market-driven change in professional services ... - Wiley Online Library

Journal of Management Studies 3 1 :6 November 1994 0022-2380

MARKET-DRIVEN CHANGE IN PROFESSIONAL SERVICES: PROBLEMS AND PROCESSES* RICHARD WHITTINCTON Warwick Buritless School TERRY MCNULTY

Wanvick Business School RICHARD WHIPP Uniuersip of Card$ Business School

ABSTRACT

This article analyses the processes of market-driven change in two professional service sectors, Research and Development @&D)and the National Health Service. Building on these sectors’ common experiences, the article proposes a general model of market-driven change in professional services, highlighting the complex and multi-level nature of the process. It is argued that, while marketdriven change is an increasingly practised and observed phenomenon, its complexity has been widely underestimated. For managers, the problem is one of synchrony between different levels in the change process, with the top strategic level particularly liable to lag changes at other levels. For academic observers of new market forms of control, the risk is of repeating the simplifications of early ‘labour process’ analyses of hierarchical control.

INTRODUCTION .

Recent years have seen a significant redrawing of the boundaries between markets and hierarchies. Organizations have increasingly used subcontracting, outsourcing, licensing and franchising to externalize activities that have traditionally been managed internally (Lash and Uny, 1987; Miles and Snow, 1992; Shutt and wittington, 1987). Simultaneously, market mechanisms have been extended within organizations, with staff newly exposed to market pressures by the spread of decentralized profit centres and internal contracting (du Gay and Salaman, 1992; Lebas and Weigenstein, 1986; Whdey, 1986). These trends have been enthusiastically endorsed by influential management pundits such as Ackoff (1993), Handy (1989) and Peters (1992). Address for repr’nts: Richard Whittington, Warwick Businbess School, University of Warwick, Coventry cv4 7AL, UK.

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The new reliance on market mechanisms has not been confined to low skill or peripheral occupations, as implied by some accounts (Atkinson, 1985). Market externalization and exposure has also spread to the professional and ‘knowledge’ sectors which are becoming so central in modern societies (Crompton, 1990; Drucker, 1993). Professional services such as information technology, personnel, engineering, research and development and even accounting have been widely reported to be shifting increasingly onto a customer-contractor basis internally or contracted-out externally (Savage et al., 1988; Smith, 1990; Torrington and MacKay, 1986; Whittington, 1991). Equally, in the British public sector, a series of reforms - the introduction of agency status, compulsory tendering in local government, opting-out in schools and the introduction of ‘internal markets’ in the National Health Service - are all combining to expose professional staffs more directly to market forces (Ferlie, 1992; Hood, 1991; Walsh, 1991). While the growing scope of market-based forms of organizational control is now well documented, the actual processes of market-driven change have not been much explored, particularly in the professional service sector where so much is now going on. The few studies of professional services that do exist have so far been confined either to a single organization (e.g. Greenwood et al., 1990; Hinings et al., 1991), or to a single industry (e.g. Dawson et al., 1992; Winch and Schneider, 1993). We shall argue that the absence so far of a detailed, general analysis of the processes of change has had at least two consequences. First, to the extent that there is now an emerging body of material on marketdriven change in professional services, much of it still appears idiosyncratic, peculiar to particular organizations or industries. Lacking is a systematic model of market-driven change in professional services, capable of providing insights into the sector as a whole. There exists neither a general guide for the management of this complex process, nor a common framework for current research. Second, and related to the still under-developed analysis of the process, the very spread of market-based forms of organization in recent years has been taken too simply as sufficient evidence for its effectiveness. The pundits have had an idea to sell; but even critical commentators have tended to stress only the advantages for management of the market-based disciplines following market-driven change. In this one-sided approach, these commentators risk reproducing some of the ‘Bravermanian’ (Littler and Salaman, 1982) exaggerations of early accounts of Taylorism - ironically a managerial control strategy nearly the mirror image of the marketbased initiatives of today. More detailed analysis can reveal some of the ambivalent character of market forms of control. Thus the general and more nuanced account of market-driven change we propose here is important both theoretically and practically. Theoretically, there is a need to avoid a ‘marketmanian’ approach that simply repeats the mistakes of the early ‘labour process’ debate. Learning from that earlier debate, we urge greater recognition of the consensual, jointly-constructed and sometimes contradictory nature of the labour process under market controls. Practically, a more nuanced account should be useful too. Highlighting precisely these more ambivalent features of market-driven change should provide managers with a better appreciation of costs and benefits, and an understanding of where particular strategies are likely to fail.


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Drawing upon detailed comparative case studies from the National Health Service and industrial R&D, this article will address the theoretical and practical issues as follows. The next section introduces the research method and case study sites, stressing important similarities and contrasts between the two sectors. The following section describes the market-driven change process in the two sectors. The striking similarities in process between these two very different services - one public sector, the other private - provide the foundations for a proposed general model of market-driven change in professional services. An important feature of this general model is its stress on the complex and multi-level nature of the change process. The significance of this complex, multi-level process for managerial control and professional workers are considered in the next section. Here we shall argue the need to give greater weight both to the active participation of professional workers and to the frailty of managerial control. Theoretical and practical implications are summarized in the conclusion.

THE RESEARCH

The study is based on intensive comparative analysis of eight organizations: four in the NHS, four in R&D. The research concentrated on laboratories or hospital departments where coping with increased market pressures had been identified by management as a critical issue. The cases were researched by means of both interviews and access to various public and internal documentation. The number of interviews undertaken was 158, the vast majority tape-recorded and transcribed, the remainder annotated. Interviews were carried out during 1991 and 1992 with both managers and professional staff (doctors in the NHS, scientists and engineers in R&D). Feedback sessions with senior managers have taken place in all eight organizations. Of the four R&D laboratories, two (NRO and ERO) were independent research organizations and two (EngCo and ProcCo) were in-house central laboratories. Table I gives basic data on their size and sectors. All four laboratories faced intensifjmg market pressures. ERO was a former industrial research Table I. The research organizations Care

Sector

Status

@ff

Engineering Natural resource Engineering Process industry

Independent Independent In-house In-house

250 250 200 1800

23 23 14

NHS NHS NHS NHS

Trust Trust Directly managed Directly managed

2000 2000 1500 1500

15 18 14

Interviews

RHD organizations ERO NRO EngCo ProcCo

14

NHS organkations Northtrust Southtrust EastDMU

WestDMU

37

*Case names are pseudonyms; data are approximate for the sake of confidentiality.


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association, which since the mid-1970s had been coping with major reductions in its government subsidy and a decline in its membership fee income. NRO was a former government laboratory that had been privatized in the early 1980s. The EngCo laboratory was the central facility of a diversified engineering company, and had been facing declining corporate funding and increased reliance on the internal customer-contractor principle throughout the 1980s and early 1990s. A similar move to the customer-contractor principle was also occurring at the ProcCo central laboratory, which was part of an international process industry business. The four hospitals had been experiencing similar market pressures since the mid- 1980s, as first income generation schemes, then the internal markets process, Trusts and the ‘Patients’ Charter’ all introduced new mechanisms and languages into the previous bureaucratic regime (Bartlett, 1991). AU four NHS cases are large urban acute hospitals, with a full range of medical and surgical services and budgets of around E50m. In April 1992, Northtrust and Southtrust became ‘second wave’ NHS Trusts, while EastDMU and WestDMU were ‘directly managed units’ at the time of the research, preparing for ‘third wave’ Trust status in 1993. In sum, the sample provides eight professional service organizations beginning as insulated rule-based bureaucracies but becoming increasingly reliant on the market. In terms of size, ownership and sector, the sample is quite diverse. This should give our conclusions a certain robustness. Common findings from the structured comparison of two such different sectors should increase confidence in their applicability to other professional service sectors.

MODELLING THE MARKET-DRIVEN CHANGE PROCESS

Existing single-industry cases suggest some possible features of market-driven change in professional services. For example, Hinings et al. (1991) study of a failed attempt to improve the marketing-orientation of an accountancy firm makes clear the multi-level repercussions of this kind of initiative. Hinings and his colleagues stress how the new marketing orientation entailed significant changes in traditional authority structures, especially the inclusion of non-professionals in senior management, a new middle management role and more effective strategic leadership from the top. The importance of developing clearer strategic leadership is also evident from Dawson et al. (1992) study of hospital doctors in the new internal markets of the NHS, and Winch and Schneider’s (1992) account of architectural practices. A further critical element in market-driven change in the NHS, according to Dawson et al. (1992), is decentralizing responsibility to clinicians in middle management roles. This kind of decentralization has also been highlighted outside professional services, in manufacturing and privatized utilities (Colling and Ferner, 1992; Hill, 1991). In the privatized utilities at least, such decentralization has been identified as a major source of tension and ambiguity. These existing studies have thus raised important issues regarding top management, strategy, middle management roles and decentralization. However, their observations are piecemeal, in each case confined to single industries. This section will build on the structured comparison of two sectors - the NHS and 0 Basil Blackwell Ltd

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ROLES

'rap

Prakssianal administrators

niaiiiigenirnt

Strategic managers Businrss managrrs

Linc. niaiiiigenirnt

Prolbssional ro-ordin;imrs

Professional

Professional prarlitionrrs

Support

-

- - ------.

Part-timu marketrere

Professional support Coninierrial support

HIGH

LOW Market-driven change Figure 1. Changing roles in market-driven services

R&D - to propose a general model that both confirms observations from previous single industry studies and adds a more schematic perspective. The eight case organizations were not equal in the duration or intensity of their exposure to markets, with the in-house laboratories and the National Health hospitals still more protected than the two independent laboratories (ERO and NRO). Nonetheless, the similarities in trends provide good grounds for generalization. Following Hinings et al. (1991) and Pettigrew and Whipp (1991), this model of market driven-change will stress the multi-level nature of the process. Figure 1 captures key levels and changes shared by organizations in both sectors. The vertical axis distinguishes four chief organizational levels, from top and line management strata, through the service professionals themselves (e.g. researchers and doctors), and finally to the various support staff (e.g. professional and commercial)."] The horizontal axis measures the extent of market-driven change. As the figure indicates, market-driven change brings new roles at every level of the organization, with the balance between new and old shifting with the degree of change. These changes in roles will now be described more fully, drawing on the case evidence from both hospitals and laboratories, and taking the four levels in turn. Top Managmt Increased market pressures had brought major changes in the R&D organizations' top managements. Traditionally, top management had been dominated by professionals themselves, with academic expertise a critical criterion. Thus both ERO and EngCo had, until the 1980s, often recruited university academics 0 Basil Blackwell Ltd

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straight into their research director positions, while until the 1990s ProcCo’s director was a former professor knighted for his contributions to science. The top management group as a whole would be constituted from the heads of the various scientific and engineering disciplines represented within the laboratory. Non-technical staff would typically be excluded from the top management group: for example, before privatization NRO’s top management team was made up exclusively of senior scientists and engineers. Top management’s tasks in these laboratories were largely routine, confined to administration of a stable system of research work and professional careers. Management in the National Health Service differed in having a dual structure, with powerful medical committees largely autonomous from the general management structures of the hospital (Harrison, 1988). Until the emergence of the new Trust hospitals, doctors’ contracts were not held by local management, but by the regions. To a large extent, doctors managed themselves just as the scientists did in the R&D laboratories. Again, the role of medical committees was largely of professional administration, in parallel with local hospital general managers. However, as market-pressures increased, in both sectors top managerial roles and structures began to change. For a start, at both ERO and NRO, the nomenclature of top positions changed from research director to managing director (in both cases, this change had coincided with the appointment of new top managers). As in Hining et al. (1991) accounting partnership, top management teams were also forced to admit new skills. At NRO, for instance, a finance director was appointed for the first time after privatization, and, four years later, a marketing manager was admitted into the top management team. ERO too recruited a finance director in the late 1970s, and finally established a director for business development alongside its research director during the mid- 1980s. The in-house laboratories were less radical, but they too developed similar new managerial positions during the 198Os, a commercial information manager at EngCo and a general manager for research strategy at ProcCo. The hospitals present a complex picture, but generally they have moved to a single managerial structure, with medical committees becoming less important. This unification has brought a merging of top skills similar to that in R&D. Hospital general managers have been keen to suck medical practitioners into the main structures of management. At EastDMU, for example, top management merged senior professional staff and senior non-medical staff in a careful blend that gave doctors seven of the 13 board positions. In both the hospitals and the laboratories, the roles of these new, broader top management teams were changing too. Instead of just routine administration, top management were beginning to think more and more strategically. In a competitive market environment, they were having to think about what sort of business they were, and what sort of business they wanted to become. Portfolio management concepts were creeping in. At ERO for example, one manager commented:

It is like a holding company, in that you are always in fear of asset-stripping that companies buy you up because you are a good buy at the time and they get rid of you when it does not suit their portfolio any more. Now . . . there are always discussions about dropping a particular discipline because it is no longer viable. 0 Basil Blackwell Ltd

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At EastDMU, the General Manager recalled how he had drawn his hospital as a flower, with certain services at the core and others as petals around it; he then told his senior medical staff that some of these petals might well drop off. This language of strategic portfolio management was beginning to achieve a change in perceptions: organizations were being reconceptualized not just as traditional agglomerations of scientific disciplines or medical specialities assembled according to professional logics, but as businesses whose activities were defined by market demand and organizational advantage. But, as Dawson et al. (1992) also found in the NHS, this concept was only slowly accepted. Even in a privatized laboratory such as NRO, the first complete strategic plan did not emerge until six years after privatization. These limits to strategy d be returned to later.

Line Managmt Equivalent changes in roles were occurring at line-management levels. Within the bureaucratic regime, the line management of professionals had typically been quite restricted. Line managers in the R&D laboratories had concerned themselves merely with the co-ordination of staff and resources, assembling the right combinations of skills for projects and monitoring project progress. Financial responsibility was essentially a matter of keeping costs within budget. Within the dual structure of the National Health Service, the heads of medical divisions had a similar role, except with even less budgetary responsibility. Medical heads would negotiate the provision of facilities such as beds, operating theatres and staffing levels, but had no formal authority to police colleagues’ expenditure. Thus in both sectors, line-management functions (even if they were actually recognized as such) were essentially about professionals co-ordinating the work of fellow professionals. However, in both R&D and the NHS, exposure to greater market pressures brought also a similar change towards decentralized market-based internal controls. This decentralization fundamentally changed line-management roles, with an increased responsibility for the revenues as well as costs of their areas. As indicated in figure 1, their roles within these market-based internal structures moved from professional co-ordination to business management. Thus the hospitals have been adopting a clinical directorate system, in which senior medical staff were supposed now to take comprehensive responsibility for their specialities. The new business management role was recognized in a shift in nomenclature, with ‘clinical directors’ (appointed) replacing heads of medical divisions (elected). For the first time, senior doctors were being faced with clear budgets and distinct cost-centre status. The general manager at Southtrust saw the consequent transparency of performance as transforming his relationship with senior medical st& from one of bureaucratic policing to one of decentralized accountability. He told his clinical directors: I’m not going to lock anything up. I’m going to give you responsibility. You know how much money there is. If you spend it all, you have to stop working. 0 Basil Blackwell Ltd

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The effect on the clinical directors, according to one Southtrust manager, was to turn ‘poachers into gamekeepers’. As a Southtrust clinical director recalled: When the six of us [senior consultants] became clinical directors, we all went around opening cupboard doors to find out what was inside and all kinds of stuff fell out. There were tremendous savings and increases in efficiency very quickly. Many senior medical staff seized the opportunities for active business management roles with considerable enthusiasm, often searching for new sources of revenue. Throughout all four hospitals, clinical directors were developing ‘business plans’ for the first time. Encouraged particularly by the recommended procedures of the Trust application process, often these plans would even make use of such formal techniques as SWOT analysis and the Boston matrix. Business planning at this level was usually less formal in the. R&D laboratories. However, the same transition from professional co-ordination to business management and the consequent delegation of responsibility were clearly present. At ERO and NRO departments were transformed into profit centres, responsible for revenues as well as costs. Accountability was clear. At ERO: it is the departmental managers who will get kicked if there are bad results. They are the guys under pressure. . . . They are the line MDs of their business units. Even in an in-house laboratory such as EngCo, the director ‘wanted pound notes on the bottom: each department accountable for its own income, its own balance sheet . . . each trying to set up its own little comer shop’.

Practitioners In both sectors, decentralization brought changes too at the professional practitioner level. The nature of professional service work had always involved external contact with the consumers of the service (patients in the case of hospitals, sister divisions in the case of in-house laboratories), but in the marketplace professionals had to develop a new kind of external relationship. For doctors, purchasers in the form of District Health Authorities or general practitioner fundholders were becoming important; for in-house laboratory researchers, sister divisions were suddenly clients as well, and some clients could even come from outside the company entirely. Whereas in the past, professionals had worked simply as practitioners, concerned primarily with their scientific or medical tasks, they had now to take on new roles as ‘part-time marketeers’ (Gummeson, 1991). This was not the limit of the changes at professional level. Typically professionals were also finding themselves working under new controls, as decentralized departments passed down market pressures to sections and even individuals. Finally, dependence on markets was eroding traditional professional hierarchies, with a more equal relationship between graduate professionals and technicians in 0 Basil Blackwell Ltd

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R&D and a more collaborative interaction between nursing managers and clinical directors in the National Health Service. In both sectors, clients’ problems were technically highly complex and clients were likely themselves to be professionally qualified. The importance, therefore of professionals being in direct contact with clients (in the NHS, general practitioners), not just consumers (i.e. patients), was well recognized. At Northtrust, a non-medical manager admitted: ‘G.P.s will not relate to an accountant or planning manager . . . telling them what the business is about. They are going to relate to the people [i.e. doctors] they are going to refer to’. The case in R&D was very similar. A NRO senior manager accepted that he could deal with ‘only the most superficial customers’. As one of his engineers put it, ‘The technical experts are the people best placed to do the marketing. . . . We are the natural marketeers’. Marketing activity was promoted by the new decentralized cost and profit centres. Now increasingly operating within quasi-businesses, professionals were prodded into marketing activity by the stick of survival. One NRO manager cheerfully observed of the post-privatization years: ‘I managed by survival and that was an extremely good motivator. Everybody wanted to make a job of it and survive. Survival is a super motivator’. A ProcCo middle manager said: ‘most of my team are aware that the only way they will survive is by marketing their services’. Pressure in the same direction existed in the NHS, if not necessarily so acute. One Northtrust consultant commented: one is aware that we have to go out and push the market and try to claw in referrals from GPs from other hospitals. Whereas we could rest on our laurels before, now we have to go out and positively advertise it.

A WestDMU doctor put it more strongly: ‘Management have put the frighteners on clinicians: i.e., if we don’t keep our end up, we will lose patients’. Recognition of the need to survive in the market-place often brought a levelling of traditional hierarchies between main professional groups and professional support staffs such as nurses and technicians (indicated by the dotted dividing line in figure 1). At both ERO and NRO, non-graduate technicians found themselves being given greater responsibility and increasingly liaising directly with clients. Status was defined less by professional qualification, more by orderwinning capacity. A parallel development was happening in the NHS, with nurse managers usually central in the development of business plans for clinical directorates, and the nurses themselves recognized as vital to involve in ‘service quality’ initiatives. In this sense, market pressures brought an osmosis between the main professional level and that of the support staff. There were other changes a t the support staff level too.

support skiff As professional bureaucracies, all these organizations had traditionally had large professional support staffs (e.g. nurses or technicians) assisting the work of the lead professional group. Now, however, increased market-pressures were, in all 0 Basil Blackwell Ltd

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cases, either bringing a reduction in such professional support stat€ or drawing them upwards into the ranks of the dominant profession, as in the case of the R&D technicians. Striking, though, was the growing importance of commercial support staff - especially in finance, information technology and marketing. As we have seen already, this importance was reflected in the increased representation of non-professionals in top management teams. As they moved into the market-place, the starting point for these organizations was often not marketing but finance. Financial information was doubly vital: first for effective pricing, second for the operation of decentralized cost and profit centres. In both sectors, pricing was a critical but problematic issue. Professionals insisted on the practical difficulties involved in marketing professional services which by their nature are complex and unpredictable. At NRO, one engineer complained, customers ‘come to us for techniques and procedures which are new and perhaps unusual, and need a high-tech approach which has not been tried before . . (Yet) they want a job done as though you were quoting a price for papering their walls’. A manager at Southtrust protested: ‘Marketing health care is not the same as marketing products. Baked beans cost so much a tin; in health care, the inputs and outputs are unclear’. Reliable cost information was therefore essential for any effective marketing strategy. At Southtrust, the General Manager had identified 427 basic cost codes with a further 1000 derivatives. Even so, with most services drawing upon a range of centres within the hospital, he had no confidence in the accurate allocation of costs to any particular service. He dared not permit the radical expansion of any service lest he only discovered after substantial losses that he had significantly under-costed. Confident marketing had to await the development of proper financial information. Motivation and control of decentralized cost centres too depended heavily on the development of appropriate financial information. Often the demand was bottom-up: the finance director at NRO reported ‘dog-fights’ over accounting data, with departmental managers insisting on ever more accurate and regular accounting reports. Similarly, at Northtrust, a directorate manager protested: ‘Our information systems are poor and that worries me because if I am going to be held accountable for something, I need good information. I will not have responsibility without control’. Formal marketing organization seemed less important than finance. Indeed, in the hospitals, a great deal of marketing has so far been concentrated in the hands of ‘contracts managers’, usually with financial backgrounds and reporting to finance heads. In the R&D laboratories too, marketing tended to have a secondary, supportive role. At EngCo, the perception was that ‘marketing is a bit of a rabbit-hole for somebody who has failed technically’. At NRO, 10 years after privatization, it was still felt unacceptable to have a marketing director on the board. Surprisingly, marketing professionals are far from central in market-driven change. ~

CONTRADICTIONS IN MARKET-DRIVEN CHANGE

‘I’he picture of market-driven change summarized in figure 1 is a stylized one. Its linear character may easily exaggerate the smoothness of the changes involved,


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and its neat layers minimize the internal contradictions. Here, then, we shall emphasize the problematic and interactive nature of market-driven change in professional services, something often underplayed in recent commentaries. Pundits of the market (e.g. Peters, 1992) can be expected to show little reserve of course. However, academic commentators too have been slow to acknowledge the ambivalent character of market-driven change, stressing instead the advantages to management for the motivation and control of skilled and service workers in particular. Such groups present particular problems for traditional hierarchical methods of control, on account of the discretionary, irregular nature of their work and their direct client and consumer contact. Indirect control through various market pressures and proxies appears an effective alternative. Thus Fuller and Smith (1991) describe how in services the development of increasingly sophisticated customer feedback mechanisms not only improves market knowledge, but increases management’s control by providing new sources of centralized information on individual worker performance. Smith (1990) and Whittington (1 99 1) suggest that exposure to market pressures is used to deliberately destabilize previously insulated workforces, spurring them on to greater efforts in the competitive struggle to survive. According to Keat (1991), for skilled and professional workers especially, markets undermine the traditional standards and independence of their practices, constituting them as individualized and pliant competitors rather than as members of a collective craft or profession. In Whalley’s (1986) study, the transition from bureaucratic control to the internalized market disciplines of divisions and profit centres is seen as transforming engineers from technical perfectionists into willing servants of managerial interests. These engineers appear the easy victims of today’s hegemonic discourse, a rhetoric of markets and customers fluently manipulated by the managers who command its language (du Gay and Salaman, 1992; Hopwood, 1990). For Hopwood (1990), the language of the market-place and new notions of decentralized accountability are central to the transformation of many public services. A great deal of this is true, especially in R&D. As the preceding account has made clear, senior managers did indeed find that survival in the market-place was a ‘super motivator’, while financial decentralization translated market pressures down the organization. The increased productivity and standardization demanded by competitive markets threatened to de-skill employees, while transforming them into the obedient executioners of the customer’s will. At NRO, a much quoted phrase was ‘black-box’ engineering, in which what mattered was getting the client a solution more than understanding how that solution was arrived at: ‘it does get boring if it is just a black box and you just use it and run it’, admitted one engineer. ‘In the end, you are not a programmer, you are just a computer operator, putting numbers in, seeing what it churns out and writing the report’. At the same time, professional judgement of real needs might too easily be sacrificed to servile deference to customer whim, however inappropriate. As one ProcCo engineer complained, clients were treated ‘Like a rich woman in a dress shop - the sponsor is always right, he has got the money, indulge him’. But, in dealing with new market forms of control, we are in danger of repeating some of the early ‘Bravermanian’ exaggerations of Taylorism (Littler and Salaman, 1982). Only after the first totalizing accounts were put aside, did the ‘labour process debate’ achieve a properly nuanced understanding of managerial 0 Basil

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control. In particular, recognition is now given to the extent to which workers actively consent in managerial strategies (Sturdy et al., 1992), with Burawoy’s (1 979) account of shopfloor games of ‘making-out’ particularly influential. Also accepted is the persistence of uncodifiable, often tacit skills amongst workers, obliging managers to depend on the workforce in what becomes a ‘jointly created labour process’, characterized by degrees of compromise and mutuality (Mainwaring and Wood, 1985). Finally, excessive assumptions of functionality have been displaced by greater recognition of the unintended consequences, contradictions and partial failures inherent in hierarchical control strategies (Friedman, 1977; Thompson, 1989). So much for Taylorism; but exactly the same features of consent, compromise and contradiction are to be found in market control strategies as well. To start with, active consent to market control was particularly pronounced in precisely the two R&D laboratories most exposed to market pressures, the independent ERO and NRO. Many scientists and engineers seemed actually to revel in the new conditions. At ERO, one PhD in his mid-30s exclaimed: ‘At this place, you have to account for every second. I do not object at all . . . It keeps you on your toes. I like to see a finished project, which I have made a profit on, and I’ve kept the customer happy and ERO happy. That is very satisfjmg’. In part, as Whalley (1986) suggests, scientists and engineers willingly participated in marketdriven initiatives because of their legitimacy in the prevailing ‘enterprise culture’ of the time. Indeed, one young researcher at NRO explicitly referred to ‘the Thatcher age’ in explaining the enthusiasm of those who had joined since privatization. Others rationalized the struggle for survival in the market-place in more macho terms. A non-graduate in his 50s at NRO observed: ‘Its a case of growing up. Whereas [before privatization] we were kiddies playing with the thing, it is now a man’s game’. At both laboratories, these enthusiasts were a self-selected bunch - those who had remained and survived - yet their experience of financial accountability and market discipline was as much of stimulus as constraint. Like Burawoy’s (1979) shopfloor game-players, they took pride in their performance. Moreover, markets offered certain opportunities. As we have seen, managers in the NHS and R&D remained dependent on the specialist skills of their subordinates to deal with clients and negotiate credible contracts. For scientists and engineers, the role of ‘part-time marketeer’ opened up opportunities to insert enough time or funding into contracts to permit interesting diversions into personal sidelines: as an NRO engineer put it, ‘Nobody is putting blinkers on you. Provided you satisftr the client and do it within budget, you can do it your way’. Middle management especially would turn a blind eye to private interests which might keep staff motivated or which might possibly provide useful spin-offs long-term. According to another engineer at NRO, ‘if you are pushing buttons on standard analysis at El00 a time, you can earn enough profit to be able to buy a new piece of equipment for a pet research project’. In the new quasimarket regime of the NHS, well-positioned doctors found similar scope for expanding their specialisms free of traditional hierarchical resource constraints. Said one consultant at Northtrust: It [the market] provides an encouragement to go out and try to develop contacts and expand. If we can show there is a need, and can get the con0 Basil Blackwell Ltd

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tracts, then we can expand do that’.

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rather than having people saying ‘you cannot

Even the discourse of the market could be reversed. At WestDMU, a consultant characterized the techniques of marketing and the language of customer need as ‘a useful defence’ in the continuing politics of a large hospital: artfully assembled figures on ‘market demand’ and rhetorical appeals to ‘service quality’ provided him with new ammunition in bargaining for necessary resources. Professionals can appropriate the discourse of the market for themselves. Thus for top management, the shift to a market-driven regime actually entails some risk to control. Control-loss might come not only as professionals manipulate market opportunities and rhetoric for themselves, but also at a more strategic level. As Colling and Ferner (1992) found in privatized utilities, decentralization to departments could lead to a loss of coherence in corporate strategy. At ERO, corporate strategy-making effectively amounted to simply aggregating individual departmental plans: as the new managing director said, ‘We are bottom-up led, we are survival led’. Financial decentralization could encourage fierce competition for customers between groups even within the same organization. One ERO manager complained: ‘ERO isn’t a single entity; it is a collection of cottage industries competing against one another and the outside world.’ At ProcCo a team leader remarked: ‘My competition isn’t out there; its down the corridor’. The risk of excessive internal competition to the organization’s integrity were still not so great at the hospitals, but the problem was recognized already. Managers at Northtrust, for instance, were anxious to stop every clinical director knocking in turn on the same GP fundholders’ doors, each trying to sell their individual service. For the general manager, the fear was the clinical directorates would soon fall ‘out of sync’. At the time of the research, all four of the R&D laboratories were struggling to assert overall strategic control over their operations. In terms of figure 1, the top level shift from professional administration to strategic management had lagged behind the market-driven changes at the lower levels. So far, at ERO and NRO in particular, strategy had consisted of managing a portfolio of departments, run as decentralized business units each fighting to survive. By the early 199Os, however, top management was seeking to make the transition from portfolio management towards a more coherent corporate strategy. Both independent laboratories were finding it hard, though, to find a new sense of strategic direction: as one senior NRO manager wondered, ‘what do you replace survival with?’. ERO was bitterly divided over various iterations of its ‘strategic vision’ whether it was essentially a ‘test house’ or a ‘design house’. In 1992, the space in the entrance hall where ERO’s previous vision statement had been displayed was left empty.. Not only was a sense of strategic direction hard to find, but the mechanisms for imposing coherence were lacking too. All four laboratories had experimented with ways to mitigate the short-term and fragmentary effects of decentralized financial accountability. The large ProcCo laboratory had set up a central strategy unit, but their policy papers were dismissed by departmental managers as mere ‘medieval manuscripts’. Both ProcCo and EngCo had also introduced lateral co-ordinating mechanisms between decentralized departmental teams, 0 Basil Blackwell Ltd

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designed to ensure coherent responses to client divisions. However, departmental managers under competitive pressure were hard to control. One team leader said dismissively of his co-ordinators: ‘They argue and waffle; but if we come up against another team, I win’, The two independent laboratories had a different approach to control, recently introducing central research budgets to restore strategic coherence and abate the pressures of decentralization. These research budgets were to’ be strategic and funded internally. Though small - around 2 per cent of turnover these were highly controversial, involving an additional tax on the individual departments. At ERO, the managing director recalled the debate: ‘We asked ourselves: do we need research, can we survive without it?. . . Finally we decided] research is a Unique Selling Point, it gives us credibility and it allows us to renew our technology and produce people who can keep us ahead’. It was not clear at the time of research whether these modest attempts at re-centralization and co-ordination would be any more successful than the parallel ones in the in-house laboratories, but there are no strong grounds for confidence. The contradiction between establishing a coherent market strategy externally and maintaining decentralized market control internally is not likely to be so easily resolved. ~

CONCLUSIONS

This article has addressed an increasingly important issue in professional services, the challenge of market-driven change. Going beyond existing single industry studies the structured comparison of two important sectors - public and private has allowed us to draw out general features of the market-driven change process that are likely to be relevant to a wide range of professional services. These features have both practical and theoretical implications. The multi-level model proposed in figure 1 has proved an effective organizing device in describing the complex processes of market-driven change in two very different sectors, the NHS and R&D. It has also been able to incorporate many of the observations of previous single-industry studies, particularly with regard to changes in top management membership and roles, decentralization and the involvement of professionals themselves in new managerial and commercial responsibilities. To this extent, the model should provide a useful general framework for considering market-driven change in the many other professional service sectors currently experiencing similar pressures. The model also has some striking managerial implications. Specifically, it warns management that market-driven change involves far more than simply grafting on new marketing activities. Spreading throughout the organization, the process is complex and often slow. Market-driven change entails substantial investment in accounting and financial information, the relaxing of traditional status boundaries between professional and non-professional staffs, and new ‘parttime’ marketing roles for professionals themselves. Line management is transformed into a pivotal business role, a crucial source of motivation and initiative, but also a powerful centrifugal force. An important new task for top managers, one for which they seem often ill-equipped, is the development of strategic direction and control. 0 Basil Blackwell Ltd

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The evidence from our cases suggests that these multi-level implications of market-driven change are typically only slowly recognized and grasped by top management. It is invidious to compare the managerial achievements of eight organizations in such different sectors and with such different degrees of exposure to market pressure. Nonetheless, it is remarkable that the two independent in the market-place for a decade or more were still struggling laboratories with the early stages of strategy definition and control. Moreover, these two organizations were only beginning to grasp the implications for training and career development of more commercial roles for professionals and more relaxed status boundaries between professional and non-professional groups. While they had by now developed quite sophisticated financial information systems, marketing information was rudimentary. In terms of figure I , the two independent laboratories had allowed the levels of market-driven change to fall out of synchrony, with the top management level particularly behind. At this stage, however, it was not clear that any of the other six case study organizations were likely to be more strategic in anticipating and meeting the challenges of marketdriven change. The tension between the need for decentralized accountability and strategic coherence appears to be inherent in market-driven change. However, a model such as that proposed in figure 1 can highlight for management the widespread repercussions of market-driven change, and the importance of consistency in the process at every level. The complex and challenging nature of the change process is important theoretically, as well as practically. In dealing with skilled and service sector employment at least, many recent academic accounts have been too one-sided, emphasizing only the control advantages for management of market-based forms of control. Quite clearly there are advantages to be had, but our analysis of the process of change suggests that they are not easily won. Decentralization offers professionals new areas cf opportunity and discretion, new ways of playing political games or exercising their skills. Professionals may even revel in the competitive excitements of the market, while top management strives to rein them in. In sum, market forms of control are no more an unambivalent panacea than the strict hierarchical controls of Taylorism. At least in professional services, resort to market-pressures is a strategy laden with compromise and contradiction. Again, just as in the earlier labour process debate, theorization of new managerial strategies needs to be sensitive to difficulties of implementation, to workforce initiative and to unintended consequences. From the evidence here, both pundits and theorists have exaggerated the ease of market-driven change. ~

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NOTES

*This research was funded by the Economic and Social Research Council. The authors would like to acknowledge the important contribution of Martin Kitchener to the empirical research. They would also like to acknowledge the helpful comments of the referees, as well as those of participants at the British Academy of Management Conference, 1992, the Strategic Management Conference, 1992, and the Cardiff Employment Relations Conference, 1992.

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[l] This research has focused on traditionally the most powerful group of professionals in each sector, i.e. doctors in the hospitals, qualified scientists and engineers in the laboratories. The label of support staff is not intended to denigrate the professional capabilities of groups such as nurses or technicians, only to reflect their traditional positions. REFERENCES

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