Real Estate

The strength and drawbacks of loose control

December 5, 2014 | 2 min read

Loose control is often more effective than tight control. Yet, the latter also has drawbacks that encourage conformist behavior.

The trade association of housing corporations, Aedes, has recently published a list revealing that the operations of some housing corporations are three times, and sometimes even five times, as expensive as those of the most inexpensive corporations.

Even when a more nuanced comparison is made, e.g. by comparing housing corporations of the same size, the operating costs remain very divergent.

Experiences with such benchmarks in other nonprofit sectors have taught us that the corporations with high costs will feel pressured to quickly reach the average of the benchmark once this benchmark is made public. Some members of the industry will even strive to stay (well) below the average in order to profile themselves as a 'good housing corporation'.

This public benchmark illustrates the effectiveness of so-called loose control. The benchmark is probably more effective than if the State had stringently pushed towards a lowering of operating costs through laws and regulations while monitoring their compliance. Hence, the era in which the educational system, the housing corporation industry or the health care and welfare systems were controlled centrally by the State is far behind us.

Three forms of control

The nonprofit sectors have since then become subject to a complex and layered control dynamic, which can be typified as a polycentric control: to control multiple public and (semi-)private agents at the macro, meso or micro level, with or without the government. We can improve our understanding of this polycentric control dynamic and its effectiveness by turning to the neo-institutional theory. In the latter, control is considered to be three forms of 'pressure'. First, there is regulatory pressure, which refers not only to legalistic control through laws and regulations, but also rules without a legal status, such as agreements, codes, management agreements, preambles, and policy agreements. Second, there is normative pressure: views and values about what is 'good' and how 'it should be'. Normative pressure can be exerted using protocols, frameworks, guidelines, guides, methodizing in function of best practices, inspections or audits. Third, there is the so-called mimetic pressure, or the pressure to imitate. This pressure to imitate is exerted by benchmarks, rankings, and standards to compare with.

Curbing autonomy

Educational organizations, housing corporations, and hospitals are extremely sensitive namely to normative and mimetic pressures, because legitimation by legislators, the government, and society is critical to the continued existence of nonprofit organizations.

This explains why legalistic control as such will not be more effective than social control in nonprofit sectors. On the contrary, loose control often turns out to be more effective. The drawbacks of loose control reside in its restriction of the autonomy at decentralized levels to make one's own strategic choices and to place emphases, obviously in cooperation and coordination with the local and regional stakeholders.

The benchmark of Aedes encourages corporations to make their operations as cost-effective as possible. How much room does this leave for 'local color'? Must all corporations now achieve the national average of the benchmark? Perhaps, there is presently little support among the stakeholders in Hilversum for the current operating expenses of EUR 1,458 per home of the Dudok Wonen Housing Corporation and it might be possible to still lower these expenses. Yet, the question remains whether those stakeholders would be satisfied at this stage with the concept of quality of R&B Wonen in Borssele, Zeeland. This concept is namely that EUR 345 per home suffices to achieve proper public housing.

Another drawback is that loose control quickly removes differences, variation, and diversity. An enormous normative and mimetic pressure can be created by rewarding sound practices through e.g. prize awards to the 'organization or the professional of the year', combined with information, communications, guides, and protocols for governance, organization, and professional practice in the nonprofit sector. This pressure can be such that no hospital, corporation or school will still dare or feel legitimized to do or organize things differently, let alone try something new that deviates from the prevailing standards and views in the sector.

In other words, loose control can result in conservative and conformist (organizational) behavior. This is something that is not conducive to the desperately needed variation in education, health care, and housing, to say the least.

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