Week 4 - Assignment: Prepare Initiatives for an Organization and Week 5 - Assignment: Formulate Responses to the Application of Strategic Management

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British Journal of Management, Vol. 27, 373–389 (2016) DOI: 10.1111/1467-8551.12157

Changing Strategy Processes and Strategy Content in Public Sector Organizations? A Longitudinal Case Study of NPM Reforms’ Influence on Strategic

Management

Jesper Rosenberg Hansen and Christian Bøtcher Jacobsen1 Department of Management, Aarhus University, Aarhus, Denmark, and 1Department of Political Science,

Aarhus University, Aarhus, Denmark Corresponding author email: [email protected]

New Public Management reforms have been argued to intensify the use of strategic man- agement in public organizations, but there is a need to understand how reforms influence specific aspects such as strategy processes and strategy content. The NPM reforms are expected to formalize and professionalize strategy processes and strategy content towards greater competitiveness, but this may counter cooperation between organizations, which is essential in many areas for overall service provision. Research has provided little empirical knowledge about the simultaneous competition and cooperation in the public sector. This study offers such knowledge via a panel case study of five Danish upper secondary schools over a ten-year period during a large NPM reform. The study includes three rounds of interviews with school principals before, during and after the reform, combined with sec- ondary data. The study shows that, during reform implementation, strategy processes become more formalized and professionalized, and that teachers, in particular, lose in- fluence. Regarding strategy content, the authors find an increase in external focus and competition, though schools maintain a focus on cooperation. The results suggest that NPM reforms can significantly change strategic management in public organizations, and that this is not necessarily at the expense of cooperation, at least in the short run.

Introduction

In recent decades, public service provision in most countries has undergone New Public Management (NPM) reforms, having changed from traditional hierarchical governance towards market-inspired coordination (Pollitt and Bouckaert, 2011). Many of these reforms have introduced aspects such as decentralized administrative autonomy,

The authors would like to thank The Rockwool Founda- tion for providing funding for part of this project, and Professor Kurt Klaudi Klausen for helping making this project possible.

performance-based budgets and competitive struc- tures (e.g. quasi-markets) to incentivize public organizations towards a more strategic focus on long-term goals (Ferlie, 2003; Hansen and Ferlie, 2016). Such structures are expected to make it more opportune for managers to pay attention to strategic aspects such as competing actors, client needs and financial stability. Studies have also associated strategic management in public orga- nizations with desired organizational outcomes (Moore, 1995; Poister, Pitts and Edwards, 2010) and positive effects of strategy on performance (Andrews et al., 2012). However, others have raised concerns about NPM reforms because

374 J. R. Hansen and C. B. Jacobsen

of unintended effects such as opportunistic be- haviour, gaming and collective action problems (Andersen and Serritzlew, 2007; Christensen and Lægreid, 2007; Le Grand, 2010; Soss, Fording and Schram, 2011). Thus, the consequences of NPM reforms for strategic management are contested – also in associated literature streams such as New Public Governance (Osborne, 2006, 2010).

However, there is only limited empirical knowl- edge about how NPM reforms affect strate- gic management in public organizations (Hansen and Ferlie, 2016), particularly about how pub- lic management reforms translate into practice (McDermott, Fitzgerald and Buchanan, 2013), how roles in public organizations change (Burgess and Currie, 2013) and how reforms unfold as strategic management in practice (Hansen, 2011). In this study, we use a longitudinal, qualitative case study design to generate comprehensive and holistic knowledge about NPM reform influences, which has been called for in the literature (Ash- worth et al., 2013).

The study investigates an NPM reform that in- creased the Danish secondary schools’ autonomy considerably and linked financing with student activity. From a strategy-as-practice-inspired perspective (Jarzabkowski, 2005; Johnson et al., 2007), we investigate whether and how this reform has changed strategy processes and content at five schools during reform implementation, and how each school applied strategic management in light of specific factors such as school size, location and specialization. The research design answers a call for qualitative approaches to strategic manage- ment in the public sector (Bryson, Berry and Yang, 2010); it applies three rounds of qualitative inter- views with principals and key actors at five schools before, during and after reform implementation. Furthermore, we use background interviews with bureaucrats and representatives from interest organizations as well as administrative data to illu- minate the context. Based on this panel case study design, we address the following two research ques- tions: First, how does an NPM reform in Danish secondary schools change their strategy processes and their strategy content. Second, has this increased competition and reduced cooperation?

Overall, the findings regarding the first research question show that strategy processes change considerably and become more centralized and formalized, and that the teachers lose influence at the expense of management. These are important

consequences of NPM reforms that the literature on public organizations often overlooks. We dis- cuss how these findings may challenge the general strategic management literature, which empha- sizes more participative strategic management with more employee inclusion. In terms of strategy content, we see a stronger orientation towards the students (‘customers’) and a stronger orientation towards attraction and retention of students. Thus, competitive orientation increases, but con- currently the principals underline continued coop- eration. This is an important answer to the second part of the research question, which shows how competition becomes more important, and that institutional factors sustain cooperation. We dis- cuss this finding and the possibilities of integrating strategic management literature on public organi- zations with studies on simultaneous competition and cooperation (Bengtsson and Kock, 2000) and on models of New Public Governance (Osborne, 2006). Furthermore, we discuss the practical impli- cations for decision-makers, who should be aware of the increased use of strategic management in public organizations following NPM reforms, and we discuss the implications for public managers, who are met with demands for simultaneous coop- eration and competition to an increasing extent.

Below, we present the theoretical framework for the relationships between NPM reforms, strategy processes and strategy content. After a brief intro- duction to the Danish secondary school sector and recent reforms, we describe the study design, data and methods. We then move on to the qualitative analyses of the effects of reform on strategy pro- cesses and content. The final section discusses our findings, their implications and suggestions for fur- ther research.

Strategic management in the public sector

The strategic management literature is vast, cover- ing various perspectives on strategic management and its execution (Mintzberg, Ahlstrand and Lampel, 2009). We define strategic management as an organization’s determination of long-term goals and objectives, the orientation of actions and resources to meet these goals (Chandler, 1962; Ferlie and Ongaro, 2015), and as the process of matching an organization with its environment (Ferlie and Ongaro, 2015; Hofer and Schendel,

Strategy Processes and Strategy Content 375

1978). The generic strategic management litera- ture focuses mainly on how organizations ensure a sustainable competitive advantage compared with rival organizations. In this study of an NPM reform, the environment surrounding the public organizations studied becomes more private-like, and we therefore focus on competitive strategy. However, we also acknowledge that there are multiple ways to understand strategy that might be relevant in studies of public organizations.

Public administration literature often argues that public and private organizations differ in terms of strategic management (Nutt and Backoff, 1993; Ring and Perry, 1985; Vining, 2011). Authors have pointed out that public organizations are not established to create profit, but to create public value (Moore, 1995). Public organizations there- fore focus on achieving a social mission for their stakeholders (Moore, 2000). They have to satisfy an overall mandate, which is often complex and dependent on other public entities, and they have multiple stakeholders to consider (Bryson, 2011). Although strategic management in public organi- zations can have different orientations from a more or less external to an internal focus (Johanson, 2009), traditionally strategic management in pub- lic organizations does not focus on competition. Instead, focus has mainly been on cooperation among public organizations (Koontz and Thomas, 2006; McGuire, 2006; Nutt and Backoff, 1993).

We focus on two aspects of strategic man- agement: strategy processes and strategy content. Strategy process is a general strategic manage- ment issue (Jarzabkowski, 2005; Mintzberg and Waters, 1985), and it relates to how strategic deci- sions are made and implemented (Elbanna, 2006; Rajagolapan, Rasheed and Datta, 1993). The ex- isting studies of strategy processes in the public management literature have treated strategy pro- cess as a relatively abstract concept, e.g. focusing on overall implementation style (Andrews et al., 2011; Hodgkinson and Hughes, 2014). These stud- ies generally show that strategy processes are im- portant, but they provide little information on how strategy processes actually unfold. Inspired by the strategy-as-practice literature, which sees the strat- egy process as closely embedded in a specific con- text (Jarzabkowski, 2005; Johnson et al., 2007), we are interested in understanding the actors involved in strategy processes, their use of tools (their prac- tices), and how they decide on strategy content. We study two aspects of strategy processes: central-

ization and formalization. Centralization relates to how inclusive and distributed decision-making is across groups within the organization. In the generic literature, strategy processes are typically distributed between top management and CEOs (Papadakis and Barwise, 2002), but in a public- sector setting employees may also have access to strategic decision-making (Nordegraaf, 2011). Formalization spans from completely ad hoc to strictly formalized written, contractual arrange- ments. Strategy content is another important aspect in

the strategy literature (Ansoff, 1965; Grant, 2002); it is typically seen as a product of the strategy pro- cess and refers to the specifics of what is decided (Fahey and Christensen, 1986). In the strategy- as-practice literature, strategy process and strat- egy content are seen as so interdependent that they should be regarded in relation to one another (Jarzabkowski, 2005; Whittington, 2006). Further- more, the strategy-as-practice literature has criti- cized strategy content research for being too ab- stract and general in its investigation of strategy (Jarzabkowski, 2005; Johnson et al., 2007). The strategic management literature (especially strat- egy content literature) has been criticized for fo- cusing on narrow concepts decoupled from strate- gic practice and the specific context (Jarzabkowski, 2005). In this paper, we look at strategy content as different types of orientation. Recent years have seen a call for more focus on strategic orientation and more holistic views on strategy, which inte- grate internal and external aspects and orienta- tions (Osborne, Radnor and Nasi, 2013). Our approach to strategic orientation is closely

related to strategic issues (Brønn and Brønn, 2002; Bryson, 2011) and regards strategy content as a practical phenomenon. This is distinct from most of the public management literature on strategy content, which is often conceptualized by the Miles and Snow typology and Porter’s generic strategies (e.g. Boyne and Walker, 2004). However, it is also important to understand the close interplay be- tween the internal and external aspects of the con- text (Jarzabkowski, 2004), and we therefore look at strategy content in relation to both internal and external orientation. This includes the main strate- gic themes and critical challenges facing organiza- tions, i.e. external factors such as student intake and growth as well as internal aspects such as qual- ity of teaching and student and teacher wellbeing. Furthermore, we realize that emphasis on these

376 J. R. Hansen and C. B. Jacobsen

different types of strategy content vary across dif- ferent periods, given that their salience and relative weight can shift over time.

Strategy content and strategy processes have been studied heavily in the public administration literature. Multiple studies have looked into these concepts in British local governments (Andrews et al., 2009a, 2009b, 2011), Texan schools (Meier et al., 2007) and leisure providers (Hodgkinson, 2013; Hodgkinson and Hughes, 2014) arguing that general strategy has an impact on performance, although the link between organization, environ- ment and strategic management is not always clear. However, these studies look at organizations only at an aggregated level (quantitative) and, more im- portantly, not on strategy changes over time. Fur- thermore, there is a general lack of studies on how public organizations behave strategically in practice (Bryson, Berry and Yang, 2010) and few comprehensive case studies of strategic manage- ment and action (for an exception, see Llewellyn and Tappin, 2003). Finally, to our knowledge no longitudinal case studies of strategic management changes over a reform period have been made.

NPM reforms and strategic management in public organizations

New Public Management reforms cover an ar- ray of efforts and, to understand adaptation of strategic management more fully, it is important to understand the exact type of change implied by the reform. The reform examined here involves a sector-wide introduction of quasi-markets (Le Grand, 1991) that affects similar public organi- zations (upper secondary schools). The concept of quasi-markets in general builds on the no- tion that organizations must compete for fund- ing with other providers, e.g. public organizations, non-profit organizations and/or private companies (Ferlie, 1992). Today, quasi-markets exist in most NPM-influenced countries, since competition is a key aspect of NPM (Ferlie, 2003). An abundant literature on quasi-markets in health care (Ferlie, 1992; Le Grand, 1991) and schools (Bradley et al., 2000; Glennerster, 1991; Whitty, 1997) de- scribes the wide application of quasi-markets and looks into intended and unintended consequences of marketization. These studies also show that quasi-markets come in different forms, spanning from contracting to actual quasi-markets (Ferlie,

1992; Le Grand, 1991). Such NPM reforms of- ten introduce increased autonomy, user choice and performance-based budgeting, and are there- fore expected to advance strategic management (Bryson, Berry and Yang, 2010; Hansen, 2011), because increased external pressure pushes pub- lic organizations to become more attentive to their long-run scope and direction (Ferlie, 2003).

The literature on strategy processes says little about reform processes but, if public organiza- tions are forced to become more strategic, it is also to be expected that they are forced to adapt internal processes to their context. Thus, NPM reforms and quasi-markets have been associated with centralization and formalization (Harrison and Pollitt, 1994; Hoque, Davis and Humphreys, 2004) and have tilted the decision-making capabili- ties towards management professionals (managers, consultants, auditors, board members). Studies of higher education have also found that market- like mechanisms have increased consumer ‘voice’ and challenged public-sector producer capture of the institutions (Ferlie, Musselin and Andreasani, 2009).

Thus, NPM reforms may influence strategy processes by affecting both their formalization and centralization at the organizational level. New Public Management introduces a professionaliza- tion of management (Hood, 1991), which is likely to lead to more formalized strategy processes. Moreover, NPM is argued to let the manager manage (Kettl, 1997), which could be expected to increase centralization. More autonomy increases the schools’ responsibility for long-term goals, and they should therefore be more interested in ensuring that they reach their goals. Through for- malization, schools can seek to make the strategy process more continuous and clear – and this could be a way to legitimize their work. Empirical studies have found that market-inspired structures such as activity-based budgeting and self-governing are associated with increased use of strategic manage- ment tools in public organizations (Hansen, 2011).

The strengthened role of board and school man- agement may also increase centralization in the strategy process, which could decrease the influ- ence of teachers. Whereas decentralization on the positive side can increase the legitimacy and pos- sibly even quality of strategic decisions, decen- tralized processes are also slower and more open to employee influence (Rajagopalan, Rasheed and Datta, 1993). New Public Management reforms

Strategy Processes and Strategy Content 377

may lead to higher centralization if they neces- sitate shorter decision-making processes and less employee influence.

However, more bureaucratic structures and pressures to favour specific stakeholder influence may also hamper strategy processes in public organizations. Producer capture from a strong profession may be an important aspect of strategy processes in schools. Furthermore, public man- agers are ‘less likely to support budget decisions backed by analysis and more likely to support those that are derived from bargaining with agency people’ (Nutt, 2006). Thus, managers in hierar- chically governed public organizations are less inclined to respond to externally derived require- ments, because they see bargaining with peers and subordinates as sanctifying efforts. In that sense, strategic decision-making in public organizations resembles political processes. In the private sector, managers arguably emphasize analysis and unilat- eral top managerial responsibility over strategic decisions. This is linked to curbing conflicts in the attempt to make quick and clear decisions (Amason, 1996), though the lack of conflict could also have negative impacts such as group thinking. However, recent approaches also suggest that strategy processes are becoming more inclu- sive vis-à-vis employees and other stakeholders (Whittington, Cailluet and Yakis-Douglas, 2011).

In relation to strategy content, the generic strategic management expects that increased competitive pressure forces organizations to focus strategies on long-term goals. Externally, this en- tails increased focus on aspects such as competitive position and maintaining an adequate demand for services. External focus is nonetheless insufficient, since internal production must be directed at externally important goals. Thus, public organiza- tions in reform environments should focus more on internal aspects such as internal efficiency, user satisfaction and a sound financial position.

Previous studies have shown how reforms can introduce competition for ‘customers’ in the pub- lic sector and how this affects organizational be- haviour (Boschken, 2000; Obeng and Spann, 2011; Obeng and Ugboro, 2008). However, Hodgkinson and Hughes (2014) found that environmental char- acteristics (such as competition) are not necessarily closely linked to the strategy conducted by indi- vidual organizations. This emphasizes the impor- tance of understanding the mechanisms of general

NPM reforms on strategic management in public organizations. Furthermore, recent approaches argue that

competition is not necessarily a dominant logic and that private organizations also cooperate for joint interest or simultaneously cooperate and compete for both joint and own interest. Simul- taneous competition and cooperation is termed ‘coopetition’ in the private management literature (Bengtsson and Kock, 2000); coopetition has also been identified in the public sector, and among schools (Adnett and Davies, 2003). We expect that schools will adapt to the re-

formed environment through increased strategic management, because it allows them to position themselves in the ‘market’ for students. Hence, following NPM reforms, strategic management may help schools to obtain competitive advan- tages, e.g. because strategic management increases student attraction and thereby funding (as this is based on number of students). However, we also expect that competitive behaviour is tempered by cooperation supportive institutional setups. As long as principals are obliged to meet and co- ordinate activities and plans, we expect that the schools will maintain cooperative behaviours be- cause they can share information and bargain to avoid the tragedy of the commons (Kogut and Zander, 1996; Ostrom, 1990). For example, schools can discuss capacity and student intake and avoid overcapacity and excessive competition for students. Nonetheless, these structural changes may af-

fect organizations heterogeneously, depending on context and environment (Hansen, 2011). If orga- nizations are in fact local monopolies, they may be much less inclined to adapt to structural pres- sure (Andersen and Serritzlew, 2007). Further- more, pre-reform collaborative arrangements may lead to some degree of path dependence, because institutionalized norms and arrangements make it costly or unrealistic to deviate from earlier be- havioural patterns (Pierson, 2000). Summing up, public organizations are expected

to change their strategy processes and content in the wake of NPM reforms in alignment with en- vironmental changes. In particular, we expect cen- tralization and formalization of strategic processes and more competitive orientation. Finally, stabiliz- ing factors within and around organizations can, to some extent, sustain status quo.

378 J. R. Hansen and C. B. Jacobsen

Study design and methods

The study focuses on upper secondary schools in Denmark. In the Danish school system, the first ten years of basic schooling are mandatory (grades 0–9), after which the students can con- tinue their education in vocational schools or up- per secondary schools. Upper secondary schools provide nationally regulated, tuition-free, general education to more than half of Danish youths (Ministry of Children and Education, 2015). Dan- ish upper secondary school education is divided into categories, but we only study the general pro- grammes (HF and STX), which are by far the largest.

The schools are publicly owned and funded, but the setting has changed dramatically. Tradition- ally, the schools have operated in a conventional hierarchical setting under the administrative responsibility of counties (regional authorities covering between 50,000 and 500,000 inhabitants). In this traditional, administrative arrangement, NPM influence was limited until 2007 when Danish Structural Reform introduced dramatic changes in schools’ operating context (Danish Ministry of the Interior and Health, 2004). Being accountable to the Ministry of Education and un- der supervisory boards, the schools were granted self-government and obtained greater autonomy. They are now responsible for several vital tasks, including supply of study areas (bundles of sub- jects with common themes, e.g. natural sciences, social sciences or humanities) and determination of long-term student capacity. Furthermore, budgeting has changed from fixed frame budgets to activity-based budgeting, which means that prices are fixed, but also that school budgets are contingent on the number of students enrolled and passing exams. Hence, the schools are dependent on recruiting and retaining (high quality) students who are likely to graduate, especially those in cities with high population and school densities.

However, schools are not free to attract stu- dents. Regional public committees (fordelingsråd, ‘distributive committee’) with representatives from both schools and the region (previously the county) decide the number of classes, and distribute students based on suggestions from the individual school boards. Students can prioritize schools, but are often placed at another school. Thus, in the short run, the distributive committee functions as a cooperative institution aiming to

prevent fierce competition over students. The schools in this study used to be under the jurisdic- tion of the same county, and they still coordinate distribution of students in the same distribution committee with six other schools.

The five schools under study are followed dur- ing a ten-year period, enabling us to analyse across cases and over time to gain a deeper understand- ing of processes, outcomes of cases and of lo- cally grounded causality (Bitektine, 2007; Ridder, Hoon and McCandless, 2009). The schools are lo- cated in the same geographical region in Denmark, so the overall administrative setting is kept con- stant. This is an advantage in terms of ensuring that we compare most similar units. Had we se- lected schools across counties, much of the vari- ation in strategic management between units and over time would very probably come from differ- ences at the county level, such as political orienta- tion, size and tradition. However, the design has a weakness in relation to external validity, because the administrative environment in the county un- der study was characterized by particularly high levels of cooperation before the reform. However, this could also be seen as a conservative test of the effects of NPM reforms, because competitive ori- ented strategic management is less likely in a coop- erative environment. Compared with other public service organizations, both ownership and funding of the schools are public, and teachers tradition- ally adhere to strong professional norms focusing on pedagogical issues and professionalism in indi- vidual subjects (Klausen, 2010).

The case selection also ensures variation in re- lation to size, specialization and geographic loca- tion (see Table 1). We study large schools (School A with almost 700 students is the largest) and smaller schools (School D is the smallest with around 300 students); we have urban schools (Schools A and B) and rural schools (Schools C, D and E, 20–40 kilometres from a city). The preparation programme (B) is highly specialized, because it of- fers a condensed two-year programme targeted at students who have taken a break after finishing pri- mary school. Another school is partly a boarding and international school (E) and therefore highly specialized. Schools A, C and D are less special- ized and offer only general secondary education (called STX in Denmark). Owing to demographic changes over the study period, the number of po- tential students has increased for all five schools, but will drop in the years to come.

Strategy Processes and Strategy Content 379

Table 1. Case selection sorted by environment and specialization (selection made in 2003)

Specialization

Low High specialization specialization

Environment Urban School A: large urban school

School B: small school with preparation programme

Rural School C: mid-sized rural school

School D: small rural school

School E: mid-sized school with boarding and inter- national schools

Data, analysis strategy and operationalization

All school principals were interviewed three times: before, during and after reform implementation (in 2003, 2008 and 2012; see Figure 1). We also in- terviewed most deputy principals as well as board members (at each school), key staff in ministries (one top executive and four field experts), the for- mer county (one head of section) and interest group representatives (teachers’ and principals’ as- sociations). The interviews lasted between one and three hours and were recorded electronically, fully transcribed, and coded using the qualitative anal- ysis software NVivo 10.

The study focuses on explaining the effects of an NPM reform. As Figure 1 shows, the reform, which was part of a major reorganization of de- central service provision in Danish municipalities and counties, was carried out by the Danish par- liament in 2005. The major implications for sec- ondary schools were a shift from counties to state, installation of boards with external representation, activity-based funding and increased managerial authority. The implementation period was rela-

tively long and was completed in 2010, when all schools had taken over responsibility for buildings, finances and school management. Figure 2 shows that all schools have dramati-

cally increased their intake of students throughout the period of study, both because of a growing youth population and because Danish youth increasingly chooses general secondary education (STX) over vocational training and mercantile programmes. Hence, this is a study of reform efforts in good times, and we discuss below how this may affect the extent of strategic management and level of competition. The interviews are semi-structured, and the in-

terview guides and coding of the interviews align with the theoretical framework focusing on strat- egy processes and strategy content as practised. The analysis of the interviews was conducted in two steps. First, to ensure a valid and reliable cod- ing outcome, we made a predefined list of codes based on central concepts in strategic manage- ment (see Appendix A). The coding was open, several codes were added during the first round of coding, and statements were assigned several codes when necessary. Second, following Miles and Huberman (1994), we reduced data by dis- carding all irrelevant information and selecting coded interview statements, which were then con- densed and systematically summarized into dis- plays. These displays compare the use of strategic management across the three periods and across different types of schools. Measuring the degree of strategic management, our categorization was based on the intensity of the statements about both strategy processes and strategy content. If a category was not mentioned, this was coded as ‘no orientation’, whereas ‘weak orientation’, ‘some orientation’ and ‘strong orientation’ were coded based on the intensity and frequency of state- ments. If a respondent or a text documented re- peated and intense use, it was coded as ‘strong’, whereas rare or weaker statements were coded as ‘weak’ or ‘some’ orientation. A specific aspect of

2007: Reform commencement

2010: Reform fully implemented

2005: Reform approved

2003: Interview 1

2012: Interview 3

2008: Interview 2

Figure 1. Timeline depicting important reform steps and interviews

380 J. R. Hansen and C. B. Jacobsen

100

120

140

160

180

200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Small rural

Midsized rural w boarding and interna�onal

Large urban

Midsized rural

Small urban with prepara�on

Figure 2. Student population, 2001–2011 (Index, large urban, 2011 = 100)

strategic management was classified as stronger if respondents mentioned it spontaneously in re- sponse to broader questions. We asked both gen- eral and specific questions regarding strategic management according to the theoretically devised interview guide. Since the displays are extremely condensed, we added some of the most relevant statements in the analysis of the results. Finally, the case study exploits various written sources, includ- ing reports, board memos, strategies and register data, which are used throughout the analysis.

Findings

The analysis of the reform effects is conducted in relation to both strategy processes and strategy content in order to understand how NPM may in- fluence these internally and externally.

Strategy processes

One main finding is that strategy processes at the schools changed substantially over the reform period. Before the reform, the sparse strate- gic decision processes were participatory and characterized by internal bargaining, meaning that nearly all decisions about strategy were discussed in various school councils with strong teacher representation. Although the teachers’ councils were only advisory, the principals rarely made important decisions without the teachers’ consent.

We nearly never go against a vote in the teachers’ council. (Principal of School E, personal interview 2003)

In the old world, we could not decide any- thing if it had not been debated in the teachers’ council for half a year. (Principal of School D, personal interview 2008)

This strategy process seems to have caused a conservative strategic process. The teachers often focused on maintaining the status quo to secure their benefits, and the boards were weak and gen- erally did not participate actively in the strategy process.

Formally, of course, the board has the authority over the budget, but in reality, they are not interested. (Principal of School A, personal interview 2003)

The principal took on the role of negotiator who has to consider the options against the county externally and the teachers internally. The appli- cation of strategic management tools was very sparse, and the few tools applied were ad hoc and informal.

During reform implementation, the strategy process changed somewhat. The teachers’ role in strategic management was soon reduced, as illus- trated by one principal’s brief story about how he cut off the teachers from influence.

The chairman of the teachers’ council would say that we needed to debate that in the teachers’ council and that it was unacceptable. I said ‘Why, actually, and where does it say so?’ (Principal of School D, personal interview 2008)

Another principal said: ‘we’re not expected to include the teachers’ council in everything as we used to be’ (Principal of School A, personal interview 2008). According to the principals, the teachers’ collective access to strategic processes

Strategy Processes and Strategy Content 381

Table 2. Display of strategic processes before, during and after implementation of reforms

Pre-reform Reform implementation Post-reform

Decision-making Broad consensus Managed broad consensus Managed narrow consensus

Actor roles Principal Bargainer Pivotal Pivotal Board Decoupled Sparring partner Co-initiator and sparring partner Teachers Veto player Representative Representative

Strategic tools Application Sparse Some Wide Formalization Ad hoc and informal Mostly ad hoc and few formal tools Some ad hoc and some formal tools

Note: Content is condensed on the basis of the 15 interviews and shows general trends only.

was limited and, instead, school management attempted to include proactive teachers who were found to support their views. Another substantial change was the much-enhanced role of the board, which was given considerable formal power in rela- tion to both strategies and management. This was also a challenge for some of the principals, who sometimes felt pressured by a resourceful board chairman to prioritize economy over professional concerns such as preparation time or inclusion.

You are more on your own in relation to the board than the group of principals was before in rela- tion to the board. (Principal of School A, personal interview 2008)

Nonetheless, it is clear that boards and princi- pals were adapting to this new situation at that early stage (2008), and that most boards were ini- tially relatively cautious. This cautiousness may also reflect that, in the early days of reform im- plementation, several board members, including the chairman, were appointed by the principal. Nonetheless, the managers and the boards gained substantially more influence on strategic decisions, though they still needed to pay some attention to the teachers, who are ultimately responsible for carrying out strategic decisions. Furthermore, while the schools introduced some strategic man- agement tools and conducted, for example, SWOT analyses, the strategic management tools remained mostly informal.

After the reform implementation, the consen- sus structure eroded even more. The largest school upheld a structure of broad consensus in school governance, but at the other schools the princi- pals mainly discussed strategic decisions only with teacher representatives. The principals to some de- gree remained dependent on the teachers’ consent, but they now sought the approval of teacher rep-

resentatives on common decisions. Furthermore, several principals compensated their teachers by granting them more direct access to non-strategic decisions, such as classroom elements, through specialist councils. The boards, meanwhile, now played important roles in the initiation and evalu- ation of strategic decisions, but only at one school (School E) was the board the driving force be- hind the strategic decision processes. This school applied a much formalized strategy process, with annually adapted strategic plans, results contracts cascaded down to middle managers and a bud- get and accounting process that included financial considerations as well as strategically formulated goals. At the other four schools, the principals ex- erted influence through agenda setting for strate- gic discussions. The boards at these schools do have their own ideas about strategic decisions, but most of the strategic management seems to be ini- tiated by the principal. The strategic management tools used at these schools are less formal than at School E. In sum, it is clear that the strategic processes

changed dramatically during the reform period (see Table 2). Before the reform, teachers were veto actors over most central strategic decisions. This changed decidedly, when the reform put the prin- cipal and the board in charge of the process: The teachers’ role in strategic decision processes be- came much more limited. The strategic manage- ment tools have also become much more widely applied and formal.

Strategy content

In addition to the strategy process, the strategy content changed noticeably over the investigated period. Prior to the reform, the schools were only minimally strategically oriented. Principals

382 J. R. Hansen and C. B. Jacobsen

generally did not prioritize strategy, rather empha- sizing their role as managers of a public service or- ganization alongside similar organizations.

[Strategy] is not a word we use on a daily basis [ ...] there is not much room for such contemplations. (Principal of School D, personal interview 2003)

It would be as strange as asking the manager of the main post office what their profile is. He would say that they are just the biggest post office in town, and that if you want to know about the purpose of the post offices, you can ask the central office in Copen- hagen. (Principal of School D, personal interview 2008)

Hence, prior to the reforms, the principals were alienated by the concept of strategy and uncertain about its actual content. The few formal strategy documents from that time are vague and inter- nally oriented. Furthermore, the internal strategic considerations were not about efficiency, but about effectiveness in the form of quality teaching and stakeholder wellbeing. As mentioned above, School E changed from having practically no strategic management before the reform to having clearly formulated goals relating to both internal and external aspects. The principal’s external considerations mainly concerned cooperation with the other schools and maintaining student intake, and these cooperative behaviours were relatively strong.

A strategy is often made among the principals, al- though that is not what we call it. (Principal of School B, personal interview 2003)

In 2008, during reform implementation, the schools’ autonomy increased significantly. The activity-based funding system had just been in- troduced, but the principals were not yet famil- iar with the changes. The boards, which had been granted much more formal power and included more professional members, were in place, but the schools did not yet own the buildings (ownership was passed from county to school over a year). Despite the highly evolving and transitory atmo- sphere of the time, the schools had clearly become more competitively oriented, although coopera- tion still seemed dominant.

First, schools had been compelled to consider their course catalogues and, consequently, their profiles. In this venture, the schools became more aware of competition with other schools, although

this did not play a prominent role in their strate- gic management. Instead, the distribution coun- cils functioned as an arena for making mutual agreements on strategic goals, which helped to en- sure that cooperation remained important and was based on cooperative norms and traditions.

Competition is fiercer and so is the tone. [ ...] But it springs from the network and the mutual agreements we make on how to act, and this positively affects competition. (Principal of School C, personal inter- view 2008)

Some schools took relatively drastic measures to adapt to the reform. It was financially difficult for the smallest school (School B) to continue without subsidies from the county, and it therefore accepted a merger with a larger school, which diminished its status to division under the larger school. Another school (School C) invited a local business college to share its buildings to keep down costs, but the schools remained organiza- tionally separate. Another small school (School D) was under significant economic pressure, and the principal therefore considered opportunities for cooperation with schools in neighbouring areas. Generally, the schools became much more aware of their financial situation. Since assuming full responsibility for their own budgets, the newly promoted boards and the principals adopted a longer-term perspective on economic develop- ments. Since students passing their finals mean funding for the school, student retention was emphasized much more than before.

In 2012, the reform was implemented, and the schools had become more acquainted with their new rights and duties as self-governing entities; also, they had taken over their buildings. Co- operation was challenged by some schools being tempted to go their own way. For example, School A, which experienced excess student demand, ex- panded during the period, despite objection from the other schools. However, in general, the schools upheld their traditional cooperation, and the most influential principal ascribed this to cooperative traditions and consensus-seeking, which was insti- tutionalized in the distribution councils.

If we did not have good cooperation on distribu- tion of students and the chairman of the distribu- tion council did not have that stance, we would in fact have a problem. (Principal of School C, personal interview 2012)

Strategy Processes and Strategy Content 383

Our interpretation of this quote, which is supported by several other interviews, is that the schools have a gentleman’s agreement not to compete fiercely and that this is held in place by cooperative traditions. Several principals also referred directly to harsher competition in other geographic areas. However, competition also seemed to increase in the otherwise cooperative area under study here.

These rural schools are waiting to see what the others do and when [ ...] So yes, the cooperative culture is definitely under pressure now. (Principal of School A, personal interview 2012)

This seems to be driven by the lower demand for services in rural areas, and rural schools were therefore tempted to compete more for students. Internally, student wellbeing and retention are key considerations, which should probably be seen in the light of their significance for funding. Impor- tantly, the principals report that they prioritize teacher wellbeing lower than they used to.

Overall, the findings on strategy content show that principals were initially strategic to a very limited extent, but this changed considerably after the reform (see Table 3). Significant changes that occurred immediately after the reform were rein- forced and intensified when the reform was imple- mented. After reform implementation, the schools were strategically oriented towards both internal and external matters, and it is particularly interest- ing that schools now simultaneously compete and cooperate. Whether cooperation is maintained for

the schools’ own sake or owing to strong institu- tions is discussed below.

Variations in strategic management among schools

Before the reform, the strategy processes and con- tent at the five schools varied only slightly. How- ever, the schools were facing different strategic weaknesses and opportunities and, given the pres- sure applied by the NPM reforms, it is relevant to examine their post-reform strategic management. In terms of specialization, specialized schools

might be expected to be more attentive to their strategies in order to meet a specific demand than are schools offering general education (gymna- sium). The STX schools face a very stable demand, and the students have abundant information about the educations they supply. Table 4 shows a highly condensed version of strategy processes and con- tent at the five schools based on the post-reform interviews. The table compares strategic man- agement in relation to both environment and specialization. First in relation to specialization, we can isolate

the importance of the environment by keeping it constant. Thus, when we compare the urban schools, the specialized school (B) is somewhat more strategically oriented and the strategic pro- cess more managed than at the general school (A). Comparing the rural schools (C, D, E) also shows more strategic management at specialized schools in relation to both process and content. Overall, the specialized schools apply the highest levels of strategic management and, although this does not

Table 3. Strategic content before, during and after implementation of reforms

Pre-reform (2003) Reform implementation (2008) Post-reform (2012)

Overall use of strategic management Weak and informal Some but informal Some and formalizing

Strategic stance Cooperation + + (+) Coordination of student intake + + + Coordination of supply − Competition − (−) (+) Student intake + + + Growth − (+) (+) School profile − + + Internal orientation Quality of teaching + + + Student retention − (+) + Student wellbeing (+) (+) + Teacher wellbeing + + (+) Financial situation − (+) + Efficiency (output/input) − (−) (+)

− No orientation, (−) weak orientation, (+) some orientation, + strong orientation.

384 J. R. Hansen and C. B. Jacobsen

Table 4. Strategy processes and strategic content and use of strategic management after reform (2012) for different types of schools

Specialization

None (ordinary) Specialized

Environment Urban Large urban: Orientation: weak, internal Processes: broad consensus

Urban preparatory: Orientation: modest, internal and some external

Processes: managed narrow consensus (close coordination with upper tier)

Rural Mid-sized rural and small rural: Orientation: modest, internal and external Processes: managed broad consensus

Mid-sized rural with boarding Orientation: strong, internal and external Processes: managed narrow consensus

prove that specialization leads to more strategic management, it supports our expectations.

With regard to environment, we expect the rural schools to be more strategically oriented than the urban ones, because they face a lower demand, as most students choose schools in the city. The im- portance of environment can be isolated by com- paring schools with equal specialization. Look- ing at the non-specialization schools, the two rural schools apply a more managed decision-making process and a more competitive orientation than does the urban school. According to the principal of the urban school, he has the privilege of exces- sive demand and can ‘afford our neglect of strate- gic thinking’ (Principal of School A, personal in- terview 2012). When we compare the specialized schools, the rural school is by far the most strategic in terms of both orientation and process. The ru- ral school applies a relatively formalized strategic management practice, whereas the urban school is more internally focused.

Concluding discussion

This study has shown how NPM reforms can al- ter the strategic management of public-sector or- ganizations. During the implementation of the NPM reform, the schools substantially changed both their strategy processes and strategy con- tent. These results have important implications for the literature on strategy in public organi- zations. First, regarding processes, the schools changed from broad consensus and bargaining structures to more managed strategic setups, where the focal point for strategic decisions shifted to- wards the board and management levels. Thus, strategy processes became both more formal- ized and centralized, which is in line with for- mer research (Harrison and Pollitt, 1994; Hoque, Davis and Humphreys, 2004). As expected in the

strategy-as-practice literature, the actor constella- tions in the strategy processes were adapted to accommodate the reform changes. In particular, the principals, but also the boards (especially the board chairman), took on a stronger strategic role. A higher impact of management is one of the clear goals of NPM reforms, as part of managerialism (Pollitt, 1990) and the need to let managers man- age (Kettl, 1997).

However, this study also emphasizes the chang- ing roles following NPM reforms (Burgess and Currie, 2013). Management took on increased importance at the expense of other actors, mainly the teachers. This is not exclusively a negative result for the teachers, since they obtained better opportunities for consultancy in core-professional arenas such as teaching. Thus the producer cap- ture and deadlock of the old system is somewhat alleviated. However, these findings also challenge recent literature on generic strategic management, which finds that strategic processes are opening and including still more actors (e.g. Whittington, Cailluet and Yakis-Douglas, 2011). Furthermore, these changes may challenge professional discre- tion, which is often underscored as an important prerequisite for maintaining professionalism within organizations (Freidson, 1994), and this may call for reorganizing teachers as a more management-oriented profession (Nordegraaf, 2011). In general, it is important to understand the role of employees in post-reform strategic management.

Moreover, the analysis revealed that schools, as part of the more formalized and centralized approach, started using more strategic tools such as overall written strategies, SWOT analyses and competition analyses. This finding is in line with existing quantitative studies of strategy-as- practice in the education sector (Hansen, 2011), and it underlines that strategy is actually being

Strategy Processes and Strategy Content 385

taken seriously in NPM-reformed organizations. In general, small schools tended to adapt strategy processes more eagerly, as they were more con- cerned with their strategic positions and therefore adapted their strategy processes somewhat more to formalization and centralization than expected.

The reforms also affected strategy content, and the schools became more externally oriented towards their ‘market position’ and more com- petitive in terms of the distribution of students. This also led to pressure on schools with excess demand to expand their capacity, although this balanced against cooperation. Again, as formerly shown, e.g. by Hansen (2011), there is variation due to context: for instance, the smaller schools were particularly concerned about low demand for their services, consequently focusing more on their competitive position. Future studies should look into the long-term implications of competitive pressure, and study how structure alters adaptation of strategic management.

The principals were very conscious about the need for continued cooperation, because free com- petition is likely to take (some of) them out of business. They also operate in network structures where stable institutions uphold their cooperative behaviour, and these factors have gradually intro- duced a competitive environment. This potential lack of competition could be a result of path de- pendence (Pierson, 2000) or of a regional short- age of supply in school capacity. However, in the last period of study, there were indications that the schools prepare for increased competition over students (due to diminishing cohorts) by making major changes – merging schools, sharing build- ings with other schools, and generally strength- ening their profiles – and this suggests increased competitive pressure. Still, all principals stress that there were no major increases in competition.

These findings reflect the duality of competition and cooperation, and that these strategies can coexist because of concerns for the organization as well as public value. Thus, environment and organizational strategy are not necessarily directly linked (Hodgkinson and Hughes, 2014). The distribution council has functioned as a vehicle for cooperation, and this indicates a beginning of competing logics (Thornton and Ocasio, 2008) between traditional school values focusing on general education and NPM values focusing on competition to attract students and on financial results. It remains an open question whether public

coopetition is possible after continued competitive pressure, and whether schools keep cooperating to achieve public goals and refrain from pursuing individual interests. This is an important area for future research: it would be fruitful to look to- wards recent literature on the usefulness of coope- tition (Ritala, 2012) and the general issue of coop- eration with competitors (Peng et al., 2012) in the public sector, where overall goals focus on public value. In accordance with the focus that New Pub- lic Governance literature (see e.g. Osborne, 2006, 2010) has on inter-organizational relationships, including collaboration, e.g. in networks (Osborne 2006), the results shown here suggest how inter- organizational relationships matter. Furthermore, schools may collaborate because the principals are professionals with joint values and norms (Meyer and Hammerschmid, 2006). So even though the core professionals (teachers) lose power in the strategy process, the managers (here principals) do not necessarily act in accordance with the competitive orientation prescribed by the reform. Future studies should also look at strategic

orientation in a more service-dominant logic perspective, emphasizing the importance of un- derstanding the stakeholders (including users and citizens) and their role in service production (Osborne, Radnor and Nasi, 2013). This may allow a broader view on strategic goals, including both operational efficiency and effectiveness to achieve public value for citizens (Benington and Moore, 2010, Osborne, Radnor and Nasi, 2013). Although we find an increase in external orienta- tion, we emphasize that this does not necessarily apply to increased external effectiveness and value creation. Hence, schools may simply increase productivity in terms of attracting and graduating as many students as possible, whereas public value is actually the provision of knowledge and learning. Former studies have also shown that market orientation is not necessarily related to performance (Walker et al., 2011). Finally, the substantial differences between

school size and geographical location make schools unevenly susceptible to competition, and this seems to affect their strategic management adaptation. Two schools began participation in larger cooperative agreements – one merged with another school and another considered doing so. Both cases are interesting because such coopera- tion and mergers would have been unlikely before the structural reform.

386 J. R. Hansen and C. B. Jacobsen

This brings us to the practical implications of the study. First, reformers should be aware that NPM reforms are likely to alter strategic management in the affected organizations. In- creased decentralized administrative autonomy, performance-based budgets and competitive struc- tures make organizations’ attention towards strate- gic positioning opportune, and this introduces some extent of competition. In our case, cooper- ation largely prevails, but in less institutionalized areas, reformers should be aware that competition may become more prominent and perhaps even at the expense of public value. The second prac- tical implication is aimed at public managers, who are facing competitive environments. We show how managers can successfully change internal pro- cesses, enabling them to devise better strategic con- tent in alignment with the new external demands on the organization. One solution shown here is to shift the manager–employee balance of power (al- though managers need also consider the potential impact of such a power balance shift); another is to increase the formal use of strategic tools also to satisfy boards and the environment in general. Fi- nally, it could be important for managers to con- sider greater openness towards new collaborative relationships as regards the role of managers in cre- ating public value, as it may prove a dilemma for managers seeking their own school’s interest versus that of the common good, where combined com- petition and cooperation can be an opportunity.

Although this paper presents a number of inter- esting findings, we acknowledge some important limitations. The direct generalizability to other ser- vice areas is limited. Among the schools studied, there is no provision by private competitors, since both funding and ownership are public. The risk of bankruptcy is low, but poorly performing schools risk being closed down or, more likely, merging with successful schools. Although the reform in- troduced competition, there are limited options for offering alternative services, and no opportunity to compete on price. Moreover, the choice of case may have influenced the results, not necessarily be- cause of the variation across schools, but because the schools traditionally have a close cooperation. However, a case study does not necessarily aim for the generalizability provided by surveys, but rather for analytical generalizability (Yin, 2009). The study supports many of our theoretical expec- tations, but the analytical generalizability of our findings should be investigated in future studies. A strength of this case study is that it looks at the phe-

nomenon of strategic management in a concrete setting with all its complexities (Hartley, 2004; Yin, 2009), which may better reflect how strategic man- agement actually functions (Jarzabkowski, 2005).

Appendix A: Coding list for interviews (used in NVivo)

Code Examples

The local administration Relations, support The regional

administration, general regulation

Relations, support, funding, regulation, control

The regional administration, student-related regulation

Formal and informal agreements on the distribution of students

The national administration

Regulation, laws, control, funding

Higher education Cooperation, planning Other schools

(gymnasiums) Contacts with other principals, agreements, disagreements

Other schools (non-gymnasiums)

Contacts with other principals, agreements, disagreements

The board Members, chairman, internal relationships, role

Buildings Ownership, size, quality of buildings Students Intake, retention, representation,

quality of students School performance Student grades, student satisfaction,

teacher satisfaction Geographical position Urban/rural, proximity to other

schools, potential students The business cycle Economic pressure, birth cohorts,

etc. Competition Struggles over aspects such as

students, teachers, and funding Cooperation Formal and informal norms about

cooperation, support for other schools, etc.

The principal Leadership style, personal qualities, personal network, etc.

Employees (teachers) Age, areas of study, cohesion, inclusion in decision processes

Internal organization Formal organization of school, leaders, councils

The reform Self-government, activity-based funding

Strategic orientation Strategic orientation towards various areas of interest

Strategic decision-making

Initiation, decision, implementation, and evaluation of strategy

Strategic weaknesses Internal aspects that are harmful for achieving objectives

Strategic strengths Internal aspects that are helpful for achieving objectives

Course supply Number of courses, specialization vs generalization

Economy and finances Budgets, accounts, funding

Strategy Processes and Strategy Content 387

Appendix B: Coding categories

Strategy content Coding content

External orientation School cooperation Cooperative arrangements and use

of networks School competition Competition over students, teachers

and funding Student intake School attention towards the number

of new students enrolled Growth Intentions of increasing the number

of students or programmes offered School profile Brand, reputation, market

positioning

Internal orientation Quality of teaching Orientation towards the level of

classroom teaching Student retention Initiatives aimed at retaining

students (for as long as possible) Student wellbeing Student satisfaction, school

environment Teacher wellbeing Teacher satisfaction, work

environment Financial situation Attention to budgets and accounts Efficiency (output/input) Attention to the input–output ratio

Strategy processes Coding content

Overall use of strategic management

Extent of use and formalization

Decision-making Consensus or hierarchical (manager- and board-driven)

Actor roles De-coupled � Principal Role of the principal � Board Role of the board � Teachers Role of the teachers External coordination

(other secondary schools)

Coordination of strategy with other schools

Strategic tools � Application Number of schools using strategic

tools � Formalization Degree of formalization of tools

used

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Jesper Rosenberg Hansen PhD is associate professor at the Department of Management, Aarhus University, Denmark. His research focuses on public management especially in regard to sector dif- ferences in organizational behaviour, leadership and innovative behaviour. He has also published on strategy and contracting out in public organizations and on sector switching.

Christian Bøtcher Jacobsen PhD is associate professor in the Department of Political Science at Aarhus University, Denmark. His research focuses on management, leadership, motivation, and per- formance in the public sector.