 10: Levels of Lateral Coordination and Institutional Goal Achievement

Table 11: Unit Autonomy and Diagnostic Governance Control Forms Relationship to
Vertical Coordination

Table 12: Unit Autonomy and Diagnostic Governance Control Forms Relationship to
Lateral Coordination

Table 13: Unit Autonomy and Hybrid Governance Control Forms Relationship to Vertical
Coordination

Table 14: Unit Autonomy and Hybrid Governance Control Forms Relationship to Lateral
Coordination

Table 15: Governance Control Forms and Unit Autonomy

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LIST OF FIGURES

Figure 1: Study Model

Figure 2: Example of a Centralized Budgeting and Decision-making Structure

Figure 3: Example of an RCB/M Decision-making Structure

xiii
LIST OF APPENDICES

Appendix 1: Budget Typology Table

Appendix 2: Public Higher Education Institutions in the Times Higher Education North
America Top 50 Rankings and Corresponding Budgeting and Management System

Appendix 3: Walter et al.s Three Factor Model of Organizational Effectiveness

Appendix 4: Lateral Coordination and Governance Control Form Matrix

Appendix 5: Vertical Coordination and Governance Control Form Matrix

Appendix 6: Method-Process Graphic

Appendix 7: Steps and Phases of Study

Appendix 8: Interview Protocol

Appendix 9: Contact Letter to Potential Participants

Appendix 10: Ethics Approval Letter

Appendix 11: Interviewee Consent Form

Appendix 12: Informed Consent Letter

Appendix 13: Matrix for Case Comparison

Appendix 14: Coding Scheme Start List

Appendix 15: Triangulation Matrix for Research Questions

Appendix 16: Three Factor Model of Organizational Effectiveness for Midwestern U.S.
University

Appendix 17: Three Factor Model of Organizational Effectiveness for Central Canadian
University

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LIST OF ABBREVIATIONS

HEI: Higher Education Institution

MCS: Management Control System

ISE: Institute for Studies in Education

RCB: Responsibility Center Budgeting

RCB/M: Responsibility Center Budgeting and Responsibility Center Management

RCM: Responsibility Center Management

SUNY: State University of New York

UBM: University Budget Model and System (Midwestern U.S. University)

US: University System

VCM: Value Center Management (Midwestern U.S. University)

DuPont: E.I. DuPont de Nemours and Company

M-Form: Multi-divisional Organization

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CHAPTER ONE

FRAMING THE ISSUE

SECTION 1.1 INTRODUCTION

Budgeting and management have long been of interest to higher education

scholars (Birnbaum, 2000; Birnbaum & Edelson, 1989; Blau, 1973; Burgess & Pratt, 1970;

Clark, 1960, 1972, 1986; Hawley, Boland & Boland, 1965; Keller, 1983; Lang, 1999a;

Lang, 1999b; Massy, 1996; Millet, 1962; Whalen, 1991). Recently, there has been an

increased interest in and study of various forms of decentralized budgeting and

corresponding management structures within higher education (Cekic, 2010; Ehrenberg,

2012; Lepori, Usher & Montauti, 2013; Zeirdt, 2009). Budgeting and governance are

management control systems that organizational leaders utilize to direct organizational

outcomes. Within higher education, budgeting has traditionally been a centralized fund

accounting process (Hearn, Lewis, Kallsen, Holdsworth, & Jones, 2006); decentralized

budgeting and management structures represent a fundamental strategic shift in the

higher education context (Fuchsberg, 1989; Stocum & Rooney, 1997; Whalen, 1991).

Decentralized budgeting and management within higher education institutions [HEIs]

has been drawn from private industry, where it has been in use since the early

twentieth century (Deering & S, 2014; Drucker, 1946). The interest in decentralized

budgeting and management structures shown by HEIs can be largely attributed to

increasing organizational complexity, rising costs, and enduring constraints on revenue

streams. The fluid and challenging higher education environment has encouraged a

number of large and research intensive HEIs to adopt decentralized budgeting and

1
management systems such as Responsibility Center Budgeting and Responsibility Center

Management [RCB/M] (Hearn et al., 2006; Lepori et al. 2013).

RCB/M is a managerial framework that encompasses the internal budgeting,

financial reporting, and decision-making of the university with a focus on operational

decentralization. RCB/M consists of policies and procedures that underlie the financial

planning, decision-making, and management of the university. It divides the university

into units, each responsible for its own revenue and costs in such a way that budgeting

authority is aligned with responsibility. This decentralized approach to budget allocation

assigns greater control over resource decisions to unit leadership. In doing so, it

provides units with specific and measurable incentives to exercise their considerable

authority responsibly for the benefit of themselves, their students, their organizational

units, and the institution as a whole (Strauss & Curry, 2002, p.1). The underlying

premise of RCB/M is that its decentralized nature entrusts unit leaders with more

control of financial resources, leading to more informed decision-making and better

outcomes for the university as a whole.

The term unit denotes a budgeting entity at a university. The RCB/M model

divides the university into a number of units, each of which is responsible for its own

budget. Units can be classified according to function, usually being designated as either

academic [e.g. teaching departments, research units, libraries etc.] or service and

auxiliary [e.g. financial operations, admissions, residence halls etc.]. They can also be

classified according to whether they generate activity-based revenues. Activity-based

2
units are those that receive a significant portion of their revenue as a function of what

they do [e.g. enrolling students]. Non activity-based units are those that do not directly

generate sufficient revenues to cover an appreciable portion of their operations [e.g.

libraries, central financial operations etc.]. Each university varies in its creation of units,

but most often academic units represent individual faculties and colleges.

The adoption of RCB/M effects all parts of a university and changes the power

structure and, as a result, the internal structure of an HEI (Lang, 1999a). Because

decision-making and resource allocation are both integral to institutional success, and

because their format has the potential to fundamentally alter an HEIs structure and

internal operations, it is important to investigate how they are interrelated.

Additionally, it is worthwhile to consider what impact these relationships have on the

units and institutions ability to meet their goals. This study investigates four publicly

funded universities employing RCB/M by examining internal structure, the selection and

use of governance models, and the impact on unit-level decision-making.

SECTION 1.2 OVERVIEW OF THE PROBLEM

The higher education environment is influenced by a variety of factors, both

external and internal to HEIs, which have been examined extensively in the extant

literature. The external factors that help shape HEI decisions include: 1. decreasing

government funding; 2. increasing competition for students, faculty and staff; and 3.

increasing societal expectations (Berdahl, Altbach & Gumport, 2011; Fisher, Rubenson,

3
Jones, & Shanahan, 2009; Metcalfe, Fisher, Gingras, Jones, Rubenson, & Snee, 2011).

The conflict between controlling costs and increasing access and capacity provides a

challenging operational context for institutions (Kirp, 2003; Toutkoushian, 2009). In the

face of these external challenges, HEIs are expected to meet societal obligations

through direct and indirect benefits to the communities in which they operate (Altbach,

1999; Anderson, 1988; Berdahl et al., 2011; Inman, Schtze, & Adam, 2010; Small, 1994;

Thelin, 2004). The conflicting institutional objectives of balancing budgets while

benefiting stakeholders lead to increasing organizational complexity through the

establishment of additional decision-making constraints. The complexity presented by

the external marketplace increases the ambiguity surrounding the three-part

institutional mission of research, teaching, and service, and the institutional necessities

of revenue development and cost control (Inman et al., 2010; Kirp, 2003; Toutkoushian,

2009); these conflicting institutional objectives [i.e. balancing budgets while benefiting

various constituent groups] results in an increasing demand for innovative resource

allocation decisions.

In addition to these external factors, HEIs today encounter a variety of internal

environmental factors that influence organizational decisions. These factors include: 1.

increasing organizational complexity caused by an increase in the breadth and

specialization of offerings; 2. the emerging prominence of managerialism and its impact

on the collegial model; 3. the challenge of cost containment; and 4. the increasing need

for new revenue streams (Deem and Brehony, 2005; Inman et al., 2010; Lang, 1999a;

Marginson & Considine, 2000; Metcalfe et al., 2011; Slaughter & Rhoades, 2004; Trow &

4
Clark, 1994). Of particular interest to this research are publicly funded comprehensive

research intensive HEIs, which are inherently complex due to the heterogeneity of

faculties and programs (Vancil, 1980). The outcome of complexity for the modern

university is described by Kerr, Gade and Kawaoka (1994) as growing to the point that

presidents, trustees, and governing boards have difficulty keeping abreast of the

activities, decisions, and finances that they are responsible for overseeing.

RCB/M has been adopted by an increasing number of HEIs in an attempt to more

efficiently allocate resources and manage organizational outcomes while concurrently

addressing the internal and external environmental factors described above (Cekic,

2010; Deering & S, 2014; Hearn et al., 2006; Priest, Becker, Hosler, & St. John, 2002;

Zierdt, 2009). The decentralized structure of RCB/M maps well onto the organizational

structure of the modern university, or, as Kerr (1982) termed it, the multiversity, and

allows HEIs to manage the various and increasingly complex challenges that they face

(Kerr, 2001; Lepori et al., 2013). Contrary to the homogeneous and centralized

organizational structure implied by the term university, current HEIs are subdivided into

numerous disciplinary, sub-disciplinary, and interdisciplinary units. Under an RCB/M

structure, decision-making responsibilities are assigned to the department or faculty

level; this local decision-making offers institutions the opportunity to increase the

efficiency of resource allocation and to improve decision-making capabilities (Hearn et

al., 2006; Jarvie, 2002; Lang, 1999b; Whalen, 1991). To these ends, RCB/M is expected

to encourage both rationality and decision-making that optimizes resource allocation

throughout the budget process (Chaffee, 1983).

5
The decentralized nature of the modern HEI presents challenges to traditional

centralized governance structures, which may become limited in their ability to

influence unit-level decision-making. The implementation of RCB/M exacerbates these

challenges through the formal decentralization of budgeting and management. The

decentralization process introduces a high degree of unit-level autonomy in decision-

making and resource allocation and is intended to encourage self-interested behaviour

by units. Due to the relatively decentralized nature of the modern university and the

decentralizing influence of RCB/M, the relationship between the governance model and

the internal structure of the institution should be considered. However, scant attention

has been paid to this relationship in the extant literature (Otley, 1994).

For this research, I use the term governance1 to denote the oversight provided to

decisions on policy and strategy made by the institutional and unit leadership (Kaplan,

2004). Moreover, governance consists of those processes and procedures that allocate

authority and responsibility for decision-making (Benjamin, Carroll, Gray, Krop, & Shires,

1993; Hirsch & Weber, 2001). That is, for this study the term governance is used to

describe the management and oversight provided by the central administration and by

leadership at the unit-level. As noted above, governance is a management control

system. As such, it can be applied either diagnostically [prescriptively] or interactively

[consultatively]. The application of governance at RCB/M institutions, either

1It should be noted that in the higher education literature the term governance is often understood as
meaning boards, senates, and university/government interfaces. However a broader conceptualization of
this term, taken from the management control systems and organizational management literature, is
used in this study.

6
interactively or diagnostically, is an important area of inquiry within this research. The

application of governance will be discussed at length throughout this study.

Increasingly, the criticisms present in the RCB/M literature identify outcomes

that may be the result of increased unit autonomy and a misalignment between

governance, management, and oversight structures (e.g. Adams, 1997; Cantor &

Courant, 1997; Erakovic & Overall, 2010; Jarvie, 2002; Kissler, 1997; Newberry & Jacobs,

2007). Birnbaum (1991) and Kennedy (1993) contend that institutions employing a

decentralized decision-making system without dismantling the old governance

structures, which are appropriate for use with traditional centralized decision-making

systems, are prone to experience a misalignment of process and oversight. Kirp (2003)

presents evidence of this type of misalignment at the University of Southern California

[USC]. After the implementation of RCB/M at USC, a number of unintended outcomes

became apparent; one example is that some schools of the university went so far as to

alter their mission in order to generate revenues (p.119); other schools changed their

hiring practices by bringing on professors that had little sense of the profession but

could give bravura lectures that appealed to undergraduates (p.119) resulting in

increased subscriptions to their courses and a subsequent increase in unit revenue.

These unintended outcomes resulted from a lack of oversight or control by the

universitys centralized governance structure. The result of this misalignment between

oversight and unit-level decision-making was a gaming of the system by some of the

schools at USC for their own myopic and self-interested ends. Kirps findings are

reaffirmed by Mallon (2004), who argued that disjointed governance in HEIs may result

7
in decisions that influence the whole being made without alignment with any cohesive

plan.

Organizational challenges resulting from low levels of alignment between

governance and decision-making structures should come as no surprise. An

organizations internal structure affects institutional choices (Chandler, 1962) and the

flow and exchange of information, including formal reporting (Weigelt & Miller, 2013),

and influences decisions regarding institutional governance (Fiss, 2008; Scott, 1999).

This is especially true in organizations that rely upon knowledge-intensive tasks and the

creation and dissemination of knowledge, such as higher education institutions (Alchian

& Demsetz, 1972; Milgrom & Roberts, 1990, 1992; Weigelt & Miller, 2013; Williamson,

1991). Many HEIs that have adopted RCB/M have faced challenges related to resource

allocation, decision-making, and the alignment between governance structures. By

design, this resource allocation and management model fundamentally changes the

organizations internal structure, reporting, decision-making, and control mechanisms.

In light of these issues, the internal structure of an HEI is an important factor

when evaluating the relationship between RCB/M and governance structure. The intent

of this research is to analyze the relationship between decentralized decision-making

and governance structures in HEIs. By applying the concept of internal structure to the

relationship between RCB/M and governance, this study explores the alignment, or

misalignment, between the levels of decision-making and governance structures, and

the resulting organizational outcomes. The goals of this research are to contribute to

theory-building on internal structure, to explore the impact of governance model

8
selection on decision-making in decentralized budgeting and management systems, and

to investigate the level of alignment of unit goals and behavior with the institutions

mission and strategic goals.

The concept of internal structure and the study of its influence on institutional

governance are rooted in the fields of economics, organizational design, sociology,

accounting, and management (e.g., Kretschmer & Puranam, 2008; Lawrence & Lorsch,

1967; Milgrom & Roberts, 1992; Mintzberg, 1979; Nadler & Tushman, 1997; Vancil,

1979; Williamson, 1991). Internal structure reflects an institutions assignment of

decision-making responsibilities to units. Furthermore, it comprises the coordination, or

lack thereof, between the units, and between the unit and the institution as a whole

(Lawrence & Lorsch, 1967). Internal structure has a material impact on the ability of the

institution and its units to productively and efficiently allocate resources (Bower, 1986).

Additionally, internal structure affects the incentives for cooperation [or competition]

between units and between units and the institution (Milgrom & Roberts, 1992).

Weigelt and Millers (2013) recent study of 107 organizations found that internal

structure has an effect on the governance choices made by organizations. Moreover,

the authors revealed that internal structure affects how units will interact and align

efforts between each other and, potentially, with the institution. This interaction and

the effort to align unit decisions and behaviors with the HEIs strategic goals and

direction are of interest to the governance research informing this study.

9
The governance structure in organizations employing RCB/M is often separated

into the diagnostic governance control form and the interactive governance control

form. Diagnostic governance control form specifies the rights and responsibilities of

each of the institutions units and provides the structure through which institutional

strategy and direction is set, while concurrently attempting to ensure the alignment of

behaviors and outcomes between the unit level and the institution. Interactive

governance control form focuses on the way that decision-making authority is delegated

and oversees how units make decisions. Most importantly, interactive governance

control form is the process through which power is managed. Hence, the choice of

budgeting and management system has a material influence on the balance of power at

an institution and dictates the balance between diagnostic and interactive governance

control forms.

In a traditional centralized budgeting and management structure, central

administration through a diagnostic governance control form holds the majority of

power; this power is exerted through: 1. the setting of strategic goals; 2. the allocation

of budgets; and 3. oversight of the limited decision-making authority of the

organizations sub-units. Additionally, the diagnostic governance control form often has

a large degree of input into unit-level decision-making in a centralized system (Simons,

2005). By contrast, in a decentralized budgeting and management structure the balance

of power shifts in favour of interactive governance control form structures, with power

being pushed downward to the organizational unit level.

10
To fully explore these relationships I have focused on four publicly funded

universities that have implemented and utilized RCB/M for a period of at least five

years. This five-year time period has been selected because it should have allowed for

the documentation of outcomes resulting from the implementation of RCB/M and its

relationships with internal structure and governance models. The target institutions

have been divided into two categories: 1. institutions that have implemented RCB/M

and have governance structures in place that provide for the oversight of and the power

to influence unit-level decision-making; and 2. institutions that have implemented

RCB/M and have governance structures in place that do not encourage comprehensive

oversight of and influence over unit-level decision-making.

In order to capture the nuances of HEIs as complex systems, this study utilized a

comparative case design (Denzin, 1970; Denzin & Lincoln, 2005). The data collection

methods [see Chapter Five] included document analysis and semi-structured interviews.

SECTION 1.3 - RESEARCH CONTRIBUTIONS

This research is significant because it explores the relationship between

decentralized budgeting and management structures and levels of vertical and lateral

coordination, unit autonomy and the effect of governance control forms on these

relationships [Figure 1]. In doing so, it examines the resource allocation decisions of and

the relationships between the institutional units and the central institutional

administration, and measures the resulting institutional outcomes.

11
Figure 1: Study Model

Management Control System

Vertical
Coordination

Interactive Governance Control Form

Diagnostic Governance Control Form


Hybrid Governance Control Form
RCB/M Lateral
Coordination

Unit
Autonomy

This research fills a gap in the literature by identifying the crucial question of

whether RCB/M will have a material effect on institutional governance structures and

institutional outcomes. Also, it presents to the higher education literature a new

approach to the conceptualization of governance. Finally, it presents a testable

theoretical model that is intended to advance the literature surrounding RCB/M, which

has been, for the most part, normative and descriptive in nature.

12
CHAPTER TWO

LITERATURE REVIEW

SECTION 2.1 - INTRODUCTION

This chapter provides a review and discussion of the concepts and bodies of

literature that form the basis of this study. Additionally, it builds a conceptual

foundation for Chapter Three, where the theoretical considerations and three-factor

model of internal structure are presented. This chapter begins with a general discussion

of budgeting in HEIs and of the conventional forms of university budgeting. An overview

of the attributes and outcomes of traditional centralized budgeting is then presented,

leading to the introduction of RCB/M, the history of its use in for-profit industry and its

subsequent adoption as a budgeting and management system in higher education. An

examination of the forces that compel the use of RCB/M in higher education is

presented, as well as critiques of RCB/M from the extant literature. Governance

structures, as used in decentralized HEIs, are reviewed, highlighting institutional

approaches to governance. The concept of management control systems [which include

budgeting, governance, and organizational structure] and the concepts of diagnostic and

interactive control forms are presented, with specific attention paid to their applicability

in RCB/M institutions. Following this discussion, a review of organizational internal

structure and its relationship with institutional control mechanisms is presented. Finally,

this chapter closes with a short discussion of the measurement of higher education

mission and goal attainment. As the focus of this study is on the budgeting, governance,

13
and internal structure of universities, the literature reviews will explore concepts,

models, and studies with direct ties to these focal subjects.

SECTION 2.1.1 BUDGETING IN HIGHER EDUCATION INSTITUTIONS

Budgeting occupies a key role within strategic and operational planning in HEIs

(Lasher & Greene, 2001) and has become a way of dealing with present and future

problems in an organized fashion (Meisinger & Dubeck, 1984, p.6). Budgeting is the

continuous process used to allocate finite resources to meet the needs and realize the

goals of the institution (Goldstein, 2005; Zierdt, 2009) and can be considered a set of

organizational objectives with price tags attached (Wildavsky, 1964). Budgeting provides

a framework for rational, efficient and predictable allocation of resources and acts as

an incentive system to guide the decisions and activities of administrators and faculty

(Carnaghi, 1992, p.1). It has become a tool for translating financial resources into

actionable objectives. Simply stated, budgeting is the set of tools used by institutions to

control, direct, and constrain spending decisions.

The purpose of the budgeting model is to support policy implementation, but it

should not be considered a substitute for policymaking (Courant & Knepp, 2002). The

budget model incorporates only the actual budget tools and process, whereas the

budget system includes policy-making, decision-making, and the authority and values of

those participating in the budget system.

The concept of budgetary constraint is based on concepts defined in the

microtheory of the household (Kornai, 1986) and describes a situation in which the
14
rational planning process of decision-makers is constrained by the finite resources

available to them. The decision-makers, in this case HEIs and their units, must consider

existing financial obligations and limit expenditures to fit within available resources. The

process of budgeting requires an understanding of the current fiscal constraints and a

simultaneous consideration of the future position of the institution, when the actual

expenditures and incomes will be realized (Clower, 1965; Clower & Howitt, 1978;

Kornai, 1986).

Budgeting is a vital planning process for HEIs and is increasingly significant due to

the complex environment they operate in (Jones, 1984; Keitiline & Eugenio, 2010; Lepori

et al., 2013; Teichler, 2006). The complexity of the higher education context is due in

part to its wide scope and diversity of operations; the budgeting process is used to help

mitigate this complexity through improved decision-making. Improvement in decision-

making is achieved by delegating spending authority, providing accountability, and

assisting the institution in designing and then achieving its mission, goals, and

objectives. The budgeting process, then, facilitates the management of institutional

progress by tracking and evaluating resource allocation decisions.

SECTION 2.1.2 - CONVENTIONAL FORMS OF UNIVERSITY BUDGETING

Various approaches and methodologies have been used by universities to

prepare and deploy budgets [Appendix 1]. Lasher and Greene (1993, 2001) provide a

15
comprehensive review of the subject2, noting four distinct budget typologies in their

analysis. The first kind of budget typology is a centralized control approach termed

executive budgeting. This approach is often a response to the perception of waste and

inefficiency present in universities. The second approach, which is termed performance-

based budgeting, seeks to use work measures and cost accounting in an attempt to

accurately attribute costs and outcomes to the various units of the university. The third

approach to university budgeting is known as a programming, planning, and budgeting

system. This approach is intended to link dollars to objectives and highlight the role of

planning in the budgeting process. The final approach, incentive based budgeting

systems, is a combination of performance-based budgeting and strategic planning. It is

this approach that is of primary interest to this study.

Traditionally, HEIs have employed a centralized structure for budgeting and

decision-making (Massy, 1996). This centralized or top-down approach to budgeting

and decision-making places the responsibility for budget development for the entire

institution with senior administrators [Figure 2]. This process requires senior

administrators to use their knowledge and experience to estimate future expenses.

Based on past data and planned initiatives, budgetary goals for revenue, expenses, and

expansion are set. These budgetary goals and constraints are then communicated to the

faculty level for implementation. This process results in units possessing limited

autonomy in allocating or reallocating resources. Centralized budget planning has been

2Also see Rodas 2001 Resource Allocation in Private Research Universities for a detailed discussion of
budgeting and resource allocation models used in private universities. It should be noted that many of
these structures are also employed at public universities.

16
used successfully in a variety of institutions. Gibson (2009) has identified several

advantages of the centralized budgeting approach. First, centralized budget planning

tends to consider the needs of the entire organization and reflects the institutional

leaderships larger strategic objectives. Second, it tends to consolidate and standardize

information across the institution. Finally, it centralizes controls and procedures, helping

to ensure consistent offerings throughout the institution.

Figure 2: Example of a Centralized Budgeting and Decision-making Structure

Central Administration

Unit Unit Unit

Downward flow of budgets, Upward flow of decision and


goals and decision-making budgetary outcomes

Centralized budget planning is not without challenges. Namely, it is dependent

on having senior administrators with significant experience in managing the needs of

the various diverse faculties and functional area groups of the institution (Meisinger,

1994). In order for centralized budget planning to be successful, senior administrators

and leadership must understand the complex reality of each unit to avoid setting

17
inappropriate or unattainable budget levels and expectations (Lasher & Green, 2001).

Due to the increasing complexity of the higher education environment, the centralized

budgeting process is extremely difficult to implement with predictable success. As a

consequence, centralized budgeting and planning often results in disenfranchisement at

the unit-level, as the centralized budget fails to attend to the unique needs of the

various functional units; this disenfranchisement results in unit administrators

frequently ignoring or modifying the budgetary objectives delivered by the central

administration, creating a disconnect between plan and execution. Simply, the

centralized budgeting approach suffers from information asymmetries that are

reinforced by the relatively non-hierarchical command structures present in universities.

While centralized budgeting is the most commonly used approach in universities,

it is the least suited for examining and adjusting previous allocations to operating units

(Varlotta, Jones, & Schuh, 2010). It does not prompt unit-level leadership to consider

the outcomes of decisions made nor to re-examine issues when resources shrink. It

becomes an automatic process with little long-term strategic planning.

Centralized budgeting has also been found to negatively correlate with

cooperation and coordination (Goodwin & Gouw, 1997). Conversely, increased budget

autonomy at the unit-level has been found to increase cooperation and coordination. To

achieve increased cooperation and coordination, there must be high levels of budget

participation and decision-making power such that unit leadership is actively involved in

the setting of budget goals and influencing outcomes (Hassel, 1993). This increased unit-

18
level involvement in the budgetary planning process does not align well with a

centralized budgeting model.

In response to the deficiencies identified in the centralized budgeting process,

and as a result of the increasing complexity and heterogeneity of faculties and programs

of large research-intensive institutions (Vancil, 1980), a decrease in funding (Bok, 2003;

Deering & S, 2014; Kirp, 2003; McConaghy, 1997; Toutkoushian, 2009), increasing

operational costs (Lasher & Green, 1993; Paulsen & Smart, 2001), and the need for

quicker responses to societal demands (Lang, 1999b; Massy, 1996), some HEIs have

decentralized their budgeting and management systems. This move towards

decentralization is often undertaken in an effort to make more effective resource

allocation decisions (Govindarajan, 1986).

SECTION 2.2 - RCB/M: AN INTRODUCTION

Budgeting and management processes are often decentralized with the intent of

providing the operating units of the university more autonomy in their decision-making

than they experienced in a traditional centralized budgeting system. Under RCB/M, the

expected result of providing unit autonomy is that the individual units can, and will, act

in self-interest and make decisions that encourage efficiency, cost control, and revenue

generation (Holian & Ross, 2010; Lang, 1999b; Tolbert, 1985; Whalen, 1991). The

individual units are allowed to make decisions based upon their preferences and

expectations, but they bear the consequences through the carry-forward of deficits and

surpluses in future budget cycles. For this reason, it is expected that the units will act

19
under a strong incentive to make decisions aligned with their own well-being while

simultaneously demonstrating increased institutional flexibility (Hearn, 2006; Hearn et

al., 2006). The expected result is an increase in the efficiency of operations.

RCB and RCM are two terms that are often used interchangeably (Lang, 1999a).

However, they are different from one another and describe two independent but often

related processes. RCB is the management of information that is collected and used to

inform decision-makers about the total costs and total revenue attributable to a

university unit, either academic, support, or administrative in function (Lang, 1999a).

This information identifies only those aspects of institutional performance that result in

the display of total revenue and total expense reports. Thus, RCB provides the unit with

only cost and revenue attributions and omits most contextual information. Conversely,

RCM provides the unit with management control. The result is managers who possess

the contextual information needed making decisions. By instituting appropriate

management and budget structures, the unit takes control of the income it generates

and responsibility for the expenses it incurs while delivering its programs (Lang, 1999a;

Whalen, 1991). Together, RCB and RCM form the attribution process of costs and

revenue, and the control and management processes used to direct the implementation

of strategic and operational goals. The process created by the combination of RCB and

RCM [RCB/M] is expected to increase revenues and decrease costs through the

encouragement of market-like behaviour by the academic units of the institution.

Through this market-like behaviour, it is expected that these processes will enhance the

fit between educational supply and demand (Lang, 1999a).

20
RCB/M divides a university into a number of academic, support and

executive/central administrative units [Figure 3], with each unit being responsible for

generating its own income and managing its own expenses (Lang, 2001; Whalen, 1991).

Academic units carry out the threefold mission of education, research, and public

service. These units produce income through tuition, fees, state appropriates, grants,

contracts, endowments, and contributions. The academic units are also known as

income-producing units. Support and executive units charge the income-producing units

for services provided to them. These services include back office processes, facilities

management, and institutional management. The executive/central administrative units

are responsible for the definition of the overall mission and strategic direction of the

institution.

Figure 3: Example of an RCB/M Decision-making Structure

General budget allocations Resource allocation


and organizational strategy Central Administration decisions made at the unit
made at the organizational
level level

Unit Unit Unit

Downward flow of general Upward flow of budget line


strategic goals, mission, and reporting, and decisions and
budget amounts budgetary outcomes

21
SECTION 2.2.1 - RCB/M IN INDUSTRY

RCB/M is consistent with the concept of decentralization used in for-profit

industry, as described by Drucker (1946), Becker and Gordon (1966), and Ford and

Slocum (1977). With its roots in the DuPont System, first used by E.I. DuPont de

Nemours and Company [DuPont] in the years preceding 1920 and further developed by

Donaldson Brown and Alfred Sloan at General Motors in the 1920s, RCB/M has become

the dominant budgeting and management structure in the for-profit sector today.

Decentralized budgeting and management systems began to gain popularity

throughout the mid-20th century as a result of Peter Druckers documentation of the

experiences of decentralization at General Motors in his seminal work, Concept of the

Corporation (1946). The new organizational structure described by Drucker required a

new budgeting and management approach to enable efficient operations and the rapid

reaction needed in the increasingly complex and dynamic operating environment of the

1940s. Since the 1940s, decentralized budgeting and management structures have

become the dominant form of organizational design in for-profit industry. Following the

adage let managers manage, decentralized budgeting and management systems were

a good fit for the increasingly complex and diversified companies operating in the early

twentieth century.

During Alfred Sloans tenure as president and chairman at General Motors, a

small head office unit, responsible for the overall direction of the firm, oversaw a vast

and growing organization that was divided into a variety of units. Each unit was

22
responsible for budgeting, cost control, and revenue generation. Reporting consisted of

budgetary reports, based on statements of profit and loss, to the head office. This

corporate budgeting structure served as the basis of Druckers (1946) conceptualization

of a multi-divisional organizational design [M-form], as laid out in The Concept of the

Corporation.

The M-form structure of organizational design was pioneered by DuPont and

General Motors after the First World War. With the need to diversify operations in

order to produce growth for the company and profits for shareholders, DuPont and later

General Motors sought out new products, services, and industries in which to operate.

This diversification increased the complexity of the organizations and rendered obsolete

the traditional unitary form of organizational structure and its corresponding budgeting,

management, and governance systems. The result was the creation of the M-form

structure, which allowed increased diversification, unit differentiation, and growth. It

allowed for the economies of scale that are present in a large corporation while

permitting operational flexibility and nimble local decision-making at the unit level. The

use of the M-form structure and decentralized budgeting and management systems by

General Motors resulted in substantial increases in profit and growth; the results

experienced by General Motors created a strong incentive for the mass adoption of

these two systems across a variety of industries and countries.

In 1962, Chandler stated that the multi-divisional form, which hardly existed in

1920, had, by 1960, become the accepted form of management of the most complex

23
and diverse of American industrial enterprises (p. 48-49). Mintzberg (1983) identifies

this M-form structure as the most efficient organizational arrangement for large,

complex, and diversified organizations. Led by a central head office unit that oversees

strategy creation in the form of general direction, goals and expectations [e.g. return on

investment, leverage levels, growth etc.], decentralized units have almost complete

authority over strategy implementation.

Beginning in the 1960s and continuing through the 1980s, it became clear that

RCB/M systems produce the most efficient outcomes when they are part of a holistic

framework of structural, procedural, governance, and oversight processes; these

processes have come to be known as management control systems in both the

accounting and management literatures. RCB/M must be part of a broader framework

of relationships to be effective and should not be arbitrarily used without consideration

of organizational structure, design, governance, and oversight processes. RCB/M and

variations of the M-form Corporation are today in widespread use in government (e.g.

Lapsley, 1994; Thompson, 1998; Thompson & Jones, 1986) and higher education (e.g.

Deering & S, 2014; Hearn et al., 2006; Lang, 1999a; Whalen, 1991).

SECTION 2.2.2 - RCB/M IN HIGHER EDUCATION

As outlined above, RCB/M has been used in for-profit organizations for most of

the twentieth century (Merchant, 1989). However, this structure only came to the

higher education context in the early 1970s. In 1974, RCB/M was fully adopted, for the

first time in higher education, at the University of Pennsylvania. This implementation

24
came as a response to the severe decreases in revenue, negative demographic trends,

and increasing costs experienced throughout the higher education context of the early

1970s, termed the depression of higher education (Cheit, 1971, 1973). The use of

RCB/M in higher education spread during the 1970s, with a form of RCB/M

implemented at Harvard University on the premise every tub on its own bottom

(Whalen, 1991). By the 1980s, decentralization was evident at the University of

Southern California, the University of Michigan, and the University of Indiana, among

others (Hearn et al., 2006; Lasher & Green, 1993; Rodas, 2001). More recent examples

of RCB/M adoption can be seen at the University of Toronto, the University of New

Hampshire, Kent State University, the University of Illinois Urbana Champaign, and the

University of Iowa, to name but a few. In the United States, the University of Arizona

and the University of Washington, among others, are in the process of implementing

RCB/M systems (Hart 2012; Koch, Reynolds, & Rimai, 2012); in Canada the trend is

similar, with the University of Saskatchewan, McMaster University, Queens University,

Okanagan College, and the University of Windsor all at various stages of the evaluation

and implementation process (Deering & S, 2014). With the increasing number of

institutions having implemented RCB/M processes, it is clear that such budgeting

systems are here to stay and cannot be considered a passing trend in higher education

management (Birnbaum, 2000).

As noted above, an increasing number of North American universities have

adopted RCB/M since the 1970s. It is noteworthy that, in general, public universities

implemented this system later than private universities (Brinkman & Morgan, 1997). By

25
the early 1990s, only a few public universities had adopted RCB/M (Whalen, 1996).

However, this situation has rapidly changed; currently, more than half of the North

American public universities in the top 50 of the Times Higher Education Ranking having

adopted a form of RCB/M [Appendix 2]. This trend should come as no surprise as RCB/M

has been promoted as a set of tools and processes that will encourage the increase of

efficiencies and revenues for HEIs (Lang, 1999b; Whalen, 1991). This approach to

budgeting and management leads the central administration to delegate the locus of

decision-making authority to the Dean of the faculty, or even to the departmental level,

in an effort to drive organizational efficiencies and revenue-seeking behavior.

In the field of higher education, RCB/M has grown in both popularity and rate of

implementation since the University of Pennsylvania first adopted the model in 1974. Its

popularity stems from the financial constraints and contextual challenges faced by HEIs

within the increasingly globalized higher education marketplace. Strauss and Curry

(2002) have identified four major objectives of RCB/M: 1. clarifying and discriminating

the roles and responsibilities of local and central units, 2. linking cause and effect

through revenue and cost allocations, 3. placing local academic planning and decision-

making in a cost/benefit context, and 4. unleashing entrepreneurship. These objectives

reflect the changing higher education context and can be linked to the increasing

interest in RCB/M by HEIs today.

26
SECTION 2.2.3 - FORCES THAT COMPEL THE USE OF RCB/M BY HIGHER EDUCATION
INSTITUTIONS

Over the past two decades, HEIs have increasingly embraced the implementation

of RCB/M in response to increasing operational costs, (Ehrenberg & Rizzo, 2004; Priest,

Jacobs, & Boon, 2006; Toutkoushian, 2009), a globalizing marketplace, and pronounced

constraints on public funding (Anderson, 1988; Berdahl et al., 1999; Bok, 2003; Kirp,

2003). Additionally, higher education is becoming a more competitive marketplace;

within this changing educational landscape, institutions seeking improved organizational

efficiency are moving toward decentralization in order to remain competitive and, in

some cases, financially viable.

The case for RCB/M begins with the premise that information about costs and

revenues should be transparent and managed. As Lang (1999a, 1999b) notes,

transparency is achieved by systematically allocating direct and overhead costs, and by

entering all costs and incomes into the budget so that they can be known. As discussed

above, RCB is the collection and use of the total costs and revenues attributable to an

academic unit, and is intended to guide decision-makers (Lang, 1999a; Strauss & Curry,

2002; Whalen, 1991). Conversely, RCM provides the academic unit with management

processes that facilitate autonomy, responsibility, and control. The structure resulting

from the combination of RCB and RCM is expected to promote a number of positive

outcomes for the university, including: 1. decreasing costs and increasing revenues

through the encouragement of market-like behaviour by academic units; 2.

enhancement of the fit between educational supply and demand; and 3. the promotion

27
of management structures that support academic units taking control of the income

that they generate and responsibility for the expenses that they incur while delivering

their programs (Hearn et al., 2006; Lang, 1999b; Priest et al., 2002; Whalen, 2002).

The decentralized nature of RCB/M is arguably congruent with the university as

an organization. The university is, by its very nature, decentralized; this decentralized

organizational structure occurs because the required understanding of teaching and

research programs and of the professional requirements of faculty, staff, and students

can only be achieved locally at the departmental level. For this reason, and because the

natural state of the university is to push away from central control, Cyert (1981) argued

that authority and power should rest at the departmental level. Thus, the structure of

RCB/M maps well onto the organizational structure of the research university and

allows academic leaders to manage locally the various and complex challenges that they

face (Vaira, 2004). The localness encouraged by decentralization allows for

responsiveness not available through a centralized management and power structure.

RCB/M provides more authority to the level where there is the greatest recognition of

the needs and direction of academic disciplines and fields. It is in this local approach

that universities may find the most efficient resource allocations and the most effective

associated governance structures.

RCB/M represents a fundamental strategic shift in higher education budgeting

and management away from central decision-making towards more local control

(Fuchsberg, 1989; Jarvie, 2002; Lang, 1999a; Stocum & Rooney, 1997; Whalen, 1991). In

28
the face of increasing operating costs (Ehrenberg & Rizzo, 2004; Priest et al., 2006;

Toutkoushian, 2009) and constraints on public funding (Anderson, 1988; Berdahl et al.,

1999; Bok, 2003; Kirp, 2003), many HEIs have reconsidered their budgeting and

management processes with a focus on adopting more efficient and institutionally

effective budgetary systems (Jarvie, 2002; Lang, 1999b; Whalen, 1991); many higher

education institutions have considered RCB/M to be a tool to help overcome the

environmental challenges that they face.

For large HEIs, internal organizational complexity has necessitated an increase in

the effectiveness of resource allocation decisions. Increasing organizational complexity

has been shown to result in oversight challenges and reduced transparency in decision-

making, presenting a formidable challenge for institutional leaders (Elsas, Hackethal, &

Holzhuser, 2010; Klein & Saidenberg, 2008). More distally, organizational complexity

may result in: 1. bureaucratic rigidity; 2. the intensification of agency problems between

divisions of the institution; 3. increased systemic risk due to negative externalities and

growing interdependencies; 4. mounting levels of moral hazard; and 5. increasing

oversight costs arising from the need for multiple supervision efforts.

Universities and colleges also face goal complexity. HEI goals are inherently

complex and at times conflicting (Birnbaum 1988; Bok 2003; Kirp 2003); Alexander

(1998) has found a link between the contextual complexities experienced by HEIs and

the increasing goal complexity that often results in disagreements and conflicts over

institutional goals. These disagreements encourage failure in the attainment of stated

29
strategic goals and institutional missions. Birnbaum (1988) identified contextual

complexity as an antecedent to increasing financial constraints as institutions endeavour

to respond to external demands beyond those that are linked to institutional mission or

strategic goals. Thus, these conflicting goals can increase financial constraints faced by

institutions.

The external context that these institutions operate in is equally complex. In this

multifaceted market, institutional goals include increasing knowledge production,

discretionary funds, revenue, and the control of costs (Kirp, 2003; Toutkoushian, 2009).

In addition to overcoming the challenges posed by the competitiveness of the market,

these institutions must fulfill their obligation to provide direct and indirect benefits to all

those in society (Anderson, 1988; Berdahl et al., 1999; Thelin, 2004; Toutkoushian,

2009). The conflicting institutional objectives of balancing budgets while benefiting

stakeholders and the public at large result in increasing operational costs and growing

decision-making constraints.

Government funding, an important source of revenue for many North American

HEIs, continues to decline (Anderson, 1988; Berdahl et al., 1999; Bok, 2003; Deering &

S, 2014) while societal and economic factors reduce the ability of many students to

finance a higher education (Birnbaum, 1988; Priest et al., 2006). This revenue pressure

has created an environment that demands the most efficient use of finite resources and

the identification and fostering of additional revenue streams.

30
In addition to the competition for revenue, there is also increasing competition

in attracting and retaining students (Bok, 2003; Kirp, 2003). Increasing domestic and

international competition (Fisher et al., 2009; Marginson, 2003; Metcalfe, 2010),

including online offerings (Allen & Seaman, 2008), has had a significant impact on the

revenues and costs of providing education services. The new reality for HEIs is that they

operate in an increasingly competitive market (Birnbaum, 1988; Fisher et al., 2009; Kirp,

2003), with few institutions able to increase tuition as a primary source of increased

revenue.

The final category of challenges that has compelled the use of RCB/M by higher

education institutions is increasing internal costs. The literature offers a number of

explanations for internal cost increases. These include but are not limited to: 1. the

expanding of academic program opportunities; 2. personnel costs and faculty salary

growth; 3. the need to meet competitive employment offers from private industry and

other HEIs; 4. new technology needed to avoid obsolescence; 5. rising utility costs; 6.

plant maintenance expenses; 7. federal regulations and mandated programs; and 8.

decreasing federal and state or provincial aid (Carnes, 1987; Deering & S, 2014; Lasher

& Green, 1993; Massy, 1989; Meisinger & Dubeck, 1984; Paulsen & Smart, 2001; St.

John, 1994).

31
SECTION 2.2.4 - CRITICISMS OF RCB/M

There have been a number of vocal critics of RCB/M from within the academy.

What follows is not intended to provide a comprehensive account of the critiques but

rather to demonstrate the general areas of concern that numerous scholars share.

The information that underlies RCM/B identifies only those aspects of

institutional performance that result in the display of total revenue and total expense

reports. Thus, it provides the academic division with only cost and revenue attributions

and omits most contextual information. This may encourage the elimination of

programs that are institutionally or socially important but under-subscribed (Adams,

1997; Cantor & Courant, 1997). It may also lead to a focus on revenue through

enrollment-driven initiatives and encourage the perspective of the student as a

customer to be served rather than as an individual to be developed (Gros Louis &

Thompson, 2002). A number of studies have argued that the focus on increasing

revenue may encourage the commercialization or marketization of higher education

(e.g. Adams, 1997; Cantor & Courant, 1997; Courant & Knepp, 2002; Gros Louis &

Thompson, 2002; Slaughter & Rhoades, 2004).

As each academic unit becomes more autonomous, internal competition may

ensue at the expense of campus-wide goals and collaborative programs; this type of

conflict between units and the institution has been well documented in the literature

(Kirp & Roberts, 2002; Lasher & Greene, 2001; Gros Louis and Thompson, 2002;

Whalen, 2002). For example, conflicts over service teaching, which might lead to the

duplication of courses and resulting inefficiencies, could have a profound effect on the

32
institution (Adams, 1997). Faculties may be encouraged to limit the number of courses

that their students take at other faculties on campus for financial reasons, as the home

faculty of the student will be charged by the teaching faculty for those courses.

Although it might make academic sense for students to take the course at a different

faculty, this would result in increased costs to the students home faculty and thus may

be discouraged. This financial relationship between academic units creates the incentive

for faculties to limit the number of courses students are allowed to take at other

faculties through modification of degree program requirements or through academic

advising that promotes courses within the home faculty. Additionally, this may

encourage the creation and delivery of courses by one faculty that have traditionally

been provided, in the form of service teaching, by another faculty. For example, an

engineering faculty experiencing excess teaching capacity might create a first year

calculus course that, until then, was offered by the schools faculty of arts and sciences.

Besides the duplication of courses and resulting organizational inefficiencies, the

revenue and cost attribution mechanism may discourage interdisciplinary programs and

cross-departmental collaboration for similar reasons (Cantor & Courant, 1997).

The focus placed on increasing revenue by institutions operating in an RCB/M

model may lead to rising costs. Many have hypothesized that universities do not make

decisions to minimize costs (Brinkman, 1989; Clotfelter, Ehrenberg, Getz, & Siegfried,

1991; Ehrenberg, 2000; Martin, 2005). Bowens (1980) Revenue Theory of Cost provides

one explanation for why the focus on new revenue streams and increasing revenue will

only result in increased expenditures for the university. The fundamental premise of

33
Bowens theory is that universities will spend all revenue that they raise in pursuit of

their mission and institutional prestige. If revenue increases so too will costs, creating

what Bowen refers to as a revenue-cost spiral.

With an intense focus on revenue, decisions may be made that decrease the

quality of education. Rhoades and Slaughter (2004) identified a trend in universities of

expanding revenue-producing courses and programs while increasing the number of

contingent instructors in order to keep the cost of delivering these courses as low as

possible. The authors suggest that this is a method of revenue generation and cost

efficiency that may decrease the quality of education provided. Bettinger and Long

(2004, 2006) found similar outcomes at the public universities they investigated, where

adjunct professors and graduate students were utilized as instructors in an attempt to

constrain costs. Consequently, the focus on revenue, especially in public research

universities, may threaten the quality of education provided.

Vandament (1989) and later Kissler (1997) questioned whether RCB/M would

remove the protection of high quality programs that could not support themselves

without funding from a central source. That is, the programs would not generate

enough revenue to meet or exceeded their costs. The University of Michigan is one

institution that has implemented an RCB/M structure while concurrently recognizing the

need to protect such programs. The solution developed at the University of Michigan is

an explicitly stated process that provides support for financially vulnerable programs

with revenues collected from the various units in the institution.

34
Adams (1997) suggested that the RCB/M structure might provide incentives that

result in the subversion of education policy and decision-making, thus weakening the

corrective cultural criticisms that the author argues should flow from HEIs. He argues

that, by following the economic rationality of RCB/M, higher education will become

more corporatized and will not fulfill its primary responsibility of promoting the cultural,

moral, civic, and academic enterprises. Rather, only the economic enterprise will remain

as Deans become managers and increasingly become subject to the rationality of the

self-interested maximizer (pg. 61).

Jarvie (2002) argues that RCB/M may fractionalize the university. However, it

may be more accurate to suggest that RCB/M exacerbates the inherently factionalized

nature the university. Instead of the collegial model that the academy has enjoyed for

centuries, RCB/M may allow [through competitive behaviour] predatory practices by

revenue centres against each other. The author argues that this behaviour will detract

from the real purpose of the university. However, it should be noted that contrary to

the homogeneous and centralized organizational structure implied by the term

university and by Jarvies critique, Kerr (2001) and Clark (1998, 2001) have argued that

current HEIs, or multiversities (Kerr, 2001), are subdivided into numerous disciplinary,

sub-disciplinary, and interdisciplinary units. Further, there are service units, consulting

units, ancillary units, for-profit units, laboratories, and incubators, to name but a few.

Jarvies concern about RCB/M fractionalizing HEIs may be without foundation because it

may merely be a reassertion of the description of organizational fragmentation that Kerr

first presented over three decades ago.

35
Ben-Ruwin (2010) states that RCB/M is anti-intellectual and is an attempt to

corporatize the university. Additionally, the author advances the concern that such

corporatization may pose a dangerous threat to the way academic institutions have

been managed effectively and successfully (pg. 2). Further, the author suggests that the

foundational concepts of academic freedom, shared vision, and mutual trust may be at

risk in institutions that employ a decentralized budgeting and management structure.

Finally, during an address at the Oregon Conference of the American Association

of University Professors, Buck (2002) provided a summary of the concerns about the

implementation of RCB/M, the potential result of economic rationality, and the

subsequent corporatization of higher education:

A vital college or university is supported by three equally critical pillars, academic

freedom, an equitable system of tenure, and a governance structure in which

faculty participate as full partners and officers of the institution. In my view,

there are two major threats to the continued viability of higher education in the

United States: the corporatization of the academy, especially at the level of the

governing board, and the overuse and abuse of contingent faculty. Both of these

trends have a profoundly negative impact on shared governance, academic

freedom, and the quality of the education we provide our students. (p.9)

Unfettered RCB/M, like laissez-faire capitalism, is prone to excesses (Lang,

1999a) and has the power to fundamentally change academe. Although the issues

36
presented above are valid threats, they may be the result of governance structures that

are incompatible with RCB/M. Lang (1999a) identified the need for new regulatory

arrangements that could control the economic rationality encouraged by RCB/M. This

study argues that new governance mechanisms, aligned with the decentralization

present in RCB/M institutions, may ensure that the results of RCB/M do not run contrary

to the mission and goals of the institution.

SECTION 2.3 - GOVERNANCE IN DECENTRALIZED HIGHER EDUCATION INSTITUTIONS

Many of the challenges faced by institutions implementing RCB/M are identified

in the Association of Governing Boards of Universities and Colleges Statement on Board

Responsibility for Institutional Governance (2010) document, including: 1. more diverse

student groups; 2. the highly competitive marketplace of higher education; 3. the cost

and commitment of faculty; 4. increasing operational costs in the face of insufficient

resources; 5. the challenge of accountability and scrutiny regarding student outcomes

and escalating tuition and fees; 6. the question of effective institutional governance in

the face of conflicting and competing goals; 7. the increasing focus on jobs and the

economy; and 8. the pace of change in society and the changing demands on the

institution.

A systematic review of the governance documents from various institutions has

revealed that some of them have moved forward with implementation without regard

to the impact on governance. At a number of these institutions, the information that

flows from the decentralized units to the governing boards is merely budgetary line

37
items, which lack the fidelity that promotes contextual understanding. The RCB/M

literature argues that if units have decision-making authority, or unit-level autonomy,

they will make self-interested decisions (Behn, 2003; Lang, 1999a; Whalen, 1991;

Zimmerman, 1995). This is problematic because these choices are not made in a vacuum

and their outcomes will affect other units or the institution as a whole. Simply, RCB/M

may remove the power of centralized authority to influence unit-level decision-making,

a power that would be present under a centralized, diagnostic form of governance. In

such a situation, there is a misalignment between process and oversight that can result

in serious ramifications for the institution due to an increasing level of moral hazard

(Birnbaum, 1991; Kennedy, 1993; Mallon, 2004)

As Lang (1999a) suggested, there need to be boundaries to the decisions made

by units under an RCB/M system. In its unfettered form, RCB/M is incompatible with

good governance. As previously stated, there is a lack of transparency in reporting that

limits the ability of senior administration and governance structures to direct units to

fulfill the goals, mission, and strategy of the institution. Further, unbounded RCB/M may

cause competition and conflict between units and campuses and, consequently, a

fragmentation of the collegial model.

Chandler (1962) proposed that the structure of an organization must follow its

strategy. Because the strategic approach to budgeting and management changes

materially when moving from a centralized to a decentralized state, the structure of the

organization should also change. To help ensure that appropriate decisions are being

made at the unit level, governance structures should be modified from a functional and

38
centralized structure to one that supports the decentralized resource allocation and

decision-making of RCB/M. Therefore, governance processes must be applied to the

levels of the institution where decision-making occurs.

Governance is a form of management control that operates within an institution

to bound decision-making and guide organizational outcomes. Governance as a control

form in HEIs encompasses both accounting-based and behaviorally-based controls

(Puxty, 1989). Accounting-based controls are those rules, regulations, processes, and

procedures put in place to bound decision-making; more recently, accounting-based

controls have become known as diagnostic control forms. Behaviorally-based or

interactive governance control forms are those controls constructed through

partnership, interaction, communication, and cooperation (Simons, 1995). In a

decentralized environment, behaviorally-based controls are thought to work best

(Simons, 2005). The following section provides a review of the management control

systems that are used to facilitate appropriate HEI governance structures that are

aligned with the decentralized decision-making present under RCB/M.

SECTION 2.3.1 - MANAGEMENT CONTROL SYSTEMS

The concept of management control was first defined by Robert Anthony in

1965. Anthony (1965) defined management control as the process managers use to

ensure that resources are obtained and employed effectively and efficiently in the

accomplishment of the organizations objectives. Anthonys definition was intentionally

not industry-specific; this was to promote basic research that was not hindered by

39
industry specific realities and to enable future theoretical investigation. This lack of

specificity resulted in early management control research that was focused on

investigating the upper management ranks of larger, hierarchical organizations, similar

to the modern university in terms of breadth of unit differentiation and complexity of

environment (Otley 1994). Although Anthony prescribed that research into

management control systems [MCS] should be rooted in the behavioural sciences, the

majority of research to date has focused on accounting-based organizational controls

(Puxty 1989).

Building upon Anthonys conceptualization, Lowe (1971) provided an updated

definition of MCS as:

A system of organizational information seeking and gathering, accountability

and feedback designed to ensure that the enterprise adapts to changes in its

substantive environment and that the work behaviour of its employees is

measured by reference to a set of operational sub-goals (which conform with

overall objectives) so that the discrepancy between the two can be reconciled

and corrected for (p.5).

When considering contemporary management control systems, it is important to

recognize that organizations, including HEIs, experience substantial environmental

uncertainty and continuously evolving operational goals and strategies. The definitions

of MCS provided by Anthony and Lowe both assume that the external operating

environment and operational goals are relatively stable (Otley 1994).

40
More recently, Otley, Broadbent and Berry (1995) assert that management

control is designed to ensure that the day-to-day tasks performed by all participants in

the organization come together in a coordinated set of actions, leading to overall goal

specification and attainment. According to this definition, MCS encompasses both

formal control systems and informal personal and social mechanisms of control (Bisbe &

Otley, 2004; Otley, 1980; Ouchi, 1977). Formal control systems comprise intentionally

designed, information-based structures, routines, processes, and procedures that are

used by managers to ensure the achievement of organizational strategy (Merchant,

1998; Simons, 1995). According to Simons (1987), management control systems are

formalized procedures and systems that rely on information to maintain or alter

patterns of organizational activity; these systems include: 1. planning systems; 2.

reporting systems; and 3. monitoring procedures (Henri, 2006).

Malmi and Brown (2008) further refine the definition of management control

systems to include all the devices and systems managers use to ensure that the

behaviours and decisions of their employees are consistent with the organisation's

objectives and strategies, but exclude pure decision-support systems (p. 290). An

illustration of the control systems considered by Malmi and Brown (2008) is presented

below [Table 1]; the control systems of interest to this study are circled in red.

41
Table 1: Management Control Systems Package

Cultural Controls

Clans Values Symbols

Planning Cybernetic Controls


Reward and
Long Action Budgets Financial Non-financial Hybrid Compensation
range planning Measurement Measurement Measurement
planning Systems Systems Systems

Administrative Controls

Governance Organization Structure Policies and Procedures


Structure

Source: Malmi, T. & Brown, D. (2008). Management control systems as a package - opportunities,
challenges and research directions. Management Accounting Research, 19(4), 287-300.

Traditionally, management control was located at senior levels within an

organization. However, with the fluid institutional operating environment that many

institutions experience today, responsibility for control and adaptation is being pushed

down to managers at lower organizational levels. This decentralization of responsibility

for organizational control and adaptation is especially salient in an RCB/M setting.

While the term management control still describes important managerial functions and

is an important area for scholarly investigation, it can no longer be applied to a specific

managerial level. In this context, the objective of management control becomes the

encouragement of various working units, across all levels of the organization, to take

control and responsibility for maintaining the viability of their parts of the organization

(Malmi & Brown, 2008).

42
The current body of management control literature is narrow and is focused on

accounting control mechanisms. Additional investigation into other management

control systems, such as performance measurement and appraisal and the selection of

development practices for personnel, management, and the organization, is needed

(Malmi & Brown, 2008).

The management control systems of interest to this study include: 1. budgeting

(e.g. Bunce, Fraser, Woodcock, 1995; Hansen, Otley, Van der Stede, 2003); 2.

governance structures (e.g. Abernethy & Chua, 1996); and 3. organizational structure

(e.g. Abernethy & Chua, 1996; Alvesson & Karreman, 2004; Emmanuel, Otley, Merchant,

1990; Otley & Berry, 1980). Budgeting is a central and foundational management

control system (Bunce et al., 1995) due to its "ability to weave together all the disparate

threads of an organisation into a comprehensive plan that serves many different

purposes, particularly performance planning and ex post evaluation of actual

performance vis a vis the plan" (Hansen et al., 2003; p. 96). Budgets have various

purposes within organizations, including the integration of processes and the allocation

of resources. However, as a control mechanism, budgeting is focused on planning

acceptable levels of behaviour and evaluating the resulting performance levels;

responsibility [often for specific financial measures] is often used as a control form

alongside budgeting (Malmi & Brown, 2008).

As a management control system, governance includes the formal avenues of

authority and accountability within an organization (Abernethy & Chua, 1996).

Additionally, governance control systems ensure that structures are in place whereby

43
representatives of the various organizational units meet to discuss and co-ordinate their

activities both vertically and laterally. Malmi and Brown (2008) note that governance

structures can be designed in a variety of ways and researchers should not group them

together; instead, governance should be studied in regard to how it interacts with other

control forms.

Organizational design can be a critical management control tool. By modifying

internal structure and organization, an institution can encourage certain types of

contact and relationships within its membership (Abernethy & Chua, 1996; Alvesson &

Karreman, 2004; Emmanuel et al., 1990). As a control form, organizational structure acts

to reduce variability in behaviour and increase predictability through the functional

specialization of individuals and units (Flamholtz, 1983). Malmi and Brown (2008)

consider organizational structure to be an important management control system and

not a contextual variable because it can be modified by managers to impact

organizational outcomes.

SECTION 2.3.2 - LEVERS OF CONTROL

Levers of Control is a management control framework developed by Robert

Simons (1995). Simons defines four levers, or methods of control that are used by

managers to direct organizational outcomes. The four levers that compose Simons

framework are: 1. Belief Systems; 2. Boundary Conditions; 3. Diagnostic Control

Systems; and 4. Interactive Control Systems (Simons 1995). In Simons framework, belief

systems refer to organizational values and are manifested in mission or vision

44
statements, while boundary conditions describe organizational constraints on employee

behaviour; these elements are critical in Simons model, but they are not of primary

concern to this study. Diagnostic and interactive control systems are applicable to any

management control system [e.g. budgeting, governance and organization structure],

and as such are salient to this research. A comparison of diagnostic and interactive

control system uses is provided in Table 2.

Diagnostic control systems have been described in the literature as a

constraining force because they focus on negative variances, create constraints for

decision-making and resource allocation, and work to ensure compliance with

institutional policies and procedures through the identification of mistakes (Kapu

Arachchilage & Smith, 2013; Henri, 2006; Simons, 1995).

Table 2: A Comparison of Diagnostic and Interactive Control Form Use

Diagnostic Use of Interactive Use of


Controls Controls
Provide motivation and Stimulate dialogue and
Purpose
direction to achieve organizational learning
Goal Prevent surprises Creative search
Analytic Reasoning Deductive Inductive
System Complexity Simple Complex
Time Frame Past and present Present and future
Targets Fixed Constantly re-estimated
Source: Thoren K. & Brown T. (2004). Development of Management Control Systems in Fast Growing
Small Firms. 13th Nordic Conference on Small Business Research. P. 3.

Diagnostic control systems are used to help in the achievement of organizational

strategies by focusing on correcting deviations from pre-set performance standards and

organizational objectives (Gond, Grubnic, Herzig & Moon, 2012; Henri, 2006). However,

45
due to their constraining nature, diagnostic controls may foster conservatism and could

stifle creativity (Otley, 2004). Diagnostic control systems may lead HEIs in an

organizational direction contrary to the rationale behind RCB/M implementation [i.e.

the need to identify innovative approaches to revenue growth and cost containment].

While diagnostic control systems act in a corrective manner through the

utilization of constraints and negative variance identification, interactive control

systems function more organically. Interactive controls utilize cooperation and

communication to create an open flow of information across the institution (Burns &

Stalker, 1961; Henri, 2006). Interactive control systems are tools that focus attention on

continuously changing information that is considered to be of strategic importance to

the organization. They rely heavily on the involvement of senior management, and this

involvement signals other members of the organization to give credence to the issues

addressed by the interactive management control system (Bisbe & Otley, 2004; Henri,

2006). The interactive use of management control systems is particularly well suited to

the higher education environment, where a strong tradition of collegial governance and

faculty involvement in decision-making is present. This fit increases in HEIs using an

RCB/M system because interactive control systems allow for participation, innovation,

and inter-unit cooperation and encourage the required levels of responsiveness.

Interactive control systems facilitate a forum and an agenda for organizational

members to engage in the regular, face to face dialogue and debate that is required for

dealing with the non-routine, under-identified multi-disciplinary problems present in

HEIs today (Bisbe & Otley, 2004). As Simons (2005) argues, senior managers can use

46
interactive controls to create internal incentives to break out of routines, stimulate

opportunity-seeking behaviour, and encourage the development of new strategic

initiatives (Gond et al., 2012); these characteristics align with the promises of RCB/M.

Although much of the extant literature speaks to the benefits of interactive

control systems, there is also extensive discussion of the necessary balance between

interactive and diagnostic control system use. Diagnostic and interactive control

systems should not be viewed as mutually exclusive; instead, they represent two

complementary methods of applying management control systems (Henri, 2006).

Thoren and Brown (2004) note that the difference between diagnostic and interactive

control systems is not their technical design, but rather the way they are employed

within organizations. The balance between diagnostic and interactive control systems

creates organizational tension, termed dynamic tension in the literature. The essence

of any management control system is to balance the inherent tension between creative

innovation [interactive control] and predictable goal achievement [diagnostic control]

(Henri, 2006). In HEIs, as in all organizations, crucial organizational capabilities need to

be stimulated to allow for the achievement of organizational goals (Bourgeois &

Eisenhardt, 1988; Ghemawat & Costa, 1993). Dynamic tension can act as the trigger to

improve these organizational capabilities, thus increasing organizational performance

(Henri, 2006).

Improved organizational performance is one of the reasons often cited by HEIs

for implementing an RCB/M system. Management literature has long postulated that

innovation is one of the primary determinants of long-term organizational performance

47
(Bisbe & Otley, 2004; Clark & Fujimoto, 1991; Drucker, 1994; Kanter, 2001; Schumpeter,

1934; Walsh, Roy, Bruce, & Potter, 1992). Additionally, dynamic tension appears to have

a positive effect on organizations that are facing a high degree of environmental

uncertainty, such as modern universities (Henri, 2006). In a context of high

environmental uncertainty and intense competition, organizations must rely on

innovation and creativity to be successful (Miller, 1988; Miller, Droge & Toulouse, 1988);

environmental uncertainty has been identified as a primary factor in the move to an

RCB/M system by many HEIs that have decentralized. Simons Levers of Control

framework posits that in order for innovation to act as a driver of organizational

performance, some formal control systems must be used interactively while using other

systems diagnostically (Simons, 1995).

SECTION 2.3.3 - TRENDS IN HEI GOVERNANCE: DIAGNOSTIC AND INTERACTIVE CONTROL

As stated in Chapter One, this research defines the term governance as the

decisions on policy and strategy made by institutional and unit leadership (Kaplan,

2004). Moreover, the system of governance consists of those processes and procedures

that allocate authority and responsibility for decision-making (Benjamin, Carroll, Gray,

Krop, & Shires, 1993; Hirsch & Weber, 2001). That is, for this study the term governance

is used to describe the management and oversight provided by the central

administration and by leadership at the unit-level over processes, procedures and

decision-making.

48
Traditionally, in HEIs governance has taken the form of a collegial or

collaborative process, whereby faculty are responsible for participation in institutional

decision-making and oversight processes. Collegial or collaborative governance is highly

aligned with the consultative nature of interactive control systems (Simons, 2005); as

discussed above, interactive control represents the use of formal and informal

management control systems in a cooperative process. Interactive control systems

involve dialogue between individuals across institutional levels that helps to focus

attention on institutional mission and strategic goals and stimulate organizational

learning (Gond et al., 2012). The traditional collegial governance model present in HEIs

acts interactively to stimulate the development of new initiatives and guides the

development of organizational strategy in a bottom-up fashion

However, the trend in higher education governance has been moving away from

the traditional collegial and collaborative processes (Metcalfe et al., 2011). Due to the

influence of governments, for-profit firms, professional administrators in the university,

and other stakeholders, shared and collaborative forms of governance have given way

to corporate-style governance approaches (Kezar & Eckel, 2004; Lapworth, 2004;

Middlehurst, 2004). RCB/M, as used in for-profit firms, may promote a change in

governance model through its language of business (Cantor & Courant, 1997) and focus

on rational profit-seeking and cost-minimization behaviour (Lang, 1999a). Over the past

two decades, corporate-style governance has increasingly become a more dominant

approach in tertiary education (Lapworth, 2004). This rise of corporate governance has

resulted in the decline of academic participation, and the growing trend toward what is

49
termed managerialism in the literature: the corporatization of HEIs and the move

toward professional managers (Lapworth, 2004; Metcalfe et al., 2011; Rhoades &

Slaughter, 1997; Slaughter & Leslie, 2001; Trow & Clark, 1994). The emphasis of

institutional governance in tertiary education has increasingly been on short-term and

incremental decisions that have been made in a less collegial mode. Consequently, the

notion of participative governance has been devalued, due in part to the increasing

demands for quicker decision-making (Kezar & Eckel, 2004).

Governance structures in higher education can be considered diagnostic when

they move away from the norms of participation and collaboration and become more

prescriptive or managerial in nature. Diagnostic control comprises two important

components: 1. tight control of operations and decision-making; and 2. highly

structured communication channels and restricted information flow (Henri, 2006).

Diagnostic control contributes to organizational performance by monitoring goal

achievement, limiting risk behaviours, setting boundary conditions for departmental

actions, and monitoring the effectiveness of organizational outcomes (Henri, 2006).

Even as HEIs are becoming more corporately inclined, interactive control may

provide a structure and process for re-establishing the collegial and collaborative model

of governance. Interactive forms of governance allow for the consultation, integrated

problem-solving, and collaboration necessary to improve organizational performance,

particularly for those HEIs that have implemented RCB/M. The interactive control model

may also support the alignment of HEI governance models with the American

Association of University Professors (American Association of University Professors,

50
1996) conceptualization of HEI governance, which emphasizes a collegial and

democratic approach.

Another trend in HEI governance structures is the increase of administrative

work and the need for specialized and professional management; this growth has

resulted in an increase in the number and importance of non-academic administrative

workers (Bok, 2003; Clark, 1972; Hawley, Boland, & Boland, 1965). HEIs have

experienced a demand for specialized administrative skills throughout their operations

(McMaster, 2007). This is especially true for those institutions that use RCB/M

structures, as they demand specialized training and knowledge in budgeting, finance,

and management at each of the individual operating units (Lang, 1999a). McMaster

(2007) noted that such changes may create additional tensions between collegial styles

of governance and corporate models of management. Again, through an interactive,

help the manager manage, open dialogue approach to management, such tensions can

be mitigated. This collaborative approach is strongly supported in the extant literature

(e.g. Coaldrake, Stedman, & Little, 2003; Dearlove, 1997; Lapworth, 2004; McMaster,

2007).

These trends in HEI governance have unsurprisingly had an effect on the

structure and organization of the HEI itself. Form is influenced by strategy (Chandler,

1962) and strategy is influenced by form (Hall & Saias, 1980). The relationship between

the interactive and diagnostic control forms of governance and their resulting

effectiveness will influence and be influenced by the internal structure of the HEI. That

is, this is a relationship with concomitant effects, and has subsequently come to be

51
viewed as a balanced approach of interrelatedness (Mintzberg, 1990). Thus, the

changing professional landscape, with increased numbers of administrative and support

staff, escalating specialization of employment roles, and intensifying organizational

complexity, has had an impact on the choice and effectiveness of governance structures

and has influenced the internal structure of HEIs.

SECTION 2.3.4 - DIAGNOSTIC AND INTERACTIVE APPROACHES TO GOVERNANCE IN


RCB/M INSTITUTIONS

Simons Levers of Control framework has been influential for scholars examining

how managers maintain organizational control and guide units to achieve strategic

organizational goals. Simons framework (1990, 1991, 1995, 2005) established the

foundation upon which management scholars have examined management control

systems and their deployment, either diagnostically or interactively, within

organizations. Diagnostic control can be considered control by the numbers, while the

hallmark of interactive control is debate and dialogue across institutional levels (Simons,

1995).

Budgeting, governance, and organizational structure are all considered to be

management control systems in the extant literature. Of particular interest to this study,

governance models, both interactive and diagnostic in nature, are examined with regard

to their degree of alignment first with RCB/M and then with organizational

performance. Simons framework allows for an examination of the relationship, within

RCB/M institutions, between the central governance structures need for input and

52
control [to assure the achievement of the institutions mission] and the organizational

units need for autonomous decision-making [to pursue change, growth, and efficiency].

Simons reported that both diagnostic and interactive control forms are

applicable in a decentralized organization (Simons, 2005). However, decentralization is

only possible in an environment of diagnostic control when management refrains from

daily involvement in unit operations. This may seem counterintuitive as diagnostic

control often is manifested in tight organizational control; however, Simons (2005)

notes that the best-managed decentralized organizations place less emphasis on

meeting financial targets and instead focus on bottom-up goal setting. In a

decentralized system, this manifests itself in unit managers that fully understand the

business operations of the unit they are responsible for while also being cognizant of

institutional level strategic plans.

There have been two general approaches to governance structures in HEIs that

have implemented RCB/M. One approach is a modification of the traditional centralized

structure that attempts to align with the decentralized budgeting and management

structure of RCB/M; this tends to manifest as interactive control. In contrast, other HEIs

maintain more traditional centralized governance structures, which tend to manifest as

diagnostic control. In for-profit industry, organizations that use an RCB/M structure

often utilize diagnostic governance. In practice, this means that top management,

usually a relatively small centralized head office unit, will use financial targets and a

small set of key performance indicators to exercise control (Simons, 1995). Diagnostic

control structures severely limit the upward flow of operating and decision-making

53
information within the organization, thus following closely the M-form organizational

design and oversight processes promoted by the likes of Donaldson Brown, Alfred Sloan,

Peter Drucker, and Henry Mintzberg, among others.

When RCB/M and diagnostic governance are viewed outside of a for-profit lens,

as in higher education, several practical issues become evident. Behn (2003) identifies

two salient issues: 1. a lack of fidelity in reporting; and 2. the need for unit decisions to

be congruent with institutional level objectives and strategy. Fidelity in reporting is

important because it ensures that the central governance system is able to accurately

track the effect of unit-level decisions on the institution as a whole. When unit-level

reporting lacks fidelity, the central governance system is only able to see the short-term

financial effects of the decisions made by units; Longer-term outcomes are rarely

discussed, and the impact of unit decisions on other units or on the institution is seldom

considered.

The need for decision-making that is aligned with institutional goals and that

does not act as a detriment to other operational units is paramount in a decentralized

system. Behn (2003) suggests that managers dont necessarily know what to

domaybe we also need a help-the-manager-manage strategy (pg. 2). That is, in a

decentralized system, the unit-level managers may not understand how to make

decisions that meet the needs of their units while also being congruent with the mission

and direction of the organization as a whole. Under a diagnostic governance system,

information flows are expected to be constrained; this constraint has significant

54
negative ramifications for organizational learning and institutionally aligned decision-

making at the unit-level.

In consideration of the need for aligned decision-making within a decentralized

system such as RCB/M, ongoing dialogue between central administration and units is

critical. Interactive control forms of governance provide for this open information flow

by focusing permanent, regular attention on institutional level strategic initiatives;

because of this constant focus and communication, interactive control systems are well-

suited to uncertain organizational environments (Bisbe & Otley, 2004). Interactive

governance is well paired with RCB/M in HEIs; bounded by the institutional mission and

strategic goals, interactive governance fosters a learning process of interactive debate

between the unit and the central administration. Through the debate process, both the

central administration and unit-level managers gain a better understanding of the

consequences of decisions and are able to improve decision-making in the future (Behn,

2003; Simons 1995).

Beginning with Simons (1995) foundational work, the literature on the

interactive and diagnostic uses of management control systems is extensive. Much work

to date has focused on accounting controls and has not considered budgeting,

governance, or organizational structure. This study examines these management control

systems, applying them to a decentralized organizational environment. The present

author believes that budgeting, governance, and organizational structure are important

management control systems that have received scant attention in the management

control systems literature to date. To examine the organizational outcomes experienced

55
by HEIs employing an RCB/M system, the application of diagnostic and interactive forms

of governance will be considered.

SECTION 2.4 - THE CONCEPT OF ORGANIZATIONAL INTERNAL STRUCTURE

The internal structure of an organization has a material impact on organizational

efficiency, the selection of governance structure, and the ability to meet organizational

level strategic goals (Milgrom & Roberts, 1992; Teece, 1996; Vancil, 1979; Weigelt &

Miller, 2013). The concept of internal structure was developed by Lawrence and Lorsch

(1967), who employed the term integration to denote the units level of orientation and

alignment with its peers and with regard to the achievement of the central

administrations strategic goals. More recently, Weigelt and Miller (2013) have

presented a two-factor model of internal structure that uses the term coordination to

denote the level of cooperation between organizational units. The authors two factors

include unit autonomy and lateral coordination. However, I propose that this two-factor

model does not include some important aspects of Lawrence and Lorschs original

integration conceptualization.

Lawrence and Lorschs (1967) foundational work employed an ecological and

open-systems perspective of organizations and their environments. An organization was

defined as a system of interrelated behaviors of people who are performing a task that

has been differentiated into several distinct subsystems, with each subsystem

performing a section of the task, and with the efforts of each being integrated to

achieve effective performance of the system. However, as the number and complexity

56
of distinct subsystems increase, so does the opportunity for misalignment and conflict.

Thus, the authors investigated the intra-organizational alignment of organizational units.

The challenges of integration posed by increasing unit differentiation were of focal

interest to Lawrence and Lorsch. As different parts of the same organization adapt

differently and at different rates, the levels of differentiation between units increase;

mechanisms are then required to ensure coordination of activities between units.

This perspective has resulted in the identification of two main functions of

organizational design and structure: 1. the division of tasks; and 2. the coordination of

tasks (Galbraith, 1973, 1977, 2002; Lawrence & Lorsch, 1967; March & Simon, 1958;

Mintzberg, 1983). From this starting point, organizations must first define their main

tasks and then divide them into a number of sub-tasks that various units will be

responsible for completing. This delineation of tasks and responsibilities can be

observed in the university context through the compartmentalization of the institution

into faculties and the sub-division of faculties into departments and area groups that

share an increasingly specialized research area focus.

The division of tasks into sub-tasks and the allocation of responsibilities for the

completion of those sub-tasks will not, in and of itself, lead to effective coordination or

organizational integration (Lawrence & Lorsch, 1967). That is, the division of tasks

cannot do away with the interdependencies between units, and between units and the

institution. Rather, activities need to be coordinated with one another (Galbraith, 1970).

The failure to coordinate or achieve organizational integration may manifest itself in a

lack of cooperation, internal competition, communication problems, and, potentially,

57
the pursuit of unit-specific goals at the expense of other unit or institutional level goals

(March & Simon, 1958). Within universities using RCB/M, coordination failures have

been observed; these challenges present as both the duplication of course and program

offerings and conflicts surrounding service teaching and the development and

deployment of interdisciplinary programs. These problems related to unit competition

and communication reinforce the need for organizations to deploy a well-thought-out

division of tasks while concurrently ensuring that effective coordination and integration

strategies, in the form of governance and oversight activities, are in place.

The conceptualization of internal structure focuses on two key components:

differentiation and integration. Differentiation, as defined by Lawrence and Lorsch

(1967), is the state of segmentation of the organizational systems into subsystems,

each of which tends to develop particular attributes in relation to the requirements

posed by its relevant external environment (p.3-4). That is, differentiation refers to the

differences between units in terms of goal orientation, time orientation, formality of

structures, and interpersonal orientation. Integration is defined as the process of

achieving unity of effort among the various subsystems in accomplishment of the

organizations task (p.4) and is achieved between independent units through

coordination devices such as centralized influence, reporting, oversight, and governance

structures.

In the university environment, basic subsystems include, as an example,

campuses, colleges, faculties, departments, and support units. These subsystems will

continue to develop independently of one another and will become increasingly

58
differentiated, in a manner dependent on a contingency approach, in reaction to their

operating environments. For instance, as researchers become more focused on

increasingly specialized areas of research, individuals from the same department may be

viewed as increasingly differentiated. As a consequence of the differentiation and

complexity of the university environment, institutions are faced with difficult-to-assign

activities that frequently result in issues such as cooperation, coordination, conflict and

struggles for power (McCann & Galbraith, 1981, p.60). For this reason, integration

between units and between units and the institution becomes increasingly important, as

a necessary means of encouraging cooperation, alignment with strategic goals, and joint

problem-solving (Galbraith, 1994).

In highly differentiated organizations, the development and use of integrative

mechanisms, such as governance and oversight, is necessary to ensure the effective

coordination and cooperation of units. Lawrence and Lorschs (1967) study found that

coordination is improved when a centralized influence on units is present. Without

integrative mechanisms and centralized influence, inter-departmental conflict arises

(Lawrence & Lorsch, 1967). It should be noted that the degree of integration

[coordination and cooperation] must not necessarily be high, rather it must be

consistent with the requirements of the environment (Lawrence & Lorsch, 1967, p.11).

That is, full integration is not necessarily needed, only enough to ensure the

achievement of institutional and unit goals.

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2.4.1 - THE IMPACT OF INTERNAL STRUCTURE ON INSTITUTIONAL CONTROL
MECHANISMS

An organizations internal structure defines its hierarchy of people and

departments and establishes how and when information is distributed. Internal

structure determines the physical structure of the organization; how tasks and

responsibilities are formally divided, grouped, and coordinated; who has the authority

to makes decisions and allocate resources (Bower, 1970, 1986; Fredrickson, 1986); what

effect these decisions will have on organization-wide measures of performance

(DeCanio, Dibble, & Amir-Atefi, 2000); and the resulting consequences for the units that

compose the organization.

In their seminal works, Lawrence and Lorsch (1967), and Milgrom and Roberts

(1992), define internal structure as the allocation of decision rights to units, the

coordination between units, and the coordination between the units and the

organization. Internal structure thus determines the flow of information and knowledge

through the organization (Grant, 1996) and provides incentives for units to cooperate

and share knowledge (Grant, 1996; Milgrom & Roberts, 1992).

The extant literature is teeming with discussions on the internal structures of

organizations, their impact on strategy (Bobbitt & Ford, 1980; Bower, 1970; Duncan,

Brunner, & Fiske, 1979; Hedberg, Bystrom, & Starbuck, 1976), and strategys impact on

structure (Chandler, 1962; Hall & Saias, 1980; Mintzberg, 1990). March and Simon

(1958) identified the importance of internal structure and its role in imposing

boundaries of rationality by delimiting responsibilities and communication channels for

those operating in an organization. Other work has focused on the dynamic nature of

60
internal structure as a process of adjustment that acts to maintain an effective

alignment within an organizations environment while managing internal

interdependencies (Miles, Snow, Meyer, & Coleman, 1978).

It has also been argued that internal structure and organizational

decentralization are determining factors of the degree of latitude that individual units

possess in terms of their ability to develop and implement local strategies (Alexander

1991). The degree of latitude afforded to units has a profound impact on strategy and

strategic decision-making within an organization (Bourgeois & Astley, 1979; Burgelman,

1983; Fahey, 1981). Unit autonomy is a fundamental component of this research that

examines the effects of decentralized budgeting and management structures in HEIs on

governance process and organizational outcomes.

The internal structure of an organization can have a tremendous effect on its

operations and outcomes and has a material effect on its knowledge flows, oversight,

management, decision-making structures, and resulting governance structures (Weigelt

& Miller 2013). Internal structure reflects the level of resource allocation, decision-

making, and responsibility for management and outcomes that the organization

allocates to its units (Lawrence & Lorsch, 1967; Milgrom & Roberts 1992). In the context

of higher education, those HEIs that have implemented an RCB/M structure

demonstrate a configuration whereby budgeting, resource allocation, decision-making,

and management responsibility have been allocated to the organizations units. This

decentralized internal structure is employed in an effort to increase the efficient use of

61
finite resources and to encourage revenue-seeking behavior (Lang, 1999a; Whalen,

1991).

The organizational design literature (e.g. Kretchmer & Puranam, 2008; Lawrence

& Lorsch 1967; Mintzberg 1979, 1983; Nadler & Tushman, 1997) provides two major

factors that compose the concept of internal structure: differentiation and integration.

Differentiation, as discussed in Chapter One, is defined as the segmentation of the

organization into a series of subsystems or units, whereas integration is the level of

unity among the units goals and efforts and the alignment of the units efforts with

organizational level goals and initiatives. Simply, integration is the alignment of the

units efforts with the organizations mission, and the organizations ability to control

the alignment of unit-level efforts.

Recently, Weigelt and Miller (2013) proposed a modified conceptualization of

internal structure. These authors present a model composed of two factors: unit

autonomy and lateral coordination. Unit autonomy is constructed using two criteria.

The first is the provision of resource-allocation decision-making powers and task-

funding authority to units. The second factor is that units are held responsible, for

decisions made and the resulting outcomes.

Lateral coordination is defined as the ability of autonomous units to interact

cooperatively with one another. Although in their work Weigelt and Miller (2013) cite

the work of Camerer and Knez (1996) in order to underscore the importance of aligning

unit efforts with organizational goals and missions, their discussion and application of

lateral coordination speaks to coordination among units and not the relationship

62
between the organization and its units; the mere use of the term lateral speaks to this

point. Specifically, citing Lawrence and Lorsch (1967), the authors suggest that lateral

coordination is the alignment of actions across units, and, citing Milgrom and Roberts

(1992), Thompson (1967), and Weick (1996) that such coordination allows each unit to

tie into other units actions. Although I agree that the concept of integration is

composed partially of lateral coordination, I believe that it must also include vertical

coordination in order to be complete.

SECTION 2.5 - MEASURING INSTITUTIONAL GOAL AND MISSION ACHIEVEMENT

The particular vision, or raison detre, of an organization is captured by its

mission and the strategic goals employed to help achieve that mission (Barnard, 1968;

Bryson, 2011; Moore, 2000; Walter, Kellermans, Floyd, Veiga & Matherne, 2013). In

HEIs it is especially difficult to measure the achievement of strategic goals, and as a

result to measure the achievement of an HEIs mission. Unlike a for-profit firm, where

the overarching mission is to increase shareholder wealth, HEIs are socially embedded

and are responsible for the multi-dimensional mission of service, teaching, and research,

all of which are difficult to evaluate (Gumport, 2008; Moore, 2000). Additionally, HEIs

are tasked with attending to the preferences of those numerous constituencies that

supply them with the resources needed for survival.

As a social institution, the mission of an HEI defines its value to society and

results in its purpose (Gumport, 2000). Thus, mission achievement becomes the metric

that is used to evaluate performance (Cameron, 1981; Moore, 2000; Walter et al. 2013).

63
For socially embedded institutions, like HEIs, it has been noted that missions are set out

in substantive rather than financial terms (Moore, 2000); for this reason, researchers

have had to find a proxy for the measurement of mission and goal achievement.

In his seminal work Measuring Organizational Effectiveness in Institutions of

Higher Education, Cameron (1978) laid the foundation for the measurement of mission

and strategic goal achievement through the measurement of organizational

effectiveness. Noting that the specification of measurable goals and outcomes for HEIs

is difficult due to their complexity, ambiguity, and changeability, he argued that a

battery of criteria needs to be constructed and tested to adequately measure

effectiveness. To this end, Cameron (1978) initially presented and tested a nine-factor

model. Of those, seven factors were shown to possess validity and reliability in the

measurement of HEI organizational effectiveness. Subsequently, Goodman, Atkin, and

Schoorman (1983) identified problems with the general approach to the evaluation of

organizational effectiveness and called for a moratorium on its study. Consequently,

work in the area of organizational effectiveness has been focused on the refinement of

measurement tools to include relationships among multiple indicators, ensure that

models are not under-specified, account for the time-frame of the criterion variable,

and ensure that the over-generalization of findings is limited (e.g. Bass & Avolio, 1994;

Cameron, 1986; Cameron & Whetton, 1983; Cameron, Mora, Leutscher & Calarco, 2011;

Jones, 2010; Walter et al. 2013).

To assess the level of organizational effectiveness and, by extension, the

achievement of strategic goals and mission, Walter et al. (2013) - extending and refining

64
Camerons (1978) seven-factor model - presented a three-factor model [Appendix 3].

This model is especially salient to this research as it was built using the North American

higher education context. Through the measurement of strategic consensus,

organizational commitment, and organizational performance in HEIs, Walter et al.

(2013) have developed a measurement tool that allows the assessment of the

institutional mission and goal achievement of HEIs.

SECTION 2.6 - SUMMARY

This chapter has provided a review and discussion of a number of different

literatures. The concepts, models, theories, and findings of the work presented above

form the foundation of the theoretical considerations presented in Chapter Three and

the three-factor model presented and tested in this study. Upon the foundation laid by

the organizational design and RCB/M literatures, and by the diagnostic and interactive

control systems of governance, this study builds a three-factor model of internal

structure presented in Chapter Three.

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CHAPTER THREE

THEORETICAL CONSIDERATIONS AND RESEARCH QUESTIONS

There is no one best way to organize. (Galbraith, 1973, p.2)

SECTION 3.1 - INTRODUCTION

This research empirically examines the outcomes of the alignment, or

misalignment, between governance control forms and decision-making in four public

universities that employ an RCB/M model, and how this alignment is affected by internal

structure. In this chapter, the three-factor theoretical framework of internal structure is

presented. Additionally, this chapter outlines the research questions and corresponding

propositions that have been developed to guide this study. The primary research

question and subsequent operationalized questions are intended to elucidate the

relationships between governance forms, internal structure, and decision-making in

decentralized budgeting and management environments. The operationalized research

questions and their corresponding propositions were developed based on the

comprehensive literature review presented in Chapter Two. They are intended to

provide a framework in which the outcomes of RCB/M use in the higher education

context can be better understood.

SECTION 3.2 - THREE-FACTOR MODEL OF INTERNAL STRUCTURE

Based on the extant literature, I propose that internal structure is composed of

three factors: 1. unit autonomy; 2. lateral coordination; and 3. vertical coordination.

66
Unit autonomy is defined as the level of financial and decision-making authority

possessed by a unit. It also includes responsibility for the outcomes of past decisions.

This responsibility is ensured by the process of carry-forward, in which both surpluses

and deficits are carried forward to subsequent years (Lang, 1999a). Consequently, the

financial outcomes of a units decision-making directly determine the choices available

to it in the future.

Lateral coordination denotes the level of alignment between units, and is of

interest to this study because of the profound effect it can have both on units and on

the institution as a whole. In the university environment, cooperation and coordination

can encourage multidisciplinary programs, cross appointments of faculties,

opportunities for new programs at the intersection of traditional knowledge domains,

and the development of programs offered in conjunction between units that provide

increased value for students. Conversely, low levels of lateral coordination can result in

competition between units, causing internal competition for students, lack of

interdisciplinary study opportunities, duplication of courses and programs, and a hostile

internal environment for faculty, staff, and students.

Vertical coordination is similar, but not equivalent, to the concept of integration

as discussed by Lawrence and Lorsch (1967). Vertical coordination denotes the degree

of coordination between the individual unit and the organizations mission and resulting

strategic goals. That is, it aligns unit-level efforts, goals, and decisions with the

accomplishment of the organizations mission. Coordination is interactive the act of

67
working together through two-way dialogue, meetings, reports, emails, and similar

activities. Coordination, then, is an interactive process whose end result is alignment.

The three-factor model of organizational structure builds upon the extant

literature, extending the traditional models presented and providing a more holistic

understanding of organizational complexities and the naturally distributed power

structure of HEIs. This study builds upon Lawrence and Lorschs (1967) two-factor model

of differentiation and integration, Williamsons (1975) model of market or hierarchy,

and Weigelt and Millers (2013) two-factor model of lateral coordination and unit

autonomy, and presents a three-factor model that seeks to include the socially

embedded and dynamic nature of the modern university. Consequently, the important

factor of vertical coordination has been included with lateral coordination and unit

autonomy to provide for a greater depth of understanding of the decision-making and

internal structure of the modern university.

SECTION 3.3 - PRIMARY RESEARCH QUESTION

Does the governance control form of any given university employing RCB/M

affect the relationship between RCB/M and internal structure?

This question is intended to incorporate a wide variety of concepts and due to its

complexity is not meant to be answered directly. To address this main research question

the following operationalized questions are presented.

68
SECTION 3.4 - OPERATIONALIZED RESEARCH QUESTIONS AND CORRESPONDING
PROPOSITIONS

3.4.1 - RESEARCH QUESTIONS REGARDING LATERAL AND VERTICAL COORDINATION

Governance control forms within universities can range between diagnostic to

interactive. Diagnostic governance control forms act to control institutional agents by

constraining their decisions and actions through a focus on negative variance and

compliance with institutional policies and procedures (Kapu Arachchilage & Smith, 2013;

Henri, 2006; Simons, 1995). Within universities, diagnostic governance control forms are

typically applied in a centralized budgeting and management environment. Unlike a

diagnostic application of governance controls, an interactive application functions

through the promotion of cooperation, communication, and open exchanges of

information across the institution (Burns & Stalker, 1961; Henri, 2006). An interactive

governance control form requires the active involvement of senior leadership. Because

interactive governance does not regulate behaviour in a prescriptive manner, the

involvement and influence of senior university leaders serve as signals for other

institutional members to identify which initiatives are important and deserving of

attention (Bisbe & Otley, 2004; Henri, 2006).

i. Do those HEIs that apply a predominantly interactive governance control

form, which allows for oversight and influence on unit-level decision-making,

experience increased alignment between unit-level goals, resource-allocation

decisions, and behaviour regarding institutional mission and strategic goals?

69
P1: HEIs that employ a governance structure combining both interactive and diagnostic

control forms, allowing for unit autonomy while ensuring central-level oversight and

influence, will experience increased alignment of unit decisions and behavior with their

missions and strategic goals.

ii. Do those HEIs that report high levels of lateral and vertical coordination have

governance structures that allow for oversight and influence of unit-level

decision making?

P2: High levels of lateral and vertical coordination by units will be encouraged by

interactive control forms of governance, while strictly diagnostic control forms of

governance will encourage low levels of lateral and vertical coordination.

Using a pair of 2X2 matrices, this study identifies the level of lateral coordination within

diagnostic and interactive governance structures [Appendix 4] and vertical coordination

within diagnostic and interactive governance structures [Appendix 5]. Based on the

extant literature, I expect that HEIs with a high degree of lateral and vertical

coordination will employ an interactive governance structure.

iii. Is there a relationship between the type/degree of alignment [high vs. low

lateral and vertical coordination] and the achievement of organizational

goals?

70
P3: High levels of vertical coordination will encourage the achievement of the HEIs

organizational goals.

P4: High lateral coordination will encourage the achievement of the HEIs organizational

goals.

The assumption provided by the literature is that high levels of lateral and

vertical coordination will result in a high degree of strategic goal achievement (Crotts,

Dickson, & Ford, 2005; Hides, Davies, & Jackson, 2004; Kretschmer & Puranam, 2008;

Lawrence & Lorsch, 1967; Miles & Snow, 1984; Taylor, 2000). Coordination is expected

to align unit goals and behavior with the organizations mission and resulting strategic

goals.

iv. Is increasing revenue a stronger, more manageable incentive compared to

cost reduction? If so, does this fact encourage the internal competition

[decreasing lateral coordination] and fragmentation of the institution by

reducing vertical coordination?

P5: If the incentive for revenue-seeking behaviour is stronger than the incentive [or

ability] to reduce costs, units will exhibit lower levels of vertical coordination.

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RCB/M provides two incentives: 1. to reduce costs; and 2. to increase revenue.

Investigating the relationship between financial incentives and lateral coordination, one

is forced to ask, is RCB/M working as intended? That is, are units working to reduce

costs and engage in revenue-seeking behavior as argued in the RCB/M literature (Lang,

1999a; Strauss & Curry, 2002; Strauss, Curry, & Whalen, 1996; Whalen, 1991)?

v. How does the ratio of indirect to direct costs impact the degree of lateral and

vertical coordination?

P6: As the ratio of indirect costs to direct costs increases, lower levels of vertical and

lateral coordination are expected.

The ratio of indirect costs to overhead costs should determine how HEIs respond

to incentives; this relationship will determine whether revenue incentives are stronger

than cost incentives. Revenue incentives should create an environment that encourages

perverse behaviors and decreases the level of lateral and vertical coordination.

3.3.2 - RESEARCH QUESTIONS REGARDING UNIT AUTONOMY

vi. What is the relationship between levels of unit autonomy [funding authority

and task accountability], and the type of governance structure [interactive

versus diagnostic control systems of governance]?

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P7: Higher levels of unit autonomy in a diagnostic control form governance structure will

result in lower levels of lateral and vertical coordination.

P8: Higher levels of unit autonomy in an interactive control form structure will result in

higher levels of lateral and vertical coordination.

The assumption in the literature is that units with high task accountability will

demonstrate a higher degree of lateral and vertical coordination. Task accountability

denotes that units are held responsible for the decisions that they make and the

resulting outcomes. This assumed relationship may be moderated by the level of fund

authority, although there is no discussion within the literature on the impact of high

funding authority and high task accountability on degree of coordination. Fund authority

denotes the ability of the unit to deploy financial resources in support of its strategic

goals and tactical decisions. Those units that possess high funding authority and low task

accountability are expected to have lower levels of lateral and vertical coordination

when compared to units possessing low funding authority and task accountability

(Camerer & Knez, 1996; Kretschmer & Puranam, 2008; Lawrence & Lorsch, 1967;

Weigelt & Miller, 2013).

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3.3.3 - RESEARCH QUESTIONS REGARDING DIAGNOSTIC AND INTERACTIVE CONTROL
FORMS OF GOVERNANCE

vii. Will HEIs that use RCB/M and apply an interactive control system of

governance experience higher levels of institutional goal and mission

achievement?

P10: Interactive control systems will encourage institutional goal achievement in HEIs

that use RCB/M.

The value that HEIs produce is not easily measured and often lies in the

achievement of social purposes (Moore, 2000). Unlike for-profit firms, the maximization

of profit and creation of wealth for shareholders are not measures of goal and mission

achievement for HEIs (Cameron, 1978); in consideration of this, measurements of goal

and mission achievement specific to HEIs must be applied. Through the application of

Walter, Kellermanns, Floyd, Veiga, and Mathernes (2013) three-factor model of

assessing higher education organizational performance, which is based on Camerons

(1978) model of higher education organizational effectiveness, I will assess the level of

goal and mission achievement through the evaluation of strategic consensus,

organizational performance, and organizational commitment.

74
viii. Will HEIs that use RCB/M and employ an interactive control system of

governance experience lower levels of decision-making autonomy at the unit

level?

P11: Units will experience lower levels of decision-making autonomy in HEIs that have

implemented RCB/M and employ an interactive control form of governance.

The use of decentralized budgeting and management structures is intended to

allow for unit-level autonomy in decision-making and promote the pursuit of change,

growth, and efficiency (Lang, 1999a; Strauss & Curry, 2002; Whalen, 1991). However,

the extant literature identifies the tension between the need for units decisions to be

aligned with the institutions mission (Cantor & Currant, 1997; Adams, 1997) in order to

assure the achievement of institutional-level goals (Crotts, Dickson, & Ford, 2005; Hides,

Davies, & Jackson 2004; Taylor, 2000) and the need to allow units to make timely and

appropriate unit-level decisions. Through the above set of questions, this study

identifies the differences in outcomes at the institutional level and unit level that result

from an HEIs use of interactive or diagnostic control forms of governance.

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CHAPTER FOUR

METHODS AND METHODOLOGY

SECTION 4.1 - INTRODUCTION

This chapter provides the rationale for selecting a qualitative research

methodology involving the application of document analysis and interview techniques

to construct a comparative case study design. Further, the iterative process employed to

collect and analyze the interview data is discussed [Appendix 6]. This chapter closes with

a discussion of the validity and reliability of this study and, finally, with a discussion of

the studys limitations.

From a research scope perspective, qualitative methods provide the tools

needed to comprehend how participants view and understand the processes and

interactions at their institutions and how they make sense of their experiences within

the institutional environment (Merriam, 2009). The result of utilizing these qualitative

techniques is the creation of a narrative, or descriptive account (Parkinson & Drislane,

2011), of the use of RCB/M in public universities and the relationship between RCB/M,

organizational structure, and governance control forms.

SECTION 4.2 - THE CASE STUDY DESIGN

The case study research design was chosen because it allows for a thorough

investigation into the relationships between RCB/M and governance structures, while

considering the three-factor model of organizational design introduced in Chapter

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Three. This method was chosen because it allows for an in depth understanding of the

relationships being considered by this study. The case study research design is

particularly appropriate for this study because it provides for a depth and richness of

information not offered by other research methods (Merriam, 1988). Due to the

complexity of the environments investigated, an iterative investigation process was

needed to capture as many variables as possible, as well as allowing the identification

and inclusion of emergent themes and categories.

This research utilizes a multiple case study approach and was developed to fill

theoretical categories, as outlined in the operationalized research questions in Chapter

Three. Additionally, this research was designed to allow for the categorization of

institutions into two distinct subsets: 1. those universities that provide oversight and

influence to unit decision-making [interactive governance control form]; and 2. those

universities that do not, or are unable to, provide oversight and influence to unit

decision-making [diagnostic governance control form]. By breaking the institutions

down into two categories, it was possible to identify organizational outcomes stemming

from differences in the application of governance structures and the resulting levels of

unit autonomy, and lateral and vertical coordination.

Yin (2009) suggests that the case study design will retain the holistic and

meaningful characteristics of real-life events such assmall group decisions, [and]

organizational and managerial processes (pg. 9). This is an important concept for this

study as it is the relationship between the governance structure and the internal

structure of universities that will encourage or discourage certain decisions, resource

77
allocations, and communication strategies. The comparative case study design has been

chosen as it allows the testing of proposed relationships between the variables of: 1.

governance structure and organizational outcomes; and 2. internal structure and

organizational outcomes. I have purposely endeavoured to operationalize these

variables to maximize the variance of the independent variables and to minimize the

variance of the control variables (Lijphart, 1975 pg. 164). The case study method yields

a concentration of similar and dissimilar details that emerge from varying perspectives

when relying on multiple data sources (Tellis, 1997). The representation of various

perspectives is especially relevant in this research as there may be different, competing,

and potentially conflicting goals and perspectives within universities because of the high

degrees of unit autonomy and differentiation.

Using Eisenhardts (1989) Process for Building Theory from Case Study Research I

have outlined the steps and phases of this study in Appendix 7. In an attempt to fully

explore the relationships between RCB/M, internal structure, and governance control

form, this research focuses on publicly funded comprehensive universities that have

implemented and utilized RCB/M for a period of at least five years. This time period has

been selected as it should allow for the documentation of outcomes resulting from the

implementation of RCB/M and from its relationships with internal structure and

governance control form.

Four public North American HEIs were selected through a process of theoretical

sampling. Each of these four universities have used RCB/M as their budgeting and

management model for at least five years. Additionally, two of these universities were

78
identified as employing a predominantly interactive governance control form and the

remaining two employed a predominantly diagnostic governance control form.

Furthermore, these four institutions can be broken down into two separate categories.

The first category is composed of universities whose governance structures are capable

of providing oversight and influence to the unit level and are aligned with the

decentralized resource allocation and decision-making of RCB/M structures. The second

category is populated by those institutions whose governance structures are not

capable of providing oversight and influence at the unit level for resource allocation

decisions. The categories used in this study provide for high levels of divergence that will

allow for replication and contrary replication. This allows contrasting patterns in the

data to be more easily observed and permits clear pattern recognition of the central

constructs, relationships, and logic. The rationale for selecting four HEIs is an attempt to

develop findings that are theoretically generalizable (Mason, 2002; Schofield, 2002; Yin,

2009).

Each university was selected after a thorough review of institutional documents.

This research sample is divided into two theoretical areas of interest. Institutional

names have been disguised to promote confidentiality. The first area of interest consists

of two cases, one Canadian and one American university, where RCB/M has been

implemented and governance control forms allow for multi-level oversight and

reporting expectations through a predominantly interactive approach to governance.

The case studies included in this grouping are Midwestern U. S. University and Central

Canadian University. The second area of interest also includes two cases, one Canadian

79
and one American university, each employing a predominantly diagnostic approach to

governance and each having reported issues with unit decisions, inter-unit conflict, and

vertical conflict between units and the institution. The case studies included in this

grouping are Western Canadian University and Eastern U.S. University. This sample has

been carefully selected to provide both literal and theoretical replication and to provide

compelling and robust confirmation of the propositions of this research (Yin 2009).

Literal replication predicts similar results while theoretical replication predicts

contrasting results but for predictable reasons (Yin 2009, p. 47).

SECTION 4.3 METHODOLOGY

The four case studies examine the effects of decentralized budgeting and

management structures on governance, management, and oversight with special

consideration of the resulting organizational outcomes at the institutions. The data

analysis techniques employed in this research have been chosen as they allow for the

determination of categorical themes [open coding], establishment of patterns [axial and

selective coding], and the development of generalizations [through the triangulation of

data and analysis from the two phases of this research] (Creswell, 1998; Miles &

Hubermann, 1994). The analysis of data collected in this research is intended to answer

the primary research question: Does the governance control form of any given

university employing RCB/M affect the relationship between RCB/M and internal

structure?; and sub-questions [see Chapter Three] within the three-factor model of

80
organizational structure, attempting to reveal relationships between themes and

categories.

SECTION 4.3.1 - DOCUMENT ANALYSIS

The analysis of institutional documents and reports was based on the concepts

of qualitative content analysis, and created replicable and valid references

(Krippendorff, 2004; Weber, 1990). Additionally, the document analysis provided insight

into the reporting and decision-making structures of each university, as well as the

degrees of unit autonomy, lateral coordination, and vertical coordination.

Due to the type of research questions being asked, and the need to build an

understanding of how internal structural affects HEI governance structures and

organizational outcomes, an extensive review and analysis of institutional documents

was completed. For each of the four institutions, document analysis, involving a variety

of institutional reports, was completed. Institutional documents, including budget

reports, business plans, budget committee reports, institutional plans, and institutional

fact books, from Central Canadian University, Midwestern U.S. University, Eastern U.S.

University, and Western Canadian University were collected and analyzed. Additional

documents from external debt rating agencies, provincial, state, and federal higher

education finance reports, national faculty association reports, and national university

association reports on finance and budgeting were also collected and analyzed. The

wide breadth of documentation was essential to building an understanding of the

contexts that each of the four universities operate within. These documents also
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represent a relatively comprehensive snapshot of the organization at a given time, and

can be considered valuable as they meet Krippendorfs (2004) test of documents in that

they are routine, relational, and coordinative.

Document analysis, in combination with a literature review, has provided

direction for the construction of a framework out of which the interview questions were

developed. Additionally, the information obtained through the document analysis phase

enabled the triangulation of data with the information collected during the interview

phase of this study. Webers Six Steps of Document Analysis was used as the primary

protocol when reviewing institutional documents and reports [Table 3].

Although Webers steps seem sequential in nature, it is essential that, as new

items emerge, the researcher revisit documents already analysed. In this iterative

process of document analysis each document was considered numerous times. As

emergent themes, words, and/or sentences were identified during the document

analysis phase, and later during the interview phase, each document was reanalyzed.

Reanalysis included rereading the documents, recorded notes, and keyword/key term

searches.

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Table 3: Webers Six Steps of Document Analysis

Step Process
Step 1 Define the unit to code [Word, sentence, paragraph, or whole text]

Step 2 Define the category [determination of the category and its breadth]

Step 3 Per-testing of sample text [determining the accuracy and reliability of coding]

Step 4 Recoding to test and determine reliability

Step 5 Coding for actual content for analysis

Step 6 Determining the achieved reliability, validity and trustworthiness

Source: Weber, R. (1990). Basic content analysis. Thousand Oaks, CA: Sage.

SECTION 4.3.2 - INTERVIEWS

Informed by the literature review, the findings from the document analysis were

used as a foundation from which the interview questions, outlined in the Interview

Protocol [Appendix 8], were developed. These questions were posed to key informants

in the second phase of this research. The interview phase consisted of semi-structured

interviews with various senior administrators and faculty holding administrative

positions at the target universities. Key informants held titles including president, vice

president, provost, vice provost, dean, associate dean, chair, chief administrative officer,

and chief budget officer, among others. All possessed direct and working knowledge of

the decentralized budgeting structure at their respective universities. These interviews

were recorded and transcribed verbatim, allowing for coding and the identification of

salient themes.

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A semi-structured interview protocol was chosen for this study because it allows

key informants to speak to a wide range of subjects, experiences, and opinions, while at

the same time allowing the researcher to provide structure to the process. It also allows

for follow-up and the introduction of probing questions. This format ensured that the

information collected was appropriate and useful to the study.

Semi-structured in-depth interviews were conducted with senior administrators

[e.g. administrative officers, directors, executive directors, vice presidents, presidents,

provosts and rectors] and senior faculty at each of the four target institutions. These

individuals were chosen due to their involvement with budgeting and management

responsibilities at their respective universities. These interviews were undertaken with

the intention of producing an extended discussion that provides depth and detail about

the research topic (Rubin & Rubin, 2011). As this research is interested in the cultural

aspects of the organization [regular practices, rituals, behaviours, and perspectives]

open-ended questions were used. This approach provided the informants with direction

that encouraged active listening on my part, as opposed to insistent questioning.

The semi-structured interview was also selected because it is helpful in

reconstructing historical events (Rubin & Rubin, 2011) and in constructing a full

description that combines many viewpoints and creates a complete picture of events.

The semi-structured interview technique, along with the analysis of institutional

documents and reports, was used collaboratively so that the validity of the interview

84
data could be established through a process of comparison and triangulation (Weiss,

2008).

SECTION 4.3.3 CASES

4.3.3.1 - CENTRAL CANADIAN UNIVERSITY

Central Canadian University was founded in the early 1800s and can be

considered a leader in teaching and research both within Canada and internationally.

Central Canadian University is one of Canadas largest universities, with 18 faculties

offering more than 800 academic programs, at three geographically distinct campuses,

to a student population exceeding 80,000 (Central Canadian University, 2013a). Due in

part to its size and organizational complexity, Central Canadian University began the

formal process of implementing a decentralized resource allocation and management

system in 2004. The initial goal of this transition was to make the opaque and

unwieldy budgeting model, which limited the ability of the institution to control costs

and promote entrepreneurial revenue-generating behaviour, more transparent and

rational (Central Canadian University, 2011a).

Like many other universities, Central Canadian University historically used a fund

accounting budget process with four segregated funds that included: operating;

ancillary operations; capital; and restricted (Central Canadian University, 2007).

Faculties were funded through a relatively fixed formula resulting in an environment

where academic administrators were not given the ability to access the information

85
needed to assess the financial implications of their units academic priorities. As such,

many decisions had to be made on an ad hoc basis (Central Canadian University, 2006).

The result was that a faculty could invest in a project or program with little

understanding of its effect on the bottom line. The expense budget for each operating

unit consisted of two parts: base allocations and one-time-only allocations. The base

allocation was established from a historical value that was intended to match the cost of

delivering the programs and services for which the unit was responsible. One-time-only

allocations were received from the institution and were intended to cover expenses that

were non-recurring. As an example, non-recurring expenses could include the purchase

of laboratory equipment or start-up funds for new faculty members. Each year, the base

budget was adjusted to account for changes due to salary increases, post-tenure review

cost recovery, and special allocations made by the provost [e.g. new positions] (Central

Canadian University, 2006). But the resulting budgets were not based on a detailed

assessment of expenses; the overall budget structure could be viewed as an expense-

based budget that was subject to the constraints of the available resources of the

institution.

Although this fund accounting approach to budgeting allowed for stability

through the historically derived base budget for units, it suffered a number of

disadvantages, including changes in program demand, lack of transparency, lack of

incentives, and ever-increasing complexity (Central Canadian University, 2006). As the

current-year base budget allocations were historical in nature, it was difficult to

determine how the budget of a specific unit had been arrived at. Thus, the amount of

86
the base budget could not be reviewed with regard to its appropriateness for the units

current operations and offerings. This decreased the incentives for unit-level leadership

to either increase revenues or to reduce expenses. Finally, the budget had become

difficult and costly to manage due to the many arrangements for revenue- and cost-

sharing implemented over the years and the increasing size and complexity of the

institution.

Before Central Canadian University moved away from the fund accounting

structure, a number of changes to the budgeting system took place. In the 2002-03 fiscal

year funding for the School of Management was changed to a model based on RCB/M;

however, this new model was only applied to incremental revenue and expenses.

Additionally, the Institute for Studies in Education [ISE] was granted a special ten-year

agreement stemming from its 1995 merger with Central Canadian University. This

agreement meant that ISE was allowed to carry forward any budget surplus and that

shortfalls would be billed to the following budget year. Also included in this agreement

was a transfer grant, beginning in the 1995-1996 fiscal year, in the amount of $785,000;

over the subsequent nine years of the agreement, the transfer grant was reduced in a

linear fashion until it reached $78,500 in 2004-2005 fiscal year (Central Canadian

University, 1994). Of final note, one of Central Canadian Universitys satellite campuses

experimented with an RCB/M structure for the fiscal years of 1997/1998 through

2002/2003 before returning to the general universitys accounting process in

2004/2005.

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Confronted with a large and complex budget process, university leadership

determined that a change in budgeting and management structure was needed. An

RCB/M structure was chosen and labeled the New Budget Model (Central Canadian

University, 2006). The intent was to create a fundamental change in the way that

decisions were made while simultaneously altering the structure and nature of

academic leadership at the university. The transition in organizational form and

structure culminated in the development and implementation of the New Budget Model

in the 2006-07 fiscal year.

The selection and implementation of an RCB/M structure was, in part, a

response to continued financial pressures and the need for increased responsiveness

and institutional efficiency (Deering & S, 2014; Garner, 2008; Central Canadian

University, 2012a). The university had experienced financial constraints including

increasing internal costs, provincially regulated tuition, and decreasing government

funding [on an inflation adjusted basis]; these trends were expected to continue

(Central Canadian University, 2003). However, Central Canadian University, which is one

of the largest comprehensive universities in Canada with the largest number of students

receiving financial aid, has a unique experience of financial constraints in Canada due to

its size, location, research focus, and comprehensive nature. In a recent review of the

decentralized budget and management model, the university found that the

transparency of decisions was increased, and units displayed faster response rates and

creativity when faced with financial challenges. It was also detected that the

decentralized budgeting and management structure has allowed the institution and its

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constituent units to manage resources so that fewer program and service cuts are

necessary (Central Canadian University, 2011a). Examples of improved resource

management include a rationalization of space usage initiated by academic units,

reduction of duplicate services, and active enrollment monitoring (Garner, 2008; Central

Canadian University, 2011a). The Chief Financial Officer has stated that the

decentralized budgeting and management structure is the exactly correct structure to

survive the increasing financial pressures and thrive going forward (Central Canadian

University, 2011b).

4.3.3.2 - MIDWESTERN U.S. UNIVERSITY

Founded in the early 1800s, Midwestern U.S. University was one of the first

public universities in the Northwest Territories of the United States of America. Today it

boasts three campuses, and employs over 8,500 faculty members. The University serves

a student population of more than 59,000 students across all levels of tertiary

education. It is ranked as a world class research-intensive university by many of the

international ranking systems and in the 2012-13 academic year had 99 graduate

programs ranked in the top ten in the United States (U.S. World News & Report, 2013).

Midwestern U.S. University is the largest public university in the state, with an operating

budget of $6.3 billion US dollars in the 2012-2013 fiscal year and an $8.6 billion US dollar

endowment (Midwestern U.S. University, 2013).

89
Midwestern U.S. University faces many of the same environmental forces that

the other three sample institutions face, including: 1. increasing national and global

competition; 2. decreasing state appropriations; and 3. increasing operating costs

(Midwestern U.S. University, 2013). Additionally, due to the uncertain financial

circumstances within the state, Midwestern U.S. University faces significant future

financial challenges to its academic programs.

The state where Midwestern U.S. University is located has a decentralized

system of institutional governance for its publicly funded universities, referred to as a

planning agency model (McGuinness, 1997). Under this model, each institution has its

own governing board. Midwestern U.S. University has a single Board of Regents that

oversees its three campuses. The board includes eight elected trustees and the

institutions president, who serves as an ex-officio member. Each of the public

universities in the state has constitutional autonomy that allows the institutional

governing board total control of management and planning.

Midwestern U.S. University should be considered an early adopter of

decentralized budgeting and management practices and is often cited as a model case

by other universities investigating the use of RCB/M. Although the official

implementation of the Value-Centered Management model occurred in the 1995-1996

fiscal year, Midwestern U.S. University had begun decentralizing management

responsibilities in the mid-1980s, ultimately easing the transition to full decentralization

(Elgass, 1995). In 1999, the university modified the Value-Centered Management model

90
and rebranded it as the University Budget Model and System, which is based in an

activity-based budgeting approach (Kohrs, & DeGraff, 2005).

Value Centred Management was a highly decentralized model, in the spirit of the

culture of decentralization that was ingrained at Midwestern U.S. University. However,

unlike a strict RCB/M model, it provided a central fund to ensure that certain valuable

programs and services that would operate at a deficit under RCB/M would be protected.

The university collectively was expected to work together to enable those important

and non-self-supporting activities to continue and flourish (Cantor & Courant, 1997).

The change from the Value Centred Management model to the University

Budget Model and System was not in name only. The new budget model is considered a

more centralized structure allowing for more influence and oversight to be provided by

the central administration. The oversight and communication is made possible by the

sharing of information that happens among the Provost, Deans, Executive Officers and

academic leadership within the budget system. It is also considered an activity-based

model with revenues following the activities that units engage in to generate those

revenues (Courant & Knepp, 2000). The underlying logic of the activity-based approach

is that the costs and revenues are most clearly seen where the activities are

undertaken in the schools, colleges and research units (Courant & Knepp, 2000, p.4).

Such a structure allows the central administration and unit leadership to observe the

threats and opportunities of the budget. As an example, a unit that experiences

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decreasing enrollment will be brought to the forefront of discussion through the

budgeting model.

Tuition attribution for undergraduate students followed the unit of enrollment

rather than the unit of instruction, and revenues for units were therefore based upon

the number of registered students. This was changed in the 2002-03 fiscal year to a

combination of the unit of enrollment [75%] and unit of instruction [25%] and changed

again in the 2009-10 fiscal year to an even split between the unit of enrollment and unit

of instruction (Hanlon & Schweitzer, 2008). During the 2009-10 fiscal year, the tuition

attribution formula for masters and graduate professional levels also changed to a

combination approach [75% to the unit of enrollment and 25% to the unit of

instruction]. This was done to encourage interdisciplinary study, which is an element of

Midwestern U.S. Universitys culture, and is deemed a strength of its offerings.

Further, Courant and Knepp (2000) identified that under this model it is

expected that few units will be financially self-supporting, but will rather need

supplemental support from the central administration. The General Fund Supplement

represents a fund of resources allocated by the Provost to units beyond the revenues

and costs allocated by the model. This allows the Provost leverage and influence in the

decision-making processes of units. Thus, there is not the expectation that each unit will

function as a tub on its own bottom.

The University Budget Model and System is used by the Provost to develop the

general fund budgets of the units. Information, including faculty, quality, salary

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pressures, national trends in various academic fields, legal requirements, and individual

departments (Hanover, 2008, p.9), is collected by the Provosts office to inform budget

allocations. However, these budget determinations made by the Provost are completed

at a high level for each budgeting unit, allowing for autonomy of decision-making by the

deans, vice presidents, and directors of the budgeting units. It has been noted that this

model is not intended to provide a standard template to guide budgeting and decision-

making within the units. As Courant and Knepp (2002) argue, there is no expectation

that the deans will follow the guidelines of the University Budget Model and System

when making decisions regarding resource allocations for the separate departments and

areas within their respective schools.

The University Budget Model and System allows the central administration more

considerable discretion and oversight and encourages a great deal of communication

and interaction between the central administration and units. Through tuition

attribution, interdisciplinary teaching and programs are also encouraged. This approach

is thought to have provided university leadership [both at the central level and unit

level] with a clear understanding of the financial implications of the activities of the

institution and its units. It also encourages a considerable level of flexibility for the units

to adjust to changing trends and fiscal circumstances.

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4.3.3.3 - EASTERN U.S. UNIVERSITY

Eastern U.S. University is a mid-sized public university located in the

northeastern United States. Founded in the mid-1800s, it provides academic programs

at the undergraduate, graduate, and doctoral levels to over 15,000 students and

employs nearly 1000 full- and part-time faculty members. Composed of eight colleges

and the Graduate School, it offers over 2000 courses in over 100 majors and acts as the

primary state research institution in its state. Eastern U.S. University had a budget of

$538.5 million US dollars in the 2012 fiscal year and held a $216.9 million US dollar

endowment (Eastern U.S. University, 2013).

Before the implementation of RCB/M at Eastern U.S. University, a centralized

budgeting model was used. All revenues, including tuition, state appropriation revenue,

and indirect cost recovery revenue, flowed to the central administration. A university

budget panel then allocated the revenue to departments using an incremental

budgeting model. On July 1, 2001, Eastern U.S. University started to use RCB/M as its

budgeting and management model to improve incentives for sound fiscal management

and help all levels of University management make informed financial decisions about

activities to support the Universitys mission (Eastern U.S. University, 2000, 2005; p.1).

In 2006, a formal review process of RCB/M was undertaken. The findings suggested that

RCB/M was a work in progress. Key areas of concern were the models complexity,

fairness in outcomes, the alignment of behaviour and decision-making with the mission

of the institution, and the need for strong governance mechanisms to provide oversight

to the units. In 2009, another review of RCB/M was undertaken (Eastern U.S. University,

94
2010). Five key findings emerged: the need to 1. align RCM incentives with institutional

goals; 2. identify the source of central strategic funds; 3. simplify RCB/M; 4. develop

greater financial accountability for all units; and 5. implement strong incentives for net

revenue growth.

Eastern U.S. University is overseen by the statewide University System Board

that is comprised of twenty-seven members including the State Governor, eleven

Governor-appointed members, six alumni-elected members, the Commissioner of

Education, the Commissioner of Agriculture, the presidents of the University Systems

four colleges and universities, and the Chancellor, who acts as the chief executive

officer. Six standing committees are responsible for the general oversight and

management of the University System. This board is responsible for meeting the higher

education needs for the State and endeavours to direct the system to assure the

availability of appropriate programming and higher educational opportunities. It

operates at a strategic level for the system as a whole, allowing for high levels of

autonomy for the university Presidents, who are responsible for the strategic planning

of their respective universities.

Eastern U.S. University is located in a state whose political structure tends to be

individualistic and decentralized. Often this state is referred to as possessing a culture of

rugged individualism and personal responsibility. This political and cultural perspective

aligns well with the premise of RCB/M. However, it has also been identified as the

reason for decreasing state appropriations for its universities. In light of the economic

95
crisis in the United States and resulting severe budget cuts from the state, Eastern U.S.

University, which suffered a 49.9% cut in state appropriations in 2011 [it was already the

lowest funding on a per student basis in the United States], has begun a review of

RCB/Ms ability to align budget decisions with its mission and strategic plan

(Huddleston, 2010). As the President of Eastern U.S. University noted, We are like a

ship with scores of independently operated rudders. We require greater balance if we

are to achieve our strategic purposes (n/p).

4.3.3.4 - WESTERN CANADIAN UNIVERSITY

Founded in the 1960s, Western Canadian University, located in western Canada,

is the smallest of the provinces six universities. Nine of the twelve interviewees from

Western Canadian University commented that the university operates in the shadow of

its two dominant provincial big brothers. Composed of three campuses that are

geographically disparate, Western Canadian University serves 8,253 full- and part-time

students at the undergraduate and graduate levels (Western Canadian University,

2013a). Its operating budget was $162 million in the 2012-13 fiscal year (Western

Canadian University, 2013b).

Western Canadian University can be considered an early adopter of RCB/M;

although the budget model was formally named the Instructional Fee Allocation Model

[IFAM], it is considered an RCB/M structure and as such it will be referred to as RCB/M

throughout this paper. The impetus for the transition to a decentralized model at

96
Western Canadian University began in the early 1990s, when the provincial government

instituted drastic funding decreases for higher education institutions (Western Canadian

University, 1999; Tavenas, 1993). These cuts severely affected the ability of HEIs across

the province to operate and deliver programs (McConaghy, 1997). As a response to the

fiscal pressures, the university began to explore a decentralized budgeting and

management model (Jarvie, 2002).

Before implementing a decentralized budget model, Western Canadian

University utilized a fund accounting structure. The centralized fund accounting model is

used by many governments, universities, and non-profit organizations. Fund accounting

is a model that tends to emphasize accountability and ease of oversight rather than

profitability and efficiency. It is characterized by a number of segregated funds that are

a set of accounts for specific, predetermined purposes. Generally, these funds fall into

one of two categories: restricted or unrestricted. Restricted funds are those that must

be spent for specified purposes and are often bound by laws and regulations.

Unrestricted funds are those that can be used for any expenditure and are most often

used for the day-to-day operations of the university. The use of fund accounting is

appropriate for those organizations that receive revenues from a variety of sources,

must ensure the resources are used properly and are not comingled, and require unique

identification and reporting on each of the individual funds. Generally speaking, this

budget model directs all revenue streams to the central administration where they are

then redistributed to the various units. Consequently, the various academic and service

97
units are often unaware of the costs and revenues associated with their operations, and

may have no knowledge of the resulting consequences (Hearn et al., 2006).

The decision to change the budgeting and management structure at Western

Canadian University was made in 1992, with implementation taking place in the 1994-95

fiscal year (Western Canadian University, 1994, 2012a). Citing the successes of some

large U.S. private universities [specifically the University of Pennsylvania and the

University of Southern California], Western Canadian University expected that this new

model would allow academic deans more flexibility in dealing with the substantial

decreases in government funding through the increased incentives for cost

containment, efficiency, and revenue maximization (Jarvie, 2002). The consensus in the

early 1990s was that RCB/M was needed to increase efficiency and drive revenue

growth for the institution at the faculty level by allowing the deans to act in an

entrepreneurial fashion and by holding them responsible for their decisions. RCB/M

was selected as a structure that would encourage fiscal responsibility and act as a

continuous improvement mechanism for the Western Canadian University (Western

Canadian University, 2012b).

Although Western Canadian University has realized increased efficiencies from

the decentralization process, there have also been unanticipated hurdles (Western

Canadian University, 2012a). Namely, the decentralized system at Western Canadian

University has been a source of confusion for departmental budget managers who have

noted that there is not a clear relationship between departmental budgets and

98
institutional goals. Additionally, increasing tensions between units has resulted in

challenges to collegial governance. The decentralized system that was implemented at

Western Canadian University is complex and faculty members have noted that it took

several years before they fully understood the process and could contribute in a

meaningful manner.

In 2012, more than a decade after implementation, Western Canadian

University initiated a full review of their budgeting processes, with the goal of improving

their effectiveness and efficiency (Western Canadian University, 2012a). In January

2012, the Presidents Task Force on Budget Process was given the responsibility to

review the RCB/M structure at the university and make recommendations to the

President (Western Canadian University, 2012c, 2012d, 2012e). In this review, the Task

Force consulted with a number of the universitys stakeholders, soliciting feedback and

ideas about the budget process with the goal of fostering collaboration across units and

faculties (Western Canadian University, 2012a; Mahon, 2012). Consultations began with

a Senior Leaders Retreat and continued through meetings with the University Budget

Committee; chairs, program coordinators, and department heads; the Financial Officers

Group; three open forums; the Executive Directors Council; Academic Council; Deans

Council; and Faculty of Arts and Science Chairs and Coordinators. The consultations

resulted in the identification of numerous components of the budget process that serve

the University well. However, they also revealed a number of concerns and potential

opportunities for revising the budget process. The recommendations that were

forwarded by the Presidents Task Force on Budget Process (2012) included processes

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for integrating the budgeting fully with the universitys plans and priorities, creating a

budget process that is understandable and transparent, ensuring that the budget

process is consultative, documented, and timely in nature, and ensuring that the budget

process becomes iterative in nature, addressing items and issues as they occur (Western

Canadian University, 2013c).

The state of budgeting at Western Canadian University has dramatically changed

since the interviews for this study took place. After consideration of the findings of the

Presidents Task Force, University leadership opted to replace the RCB/M structure. As

of April 1, 2014, the university has adopted a centralized budgeting and management

process as a response to the numerous challenges they faced under RCB/M.

SECTION 4.4 - INFORMANTS

To collect interview data, informants were identified and contacted with a

request to participate in a 60 minute interview [Appendix 9]. Background information

on each of the four institutions had previously been gathered during the document

analysis phase of data collection; this information informed the selection of interview

participants at each institution. The decentralized budgeting and management structure

at each university was mapped out, including the identification of budgeting units and

potential individuals that could become informants. These potential informants were

chosen because their job responsibilities suggested that they would be knowledgeable

about budgeting and management at their university.

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Informants are those individuals that are able to provide information through

formal interviews and informal verbal interchanges or conversations (Miller &

Crabtree, 1992, p. 71). Each of the individuals identified were well-informed about, and

influential in, their budgeting unit or the institution as a whole. Marshall and Rossman

(1999) suggest that informants are those from whom the most can be learned and who

possess special or unique insights into the topics under investigation. The process of

interviewing such people is intended to encourage a representative perspective to

emerge through the information and opinions that the informants relate (Miller &

Crabtree, 1992).

In this study, a total of 200 individuals, selected equally from all four institutions,

were contacted based on their knowledge of the budgeting, management, and

governance structures of their respective universities. Fifty-five total interviews were

conducted, with sixteen from Midwestern U.S. University, fifteen from Eastern U.S.

University, twelve from Western Canadian University and twelve from Central Canadian

University.

Using the Interview Protocol, participants were asked to describe their

experiences with RCB/M, their respective universities governance structures, and the

resulting organizational outcomes. Of particular interest were the discussions

surrounding unit-level autonomy, lateral coordination, vertical coordination, and unit

differentiation, and the perceived effect on resource allocation decision-making. The

intent of these interviews was to uncover relationships between the three factors of the

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internal structure model and organizational outcomes as affected by the use of RCB/M

and employed governance control form.

Each informants right to and desire for confidentiality was acknowledge and

honoured throughout the entire research process. During the recording of each

interview, the informants name and position was not mentioned. Each digitally

recorded file was given a code to remove information that could identify the informant.

Although the information about the budgeting, management, and governance

structures of the universities was in the public domain, the information regarding the

key informants experiences and opinions was at times particularly sensitive and needed

to be treated justly.

In addition to the above-mentioned steps taken to protect the informants

confidentiality, the following steps were taken to protect them in accordance with the

Humans in Research process as outlined by the Research Ethics Board at the University

of Central Canadian University [Appendix 10]. All informants were contacted individually

via email [Appendix 9] to introduce myself, explain the study, and ask whether they

would be willing to participate as interviewees. If they were willing to participate, a

follow up email was sent that included the Interviewee Consent Form [Appendix 11]. At

this time, an appointment for the interview was made. In the week preceding the

scheduled interview, participants were e-mailed a copy of the Informed Consent Letter

[Appendix 12]. The consent form asked whether the interviewee gave permission to be

confidentially interviewed, and to have the interview digitally recorded. The executed

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Informed Consent Letter was collected at the beginning of the interview, after its

contents were reviewed with the interviewee, before any interview questions were

asked. All interview participants were left with a copy of the Informed Consent Letter.

All but three of the interviews were conducted in-person, in the key informants

office, and with the exception of one interviewee who did not wish to be recorded, all

were digitally recorded and later transcribed. Those interviews not conducted in-person

were conducted via telephone. To facilitate the interview schedule, one eight day trip

was made to Midwestern U.S. University, one six day trip was made to Eastern U.S.

University, one six day trip was made to Western Canadian University, and seven days

were taken to meet with individuals at Central Canadian University. The interviews took

place between February 2014 and April 2014, with interview sessions ranging in length

from 45 minutes to 120 minutes. All interviewees were generous with their time and

forthcoming with their responses, resulting in a generally high quality of interview.

The researcher ensured that notes were taken before the interviews, detailing

the surroundings in an attempt to help build a context to reference during the coding

and analysis of data. Field notes were taken during the interviews to help the researcher

augment the responses provided by the informants and to make observations during

the discussion. After the interview, the researcher took twenty to thirty minutes to

reflect upon the interviews and record any additional thoughts about the discussion.

The researcher believes that theoretical saturation was reached during the

interview process at each institution with regards to this study. The people interviewed

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provided a rich and thorough representation of the interactions, processes, procedures,

impacts, and outcomes of the budgeting, management, and governance control form of

their university. The semi-structured interview process allowed the key informants to

speak about the areas of decentralization, governance, management, decision-making

oversight, cooperation, and coordination that they felt were most important.

SECTION 4.5 - INTERVIEW PROTOCOL

The interview protocol used in this study [Appendix 8] acted as a tool that

allowed the researcher to help guide and direct the conversations with key informants

without affecting the interviewees frames of reference. The protocol provided

structure for the interview and helped the researcher gather the data needed for this

study. As Borg and Gall (1989) suggest, the protocol provided for the standardization

from all subjects in the sample (p. 471).

The protocol outlined questions intended to uncover information based upon

the three main areas of interest [lateral coordination, vertical coordination, and unit

autonomy] as they relate to the budgeting, management, and governance structures of

the four universities. A number of questions regarding general topics surrounding the

understanding of decentralized budgeting and management structures, as well as the

general structures and mission of the institution, were asked to help uncover the

informants perspectives and frames of reference. However, the protocol was designed

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to allow for the interviewees own perspective to unfold naturally and without

interference (Marshall & Rossman, 1999).

SECTION 4.6 - DATA ANALYSIS

The analysis of interview data was completed in two stages. The first stage

involved an examination of the data for each of the four HEIs selected for this research.

The result of this examination was the development of a detailed case study narrative

for each of the institutions (Eisenhardt, 1989). The institutions were analyzed in an

effort to identify unique themes, patterns, concepts, and categories that aligned with

the theme categories of vertical and lateral coordination, unit autonomy, unit

differentiation, governance and oversight structures, and organizational outcomes

identified in the research questions. The second stage focused on inter-case comparison

and was utilized to identify related themes and unique features in each of the four HEI

case studies. A matrix for intra-case and inter-case comparison was composed for

analysis purposes [Appendix 13].

The process of data analysis [Appendix 6] began with the creation of the coding

scheme [Appendix 14]. This was the start list used when first considering the data

collected during the document analysis and interviews. The data was sorted and coded

during the data collection phase. An integral part of this process was the identification

of themes, keywords, and key terms, resulting in the addition, deletion, and

modification of codes and code definitions. Once all the interviews were completed, the

main conceptual categories were summarized. Again, this was an iterative process

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requiring the researcher to revisit both the documents used in the document analysis

and the interview data numerous times. The final stage of the data analysis process was

the creation of matrices to triangulate data from the multiple respondents and

documents [Appendix 15].

SECTION 4.7 - VALIDITY AND RELIABILITY AND THEIR RELATION TO THIS STUDY

The merit of any qualitative study is measured by its validity and reliability

(Patton, 2005). The strengths of this study are its validity and reliability. The following is

a general discussion of validity and reliability and how the researcher can persuade

hisaudiences that the research findings of an inquiry are worth paying attention to"

(Lincoln & Guba, 1985, p. 290).

Halpin and Troyna (1994) define validity as the extent to which the data we

collect relates to and can answer the research question asked (p. 163). The general

concept of validity is broken down into three sub-constructs: construct, internal, and

external validity (Pandit, 1996). Construct validity is achieved by establishing operational

procedures, while internal validity is concerned with establishing causal relationships;

external validity focuses on establishing generalizability [Table 4]. Simply stated, validity

is the measure of the strength and quality of the collected data, analysis, and research

design. To ensure the validity of this study, Yins (2009) tactics for case study design

were followed.

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Table 4: Yins Tactics for Case Study Design

Tests Yins Case Study Tactic to This Studys Tactic to


Achieve Validity Achieve Validity
Construct Validity Use multiple sources of Document analysis and
evidence multiple key informants
used for each case
Establish chain of Specified process of data
evidence collection from both
documents and
interviews
Have key informants Key informants invited to
review transcripts review and comment on
transcripts
Internal Validity Do pattern-matching Pattern-matching
completed during data
analysis
Do explanation-building Part of the iterative
process of data analysis
External Validity Use replication logic in Four case studies
multiple case studies completed
Source: Yin, R. (2009). Case Study Research. London, UK: SAGE Publications.

This study has relied on multiple sources of information about the four

institutions to build each case, including historical information, institutional documents

and reports, interview data, and field notes. The extant literature of governance,

budgeting, management, and organizational design was used as a theoretical

foundation for this study. The triangulation process used the data and information

provided by all these sources to help verify findings.

During the interview process, the themes and subjects that informants chose to

speak about were generally similar, though some of their views differed. Enough of the

informants held approximately the same viewpoint, and subsequently found support

from institutional and historical documents, that a high level of confidence in the

findings is merited. The convergence of data from the interviews and document analysis

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provided for theoretical saturation, which Miller and Crabtree (1992) describe as the

convergence in understanding between methods that result in the data being more

reliable and valid.

To ensure the accuracy of data collected during the interviews, informants were

invited to review their transcripts and provide follow-up. This allowed the researcher to

be confident in the triangulation of data from a variety of research tools, and collected

from multiple sources, resulting in a more complex understanding of the processes and

effects of RCB/Ms use in universities.

With regard to Yins argument for constructing a chain of evidence, the narrative

presented in this study provides a logical map allowing the reader to follow and

understand the foundation of the study, the method of data collection and analysis, and

the resulting findings. A transparent chain of evidence has been developed that leads to

the findings in subsequent chapters.

To achieve internal validity, an explanation-building strategy was chosen. As Yin

(2009) states, In a multiple-case study, one goal is to build a general explanation that

fits each of the individual cases, even though the cases will vary in their details. The

objective is analogous to multiple experiments (p. 112). Ultimately, the data collected

during this study has been used to build a narrative that provides an explanation for

what has happened and is happening at these four universities.

Focusing on the generalizability of this study, and by extension on its external

validity, the multiple case study approach was employed with the intention of providing

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for analytical generalization and allowing for the results to be applied to a broader

theory (Yin, 2009). Although the intent of qualitative research is not to generalize

findings, but rather to interpret unique events and contexts (Merriam, 1998), the

similarity in findings between cases with regard to themes, relationships, and structures

should provide for limited generalizability and for support of the three-factor theoretical

model proposed. The application of the research methods described above to each of

the four cases has created a greater ability to generalize, make recommendations, and

provide a framework for future studies and testing.

Pandit (1996) argues that reliability requires the processes of the study, such as

data collection and analysis, to be repeatable and result in the same or similar results.

Yin (209) outlines two steps needed to achieve reliability: 1. use of a case study

protocol; and 2. development of a case study database. To ensure the reliability of this

study, a case study database was developed and a case study protocol was followed. It

should be noted that the replication of qualitative case studies is difficult due to their

particularly individual nature. However, through the document analysis and interview

processes, enough data was collected to allow others to apply the findings in similar

cases.

The specified processes of: 1. constructing the Interview Protocol; 2. building and

deploying the research questions; 3. the iterative creation of a coding scheme; 4.

reviewing throughout the data collection processes; and 5. sorting and analyzing data;

have resulted in the triangulation of data and findings. The Interview Protocol helped to

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strengthen the ability to compare the information gathered from informants.

Subsequently, this allowed for the development of an analytical framework during the

data analysis phase; this framework served to order and analyze the data in an attempt

to strengthen the reliability of this study.

SECTION 4.8 - LIMITATIONS OF THIS STUDY

This multiple case study approach was meant to encourage the validity and

reliability of this study. Various tools were used to gather information and develop the

four comparative case studies presented. The research tools were intended to develop a

better understanding of the effects of RCB/Ms use at universities, the governance

structures employed, and the effect of organizational structure. All this was done to

start the testing process of the three-factor model of organizational design presented in

Chapter Three. However, this study is not without its limitations. Although all effort has

been made in the creation and application of the research-method structure outlined

above, some limitations exist.

First among the limitations of this study is a reflection of the quantity and

complexity of the data gathered during the document analysis and interview stages. Due

to the amount of data gathered, the analysis was a difficult task, and some of the

nuances may have been lost as it was incorporated into this study. Additionally, the time

and resources needed to complete this study, in terms of the cost of travel,

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transcription services, analysis, and crafting this report, were significant and acted as a

constraint.

The second limitation of this study is researcher bias. As only one researcher was

involved in the data collection and analysis, this study was subject to a single

interpretation. Although multiple sources [document analysis and interviews] were

utilized and completing interviews with fifty five participants helped to triangulate the

findings and provide a convergence of ideas and of themes, the findings were all viewed

through a single researchers lens.

Third, this study is limited in terms of which individuals were selected, agreed to

be interviewed, and, more importantly, refused to be interviewed. Although the

number, position, and experience of those interviewed should be considered more than

adequate, it should be noted that a number of key individuals (eg. certain presidents,

provosts, senior budget officers, and deans) were not able to be interviewed due to

scheduling conflicts or lack of response. The inability to interview everyone suggests

that some points of view were not captured in the interview process.

It should be noted that the researcher took every available step to mitigate the

limitations of this study. Seeking numerous key informants at each university, applying

the Interview Protocol, recording field notes, and seeking verification from key

informants were all steps taken to alleviate limitations. Through a meticulously

constructed approach, and careful execution of the research design, many of the

limitations in this study were reduced or eliminated.

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CHAPTER FIVE

FRAMING VERTICAL COORDINATION

It isnt all about money, but it was mostly about money.


(personal communication, April 2, 2014)

SECTION 5.1 INTRODUCTION

This chapter presents the data and resultant findings pertaining to vertical

coordination. Vertical coordination provides a concept to evaluate the presence and

degree of alignment, cooperation, and coordination between the central administration

of an institution and the individual units. Vertical coordination is evaluated by

considering the degree of cooperation and coordination, or competition and conflict,

present at an institution. As discussed previously in Chapter Three, the levels of

cooperation and coordination will have a material impact on a variety of matters in

universities, including: 1. competition between units; 2. interdisciplinary programs; 3.

cross appointments of faculty; 4. opportunities for new programs at the intersection of

traditional knowledge domains; and 5. the development of programs offered across

multiple units that provide increased value for students. It is noteworthy that a

significant degree of consensus regarding the relationships between central

administration and units, and between units, was espoused by the interview

participants with regard to their respective institutions.

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A discussion of the essential features that influence vertical coordination at the

four universities is presented, including governance control form, budgeting,

management, and institutional structure. Although differences in institutional

characteristics existed, thematic similarities were present within and across these

institutions. Interviews with 55 participants revealed many shared experiences and

provided consistent reinforcement of general themes. In this chapter the common

themes are presented along with a case study analysis of each institution. A distinct

discussion will be provided for each institution, followed by a discussion of the four

propositions relating to vertical coordination.

SECTION 5.2 - MIDWESTERN U.S. UNIVERSITY

Informants identified three broad themes that impact vertical coordination at

Midwestern U.S. University: 1. the role of the central administration; 2. changing unit

oversight and central administrative influence; and 3. a model of management and

oversight that blends interactive and diagnostic control. At Midwestern U.S. University

the central administration provides support for units while serving as a unifying agent by

applying both interactive and diagnostic management techniques. A more in-depth

exploration of the vertical coordination present at the University will be discussed

below.

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5.2.1 - THE ROLE OF THE CENTRAL ADMINISTRATION

At Midwestern U.S. University the central administration acts in a federal

capacity, providing resources and support to units while acting as a coordinating force

that promotes the alignment of unit decisions and initiatives with the mission and

strategic goals of the university. Informants identified a wide array of responsibilities

that are held by the central administration, including the: 1. establishment of

institutional strategy; 2. provision of internal regulatory controls and oversight for unit

decision-making; 3. management of capital investments and projects; and 4.

responsibility operations and general management. These responsibilities can only be

acted upon successfully when vertical coordination between units and the central

administration is sufficiently strong as to promote communication and cooperation.

Informants identified three factors that determine the efficacy of the central

administration and its relationship with units: 1. the retention of central financial

resources; 2. the presence of processes, both formal and informal, that promote vertical

discussion, negotiation, and collaboration; and 3. the central administration serving as a

resource for units.

5.2.2 - THE IMPACT OF CENTRALLY HELD FINANCIAL RESOURCES

Midwestern U.S. University has operated under a decentralized budgeting and

management structure for nearly two decades. Over this time period the budgeting

formulas have been periodically revised to more accurately reflect the resource

allocation needs of the institution and to promote operational efficiency. Under the

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Budget Model and System [a revised version of the Value Centered Management [VCM]

model, and the RCB/M structure currently in use by Midwestern U.S. University] the

central administration wields significant power and is able to direct strategic initiatives

through the retention of financial resources, collected via holdbacks and taxes on unit

revenue (Courant & Knepp, 2002). These resources also allow the central administration

to provide support for important but non-self-supporting programs, and provide funds

to help units weather fiscal challenges (Courant & Knepp, 2002; personal

communication, February 20, 2014).

As a consequence of the increase in centrally held financial resources, the central

administration is able to exert increased influence over unit decision-making via the

disbursement of funding to units. Historically under the VCM model the central

administration was only able to oversee unit decision-making at a high level, with little

real influence over the growing budget deficits (personal communication, February 18,

2014). The inability to influence unit-level resource allocation decisions was manifested

by units funding programs with declining enrollment, resulting in structural budget

deficits (personal communication, March 11, 2014). Consequently, these units did not

have the funds necessary to invest into growing and increasingly popular programs,

limiting their ability to grow enrollment and revenues and stay relevant (personal

communication, February 17, 2014) for students. Under the UBM, the ability of the

central administration to influence unit decision-making has increased. The

maintenance of central funds has enabled the central administration to provide

incentives and one-time investments that align unit decision-making with the overall

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strategy of the University (personal communication, February 17, 2014; February 18,

2014; February 19, 2014; February 21, 2014; March 11, 2014). Centrally held funds are

accessed via a bidding process whereby units present detailed plans and rational that

justifies how the funding will support the institutions broader mission and strategic

direction (personal communication, March 11, 2014). Informants lauded these

incentives and investments as helping to promote new programs and unit initiatives

that would otherwise be impossible for individual units to implement [due to limited

unit finances] (personal communication, February 17th, 2014).

While the central administration at Midwestern U.S. University provides

oversight for all units, direct involvement in unit decision-making is typically reserved for

units who display structural budget deficits. The result of increased central involvement

can be seen in increased unit revenues and the reversal of the unit deficits, moving units

in financial trouble towards solvency and improving revenues for financially sustainable

units. The increased oversight and influence possible under the University Budget Model

and System has resulted in improved relations and increased communication between

units and the central administration. This improved vertical coordination has

strengthened both formal and informal communication channels and initiated a variety

of vertical interactions between the central administration and units, such as meetings

and presentations (personal communication, February 18, 2014). The improved vertical

coordination present at the University has enabled the continued improvement of

oversight and monitoring practices and the alignment of unit-level strategic decision-

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making with institutional priorities (personal communications, February 17, 2014; March

11, 2014).

5.2.3 - FORMAL AND INFORMAL PROCESSES THAT ENCOURAGE VERTICAL


COORDINATION

In addition to acting as an aligning mechanism, centrally held financial resources

have allowed the central administration to develop formal and informal processes to

encourage dialogue and provide direction, oversight, and support to units. One

informant noted that there is a great deal of collaboration between the various

colleges and the central administration, through formal and informal groups, meetings

and relationships (personal communication, February 21, 2014). One of the numerous

central initiatives intended to encourage [vertical] communication and cooperation such

as the monthly BAG [Budget Advisory Group] meetings (personal communication,

February 19, 2014). The Budget Advisory Group is structured to bring deans, senior unit

administrators, and central administrators from the Provosts and Budget and Planning

offices together to discuss current challenges and opportunities facing the University

and units. Informants reported that the BAG meetings have increased both the

frequency and quality of vertical communication taking place at the University, while

promoting networking and informal lateral communication between unit leaders.

Informants believe that the increased communication resulting from the BAG, and other

centrally supported initiatives, will encourage unit leaders to consider the University as

a whole when making decisions (personal communication, February 21, 2014).

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Additionally, the centrally supported formal processes help to ensure that the budget

system serves, but does not define, the academic commitments of the units and

university (Cantor & Courant, 1997). This relationship allows each college [to be] able

to paddle their own boat but still [be] supported and supervised (personal

communication, February 19, 2014) by the central administration.

The most formal example of vertical interaction at Midwestern U.S. University is

the annual budgeting process3. The Budget Model and System is a hybrid of activity-

based and discretionary budgeting (Courant & Knepp, 2002). The discretionary portion

of the budget [discussed above] is composed of the resources that are centrally held

and allocated to encourage initiatives aligned with the strategic direction of the

University. Conversely, the activity-based based funds are allocated to units

synchronously with student enrollment patterns, sponsored research revenue, and

auxiliary activities. The general fund [or base] budget for each unit is determined

through extensive information sharing between the unit and the Provosts office.

Throughout the year units participate in nearly continuous communication and

consultation with the central administration; these conversations serve as a foundation

upon which units identify current threats and opportunities and develop their budget

proposals. The ongoing vertical interactions allow unit leaders to operate with

autonomy, while facilitating central oversight throughout the budget cycle. The budget

development process culminates with Deans presenting their budget proposals to the

Provost; because of the extensive vertical communication throughout the year, this

3Budget units at Midwestern U.S. University are divided into five distinct categories: 1. schools and
colleges; 2. academic; 3. auxiliary; 4. research; and 5. central service.

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process resembles a discussion rather than a traditional approval process (personal

communication, February 18, 2014; March 11, 2014). Multiple informants suggested

that the data, information, and guidance provided by the central administration during

the budgeting process allows for more informed decisions-making (personal

communications, February 20, 2014; February 21, 2014; March 11, 2014).

In addition to the annual budget process other formal centrally supported

initiatives facilitate vertical coordination. These include Deans and Chairs meetings that

are organized on a regular basis and provide a forum for unit leaders to address

concerns with the central administration while enabling the central administration to

assist units with problem solving (personal communications, February 17, 2014;

February 19, 2015; March 11, 2014); and quarterly budget meetings that engage the

central administration and unit leaders to provide progress updates vis--vis unit budget

plans. These meetings were characterized as light touch interactions by informants and

they provide immediate feedback for units and the central administration and

strengthen the vertical relationships at the University (personal communication,

February 18, 2014; March 11, 2014).

At Midwestern U.S. University, the result of these formal and informal central

processes has been an increase in communication and cooperation between the Office

of Budget and Planning, the Provosts staff, and units leadership. Additionally, these and

other similar initiatives have created a positive vertical relationship between the

Provosts office and units, further strengthening vertical cooperation and

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communication practices (personal communication, February 17, 2014; February 18,

2014; February 21, 2014).

It is important to note that within these vertical interactions the central

administration holds the power to influence units interactively, through investment and

consultation, but is also willing to influence unit behaviour via diagnostic methods, such

as veto power, the setting of tax rates and unit risk assessments. The central

administration at Midwestern U.S. University is generally considered by informants to

employ a soft power approach to unit oversight and only resorts to using veto power in

extreme situations that require expedient corrective action (personal communication,

Feburary 19, 2014; February 20, 2014).

5.2.4 - CENTRAL ADMINISTRATION ACTING AS A RESOURCE

At Midwestern U.S. University the central administration encourages vertical

coordination by providing support services and expertise for units. One informant

commented that increasingly central provides and shares expertise with us. It is quite

helpful because sometimes we dont possess specialized capabilities in-house to help us

make the best informed decision possible (personal communication, February 20,

2014). One dean stated that the Provosts office has provided us with the information

needed to build a holistic understanding of our operations and how we fit into the

university (personal communication, February 18, 2014). By acting as a resource for

units, the central administration maintains a natural vantage point from which to

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oversee and influence unit-level decision-making processes. The central administration

at Midwestern U.S. University operates a number of programs to support units, staff,

and faculty. One informant stated that central [administration] helps to inform us of

more general trends and acts as a resource to help take advantage of trends and

mitigate risk (personal communication, February 17, 2014). Examples of centrally

administered programs include the Center for Research on Learning and Teaching,

which is intended to support faculty and graduate student teaching efforts; the

Interdisciplinary Faculty Initiative, which provides cost sharing between units and the

Provosts office to encourage the hiring of new faculty members who teach in

interdisciplinary programs or teach across units; and initiatives that provide resources

related to cost reduction and revenue enhancements, space planning and utilization,

accreditation, and program development and support.

One centrally supported exercise that merits further discussion is the

benchmarking initiative; this initiative collects information from every unit that

composes Midwestern U.S. University and publishes the data internally to support units

in informed decision-making (personal communication, February 19, 2014; February 20,

2014). The benchmarking process examines the cost of administrative functions,

including finance, human resources and payroll, procurement, information technology

[IT], student services, development, communications, and research administration.

Benchmarking is an ongoing process that is jointly sponsored by a variety of central

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administrative departments at the University4. The objective of the Benchmarking

initiative is to increase the effectiveness of resource allocation and the alignment of

ancillary services towards the mission of teaching, research and service.

In addition to support programs, such as the Benchmarking initiative, the central

administration at Midwestern U.S. University employs diagnostic tools to support those

colleges that do not meet their budget. Those units that are trending toward break

even, at break even or running deficits are provided with increased oversight and

communication expectations from the Chief Financial Officer and Provosts office

(personal communication, February 18, 2014). Informants characterized these

interactions as light-touch conversations where the central administration wields far

more power than is normally the case with solvent units (personal communication,

February 21, 2014). For units in financial crisis the Provost exercises extensive influence,

most often manifesting in the provision of support, direction, and analysis for unit

leadership (personal communication, February 20, 2014). Additionally, reporting

expectations increase in an effort to strengthen vertical communication and develop

solutions.

5.2.5 - HYBRID GOVERNANCE AND OVERSIGHT

Based on data established through discussions with informants and supported by

the document analysis, it is clear that the central administration at Midwestern U.S.

4 The Benchmarking initiative is co-sponsored by the Offices of the Executive Vice President and Chief
Financial Officer, Provost for Academic and Budgetary Affairs, Executive Vice President for Medical Affairs,
and Associate Vice President for Finance.

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University has, since the transition to the University Budget Model and System,

employed a hybrid governance control form that includes both diagnostic and

interactive approaches. In this hybrid system the Provost has the ability to exert

significant influence on unit-level decision-making through the provision of veto power

over programs and initiatives and through increased reporting requirements. Similarly,

the Chief Financial Officer can influence programs and initiatives where risk profiles are

beyond acceptable institutional norms. Recent trends have shown that the central

administration will block certain decisions and initiatives proposed by the units

(personal communication, February 17, 2014) if they do not align with institutional goals

or are otherwise deemed unsatisfactory. However, as one dean stated [the] central

[administration] is relatively hands-off, they present guidance to help and do not act as

an overbearing partner (personal communication, Feb 21, 2014).

Although the central administration does have the ability to employ considerable

diagnostic control mechanisms, interactive forms of control are most often utilized. The

vertical relationship between units and the central administration at Midwestern U.S.

University was frequently described as a process of communication and negotiation

between deans and the provost, with one informant stating that there are many

meetings between the Deans and the Provosts office, resulting in a great deal of

negotiation. (personal communication, February 18, 2014) and another stating that the

norm is a consultative process between the deans and the provost (personal

communication, February 20, 2014). This approach should come as little surprise, as

Midwestern U.S. Universitys budget model is self-described as dean-centric. Deans

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have a great deal of power [at Midwestern U.S. University]; for this reason, the central

administration is forced to be consultative in their approach with the colleges (personal

communication, March 11, 2014).

A senior central administrator provided a summary of the vertical relationship

between units and the central administration when s/he suggested that transparency

and communication are the best tools for aligning unit priorities and building trust. The

use of soft power is necessary in a decentralized system such as that at Midwestern U.S.

University (personal communication, February 21, 2014).

5.2.6 - SUMMARY

At Midwestern U.S. University the central administration relies on what

informants termed a soft touch and soft power approach. Interactive management

techniques are frequently employed to encourage the alignment of unit decisions with

the strategic direction and mission of the University. Through consultation,

communication, and collaboration, the central administrator encourages and influences

the decision-making of the unit. However, by retaining full discretion over central funds

and through the deployment of these funds via a bidding process, the central

administration wields robust diagnostic control; this diagnostic control compels units to

behave in a self-interested manner while also collaborating with peer units and

promotes centrally aligned unit-level decision-making. For units experiencing financial

difficulty, the central administration takes on a more active role in reorganization and in

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unit decision-making, often applying diagnostic control mechanisms. Based on the

evidence presented above, Midwestern U.S. Universitys central administration applies a

hybrid approach relying primarily on an interactive control form of governance and

oversight while applying diagnostic measures when needed.

At Midwestern U.S. University, the formal processes and programs facilitated by

the central administration have encouraged the achievement of unit efficiencies.

Through bench-marking and best practice processes, informants identified cost savings

within their units. The centralization of certain support services has provided expertise

on subjects such as human resources, information technology, procurement, and

finance to units; without central resources the responsibility for these service areas

would fall to individual units, requiring substantial duplication of expertise and

personnel. These central initiatives have allowed the achievement of economies of scale

for numerous units that could not have done so otherwise.

The coordinating role that the central administration performs has also helped

provide efficiencies across the units of the university. Through the building of processes

to encourage cooperation between units, duplicate courses have been reduced and in

many cases eliminated. Units have also been encouraged to work together to hire cross-

appointments, helping to attract top talent while minimizing salary costs to each of the

units.

Oversight of decision-making by the central administration, both through formal

and informal processes, was also identified as a means to encourage financial stability.

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Through interactive and ongoing communication, the central administration and units

were able to align their efforts with the goals of the institution while also addressing the

needs of the units. This has helped to provide direction and expertise to those units that

need it as well ensure that decisions are financially sound. Through the use of

discretionary funding, the central administration was able to influence and direct unit

decision-making. Such funding has also allowed the investment into new and cutting

edge programs to help increase revenues through enrollment, private funding, and

research funding.

SECTION 5.3 - CENTRAL CANADIAN UNIVERSITY

At Central Canadian University the central administration operates in a federal

capacity5. This role is analogous to the role of the central administration at Midwestern

U.S. University; the similarity between the universities is not surprising considering that

the RCB/M model employed by Central Canadian University [the New Budget Model]

was developed in consultation with Midwestern U.S. University (personal

communications, March 25, 2014; April 3, 2014). The relationship between Central

Canadian University and Midwestern U.S. University is ongoing and organizational

similarities in form and policy reflect this continued relationship.

5 The central administration at Central Canadian University is comprised on the Office of the President,
the Office of the Provost, the Office of Planning and Budget, and a variety of Vice President portfolios that
includes operations, advancement, research and innovation, human resources and equity, and university
relations.

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Informants identified several important concepts that impact the level of vertical

coordination at Central Canadian University. These broad areas include: 1. the impact of

centrally retained financial resources; 2. the presence of centrally supported formal and

informal processes; 3. the central administration serving as a resource for units; 4. the

budget review process; 5. evolving oversight and management strategies; and 6. hybrid

governance and oversight that blends diagnostic and interactive management

techniques. An in-depth discussion of vertical coordination at Central Canadian

University follows below.

5.3.1 - THE IMPACT OF CENTRALLY HELD FINANCIAL RESOURCES

At Central Canadian University the central administration retains control over

financial resources, which are dispersed to units on an annual basis to promote the

alignment of unit decision-making with institutional strategic goals. The central

retention of financial resources, managed through the University Fund, was identified

by informants as an important central control mechanism to allow for central influence

over unit decision-making (i.e. personal communications, March 25, 2014; March 27,

2014; March 31, 2014; April 2, 2014; April 3, 2014). When the New Budget Model was

first introduced at Central Canadian University, the University Fund was used as a

mechanism for ensuring that no unit would receive less revenue under the New Budget

Model than they received under the old model. Currently, the University Fund is funded

by a 10 percent tax from divisional gross revenues across the institution and comprises

the non-formulaic portion of unit budgets.


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The importance of the University Fund as a strategic tool for new initiatives and

as a bailout on a one time only basis has been invaluable for the Provost (personal

communication, April 2, 2014). The University Fund has enabled the strengthening of

quality and the provision of stability for units and the institution as a whole (Central

Canadian University, 2012b). A percentage of the University Fund is allocated for annual

unit budgets, forcing units to rely on the central administration for daily operating

funds. The rationale for this allocation is that no unit should be fully self-sustaining in

order to avoid isolation and decision-making that is independent of institutional context

and goals. The remainder of the fund is allocated on an ad hoc basis, at the discretion of

the Provost, to provide strategic funding for initiatives that align with the Universitys

academic values and priorities (Central Canadian University, 2013b). When making

decisions on how the discretionary portion of the University Fund will be allocated, the

Provost relies on the recommendations of a committee composed of relevant unit

leaders and central support units, such as the Office of Planning and Budget.

5.3.2 - FORMAL AND INFORMAL PROCESSES THAT ENCOURAGE VERTICAL


COORDINATION

At Central Canadian University, the central administration works to encourage

vertical coordination via formal and informal processes. The central administration

provides support and oversight through a variety of initiatives and committees that

engage units in ongoing dialogue with the central administration and promote vertical

coordination. One example of this ongoing, formal dialogue is the integration of

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budgeting and institutional strategic direction. This initiative brings together the

academic board that is responsible for budgeting oversight and approving and directing

the academic direction, and the central administration that is responsible for setting

strategic direction and institutional goals. By formally encouraging dialogue between

these two groups, it is anticipated that budgetary allocations may be more aligned with

strategic direction and as a result enhance vertical alignment (personal communication,

April 3, 2014).

A second formal mechanism that is supported by the central administration is

the Provostial Committee. In addition to being responsible for the administration of

the University Fund, the Provostial Committee provides units with guidance during the

academic appointment approval process and also oversees the distribution of academic

reserve funds. The Provostial Committee works collaboratively with deans and senior

unit administrators to identify unit priorities and to provide problem solving and

strategic planning support to units (Central Canadian University, 2009). This consultative

process was identified by informants as producing significant engagement from deans,

directors, and senior administrators. By engaging both unit leaders and administrators

this process promoted vertically aligned decision-making while granting the central

administration the ability to oversee unit activities in an unobtrusive manner (personal

communication, March 25, 2014).

With an approach that encourages participatory decision-making where

budgets are presented to the president, provost, deans and principals (personal

communication, March 27, 2014), the Provosts office works to guide and support units

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while providing oversight through discussion and collaboration (personal

communication, April 2, 2014). Additionally, the central administration takes an active

role in providing financial support for struggling units in an attempt to help the faculty

[unit] help themselves (personal communication, April 2, 2014). When financial issues

arise at the unit level the central administration works in active partnership with the

unit to overcome risks, and to identify and capitalize on opportunities for growth and

revenue generation. One dean noted that together [central administration and the

unit] will look for solutions and often central will help with support (personal

communication, April 3, 2014).

5.3.3 - CENTRAL ADMINISTRATION ACTING AS A RESOURCE

The central administration at Central Canadian University serves as a resource

for units by providing formal and informal processes, programs and support initiatives

that address a wide variety of operational and strategic areas. One important area of

support is related to the annual budget planning process. The New Budget Model is

based on the institutional need for data driven decision-making (Lang, 2002; Central

Canadian University, 2009; 2012b). Under this system, units receive support from the

Planning and Budget Office in the form of training, and seminars. Additionally, budget

data is made available for units to use in their annual planning process (Central

Canadian University, 2007; personal communication, April 3, 2014). Specifically, during

the fall planning process a large amount of budget information is provided by [the office

of] budgeting and planning; 1 and 5 year plans are built and during this process we need
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to reach out to a variety of central administration areas for both support and sign off

(personal communication, March 27, 2014). The central administration provides support

through data analyses and the authoring of reports that provide context to budgetary

data (personal communication, March 28, 2014). Several informants noted that the

central administration has become a valuable resource in the creation and management

of unit budgets. One unit leader praised the central administrations efforts to become

more customer service oriented, with increased staff capacity and increased technical

capabilities. More and more the focus is on our [the units] needs (personal

communication, March 26, 2014).

In addition to the budget planning process the central administration at the

Central Canadian University encourages vertical coordination through administrative

programs that provide specialized expertise and support for units administrative and

operational needs. One central program that merits further discussion is the financial

and budgetary training initiative. This initiative provides unit administrators with

education and expert support related to the budgeting process, as well as general

financial administration (personal communication, March 25, 2014; April 2, 2014). This

initiative includes a number of boot camps in budgeting, finance, and human resources

provided through the Provosts office to encourage ongoing training and constant

refreshing (personal communication, March 26, 2014).

A second central initiative that was identified by informants as encouraging

vertical coordination is related to unit-level risk management. As an institution, Central

Canadian University has placed a high priority on being more attentive to risk factors

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(Central Canadian University, 2011a). The risk management initiative supports units by

providing training on risk factors and mitigation strategies. This initiative has been

successful in developing risk management as a crucial element of divisional planning.

One informant elucidated the concept of risk when stating that today there is an

increased awareness of risk and risk management is more important at the unit level

under the New Budget Model because [units] are more directly effected by fluctuations

in budget and external economic factors (personal communication, April 2, 2014). This

increased awareness of risk, and the increasingly data-driven nature of risk

management at Central Canadian University has demaned increased central resources,

support, and oversight (Central Canadian University, 2011a).

5.3.4 - THE BUDGET REVIEW PROCESS

Vertical coordination is encouraged in a variety of ways at Central Canadian

University. One significant avenue that promotes vertical coordination is the budget

review process. Unit budgets are presented to the president, provost, deans, and

principals with the explicit objective of encouraging transparency and understanding

(personal communication, March 27, 2014). The budget presentation represents the

culmination of conscious and continuous vertical interaction between the unit and

central administration. The personal relationships fostered by consistent vertical

communication provide incentives for the alignment of unit-level budget decisions with

academic and extra-unit goals (Central Canadian University, 2011a). Because of the

continual nature of the vertical communication at Central Canadian University few


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surprises arise at the budget presentation stage (personal communication, April 3,

2014). One informant likened this process to a complicated dance where both parties

(central administration and units) attempted not to step on each others toes (personal

communication, April 2, 2014). The budget process culminates in a series of central

approvals; the Provosts Advisory Committee [composed of deans and principals]

provides the final approval and rolls all unit budgets together (personal

communication, March 27, 2014), this comprehensive budget is then presented to the

Provosts Executive Group [composed of the Provost and senior deans] where the

budget process is finalized. The budget process at Central Canadian University is

intended to provide for transparency and openness, to support collegiality, building of

trust, credibility and transparency of intent (personal communication, April 2, 2014)

and represents a process of oversight rooted in the tradition of collegial governance.

5.3.5 - EVOLVING OVERSIGHT AND MANAGEMENT

Informants at Central Canadian University identified a trend of increasing central

oversight and influence; this increased central role affects both services and programs,

while concurrently changing the dynamic of vertical relationships at the University. This

centralizing trend of increasing oversight and shifting vertical relationship dynamics is

especially evident when examining units that have experienced or are experiencing

financial challenges. In instances where central funds are needed to support the

operation of a program, the central administration takes an active role program

assessment and unit budget evaluation. Additionally, the central administration exerts

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increased influence over unit operations and unit decision-making in such cases

(personal communication, April 4, 2014). Informants identified an example of this

increased central involvement in the Faculty of Music, which has experienced sustained

structural budget deficits. The Faculty of Music was granted $1 million in one-time

funding to aid in the transition to a sustainable financial structure (Central Canadian

University, 2011a). During this transition, the central administration provided crucial

support and acted as a collaborator in the decision-making process surrounding the

restructuring; without the involvement and resources of the central administration, it is

doubtful that the Faculty of Music would have been able to successfully restructure

their program and ensure the balancing of future budgets (personal communication,

April 3, 2014).

5.3.6 - HYBRID OVERSIGHT AND MANAGEMENT

The central administration of Central Canadian University operates a variety of

programs, and provides a wide array of supports for units. These initiatives promote

vertical coordination and the alignment of unit decision-making with institutional goals.

Informants (e.g. March 25, 2014; March 27, 2014; March 30, 2014; April 2, 2014; April 3

2014; April 4, 2014) reported that the central administration, by default, applied an

interactive control form of governance and oversight; this is evidenced by the

collaborative nature of the budget review process and the allocation of the University

Fund. However, when necessary, the central administration is able to apply a diagnostic

control form to firmly encourage support of the Universitys strategic priorities

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(personal communication, April 2, 2014). One senior unit-level administrator summed

the approach up by stating they [central administration] approach every problem in a

collegial fashion. This is the carrot. However, when needed they are capable of applying

a great deal of force. This is the stick (personal communication, March 27, 2014).

The interactive approach employed by the central administration is made

possible through constructive and frequent communication between the central

administration and the deans. It has been suggested that this communication and the

commitment to transparency in the decision-making and budgeting processes helps

both [the] governance and management of resource allocations (April 3, 2014) and

encourages unit plans that meet divisional needs and the Universitys direction, plan,

and mission (personal communication, March 25, 2014).

5.3.7 - SUMMARY

At Central Canadian University the central administration employs a hybrid form

of governance that combines both interactive and diagnostic control mechanisms. The

interactive control form appears to be the default approach and is achieved through

vertical communication, cooperation and collaboration between the central

administration and units. The central administration often takes a collegial approach to

the governance and oversight process, and it grants deans substantial latitude in

decision-making. It should be noted that the interactive control form as default control

mechanism is not a surprising finding at Central Canadian University. At the University,

Deans possess a great deal of power, and, if they choose, could create a difficult vertical
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relationship with the central administration (personal communication, April 3, 2014).

Because Central Canadian University is a dean-centric school, high degrees of autonomy

are provided to the units; however, through the use of soft power, the central

administration is able to bound unit decision-making by providing oversight (personal

communication, March 31, 2014).

SECTION 5.4 - EASTERN U.S. UNIVERSITY

Informants described a budgeting and management environment that differs

greatly from the observations at Midwestern U.S. University and Central Canadian

University. One such difference was the theme of underfunding which was a prevalent

concern voiced by informants. One informant described the funding environment at

Eastern U.S. University when s/he stated that the university operates with an appalling

level of underfunding from the State (personal communication, February 25, 2014).

The University has experienced recent cuts in public funding; however the culture of

austerity that is present at Eastern U.S. University is a reflection of sustained fiscal

constraint that has been present for decades. This austerity culture has had a dramatic

effect on the structure of the RCB/M model employed and, consequently, on the

vertical relationship between the central administration and units.

Informants repeatedly spoke about three main areas that impact the vertical

coordination at the University: 1. the over-decentralization of the University; 2. the

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historical role of central administration and a tradition of diagnostic control; and 3. a

new commitment to vertical coordination.

5.4.1 - A STATE OF OVER DECENTRALIZATION

The RCB/M model employed by Eastern U.S. University is highly decentralized,

and is a reflection of broader state culture. State residents, as a generalization, are

proud of their rugged individualism and this is reflected in their state government,

which is small and unobtrusive. Analogously, the central administration at Eastern U.S.

University is small and controls few financial resources. Higher education funding in the

state is famously fiftieth [50th] out of the fifty [50] states. For Eastern U.S. University,

state appropriations only account for six percent of the universitys total operating

budget (Huddleston, 2014).

The over-decentralization (personal communication, February 24, 2014)

present at Eastern U.S. University is represented by the ongoing struggle to find

balance [between the direction of the university and the decisions of the units]

(personal communication, February 26, 2014). The central administration has

historically lacked the funds to provide support for programs in financial need or to

provide strategic money to initialize large campus initiatives (personal communication,

February 27, 2014). The lack of centrally held financial resources has resulted in the

inability, on the part of the central administration, to apply interactive governance.

Without financial resources the central administration is unable to effectively incentivise

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units to align their decision-making to institutional strategic goals. As a result,

management through the application of diagnostic control techniques has resulted in

the central administration providing unit management and oversight through a force of

will and policy (personal communication, February 28, 2014) that compel units to align

decisions with the strategic direction of the university (personal communications,

February 6, 2014; March 13, 2014). As a consequence of this diagnostic management

method the central administration is viewed by informants as being a service support

centre (personal communication, February 27, 2014) and the creator of obstacles

(personal communication, February 28, 2014) rather than the captain of the ship

(personal communication, March 13, 2014). Recently, the central administration has

recognized that it lacks the ability apply interactive governance and oversight (personal

communications, February 25, 2014; March 13, 2014). One central administrator

lamented that the pendulum has swung too far towards decentralization. It is time that

we correct this imbalance and move towards a more balanced model (personal

communication, February 24, 2014). To achieve this rebalancing, recent refinements to

the RCB/M model have been approved (Eastern U.S. University, 2009). One corrective

measure is the creation of the Strategic Initiative Fund. This fund is centrally controlled

by the Provost and it intended to promote the utilization of interactive control through

the creation of appropriate incentives in support of [Eastern U.S. Universitys] mission

and academic plan (Eastern U.S. University, 2009, p.1). The goal is that the fund will

represent approximately two per cent of the Universitys annual budget, and will

maintain a balance of between $5 million and $15 million.

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5.4.2 - THE ROLE OF THE CENTRAL ADMINISTRATION: A TRADITION OF DIAGNOSTIC
CONTROL

At Eastern U.S. University the central administration has historically served in a

support mode [for units] rather than the leading and directing mode (personal

communication, February 26, 2014). The central administration provides support for

units thought a variety of service centers that help units with operational needs such as

finance and human resource, projections and financial modelling, budget monitoring,

and guidance in adhering to the University System and institutional policies (Eastern U.S.

University, 2011). Although these supports extend across numerous functional areas,

informants in unit leadership and central administrative roles reported concern that

they are not sufficient to promote the desired degree of vertical coordination.

Informants reported several aspects of the current budget process that hinder

vertical coordination. Specific areas of concern are the lack of transparency surrounding

how allocation formulas are developed, the limited two-way vertical communication

relating to budget allocations, and the perception by unit leaders that the central

administration is unresponsive to unit needs and concerns. It was noted that the RCB/M

structure currently employed at the University creates definitive boundaries that

delineate the distribution of power between units and the central administration. This

rigid and sometimes divisive framework has resulted in decreasing cooperation

between [the central administration] and the faculties [units] (personal

communication, February 24, 2014). Consequently, the nature of vertical interaction at

Eastern U.S. University has become adversarial in nature, with each side trying to gain

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the upper hand in negotiations (personal communication, February 27, 2014). The

unclear formulaic allocation of revenues, and more recently the central administrations

efforts to modify the existing allocation formulas to create the Strategic Initiatives Fund

have only increased the adversarial nature of vertical interactions at the University. One

informant explained the mistrust of the allocation formulas when s/he stated that it is

not clear why they [the formulas] were developed in the way they were as they create

clear winners and losers; for instance lab based programs suffer (personal

communication, February 26, 2014). Another informant provided support for this by

arguing that the formulas need to be reliable for planning but they also need to be

adjusted with priorities (personal communication, February 28, 2014).

The mistrust surrounding the allocation model at Eastern U.S. University has

been exacerbated by the prevalent belief by unit leaders that the central administration

does not communicate effectively (e.g. February 24, 2014; February 25, 2014; February

27, 2014; February 29, 2014). Where communication is present, it has been one way;

there is a lack of transparency of process and communication from the [central

administration] (personal communication, February 28, 2014). Generally speaking, the

informants at the university attributed the increased vertical friction to a lack of

transparency and communication (personal communication, February 25, 2014;

February 28, 2014). One informant queried, how can we become an internationally

recognized school, attracting foreign students and researchers, if we do not have

cooperation between [the central administration] and the deans? (personal

communication, February 26, 2014).

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The inflexibility exhibited around budgetary allocations, the general mistrust of

the allocation process, and the lack of effective vertical communication has hampered

vertical coordination at Eastern U.S. University (personal communication, February 24,

2014). These factors, compounded by the lack of centrally help financial resources, have

resulted in an incongruent understanding of the central administrations role at the

university. On one hand, the central administration wants more power to help direct

unit decision-making; conversely, the units want to hold onto their power, afforded

through revenue retention, as they believe that localness in decision-making will ensure

the best outcomes for themselves (personal communication, February 24, 2014). The

resulting vertical relationship at Eastern U.S. University is adversarial and pervaded by

suspicion. Eight informants, occupying unit leadership roles, suggested that increasing

the power of the central administration is not in the best interests of the units, with one

informant stating that there is little trust in the central administration (personal

communication, February 26, 2014). Another informant suggested that there is a

growing feeling that the move towards more centralized power erodes the power of

the unit and puts at risk the collegial model (personal communication, February 24,

2014). Echoing this sentiment, one dean suggested that there has been a growth of

administration at Eastern U.S. University, especially in the central administration. These

are career administrators, who are very corporate and who negatively affect the culture

of collegiality (personal communication, February 25, 2014). The increase in corporate-

style management and the growth of administrative ranks have seeded resentment

throughout the faculty (personal communication, February 27, 2014). With increasing

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corporatization [even if only perceived], the faculty feel that they are losing their power

to central administrators.

It is important to note that although the vertical relationship at Eastern U.S.

University is adversarial and combative, traditional collegial relationships have remained

constructive. The tension between the central administration and units centers around

the erosion of unit power and influence and less around the erosion of traditional

collegial processes within the faculty ranks.

5.4.3 - A NEW BEGINNING?

The central administration at Eastern U.S. University has acknowledged that

levels of vertical coordination must improve for the institution to meet its strategic

goals. To support this improvement, a new Provost was appointed in July 2013; she is

working actively to increase decanal participation in decision-making, creating processes

that encourage two-way communication with regards to strategy, finance, and budgets,

and to support the growth of new programs and initiatives [with seed money provided

by the Strategic Initiative Fund].

Informants identified several initiatives that have been undertaken to promote

improved vertical coordination and the repair damaged vertical relationships that exist

between unit leadership and the central administration. The development of the

Strategic Initiatives Fund was a conscious first step in transitioning from a primarily

diagnostic form of management control to an interactive and consultative model

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(personal communication, February 28, 2014). Although there has been tension

surrounding the taxation of units to fund this initiative, it is already beginning to

accomplish its mandate and promote vertical coordination at the University. Some of

the benefits that have already been realized through the Strategic Initiatives Fund are

investment in multidisciplinary programs and capital projects, such as the new Marine

School [an interdisciplinary school that brings together faculty members from across

colleges and serves as a strategic advantage for the institution as a whole], and the

financial support of strategic initiatives, such as the STEM [Science, Technology,

Engineering and Math] initiative that has encouraged coordinated hiring practices

across faculties.

In addition to facilitating the maintenance of centrally held financial resources

there has been a conscious effort to increase in the use of soft power, communication,

and interactive collaboration to promote strategically aligned unit-level decision-

making. In order to increase coordination between units and promote transparency and

participation, the Provost is encouraging regular meetings that include all deans. The

purpose of these meetings is to engage deans in the development of a unified direction

for unit initiatives, encourage inter-unit cooperation, and introduce new strategic

initiatives (personal communication, February 28, 2014). This advisory group, the Deans

Collaborative Group, is designed to encourage local thinking while establishing

boundaries for unit-level decision-making that ensure alignment to the strategy of the

institution. A similar approach has been applied to the Deans and Provosts Councils to

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promote collaboration and communication (personal communication, February 24,

2014).

The necessity of increased vertical coordination has been acknowledged and the

central administration is beginning to gain the traction necessary to tactically enact

structural changes at the University (personal communication, February 24, 2014;

February 25, 2014; March 13; 2014). If Eastern U.S. University is to realize their stated

goal of becoming an internationally recognized institution, vigilance and sustained

commitment to this structural change will be essential (personal communication,

February 25, 2014). The move towards increased interactive control represents a

dramatic change in the institutional approach to governance, oversight, and

management. One informant noted that the new provost seems to be quite inclusive

and is directing work in collaborative processes. Her intent is to have the faculties [units]

and [the central administration] working and talking together, and trying to coordinated

units to gain economies of scale and efficiency (personal communication, February 26,

2014). The efforts of the current Provost are encouraging the establishment of vertical

trust. One central administrator noted that, with the increasing transparency, we are

trying to build the feelings of fairness and trust (personal communication, February 24,

2014). The consultative process that is being built between the deans, provost, and

academic senate offers the hope that there will be increased vertical coordination at

Eastern U.S. University.

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5.4.4 - SUMMARY

The historical lack of vertical coordination at Eastern U.S. University is rooted in

the over-decentralized nature of the RCB/M structure employed by the institution.

Without the ability to provide financial incentives that align unit-level decisions with the

institutions strategic direction, the central administration relied upon diagnostic

policies and processes to compel unit behaviour [often unsuccessfully]. RCB/M became

a law, versus the tool it was meant to be, and has caused the central administrations

inability to influence (personal communication, March 13, 2014). The over

decentralization at Eastern U.S. University stemmed from the original RCB/M budget

allocation formula; the recognition and adjustment of the allocation formula imbalance

was an important first step in correcting the vertical coordination problems faced at the

University.

The low levels of vertical coordination at Eastern U.S. University have resulted in

an environment that informants identified as being restrictive. Informants noted that

the lack of vertical coordination has made it difficult to achieve strategic goals. Others

have suggested that the problems are more deeply rooted and that the lack of vertical

coordination precludes the identification and selection of meaningful strategic goals.

The general strategic goals identified by informants were the increase in

multidisciplinary programs and research, financial sustainability, and transitioning from

a regionally known institution to one that was nationally and internationally recognized.

Although there is a concrete understanding of the institutions stated strategic goals,

the low level of lateral coordination has hindered the achievement of these goals.

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However, Eastern U.S. University is in the process of transition. Institutional

leadership continues to champion governance control reform and the transition from a

diagnostic to a more interactive governance process that encourages cooperation,

communication, and coordination is underway. Informants [supported by the

institutional document analysis] identified changes to the RCB/M model that have been

implemented to encourage increased vertical coordination. The appointment of a new

Provost, whose mandate includes increasing collaboration and alignment throughout

the institution, represents a commitment to change by senior central leadership.

Furthermore, interdisciplinary programs and centers are being built to meet the

institutional goal of increased collaboration. Although these changes represent a

conscious step towards increased coordination, only time will reveal if they are

sustainable and if they will achieve the desired increase in vertical coordination and

institutional goal achievement.

SECTION 5.5 - WESTERN CANADIAN UNIVERSITY

Contextual similarities were noted between Western Canadian University and

Eastern U.S. University. Analogous to Eastern U.S. University, Western Canadian

University operates an RCB/M model that is over-decentralized and lacking

transparency regarding resource allocation formulae. Additionally, the central

administration attempts to act as a resource for units but has been unable to do so, or

to provide effective oversight due to a lack of centrally held financial resources. Unlike

Eastern U.S. University [where the Provost and central administration is working to

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improve the RCB/M model], Western Canadian University has elected to retire RCB/M

and revert back to an incremental budgeting process. The decision to return to an

incremental budgeting model was made, in part, due to the low levels of vertical

coordination present at the University. A discussion of vertical coordination at Western

Canadian University follows below.

5.5.1 - OVER-DECENTRALIZATION AND DIAGNOSTIC CONTROL

At Western Canadian University the RCB/M structure was originally designed to

drive down power and decision-making responsibility to the dean level. The rational for

this distributed power structure was to promote immediate enrollment growth [which

was a primary institutional goal at the time] and to encourage local initiatives. Under

the RCB/M system the central administration retained limited oversight power and

meager financial resources. As was noted at Eastern U.S. University, the lack of centrally

retained financial resources has resulted in the inability of the central administration to

effectively influence unit-level decision-making via the provision of financial incentives.

One informant, occupying a senior central administration role, stated that although we

[the central administration] are responsible for the allocation of funds, we have limited

influence on how those funds are used at the unit level (personal communication,

March 3, 2014).

The absence of centrally controlled financial resources has resulted in the

deployment of diagnostic management controls as a mechanism that attempts to shape

unit behaviour. The diagnostic approach to unit oversight has resulted in a severely

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limited vertical communication stream; informants occupying both unit leadership and

central administrative roles identified that constructive vertical communication is

essentially absent at Western Canadian University. Vertical relationships at Western

Canadian University can be considered tense and as a consequence of the limited

vertical coordination, there is a divergence between unit-level initiatives and the

institutional strategic direction. One informant described the current vertical

relationship as an ongoing competition between the central administration and the

units, with interactions that are tit-for-tat in nature (personal communication, March 4,

2014). Institutional documents from Western Canadian University confirm the tensions

caused by the primarily diagnostic approach to management (e.g. Western Canadian

University, 2012a; Western Canadian University, 2013d). The ability to promote unit-

level decision-making that is aligned with broader institutional priorities is often absent

at Western Canadian University (Western Canadian University, 2012a); to align unit level

decision-making with institutional goals the central administration has identified that

interactive vertical communication must be increased (Western Canadian University,

2013f). It has been reported in institutional documents that individuals with the

appropriate knowledge and expertise [need] to contribute to the decision-making

process (Western Canadian University, 2012a, p.3). In the Western Canadian University

Comprehensive Institutional Plan 2013/14-2015/16 document, it is noted that:

Over the past several years, the University has revised its budget process to

ensure that the institution is in a position to make resource allocation decisions

that will advance the Universitys strategic directions. Especially in challenging

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financial times, we need to be able to quickly adapt to the situation without

losing sight of the priorities that have been established through out academic,

research, and strategic plans. (Western Canadian University, 2013c, p.33).

The Comprehensive Institutional Plan [2013/14-2015/16] dedicated significant

attention to the vertical tension present at the University and explicitly acknowledged

the divergence of initiatives and strategic direction due to poor vertical coordination.

This report was instrumental in the decision to revert back to an incremental budgeting

model from the RCB/M model that had been in use since 1994. Through the transition

back to an incremental budget model the central administration hopes to increase its

ability to influence and, when needed, define the direction of unit initiatives (personal

communication, March 3, 2014).

5.5.2 - THE ABSENCE OF TRANSPARENCY AND VERTICAL COMMUNICATION

Informants from Western Canadian University identified the lack of transparency

[related to resource allocation and decision-making] and effective vertical

communication as significant barriers to constructive vertical coordination. This is

echoed in the Report of the Presidents Task Force on Budget Processes (2012) where it

is recognized that an increase in constructive communication, fairness, transparency,

and trust needs to be fostered to increase vertical coordination. Informants mutually

identified confusion around the RCB/M budget process. Even informants who had been

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involved with the RCB/M process since its adoption in 1994 expressed that it is difficult

to understand how and why allocation decisions are made (Western Canadian

University 2012a).

Unlike Eastern U.S. University, Western Canadian University has experienced

decreasing transparency and vertical coordination over the past several years. Several

events have influenced this trend. In 2012 the longstanding Budget Committee, which

served in an advisory capacity to the president, was disbanded. This committee

operated interactively and had boasted significant faculty participation. Additionally, it

was instrumental in steering the Universitys financial and non-academic processes; the

dismantling of this committee has resulted in a decline in the collegial governance

processes present at the University (personal communication, March 3, 2014). A second

event that has affected the level of transparency and vertical coordination was the

removal of faculty members from the Budget Advisory Board. One informant described

the new structure of the Budget Advisory Board as merely a window dressing of

transparency (personal communication, March 6, 2014). In addition to these events,

transparency and vertical coordination are impacted by the mistrust of and secrecy

surrounding the formulae that govern the allocation of the government operating grant

[which accounts for approximately seventy [70] percent of the total operating budget].

Unlike the other universities in this study, who have published allocation formulas,

Western Canadian University relies on a series of past practice agreements to allocate

financial resources. In practical terms there is no standard allocation formula present at

Western Canadian University. The allocation practices that result from these historical

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agreements lack transparency and predictability (personal communication, March 3,

2014). One informant questioned the validity of the allocation process when s/he stated

that with seventy percent of the revenue from the government grant being allocated to

the units without a specific formula detailing that allocation, how am I supposed to

budget for this year let alone three or five years out? (personal communication, March

3, 2014). The lack of clear and transparent formulas was a continual point of contention

with deans and clearly affects vertical coordination at the University (personal

communication, March 5, 2014).

The uncertainty and lack of transparency surrounding resource allocation at

Western Canadian University has fostered competition between units for resources

(personal communication, March 3, 2014). There is a perception that the relationship

between the units and the central administration is a zero-sum game (personal

communication, March 7, 2014). One informant stated that [I] have been working with

this process for a long time and still have little understanding of the process of

prioritization of resource allocation. It is a flexible distribution of funds based on

historical ad hoc deals made between past deans and past provosts and presidents

(personal communication, March 6, 2014). Another informant confirmed that

competition is an integral part of the budgeting strategy for units when s/he states that

the incentive then is to grab the largest chunk you can by being strategic and building

your power (personal communication, March 4, 2014). The lack of transparency in the

budget process was reported unanimously by informants and has resulted in [a

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situation where] no one can explain why units get the money they get (personal

communication, March 6, 2014).

The lack of transparency reported at Western Canadian University has been

linked to the frequency and nature of vertical communication. One senior unit

administrator suggested that communication between the central administration and

units is often characterized by conflict, providing little substantive value for either party

(personal communication, March 3, 2014). A second informant stated that there is a

lack of communication to the units regarding the strategic goals of the institution and

this makes it difficult to encourage units to align their plans with the institutional

priorities (personal communication, March 5, 2014). Informants espoused that it seems

that its a personal choice whether things are communicated by the central

administration (personal communication, March 7, 2014). As a result of the lack of

consistent communication the central administration is perceived by many institutional

members as not being concerned with the needs of the units. There is also a belief

among unit leaders that the central administration relies on diagnostic management

techniques too frequently, resulting in oversight that is too heavy handed and that

shows a disregard for the collegial process. The central administration is viewed as

keeping what they are doing and their decision-making close to the chest (personal

communication, March 6, 2014). Informants reported that central decision-making is

often conducted behind closed doors without consultation, resulting in a lack of

transparency (personal communication, March 3, 2014; March 5, 2014; March 6, 2014).

A number of informants openly questioned the central decision-making process, with

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one informant asking if you cant trust the process and the system, how can you trust

the outcomes? (personal communication, March 3, 2014).

At Western Canadian University, meetings between the units and the central

administration are held in camera; this practice led one associate dean to question

what does this say symbolically? What does this say about the value of transparency?

(personal communication, March 4, 2014). This practice may lead to a competitive

mentality between the units and the central administration, especially regarding the

budgeting process. As noted in a Western Canadian University institutional document

accountability and transparency are critical in the budget process. Greater

transparency and accountability contribute to greater collaboration (Western Canadian

University, 2012a; p.30). Institutional documents have noted that strong and sustained

commitment to change by both constituent groups [units and the central

administration] is needed in order for lasting reform to be achieved at the University

(Western Canadian University, 2012a). Recently, the Task Force on Budget Processes has

formally recommended that vast improvement is needed in vertical consultation

practices in order to create a participatory and consultative relationship between units

and the central administration (Western Canadian University, 2012a).

5.5.3 - THE CENTRAL ADMINISTRATION AS A RESOURCE FOR UNITS

Informants from all four institutions espoused the belief that the central

administration should function to support units. However, at Western Canadian

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University there is a perceived, and real, lack of service and support provided by the

central administration. One informant suggested that this lack of support is related to

the lack of centrally controlled financial resources (personal communication, March 3,

2014). The central administration at Western Canadian University provides only limited

training and resources for units. Institutional documents and informants both

communicated the need for increased training, development, and support improve the

ability of unit leaders to understand and comment on the budget process and resulting

allocation decisions (Western Canadian University, 2012a; 2013f). When specifically

queried about the support processes provided to units by the central administration no

substantive examples were provided by informants.

5.5.4 - A LACK OF BUDGET OVERSIGHT

There is strong evidence that suggests a lack of oversight and influence over

unit-level decision-making. This finding is supported by both informants and the

institutional documents that were reviewed during the document analysis phase of this

study. The 2012 report of the University Budget Committee is especially noteworthy,

stating that the scope of their [the central administrations] authority and influence on

[unit] budget decisions is limited (Western Canadian University, 2012a, p.21).

Consequently, the central administration relies on policies and procedures to encourage

adherence to the budget process. The informant reports of limited and ineffectual

vertical communication, coordination, and collaboration strongly suggests that a

diagnostic approach to governance and oversight is in use at the University.

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5.5.5 - SUMMARY

Western Canadian University has been operating an RCB/M structure for nearly

two decades, first implementing RCB/M in 1994. Similar to Eastern U.S. University the

RCB/M model at Western Canadian University is highly decentralized. Informants

characterized this system as over-decentralized and ineffective. Under the RCB/M

model at Western Canadian University the central administration retains extremely

limited financial resources and, as a consequence, is unable to influence unit level

decision-making in an interactive manner. Additionally, the absence of centrally held

financial resources prevents the central administration from providing support services

for units [as was noted at Midwestern U.S. University and Central Canadian University].

The level of vertical coordination at Western Canadian University was reported

to be low. Informants noted that there is a sustained absence of transparency at the

institution. Annual budget allocations relied on historical agreements and did not

adhere to a published formula. None of the informants interviewed [either central

administrators or unit leaders] were able to reliably predict their budget for future

budget years. This ambiguity of process has resulted in pervasive mistrust and sustained

conflict between the central administration and the units.

The absence of financial resources available to the central administration and

the longstanding mistrust of process have resulted in the central administration

becoming reliant upon diagnostic policies and processes to compel aligned unit

behaviour [often unsuccessfully]. Institutional documents, central administrators and

unit leaders have explicitly recognized that the current RCB/M model at Western

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Canadian University is not working to promote vertical coordination but rather acts to

encourage vertical competition and misalignment, hindering the achievement of

institutional goals. To address this disconnect, Western Canadian University

commissioned the Presidents Task Force in 2012 to seek solutions to these issues. The

result has been an abandonment of the RCB/M model and the implementation of an

incremental budgeting process that went live on April 1, 2014.

SECTION 5.6 - PROPOSITIONS ON VERTICAL COORDINATION

Vertical coordination provides a measure to evaluate the presence and degree of

alignment, cooperation, and coordination between the central administration and the

operational units of an institution. In this research, vertical coordination has been

evaluated by considering the degree of cooperation and coordination, or competition

and conflict, present at each of the four universities between the central administration

and units.

Drawing upon the data presented in this chapter, five matrices have been

developed to illustrate the level of vertical coordination at each of the universities.

Vertical coordination has been evaluated in relation to the four propositions, each of

which will be discussed individually.

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5.6.1 PROPOSITION ONE

Proposition one focuses on the relationship between the central administration

and units. This relationship is defined by the institutional approach to governance,

oversight, and the management of units. Proposition one reads: HEIs that employ an

interactive control form of governance that allows unit autonomy and ensures central

level oversight and influence will experience increased vertical coordination as a result of

the alignment between unit decisions and the institutions mission and strategic goals.

Through this research, two additional factors have been identified as important in

shaping the vertical relationship between the central administration and the units: 1.

the degree of decentralization present in the RCB/M structure employed; and 2. the

amount of discretionary financial resources held by the central administration for use in

strategic initiatives and for providing incentives that encourages the alignment of unit

behaviour with the strategic goals and mission of the institution.

Midwestern U.S. University and Central Canadian University employ governance

control forms that are primarily interactive in nature. At both of these institutions,

informants reported high levels of vertical coordination. Interactions between the

central administration and units were for the most part based on communication,

collaboration and transparency. The maintenance of centrally held financial resources

and the use of an interactive governance control forms allow the central administration

at Midwestern U.S. University and Central Canadian University to provide effective

oversight and influence for unit decision-making.

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As reported above, Eastern U.S. University is currently in a state of transition.

Presently the central administration employs a primarily diagnostic form of governance.

Consequently, the levels of vertical coordination reported by informants can be

categorized as low. In recognition of this the university is in the process of implementing

an interactive form of governance with the expectation that this will increase levels of

vertical coordination. Based on informant responses there is some evidence that vertical

coordination and communication are increasing. Currently, the data suggests that the

central administration at Eastern U.S. University possesses low levels of influence and

oversight over unit-level decision-making; however, it is expected that this will improve

with the transition to more interactive governance methods.

Western Canadian University currently experiences low levels of vertical

coordination due to the lack of centrally held financial resources and issues surrounding

transparency and trust. As such, a diagnostic governance control form is employed by

the central administration in an attempt to align unit-level decision-making with

institutional goals. Presently, the central administration is limited in their ability to

provide oversight and influence for unit-level decision-making. It remains unclear how

the decision to abandon RCB/M in favour of an incremental budgeting model will affect

levels of vertical coordination at the University.

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Table 5: Governance Control Form and Corresponding Levels of Vertical Coordination
Low Vertical Coordination High Vertical Coordination
Western Canadian University
Diagnostic Control Form Governance
Structure Eastern U.S. University [current state]

Interactive Control Form Governance Eastern U.S. University


Structure [future state?]

Midwestern U.S. University


Hybrid Control Form Governance
Structure
Central Canadian University

Table 6: Oversight and Influence of Decision-making and Governance Control Form

Central Administration Diagnostic Governance Form Interactive Governance


Oversight and Influence Form
Low levels of oversight and Western Canadian University
influence over unit decision-
making Eastern U.S. University
High levels of oversight and Midwestern U.S. University
influence over unit decision-
making Central Canadian University

5.6.2 PROPOSITION THREE

Proposition three focuses on the relationship between vertical coordination and the

achievement of organizational goals. The assumption present in the literature is that

high levels of vertical coordination will result in a high degree of strategic goal

achievement (Crotts, Dickson, & Ford, 2005; Hides, Davies, & Jackson, 2004; Kretschmer

& Puranam, 2008; Lawrence & Lorsch, 1967; Miles & Snow, 1984; Taylor, 2000); for this

reason vertical coordination is believed to align unit goals and behavior with the

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institutions strategic goals. Proposition three reads: High levels vertical coordination

will encourage the achievement of the HEIs organizational goals.

At Midwestern U.S. University and Central Canadian University informants identified

a high degree of goal achievement that was due, in part, to the high levels of vertical

coordination. At both institutions there was congruence between the general

institutional goals identified by informants and the stated institutional goals, as

published in institutional documents. This congruence was also detected in the

decisions and actions of the units. At both institutions it was noted that processes are

present to encourage transparency and open communication between units and the

central administration. These processes have promoted coordination, efficiencies, and

common institutional languages, which help encourage financially responsible decision-

making that is aligned with the academic mission of the institutions. Finally, the

promotion of interactive decision-making at both institutions engages faculty, and

encourages coordination and communication promoting the integrity of the collegial

culture of the institutions.

At Eastern U.S. University and Western Canadian University, informants

suggested that low levels of vertical coordination [especially the lack of transparency

and communication] encouraged units to focus on their own goals rather than acting in

the interest of the universities. The data collected at both of these institutions suggests

that tension between units and the central administration, coupled with the lack of

coordination has hindered the achievement of institutional goals.

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Table 7: Levels of Vertical Coordination and Organizational Goal Achievement

Levels of Reported Organizational Goal Achievement


Vertical Coordination
Low High
Western Canadian University
Low Level
Eastern U.S. University
Midwestern U.S. University
High Level
Central Canadian University

5.6.3 PROPOSITION FIVE

Proposition five considers the relationship between financial incentives and the

levels of vertical and lateral coordination present in institutions. The RCB/M literature

argues that there are two categories of incentives for units: 1. the reduction of costs;

and 2. the encouragement of revenue-seeking behaviour (Lang, 1999; Strauss & Curry,

2002; Strauss, Curry, Whalen, 1996; Whalen, 1991). This proposition tests the predictive

power of the RCB/M literature and examines whether the unit behaviour patterns

expected under the RCB/M model are occurring [i.e. strong incentives for both cost-

reduction and revenue-seeking behaviour]. Proposition five reads: If the incentive for

revenue-seeking behaviour is stronger than the incentive [or ability] to reduce costs,

units will exhibit lower levels of vertical and lateral coordination.

Although the incentives for revenue-seeking behaviour at Midwestern U.S.

University and Central Canadian University were reported to be stronger than those for

the minimization of costs, there was no evidence that this negatively affected the level

of vertical coordination present at the University. It should be noted that revenue-

seeking behaviour was reported to have caused issues, on the margin, with regard to

service teaching and the duplication of courses.

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At Eastern U.S. University, the low level of vertical coordination appears to be

the result of the highly decentralized RCB/M model in use and that revenue-seeking

incentives act to exacerbate, not moderate, the low levels of vertical coordination that

already exist at the university. Likewise, the incentives for revenue-seeking behavior

were stronger than those for the minimization of costs at Western Canadian University.

However, at Western Canadian University, the lack of transparency surrounding the

budget model underlies the low levels of coordination.

Table 8: Vertical Coordination, and Cost and Revenue Incentives

Low Levels of Vertical High Levels of Vertical


Dominant Incentive
Coordination Coordination
Cost Minimization
Western Canadian University Midwestern U.S. University
Revenue Seeking
Eastern U.S. University Central Canadian University

5.6.4 PROPOSITION TEN

Proposition ten focuses on the relationship between vertical coordination and

organizational effectiveness. The value that universities produce is not easily measured

and often lies in the achievement of social purposes (Moore, 2000). Unlike for-profit

firms, the maximization of profit and creation of wealth for shareholders are not

measures of goal and mission achievement for HEIs (Cameron, 1978); in consideration

of this, measurements of goal and mission achievement specific to HEIs must be applied.

In this research, institutional goal achievement is used as a proxy for the measurement

of organizational effectiveness. Proposition ten reads: Interactive control systems will

encourage institutional goal achievement at HEIs that have implemented RCB/M.


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Midwestern U.S. University and Central Canadian University both employ hybrid

governance control forms that are primarily interactive in practice. Support for

proposition ten was noted at both universities [see Appendix 16 and Appendix 17].

Unfortunately some data was not available [e.g. placement of graduate students] and

other areas were inconclusive based on the current data set.

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CHAPTER SIX

LATERAL COORDINATION

SECTION 6.1 - INTRODUCTION

This chapter provides a presentation and discussion of the data and resultant

findings pertaining to lateral coordination. Lateral coordination provides a concept to

evaluate the presence and degree of inter-unit alignment, cooperation, and

coordination present within an organization. Lateral coordination is evaluated by

considering the degree of cooperation and coordination, or competition and conflict

present between units. As discussed previously in Chapter Three, the level of

cooperation and coordination will have significant impact on a variety of matters in

universities, including: 1. inter-unit initiatives and agreements; 2. inter-unit competition;

3. perceptions of transparency, fairness and trust; and 4. operational efficiency.

A discussion of the essential features that impact lateral coordination

[coordination between units] at each of the four universities is presented, highlighting

the experiences and outcomes, as reported by the informants and supported by the

document analysis, with respect to the levels of cooperation and coordination between

the units of the universities. Interviews with informants revealed shared experiences

and provided reinforcement of general themes. In this chapter the common themes are

presented along with a case study of each institution. A distinct discussion of each

institution will be provided, followed by a discussion of the three propositions relating

to lateral coordination.

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SECTION 6.2 - MIDWESTERN U.S. UNIVERSITY

Informants identified four thematic areas that relate to and impact the amount

of lateral coordination present between units at Midwestern U.S. University: 1. the role

of the central administration; 2. interdisciplinary programs and research initiatives; 3.

the impact of the RCB/M; and 4. inter-unit communication. At Midwestern U.S.

University, a high level of lateral coordination, in the form of inter-unit cooperation and

interdisciplinary programs, was detected. A more in-depth exploration of the lateral

coordination present at the University will be discussed below.

6.2.1 - THE ROLE OF THE CENTRAL ADMINISTRATION

Lateral coordination is affected by the selection and application of governance

control forms and oversight processes which have a material impact on the cooperation,

coordination, and collaboration that occurs between units. At Midwestern U.S.

University informants identified both formal and informal processes that encourage

lateral coordination. Elgass notes that a good budget system will:

make obvious how one's self-interest as a faculty member or student is fed by

taking part vigorously in the life of the campus and of our broader community of

scholarly activity. A bad budget system will narrow the arenas of our

participation by encumbering our efforts to take part in such a way as to drain

the motivation and fool us into questing after only the tangible rewards,

separate of the opportunities for intellectual and social life. (Elgass, 1995, p.2)

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The literature has widely acknowledged that RCB/M can encourage fragmentation of

the University. At Midwestern U.S. University, the central administration has taken a

leadership role in removing barriers and promoting lateral coordination through both

formal and informal channels; we will do what needs to be done to assure that the

budget systems automatic incentives in opposition to collaborative work are countered,

in both research and teaching, and to assure that the location of these collaborations be

dictated by the intellectual merits, not by automatic rules regarding who gets financial

credit (Cantor & Courant, 1997, p.13).

Informants noted the importance of formal processes and programs in

promoting lateral coordination at the University. The revenue-sharing program is one

example of a formal program that promotes collaboration and inter-unit coordination at

Midwestern U.S. University. This program provides centrally disbursed revenue for

initiatives that operate collaboratively across multiple units. The revenue-sharing

program has increased unit prosperity and growth by connecting units and promoting

lateral coordination (personal communication, February 17, 2014). Inter-unit programs

are integral to Midwestern U.S. Universitys value proposition; they help the Universitys

program rankings and are a fundamental component of institutional strategy (personal

communication, March 11, 2014). Formal initiatives, such as the revenue-sharing

program, provide financial incentives for units to act in a laterally coordinated manner

(personal communication, February 21, 2014).

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Another avenue that promotes lateral coordination at Midwestern U.S.

University is the presence of formal processes that bring unit leaders together for

regular communication and consultation. Informants identified the variety of meetings,

committees, working lunches, and workshops as helping to develop and strengthen lines

of communication between unit leaders that can be leveraged informally to promote

lateral coordination (personal communication, February 18, 2014; February 19, 2014;

February 20, 2014). One dean noted that, we have a large number of University

conferences and specialized services meant to bring together staff and faculty to

promote cooperation, coordination, information sharing and relationship building.

(personal communication, February 20). One example of this is coordinated by the

Provost and Chief Financial Officer who jointly host monthly meetings for senior unit

leaders. At these meetings best practices and common administrative problems are

collaboratively discussed and unit leaders are encouraged to establish specialized

groups that meet for inter-unit topical information-sharing and problem-solving

(personal communication, February 19, 2014). These specialized groups gather around

functional areas and include groups of human resources professionals or budget

officers, as an example; they meet independently from the central administration and

work to foster coordination between units.

The final program that was noted by informants as increasing lateral

coordination is the Cluster Hires program, which was developed by the Provost with the

explicit goal of increasing cooperation between units. Under the Cluster Hires program,

multiple units coordinate to hire faculty that can work across traditional disciplinary

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boundaries and teach across units. The incentive for units to participate in this program

is that the Provosts office offsets a portion of the facultys salary. Informants noted that

this program has helped to increase cooperation and coordination among units

(personal communication, February 19, 2014).

In addition to developing programs that promote lateral coordination directly,

informants noted that the Provost consciously implements programs to counteract the

incentives for competition that are inherent under an RCB/M system. One informant

noted that the Provost tries to ensure that the budget model does not impact

cooperation and coordination between units. She has created a number of processes to

ensure we [units] are able to work together without being financially disadvantaged.

(personal communication, February 20, 2014). There is an explicit recognition that

preventative measures need to be in place to assure that the location of collaborations

be dictated by the intellectual merits, not by automatic rules regarding who gets

financial credit for what (Cantor & Courant, 1997, p.13).

6.2.2 - INTERDISCIPLINARY PROGRAMS AND RESEARCH INITIATIVES

Informants from Midwestern U.S. University unanimously praised the Graduate

School as promoting lateral coordination between units. The Graduate School serves as

the single entity at Western U.S. University that is responsible for acting as a resource

to help units provide interdisciplinary graduate programs (personal communication,

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February 18, 2014). The Graduate School provides tangible resources for units6 with the

mandate of promoting inter-unit participation in interdisciplinary programs and studies

at the graduate level; for units that participate this often leads to networking

opportunities for faculty and an increase in interdisciplinary research (personal

communication, February 18, 2014). By acting as a facilitator and mediator the

Graduate School has helped us cut through the red tape and provide an increased

offering of programs for our graduate students (personal communication, February 21,

2014). One informant noted that the central administration has provided a great deal

of resources to support the Graduate School, as they see the graduate student as a

vector to facilitate cooperation between units (personal communication, February 19,

2014). The Provosts office works closely with the Graduate School to remove barriers to

collaboration between units and ensure the opportunity for growth in graduate

programs (personal communication, February 19, 2014).

The interdisciplinary programs and research that are facilitated by the Graduate

School represent a challenging undertaking. Each unit that is involved with the school

comes to the table with different budgeting, revenue, and management approaches

(personal communication, February 17, 2014). One dean stated that its the central

administrations job to remove barriers to cross-unit degrees and appointments and

they have done a respectable job through the Graduate School. (personal

communication, March 11, 2014). Before the Graduate School, faculty reported that

6
These resources include financial, oversight and direction, records, and academic policies (personal
communication, February 20, 2014).

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they would avoid inter-unit activities because the negotiation costs were prohibitively

high (Cantor & Courant, 1997).

In addition to the coordination efforts of the Graduate School, Midwestern U.S.

University provides support for inter-unit research activities. To support an inter-unit

approach to global research a $50 million one-time fund was set up (personal

communication, February 20, 2014). Out of this fund, monies have been provided to

support the hiring of 100 faculty members, over five years, in areas that advance

interdisciplinary teaching and research (personal communication, February 18, 2014).

The goal of this initiative is to produce world-class research, leading to opportunities for

students, and increased coordination between units (personal communication, February

19, 2014). One informant noted that there is a culture [at Midwestern U.S. University]

to produce world-class research and this often takes an interdisciplinary approach so we

are excited about the opportunity to continue this tradition. (personal communication,

February 21, 2014).

6.2.3 - THE IMPACT OF RCB/M

It is well documented in the literature that RCB/M can negatively impact the

levels of cooperation and coordination between units. Informants from Midwestern U.S.

University identified a number of potentially negative impacts resulting from the use of

RCB/M which are corroborated by the institutional documents from the University (e.g.

Cantor & Courant, 1997; Courant & Knepp, 2002). One example of the negative and

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unintended effects of RCB/M is manifested in the duplication of services and offerings

[often initiated to maximize revenue] (person communication, February 17, 2014). At

Midwestern U.S. University this phenomena was cited by informants as one of the most

salient challenges posed by RCB/M; however, due to a variety of central administrative

processes and the ongoing encouragement of lateral coordination, it is seen only on

the margins and without material effect on revenues (personal communication, March

11, 2014).

Although RCB/M can create barriers to lateral coordination, the central

administration at Midwestern U.S. University works to break down these barriers

(personal communication, February 20, 2014). To this end, one dean stated that I can

understand how competition could occur under the budget model; however, there are a

great number of incentives to help release this tension. (personal communication,

February 20, 2014). One informant noted that RCB/M can create competition and

friction, both vertically and laterally, resulting in winners and losers (personal

communication, February 17, 2014). However, another informant noted that:

Midwestern is a world-class institution and we dont have to fight over marginal

students. There are extremely high demands for all of our programs and as such

there is little competition for individual students. There is a cultural imperative

here and that is excellence and cooperation. We must be strong together

because the only way to be excellent is at the institutional level. Competition

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only harms other units and the institution. (personal communication, March 11,

2014).

At Midwestern U.S. University the central administration provides incentives

that serve to release inter-unit tensions. Informants specifically identified the difficulties

related to the logistics of service teaching7. Historically, under the Value Center

Management model [the original RCB/M model employed by Midwestern U.S.

University], service teaching presented an accounting challenge that units overcame

through the duplication of courses. Course duplication was initially encouraged because,

due to the mechanics of tuition flow, the budget model created disincentives for

cooperation (personal communication, February 17, 2014). However, under the

University Budget Model and System, and with support from the Provosts office and

the Rackham Graduate School, many of the challenges surrounding service teaching

have been mitigated. One informant stated that the challenges to service teaching are

certainly on our radar, however the outcomes are not material and there seems to be a

great deal of cooperation between units to work things out. (personal communication,

February 21, 2014).

7 Service teaching refers to one unit teaching a student, or students, from a different unit.

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6.2.4 - INTER-UNIT COMMUNICATION

The final thematic area that informants identified as being related to lateral

coordination at Midwestern U.S. University was inter-unit communication. Although

RCB/M budget models naturally hinder cooperation between units, the expectation of

collegiality and relationships built through formal and informal processes [at

Midwestern U.S. University has] helped us to overcome that challenge (personal

communication, February 19, 2014). One informant noted that, although there are

formal processes in place to encourage lateral coordination it was the strong culture of

collegiality [that] has promoted the communication, cooperation and collaboration

[between units] (personal communication, February 21, 2014).

Informants spoke in detail about the benefit of effective inter-unit

communication and noted that strong inter-unit communication practices have helped

units identify opportunities and efficiencies (personal communication, February 17).

One informant stated that inter-unit communication has led to the identification of

opportunities for program growth and new program start-up. This has resulted in an

increase in revenues for our unit (personal communication, February 18, 2014). A

second informant suggested that inter-unit communication has helped her/his unit

identify opportunities that include an expanded range of course offerings for both

graduate and undergraduate students (personal communication, February 19, 2014).

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6.2.5 - SUMMARY

In the years since Midwestern U.S. University first implemented an RCB/M

system, it has experienced substantial challenges regarding lateral coordination.

However, through numerous reviews and several major revisions the RCB/M model has

been improved to support lateral coordination and communication. As a part of the

transition to the University Budget Model and System, a variety of formal processes

were implemented by the central administration; these processes have been found to

encourage communication, cooperation, and collaboration between units. The

interactive approach employed by the central administration has provided for the

identification of opportunities to develop new programs, encourage interdisciplinary

research, seek cost savings, and increase operational efficiencies.

SECTION 6.3 - CENTRAL CANADIAN UNIVERSITY

Informants spoke extensively about the level of lateral coordination present at

Central Canadian University. Three thematic areas were identified as being particularly

influential at the University, including: 1. the role of the central administration; 2. the

impact of RCB/M; and 3. inter-unit communication. An in-depth discussion of lateral

coordination at Central Canadian University follows below.

6.3.1 - THE ROLE OF THE CENTRAL ADMINISTRATION

The central administration at Central Canadian University employs a hybrid

governance form that blends interactive and diagnostic management strategies to

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promote lateral coordination between units. Under the New Budget Model [the RCB/M

structure employed by Central Canadian University] the assignment of revenues and

costs is done in a fashion that encourages and supports interdivisional activity at all

levels of teaching and research rather than reinforcing the creation and maintenance of

a series of isolated academic units (Central Canadian University, 2011a, p.8) while still

allowing for decentralized, unit-centered decision-making. The New Budget Model

recognizes the importance of collaboration and inter-unit activities while also

acknowledging the challenges presented by inter-unit or service teaching (Central

Canadian University, 2012b). The New Budget Model is a hub-and-spoke design that

allows the central administration to facilitate support for lateral coordination. The hub-

and-spoke model was selected with the goal of improving inter-unit cooperation and

collaboration at the University (personal communication, March 26, 2014).

At Central Canadian University the central administration provides support for

inter-unit agreements by working to maintain fairness in lateral interactions (Central

Canadian University, 2012b). The perception of fairnes has allowed a foundation of trust

to be built and confidence in the procedural justice of lateral initiatives. As a

consiquence of this long term commitment to lateral equity, it has been possible to

establish an institutional expectation of cooperation and collaboration (personal

communication, March 27, 2014). Informants noted that the central administration

promotes lateral coordination by mediating lateral interactions, removing barriers that

hinder inter-unit programs and teaching, and promoting cross appointments and

entrepreneurial activities between units (personal communication, April 2, 2014). To

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encourage and facilitate service teaching, the Provosts office provides direction and

seeks to limit the duplication of courses (personal communication, April 2, 2014).

Presently the Provosts office is working as an intermediary between the School of

Engineering and the Faculty of Arts and Science to release tensions surrounding course

duplication (personal communication, April 3, 2014). Informants noted that this type of

competition is rare and only occurs at the margins (personal communication, March 27,

2014).

As was noted at Midwestern U.S. University, the central administration at

Central Canadian University provides a variety of support programs for units and formal

processes that promote lateral coordination. A variety of meetings, committees and

working groups provide consistent opportunities for unit leaders to discuss common

issues and develop lateral relationships that can be leveraged in the future. Informants

reported that the central administration actively encourages communication,

cooperation, and coordination between units (personal communication, March 25,

2014). A second informant provided support for this sentiment when s/he stated that

because of all the meetings and information sessions [provided by the central

administration], each unit has a relatively holistic understanding of the people and

processes external to their faculty [unit] (personal communication, April 3, 2014).

In addition to broadly promoting lateral coordination at Central Canadian

University, the central administration has recognized the importance of interdisciplinary

study and provides financial support for inter-unit activities that allow students to take

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courses across the University (personal communication, April 3, 2014). The central

administration has been instrumental in removing structural barriers to interdisciplinary

study and research. Inter-unit cooperation and interdisciplinary initiatives were noted

by informants as being a significant strength for the University that provide substantial

value for students (personal communication, April 2, 2014). Informants viewed inter-

unit activities as being possible, even in the face of increased costs [service teaching] or

lost revenue [students taking courses at other units], because the central administration

provides support, through revenue sharing, that renders these costs as immaterial to

unit operations. Many of the informants commented that interdisciplinary study options

provide value and flexibility for students, and consequently are used as a recruiting tool

to attract top tier applicants.

At Central Canadian University a culture of collegiality was observed; this has

resulted in a willingness to act in an interdisciplinary manner, even if a unit finds itself in

deficit as a result. One informant suggested that cooperation and coordination are

foundational to the institutional culture at Central Canadian University; another

informant noted that due to the culture of collegiality at the University, the bottom-line

thinking promoted by RCB/M is moderated and usually aligned with the academic

mission (personal communication, March 25, 2014).

6.3.2 - THE IMPACT OF RCB/M

By nature RCB/M encourages units to act in a self-interested manner to

maximize revenues and minimizes expenses. However, RCB/M also provides a language

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that can enable coordination between units. At Central Canadian University the

language [of RCB/M] has allowed for clear communication between units, using the

same language we are able to come together and identify threats and opportunities

(personal communication, March 25, 2014). One informant suggested that this

language allows for lateral coordination and cooperation between units [eg. service

teaching, cross faculty appointments, and inter-unit programs] that was not previously

possible (personal communication, April 2, 2014). One example of this coordinating

power at the Central Canadian University is the ability to bring units together to

negotiate service teaching fees. Without the common language provided by RCB/M it

would be difficult to find a win-win outcome (personal communications, March 27,

2014).

Beyond providing a common language for inter-unit communication, the

structure and reporting requirements of RCB/M have created a level of transparency in

the resource allocation process that was not present or possible before RCB/M.

Informants reported that this has led to increased trust in the budgeting model and has

allowed lateral negotiations to take place in good faith (personal communication, March

27, 2014).

6.3.3 - INTER-UNIT COMMUNICATION

Inter-unit communication was highlighted by informants as being critical to

lateral coordination at Central Canadian University; this is particularly significant

because no question pertaining to this subject was posed to the informants. From the
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interview data gathered at Central Canadian University it is clear that inter-unit

communication has a material impact on both lateral and vertical relationships.

Informants brought forward a number of specific examples of inter-unit communication

that takes place at Central Canadian University.

The first example of inter-unit communication at Central Canadian University

centers is on the budget review process. One informant noted that the budget review

process is based on participatory decision-making and open budget discussions that

take place in a series of meetings that include all deans of the University (personal

communication, April 3, 2014). Informants viewed this process as helping to provide

transparency, and promoting open lateral communication channels that did not exist

prior the implementation of the New Budget Model (personal communication, April 3,

2014).

The second example relates to the open and recurring nature of discussions and

consultations that occur between units (personal communication, March 26, 2014). The

culture of collegiality at Central Canadian University works to encourage transparency in

lateral communication; the result has been the identification and realization of

efficiencies relating to enrollment growth and space utilization (personal

communication, April 2, 2014). One informant suggested that this inter-unit

communication and collaboration should not be surprising as the norm and cultural

expectation of collegiality, due in part to the unicameral governance structure which

although cumbersome due to its inclusive nature, demands consultation. This process is,

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in part, responsible for the encouragement of inter-unit communication and

cooperation. (personal communication, March 25, 2014).

6.3.4 - SUMMARY

As discussed in Chapter Five, Central Canadian University employs a hybrid

governance form that relies primarily on interactive management practices. The use of a

hybrid governance control form has resulted in the encouragement of ongoing lateral

coordination and inter-unit communication. Lateral coordination is fostered by the

central administration through the presence of meetings and committees that bring

units together and promote inter-unit collaboration. The central administration utilizes

formal processes to provide a wide range of financial, budgetary, and administrative

expertise to units. Informants widely reported that these formal processes encourage

lateral coordination and are instrumental in breaking down barriers to inter-unit

activities. Through the use of a hybrid governance form the central administration is

able to counteract the fragmentation induced by RCB/M and works to support the

culture of collegiality that has become an expectation at the Central Canadian

University. Although some tension and competition between units is still present, this

hybrid governance structure facilitates high levels of lateral coordination at the

institution.

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SECTION 6.4 - EASTERN U.S. UNIVERSITY

The data collected at Eastern U.S. University illustrates an environment of lateral

coordination that differs markedly from the observations at Midwestern U.S. University

and Central Canadian University. Several issues that have been identified in the

literature as problematic results of RCB/M were noted to be occurring at Eastern U.S.

University [e.g. internal competition, low levels of communication and cooperation, and

negative impacts on interdisciplinary programs]. Informants expressed frustration when

discussing past and current levels lateral coordination. However, when speaking about

future prospects for improved lateral coordination informants were more positive,

although reserved. Five main thematic areas relating to lateral coordination were

identified by informants: 1. processes that encourage coordination; 2. inter-unit

programs; 3. the impact of RCB/M; 4. the austerity narrative; and 5. a new direction. A

more detailed discussion of lateral coordination at Eastern U.S. University follows

below.

6.4.1 - PROCESSES THAT ENCOURAGE COORDINATION

Historically, the central administration at Eastern U.S. University has been unable

to counteract the negative effects that have resulted from the highly decentralized

nature of the RCB/M model employed at the university. This inability to take corrective

action can be linked to the absence of centrally held financial resources. Consequently,

the central administration has been unable to provide programs that support lateral

coordination, inter-unit communication and cooperation (personal communication,

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February 24, 2014). One informant argued that the lack of financial resources held by

the central administration makes it difficult to help struggling programs or to encourage

cooperation (personal communication, February 27, 2014). Another informant noted

that historically, the central administration did little to encourage coordination

between the colleges [units] (personal communication, February 25, 2014). More

recently, the central administration has gained the financial resources necessary to

implement programs that support lateral coordination. One informant suggested that

currently we are seeing a large increase in collaboration efforts. Weve seen the

creation of a teaching and learning group and the promotion of interdisciplinary schools

and appointments. These programs are being developed to coordinate revenue

sharing, decrease competition for students, and abolish the duplication of classes and

programs (personal communication, February 26, 2014).

One centrally supported initiative that promotes lateral coordination is cluster

hiring, which encourages two of more units to hire faculty that can teach at the

intersection of traditional knowledge areas (personal communication, February 22,

2014). This initiative is intended to make the hiring process more strategic by increasing

lateral communication. Unlike the cluster hiring program that is present at Midwestern

U.S. University, Eastern U.S. University has been unable to provide any significant

funding for this program. As a consequence this initiative has drawn concern from units

that their already tight budgets will be negatively impacted (personal communication,

February 24, 2014; February 26, 2014; February 27, 2014, March 13, 2014). Some

informants were concerned that the cluster hire initiative would result in students

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taking more classes outside of the unit, resulting in payments from the unit of

enrollment to the unit of instruction; because Eastern U.S. University is a tuition driven

institution, a shift in enrollment patterns could materially affect unit revenue.

Recognizing the concern surrounding the financial implications of the cluster

hiring initiative the central administration has attempted to provide seed money to

encourage the development of interdisciplinary research (personal communication,

February 28, 2014). This financial support was intended to bypass the negotiation

process that has traditionally existed between units at Eastern U. S. University, and to

encourage unit participation (personal communication, February 24, 2014). One

example of this central support for lateral coordination can be seen in the

interdisciplinary STEM research initiative. The central administration has provided

funding through the Emerging Technology Center, the STEM Discovery Laboratory, and

the School of Marine Science and Ocean Engineering; these initiatives have garnered

support from over forty faculty members representing a wide variety of academic units.

The interdisciplinary work undertaken by these faculty members covers thirty-nine

research areas, and five core undergraduate and four core graduate program streams

(personal communication, February 25, 2014).

The recent focus on increasing lateral coordination is funded, in part, by the

Strategic Initiatives Fund that was discussed in Chapter Five (personal communication,

February 24, 2014; Huddleston, 2013). The focus on an inter-unit approach is a response

to the acknowledgement that the central administration needs to play a key role in

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creating an environment favourable to lateral coordination (personal communication,

February 26; March 13). The efforts of the central administration to reform the RCB/M

structure and encourage lateral coordination between units have resulted in the

creation of three new inter-unit programs: 1. the analytics program, which provides rich,

relevant data to aid in unit decision-making; 2. the School of Marine Science and Ocean

Engineering, which represents the joint efforts of multiple schools and colleges within

the University8; and 3. an interdisciplinary graduate program being developed between

the School of Business and School of Law that will provide students with instruction that

spans across traditional knowledge areas. Informants noted that these programs have

been made possible, in part, by the recent changes to the RCB/M model. These changes

have made the aggregation of centrally held financial resources possible and have

allowed the central administration to influence unit decision-making and promote

lateral coordination (personal communication, February 26, 2014). These new

initiatives are intended to expand the growth opportunities for all units and are

expected to increase the recruitment of international students and scholars and help

the University meet its goal of becoming an internationally recognized institution

(Huddleston, 2010).

8The School of Marine Science and Ocean Engineering represents a partnership between the Graduate
School, the College of Engineering and Physical Sciences, the College of Life Sciences and Agriculture, the
College of Applied Science, and the College of Liberal Arts.

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6.4.2 - INTER-UNIT PROGRAMS

It was widely acknowledged by informants that the RCB/M model at Eastern U.S.

University had a chilling effect on cooperation and collaboration between units.

Informants identified interdisciplinary programs and research as being particularly hard

hit by the transition. During the 2010 review of the budget model it was acknowledged

that disincentives for interdisciplinary activities need to be removed (Eastern U.S.

University, 2011); institutional documents note that Eastern U.S. University needs to

embrace interdisciplinary programs and research as a vehicle to redefine institutional

culture of the university to be more collaborative (Huddleston, 2009). Additionally, the

need to realign the budget model and budget priorities to support the broader

academic mission of the institution is a priority for the University. Informants reported

that there are often structural budget impediments that result in a culture of lateral

isolation and diminishes collaboration across the University.

To combat the isolation of units, Eastern U.S. University has elected to focus on

fostering inter-unit programs and research. Informants noted that these initiatives are

viewed as the most effective way of increase lateral coordination (personal

communication, February 24; March 13, 2014). Additionally, the predicted growth in

enrollment and revenue are expected to help decrease the amount of inter-unit

competition for students (personal communication, February 28, 2014). One informant

stated that some units use interdisciplinary programs the put bums in seats and

increase their revenue. With an increase in enrollment this may result in a net gain for

all units involved. (personal communication, February 25, 2014). At Eastern U.S.

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University, interdisciplinary research is a popular concept among faculty because it is

viewed as helping to promote research [which is an explicitly stated, faculty lead,

institutional goal] (personal communication, February 24, 2014).

6.4.3 - THE IMPACT OF RCB/M

The introduction of RCB/M at Eastern U.S. University created clear boundaries

between units and increased fragmentation at the institution. One informant proposed

that RCB/M strengthens the fragmented nature of the university and helps to reinforce

the silos that each unit operates in (personal communication, February 27, 2014).

Another informant suggested that many faculty find RCB/M to be too constrictive and

lacking any incentives for cooperation (personal communication, February, 24, 2014).

Because the revenue allocation at Eastern U.S. University is tuition driven many

informants felt that RCB/M constrains choices. One dean described RCB/M as requiring

focus on the bottom line. We just cant look beyond that and neither can many of the

other deans. (personal communication, February 25, 2014). The result of RCB/M at

Eastern U.S. University has been decreased lateral coordination and lateral relationships

that at times create an us versus them mindset. (personal communication, February

26, 2014). Another informant suggested that RCB/M seems to create a quid pro quo

relationship between the units (personal communication, February 24, 2014).

At Eastern U.S. University competition for students [and by extension revenue]

has resulted in decreased lateral coordination. One informant identified discovery

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courses9 as an area where competition for students is problematic (personal

communication, February 26, 2014). Informants hailing from four different units noted

that discovery courses are often over-subscribed and voiced concern about the central

administrations seeming lack of power with regard to enforcing course capacity rules.

Over-subscription of discovery courses creates a clear set of financial winners and

losers. The result has been increased internal competition for students.

In addition to competition for students, the language of RCB/M has exacerbated

the already contentious conversations that occur between units. With what has been

described as a zero sum game, conversations surrounding students, facilities, services,

and space can become hostile (personal communication, February 27, 2014). One

informant stated that weve seen a competition for students, facilities, and space

caused by our budget model (personal communication, February 24, 2014). A second

informant suggested that there is no doubt that RCB/M has created competition and

conflicts between colleges. (personal communication, February 25, 2014). The

language of profit, loss, and cost has promoted competition between units at the

University (personal communication, February 27, 2014).

The need to respond, at an institutional level, to the competition encouraged by

RCB/M has been put forward in multiple institutional budget reviews. The institution

9
Discovery courses are core curriculum courses that are mandated by the University as a requirement for
graduation. Discovery courses provide the intellectual framework for students in all majors. All students
are required to take one discovery course from each of the following categories: Biological Science;
Physical Science; Environment, Technology and Society; Fine Arts; Historical Perspectives; Humanities;
Social Sciences; World Cultures.

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needs to re-align incentives for revenue growth without encouraging internal

competition (Eastern U.S. University, 2011). The central administration must have the

power and influence to stop the manipulation of the credit hour system to generate

additional revenue [e.g. through increasing the number of required courses taken within

the students home unit] (Proulx, 2004). One area that has received specific attention in

this regard is service teaching. Under the RCB/M system employed at Eastern U.S.

University, service teaching has presented a challenge, which some departments

overcoming by not allowing their students to take courses at other units (personal

communication, February 24, 2014). One informant suggested that they find it almost

impossible to bring in instructors from outside the unit to teach courses due to the

negotiation time and resulting costs (personal communication, February 26, 2014). A

second informant echoed this frustration, stating weve given up on service teaching. It

only causes competition and conflict (personal communication, February 28, 2014). At

Eastern U.S. University, units often find that it is more revenue efficient to duplicate a

course and hire a contract instructor than to pay for service teaching (personal

communication, February 26, 2014).

6.4.4 - THE AUSTERITY NARRATIVE

Through the document analysis and interview process it became clear that

Eastern U.S. University operates under an austerity narrative. As a result, the

universities and colleges within the State must consider cost as a primary factor in all

decision-making. In 2011 State funding for higher education was cut by 49%, leading the
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President of the University to state before the cut, the State was famously 50th out of

50 in per capita support for higher education. After the cut, were scrambling for new

metrics: How [are we] doing vis--vis Albania, for instance? (Huddleston, 2014, p.1).

The environment of sustained financial constraint coupled with the dramatic cuts to

state appropriations in 2013 have encouraged the focus on individual unit revenue goals

at the expense of other units and the institution as a singular whole (personal

communication, February 24, 2014).

Informants reported operating under a continual state of budget crisis. In this

constant state of austerity, forward thinking and innovation are not front-of-mind, yet

both are needed to constructively increase enrollment and revenues for Eastern U.S.

University over the long-term (personal communication, February 27, 2014). One result

of this sustained austerity has been the loss of full time positions [when faculty retire

they are either not replaced or are replaced increasingly with contract faculty]. One

informant questioned who can act entrepreneurially when you are forced to live with

an austerity narrative? The rich schools can look forward, the poor schools can only look

at today. (personal communication, February 25, 2014). The resulting focus on revenue

producing efforts has had a negative effect on lateral coordination (personal

communication February 28, 2014). Informants reported the inability to think

strategically as they are forced to focus on the financial results of the current fiscal year

(personal communication, March 13, 2014).

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6.4.5 - A NEW PATH FORWARD

In recognition of the poor lateral coordination at Eastern U.S. University a

number of reforms to improve inter-unit relationships have been initiated. An

adjustment to the RCB/M allocation formula has resulted in the retention of central

funds [held in the New Ventures Fund]. The vision for these funds is that they will be

used to align unit behaviour with the strategic direction of the institution and allow the

central administration to encourage and support lateral coordination. In addition to the

development of the New Ventures Fund, the appointment of a new Provost has

provided an opportunity for the University to embark on a reimagining of itself.

This reimaging is outlined in the Universitys strategic plan, which seeks to

transition Eastern U.S. University from a regionally known institution to a nationally and

internationally recognized university. Eastern U.S. University plans to accomplish this

through increased investments in STEM research and programs, and through the inter-

unit initiatives presented above. Through these initiatives the University hopes to

experience increased demand for enrollment, leading to increased revenues for all units

(personal communication, February 24, 2014).

6.4.6 - SUMMARY

Eastern U.S. University employs an RCB/M model that is over-decentralized. As a

result of the over-decentralization low levels of vertical coordination were noted at the

university. The central administration has historically been unable to influence lateral

coordination due to an absence of centrally held financial resources. Additionally,

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Eastern U.S. University operates in a state of sustained austerity which forces unit

leaders to focus on short term revenue generating activities. The combination of these

factors has caused an increased fractionalization of the institution and reinforced the

siloing of the University.

Recently, Eastern U.S. University is attempting to move in a new direction.

Adjusting the RCB/M model and the retention of centrally held financial resources is

expected to lead to increased influence and power for the central administration.

Coupled with the appointment of a new Provost, who is focused on increasing lateral

coordination and building a foundation for enrollment growth through interdisciplinary

programs, the University is beginning a transformation. However, this new direction is in

its infancy. As the transformation continues to progress, a move towards more

interactive management and communication may improve the outcomes for the

institution.

Eastern U.S. University is an environment of low lateral coordination. It was

suggested by informants that the internal competition and lacking lateral coordination

hinder the promotion of institutional goals. Rather, the focus is on individual unit goals

[often centered on the development of new revenue], at times at the expense of other

units. Informants described units as pulling in different directions, making the

achievement of institutional goals difficult. However, as noted above, Eastern U.S.

University is in transition. Recent initiatives and changes to the budgeting model seem

to have increased the levels of communication and collegiality. Furthermore,

interdisciplinary programs and centers are being built to meet the institutional goal of

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increased collaboration. However, only time will reveal whether these changes are

sustainable and if they will impact the degree of lateral coordination present at the

institution.

SECTION 6.5 - WESTERN CANADIAN UNIVERSITY

Like Eastern U.S. University, Western Canadian University suffers from low levels

of lateral coordination. The low degree of lateral coordination detected at the University

can be attributed to a lack of transparency, few centrally controlled discretionary

resources, and an extremely decentralized RCB/M model. Three main thematic areas

were identified as impacting lateral coordination at Western Canadian University: 1.

interdisciplinary programs; 2. the impact of RCB/M; 3. a lack of transparency, fairness

and trust. A detailed discussion of lateral coordination at Western Canadian University

will be presented below.

6.5.1 - INTER-UNIT PROGRAMS

At Western Canadian, informants viewed inter-unit programs as an opportunity

to differentiate the University from its provincial peers, however in practice,

opportunities for these initiatives [e.g. cross appointment, and interdisciplinary research

and instruction] are limited. Informants identified several barriers to inter-unit

initiatives including, a lack of transparency, the absence of direction from the central

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administration, and low levels of lateral coordination. One informant suggested that

there have been few cross appointments between units due to a lack of lateral

coordination and communication (personal communication, March 3, 2014). A dean

stated that interdisciplinary majors are generally offered within the individual units as

there seems to be hesitation to work with outside faculties due to the financial issues

and the general lack of lateral coordination (personal communication, March 4, 2014).

Finally, a third informant argued that the reason Western Canadian University only has a

small number of interdisciplinary programs is a lack of leadership, structures, and

support that encourage such initiatives. (personal communication, March 3, 2014). It

was noted that Western Canadian University lacks the support structures necessary to

encourage lateral coordination. As a result, inter-unit activities are cumbersome to

negotiate and tend to be avoided.

A second factor that has limited the development of inter-unit activities and

lateral coordination is the complexity of the RCB/M budget model that is employed by

the University. The revenue sharing model at Western Canadian University is complex

and not well understood (personal communication, March 3, 2014; March 4, 2014;

March 5, 2014); the revenue sharing process has hindered interdisciplinary programs

and cross appointments because it requires one unit to lose for another to win (personal

communication, March 5, 2014). Informants repeatedly spoke about the difficulty of

negotiating agreements with other units. In addition to being poorly understood, the

RCB/M model at Western Canadian University rewards units for the number of students

they can bring to their own courses (Western Canadian University, 2013f). This

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mitigates against the development of new cross-disciplinary courses and programs

(Western Canadian University, 2013f, p.8) resulting in a negative impact on the student

experience, as this experience is hampered by a lack of collaboration across units and

campuses (Mahon, 2012, p.6).

In spite of the difficulties presented by the budget model, there are some

examples of inter-unit initiatives at Western Canadian University. Recently, there has

been a grass roots faculty movement to address the obstacles to interdisciplinary

programs that are created by RCB/M. One example of these efforts is the new health

sciences faculty that required support from deans across instructional areas. One

informant, who was directly involved in the health sciences initiative, discussed the

importance of encouraging inter-unit (personal communication, March 3, 2014). It was

noted by multiple informants that units that do collaborate are often encouraged to do

by the informal processes and existing lateral relationships that exist among faculty

members (personal communication, March 4, 2014).

6.5.2 - THE IMPACT OF RCB/M

The RCB/M model that is employed at Western Canadian University operated in

a highly decentralized state compared to the models used by Central Canadian

University and Midwestern U.S. University. One effect of this extreme decentralization

has been increased fragmentation. One informant, whose tenure spans the entire

history of RCB/M at the University, stated that since the introduction of RCB/M at

Western Canadian University I have observed an increased siloing [sic] effect, increased
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competition through the duplication of courses and the competition for students, and

the decrease in collaborative actions (personal communication, March 4, 2014).

At Western Canadian University lateral competition normally revolves around

students; this occurs because 30% of the unit budgets are funded based on the number

of students enrolled. The remaining 70% of unit funding is the result of historical one-

on-one negotiations between units and the central administration (personal

communication, March 3, 2014; March 4, 2014; March 6, 2014; March 7, 2014). The

result of this arrangement is that units can only affect their revenue by increasing their

enrollment or by increasing tuition. The outcome is ongoing competition for students,

often through the duplication of course offerings. Multiple informants provided

examples of course duplication that has taken place across the University (personal

communication, March 3, 2014; March 5, 2014; March 7, 2014).

Two related areas of concern were discussed by informants. The first centers

around academic standards for elective courses. Multiple informants voiced concern

that performance expectations placed on elective courses were being lowered to

promote increased course enrollment [and revenue for the unit operating the course].

The second area of concern relates to a trend of course packing at the University.

Course packing was described by informants as the process of increasing the number of

courses that students are required to take within their home unit in order to be eligible

for graduation. One informant commented that they have observed some majors

increasing the number of courses needed for their degree that must be taken within

their own department to decrease the amount of service teaching and maximize

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revenue (personal communication, March 4, 2014). Another informant remarked that

course packing was a clear form of competition at the University and was based on the

fear of losing revenue (personal communication, March 6, 2014). This informant

continued by stating that the university has built a culture of defense and secrecy rather

than one of cooperation and collaboration and attributed this culture to the

competition resulting from the RCB/M model.

To address these concerns the Presidents Task Force was commissioned to

review the budget model and its impact on coordination at Western Canadian

University. The resulting report has led the administration to acknowledge the need to

encourage cooperation and collaboration. The findings stated:

communication and collaboration across campus units and groups in general

needs to improve. There are large gaps that exist and somehow they need to be

bridged and greater transparency encouraged. It was often mentioned that our

approach to resource allocation creates these issues and that similar

investments are present in a variety of units across campus with little to no

coordination between them. (Western Canadian University, 2013f, p. 5-6).

To address these concerns the RCB/M model at Western Canadian University

was revised in 2012. The intention was to create a framework that would increase trust

between colleagues and with administrators. The expectation of the revision was that

unit leaders would act on behalf of the entire Universityrather than acting mainly as

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an advocate for his/her individual faculty/school or administrative unit (Western

Canadian University, 2012a, p.11). However the refinement of the model was not

successful in overcoming the imbalances that were created through the original

allocation methodology. There was a clear consensus on the part of informants

regarding the negative impact the RCB/M model had on communication and

collaboration at Western Canadian University. It was also noted that the central

administration lacked the influence and at times authority to balance the resource

allocations so that units did not manipulate the allocation model to gain an advantage at

the expense of their peer units (Western Canadian University, 2013f).

6.5.3 - TRANSPARENCY, FAIRNESS AND TRUST

At Western Canadian University informants frequently spoke about the need to

improve transparency [both as related to the budget process, and as shift of

institutional culture]. Informants noted en mass that transparency is lacking at Western

Canadian University and that its absence has had material effects on lateral

coordination and trust. One informant commented that due to the lack of transparency

in reporting, and a lack of understanding of how much of the money is distributed, units

are in a continual competition for resources, as they see it as a zero sum game, resulting

in relatively low levels of cooperation (personal communication, March 3, 2014).

Another informant remarked that a feeling of trust and fairness is needed to instill

lateral coordination (personal communication, March 5, 2014).

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The lack of transparency in the allocation of funds from the government

operating grant was the most often identified issue with the RCB/M model. One

informant remarked that the lack of transparency hinders the cooperation and

coordination between units, as the distributions of financial resources have been based

on private, behind the scenes negotiations and not by a publically available formula

(personal communication, March 6, 2014). The behind the scenes negations result in

units being unable to predict funding or plan for future budget years strategically

(personal communication, March 5, 2014). The result of the secrecy surrounding the

allocation model is a focus inward and an increased level of self-interested decision-

making (personal communication, March 3, 2014). Informants repeatedly noted that the

secretive nature of resource allocation results in a lack of procedural justice and

pervasive mistrust (personal communication, March 7, 2014). The lack of open and

consultative processes at Western Canadian University undermines lateral coordination

and trust (Western Canadian University, 2012a).

A common sentiment espoused by many of the informants from Western

Canadian University was that there was a lack of formal and informal processes

designed to encourage lateral coordination and trust between units. One informant

commented that there seems to be a lack of services and support to encourage

coordination between units. It is not surprising however due to the lack of financial

resources held by the central administration (personal communication, March 3, 2014).

The central administrators who participated in interviews for this research commented

that without financial resources at their disposal they felt powerless to provide services

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and initiatives to encourage communication between units. One informant remarked

that there is no promotion of collaboration between units by the central

administration. We just dont have the budget (personal communication, March 3,

2014). A second informant stated that they were unaware of any formal programs or

processes initiated by the central administration that encouraged lateral coordination or

transparency (personal communication, March 6, 2014).

Although the central administration at Western Canadian University expressed

feeling powerless to influence unit behaviour and decision-making, there was an

acknowledgement of the need to build processes that encourage lateral coordination

and transparency. In the Final Report of the Presidents Task Force it was noted that the

administration needs to build structures to encourage lateral coordination (Western

Canadian University, 2012a). Specifically, the administration needed to build what they

termed lateral communication structures to increase coordination between units and

to counteract the current budget process that tends to pit departments against each

other (Western Canadian University, 2012a, p. 29). Informants identified the lack of

transparency as the largest hindrance to lateral coordination at Western Canadian

University. Additionally, in the Final Report of the Presidents Task Force (2012), this lack

of transparency was identified as a major obstacle to institutional success. It was

suggested that the central administration needed to retain resources in order to change

processes so as to encourage transparency and coordination, clearly define allocation

formulas, and to increase the consultative and interactive nature of lateral interactions

(Western Canadian University, 2012a). It was anticipated that these changes would

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result in the encouragement of a sense of community and collaboration through

enhanced understanding of other areas strengths, challenges, priorities, and overall

budget context; and greater transparency in the budget process (Western Canadian

University, 2012a, p. 12).

6.5.4 - SUMMARY

Western Canadian University employs an RCB/M model that informants termed

over-decentralized. In this model the central administration retains very few financial

resources and, as a consequence, has been unable to provide support for initiatives that

encourage lateral coordination. Although there are some examples of faculty led,

grassroots lateral initiatives, the RCB/M model at Western Canadian University is

complex and is a barrier to inter-unit cooperation. In this case the RCB/M model

promotes inter-unit competition for students [taking the form of course-packing, or

through the modification of course evaluation standards]. Additionally, Western

Canadian University experiences extremely low levels of transparency resulting in an

environment of pervasive mistrust. The combination of these factors has resulted in

limited inter-unit cooperation and encouraged competition between units.

In this environment of low lateral coordination, informants suggested that the

internal competition and lack of transparency hinder the promotion of institutional

goals. Instead, the focus is on individual unit goals, even if they are achieved at the

expense of other units. Informants described units as competitors [who are often

treated with mistrust]. Although there has been a recognition that increased lateral

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coordination and transparency are needed, the path to practice is ill-defined in

institutional documents and was unclear to informants.

Recently, the central administration at Western Canadian University decided

that returning to an incremental budget model would help to alleviate the coordination

problems surrounding the RCB/M model. It remains unclear how this transition will

impact lateral coordination at the university.

SECTION 6.6 PROPOSITIONS ON LATERAL COORDINATION

Lateral coordination provides a measure to evaluate the presence and degree of

alignment, cooperation and coordination between units of an institution. In this

research lateral coordination is evaluated by considering the degree of cooperation and

coordination, or competition and conflict present between units at each of the four

universities.

Drawing upon the data presented in this chapter two matrices have been

developed to illustrate lateral coordination at each of the universities. Lateral

coordination has been evaluated in relation to three propositions, each of which will be

discussed individually.

6.6.1 PROPOSITION TWO

Proposition two focusses on the relationship between units [inter-unit] and the

impact that central governance and oversight processes have on these relationships.

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Proposition two reads: High levels of lateral coordination by units will be encouraged by

interactive control forms of governance, while diagnostic control forms of governance

will encourage lower levels of lateral coordination. The literature suggests that RCB/M

may increase levels of competition and decrease collaboration between units (e.g.

Cantor & Courant, 1997; Gros Louis & Thompson, 2002; Hearn et al. 2006; Lang, 2002),

however, this work suggests that interactive control forms of governance may moderate

this relationship and lessening the levels of competition between units.

Central Canadian University and Midwestern U.S. University each employ a

governance control form that should be categorized as hybrid. At both institutions, the

central administration relies primarily on interactive management techniques that are

supported by diagnostic processes to promote lateral coordination. At both of these

institutions, lateral coordination levels were reported as being high by informants.

Informants credited the central administration as provide support for lateral

coordination through a wide variety of initiatives and opportunities for collaboration

and relationship building. Conversely, Western Canadian University employs a

governance control form that is primarily diagnostic. Informants reported that lateral

coordination at Western Canadian University is lacking, with units viewing each other as

competitors. Informants noted that there is limited lateral coordination at Western

Canadian University and were unable to identify any formal initiatives or activities that

promote lateral coordination. Finally Eastern U.S. University is in the process of

transition. The historically diagnostic governance control form is being transformed to

focus on interactive management techniques. Informants reported that there has

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historically been competition between units, however there was a widespread, yet

reserved, belief that the renewed commitment to interactive management will promote

increased lateral coordination.

Table 12: Governance Control Forms and Levels of Lateral Coordination

Low Levels of Lateral High Levels of Lateral


Governance Control Form
Coordination Coordination
Western Canadian University
Diagnostic
Eastern U.S. University

Interactive

Midwestern U.S. University


Hybrid
Central Canadian University

6.6.2 PROPOSITION FOUR

Proposition four speaks to the relationship between the degree of lateral

coordination present at an institution and the achievement of organizational goals.

Proposition four reads: High lateral coordination will encourage the achievement of the

HEIs organizational goals. The assumption present in the literature is that high levels of

lateral coordination will result in a high degree of strategic goal achievement (Crotts,

Dickson, & Ford, 2005; Hides, Davies, & Jackson, 2004; Kretschmer & Puranam, 2008;

Lawrence & Lorsch, 1967; Miles & Snow, 1984; Taylor, 2000). The findings in the

literature suggest that high levels of lateral coordination will result in units acting in a

relatively aligned fashion that is expected to be congruent with the strategic direction of

the institution resulting in higher levels of strategic goal achievement.

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Midwestern U.S. University has achieved high levels of lateral coordination and

although tension between the units does occur, informants generally reported that

there is a collegial and constructive approach to lateral interactions. Informants at

Midwestern U.S. University reported three main institutional goals: 1. the building of

reputation and ranking; 2. financial stability and sustainability; and 3. the promotion of

excellence. The high level of lateral coordination present at the university promotes the

achievement of these institutional goals. Reputation and ranking is achieved through

interdisciplinary programs that provide cutting-edge, world-class research opportunities

for students and faculty. Without strong lateral coordination the facilitation of

interdisciplinary agreements between units would be hindered. Financial stability,

through the identification of efficiencies, innovation, and improved management and

decision-making is made possible because of the numerous formal and informal

processes that foster lateral coordination. The sharing of best practices and building of

informal connections between units have helped improve decision-making and were

cited by informants as driving efficiencies and decreasing costs. Finally, the institutional

commitment to world-class excellence was reported by informants as being an

important driver of unit behaviour and lateral coordination (personal communication,

March 11, 2014). Informants reported that, through cooperation and collaboration,

Midwestern U.S. University as an institution can continue to achieve levels of excellence

that will draw top faculty, researchers, and students.

Analogous to Midwestern U.S. University, Central Canadian University

experiences institutional goal achievement supported by high levels of lateral

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coordination. Broadly stated, informants identified three main institutional goals: 1. the

focus on and enhancement of research and teaching; 2. financial sustainability and

responsibility; and 3. support for the university through a collegial culture. The

enhancement of research and teaching has resulted in the creation of inter-unit

programs, including forty collaborative graduate programs that informants identified as

a way to attract top-tier talent [both students and faculty], gain external funding, and

promote cutting-edge research (Central Canadian University, 2014). The high level of

lateral coordination at the university has encouraged the growth of these inter-unit

programs. Lateral coordination also promotes the institutional goal of financial

sustainability. Informants viewed their competitors as other universities, instead of

other units within the institution. As one informant noted, the lateral coordination

between units allows us [Central Canadian University] to look outwards for growth

opportunities rather than focusing inwards on protect our programs from internal

threats (personal communication, March 7, 2014). Finally, the use of collegial processes

to support the university community is enhanced by the high level of lateral

coordination present at the university. Informants reported that decision-making is

academically focused and relies on faculty participation.

At Eastern U.S. University and Western Canadian University low levels of lateral

coordination have inhibited the achievement of organizational goals. The low levels of

lateral coordination present at these universities can be partially attributed institutional

size and prestige. The cost of running an RCB/M system can be prohibitively expensive

for units, taking precious resources away from inter-unit initiatives. Informants also

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noted that both universities are regionally known. This limits the base from which they

recruit and, as a result, may encourage internal competition for students, decreasing

lateral coordination. At both institutions informants suggested that unit level initiatives,

coupled with the need to secure revenue dominated unit decision-making processes. At

Eastern U.S. University the creation of the centrally held discretionary funding is

beginning to foster lateral coordination. It is expected that the transition to more

interactive governance control, combined with centrally held resources will help

promote institutional goal achievement. Conversely, Western Canadian University has

been largely unable to realize institutional goals. Enrollment growth, financial

sustainability, and a focus on teaching and research comprise the institutional goals

identified by informants. With demographic trends suggesting decreasing demand, cuts

in provincial funding and increased competition from provincial counterparts, the 2014

Strategic Plan acknowledged that Western Canadian University must look increasingly

towards interdisciplinary programs and offerings to promote growth and sustainability.

However, this has been difficult to achieve as the level of competition between units is

high and the levels of cooperation and collaboration have been low.

Table 13: Levels of Lateral Coordination and Institutional Goal Achievement

Levels of Lateral Low Reported Institutional High Reported Institutional


Coordination Goal Achievement Goal Achievement
Western Canadian University
Low
Eastern U.S. University
Midwestern U.S. University
High
Central Canadian University

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6.6.3 PROPOSITION FIVE

The fifth proposition considers the relationship between financial incentives and

levels of vertical and lateral coordination. Proposition five reads: If the incentive for

revenue seeking behaviour is stronger than the incentive [or ability] to reduce costs units

will exhibit lower levels of vertical and lateral coordination. The RCB/M literature argues

that there are two general incentives for units. The first is the reduction of costs and the

second is the encouragement of revenue seeking behaviour (Lang, 1999a; Strauss &

Curry, 2002; Strauss, Curry, Whalen, 1996; Whalen, 1991). This proposition is meant to

examine whether the behaviour expected in an RCB/M model is occurring.

At each of the four universities the incentive to seek new revenue was reported

to be greater than the incentive to minimize costs. However, the impact of this incentive

on lateral coordination seemed to be moderated by the governance control from in use

at the institution. Although efficiencies and cost savings were sought by units at

Midwestern U.S. University and Central Canadian University, informants, both at the

unit level and from the central administration, stated that there was little ability to

materially lower costs as salaries and facilities made up the majority of the budgets for

units. For this reason, the search for new revenue is the main focus of units seeking to

increase their financial standing. At Eastern U.S. University and Western Canadian

University incentives for revenue seeking behaviour were reported to be stronger than

those for cost containment. Although increased lateral competition was reported by

informants, the low levels of lateral coordination present at the university appear to be

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influenced more by the radically decentralized nature of the RCB/M models and the lack

of centrally held financial resources.

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CHAPTER SEVEN

UNIT AUTONOMY

The university is so many things to so many people that it must, of necessity, be


partially at war with itself (Kerr, 1982, p. 8).

SECTION 7.1 - INTRODUCTION

This chapter presents the data and resultant findings pertaining to unit

autonomy. As discussed in Chapter Three unit autonomy is defined as the level of

funding authority and task accountability possessed by a unit. Funding authority is the

provision of resource allocation decision-making powers, while task accountability

denotes that units are held accountable for the decisions that they make and the

resulting outcomes. Unit autonomy also includes the responsibility for outcomes of the

decision-making process. Consequently, the financial outcomes of decision-making,

both positive and negative, have implications for future budget years and, as a result

partially define the future options available to units.

A discussion of the essential institutional factors that influence unit autonomy is

presented below. Although differences in institutional characteristics existed, thematic

similarities were noted across all four institutions. In this chapter the common themes

are presented along with a case study analysis of each institution, followed by a

discussion of the propositions relating to unit autonomy.

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SECTION 7.2 - MIDWESTERN U.S. UNIVERSITY

Informants identified four broad themes that impact unit autonomy at

Midwestern U.S. University: 1. a trend of centralization; 2. the financial position of units;

3. a dean centric management model; and 4. the universitys financial position. At

Midwestern U.S. University the Provost maintains substantial oversight power over unit

budgets, however this power is most often exercised interactively, via collaboration

with deans (personal communication, February 19, 2014). Interactions between deans

and the Provost center around two-way communication and are best characterized as

discussions between colleagues (personal communication, March 11, 2014). The existing

vertical relationships at Midwestern U.S. University have direct bearing on the degree of

unit autonomy at the institution. A more in-depth exploration of the factors that impact

unit autonomy at the University will be discussed below.

7.2.1 - TREND OF CENTRALIZATION

Informants identified a trend of centralization occurring at Midwestern U.S.

University; a review of institutional documents situates the initiation of this trend in the

early 1990s when a process of strategic buying was undertaken and increased

procurement reporting requirements were developed (Courant & Knepp, 2003). More

recently, centralization has increased at the University and has been framed by the

central administration as a rational process towards cost savings, undertaken with the

intent to maintain unit decision-making autonomy (personal communication, February

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18, 2014) 10. Informants noted that the centralization process has grown to encompass

shared services, which include information technology, grievance processes, and some

general human resource services (personal communication, February 17, 2014). The

purpose of centralizing shared services is to achieve economies of scale, and to increase

standardization across units (personal communication, February 20, 2014). Additionally,

centralization is being driven by government demands. Midwestern U.S. University is a

public institution and the government has a great deal of influence on the institution

through the Board of Regents. Demands for increased efficiencies to help keep the cost

of tuition down are a significant driver of centralization initiatives at the University

(personal communication, February 19, 2014; Midwestern U.S. University, 2005).

Although the central administration has tried to highlight the benefits of centralization,

it is evident that this trend has created tension between units, faculty and

administration (personal communication, Feb 18, 2014). One informant stated that

there is a tension between the central administration and decentralized rights with

regard to the centralizing of services (personal communication, February 19, 2014).

The trend of centralization has not been without detractors. Recently a faculty

petition with more than 1,000 signatures was presented to the Provost demanding that

the most recent centralization initiative, labeled the Administrative Services

Transformation [AST], be reconsidered (personal communication, February, 17, 2014).

The AST initiative intends to centralize finance personnel and services [traditionally held

10It should be noted that while centralization efforts were in place prior to the implementation of RCB/M,
a marked increase in centralization can be observed in institutional documents as a response to the over-
decentralization present in the Value Centered Management model [the original iteration of RCB/M
employed by Midwestern U.S. University].

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at the unit-level], expand centralized human resources support, and increase the shared

procurement initiatives. The reality of the AST initiative will be the loss of unit specific

administrators who will move under the umbrella of the central administration

(personal communication, February, 19, 2014). Informants noted that this will penalize

efficient units, as it is anticipated that the cost for centralized services will be greater

than those incurred while services were delivered in-house (personal communication,

Feb 21, 2014). Additionally informants noted that increased centralization will result in

decreasing unit autonomy.

7.2.2 - THE FINANCIAL POSITION OF UNITS

The second variable that impacts unit autonomy at the University is the financial

position of individual units. Units that operate at breakeven or deficit are subject to

increased oversight, support, and direction from the central administration, resulting in

decreased autonomy (personal communication, February 19, 2014). Conversely, units

that operate with surpluses, experience enrollment growth, or generate external

funding retain autonomy. One informant noted that the financial position of the unit

defines its autonomy (personal communication, February 21, 2014). It was noted by

several informants that endowment size is an important driver of financial performance;

units possessing large endowments experience greater autonomy in decision-making

than their counterparts with smaller endowments.

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7.2.3 - DEAN CENTRIC MODEL

As discussed in Chapter Five, the RCB/M model employed at Midwestern U.S.

University is dean centric with deans possessing substantial power (personal

communication, February 17, 2014). The resulting autonomy afforded to deans under

the University Budget Model and System, has resulted in self-management,

entrepreneurship and innovation at the unit level (Midwestern U.S. University, 2005).

One informant stated that over the years we have gotten a clearer

understanding of what is and should be decentralized but this has not decreased our

[deans] autonomy in a meaningful way (personal communication, February 18, 2014).

Informants viewed the central administration as being hands off and allowing the deans

to lead their units (personal communication, February 20, 2014). On informant noted

that at Midwestern U.S. University the power and the budgets are held at the college

[unit] level and driven by the deans. The level of autonomy at the college [unit] level is

linked to the strength of the dean. (personal communication, February 18, 2014). A

second informant stated that at Midwestern U.S. University deans have a great deal of

power. Its a true RCB/M system with the ability to control revenues and costs at the

unit level (personal communication, March 11, 2014).

7.2.4 - THE UNIVERSITYS FINANCIAL POSITION

In addition to the financial position of the individual units, the Universitys

financial position is an important determinant of unit autonomy. Informants suggested

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that the increasing level of oversight of unit level decision-making was linked to the

recent financial crisis. One informant stated that increasing oversight over the past few

years has been necessary due to external government pressure and increasing financial

constraints (personal communication, February 17, 2014). The institution-wide focus on

structural and operating deficits has resulted in more central monitoring of unit

decisions. However, as noted in Section 7.3.2, this has most notably affected units that

experience budget deficits.

7.2.5 - SUMMARY

The data gathered from Midwestern U.S. University demonstrates substantial

unit autonomy. The hybrid governance model provides deans with meaningful control

over their units and securing their position as active contributors to institutional

decision-making. However, the design of the RCB/M model explicitly emphasizes that

units are not supposed to be self-supporting; the necessity of central resources serves

to align unit decision-making to the strategic direction of the university (Cantor &

Courant, 1997). Although central resources are needed by all units, high levels of unit

autonomy are present at the university.

SECTION 7.3 - CENTRAL CANADIAN UNIVERSITY

Like Midwestern U.S. University, Central Canadian University has a long history

of decentralization. As outlined in Chapter Four, Central Canadian University had

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experience with decentralized budgeting models prior to the implementation of the

New Budget Model; one of the institutions satellite campuses experimented with

RCB/M, and the School of Management previously operated a decentralized model. As

such, units had experience with relatively high degrees of autonomy before the

implementation of RCB/M. When discussing unit autonomy at Central Canadian

University, informants identified two salient issues: 1. the trend of centralization; and 2.

the dean central management model. A more detailed discussion of these issues will be

presented below.

7.3.1 - TREND OF CENTRALIZATION

As was noted at Midwestern U.S. University, a trend of centralization is evident

at Central Canadian University. A number of respondents commented on centralization

processes taking place across the institution, including initiatives to centralize certain

shared services [e.g. information technology and e-mail] (Central Canadian University,

2012b). Informants noted that these initiatives are viewed as mostly positive. The

motivation for centralizing shared services is the achievement of efficiencies and

economies of scale. Informants identified fiscal constraints as encouraging centralization

across the university (personal communication, March 25, 2014). The hope is that

systematic and streamlined services will help minimize costs without impacting service

and support levels (personal communication, April 3, 2014). Several informants were

concerned that this centralization process will reduce unit autonomy (personal

communication, March 25, 2014; April 3, 2014).

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7.3.2 - DEAN CENTRIC MODEL

At Central Canadian University, deans operate with high degrees of decision-

making autonomy that is bounded by moderate central oversight. As was noted at

Midwestern U.S. University, decision-making is bounded by fiscal constraints, and unit

decisions are expected to be aligned with the mission and strategic direction of the

university. Central oversight is provided through interactive vertical communication

between deans and the provost. Within these vertical interactions there is an

expectation of collegiality that results in consultative decision-making (personal

communication, March 25, 2014). Deans are considered to be autonomous leaders, and

informants noted that the Provosts office and central administration work to provide

help and support in a manner that is respectful of unit autonomy (personal

communication, April 2, 2014). Deans are responsible for the costs and revenues

generated by their unit (personal communication, March 25, 2014). They have

autonomy in decision-making allowing them to act entrepreneurially and seek out

revenue and growth (personal communication, March 27, 2014). Although the central

administration provides support services for units, the responsibility to build and

execute plans is most often in the hands of the dean and their staff (personal

communication, March 31, 2014). The structures to provide unit oversight have been

designed to respect the concept of decentralization while ensuring alignment to the

institutions needs (personal communication, April 3, 2014). Informants noted that

alignment is the main constraint on unit autonomy; those units that promote and

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achieve the mission of the institution experience significant autonomy (personal

communication, March 25, 2014).

7.3.3 - SUMMARY

As discussed in Chapter Five Central Canadian University employs a hybrid form

of governance control. This model is comparable to the model employed by Midwestern

U.S. University in that there are a number of processes to allow for the oversight of

decision-making while respecting the autonomy of deans. Informants overwhelmingly

identified central oversight practices as a steering process that does not have a material

effect on unit autonomy.

SECTION 7.4 EASTERN U.S. UNIVERSITY

At Eastern U.S. University informants identified three factors that impact the

level of unit autonomy present at the university: 1. the radically decentralized nature of

the RCB/M model; 2. long standing fiscal constraints; and 3. the recent trend of

centralization. These factors will be discussed in more detail below.

7.4.1 RADICAL DECENTRALIZATION

At Eastern U.S. University the RCB/M model distributes the vast majority of the

financial resources to the unit level and affords deans substantial decision-making

autonomy. It closely resembles a decentralized budget model employed in for-profit

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industry in that it is radically decentralized (personal communication, February 24,

2014) with little central oversight of decision-making (personal communication, March

13, 2014). Informants described this model as overly decentralised (personal

communication, February 26, 2014), and noted that it has resulted in a high level of unit

autonomy. Additionally, the radically decentralized nature has resulted in low levels of

task accountability [in terms of reporting]. Recently, changes in the budgeting model

have been introduced to help bound unit decision-making, limit lateral competition and

increase central oversight and influence. The result has been a moderate decrease in

unit autonomy and an increase in task accountability.

7.4.2 FISCAL CONSTRAINTS

The second factor that informants identified as impacting unit autonomy is fiscal

constraint. As discussed in Chapter Five, Eastern U.S. University has operated under as

austerity narrative for more than a decade. Informants noted that the sustained lack of

financial resources has negatively impacted unit autonomy. One informant commented

that it is difficult to act entrepreneurially and innovatively when many schools [units]

are at break-even or running deficits (personal communication, February 27, 2014). As

a result of fiscal constraints, deans are often forced to think short-term, looking for

opportunities to fill revenue gaps and meet the budgetary needs of the current fiscal

year (personal communication, February 25, 2014). One dean stated that this fiscal

context limits the options the unit can pursue, and as an extension limiting unit

autonomy (personal communication, February 24, 2014).


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In addition to the general state of fiscal constraint that affects all units at the

university, the financial position of individual units has a material impact its autonomy.

Informants noted that when units experience a budget deficit much of their autonomy is

removed by the central administration. Increased oversight and direction are mandated

during the bailout process and units with deficits are required to submit a mitigation

plan to the central administration that outlines a plan for deficit resolution (Proulx,

2004). Informants suggested that the deficit resolution process may take years to

complete and that during this period unit autonomy is greatly decreased (personal

communication, March 13, 2014). Alternatively, it was also noted that those units that

run lean and efficient hold the power in the relationship [between the unit and the

central administration] and experience a great deal of autonomy (personal

communication, February 28, 2014).

7.4.3 TREND OF CENTRALIZATION

External fiscal constraints are driving the trend of centralization at Eastern U.S.

University11. As noted in Chapter Five, the university has been operating under a

narrative of austerity for a prolonged period of time. In response to recent cuts in state

appropriations increased efficiencies and cost cutting measures have been

implemented. One of the primary optimization initiatives has been the centralization of

services and support. To achieve this, a review and reconsideration of unit autonomy

11In 2011 the State cut funding for public higher education institutions by 49%. This drastic funding cut
resulted in increased centralization efforts at Eastern U.S. University, and as an extension unit autonomy
has decreased.

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was conducted, ultimately resulting in changes to the RCB/M allocation formula and

increased central tax rates. Increased central taxes have been allocated to fund the

centralization efforts across the institution; this has resulted in a decrease of unit

autonomy as units lose control over shared services, such as information technology,

human resources activities, and some procurement processes (Proulx, 2004; personal

communication, March 13, 2014). The centralization process has caused concern at the

unit level with one informant stating that there is a great deal of anxiety about the

move towards centralization and the decrease of school [unit] autonomy (personal

communication, February 24, 2014).

The radically decentralized nature of the budget model has created an

expectation of unfettered unit autonomy. This expectation has created a disconnect

between the central administration and units (personal communication, February 26,

2014). Increasingly, the central administration and units have differing understanding of

the future. The central administration believes that there is a need for increased

centralization of services, while the units want to continue operating under a radically

decentralized structure (personal communication, February 27, 2014).

The centralization process is intended to not only drive efficiencies as identified

above, but also to allow for centrally driven initiatives such as interdisciplinary

programs, building renewal and restoration, capital works projects, and investments

into information technology and upgrading cyber capacity on campus (Huddleston,

2010). This process is intended to provide increased financial resources that are

220
centrally controlled to allow the University to act strategically and influence decision-

making at the unit level (personal communication, February 28, 2014). It was noted that

the President is trying to bring more power and control over the budget and the

financial resources of the institution under the purview of the central administration;

the result has and will continue to be decreasing unit autonomy (personal

communication, February 26, 2014).

7.4.4 - SUMMARY

Historically, units have experienced high degrees of autonomy with few

constraints on decision-making. However, the highly autonomous environment at

Eastern U.S. University has resulted in low levels of both vertical and lateral

coordination. The recent changes being implemented at the university are meant to

decrease unit autonomy and provide constraints and boundaries on decision-making;

these changes are also intended to provide increased task accountability. The goal is to

promote unit decision-making that is aligned with the institutions strategic direction,

and to provide streamlined processes that will drive efficiencies and lower costs across

the units.

SECTION 7.5 - WESTERN CANADIAN UNIVERSITY

At Western Canadian University informants identified three factors that impact

the level of unit autonomy present at the university: 1. the need for revenue and

221
enrollment growth; 2. a trend of centralization; and 3. Campus Alberta. These factors

will be discussed in more detail below.

7.5.1 REVENUE AND ENROLLMENT GROWTH

Like Eastern U.S. University, Western Canadian University employs an RCB/M

model that is highly decentralized. Deans possess high levels of decision-making

autonomy and are subject to low levels of task accountability. Additionally, the central

administration is unable to provide effective oversight or influence unit decision-making

due to a lack of centrally held resources. Many informants noted that deans hold

significant power at the university.

As discussed in Chapters Five and Six, units have limited ability to increase their

budgets from year to year. Without a clear, published allocation formula units are

unable to predict revenue growth year over year. The only predictable avenue to grow

unit revenue is through enrollment growth [because tuition dollars follow the student].

In this way, the RCB/M model employed at Western Canadian University encourages

deans to grow enrollments at the expense of other activities. Units that successfully

grow enrollment experience increased autonomy and power within the University

(personal communication, March 3, 2014). This arrangement is not an accident, the

RCB/M model was originally designed to incentivise units to grow enrollment and act

entrepreneurially; decentralizing power at the dean level was viewed as a mechanism to

jump start institutional enrollment numbers and allow the institution to compete with

its larger provincial rivals (personal communication, March 5, 2014).

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7.5.2 TREND OF CENTRALIZATION

As was detected at the other universities, there is a trend of centralization

occurring at Western Canadian University. Analogous to the observations from Eastern

U.S. University, the central administration at Western Canadian University has

historically lacked the resources necessary to influence and direct unit-level decision-

making (personal communication, March 6, 2014). As discussed in Chapter Six, the result

has been internal competition and conflict. To overcome these challenges, and increase

vertical and lateral coordination, the central administration has proposed the

centralization of certain services and an increase in tax rates that will be used to build

discretionary funding that will be disbursed to fund initiatives that align with the

strategic direction of the institution (personal communication, March 3, 2014).

Informants espoused a strongly negative view of centralization with one informant

stating that this initiative is designed to decrease the power and influence of the

deans (personal communication, March 5, 2014).

Another factor that is contributing to the centralization process occurring at the

university is the need for increased operational efficiencies. Provincial funding cuts and

changing government policies have accelerated the centralization process at Western

Canadian University. The 2013 Provincial budget [which announced significant

decreases in provincial funding for all universities] presented a significant barrier to

Western Canadian University meeting its full potential, resulting in an increasing

centralization of power and influence in attempt to find operating efficiences and

increase central influenuce over unit decision-making (Western Canadian University,

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2013c). Interestingly the central administration at Western Canadian University is

asserting that the centralization of power will increase innovation and efficiency

(personal communication, March 5, 2014) which is contrary to what the RCB/M

literature suggests.

7.5.3 CAMPUS ALBERTA

It is noteworthy that the largest potential threat to unit autonomy at Western

Canadian University comes from outside the institution. A new provincial government

proposal has recently been forwarded that seeks to diminish the regional autonomy of

the Alberta universities in the name of Campus Alberta. Campus Alberta is a

government initiative that was created to formalize and encourage collaboration

between the provinces 26 publicly funded post-secondary institutions. It is meant to

have a centralized effect on the provinces higher education institutions and would

materially affect individual units. The concern with the Campus Alberta initiative is that

it may remove decision-making responsibilities related to the determination of research

priorities, program initiatives, and program offerings away from the individual

institutions and instead place them with the provincial government (Western Canadian

University, 2013e). In order to combat the Campus Alberta initiative and retain

institutional autonomy, Western Canadian University may opt to decrease unit

autonomy and shift in power and resources to the central administration. Informants

expressed concern that a reassignment of power could be justified as allowing more

224
responsive action with regards to the Campus Alberta System (Western Canadian

University, 2013c).

7.5.4 - SUMMARY

Currently, units at Western Canadian University experience high levels of

autonomy and relatively low levels of task accountability. However, lacking central

oversight and an inability to influence unit decision-making has resulted in low levels of

both vertical and lateral coordination. Unlike Eastern U.S. University, that has elected to

implement interactive governance to moderate unfettered unit autonomy, Western

Canadian University has opted to increase the use of diagnostic control via a return to

an incremental budgeting model. The intention on the part of the central administration

is to increase controls over unit decision-making and decrease unit autonomy.

SECTION 7.6 - PROPOSITIONS REGARDING UNIT AUTONOMY

Unit autonomy provides a measure to evaluate the presence and degree of

funding authority and task accountability. In this research unit autonomy is evaluated by

considering the degree of power and influence the central administration wields over

unit decision-making and resource allocation. Drawing upon the data presented in this

chapter five matrices have been developed to illustrate the level of unit autonomy at

each of the universities.

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7.6.1 PROPOSITION SEVEN

Proposition seven considers the relationship between unit autonomy and

diagnostic control forms of governance and the resulting impact on the levels of vertical

and lateral coordination. Proposition seven reads: Higher levels of unit autonomy in a

diagnostic control form governance structure will result in lower levels of lateral and

vertical coordination. Eastern U.S. University and Western Canadian University both

employ governance forms that are primarily diagnostic. High levels of unit autonomy

and low levels of vertical and lateral coordination were detected at both institutions.

Although Eastern U.S. University is in a period of transition the impact for unit

autonomy remains undetermined. Based on the observations at both of these

institutions, support was found for proposition seven.

Table 14: Unit Autonomy and Diagnostic Governance Control Forms Relationship to
Vertical Coordination
Levels of Unit Autonomy Low Vertical Coordination High Vertical Coordination

Low

Western Canadian University


High
Eastern U.S. University

Table 15: Unit Autonomy and Diagnostic Governance Control Forms Relationship to
Lateral Coordination
Levels of Unit Autonomy Low Lateral Coordination High Lateral Coordination

Low

Western Canadian University


High
Eastern U.S. University

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7.6.2 PROPOSITION EIGHT

Proposition eight considers the relationship between unit autonomy and

interactive governance and the resulting impact on lateral and vertical coordination.

Proposition eight reads: Higher levels of unit autonomy in an interactive control form

structure will result in higher levels of lateral and vertical coordination. As discussed in

Chapter Five, Midwestern U.S. University and Central Canadian University employ a

hybrid governance control form that is primarily interactive in practice. Because of this

[primarily] interactive approach to governance and management, support is present for

proposition eight.

Table 16: Unit Autonomy and Hybrid Governance Control Forms Relationship to
Vertical Coordination
Levels of Unit Autonomy Low Vertical Coordination High Vertical Coordination

Low

Midwestern U.S. University

High Central Canadian University

Table 17: Unit Autonomy and Hybrid Governance Control Forms Relationship to
Lateral Coordination
Levels of Unit Autonomy Low Lateral Coordination High Lateral Coordination

Low

Midwestern U.S. University

High Central Canadian University

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7.6.3 PROPOSITION ELEVEN

Proposition eleven considers the relationship between unit autonomy and

interactive governance within an RCB/M system. Proposition eleven reads: Units will

experience lower levels of decision-making autonomy in HEIs that have implemented

RCB/M and employ an interactive control form of governance. This proposition proposes

an inverse relationship between unit autonomy and interactive control forms of

governance. The more interactive a central administration becomes the lower the

autonomy of unit-level decision-making. Surprisingly the data suggests that interactive

control forms of governance may act to encourage high levels of unit autonomy.

However, due to the employment of a hybrid control form of governance at Midwestern

U.S. University and Central Canadian University the following matrix will include a hybrid

category.

Table 18: Governance Control Forms and Unit Autonomy


Governance Control Forms Levels of Unit Autonomy
Low High
Western Canadian University
Diagnostic
Eastern U.S. University

Interactive

Midwestern U.S. University


Hybrid
Central Canadian University

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CHAPTER 8

CONCLUSION

SECTION 8.1 INTRODUCTION

This study was conducted to provide further understanding of the roles that

institutional internal structure and governance control forms perform in universities

that use decentralized budgeting and management models. This research presents

empirical evidence which suggests public universities employing an RCB/M structure will

experience varying institutional outcomes depending upon the levels of vertical

coordination, lateral coordination, and unit autonomy present. Further, the findings

from this study suggest that the predominate use of an interactive or diagnostic

governance control form will have a material effect on the outcomes experienced by the

university.

It was expected that those universities employing a predominantly interactive

governance control form would experience higher levels of vertical and lateral

coordination, and because of the nature of RCB/M high levels of unit autonomy.

Furthermore, it was expected that those universities that employ a predominantly

diagnostic control form would experience lower levels of vertical and lateral

coordination, and high levels of unit autonomy. Both of these expectations found

support in this study.

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These findings merit attention within future higher education research. Although

this study focuses on four public North American universities, the findings may be

applied to other universities that employ RCB/M.

This study has developed and presented the three-factor model of internal

structure in an effort to increase the understanding of behaviour and outcomes in public

RCB/M universities. To this end, the relationships between the three factors [vertical

coordination, lateral coordination, and unit autonomy] and governance control forms in

public universities that employ RCB/M models have been explored.

SECTION 8.2 - SUMMARY OF MAIN FINDINGS

The evidence presented in this study strongly suggests that vertical coordination

is the dominant of the three factors of internal structure. The levels of vertical

coordination present at an institution not only impacted the levels of cooperation and

coordination between the central administration and units, but also had an effect on the

relationships between units and the resulting levels of lateral coordination. When

institutions had high levels of vertical coordination higher levels of coordination were

reported by respondents between units; higher levels of unit- and institutional-level

goal achievement were also reported. This was consistent at all of the institutions

regardless of the governance control form in use.

The data suggests that high levels of vertical coordination are encouraged by the

use of predominantly interactive governance control forms. In itself this was an

important finding of this study. The evidence presented in this study suggests that the

230
choice of governance control form, either interactive or diagnostic, should not be

considered as a binary. Within the current sample of universities, a purely interactive

governance control form was not identified. Rather, it was found that Midwestern U.S.

University and Central Canadian University employed what should be considered a

hybrid governance control form that relies predominantly on interactive techniques

while incorporating diagnostic elements. The data suggests that this hybrid structure

encouraged a collegial form of decision-making providing individual units with high

levels of autonomy while permitting the central administration to bring to bear specific

policies, procedures and expectations to align the efforts and resource allocation

decision-making of the units to the institutions goals and direction. Predominantly

interactive control forms were shown to facilitate the alignment of effort and resource

allocation of the central administration and units, resulting in reported high levels of

institutional and unit goal achievement. It was also noted that hybrid governance

control forms encourage interaction and cooperation that is collegial in nature. This

supports the findings of Simons (1995, 2000) and Otley (1999) and extends the

management control systems literature to include collegially governed institutions, such

as universities.

The data suggests that vertical coordination and governance control form had a

meaningful impact on the levels of lateral coordination at the four universities. Although

such findings have been discussed and predicted within the management control

systems literature they have been largely untested (Otley et al., 1995). Interactive and

hybrid control forms encouraged high levels of lateral coordination at Central Canadian

231
University and Midwestern U.S. University. Conversely, the data suggests that diagnostic

control forms appear to produce low levels of lateral coordination and results in

relatively high levels of reported conflict and competition between units. The data also

suggested that lateral coordination impacts organizational goal achievement with low

levels of lateral coordination encouraging competition between units resulting in a zero-

sum game; informants reported that this internal conflict between units hindered the

achievement of institutional goals. This was consistent with prior work conducted by

Weigelt and Miller (2013) in the banking industry, Mayer and Salomon (2006) in

information technology, and the predicted relationships outlined by Cyert and March

(1963) and Lawrence and Lorsch (1967).

High levels of unit autonomy were detected at all four of the universities. This

finding is not surprising as high levels of funding authority and task accountability are

foundational to the RCB/M model. However, the levels of unit autonomy did not seem

to be impacted by interactive or hybrid governance control forms. This was unexpected

because both interactive and hybrid governance control forms encourage centrally

coordinated administrative influence over unit decision-making. Interestingly, when

governance control forms were employed either interactively, or in a hybrid manner, a

strengthening of the collegial processes of decision-making and communication was

reported.

The role that governance control forms play in the vertical relationship between

the central administration and units, and laterally between units is material. There was

232
evidence that diagnostic governance control forms employed at Eastern U.S. University

and Western Canadian University were not congruent with the RCB/M model employed

and led to conflicts within these universities. Nevertheless, the conflict ridden nature of

these two universities was not solely caused by the tension between the diagnostic

control forms and the RCB/M structure but rather was the manifestation of many issues

and decisions made over the course of time. Additionally, the data suggested that

diagnostic control forms hindered the accomplishment of institutional goals due to the

inter-unit and vertical unit/central administrative conflicts. Simply stated, in these two

cases, diagnostic governance control conflicted with the fundamental premises of unit

task authority and task accountability promoted by the RCB/M model. However, it

should be noted that, as per Simons (2005) findings, diagnostic control forms can be

used in decentralized environments when units are allowed to act autonomously and

the institution focuses on bottom-up decision-making. In order to successfully employ a

diagnostic governance control form to a decentralized environment while still

encouraging increased levels of vertical and lateral coordination unit level leadership

needs to fully understand both their own operations and strategies, and also being

cognizant and include the institutions direction and needs into unit level planning and

decision-making.

SECTION 8.3 IMPLICATIONS FOR THEORY

The findings of this study have several implications for theory. First, this study

presents a new organizational model of internal structure that is applicable in the higher

233
education context as well as to the broader area of organizational investigations. In the

higher education context, this model is intended to extend our understanding of the

RCB/M phenomenon and its impact on the university. Further, it is intended to provide

predictions as to the outcomes of RCB/Ms use with regard to various governance

control forms and to provide a testable theoretical base for a literature that has been

predominately descriptive in nature.

This model is also intended to be comprehensive and not industry-specific; this

was done to promote basic research that is not hindered by industry-specific realities

(Anthony, 1965; Lawrence & Lorsch, 1967). The hope is that this lack of specificity will

result in research that is focused on investigating larger, hierarchical organizations, such

as the modern university, and that future research will be rooted in the behavioral

sciences, and be tested and modified in a variety of industries (Thompson, 2011).

Second, the application of management control systems, through the use of

governance control forms, to the higher education literature is unique (Bisbe & Otley

2004; Otley et al., 1995). The findings of this study suggest that an intimate

understanding of governance control forms is needed both in the planning and

evaluation phases of RCB/M (Simons, 1995). With a better understanding of how to

incorporate management and oversight processes, procedures and protocols higher

levels of vertical and lateral coordination may be achieved while encouraging high levels

of unit autonomy.

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Third, this study identified the importance of the role of leadership, with specific

emphasis on the Provost (Courant & Knepp, 2002). Leaders were reported to wield

substantial influence and power within the RCB/M environment (Strauss & Curry, 2002;

Whalen, 2002). The approach of the individual leader was shown to have a significant

impact for both vertical and lateral coordination at the institutions. As Whalen (1991)

noted, not every institution possesses strong leadership characterized by a willingness

to communicate and participatory management (p. 162). At Midwestern U.S. University

and Central Canadian University such participatory management is fostered by the

Provost through the use of discretionary funding; this was reported as being essential to

increasing the levels of vertical and lateral coordination and, although not unique to

RCB/M, is an important finding. Although these centrally allocated discretionary funds

can be considered a modification to traditional RCB/M, they have been shown to be

essential in the successful use of RCB/M. Additionally, these discretionary funds have

allowed the central administration at Central Canadian University and Midwestern U.S.

University to take a soft power approach to the interactions with units. This soft power

approach is reported to encourage collegial processes, and promote interactions and

discussions rather than relying on edicts and declarations.

Finally, the role of the external funding environment, especially salient for

publically funded universities, was noted frequently by respondents and provides a new

contribution to the RCB/M literature. Discussions regarding the austerity narrative at

Eastern U.S. University, Midwestern U.S. University, and Western Canadian University

explored the striking effect that resource constraint had on institutional and unit

235
resource allocation decision-making. Although decreasing public funding has been the

norm for public universities in North America for some time (Deering & S, 2014; Dill &

Sporn, 1995), linking this reality to increasing conflict and competition inside universities

is unique. These findings support the observations in the higher education literature

(e.g. Gumport & Sporn, 1999; Gumport, 2012; Hearn & McLendon, 2012) with regard to

managing the complexities of the higher education institution in the modern era.

SECTION 8.4 IMPLICATIONS FOR FUTURE RESEARCH

Although this study focuses on a small population of four public universities, the

implications for research in higher education, and more generally in organizational

studies, are numerous. This study has provided a foundation for further unlocking the

black box of internal organizational structure and the application of governance control

forms in an attempt to provide further understanding of power dynamics, resource

allocation decision-making, goal achievement, mission alignment, and vertical and

lateral interactions and relationships. Sufficient support was found for the vertical

coordination, lateral coordination, and unit autonomy factors. Further quantitative

analysis of these factors through either a principal component analysis or confirmatory

factor analysis using sequential equation modelling should be conducted to determine if

each of the three factors are unique. Through this analysis it may be found that the

variations in the three proposed factors can be explained by the variation in one, or two

of the variables.

236
Future studies should question how the universitys internal structure affects

governance choice, and how governance choice hinders or encourages coordination

within the institution. The rather scant attention paid to the influence of internal

structure and governance control form is surprising given the role of internal structure

for the direction of knowledge flows (Weigelt & Miller, 2013) and the impact on goal

achievement and mission alignment. Future scholarship should consider the universitys

allocation of decision rights to units and the coordination among those units and among

the units and the central administration (Lawrence & Lorsch, 1967; Milgrom & Roberts,

1992). Further investigation is also called for to examine how internal structure can

affect the universitys ability to efficiently encourage coordination and cooperation by

its units (Grant, 1996) and the effective allocation of resources (Bower, 1986).

Additionally, investigation is needed to further explore how universities provide for

incentives to encourage lateral coordination between units, and promote the

achievement of unit and institutional goals through increased vertical coordination

(Cyert & March, 1963; Grant, 1996; Milgrom & Roberts, 1992). Through such studies an

increased understanding of the university as an organization can be established,

allowing for a more complete understanding of how internal structure affects, and is

affected by, governance control forms (Demsetz, 1993). The result would be a

substantial contribution to the literature on budgeting, and management in higher

education.

With specific focus on governance control forms there continues to be a need for

research that focusses on management control systems beyond those employed in

237
classically hierarchical organizations. This study has provided a starting point for such

research through the examination of governance control forms in universities employing

decentralized decision-making and resource allocation structures. Further, more

research is needed into the use of governance control forms beyond their use as merely

an exercise of power (Otley et al., 1995). Research into the social, cultural and

contextual power of governance control forms needs to be pursued. Finally, more

research is needed to provide insight into how universities, and organizations more

generally, can develop effective rules and procedures that allow for the regulation of

lateral and vertical interactions while encouraging unit leaders to act with flexibility and

timeliness, engage in meaningful dialogue, share information, and promote

organizational mission achievement.

SECTION 8.5 IMPLICATIONS FOR PRACTICE

The findings and analysis of this study have practical implications for those

interested in the management and finance of higher education institutions, and

specifically, for those institutional leaders whose university uses or is considering the

use of RCB/M. The findings of this study suggest that it is critical for university

leadership to understand the relationship between governance control forms and the

decentralization of resource allocation decision-making. Further, it is essential that

leadership understands the important role it plays in aligning unit efforts to achieving

institutional goals. Evidence suggests that through the use of soft power and a

predominantly interactive control form, supported by diagnostic rules, processes and

238
principles, the promise of efficiency and effectiveness provided by RCB/M can be

achieved while limiting conflict and competition within the institution. That is, it is vital

that the application of RCB/M at universities be done in such a way that the appropriate

governance control forms are in place to protect the mission and collegiality of the

institution.

Furthermore, during the evaluation, planning and development stages of RCB/M,

and during the review stages for those universities that currently employ RCB/M, the

factors of vertical coordination, lateral coordination, and unit autonomy must all be

considered. The design of RCB/M must be conscious and purposefully tailored to the

institution. The design process must include a review of institutional systems to ensure

that they interface with RCB/M in a manner that encourages vertical and lateral

coordination and the achievement of institutional objectives. As noted in this study,

RCB/M is most effective when it is supported by an influential and finally strong central

administration that employs a predominately interactive governance control form,

support by diagnostic elements. For those universities deliberating the use of RCB/M,

conscious consideration and planning must be given to governance control form

selection, and the development of processes, procedures and protocols that support the

three factors presented in this study. As the evidence provided in this study suggests,

the interplay between these three factors and governance control forms can encourage

positive or negative organizational outcomes. While the institutional contexts of the

four universities examined differed, the use of interactive governance control forms and

consultative leadership techniques increased the effectiveness of RCB/M. To promote

239
positive organizational outcomes institutional leaders should work to encourage

transparency and employ consultative management practices through a predominately

interactive governance control form that is supported by diagnostic systems,

procedures, and sanctions. This structure should provide an environment that promotes

coordination while allowing for creative and entrepreneurial behaviour across all

institutional levels.

Finally, it is important to note that the use of RCB/M does not merely change the

budgeting structure of the university. Rather, as Lang (1999b) argues, it affects each and

every aspect of the institution. As such, a holistic evaluation and planning process that

includes budgeting, finance, management, oversight, reporting, and collegial inter-unit

processes should be applied during the planning phase based on the three-factor model

of internal structure. Subsequently, during RCB/M reviews all aspects of the RCB/M

model should be evaluated using the presented three-factor model, with consideration

of the governance control form in use at the institution. The findings of this study

suggests those institutions that critically review and enact changes to improve the

RCB/M model reported increased engagement from faculty and administration, lower

levels of competition and conflict, and increased levels of vertical and lateral

coordination. For RCB/M to remain institutionally relevant, a systematic process of

review and adjustment is required every five years. However, as noted in this study, a

formal mechanism is necessary to address any material issues or conflicts related to the

RCB/M model that arise between reviews. It is critical that this mechanism engage both

faculty and administrative leadership.

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SECTION 8.6 SUMMARY CONCLUSIONS

This study has shown that, as predicted, the two universities employing a

predominantly interactive governance control form experienced relatively high levels of

vertical and lateral coordination with RCB/M encouraging high levels of unit autonomy.

It was also shown that the two universities employing a predominantly diagnostic

control form experienced low levels of vertical and lateral coordination, and RCB/M

encouraging high levels of unit autonomy. However, the relationship between

diagnostic control forms and low levels of vertical and lateral coordination is not causal

and as discussed earlier, diagnostic control forms can be successfully employed in

decentralized environments with the appropriate organizational culture and

management focus.

Furthermore, this study builds a three-factor model of internal structure that is

explored through the consideration of a sample of four public universities employing

RCB/M models. The implications of this study for universities currently employing or

considering RCB/M are numerous. This three-factor model of internal structure provides

a foundation for the exploration of the role of governance control forms in universities

that employ decentralized budgeting and management models. Furthermore, it is

envisioned that this model will be valuable for those university leaders considering the

implementation of an RCB/M structure or those reviewing the use of such structures at

their institution.

241
Further investigation in different organizational contexts, utilizing a quantitative

research methodology, including larger samples, both in terms of respondents and

institutions, is needed. Additionally, further investigation into private universities is

required to explore the similarities and differences compared with the public

universities examined in this study. Differences in revenue sources, regulatory and

reporting responsibilities, stakeholder groups, and government involvement in setting of

strategic direction and goals may all create differing outcomes and may provide for an

extension of this studys findings. However, due to the low levels of public funding [as a

percentage of total university revenue] provided to Midwestern U.S. University and

Eastern U.S. University I would expect substantial similarities if this study were

replicated utilizing a sample of private universities.

The exploration of internal structure, governance, and relationships within

universities provided in this study should help guide scholarship in higher education

finance, budgeting, and governance, and should encourage researchers to confront

concepts and relationships neglected in the postsecondary literature.

242
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266
APPENDIX 1: Budget Typology Table

Root Strategies Strengths Weaknesses


Assumptions
Simplicity Status quo
Reduced conflict Focus on inputs
Stability Driven more by political
Incremental Flexibility demands then analytic
budgeting Controllability assessments
Pragmatic Flexibility/opportunism
Continuous commitments not
recognized
Focus on results Assumption of knowledge
Relating goals to Consensus
outcomes Flexibility/opportunism
Planning Sense of direction Strong central management
Programming Long range planning Unreliable measure of inputs
-Budgeting (macroeconomic and outputs
System focus) Costly
(PPBS) Qualitative and Difficult to implement
quantitative Institutional missions
Rational Calculation

dimensions
Focus on results Valid Criteria
Objectivity Reliable measures
Zero-Based Manageable scope Ad hoc nature
Budgeting Decentralization No budget history
(ZBB) Better understanding Costly (time and paper work)
of the organization Continuous commitments not
recognized
Focus on Unreliable measures of inputs
accomplishments and outputs
(outputs) Ad hoc nature
Performance Objectivity Complex and long process
Budgeting Manageable scope Institutional missions
Qualitative and Unable to measure long-term
quantitative outcomes
dimensions
Simplicity Status quo
Reutilization Lack of planning flexibility
Formula Equity Short term orientation
Budgeting Reduced conflict Implicit or explicit incentives
Accountability in formulas
Objectivity Quantitative measures
Rigid and simplistic formulas

267
Responsiveness Absence of pure market
Competition conditions
Decentralized Lack of central controls
(Decisions close to Service components
actions) Responsibility center
Market Interaction

Flexibility formation
Responsibility with Budget driven academic
Responsibility authority programs
Centered Accountability Difficult cost and revenue
Management Effective use of attribution
resources Desire to generate income.
Cooperation among
units
More student
influence
Institutional missions
Source: Cekic (2010). Budgeting and Organizational Culture: Exploring responsibility center management
(RCM) and cultural change at a public university. Saabrucken: Lambert Academic Publishing.

268
APPENDIX 2: Public Higher Education Institutions in the Times Higher Education North American
Rankings and Corresponding Budgeting and Management System

Rank Institution Country Decentralized Budgeting and


Management

6 University of California, Berkeley United States No


9 University of California, Los Angeles United States Yes
15 University of Michigan United States Yes
16 University of Toronto Canada Yes
19 University of Washington United States Yes
20 Georgia Institute of Technology United States No
21 University of Texas at Austin United States No
22 University of British Columbia Canada No
23 University of Wisconsin-Madison United States No
24 University of Illinois at Urbana Champaign United States Yes

25 McGill University Canada Yes


26 University of California, Santa Barbara United States Yes
27 University of California, San Diego United States Yes
29 University of North Carolina at Chapel Hill United States No

31 University of California, Davis United States Yes


32 University of Minnesota United States Yes
34 Ohio State University United States Yes
36 University of Southern California United States Yes
37 Pennsylvania State University United States Yes
38 Purdue University United States Yes
39 University of Massachusetts United States No
41 University of Pittsburgh United States No
43 University of Montreal Canada No
45 McMaster University Canada Considering Implementation
46 University of Colorado Boulder United States No
48 Michigan State University United States No
49 University of California, Irvine United States Yes
50 University of Maryland, College Park United States No
Source: Thomson Reuters. (2013). The World University Rankings. Retrieved from
http://www.timeshighereducation.co.uk/world-university-rankings/2013-14/world-ranking/region/north-
america

269
APPENDIX 3: Walter et al.s Three Factor Model of Organizational Effectiveness

Factor Measurement Variables


Promoting departmental majors to potential students

Improving faculty morale and satisfaction

Placing graduate students (e.g. doctoral student placement)

Encouraging faculty to take leadership roles in scholarly associations


Strategic Consensus (e.g. officers, journal editors)

Improving national research rankings

Supporting faculty with strong professional reputations

Paying competitive salaries

Department members publish in premier journals in the field

Department members receive research grants

Department members are represented on editorial boards of major


journals in the field
Organizational Performance
Department members receive awards for research

Department members teach at the cutting edge

Department members receive awards for teaching

Department members are willing to put in a great deal of effort to


successfully recruit new faculty with research skills

Department members are willing to promote recruiting decisions to


Commitment coworkers as being good for the department

Department members really care about seeing other department


members publish successfully

Source: Walter, J., Kellermanns, F., Floyd, S., Veiga, J., & Matherne, C. (2013). Strategic alignment: A
missing link in the relationship between strategic consensus and organizational performance. Strategic
Organization. 11(3), 304328.

270
APPENDIX 4: Lateral Coordination and Governance Control Form Matrix

Low Lateral Coordination High Lateral Coordination


Diagnostic Control Form
Governance Structure
Interactive Control Form
Governance Structure

271
APPENDIX 5: Vertical Coordination and Governance Control Form Matrix

Low Vertical Coordination High Vertical Coordination

Diagnostic Control Form


Governance Structure
Interactive Control Form
Governance Structure

272
APPENDIX 6: Method-Process Graphic

Research Questions

Creation of Conceptual Framework

Identification of Sample Institutions for Case Study

Identification of Individuals to Interview

Start List Coding Scheme Creation

Data Collection

Sorting and Coding of Data (Includes the addition, deletion and modification of codes and code
definitions)

Keyword/phrase Identification

Keyword/phrase Searches in MS Word

Creation of Summaries of Main Conceptual Categories

Keyword/phrase Identification

Keyword/phrase Searches in MS Word

Creation of Matrices to Triangulate Data/Findings from


Multiple Sources

273
APPENDIX 7: Steps and Phases of Study

Step Activity Reason This Research Study's Activities

Defined research question (RCB/M and governance, and the


Definition of research question Focus effort three-factor internal structure model) and gap in the
literature.

Getting Started
Constructs developed through an extensive literature review
Provides grounding of construct
A priori constructs of RCB/M, governance, organizational design, and
measures
management control systems.

Focuses efforts on the Initial environmental scanning and institutional document


theoretically useful cases - those analysis provided eight institutions of interest that could be
Selecting Cases Theoretical, non-random sampling
that will extend theory by filling separated into two general categories. Four institutions
conceptual categories chosen.

Qualitative and quantitative data Synergistic view of evidence from Qualitative data collection and analysis through two phases
Crafting Instruments and Protocols
combined divergent perspectives that included document analysis, and in-person interviews.

Allows ability to take advantage of Phased data collection and analysis to inform each
Flexible and opportunistic data
Entering the Field emergent themes and unique case subsequent stage.
collection methods
features

274
Gains familiarity with data and
Within-case analysis Within-case analysis.
preliminary theory generation
Analyzing Data
Forces investigator to see
Cross-case analysis Cross-case analysis.
evidence through multiple lenses

Sharpens construct definition, Phased data collection and analysis promoted an iterative
Iterative tabulation of evidence
validity, and measurability process of theme identification and testing.

Shaping Hypothesis

Search for evidence for 'why' Exploratory nature of investigation provided depth of
Builds internal validity
behind relationships understanding behind observed relationships.

Builds internal validity, raises


Comparison with conflicting
theoretical level, and sharpens Identification of conflicting and competing findings.
literature
construct definitions
Enfolding Literature
Sharpens generalizability,
Uniqueness of this study intended to extend understanding
Comparison with similar literature improves construct definition, and
using extant literature as a foundation.
raises theoretical level

Theoretical saturation when Ends process when marginal


Reaching Closure Creation of deliverables.
possible improvement becomes small

275
APPENDIX 8: Interview Protocol

Interview Questions for Participants

1. For the purposes of this study, I am interested in researching decentralized budget and
management systems at University of X. By decentralized budgeting and management
systems I mean those institutional systems and processes of decision making, resource
allocation, and responsibility for budget shortfalls and surpluses that have been
decentralized. One often used term for these processes is Responsibility Centre
Budgeting and Responsibility Centre Management (RCB/M). I am particularly interested
in the relationship of RCB/M systems and management structures. Additionally, I am
interested to investigate how the structure of the institution impacts decision making
and management structures. I am also interested to hear your general thoughts and
experiences on the use of RCB/M in your university and any specific interactions and/or
outcomes you would like to highlight.

2. When did you first join University X? What changes in the universitys financial
administration have you seen since then?

3. What level of autonomy in decision making do the units at your university have? What,
if any, influence or impact does the central administration have over your decisions?

4. How familiar are you with RCB/M? What is it intended to do in higher education?

5. Why do you think your institution implemented RCB/M?

6. What role did you think RCB/Ms implementation at other universities play in your
universitys decision to implement it?

7. How would you describe the financial administration of your department or the
university since the introduction of RCB/M?

8. Can you describe your institutions management structures? How did they change when
RCB/M was implemented?

9. Again, thinking about your management structures, would you characterize them as
being top down and authoritarian or a structure that encourages communication and
interaction? Can you describe the processes in place that lead you to this conclusion?

10. Can you describe the various levels that the governance and oversight structures acts
on? For instance at the central level of the institution you have the governing board

276
overseeing institutional priorities. What other levels do you see active governance and
oversight by the central administration?

11. How different, in terms of cost structure of educating students, are the various units of
your institution? Which unit would be the most similar? Which do you think would be
the most different?

12. From your experience what is the level of coordination between units and the central
administration? Are there formal mechanisms in place to facilitate this?

13. How much coordination do you observe between units? Have you observed competition
between units?

14. If you had a free hand to change your universitys financial administration: is there
anything you would change to improve it? If so, what would it be? Why?

15. Describe any external pressure you think the university is experiencing or experienced
to implement RCB/M?

16. What else would you like to tell us about budgeting, management and resource
allocation decision making at your university?

277
APPENDIX 9: Contact Letter to Potential Participants

Invitation Email to Interview Participants

Dear_____

My name is Darren Deering and I am a Ph.D. Candidate in the Leadership, Higher and Adult
Education program at the Ontario Institute for Studies in Education (OISE) at the University of
Toronto (UofT). I am writing to invite you to participate in a research study currently being
conducted on budgeting, management, and governance systems in higher education
institutions that is being conducted as part of the requirements for my Ph.D. at OISE/UofT.

I intend to interview senior administrative staff, Deans, Program Chairs, and senior faculty
members from a variety of higher education institutions in Canada and the United States.
Specifically, I am interested in the levels of autonomy in decision-making, management
structures, and level of alignment between faculties and their institution.

I expect that the interview should require no more than 60 minutes of your time. Follow up
questions via email, made within 30 days of the original interview, may be needed to clarify
items discussed.

I hope that the findings from this study will help inform the discussion on budgeting,
management and the resulting resource allocation decision-making in higher education.
Additionally, I expect that this study will add to the higher education management literature
providing a better understanding of practices and their application.

Your responses and participation in this study will be kept strictly confidential as will the name
of your institution. You will also be presented with a transcript of the interview allowing you the
opportunity to verify or clarify any statements.

I would like to note that all participation is completely voluntary. You will be under no
obligation to participate, and there will be no negative consequences for withdrawing from the
process. Please see the Consent Letter for more information about this study. If you are
interested in participating in this study you can email or call me at which time I would be happy
to answer any additional questions you may have and arrange a time for an interview.

For your records, our contact information is as follows:

278
Darren Deering: darren.deering@mail.utoronto.ca

Creso S (faculty supervisor): c.sa@utoronto.ca

The phone number for the University Research Ethics Office is 416-946-3273 if you have any
questions about your rights as a research participant. Feel free to contact University Research
Ethics Office if you have any questions regarding your rights as a participant in this study.

I hope that you are willing to set some time aside to be interviewed for this research study.

Best Regards,

Darren Deering
Ph.D. Candidate

279
APPENDIX 10: Ethics Approval Letter

280
APPENDIX 11: Interviewee Consent Form

Consent for Participation in Interview Research

I ______________________________________ volunteer to participate in a research project


conducted by Darren Deering, Ph.D. Candidate, from the University of Toronto. I understand
that the project is designed to gather information about budgeting and management processes
in higher education institutions. I will be one of approximately 48 people being interviewed for
this research from four different institutions.

1. My participation in this project is voluntary. I understand that I will not be paid for my
participation. I may withdraw and discontinue participation at any time without penalty.
If I decline to participate or withdraw from the study, no one on my campus will be told.
2. I understand that most interviewees in will find the discussion interesting and thought-
provoking. If, however, I feel uncomfortable in any way during the interview session, I
have the right to decline to answer any question or to end the interview.
3. Participation involves being interviewed by researchers from the University of Toronto.
The interview will last approximately 60 minutes. Notes will be written during the
interview. An audio tape of the interview and subsequent dialogue will be made. If I
don't want to be taped, and audio tape of the interview will not be made.
4. I understand that the researchers will not identify me or my institution by name in any
reports using information obtained from this interview, and that my confidentiality as a
participant in this study will remain secure. Subsequent uses of records and data will be
subject to standard data use policies which protect the anonymity of individuals and
institutions.
5. Faculty and administrators from my campus will neither be present at the interview nor
have access to raw notes or transcripts. This precaution will prevent my individual
comments from having any negative repercussions.
6. I understand that this research study has been reviewed and approved by the Office of
Research Ethics at the University of Toronto for studies involving human subjects. For
research problems or questions regarding subjects, the Office of Research Ethics at the
University of Toronto may be contacted via phone at 416-946-3273.
7. I have read and understand the explanation provided to me. I have had all my questions
answered to my satisfaction, and I voluntarily agree to participate in this study.
8. I have been given a copy of this consent form.

____________________________ ________________________
My Signature Date

____________________________ ________________________
My Printed Name Signature of the Investigator

For further information, please contact: Darren Deering at darren.deering@mail.utoronto.ca

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APPENDIX 12: Informed Consent Letter

Informed Consent Letter

Month 2014,

To the participants in this study,

The purpose of the present study is to investigate the use of decentralized budgeting and management
systems such as Responsibility Centre Budgeting and Responsibility Centre Management (RCB/M).
Specifically, I am interested in the relationship of such decentralized budgeting and management
structures with governance systems and the effects on institutional structure.

The 48 senior administrators, Deans, chairs, and senior faculty participating in this study will be selected
based on their knowledge of their institutions decentralized budgeting and management system and its
interaction with institutional governance structures and is strictly voluntary. In addition, a balance
between participants from the four institutions being considered will be sought. The four institutions
have been chosen due to their implementation of a decentralized budgeting and management system. It
should be noted that at no time will the institutions be named.

This study will be carried out in two Canadian provinces and two U.S. states, under the supervision of
Professor Creso S, Department of Leadership, Higher and Adult Education, The Ontario Institute for
Studies in Education/University of Toronto. The data is being collected for the purposes of a
dissertation. In addition to the use of this data in the dissertation my intent is to publish and make
public presentations based on the research, and all participants identity will remain confidential.

A face-to-face interview of approximately 60 minutes will be conducted with you. During the interview
you will be asked questions about your understanding of the budget and management systems of the
university, your perspective on the outcomes of this systems use, and the relationship between this
system and your institutions governance structure. As the interview proceeds, I may ask questions for
clarification or further understanding, but my part will be mainly to listen to you speak about your
views, experiences, and the reasons you believe the things you do. After the interview, I will write brief
notes that will be used to assist me in remembering the surroundings of the interview (i.e.,
characteristics of the site). It should be noted that you may withdraw at any time, without consequence.

It is the intention that each interview will be digitally recorded, with your permission, and later
transcribed to paper; you have the choice of declining to have the interview recorded. You will be
assigned a number that will correspond to your interviews and transcriptions. Your transcript will be
sent to you to read in order for you to add any further information or to correct any misinterpretations
that could result. The information obtained in the interview will be kept in strict confidence and will be
stored securely in my locked private office. Only the researcher and the supervisor of the study will
have access to the recordings and the transcriptions. All information will be reported in such a way that
individual persons and institutions cannot be identified. All raw data (i.e. transcripts, field notes) will be
destroyed five years after the completion of the study.

You may at any time refuse to answer a question or withdraw from the interview process. You may
request that any information, whether in written form or digital recording, be eliminated from the

282
project. At no time will value judgments will be placed on your responses nor will any evaluation be
made of your effectiveness in your role at the university and at no time will you be at risk of harm.

The benefit of participation to the interview participant is to help build a better understanding of issues
surrounding decentralized budgeting and management processes in higher education in general and at
your individual institution. Furthermore, you will be provided with a final draft of the research, if so
desired. The benefits to the scholarly community include the development of a four factor model of
internal structure and its application to decentralized budgeting and management of higher education
institutions.

Finally, you are free to ask any questions about the research and your involvement with it and you will
receive a final copy of the research article once is has been written.

If you have any questions, please feel free to contact Darren Deering at
darren.deering@mail.utoronto.ca. You may also contact the faculty supervisor, Dr. Creso S at (416)
926-4741 or at c.sa@utoronto.ca. Finally, you may also contact the U of T Office of Research Ethics for
questions about your rights as a research participant at ethics.review@utoronto.ca or 416-946-3273.

Thank you in advance for your participation.

Darren Deering, Ph.D. Candidate

Leadership, Higher and Adult Education


OISE/University of Toronto
252 Bloor Street West
Toronto, Ontario
M5S 1V6
Telephone: 647-801-9879
Email: darren.deering@mail.utoronto.ca

Dr. Creso S

Faculty Advisor
Professor, Leadership, Higher and Adult Education
OISE/University of Toronto
252 Bloor Street West
Toronto, Ontario
M5S 1V6
Telephone: 416-926-4741
Email: c.sa@utoronto.ca

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By signing below, you are indicating that you are willing to participate in the study, you have received a
copy of this letter, and you are fully aware of the conditions above.

Name: _____________________________________School: _____________________________

Signed: ____________________________________Date: ______________________________

Please initial if you would like a summary of the findings of the study upon completion: _____

Please initial if you agree to have your interview audio recorded: _____

Please keep a copy of this form for your records.

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APPENDIX 13: Matrix for Case Comparisons

Conceptual Themes Literature Document Interview Data Conflicts Alignment of Data


Categories Analysis Between Data
(Source of Data)
Oversight of unit decision-
making
Influence/power of central
admin
Structures to encourage
cooperation and
coordination
Multidisciplinary
Lateral programs/research
Coordination
Policies for service teaching
Level of decentralization
Dean centric model
Power of Provost
Trend of centralization
Cost reduction vs. revenue
seeking
Indirect vs. direct costs
Use of soft power
Power/influence to
encourage alignment to
institutional mission/goals
Oversight over unit budgets
Vertical
and strategy
Coordination
Application of diagnostic,
interactive or combination
Level of decentralization
Trend of centralization
Ability to set strategic goals

285
and act strategically
Fund authority
Task accountability
Trend of centralization
Clear formulas
Unit
Autonomy Communication and/or
negotiation of changes to
operations, formulas, and tax
rates
Surplus vs. deficit
Perceived differentiation
Similar Units (e.g. costs,
Unit
students, capital
Differentiation
investments)
Linkages between units
Communication
Transparency
Central Soft power
Leadership Resources
Trust and fairness
Provosts focus
Austerity
State/provincial
appropriations
Endowments
Institutional Class of institution (world,
Environment national, regional, local)
Culture
Reputation
Financial crisis
Institutional costs

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APPENDIX 14: Coding Scheme Start List

Conceptual Themes Literature Document Interview Data


Categories Analysis
Influence of
central
administration
over decision-
making
Vertical Central
Coordination administrations
discretionary
budget
Interactive vs.
diagnostic control
forms
Competition
Service teaching
Multi-disciplinary
programs
Lateral Have vs. have not
Coordination Central
administrations
role in
encouraging
coordination
Diagnostic vs.
interactive control
forms
Surplus vs. deficit
Unit Autonomy
Revenue
opportunities
Linkages between
units
Organizational
Cost of faculty
Unit Capital needs,
Differentiation investment and
infrastructure
Sources of funding

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APPENDIX 15: Triangulation Matrix for Research Questions

Data Source
Research Question
Institutional Documents External Reports Interviews
Do those HEIs that apply an interactive governance control form, which allows for
oversight and influence on unit-level decision-making, experience increased
alignment between unit-level goals, resource-allocation decisions, and behaviour
regarding institutional mission and strategic goals?
Do those HEIs that report high levels of lateral and vertical coordination have
governance structures that allow for oversight and influence of unit-level decision
making?
Is there a relationship between the type/degree of alignment (high vs. low lateral
and vertical coordination) and the achievement of organizational goals?
Is increasing revenue a stronger, more manageable incentive compared to cost
reduction? If so, does this fact encourage the internal competition (decreasing
lateral coordination) and fragmentation of the institution by reducing vertical
coordination?
How does the ratio of indirect to direct costs impact the degree of lateral and
vertical coordination?
What is the relationship between levels of unit autonomy (funding authority and
task accountability), and the type of governance structure (interactive versus
diagnostic control systems of governance)?
Will the degree of unit differentiation determine the degree of lateral
coordination?
Will HEIs that use RCB/M and apply an interactive control system of governance
experience higher levels of institutional goal and mission achievement?
Will HEIs that use RCB/M and employ an interactive control system of governance
experience lower levels of decision-making autonomy at the unit level?

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APPENDIX 16: Three Factor Model of Organizational Effectiveness for Midwestern U.S.
University

Factor Measurement Variables Midwestern U.S. University


Promoting university to potential students Processes identified in document analysis, support form
data collected during interviews.

Improving faculty morale and satisfaction Processes identified in document analysis, support form
data collected during interviews.
Strategic Consensus

Placing graduate students (e.g. doctoral Data not available from document analysis, inconclusive
student placement) evidence from interview data.
Encouraging faculty to take leadership roles Processes identified in document analysis, support form
in scholarly associations (e.g. officers, data collected during interviews.
journal editors)
Improving national research rankings Processes identified in document analysis, support form
data collected during interviews.
Supporting faculty with strong professional Processes identified in document analysis, support form
reputations data collected during interviews.
Paying competitive salaries Processes identified in document analysis, support form
data collected during interviews.
Faculty members publish in premier journals Statement supported by document analysis, support
in the field from data collected during interviews.
Organizational Performance

Faculty members receive research grants Statement supported by document analysis, support
from data collected during interviews.
Faculty members are represented on Statement supported by document analysis, support
editorial boards of major journals in the field from data collected during interviews.
Faculty members receive awards for Statement supported by document analysis, support
research from data collected during interviews.
Faculty members teach at the cutting edge Statement supported by document analysis, support
from data collected during interviews.
Faculty members receive awards for Statement supported by document analysis, support
teaching from data collected during interviews.
Willing to put in a great deal of effort to Statement supported by document analysis, support
successfully recruit new faculty with from data collected during interviews
Commitment

research skills

Support for department members to Statement supported by document analysis, support


encourage publication from data collected during interviews.

289
APPENDIX 17: Three Factor Model of Organizational Effectiveness for Central Canadian
University

Factor Measurement Variables Central Canadian University


Promoting university to potential Processes identified in document analysis, data
students not collected during interviews.
Improving faculty morale and Processes identified in document analysis,
satisfaction support form data collected during interviews.
Strategic Consensus

Placing graduate students (e.g. doctoral Data not available from document analysis,
student placement) inconclusive evidence from interview data.
Encouraging faculty to take leadership Processes identified in document analysis,
roles in scholarly associations (e.g. inconclusive evidence provided by interview
officers, journal editors) data.
Improving national research rankings Processes identified in document analysis,
support from data collected during interviews.
Supporting faculty with strong Processes identified in document analysis,
professional reputations support from data collected during interviews.
Paying competitive salaries Processes identified in document analysis,
support from data collected during interviews.
Faculty members publish in premier Statement supported by document analysis,
journals in the field support from data collected during interviews.
Organizational Performance

Faculty members receive research Statement supported by document analysis,


grants support from data collected during interviews.
Faculty members are represented on Statement supported by document analysis,
editorial boards of major journals in the support from data collected during interviews.
field
Faculty members receive awards for Statement supported by document analysis,
research support from data collected during interviews.
Faculty members teach at the cutting Statement supported by document analysis,
edge support from data collected during interviews.
Faculty members receive awards for Statement supported by document analysis,
teaching support from data collected during interviews.
Willing to put in a great deal of effort to Statement supported by document analysis,
successfully recruit new faculty with support from data collected during interviews.
Commitment

research skills
Support for department members to Statement supported by document analysis,
encourage publication support from data collected during interviews.

290