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Quasi-privatisation and corporate governance: A process perspective

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Abstract

Purpose The purpose of this paper is to evaluate the usefulness and relevance of a four stage model of privatisation, based in institutional theory, to quasi‐privatised organisations. Design/methodology/approach The paper studies a UK organisation with changing ownership, governance, and boundaries. Historic Royal Palaces is intrinsically interesting, and resembles many quasi‐privatised organisations placed within charitable frameworks. Application of the process model reveals the governance challenges HRP faces. Findings The study suggests that the model is holistic and dynamic, and useful as an analytic template. It is inclusive of competitor, behavioural, and resource‐based views of the firm, and recognises that firms and their governance change over time. Research limitations/implications The report adds validity to the model developed by case studies from a different national context. The small number of cases is a limitation. Future research could include other types of quasi‐privatised organisation, and organisations in different national settings. Practical implications The model provides a helpful template for interpreting and explaining the changes enacted by organisations and their members through privatisation. Further, although largely descriptive, the model also has some predictive power. It can help policy makers and managers predict some of the key limitations of the privatisation process of a particular organisation based on the specific nature of its context and settings. Originality/value The detailed discussion of a quasi‐privatised organisation – an increasingly common, but little researched organisational type is significant. The development of a holistic approach for understanding organisational changes is also significant.
Quasi-privatisation and corporate
governance: a process perspective
Martha Mador, Kent Springdal and Sarah Dixon
Abstract
Purpose The purpose of this paper is to evaluate the usefulness and relevance of a four stage model
of privatisation, based in institutional theory, to quasi-privatised organisations.
Design/methodology/approach The paper studies a UK organisation with changing ownership,
governance, and boundaries. Historic Royal Palaces is intrinsically interesting, and resembles many
quasi-privatised organisations placed within charitable frameworks. Application of the process model
reveals the governance challenges HRP faces.
Findings The study suggests that the model is holistic and dynamic, and useful as an analytic
template. It is inclusive of competitor, behavioural, and resource-based views of the firm, and recognises
that firms and their governance change over time.
Research limitations/implications The report adds validity to the model developed by case studies
from a different national context. The small number of cases is a limitation. Future research could include
other types of quasi-privatised organisation, and organisations in different national settings.
Practical implications The model provides a helpful template for interpreting and explaining the
changes enacted by organisations and their members through privatisation. Further, although largely
descriptive, the model also has some predictive power. It can help policy makers and managers predict
some of the key limitations of the privatisation process of a particular organisation based on the specific
nature of its context and settings.
Originality/value The detailed discussion of a quasi-privatised organisation an increasingly
common, but little researched organisational type is significant. The development of a holistic approach
for understanding organisational changes is also significant.
Keywords Organizational theory, Privatization, Charities, Corporate governance, United Kingdom
Paper type Research paper
Context: public and quasi-private organisations
This paper considers a particular type of organisation: those which are quasi-privatised into
the charitable, or ‘third’ sector. These are widespread in the UK (for example universities,
hospitals and many arts organisations) and elsewhere, but little explored in the literature.
Our interest is in how these organisations become quasi-private. We begin by considering
privatisation as a concept, noting that it involves greater diversity of action and activity than
often suggested. Given this diversity, we provide a staged model, based in institutional
theory, for exploring how privatisations unfold over time. We then examine primary and
secondary data relating to a particular case of quasi-privatisation, linking it to the stages of
the model.
As explored here, institutional theory provides a holistic theoretical view of organisations and
the processes through which they move toward privatisation. This considers change and
diversity as organisations develop over time, and is in contrast to the single lens theories
DOI 10.1108/14720700810913269 VOL. 8 NO. 5 2008, pp. 595-606, Q Emerald Group Publishing Limited, ISSN 1472-0701
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Martha Mador is Acting
Director at WestFocus
Entrepreneurship Centre,
Kingston University,
Kingston upon Thames,
UK. Kent Springdal is a
Senior Lecturer and
Sarah Dixon is a Principal
Lecturer, both based at
Kingston Business
School, Kingston University,
Kingston upon Thames,
UK.
Received: 1 November 2006
Revised: 2 August 2007
Accepted: 3 August 2007
which tend to overlook change. Applied to a firm which is neither fully public nor fully private,
it signals interesting questions for researchers about governance.
Making new firms: degrees and styles of privatisation
Privatisation may have various objectives, but the over-riding one is of enabling
entrepreneurial activity. Privatisation is a policy of change, aiming to bring greater
commercialisation into the activities of previously purely governmental enterprises.
Nevertheless, privatisation is a controversial concept, and we begin by considering four
areas of concern within this controversy.
First, there is a legal issue. Privatisation has commonly been defined as the transfer of at
least 51 per cent of the ownership rights of a state-owned enterprise to private individuals or
institutions. However, as Nwankwo (1996), and Dunsire et al. (1988) observe, there is no
clear public private dichotomy. Privatisations may involve the sale of minority
shareholdings only; sometimes no share transfer to private individuals occurs (Zahra et al.,
2000). Thus the transfer of a majority shareholding is a rather narrow conception of the field.
Second, the variety of mechanisms associated with privatisation is much wider than simply
the transfer of shares, and each has its own organisational implications. For instance,
privatisations may be achieved through contracting out activities to privately run enterprises,
and enterprises themselves may change dramatically and adopt private sector approaches
while remaining wholly owned by the State. Zahra et al. (2000) provide a classification of
firms, using Ownership Rights and Profit Orientation as the dimensions of analysis, thereby
articulating the variety of technical mechanisms used in privatisations. They include the
removal from the state to the charitable sector as one mechanism. This variety of
mechanisms extends the meaning of privatisation well beyond share ownership.
Third, there is also variety in the timing and duration of privatisation activities. Government
may introduce private sector practices or entrepreneurial approaches into their enterprises
in various ways over time. A partial sale of shares may be followed some years later by sale
of the remainder; or contracting out of services might precede a change of ownership. The
staged, episodic, and gradual nature of many privatisations indicates that privatisation is
more of a process than an event: it may unfold over many years.
Fourth, the complexity of organisational formations which result from the preceding three is
an issue. Many formerly purely governmental organisations like universities, hospitals and
cultural organisations have become hybrids. They operate in mixed modes of fundraising
and management style: budget-constrained and commercial, entrepreneurial and
bureaucratic, with consequences for, among other areas, finance, human resources, and
innovation (Mackintosh et al., 1994). They are challenging organisations to manage.
These four areas of concern legal, technical, temporal and managerial create a picture
of diversity and complexity. The interesting challenge for theorists is to find a single, holistic
framework to account for an organisation as it moves toward full privatisation, whether along
a continuum from public to private (Dunsire et al., 1988), or through the various types posited
by Zahra et al. (2000).
Privatisation: theoretical perspectives
Privatisation has been considered through various theoretical lenses. It has been portrayed
as the result of ideological changes in the political landscape; as a political act intended to
undermine the welfare state and the power of trade unions; as inevitable adaptation within
organisations to changing external frameworks; as a process of enaction by actors in the
organisation (Springdal and Mador, 2004, Springdal, 2001). Each of these lenses, however,
has its shortcomings: focus on the macro environment typically ignores the internal
dynamics of the organisation and its members, and their interaction purposeful or not
with the external environment; focus on the shifting sands of internal political activity ignores
the larger pictures of national and international economic change (Wezel and
Saka-Helmhout, 2005).
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To address the limitations of these lenses, we acknowledge that enterprises operate within a
multi-dimensional external environment that creates a competitive context and constraints
on managerial activity. The various markets in which organisations compete (Christopher
et al., 1992) influence managerial behaviour, by creating opportunities and limiting choices.
At the same time, enterprises have their own lengthy pasts. Historic choices have created
structures, systems, and sticky assets that create stable patterns of behaviour (Teece et al.,
1997; Miles and Snow, 1978; Zucker, 1977; Berger and Luckmann, 1967). The process of
privatisation affects the markets in which the enterprise operates on the one hand, and
changes the internal dynamics needed to operate successfully within them on the other.
Thus while some authors portray organisations as more or less static and with clearly defined
boundaries, this is an overly simplistic view. Organisations and their boundaries change
over time; they are not always easy to describe or categorise. Alliances, joint ventures and
out-sourcing are all activities which blur the boundaries of organisations. Any theory
developed to explain management activity will need to encompass such flexible and
changing boundaries.
We argue that institutional theory provides a balanced theoretical framework for studying
privatisation. It posits that over time, structures and activities develop which provide
meaning and stability to social behaviour. In the case of privatisation, external, economic
and political factors set the process in motion and influence its development. Once begun,
however, the process occurs within the organisation and is therefore enacted by employees.
Ultimately new activities and meanings which suit the new changed ownership and
governance arrangements of an enterprise are adopted, developed and institutionalised by
the employees (Erakovic and Wilson, 2005; Springdal and Mador, 2004; Scott, 1995;
Greenwood and Hinings, 1993). It is only then that the organisation can be said to have fully
adopted a privatised, entrepreneurial stance.
In keeping with this institutional process view of privatisation, and with the aim of theory
building, a four stage model of the privatisation process was developed, explored, and
refined by Springdal (2001), and Springdal and Mador (2004). The model draws on previous
theory (Giddens, 1979; Tolbert and Zucker, 1996; Scott, 1995), and was developed and
refined through the in-depth study of two cases of privatisations in Sweden.
The model identified four stages in the privatisation process: initiation, problem-solving,
consensus-building and consolidation. The stages and their key influences are outlined in
Table I. Over a long time frame the stages will be consecutive; in the short term they may be
concurrent as different parts of the organisation move towards more commercial behaviour
at different times or at different speeds, or recursive until the change to a commercial outlook
and way of acting is institutionalised.
The initiation stage is shaped by factors such as legislation, market forces, and
technological change. These are changing constraints in the external environment which
Table I Stages in the institutionalisation of privatisation
Stage Influencing factors Institutionalizing processes
1. Initiation: Realisation that a new enterprise model is needed Technological change
Legislation
Market forces
Regulative strong
Normative weak
Cognitive negligible
2. Problem solving: Application of patterns of organisation and
activities which are familiar from the private sector
Isomorphism Regulative strong
Normative weak
Cognitive negligible
3. Consensus-building: Legitimation of newly introduced
patterns and norms of behaviour relating to commercial
activities
Leadership Normative strong
Cognitive weak
4. Consolidation: Dissemination of new norms through the
organisation, and integration of these into the structure
Positive outcomes
Interest-group advocacy
Interest-group resistance
Socialization
Cognitive strong
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require new responses to be developed. During this stage, the processes at work can be
described as principally regulative in nature. The problem-solving stage is influenced by
isomorphism: the organisation adopts patterns and approaches perceived to be successful
in the private sector. Regulative processes still dominate, but more normative processes
begin to appear. The main influencing factor in the consensus-building stage is leadership
aimed at legitimising new norms of behaviour, particularly commercial, profit-seeking
activities. The processes are mostly normative during this period, and cognitive processes
begin to be developed. Finally, the progress of the consolidation stage is influenced by
outcomes. The concerns of interest groups are voiced and addressed; new staff members
are motivated more by the future than the past; positive outcomes for the individuals and the
enterprise are experienced. This final stage features the establishment and dissemination
throughout the organisation of a new understanding and structure. The processes in play
can be described as being mostly cognitive in nature.
The model is not merely descriptive. Springdal and Mador (2004) argue that he full
privatisation process is lengthy, and the stages identified in the Swedish cases must occur in
order for the organisation to become fully competitive. The model provides a predictive
framework which can help assess the progress of any organisation towards full privatisation.
The evaluation considers the extent that processes have moved from being principally
regulative to thoroughly cognitive in nature.
Research objectives and questions
The research on the Swedish firms enabled the development and articulation of a model of
privatisation anchored in institutional theory. Those enterprises were in the IT sector, one
servicing local government, one national government, and privatised through trade sales.
The current paper examines the usefulness of the four stage model in a different privatisation
setting.
This research examines a quasi-privatised, third sector organisation in the UK. This is
different from the fully privatised organisations previously studied in several ways. First, the
assets and some other aspects of the organisation have remained in public ownership;
second, a charitable governance model has been applied to the management of the assets;
third, the firm operates in the highly competitive tourism industry, and hence has become
increasingly commercialised; fourth, the organisation is in the UK, where the social model is
seen as less consensual than that operating in Sweden. Studying this contrasting
privatisation setting in the same way, with the same theoretical background in mind,
contributes to developing theory relevant across settings.
In addition, this type of organisation has been little studied. The effects of institutional
changes and governance mechanisms on quasi-privatised organisations, and the way in
which people within them cope with the changes, have not specifically been published
elsewhere. This research provides the opportunity to gain insight into a significant, but little
explored area of management which has emerged over the last 20 years.
The research questions for this study concern the further refinement of the staged model
already developed, the recent past of the case organisation, and the potential implications
for other similar organisations:
B
How does the staged institutionalisation model explain quasi-privatised or third sector
organisations?
B
How has the process of quasi-privatisation unfolded in this organisation?
B
What are the implications for organisations and researchers?
Research strategy and methodology
In keeping with previous research into strategy processes (for instance Eisenhardt, 1989;
Burgelman, 1983) a case study strategy was adopted. The objective was to study the
process of privatisation, and existing evidence suggests that this process is inseparable
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from its context (Springdal and Mador, 2004). When the phenomenon of interest is
inseparable from its context, Yin (1994) argues for case based research.
One organisation, Historic Royal Palaces, was studied in depth. The case is intrinsically
interesting, because of its strong connections with the British crown and state, and its
premiere position in the tourism industry. It is being used here as a critical case or
experiment (Yin, 1994) to test theory and investigate its relevance across contexts.
Contextual differences make the case quite different from those studied in earlier research; a
different type of privatisation, and the resulting different type of organisation, deserves
careful and separate consideration.
Archival and public information were accessed from the organisation and its website. Seven
senior officers of the organisation, including the chief executive, were interviewed in order to
elicit their views on strategic development. Questions investigated the development of the
organisation in the past and the current challenges being faced. The interviews lasted from
90-120 minutes, and were taped and transcribed, creating over 100 typed pages of data.
Strategic plans and development documents were examined, and researchers observed
strategy making events within the Executive Board. The interviews, observations and other
materials produced a rich archive of both objective and subjective data.
The data were analysed to establish an objective timeline of key events. It was also analysed
thematically using a priori concepts from the model. This analysis sought to establish whether
the stages of privatisation, the influencing factors, and the processes from the model could be
seen in this case. To guard against bias, three researchers worked independently on this latter
analysis, then compared their notes. Alternative explanations were considered and evidence
for these was sought. Drafts of the paper were discussed with some executives, in order to test
interpretations; these prompted further insight into the material.
The rest of this paper presents the findings from the case study. First, information about the
organisation is presented, outlining the context of the organisation and privatisation.
Subsequently, the model is applied to the case.
Organisation background and governance
The Historic Royal Palaces Agency was created within the UK government in 1989, bringing
together management of six palaces no longer in use as homes by the British royal family: HM
Tower of London; Hampton Court Palace; Kensington Palace State Apartments; the
Banqueting House, Whitehall; and Kew Palace. In April 1998 the activities of the Agency were
transferred from government to a newly created Royal Charter Body with charitable status.
The palaces are owned on behalf of the nation by Her Majesty The Queen, the Head of State.
The state, through the Secretary of State for Culture, Media and Sport, contracts with Historic
Royal Palaces to manage the palaces for ten years. HRP is a charity receiving no direct grant
from the Crown or the Government, relying on revenues generated by the palaces to meet
the costs of achieving its mission.
The chief executive is responsible to the non-executive Board of Trustees. The Chairman and
three Trustees are appointed by The Queen on the advice of the Secretary of State, the
others directly by the Secretary of State. Membership in 2004 included the Keeper of the
Privy Purse, the Director of the Royal Collection, the Constable of the Tower of London
(formerly Head of the British Army), the former Chief of the Defence Staff, an eminent
architectural historian and Commissioner of English Heritage, and three members (including
the Chairman) from more commercial backgrounds.
While operating under charity regulations, HRP is a Non-Departmental Public Body (NDPB)
of the UK government. It is unusual among about 60 NDPBs in receiving no direct subsidy. It
answers to both the Secretary of State and the Charity Commission for its financial health
and success. As governments change, so may the status, focus and activities of HRP. For
instance, HRP is expected to implement government policy in relation to social inclusion. Its
key performance indicators, such as visitor satisfaction, financial liquidity and various
conservation targets, are set by the Department of Culture, Media and Sport (DCMS). As a
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public organisation, HRP’s finances are included in the Public Sector Borrowing
Requirement it must obtain permission from the government to borrow money.
The mission of HRP is set by the Royal Charter, and is, for the benefit of the nation, to:
B
administer, conserve, renovate, repair, maintain and improve the Palaces to a high
standard consistent with their status as buildings of Royal, historic and architectural
importance; and
B
to educate and inform the understanding of the public about the Palaces and the skills
required for their conservation by providing public access by exhibition, by preparation of
records, catalogues and inventories, by research and by publication and by other such
means as are appropriate (www.HRP.org.uk).
The palaces contain some 13,000 works of art and material culture. Most of these belong to
the Royal Collection, itself relatively recently established as a charitable trust. Others
particularly in HM Tower of London belong to the Royal Armouries.
A wide variety of organisations provide oversight of HRP, officially and unofficially. English
Heritage must approve building works or changes to the fabric, while in another guise being
a competitor for the tourist pound; local organisations work to influence developments within
the palaces and their grounds; the National Audit Office also has oversight. ReSource, the
quasi-governmental successor to the Museums and Galleries Commission has an interest,
particularly at Kensington Palace, and the Public Records Office is involved at the Tower,
which holds an archive of architectural and engineering drawings of the palaces.
Thus from a governance standpoint, HRP is complex. It is a charitable trust with key assets
owned by the State, and a revenue stream derived mostly from tourism. It has a diverse
group of individual and organisational stakeholders associated with the State and
Government who influence or oversee strategy, finance, and operations.
Application of the model
Timeline
A timeline of events was developed and compared to the stages of privatisation in the model
(shown in Table II).
Initiation
The impetus for privatisation was prompted by legislative forces. The agency created in
1989 brought conservation expertise and administrative control within one organisation.
Government policy on privatisations and attempts to control the Public Sector Borrowing
Requirement were beginning to be applied to the palaces. Also, clarification of ownership
and responsibility for important national treasures between the Crown and the Government
was being pursued.
Market forces were also influential. The palaces’ appeal to tourists was recognised, and
substantial investments made. From 1989, major projects the Jewel House at the Tower
and the Tudor Kitchens at Hampton Court Palace for instance were implemented to
establish the group’s premiere position in the tourist trade.
In 1998 HRP was established to outsource the management of the palaces to a
non-governmental body. At the same time, direct public funding was removed. HM Tower of
London is the most popular historic attraction in the UK, while Hampton Court Palace ranks
seventh. In the context of a booming tourism market, their incomes were deemed adequate
to achieve the group’s mission.
The charitable trust required non-public sector financial reporting and management systems
for the first time. However, the charitable model involved little depth of change in the
organisation the process was at this point chiefly regulative:
Most charities start from fundraising and create an organisation from scratch. We were an existing
organisation with £37-38 million turnover and we had to force it into the straightjacket of being a
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charity and go through all the legal changes, put all the tax and insurance arrangements in place,
set up a new pension scheme, deal with all the contracts.
Legislative and market drivers required the initiation of a privatisation process and market
pressures conditioned the organisation to take up many private sector measures. However,
in terms of the model, the regulative processes are incomplete. Further clarification of
responsibilities between HRP and the government for instance for the maintenance of
security for the crown jewels was sought as late as 2004. The State and a quasi-State
charity remain in possession of the assets, and exert considerable control and influence over
the executive group.
Problem solving
The creation of the trust presented management with the problem of how to organise and act
in a new situation. The need and challenge were keenly felt by the management group:
‘there was no model that we could go to’’.
Table II Stages in the quasi-privatisation of the Historic Royal Palaces
Time Events Critical influences Stage
1989-1998 Government creates single agency
encompassing the Palaces
Legislation Initiation
Agency moves the palaces from the control of the
Royal Household to the government’s direct
control
Legislation Initiation
Major investments in showcase projects to boost
market attractiveness
Market forces Initiation
1998-2000 Government creates charitable trust (HRP) to
which to outsource the conservation and
management of the Palaces
Legislation Initiation
Change of financial status and rules have most
immediate impact; introduction of IT systems
Legislation Initiation
Benchmarking introduced Isomorphism Problem solving
Pay and grades reviewed Isomorphism Problem solving
Performance management scheme introduced Isomorphism Problem solving
2000-2003 New chief executive from private, non-heritage
sector hired
Leadership Consensus-building
Major staff development/culture change
programme initiated
Leadership Consensus-building
Business planning, market research, private
sector approaches adopted
Isomorphism Problem solving
Senior management team re-organised, with new
posts and people
Isomorphism Problem solving
Team working across departments and levels
introduced
Isomorphism Problem solving
Some out-sourced departments brought back
in-house
Socialisation Consolidation
From 2001, and in the face of sustained market
downturn and consequent loss of revenue,
attempt to trim costs and explore new avenues of
revenue
Isomorphism Problem solving
Charitable fundraising begins Isomorphism Problem solving
2003 onwards New chief executive joins Leadership Consensus building
Permission sought from the Treasury to borrow
funds
Isomorphism Problem solving
Recourse sought to governmental sources of
funds (through bidding processes and sustained
fundraising)
Isomorphism Problem solving
Chief executive initiates a strategy making
programme to agree concepts and norms to
enable the organisation to move forward
Leadership Consensus building
Charitable status and mission are emphasized as
conceptual alternatives to commercialism
Isomorphism Problem solving
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Private sector activities and models were adopted to address the problem. Benchmarking
processes, reviews of pay and grades, performance management schemes, business
planning and market research were all introduced. Similarly, a move from a bureaucratic to a
more team based management style was engaged. A chief executive from the private sector
joined the organisation in 2000, and new commercial managers were hired in HR, Marketing,
and Operations.
From late 2001 a severe downturn in tourism resulted from general economic malaise,
terrorist attacks, military actions, foot and mouth disease in the UK, and SARS. Lower
admissions and revenues at the Palaces resulted. A fall in American visits was particularly
important, as 25 per cent of all Americans in London visit the Tower. It was assumed that
revenues would bounce back quickly, but continued international turmoil instead created a
worsening financial situation at HRP.
This crisis prompted cost control and income development measures: major investments in
conservation and product development were stalled in favour of prioritised maintenance;
prices were increased; a decision was made to charge for access to the gardens at
Hampton Court for the first time in 2004. Fundraising from private sources was
re-addressed, and the Trustees secured some large gifts. Retailing was increased, and
online shopping initiated. Finally in 2004 the government granted permission to borrow.
These actions, targeting greater financial flexibility, made the organisation more fully
commercial in orientation.
At the same time, however, some possible changes were considered beyond what was
acceptable to stakeholders. The financial crisis was not widely publicised, the contract with
the state was not renegotiated, and redundancies were avoided. Only when trading
conditions continued to be poor longer than expected did management begin to reconsider
these.
From 2003, a new chief executive with a background in third sector management began
revisiting the lingering public sector approaches to management. He introduced a new
discourse emphasising the charitable status and mission of the organisation. This sought to
introduce a new model, focused on achieving the mission, independent in its decision
making, and inclusive of multiple funding sources, including governmental. In terms of the
research model, the problem solving phase, when a more complete commercial orientation
is identified, was still underway.
Consensus-building
The background of the Chief Executive who joined in 2000 was in managing private sector
organisations, most recently a stadium and conference centre. With a strong interest in
developing people, he began by conducting a listening exercise and initiating a major
culture change programme.
Several aspects of organisational culture were tackled. First, the palaces each had their own
organisational traditions and culture, with for instance HM Tower of London being particularly
influenced by the military. Each palace had its own management, and these competed
marketing teams for instance vied for the most successful campaign. In this phase these
were brought together in order to reap economies of scale, develop a more integrated
branded approach, and enable joint promotions, particularly to the tourist trade.
Second, a generally bureaucratic culture provided little opportunity or encouragement to
promote innovation or personal responsibility. The organisation lacked depth and breadth of
understanding in commercial areas, and the change programme aimed to change this. A
leadership development programme was put in place to develop the skills and approaches
of the private sector: ‘What leadership training did was to give us a common language and a
common understanding’’.
Third, the conservation departments were particularly powerful, and limited innovation and
change in the name of their mission. The change management programme reviewed the
mission, to identify how both conservation and development of services could be
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accommodated. Reducing cultural boundaries sought to empower people to improve
services for customers.
The various public bodies providing oversight to the organisation also acted as a brake on
commercialism, and the Board of Trustees acted as an informal regulator. It emphasised
conservation over interpretation or commercialisation, and maintaining the ‘status and
dignity’ of the Palaces and the Crown to which they are closely connected. For instance,
fundraising through joint ventures with commercial organisations, or even from other
charitable trusts was treated with caution, as being potentially threatening to the dignity of
the organisation, the royal brand and the state. More subtly, rooms under refurbishment were
not open to the public, because they were not at their best. The educational potential of
showing the conservation process itself to visitors was not explored.
Managing these stakeholders was thus a further priority in consensus building. The Chief
Executive’s experience and leadership were critical in managing the tensions created by
these contrasting pressures. He focused on ‘over-communicating’ with the Trustees,
providing weekly reports and frequent phone calls to build a relationship of trust. This would
enable the Trustees to stay remote from the organisation and the executive team to perform
on more commercial agendas.
The Chief Executive who joined in the summer of 2003 was experienced in managing
museums and heritage locations. Product development, particularly re-interpretations of the
palaces and developing the previously somewhat neglected area of historical interpretation
commenced, though still within the constraints imposed by the key stakeholders, and the
confines of ‘status and dignity’’. Some re-negotiation of organisational boundaries was
initiated, to reduce financial responsibilities for the maintenance of some key assets. The
need to attract funding from charitable trusts and possibly governmental sources was
acknowledged, and a fund raising project began in 2004. The possibility of redundancies
was reconsidered. Permission was sought (and received in early 2004) from the Treasury for
HRP to borrow money.
While consensus building between the executive, key stakeholders, and employees was
underway as early as 2000, doubts about the extent to which the new practices have been
institutionalised lingered:
I think this is where we’ve been a bit schizophrenic in the past and I think to some extent it still is.
On the one hand part of the organisation wishes to sell us as a commercial visitor attraction,
another part of the organisation and I don’t just mean in marketing terms I mean in terms of how
we present ourselves, you know, dinner parties or anything, you know, how it’s expressed
generally. And there’s another part of the organisation that wishes to express us as a conservation
organisation that won’t have anything to do with that.
This lack of consensus indicates that the normative processes through which private sector
routines and activities become embedded were incomplete.
Leadership remained a critical influence in legitimating new concepts within the
organisation. The Chief Executive who arrived in 2003 set out to develop both top team
consensus and buy in through the rest of the organisation. Strategy Awaydays were
undertaken to enable the Executive to explore their own understandings and develop a
consensus on how to proceed in the new trading environments. The concepts of a
charitable, rather than a commercial mission were emphasized, although the reality of the
need to be financially viable was also recognised.
Consolidation
The consolidation phase of privatisation has not been reached during the time period
examined. The outcomes of the Chief Executive’s 2004 programme of strategy making
remained uncertain. The organisation is still seeking to balance the demands of the
commercial world, the state’s influence, and the charitable mission with which it was
charged. Re-negotiation of organisational boundaries continued, and the possibility of
public funding was under investigation. The ten year contract under which HRP manages
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the palaces for the state will end in 2008, raising questions about the best way to organise
things for the future (see Table III).
Discussion and conclusions
The analysis leads us to several areas of speculative consideration: the staged model of
privatisation, governance tensions within the case organisation, and the management
challenges faced by similar quasi-privatised organisations.
The staged model
The organisation and its boundaries have changed substantially in a lengthy process that
has brought it close to operating in a privatised manner. The study suggests that the
organisation has engaged in 3 of the model’s 4 stages of privatisation. Although some
progress has been made in each one, a number of factors have prevented their completion.
This suggests it may be impossible to complete the fourth. Indeed the organisation is in
some danger of experiencing a re-cycling through the stages.
Ownership and governance arrangements at HRP have been the key limiting factor
impeding the institutionalisation of commercial norms. The study raises a difficult question,
namely whether the charitable trust model, with its close governance ties to the Crown and
various organs of government, is flexible enough to enable HRP to compete effectively in the
more commercial markets in which it finds itself. The HRP case suggests that full
privatisation the development and internalisation of the capability to compete in a
commercial context may require rather greater clarity about ownership than has so far
been provided. A final stage of consolidation of commercial attitudes may not be possible
until such clarity is achieved.
The case further throws up various thorny questions relating to the overall motivation for
quasi-privatisation of HRP. Commercialisation may not be suitable for this organisation,
given its cultural importance and the particular challenges it faces in maintaining an
endlessly deteriorating fabric. Some of the options available to the organisation may not be
acceptable to the government or Trustees. It seems unlikely that these precious assets
would be moved into the private sector entirely: their position as national treasures militates
against this option. Multiple owners of the assets also make this unlikely. It is unlikely that it
would be allowed to close its doors, or enter bankruptcy. A return to some level of public
funding as a result of the failure of commercial markets might be seen as a political failure;
greater commercialisation might be seen as a failure to respect and preserve heritage.
In identifying the factors supporting and limiting change, and some of the difficult questions
which follow on from these, the study has provided managers and policy makers with a focus
for their efforts. The issues of ownership and governance are at the heart of further progress
for the organisation, and need to continue to be addressed actively by both groups.
Table III HRP progress through stages of privatisation
Stage Progress and limitations Prediction
Initiation Assets not privatised
Many assets owned by other organisations
Charitable trust model adopted
Unlikely to achieve further progress
Problem solving Many changes introduced with some success:
marketing; financial reform; cultural change
management; empowerment of staff
Stakeholder values remain powerful and
continue to limit introduction of new norms
Consensus-building Chief executives used leadership skills to build
consensus and legitimate new norms
Conflict between entrepreneurial outlook and
stakeholder/regulatory norms hampers
legitimising of new norms
Consolidation Positive outcomes lacking because of poor
trading conditions. Motivation to embrace
change not seen
Unlikely to be complete given financial
challenges and regulatory restrictions in the
longer term
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The model has provided a helpful template for interpreting and explaining the substantial
changes which the organisation and its members are enacting. Further, although largely
intended as descriptive, the model also has some predictive power. It can help policy
makers and managers predict some of the key limitations of the privatisation process of a
particular organisation based on the specific nature of its context and settings. These
organisations are worthy of study, and the model has its uses across the spectrum of change
strategies which are collectively known as privatisations.
The application of the model to a quasi-privatised organisation has highlighted some of the
challenges created by this complex governance form. The model provides a holistic view,
considering influences and processes operating at various levels, and incorporating legal,
technical, temporal and human aspects of major institutional change. This holistic view is
also dynamic, recognising and predicting that over time competitive, resource-based, and
behavioural theories will all play their part.
Limitations and further research
The interviewees in the study were all from the organisation’s upper echelon. Neither the
Board of Trustees nor the voices of the hundreds of other employees are heard, and this may
pose a limitation to the validity of the study. Their views of the past, present and possible
future of the organisation would be valuable.
The study of a single organisation also poses problems in generating or extending theory.
However, when seen alongside the previous studies of Swedish organisations, this study
adds validity to the stage theory. Indeed, the extension to an organisation in the UK
addresses a limitation in the previous study, namely that Sweden is seen as having a more
consensual social model. Theory developed there, it was suggested, might not travel well.
The case of HRP indicates that the privatisation process model developed in Springdal and
Mador (2004) is helpful in understanding the changes that quasi-privatised organisations
incur. However, the case of HRP throws up the question of whether the charitable trust model
adequately provides organisations with the incentive and structure to operate effectively in
commercial markets. Additional examples of trust organisations might help to answer this
question. Cases from other sectors, for instance healthcare and education, might be
valuable. These are contexts where market forces are not as influential as they are in the
tourism industry.
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About the autho rs
Martha Mador is Acting Director, WestFocus Knowledge Exchange. Martha leads the
WestFocus Entrepreneurship Centre for a consortium of seven universities in the London
area. She develops and runs an extensive programme of curricular and extra-curricular
programmes in entrepreneurship for client groups including students, staff and
entrepreneurs external to the university. Her interests in the strategy field are principally in
public sector and hybrid management: decision making, change, and privatisations.
Martha Mador is the corresponding author and can be contacted at: m.mador@
kingston.ac.uk
Kent Springdal is a Senior Lecturer at Kingston Business School. Kent lectures in strategic
management at Kingston University. His main focus of research is the development of
strategy in public sector organisations.
Sarah E.A. Dixon is a Principal Lecturer at Kingston Business School. Sarah has 23 years’
international management experience in a blue chip multinational company. From 2002 she
has been lecturing in strategic management at Kingston Business School, Kingston
University, UK. Her main research interests are organisational transformation and
resource-based theory with a current focus on the privatisation of the Russian oil industry.
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