Understanding Reforms and Management Control Systems in Bureaucratic and
Political Control Organisations: Evidence from a Large State Enterprise in
Nigeria
Hadiza Sa’id
Department of Accounting and Finance
Hull Business School
University of Hull
Email: h.said@hull.ac.uk
Tel: +441482463147
And
Mathew Tsamenyi
Department of Accounting and Finance
The Birmingham Business School
University of Birmingham
Email: m.tsamenyi@bham.ac.uk
Tel: +441214861130
1
Understanding Reforms and Management Control Systems in Bureaucratic and
Political Control Organisations in Developing Country: Evidence from a Large
State Enterprise in Nigeria
Abstract
Over the past two decades most Less Developed Countries (LDCs) including Nigeria
have been reforming their public enterprises as part of a wider international donor led
economic reforms. The reforms involved among other things the adoption of private
sector management practices, including management control systems (MCS) in public
sector entities. Drawing on a processual approach, this paper reports on the results of
a case study that explores the process of the reforms in a large commercial oriented
state enterprise in Nigeria in an attempt to trace and understand the impacts of the
reforms on the MCS in the organisation. Data for the analysis were gathered from
multiple sources including semi-structured interviews with seventy-three managers,
observations and the analysis of internal and external documents. The findings of the
paper suggest that the various MCS innovations introduced as part of the reforms failed
to play any meaningful role in the organisation as they were either not implemented or
where they have been implemented were not used in day-to-day decision making. The
organisation we examined is very complex and characterised by bureaucratic and
political control which hindered the reform process. Furthermore, the MCS were
designed by international consultants with little consideration for the complexity and
the political context of the organisation.
Keywords: Public sector reform; Management Control Systems; Processual
Approach; Less Developed Countries, State-Owned Enterprises, Nigeria
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1. Introduction
The objective of this paper is to contribute to the ongoing debate on reforming state
institutions especially in Less Developed Countries (LDCs). This debate is particularly
important due to the increasing pressure on most LDCs (including Nigeria) to adopt
wider international donor led neo-liberal economic reform programmes (Cook and
Kirkpatrick, 1995; Uddin and Hopper, 2003; Hopper et al., 2009). The reforms are
intended to among other things introduce more efficient private sector management
practices into what is deemed an inefficient public sector (Hood, 1991; 1995; Hopper,
et al., 2009). The State-Owned Enterprises (SOEs) which were set up to engage in
commercial activities and have been the subject of a number of these reforms have
particularly been singled out and criticised for being inefficient and a drain on the scarce
national resources (Broadbent and Guthrie, 1992; Uddin and Hopper, 2001; Uddin and
Tsamenyi, 2005). At one point, SOEs dominate every sector of the Nigeria economy
but they have been poorly managed and blamed for contributing in part to the country’s
underdevelopment (Nweki, 2007; TCPC, 1993).
It is believed that reforming these SOEs will improve their efficiency and hence reduce
the reliance they place on state subsidy and enhance their overall contribution to the
national economy (Rees, 1985; Uddin and Tsamenyi, 2005; Uddin and Hopper, 2001;
Rahaman and Lawrence, 2001). This is based on the assumption that private sector
management practices introduced into these firms will actually work. For example, it
is assumed that bureaucracy and cronyism which have characterised these organisations
will be eliminated and proper systems of control and accountability will follow (World
Bank, 2000; Prizzia 2001).
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Empirical evidence from both developed countries (Broadbent and Guthrie 1992;
Ogden, 1995; Lapsey and Pallot, 2000; Brignall and Modell, 2000; Modell, 2001) and
LDCs (Uddin and Hopper, 2001; Rahaman and Lawrence, 2001; Wickramasinghe, et
al., 2004; Uddin and Tsamenyi, 2005) has shown that very often these reforms are
accompanied by the introduction of new management control systems (MCS). However
the evidence on the outcomes of the adoption of these new management control
innovations is mixed. Moreover, we believe the reasons for the success or failure and
the lessons that can be learned from these reforms have not been well examined since
a significant number of the studies identified above have focused on the outcome with
minimal emphasis on the process of the reforms. This study is motivated by the need to
understand why and how reforms implemented in public enterprises succeed or fail.
This we argue will require focusing not only on the outcomes but also on the process
of the reforms. We also argue that the views of the organisational actors are imperative
in understanding the process and judging the outcomes of these reforms.
To achieve the above, we conducted a case study on a large SOE in Nigeria. We focus
on the process and outcomes of implementing new management control systems (MCS)
in the organisation in order to understand how these MCS were implemented and
subsequently used. We adopt a processual approach (Pettigrew, 1990 & 1997;
Pettigrew et al. 2001; Dawson, 1994, 2003 & 2005) in order to understand the process
and historical context of the reform. Processual approach emphasises the content,
context and political factors influencing the change process over time (Dawson, 1997
& 2003; Greenwood and Hinings, 1996). It pays particular attention to political
influence in the change process such as how individuals and groups struggle to promote
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and protect their vested interests. These issues are important in understanding the
reform in our case study organisation.
The remainder of the paper is organised into five sections. The next section reviews
relevant literature on public sector reform and MCS. After this we discuss processual
approach followed by the research methods (including the background of our case
organisation). This is then followed by a brief overview of the public sector reforms in
Nigeria. The next section presents a discussion and analysis of the case results followed
by concluding comments.
2. Review of Related Literature
In the 1970s developed countries such as the US, UK, New Zealand and Australia
embarked on reforming their public sector. These reforms were in an attempt to
improve economic growth through reduction of operating costs, while maintaining or
improving the efficiency and effectiveness of services provided to citizens (Dorsch and
Yasin, 1998; Ogden, 1995). They involve changes in structures, culture, functions and
processes of public organisations - changes such as reducing government funding to
public organisations, corporatisation, commercialisation, privatisation, performance
contracts, improved financial management, private-sector styles of management,
contracting, and decentralisation (Boston et al., 1996; Parker and Gould, 1999; GreenPedersen, 2002; Larbi, 1999; Awio et al., 2007). Overall therefore, the reforms can be
construed as solutions to the endemic problems affecting the public sector in these
countries (Humphrey et al., 1993; Awio et al., 2007).
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A number of studies such as Broadbent and Guthrie (1992), Ogden (1995), Lapsey and
Pallot (2000) and Modell (2001) have investigated the implications of such reforms for
MCS. The general conclusion was that MCS change is a major component of these
reforms since by adopting appropriate accounting and reporting system public sector
organisations can be made accountable and responsible for financial results similar to
private sector enterprises (Broadbent and Guthrie, 1993, Humphrey et al., 1993; Olson
et al., 1998; Nor-Aziah and Scapens, 2007).
In the 1990s the public sector reform concept was imported into LDCs by the World
Bank and its allies such as the International Monetary Fund (IMF) and other
international aid agencies. These reforms were adopted in these countries as part of the
wider Structural Adjustment Programme (SAP) which was introduced by way of loan
conditionality (Toye, 1994; Cook and Kirkpatrick, 1995; Olowu, 2002; Uddin and
Hopper, 2003; Uddin and Tsamenyi, 2005; Asaolu et al., 2005; Hopper et al., 2009).
There is the assumption that better controls, improved efficiency and effectiveness, and
economic development will emerge through the adoption of these reforms (Rees, 1985;
Uddin et al., 2003; Wickramasinghe et al., 2004). Therefore, the reforms will result
overall in increased investment, a rise in Gross Domestic Product (GDP), as well as an
increase in productivity and employment (Uddin and Tsamenyi, 2005; Uddin and
Hopper, 2001).
A number of studies have investigated MCS changes in public sector organisations in
LDCs following their adoption of reforms. However, the findings of these studies are
inconclusive. While some studies reported successful reforms that resulted in changes
in MCS that improved efficiency and decision making in these organisations, others
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reported the opposite. For instance, the studies of Anderson and Lanen (1999)
O’Connor et al. (2004) and Tsamenyi et al. (2010) reported that reforms resulted in
improvement of MCS and overall decision making in the organisations they studied.
Contrary to the above findings, Uddin and Tsamenyi (2005), in a case study of a large
public organisation in Ghana that was reformed reported that there was no substantial
change in MCS in the organisation. Budgeting remained directionless, politicised,
delayed and ineffective. In effect the reform legitimised the poor performance of the
SOE. A similar finding was reported by Uddin and Hopper (2003), Mserembo and
Hopper (2004); Wickramasinghe et al. (2004), Davie (2004) and Sharma and Lawrence
(2005). All these studies suggested that reforms failed to achieve their intended
objectives. The mixed findings in the literature warrant further research. In particular,
we argue that an approach that allows us to explore the process of the reforms will shed
more light on why and how reforms may or may not achieve their intended objectives.
In the next section we present processual approach as a method that can enable us
understand the process of the reforms and the underlying socio-political contexts of the
reform.
3. Processual Approach and Understanding the Reforms
Reforming SOEs in LDCs is usually messy and complex because of the bureaucratic
and political nature of these organisations (Uddin and Hopper, 2001; Wickramasinghe
et al., 2004; Uddin and Tsamenyi, 2005). Processual approach presents a useful way of
teasing out this complex and messy process (Dawson, 1997 & 2003; Greenwood and
Hinings, 1996; Hinings, 1997; Pettigrew, 1997; Pettigrew et al., 2001; Siti Nabiha and
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Scapens, 2005). Process research can generate sound knowledge of processes,
outcomes and how and why outcomes are shaped by processes (Pettigrew, 1997). The
approach viewed change as multi-level and a cross organisational process and
emphasises on the examination of contexts, contents and processes of change and their
interconnections overtime (Pettigrew, 1990 & 1997; Dawson, 1994, 2003 & 2005).
Processual approach assumed that social reality is a dynamic process not a steady state
(Pettigrew, 1997; Dawson, 2003). As argued by Pettigrew (1997 p.338) “Human
conduct is perpetually in a process of becoming. The overriding aim of the process
analyst therefore is to catch this reality in a flight”. This implies that change is a
continuous process and it takes time to occur. Thus, the approach treat change as a
complex and dynamic process that cannot be solidified (Pettigrew, 1997; Dawson,
1994). Processual researchers reject the account of studying change as a rational, linear
event in which actions are presented as ordered and sequence and where actors behaved
in a mechanistically and altruistically in their pursuit of organisational goals, to that of
examining change as uncertain and emergent process that occurs overtime, and
recognise conflicting rationalities, activities and behaviours (Pettigrew, 1985; 1990;
Dawson, 1994, 2003). Furthermore, in order to understand change properly, an
understanding of the social and political processes is vital (Pettigrew, 1985; 1997;
Dawson, 1994).
Dawson (1994) developed a framework for understanding the processes and context of
change as it unfold in an organisation. He suggested that change process be studied over
three timeframes presented as, the initial conception of need for change, the process of
organisational change and the operations of new work practice and procedure. Dawson
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argued that during each of the timeframes a series of tasks, activities and decisions are
being made by individuals and groups and in the process of managing change an
organisation may move backward and forward between various task and activities. The
conception of need for change might come as a result of internal or external pressure or
in order to enhance future competitiveness. The process of organisational transition
refers to the commencement of the process of managing a non linear complex and
‘blackbox’ change transition. The operation of new work practices and procedure refers
to the period following the implementation of change when new organisational
arrangement and operations systems begin to emerge. Dawson (1994, p.40) argues that
“It is during this timeframe, therefore that the ‘outcomes’ of change can be examined
and contrasted with the operating system prior to change”. Dawson noted that although
it is unrealistic to talk of the end point of change as change is continuous, he argued
that it makes sense to discuss the effect of a particular change.
Dawson’s framework also explains the ways in which change is shaped at a critical
moments. He suggested classifying major determinants of change and locating them
within the temporal timeframe. These determinants are the substance of change, the
politics of change and the context of change. The substance of change refers to type
and scale of organisational change while the politics of change refers to political
activities of consultation, negotiations, resistance and conflicts that take place within
and outside the organisation and at various levels during the management of change
process. The context of change relates to how the operating environment shapes current
practice. The operating environment can be both past and present, and internal and
external. The internal factors include among other things the history and culture of the
organisation, and administrative resources, while the external include factors such as
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changes in government legislations, changes in competitors strategies, changing social
expectations and technological innovations.
Dawson (1994) argued that the co-existence of different histories can significantly
shape process and outcome of change. As observes by Pettigrew (1997, p.339) “ What
happens, how it happens, why it happens, what results it brings about is dependent on
when it happens, the location in the processual sequence, the place in the rhythm of
events characteristics for a given process”. We draw on the processual approach
described above to collect, analyse and interpret our data.
4. Data Collection and Analysis
Our research is based on a case study of a large SOE in Nigeria. For the purpose of
confidentiality the company is hypothetically referred to as Nigeria State Enterprise
(NSE). Case studies are powerful tools for studying issues that are not well understood,
complex or contextually contingent, and sensitive (Ferreira and Merchant 1992; Yin,
1994; 2003). The organisation and the issues we studied can be considered as complex,
sensitive and context determined hence the appropriateness of case studies. For
example, NSE contributes significantly to GDP, government revenue, employment and
foreign exchange, and is highly politicised with its board usually composed of
politicians or political appointees, hence its sensitivity and complexity.
The study was conducted between late 2007 and mid 2008 with a follow-up in 2012.
The data was gathered by way of interviews, document analysis and observations. A
total of seven months was spent in the case organisation by the researchers. During this
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time, seventy-three open-ended semi structured interviews were conducted. The
interviews were mainly with managers of diverse backgrounds and hierarchical
positions at the Head Office and a number of subsidiaries, external consultants, external
auditors, officials from the Bureau of Public Enterprise and politicians. Thirty-eight of
the seventy-three interviews were tape recorded, while the remaining thirty-five were
not as per the interviewees’ requests. In all cases notes were taken during these
interviews. Informal discussions were also held with some employees, especially
during lunch breaks.
Evidence gathered from documents and observations was used to corroborate findings
from the interviews (Stake, 1995; Yin, 2003). Documentary evidence was collected
from the organisation’s quarterly magazine, monthly newsletter, the operations manual,
monthly and quarterly performance reports, budget manuals, transformation documents
and other internal documents in addition to external documentations such as copies of
speeches, reports, and newspaper articles on the organisation. Privatisation and
commercialisation documents of Nigeria were also obtained from the Bureau of Public
Enterprises (BPE) in addition to World Bank and IMF reports.
The observation was mainly non-participant though on few occasions the investigator
was allowed to ask questions, for example, during a seminar organised for new recruits
and at a management meeting. The observations were particularly useful as they
provide knowledge of the context in which the events occur and enable the researcher
to see things that the interviewees were not willing to discuss (Patton, 1990). Being in
the organisation for seven months enabled the researchers to observe NSE’s daily
activities; these include action such as opening time, the level of work done, MCS in
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action and NSE’s general infrastructure. The study was conducted at a time when
attempts were being made to implement two new accounting and information systems,
namely, System Application and Products in Data Processing (SAP1) and Performance
Measurement System (PMS). The investigators were permitted to observe the
implementation process of these systems and spent time with employees processing
data with the Management Information System (MIS).
In terms of data analysis, the contact summary sheet and coding recommended by Miles
and Huberman (1994) was adopted to record and analyse the field data at the end of
any visit. However the overall data was analysed by undertaking pattern matching and
explanation building suggested by Yin (1994 & 2003). Pattern matching involves
comparing an empirical pattern with the predicted one and explanation building
involves analysing the case data by building an explanation about the case. However,
because of the complexity of our case environment and the richness of the data
collected, our analysis did not strictly follow Yin’s recommendation of looking for
comparison between the case evidence with the pattern established in the literature or
the theory. Rather the main themes that emerged from the data collected provided the
foundation for the main pattern and explanation of the study. The data and the themes
were studied over and over again with patterns identified from the themes and plausible
explanations constructed from the regularities observed. For example, patterns were
identified from themes such as power, mismanagement, political interferences, etc.
Those themes occurred repeatedly across the data.
5.1 Overview of the Nigerian Public Sector
In LDCs such as Nigeria, public enterprises are the dominant ventures and account for
a significant share of national output and investments (Adhikari & Kirkpatrick, 1990).
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The development of the Nigerian public sector began under colonial rule where the
colonial government assumed responsibility for the provision of infrastructure such as
railways, road, water, bridges, port facilities and electricity (Ugorji, 1995; Iheme,
1997). Similar to other post independent countries, Nigeria significantly expanded its
public enterprises to drive socio-economic development and guard the economy from
foreign domination and exploitation immediately after independence in the early 1960s
(Adhikari and Kirkpatrick, 1990; Umoren, 2001; Adeyemo and Salami, 2008). A
further expansion occurred in Nigeria’s public enterprises during the oil boom in the
1970s.
In 1988, the total number of public enterprises in Nigeria was put as one thousand five
hundred (1500), with about six hundred (600) operating at federal level and about nine
hundred (900) smaller ones operating at state and local government level (TCPC, 1993;
Anya, 2000). The government makes about 5,000 appointments annually to the boards
and management of these enterprises, thus serving as an influential source of political
patronage (Anya, 2000). Anya (2000, p. 1) described the Nigerian public sector as
follows:
These companies take a sizeable portion of the Federal Budget…Transfers to
these enterprises ran into billions of naira. These transfers were in the form of
subsidised foreign exchange, import duty waivers, tax exemptions and/or writeoff of arrears, unremitted revenues, loans and guarantees and
grants/subventions. These companies were also infested with many problems
which became an avoidable drag on the economy such as - abuse of monopoly
power, defective capital structure, heavy dependence on treasury funding, rigid
bureaucratic structures and bottlenecks, mismanagement, corruption and
nepotism.
It has been suggested that successive Nigerian administrations have invested about
ngn13 trillion (about 53 Billion British Pounds) in these enterprises during the period
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1978 to 1998 (Nweke, 2007)1. The combined employment of these enterprises was
about 500,000 during the same period and when compared with the estimated
population of Nigeria (about 148 million), the percentage of public sector employment
stood at only 0.3 percent.
5.2 Public Sector Reforms and Management Control Systems in NSE
In this section we examine the process of reforming NSE in an attempt to understand
how this process shaped the MCS in the organisation. As identified earlier, NSE is a
highly bureaucratic and politicised organisation and therefore power and politics are
part and parcel of its existence and decision making. Using processual approach, we
teased out the historical context of the reforms and the roles of power and politics in
the process of the reforms. This is depicted in figure 1 below). The processual approach
enabled us to tease out the historical context of the reforms and the roles power and
politics played in the process of the reforms (see Figure 1 below).
INSERT FIGURE 1 NEAR HERE
We identify the substance of the change that is the rationale for introducing the change
as the need to reform NSE into a viable commercial enterprise.
Using the processual approach we were able to identify the substance of the change
which refers to the rationale for introducing the change. This we identified as the need
to reform NSE into a viable commercial enterprise. We were then able to examine the
conception which relates to the reasons behind the change and in our case this is the
economic crisis caused by the oil glut which necessitated the government’s adoption of
1
Nweke was a former Minister of Communication and Information in Nigeria.
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IMF led SAP. Transition is about the process of change and we were able to explore
the process of the changes that occurred in the structure, systems and operations of
NSE. This process is shaped by the activities of various internal and external parties
(this is the politics of change in Fig 1), for example top management, International
Consultants, employees and the government. These groups were involved in series of
non-linear process of consultations and negotiations which sometimes created conflicts
and resistance. This transition was also shaped by NSE’s internal factors such as civil
servant mentality of employees and the notion of job security, and external factors such
as changes in government. The transition is likely to lead to changes in operations. Here
we can examine whether new MCS have been introduced or not. However, the extent
to which these new systems are actually implemented and used depends on the various
contextual factors. Table 1 below summarises various reforms and their impact on our
case firm.
INSERT TABLE 1 NEAR HERE
In order to understand the process of the reform and how this shapes the MCS, we
divide the main attempts to reform the organisation into three periods – pre-Structural
Adjustment Programme (SAP); SAP; and Debt relief.
5.2.1 Pre SAP Reforms (Before 1986)
Though there have been earlier attempts at public sector reforms in Nigeria, these were
largely peripheral as they were never implemented (Yahaya, 1993; TCPC, 1993; The
Presidential Commission on Parastatals, 1981). One of the earliest attempt to reform
was in 1981, when a presidential commission on public sector enterprises was
appointed by the ruling civilian government of President Shagari to study the operations
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of all public enterprises, with the aim of determining a new funding system, capital
structure and incentive measures that would enhance productivity and efficiency
(Yahaya, 1993). The commission submitted its report, which identified several endemic
problems that these enterprises were facing. The main problems identified were high
bureaucracy, misuse of monopoly powers, inappropriate capital structure, corruption,
nepotism and mismanagement coupled with low returns, low profits, lack of cost
consciousness and the absence of financial records (TCPC, 1993; The Presidential
Commission on Parastatals, 1981). The commission recommended an increasing role
for the private sector in managing and operating public enterprises (The Presidential
Commission on Parastatals, 1981). However this recommendation was not
implemented before the government was overthrown in a coup d’état in 1984 (TCPC,
1993).
The second attempt was in 1984, when the Buhari administration also ordered a similar
exercise to the first attempt. The study group confirmed the earlier finding; however,
this recommendation was again not fully implemented before the administration was
overthrown in another military coup in 1985 (TCPC, 1993; The Commission Report,
1984). These earlier attempts at reforms the Nigerian Public Enterprises failed to
materialise.
Although, above macro reforms failed to restructure the Nigerian public sector in
general. However, in the case of NSE being a highly strategic and politicised public
organisation as identified earlier, there were various attempts to reform the
organisation. The earlier attempt was in 1981 during the administration of Shagari. This
reform was in response to allegations published in a number of local newspapers about
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substantial amount of money missing from NSE’s accounts. The President
subsequently set up a Judiciary Commission of inquiry to investigate the matter. The
Commission produced a report which revealed several irregularities in NSE’s purchase
contracts awarded to third-parties, inefficient accounting procedures, and an
organisational structure that is too large to run efficiently. The Commission
recommended the decentralisation and reorganisation of NSE in order to make it
commercially viable (Internal Documents). Consequent to the report, the government
divided NSE into nine subsidiaries in 1981. This was in order to improve NSE’s
efficiency, effectiveness, accountability and specialisation (Internal Documents). In
terms of changes in MCS, our study revealed that minimal change occurred during this
period. In fact, the reform was judged by interviewees as largely unsuccessful.
Another attempt to restructure NSE took place in 1985. Like the first reform this second
reform was an effort to streamline processes and enhance operational efficiency.
According to the interviewees, the purpose of the reorganisation was to re-position NSE
as an efficient organisation that will discharge the public responsibility vested in it. A
manager explains this during the interview as follows:
At that time, NSE could not understand what status it had, because we were
always talking of how the government would give us subvention to fund our
operations. But the government said to us that enough is enough and that we
have to look inward and see how we can achieve better performance, at least
breakeven. We [the government] do not charge you to make a profit, but at least
you should breakeven. That means we should be able to finance our operations.
Another manager reiterates the problem as:
At that time, NSE was an arm of government without any definite structure. We
are like an amoeba with no shape; everybody is reporting to a single Managing
Director.
As part of this second reform, NSE was divided into five (5) semi-autonomous sectors.
Each sector was comprised of different companies. During this period, NSE’s top
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management was very powerful largely because of the politicisation of appointments,
decision making and control. Managers were rewarded on the basis of allegiance to the
political machinery rather than achievement of any financial outcome. A manager
comments that:
When the sector head visited us we do go to the airport and lined up for him; he
was very powerful. If the sector head likes you, you will be promoted; if not,
you get nothing. Good performance was not rewarded, and that made staff care
less about performance.
The evidence we collected during the study shows that this second reform did not result
in any changes in the MCS. In fact no new accounting practices were introduced;
instead the focus was on changing the structure of the organisation without necessarily
considering the accounting and reporting system. The interviewees believed that these
two reforms have basically failed to improve processes and the mentality of employees
in the organisation to make it a viable entity. One manager comments that:
You know the act that set up NSE did not detail who should do this and that. It
was as if there was no framework for working, so people were just doing
whatever they can do and there was no strategic direction at all despite all the
restructuring. Although there were departments and divisions, the functions
were not clearly defined, the bottom line was not clearly defined, processes were
not clearly defined and things were just haphazard.
5.2.2 SAP reforms (Post 1986)
The third major public sector reform took place in 1986, as a result of the introduction
of the World Bank and the IMF’s led structural adjustment programme (SAP). SAP
with its associated public sector reform was adopted following the global oil price
collapse in the 1980s which significantly affected the Nigerian economy due to its
overreliance on oil exports2. The then Nigerian government invited the IMF to assess
2
The oil price collapse was due to oversupply of crude oil on the world market which drove oil prices
down from US$35 per barrel in 1980 to below $10 in 1986.
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the economy which culminated in the government applying for an Extended Fund
Facility (EFF) (Bangura, 1987; Yahaya, 1993). The IMF made the adoption of SAP a
condition for the loan (Olukoshi and Abdulraheem, 1985; Yahaya, 1993). Following
several negotiations between the IMF, the World Bank and the Nigerian governments,
SAP was adopted at the end 1986 though the government did not draw on the IMF loan
facility (Callaghy, 1990; Jega, 2000; Olukoshi, 1993; Olukoshi, 1995; Zayyad, 1990).
A commercialisation and privatisation decree was subsequently enacted in 1988 as part
of the SAP. The decree established the Technical Committee on Privatisation and
Commercialisation (TCPC) as the implementation agency with powers to supervise and
monitor the programme (Commercialisation Decree no 25).
TCPC completed the first phase of privatisation and commercialisation in 1993 with 88
enterprises privatised and 25 commercialised (TCPC; 1993)3. NSE, the case study firm
was earmarked for commercialisation under the programme. The next part discusses
NSE reforms under SAP.
In line with reforms under SAP NSE was restructured in the late 1980s by the
government to make it a more efficient, accountable and result oriented. As part of the
reorganisation the five areas discussed above were broken down into many subsidiaries
with each subsidiary effectively becoming a Strategic Business Unit (SBU). Other Cost
Service Units were created with the head office as the holding company and a Group
Chief Executive Officer (GCEO) appointed as the overall head. The SBUs were
registered as limited liability companies and were allowed to operate independently
3
The main difference between privatisation and commercialisation is that whereas privatisation results
in change of ownership from state to private, commercialisation retains ownership solely in the hands
of the state. The commercialised enterprises are then mandated to operate as if they were private
enterprises with profitability as the main objective.
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with their own Chief Executive Officers and Board of Directors. The GCEO of NSE
identified the main objectives of the reorganisation as the need to reduce central control
and allow the subsidiaries the needed flexibility to optimise their business and operate
commercially in the interest of the group (NSE Internal Document).
5.2.2.1 MSC Change during Commercialisation
In preparation for commercialisation NSE adopted strategic planning (NSE Internal
Document). The initial focus of the strategic planning was on efficiency, profitability
and prudent management. A strategic plan was drawn for all SBUs, and a new mission
was formulated as: “NSE is oriented towards efficiency, profitability and financial
autonomy in its operations while seeking to maintain its leadership role in Nigeria’s
long-term growth and economic development” (NSE Internal Document). One of the
big 5 international accounting firms at the time was engaged as consultants to
implement the strategic planning. The role of consultants as diffusers of new
innovations has been discussed in the literature (Abrahamson, 1991, 1996; Malmi, 1999
and Jones and Dugdale, 2002). According to an NSE senior manager, “We employed
consultants to help act as a third eye”. Some experienced staff were drawn from the
NSE to work with the consultants as a team.
Attempts were made to embed strategic planning into other organisational processes
and in particular the budgeting process, thus to link the budget with some predetermined
strategy (Crebert, 2001). The consultant and the staff went round the organisation and
looked at jobs at the NSE; they received input from the staff who were doing the job
and those who know the job, and established what the NSE was doing wrong, and how
it could be corrected and improved. A thorough investigation and identification of the
20
root causes of some problems and the possible solutions were carried out. The team
carried out workshops, consultation, seminars and training to educate staff on the
strategic planning. Strategic planning was expected to become a facilitator of change in
NSE as it is to enable management to identify the core areas and define the mission of
the organisation.
Staff that witnessed or were part of the strategic planning implementation noted how
there was excitement among the managers that strategic planning was going to be the
way forward and enhance decision making. Up to the point of the adoption of the
strategic planning, there was nothing really like planning in the organisation hence the
excitement about the strategic planning.
Unfortunately, the high expectations that managers had about the strategic planning did
not materialise and they began to question the promises made to them by senior
management and the consultants about its value. For example, the budget was never
linked to the strategic plan as neither strategic planning nor budgeting was rigorously
followed. Budgeting in particular was politicised and driven by self interest. Budget
targets were unrealistic and frequently manipulated. In effect strategic planning and the
budget were decoupled from the day to day operations and decision making. As an
example, it was required by law that NSE’s annual budget is approved by the
government but very often this approval was several months behind schedule.
Whenever this situation occurs (which was quite regular) the government directs NSE
to operate on 25 percent of the previous year’s budget until the budget is approved. A
manager comments on the problems of budgeting as:
We manipulate the budget silently to allow us to carry out our operations
because the process is not efficient. Look we are in October, and this year’s
21
capital budget has not been approved though the year ends in December. People
have to devise means to survive.
The general view from interviewees was that the reform of NSE under the SAP failed
as reiterated by a manager as: “We did the reform but to implement it became a
problem. The blueprint was done but implementation is another thing and this was
never achieved”. The interviewees argued during the study that the fact that the
government abandoned the idea of fully commercialising NSE contributed to the
demise of the strategic planning innovation. The abandonment of the commercialisation
can be attributed to the lack of overall success of the SAP initiatives in Nigeria (Lewis,
1999; Jega, 2000; Obadan and Edo, 2004). SAP was supposed to provide short-term
measures that would last for two years (from June 1986 to June 1988). However, SAP
lasted for more than seven years and was abandoned in 1994 (Umoren, 2001; BelloImam and Obadan, 2004; Obadan and Edo, 2004). Umoren (2001) argued further that
the Nigerian SAP resulted in a dark secrecy in policy, processes and resources
management, and aided corruption instead of creating transparency, to the extent that
even the World Bank called for its review.
5.2.3 Reform under the Debt Forgiveness Initiative (The post 1998)
Public sector reform were revived during the military regime of General Abdulsalami
Abubakar in 1998; with the promulgation of public enterprises privatisation and
commercialisation decree no 28. Prior to 1998, in 1993 the federal government
established the Bureau of Public Enterprise (BPE) to replace TCPC. BPE was charged
to monitor those enterprises already privatised and plan for future privatisation of
others. However, from 1994 to 1997, little was achieved in public sector reforms.
Though the military government of General Sani Abacha which ruled Nigeria during
that period considered contract leasing of public enterprises, this policy was not
22
implemented. Odusola (2004) attributed the failure of public sector reforms during this
period to the government’s lack of commitment to reforms, prolonged political crises,
and the lack of technical and managerial skills needed for rejuvenating the public
enterprises.
The election of Olusegun Obasanjo in 1998 as a civilian president saw the strengthening
of public sector reforms. The Obasanjo administration vigorously sought debt
cancellations.4 The World Bank and IMF insisted on progress on reforms before
offering any debt relief. Furthermore, a military decree promulgated by the former
military administration was adopted and the National Council on Privatisation (NCP)
was established as the policy body responsible for setting guidelines and policies for
the privatisation and commercialisation programmes. The Bureau of Public Enterprise
was established as its secretariat, responsible for implementing the NCP guidelines and
policies.
As part of this reform, NSE was mandated by the government to modernise and become
efficient. This culminated in the introduction of a major reform termed ‘Project Alpha’
which was led by two international consultants. One manager summarised the role of
the consultants as: “The consultants were engaged to help implement Project Alpha and
help with the transformation and modernisation of NSE”.
Like strategic planning Project Alpha was done by the consultants in collaboration with
NSE staff. The project was done in two stages; the analytics and implementation stages.
The analytics stage lasted for few months. During the stage, the project team carried
4
See http://allafrica.com/stories/200105170545.html and
http://news.bbc.co.uk/1/hi/business/1345508.stm
23
out an exploratory assessment of the NSE situation, based on its mission, vision and
best practices (NSE document). The NSE processes, people and technology were
analysed; gaps were identified and ways of addressing the gaps were proposed (Internal
document). The second stage was the implementation and was scheduled to last for
about 2 years. This stage was designed to address the findings of the first stage,
recommend solutions, designed and implements new systems, policies, processes and
staff training required (Internal documents).
The consultants and the staff working with them undertook assessment of NSE’s
accounting and management information systems and found these systems to be
generally weak and incapable of supporting the organisation in its drive to be efficient
and competitive. For instance, they found that the mission, vision and strategies of the
organisation are poorly defined. Though the organisation has a performance appraisal
system they found that this was not linked to any strategic objective. Performance
appraisal was based on subjective judgement and therefore not linked to the
achievement of any tangible outcomes. It was revealed by the interviewees that during
the performance appraisal which was normally conducted at the end every year, the
staff basically picked up the appraisal forms and then started thinking about what they
have done that year and wrote it down. The process was the same with the superiors
who did the evaluation. A manager notes during the interview that:
You will see towards the end of the year that some people will be nice to you,
so that when the appraisal comes you will score them highly; after that they will
change to their true selves.
The performance appraisal process was therefore biased and highly politicised. For
instance, though NSE was making huge losses, it was not uncommon to find that the
performance of managers was still being judged as good with these managers being
24
paid bonuses and granted promotions. Even managers in charge of plants that were not
functioning were still receiving favourable performance ratings and therefore bonuses
and promotions. A manager observes the following:
Performance is not linked to appraisal; we are making a loss here in our
subsidiary. Our selling price is determined by the government, so the cost of our
product is more than its selling price; still we are being promoted.
As part of the implementation of Project Alpha, the consultants developed a
Performance Measurement System (PMS) with Key Performance Indicators (KPIs), for
the head office and its subsidiaries. The new PMS was expected to be driven from the
top with KPIs, which were supposed to be drawn from the federal government to the
last person on the shop floor. A manager comments that:
KPIs come from the entire organisation’s objectives, and you know we are solely
owned by the government. Our CEO cascades government objectives as they
affect our sector; this is further cascaded down to the executives under him.
Every department has its own KPIs and individual employee targets are to be linked to
the departmental KPIs which are expected to be set at the beginning of each financial
year. The agreed tasks and targets are to be signed by the staff, his/her supervisor and
countersigned by the unit manager. The majority of the interviewees noted that the
while the new appraisal system is more objective than the previous one it was too
disparate as it does not bring the performance of the individual units or departments
together. A manager was asked during the interview about how the KPIs affect his
department, and he responded as:
If the whole thing [Project Alpha] has gone to its conclusion then we will be in
a position to see its benefits. I think you cannot have a situation where
individuals in a department are doing excellently, whereas the department is not
doing well. But this is the reality here.
Furthermore, the way the tasks and targets are set is not clearly defined; a middle
manager explains that:
25
At my level I wrote my own tasks and targets; I wrote my boss’ tasks and targets,
I wrote his boss’ tasks and targets as well in relation to other departments that
are under that boss; my boss was so impressed with what I did, because
understanding the thing is the problem. I swear to God I am not joking; people
don’t relate these kinds of things directly, you don’t have to put some bombastic
things simply because the entire group gave it to you. It has to be something that
you can achieve. At the same time, you don’t have to water it down to where
you don’t have any targets to achieve, and you score yourself 90%, so there is
this problem.
Subsidiaries have targets that they have to achieve and if they fail to achieve these
targets then appropriate action was to be taken by the head office. However, it was
revealed during the study that this was not the case; both the subsidiary and the head
office collected the information on performance, but this is never reviewed. A manager
gave an example in which only three people were promoted to management level in his
subsidiary. This subsidiary was the only subsidiary operating at that time, with overall
performance of 65-70 percent on-time, but the other two that were not operating with 0
percent on-time have more people promoted, and the reasons given for their promotion
was that the 0 percent production is not their fault. The manager comments that:
You cannot punish the one that is performing that has not reached the targets
you have set for him and reward the one that has not done anything at all
fantastically. Does it make sense? So this is where we have a problem.
Another innovation introduced by the consultants was the Balanced Scorecard (BSC)
framework (Kaplan and Norton, 1996a, 1996b, 1996c). The consultant designed a BSC
for the entire NSE. The BSC was to be implemented initially at the group level and later
cascaded down the organisation. The BSC was also to be linked to the annual budget.
As part of the development of the BSC the consultants also recommended the adoption
of an Enterprise Resource Planning System (ERP). The consultants sold both systems
as tools that will enhance the efficiency, transparency and information integrity leading
to overall superior financial performance and competitive position of the organisation
(see for instance, Curran et al., 1998; Hayes et al., 2001 for similar arguments on the
26
benefits of ERP systems). Management proclaimed in the Reforms Document (2004)
that the adoption of the BSC will aid the organisation in achieving its new mission and
vision. The ERP was expected to generate information that will feed into the BSC
system. While the adoption of an integrated MCS that will have a BSC and ERP sound
laudable, the implementation ran into a number of problems and as a result these
systems were never implemented. One of the major problems was not renewing the
consultant contract. Many of our interviewee noted that the consultant designed these
MCS without consulting and involving those that are going to work with them. Thus,
when the consultants were paid and had left the country, there was no real ownership
of the systems they implemented. When we visited the company again in early 2010
we were informed that the earlier reforms have been abandoned and another reform is
now being initiated. One senior official of the company we spoke to states that “Since
the last time you have been around here we have started another reform, but almost
everything is confusing now as in the last 3 years we have had five Chief Executive
Directors”. Thus, the integrated MCS never made it to the implementation stage.
5.3 Why the Context Matters
Peocessual researchers argue that context is important in understanding organisational
action (Pettigrew, 1985 & 2001; Dawson, 1994). The context of NSE provides
explanations for why the various reforms and the associated MCS we described above
were not successfully implemented despite the huge financial commitment. As argued
elsewhere NSE is a highly politicised organisation and because of this politics dominate
decision making in the organisation. For example, the various reforms in the
27
organisation have all been mandated by the political authorities. Perhaps the statement
by NSE’s Group CEO explains this:
Project Alpha was in response to the federal government’s mandate for NSE to
achieve an aggressive sustainable growth agenda (NSE Internal Document).
Because of the politicisation management was not given a free hand to introduce the
necessary reforms that will create the environment for the implementation of the
various MCS innovations. Thus, though on paper NSE was to reform and operate as an
independent commercial oriented enterprise, this did not materialise in practice. It has
been argued in the literature that SOEs especially in LDCs cannot operate freely without
political interference (Uddin and Hopper, 2001; Uddin and Tsamenyi, 2005). In the
case of NSE, political interference is visible in every aspect of the organisation from
the appointments of executives to operational decision making. For, instance, approval
is needed from the government for any expenditure exceeding a particular limit. Even
the raw materials needed for daily operations have to be approved by the government
if the amount exceeds a certain limit and this applies to the head office and the
subsidiaries. A manager explains:
Subsidiaries have no autonomy, the autonomy is not there. For example when I
was working in subsidiary A, the CEO of the subsidiary has no power to
purchase common raw materials needed for operation without going through
approval processes, there is a lot of bureaucracy. Government wants to make
almost all decisions. The CEO cannot approve anything above Ngn50millon
[£223,000]. The government gives us impression that we are serving the nation,
if you did not do what the government wants you end up being sacked. This
problem of limit of authority will not allow us to move on.
Majority of the managers interviewed voiced their dissatisfaction with this interference.
They argue that the financial limit was set in the 1980s when the Nigerian currency was
strong, thus the limit in today’s circumstance is very minimum and unrealistic. Various
28
competitive advantages are lost as a result of going through the bureaucracy of getting
those approvals.
The interviewees also complained that employees were not fully engaged in the process
of designing the new MCS. Managers therefore find it difficult to accept and claim
ownership of these innovations. Thus according to them the consultants introduced
‘ideal’ systems without necessarily adapting them to suit the local organisational
context. One manager comments on the ERP as: “Employees have not been involved
in the development of SAP1, and therefore do not have an understanding of how the
system is to work”. A senior manager further elaborates on the problems of the ERP as:
In my previous organisation which was a private bank when they introduced
SAP1, detailed guidelines on the system and its implementation were provided
to employees. For example, it was a requirement that you have a computer on
your desk and they provided that, except for lower cadres of staff. Everybody
was involved, unlike here; nobody comes to me and ask me about my job, and
see how it will fit with the new system. There the system was customised for the
bank’s needs, but here it is not so.
In terms of the MIS for example, except for the Information Technology staff
responsible for it, there is no real utilisation of it by other staff. Moreover it is not
updated regularly, nor is it used in report generation or for decision making. In
addition, many of the staff were not given access to the system; hence they were not
exposed to its benefits. Furthermore, there were various technical glitches especially
as infrastructure such as computers and electricity was not readily available, and
training was not provided to the employees on how to use the MIS. One manager
summarises the problem as:
We started using the system for appraisals, but because of the non-availability
of computers we stopped that; appraisals are now done manually.
29
Some interviewees also believed that top management had a hidden agenda for not
implementing the new MCS since this will encourage information sharing and
transparency and therefore expose corrupt practices. ERP in particular would allow for
data to be captured, edited, processed and shared (McCausland, 2004). It would allow
for comprehensive audit trails and top management with their private agenda would not
want this to happen. Thus the political patronage that had become the norm in NSE
could be exposed hence the concerns of interviewees that these new systems will never
be fully implemented. This is consistent with arguments under processual approach that
individuals and groups struggle to promote and protect their vested interests (Pettigrew,
1985 & 2001; Dawson, 1994).
Given the extended level of politics and bureaucracy that permeates organisational life
in NSE, it is impossible for any new innovations that call for proper control and
accountability to be implemented in the organisation. Changes in NSE though were
sometimes presented as if they were for efficiency purposes, are very often politically
driven and merely serve legitimacy purposes (Lapsley and Pallot, 2000). Any
innovation that is likely to de-politicise decision making in the organisation will never
be fully implemented.
Reforms recorded limited success in NSE, and this in turn affected the various MCS
introduced. We observe that because of the dominance of politics in the organisation,
accounting data plays minimal role in decision making. For example, accounting
information does not feature in setting prices. Moreover, performance measurements
are not clear, nor are they based on defined and agreed targets. As discussed above,
even the new PMS introduced failed to link individual staff performance with that of
30
their units, departments and the group. Rather performance is still judged on the basis
of political patronage (see also Hoque and Hopper, 1994; Wickramasinghe and Hopper
2004; Tsamenyi et al. 2010). For instance, in the past three years NSE’s Group CEO
has been changed five times and in each of these occasions the lack of meeting
performance targets has never been given as a reason for the change. Rather, these
changes are politically motivated. Politics is thus the main means of control in the
organisation, from top management to the shop floor. A manager notes that: “A lot of
policies are conceived based on self interest and politics and not national interest.”
Politicians influence all aspects of decision making in the organisation, for example
where to purchase assets, source materials and sell products. A manager observes:
The government will tell us to buy material to improve our product; it may be
from Japan; meanwhile, this same material can be sourced from our own
subsidiary inward…. Furthermore, the government determines who we sell our
product to and at what price the product is sold. If the government has dealing
with another country and wants to please them they will direct us to sell the
product to them at favourable terms though we can obtain a better price by
selling elsewhere.
Another manger comments that “How NSE is run is all political. For example, we are
asked by the government to sponsor or purchase things that are not in our budget and
that have no value to our business”. Formal structures though exist do not serve any
rational decision purposes. Instead these structures exist in theory but when it comes to
practice political patronage is the dominant factor in how the organisation functions.
All board and top management appointments are made by the ruling government and
political changes result in changes in the board and top management. The technocrats
who have been hired to run the organisation set goals in line with the ruling
government’s goals. A manager explains that:
In terms of goals and policies our own [meaning NSE’s] depends on the
government’s goals and policies. The government controls our decisions; we
cannot be commercialised.
31
6. Concluding comments
Reforming public sector institutions in LDCs has generated a considerable debate
during the past two decades (Cook and Kirkpatrick, 1995; Uddin and Hopper, 2003;
Awio, 2007; Nor-Aziah and Scapen, 2007). This is particularly important as these
reforms are often not adopted voluntarily but instead imposed on governments by the
World Bank and its allies. The evidence we presented in this paper questions the process
of implementing some of these reforms by engaging international consultants who have
little understanding of the reality of these types of organisations. In an attempt to gain
international legitimacy for the reforms, usually western consultants (mainly from the
big 4) are engaged. The consultants believe that bringing ‘ideal Western systems’ into
these types of organisations will work. Ideas that seem laudable on paper cannot just
simply be transferred into these types of organisations and assume that they will work.
Fyson (2009) argues about how the role of these consultants in shaping the reform
process is not well understood.
In the case of NSE these consultants were paid huge sums of money and implemented
systems that were never used. As we have illustrated the users of these systems were
not properly engaged in the process of development. There was thus no local ownership
of the various MCS introduced in the organisation. The innovations are seen as
imported without adaption to the specific local context. Hence, the MCS are viewed as
too technical as they are not well understood by the majority of staff who are supposed
to use these systems to support their-day-to-day decision making.
32
Clearly the reforms and the associated MCS did not work. Even the current Head of
NSE acknowledged that:
If we had genuinely embarked on the reforms, which were started with the
strategic planning programme in 1986, NSE would have by now been in the
league of successful companies in the world (NSE Internal Document).
The employees are not committed to the new MCS innovations being implemented as
they believe these systems will disappear with the appointment of a new management
team which is a frequent occurrence in the organisation. For example, the MIS was
perceived as a Project Alpha initiative, which would disappear with the project hence
the system has not been updated nor used.
SOEs are usually characterised by political and bureaucratic controls that dominate
decision making (Hoque and Hopper, 1994; Uddin and Hopper, 2001; Uddin and
Tsamenyi, 2005). Reforms in these organisations require political support and the
government’s commitment to minimise interference. In the case we have examined, the
government’s decision not to grant full autonomy to NSE and constant changes of top
management derailed the reform. Top managers tended to align the interest of the
organisation to that of the ruling government, thus affecting the continuity of reforms.
33
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TABLES
Table below summarises various reforms
1981
Reforms
Key agents
Presidential
commission on
public sector
enterprises
Shagari
governments
1985
Buhari
administratio
n
1986
Structural
Adjustment
Programme/PSR
reforms
2004
Debt
forgiveness/Proj
ect
PACE
Babangida
government,
World Bank,
IMF,
SAP,
general
public, NSE
staff,
Consultants
NNPC top
management,
middle
management,
lower staff,
consultants,
NPM
doctrine,
IMF,
World Bank,
general public
40
Changes in
NSE
structure
Restructure
into
nine
subsidiaries
Change MCS Sideline
s in NSE
MCS
None
None
Creation of None
None
five semiautonomou
s sectors
None
Strategic NSE staff and
Planning the government
NSE
staff,
frequent
changes of NSE
top
management,
and consultant
FIGURES
Substance of change
Reform NSE into a
commercial enterprise
and new MCS
introduced
Conception
Economic crisis
and the Nigerian
Government
adoption of SAP
Politics of change
NSE top Mgt,
middle Mgt, lower
staff, consultant
and the government
influences
Transition:
The process of
changing NSE’s
structure, systems and
operations to become a
commercial
organisation
Context of
change
Entire NSE and
different
government
Operations
New structure and
various MCS
Figure 1: Processual framework and the process of NSE’s reforms.
41