HR Development in Local Government: How does HR strategy matter in

organizational change and development?

Paper prepared for XIV IRSPM Conference

University of Berne, Centre of Competence for Public Management
7-9 April 2010

- Panel track 20: Public Management Education and Training –

Please do not quote without prior permission

Dr. Hans-Jürgen Bruns

Leibniz University of Hannover
Faculty of Business Administration
Königsworther Platz 1
D - 30167 Hannover
Germany

Tel: +49-511-762-5456 / -4560

Fax: +49-511-762-5365
bruns@pua.uni-hannover.de
 2

Human Resource Development in Local Government: How

does HR strategy formation matter in organizational
change and development?
Key words
Organizational change, human resource strategy, case study, resource-based view

INTRODUCTION

Human resource (HR) management has been proposed as one of the core drivers of
modernizing public organisations (e.g. Pollit/Bouckaert 2004, Boyne 2004; Maddock
2002, Rashman/Radnor 2005). For instance, within the Public Management literature
it is a commonly accepted that local governments can potentially improve individual
and organizational performance by strengthening their HR management (e.g. Selden
2009, Carmeli/Schaubroeck 2005). Thus, current strands of research focused the
strategic HR role in the modern public sector (e.g. Truss 2008, Harris 2002) and
discussed the necessity of ‘business partnerships’ to modernize the public sector
(e.g. Teo/Rodwell 2004; Bach/Kessler 2007). Despite such interest in the strategic
HR role only a few studies have explored how and why the relationship between HR
management, organizational strategy and improved performance occurs.

Due to the acknowledged significance of strategic HR management, research has to

reveal more about the link between strategic HR management and organisational
change. One main premise is that the effect is best explained through a strategic
approach, a position consistent with Strategic HR management scholarship. Thus,
developing a resource- and capability-driven perspective gains different insights to
elaborate the strategic HR role and how it is assigned to organizational change in
local government. Given HR and their management as an antecedent capacity to
change, this paper investigates the formation of HR strategies during accounting
change in six German local governments based on a multiple case study design.

The next section exploits the research area and is followed by a critical review of the
relevant literature to focus the concepts of the study. The remaining sections review
the methods and thereafter present the findings. Finally, conceptual implications of
the findings are discussed.
 3

THE STRATEGIC ROLE OF HR MANAGEMENT IN PUBLIC

ORGANIZATIONS

Human resource (HR) management has been proposed as one of the core drivers of
organizational change and development in the public sector and one of the crucial
concepts to improve performance in state and local government (e.g. Pollit/Bouckaert
2004, Boyne 2004; Maddock 2002, Rashman/Radnor 2005). Within the Public
Management literature, it is a commonly accepted that local governments can
potentially derive organizational cost-effectiveness and service improvements from
their stock of human capital. It is also accepted that the distinct value of the human
capital stock strengthens HR management, especially in the fields of HR
development and public service motivation (e.g. Selden 2009, Ingraham 2005,
Carmeli/Schaubroeck 2005).

This proposition can be traced back to competing perspectives on public HR

management and their values. Regularly, the personnel system-approach has been
appreciated positively as ‘model employer” with regard to the dominant values of a
civil service system like functionalism, paternalism, individual rights, and social
equity. Under the recent reform agenda, a “managing people as resources”-approach
replaces the traditional approach by emphasizing employment relationships and
contracting, and creates a public HRM model that refers to shifting conditions in the
public sector, e.g. privatization, partnerships, and public service performance
(Klingner 2009, Brown 2004, Bach/Kessler 2007, Llorens/Battaglio 2010).
Subsequently, modernization proposals focus opportunities to change HR policies
encouraging performance-based rewards or career-based HR development. This
stream of research identifies several consequences for the effectiveness of HR
management, including demands to become more strategic in its roles, and flexible
and responsive in its systems and practices (Pollit/Bouckaert 2004, 74ff., Ingraham
2005, Perry 2010; Lonti/Verma 2003). For example, to gain organizational cost-
effectiveness, local government organizations require specific HR practices to
develop their knowledge base (e.g. in accounting, budgeting) and performance-
based reward systems in order to motivate performance-oriented behaviours. Thus,
the implications of this approach are twofold. First, as Hays and Kearney (2001)
stated, HR systems are experiencing a fundamental change in their operating
 4

practices which represents a new range of opportunities as well as daunting

pressures (e.g. Pollit/Bouckaert 2004, Teo/Rodwell 2007). Additionally, it has to be
considered that HR management is proposed as an antecedent capacity to leverage
the distinctive value of people to opportunities of change in public services (e.g.
Carmeli/Schaubroeck 2005; Brown 2004).

One main premise is the notion that the effect of public HR management is best
explained through a strategic approach, a position consistent with common
perspectives in Strategic HR management scholarship (e.g. Perry 2010, Selden
2009, Garavan 2007). Additionally, this stream of research suggests that extending
the terminology from people to HR management reflects a conceptual reorientation
extending the focus from the person-job fit to competitive value of HR, especially with
references to the resource-based view of strategy (e.g. Snell/Shadur/Wright 2001,
Clardy 2008). Within a common tenet of viewing people as strategic assets for
organizational change and renewal, recent literature focuses on three topics: the
pressure to adopt HR concepts or components similar to business principles, partly
enforced by legal regulations (e.g. Pichault 2007; Truss 2009b; Hays/Kearney 2001),
the opportunity to develop strategic HR roles and effective HR processes (e.g. Harris
2005; 2002; Truss 2008; 2009b), both coupled with a discussion how the
modernization of HR policies and practices contributes to managing change (e.g.
Currie/Procter 1998, Brown 2004) and performance in public organizations (e.g.
Teo/Rodwell 2007; Bach/Kessler 2007).

Despite such interest only a few studies have explored how and why the relationship
between HR management, organizational strategy and performance occurs.
While much of the prescriptive literature has advocated the strategic role of HR
management (e.g. Truss 2009a, Ulrich 1998), empirical evidence concerning the
degree of implementation or effectiveness in local governments suggests a more
complex and partly contradictory nature of HRM-based reforms. For example, the
role enacted by HR departments is usually described as administrative or reactive
and constrained by lack of resources and minor integration in organizational
decision-making (e.g. Jaconelli/Sheffield 2000, Harris 2005, Truss 2008, Auluck
2006). In the case of becoming more strategic, e.g. by decentralizing and transferring
HR activities to line management, HR departments are partly valued given their
 5

professionalism and operational involvement (e.g. Teo/Rodwell 2007, Truss 2008).

But, surprisingly, the recommended involvement of senior HR managers in strategic
activities does not seem to have any impact on the level of influence or strategic
integration (e.g. Teo/Rodwell 2007).

Furthermore, the studies commonly suggest that the counterpart, e.g. chief
executives or senior line managers responsible for local public services, represents
the business role putting pressure on HR becoming more proactive. But why could
one expect that the so-called business level activities are inherently strategic and co-
evolve, i.e. that they adopt common HR policies or practices on behalf of an
organizational strategy (Clardy 2008, Truss/Gill 2009). As some of the studies show,
we need to account for two related subjects: first, for the multiplicity of perceptions
about how to build a strategic HR management in public organizations (Teo/Rodwell
2007, 277, Pichault 2007); and second, for relational issues concerning how a
strategically positioned HR management is linked into organizing change in local
governments (Truss/Gill 2009, Wright/Dunford/Snell 2001, Clardy 2008). Thus, one
critical constraint seems to be the capacity to assimilate or align HR policies and
practices at both sides of the strategic coin - not at all adopting or copying best
practices to modernize public HR systems (Clardy 2008; Pichault 2007; Teo/Rodwell
2007). Even if the strategic HR role is identified, core aspects remain uncertain
because of the processes by which a strategically positioned HR management is put
into its organizational effects, for example enabling radical changes associated with
the modernization of public service organizations (Pichault 2007; McNulty/Ferlie
2004; Greenwood/Hinings 1996).

Due to the acknowledged significance of HR management under New Public

Management, research has to reveal more about HR strategy and its impact on
managing organizational change and development in local government. The concept
itself refers to the process by which an organization develops and deploys its human
resources to enhance organizational effectiveness. Strategic HRM scholars (e.g.,
Snell/Shadur/Wright 2001, Wright/Dunford/Snell 2001; Chadwick/Dabu 2009, Boxall
1996) emphasize the distinctive value of HR development to gain organizational
advantages and the idiosyncratic nature of strategizing on resources and
organizational capabilities. Because of the key role of HR to improve organizational
 6

capabilities, the link between strategy and HR development has been identified as
one critical capacity to gain sustainability in organizational effectiveness (Luoma
2000; Clardy 2008; Snell/Shadur/Wright 2001). Although public management
scholars suggest that HR management is a guiding force behind change and
innovation in public service renewal (e.g. Brown 2004, Maddock 2002, Boyne 2003),
a resource- and capability-driven perspective extends this contingent approach and
displays how the process of HR strategy formation in organizational change and
development evolve. Thus, we can expect that a resource- and capability-driven
perspective gains different insights to carefully elaborate the question why some local
authorities fail to become more strategic in their HR management, whereas others
are more successful as agents of organizational change.

The study refers to a multiple case study in German local government. From 2001 to
2005 the formation of HR strategies was observed in 6 municipalities. In this paper
empirical data will be presented that allows insights into the process of HR strategy
formation. It further addresses how this facilitates organizational change and
development with regard to the implementation of accrual accounting. In Germany,
policy programs to change the cash-based accounting system have shifted
significantly (Reichard 2003, Budäus/Behm/Adam 2003). First, at the state level the
enactment of new budget laws enforced local authorities (counties, municipalities) to
modernize their accrual accounting. Second, at organizational level new forms of
financial and managerial accounting were recommended to increase efficiency and
accountability in public services. Therefore, accrual accounting reforms could be
regarded as a distinct change to extend or reinvent accounting knowledge and to
adjust control and responsibility for public service performance.

THEORETICAL BACKGROUND: ORGANIZATIONAL CHANGE, HR

DEVELOPMENT, AND STRATEGY FORMATION

The concepts of strategy, respectively strategy formation, HR management and HR

development are well-established in their research fields, and also in NPM research
(e.g. Ferlie/Lynn/Pollit 2005, Ingraham 2005, Bach/Kessler 2007, Selden 2009).
Nevertheless, recent reviews mostly classify them as somewhat ambiguous and
complex (e.g. Sminia 2009, Garavan 2007, Clardy 2008, Snell/Shadur/Wright 2001;
 7

Lengnick-Hall et al. 2009, Boxall/Purcell/Wright 2007), especially because of

conceptual evolutions of ideas, constructs and paradigms or approaches within the
fields. Reviewing the field of HR strategy, Snell et al. (2001) identified the evolution of
three paradigms guiding research issues, named as person-job fit, systematic fit, and
competitive potential. With the premise that strategy formation is a process, Sminia
(2009) distinguishes between three types of process research, named as tracking
strategy (the Mintzberg-approach), contextualism (the Pettigrew-approach), and
Minnesota studies (the Van de Ven-Approach). Garavan (2007) synthesizes a
contextual and dynamic framework describing Strategic HR development (SHRD).
His review differentiates traditional, transactional, and transformational SHRD
activities that fit to specific domains of organizational development, such as
performance, learning and change. In general, Lengnick-Hall et al (2009) and others
(e.g. Delery/Doty 1994) show the richness of themes reflecting strategic SHRM
research, but they also categorize competing frameworks within this strand of
research, marked as universal, contingency, configurational, and contextual
approaches.

Within this heterogeneity, the application of a resource- and capability-driven

approach suggests that research should focus on the process by which managing
people creates a strategic contribution to achieve organizational goals (e.g.
Lengnick-Hall et al 2009, Way/Johnson 2005; Wright/Dunford/Snell 2001).
Additionally, Chadwick/Dabu (2009) proposed a rent-based view to distinguish
contributions of HR to organizational outcomes, and their implications for rent-
seeking behaviour related to HRM activities. Thus, a resource- and capability-driven
approach differs to what has been done so far, especially testing the applicability of
discrete HR practices in different organizational settings (a universal, variance-driven
approach) or valuing the effect of HR policies and practices as a set of factors
moderating the performance equation (a contingency, cause-and-effect approach) .
As Sminia (2009, 100) and others (e.g. Langley 1999, Pettigrew/Woodman/Cameron
2001) argue, one specific feature of this type of research is that the unit of analysis is
taken to change in content and/or shape over time. This is essential to understand
and explain how and why the intended outcome of any strategy formation process
was realized (Mintzberg 1978). Thereby, a resource- and capability-driven approach
shifts the framework towards:
 8

• the context of distinct organizational settings (e.g. public, non-profit, private

organisations, Moore 2000),
• the role of strategy-based HR Management (e.g., the notion of horizontal and
vertical fit in HRM scholarship, Lengnick-Hall et al 2009, Way/Johnson 2005), and
• how strategic outcomes depend on HR development, e.g. explaining processes of
reconfiguring organizational capabilities (Lengnick-Hall et al 2009;
Snell/Shadur/Wright 2001; Pichault 2007).

With regard to strategic HR development such a process approach refers to a multi-

level and temporal analysis of HR development and its long-term organizational
effects (Garavan 2007, Hitt et al. 2007). It is important to note, that a resource-based
view proposes that competences (knowledge, skills, and abilities) as well as
behaviour control and coordination represent important sources of organizational
outcomes (e.g. Wright/Snell 1991, Wright/McMahan/McWilliams 1994, Gratton 1999).
The distinctive value of HR and the relevance of HR management may be
understood by considering their idiosyncratic relationships to strategy and change in
commercial as well as in local public services (Carmeli/Schaubroeck 2005).

From this point of view, public HR management practices are capable to leverage a
particular stock of human capital by developing or streamlining it in ways that are
uniquely matched to the particular organizational strategy. Thus, the concept of
leveraging refers to attributes of the HR capital that mutually reinforce the design of
organisational capabilities to deliver public services. Given a strong HR capital stock,
public organizations must effectively leverage it against the design and strategic
orientation of its services. Thus, the process of leveraging enfolds idiosyncratically
because of its strategic logic and time-consuming nature. The Public Management
reform agenda prompts such forms of modernization which include a significant shift
in the discretion of HR management, especially to support demands for public
service improvement. Within this context, a conceptual emphasis on HR
management, strategy formation and their relationship to organizational change in
public services reflect the empirical evidence in the domain of local government.
Thus, we have to critically review the literature to differentiate related concepts of
organizational change, strategic HR management, and their applicability in the field
of public management.
 9

Organizational change and development: Empirical research that seeks to

understand how HR management relates to organizational change and development
in public service organisations needs to be guided by a concept that theorizes the
scale, pace and sequencing of change and development in public organizations
(Osborne/Brown 2005; McNulty/Ferlie 2004; Pettigrew/Woodman/Cameron 2001).

Regularly this is termed as the contextualist analyses that is directed to investigate

how exogenous as well as endogenous forces shape and are shaped by the
character of change processes. Within research on strategy formation, the concepts
of path dependency, dynamic capabilities and strategic logic reflect this iteration (e.g.
Teece/Pisano/Shuen 1997; Eisenhardt/Martin 2000; Bingham/Eisenhardt 2008).
Tushman and Romanelli’s (1985) seminal concept for assessing organizational
change is associated with the distinction of incremental versus transformational
phases or templates of organizational change. Greenwood and Hinings (1996) use
the concept of archetypes to differentiate how and why organizational change
evolves. While evolutionary change occurs gradually within a dominant archetype,
defined as a configuration of structures and systems of organizing within a common
strategic orientation, revolutionary change happens rapidly and affects all parts of the
organization simultaneously. Thus, the degree of change is associated with a
sufficient enabling capacity for action combined with either a reformative or
competitive pattern of value commitments and moderated by power dependencies.
Additionally, the concept of co-evolution is concerned with both the macro- and
micro-level of analysing strategy formation (e.g. Burgelman 2002, Bower/Doz/Gilbert
2005). It reflects contextual dependencies or the embeddedness of organizational
processes as well as strategic choices that constitute mutual evolutionary
relationships (e.g. Levin/Volberda 1999, Helfat/Raubitschek 2000).

Out of the several reasons why organizations might resist organizational change, are
two essential ones: structural inertia (Hannan/Freeman 1984, 1977) and
organizational rigidities (Leonard-Barton 1992, Gilbert 2005). Hannan/Freeman
(1984) point out that structural inertia relates to sunk costs of resource investments,
the dynamics of political coalitions and the tendency of precedents to become
normative standards. In particular, those structures have high inertia when the rate of
 10

building new organizational forms is much lower than the relative rate at which
environmental conditions change (Hannan/Freeman 1984, 151). More specifically
and with regard to capability reconfiguration, Lavie (2006) distinguished substitution,
evolution, and transformation as mechanisms that link benefits and risks of
technological resource investments to attributes of organizational capabilities.
Leonard-Barton (1992) explores the managerial paradox associated with
organizational inertia. Building new organizational forms relates to discrediting the
managerial systems traditionally favoured to gain organizational advantages, and
managing both inhibits the degree of organizational change (Benner/Tushman 2003,
March 1991). Untangling this paradox Gilbert (2005) distinguishes the structure of
inertia into distinct categories. Resource rigidity refers to the failure to make resource
investments; whereas, routine rigidity refers to the failure to perform processes and
procedures that use those resource investments.

Recent studies on HRM-based reforms and radical change in public organisations

substantiate why contextualist (e.g. McNulty/Ferlie 2004, Pichault 2007; Osborne
1998, Erakovic 2006) and co-evolutionary perspectives (e.g. Paauwe/Boselie 2005,
Truss 2009b) are helpful for considering how and why the HR management itself and
the comprehensive organizational settings evolve over time. Referring to
organisational change in public services, Osborne’s study on UK local public services
(1998, Osborne/Brown 2005) identifies change in providing public services (an
internal, efficiency-oriented concept) and change in addressing client needs (an
external, effectiveness-oriented concept) as distinct dimensions of public service
improvement. Thus, the study underscores the relevance of differentiating the degree
of discontinuity in modernizing public services. It also distinguishes four modes of
organizational change, named developmental, evolutionary, expansionary, and total
innovation. In their study of a UK National Health Service hospital McNulty/Ferlie
(2004) develop further findings about sedimented rather than radical change. They
emphasize both professional control and stable managerial alliances as critical
factors influencing opportunities of radical organizational change in professional
public services. Similarly, Truss’ (2008, 2009b) studies on the change of HR
functional forms in UK public organisations suggest that the specific role played out
by one (HR-)function is better be explained by a combination of isomorphic factors
alongside with strategic choice, social capital and the enabling setting of co-
 11

evolutionary forces. Thus, the enactment of strategic HR choices and the temporal
dimension are critical to understand why unique HR functional roles evolve in public
organisations. Based on their comparative studies on US State and Local
Government management systems, Kneedler Donahue/Selden/Ingraham (2000;
Ingraham/Kneedler Donahue 2000a, 2000b; Ingraham 2007) emphasize the concept
of managerial capacity of public authorities to deal with their ability to develop, direct,
and control resources effectively in pursuit of public service performance.

HR development: The term HR development has got different meanings in

contemporary literature. Luoma (2000) as well as others (Clardy 2008, Garavan
2007) differentiate the planned procedures through which an organization’s HR
capital grows, the certain HRD function among others in the organization, or the
outcomes of HRD procedures, that is developing employee skills and knowledge.

However, from a resource-based view SHRM scholars depict a somewhat different

framework (e.g. Wright/Dunford/Snell 2001, Wright/McMahan/McWilliams 1994,
Wright/Snell 1998, Bowen/Ostroff 2004). This strand of research recognizes that
organizational outcomes can only be achieved if the members of the HR capital pool
individually and collectively choose to engage in behaviour that benefits the
organization. First, HR capital is seen as the carrier of knowledge, attitudes or
behaviours necessary to maintain an organizational strategy, not its outcomes.
Second, the organizational and social structures of HR behaviour make up the
distinctive capabilities of the organization. Thus, the term knowledge refers to
individual HR capital, but also to organizational knowledge shared within groups or
networks (i.e., social capital) or institutionalized within organizational processes or
routines (organizational capital) (e.g. Snell/Shadur/Wright 2001). Therefore, strategic
HR development is characterized by assessing the stock of HR capital as well as
value-creating knowledge flows related to functional or operational capabilities
necessary to carry out an organizational strategy (e.g. Dierickx/Cool 1989;
Carmeli/Schaubroeck 2005 ; Chadwick/Dabu 2009). This macro level approach
stresses two conceptual implications. As Wright/Snell (1991, 215) point out, HR
development refers to organizational level outputs, as there are acquiring or
leveraging resources to capabilities that an organization needs to survive, and means
necessary to control such changes in organizational capabilities. Further, if
 12

organizational change is suggested, HR development relates to patterns of strategic

HR policies, such as resource development or behavioural control, rather than to
simply set out some sub-functional activities, such as staffing, training or rewards
(Wright/Dunford/Snell 2001, 715). More specifically, Gratton et al. (1999, Gratton
1999) categorize transformational- and performance-related clusters of HR-
processes which serve to link strategic aims to individual and to organizational
performance by bundling different HRM systems in specific ways.

With regard to this macro approach, Bowen/Ostroff (2004) extend a process-oriented

framework to examine how such patterns come into effect. That is how the HRM
process contributes to organizational performance by motivating employees to adopt
desired behaviours. They introduce the concept of “strength of the HRM system” to
propose that the distinctiveness, consistency, and consensus of an HRM system
derives as a linking mechanism that maintains as well as creates shared perceptions
among employees. Similarly, Gratton et al (1999; Gratton/Truss 2003) have argued if
employees as well as managers perceive a complimentary, non-ambiguous strategic
HR policy about what is expected of them, they are able to value appropriate
behaviours. This study supports a criteria-based assessment that adds the
action/inaction dimension to investigate the degree to which HR systems are enacted
and put into practice. Thereby, it is suggested that strong HR policies might be
inflexible and resistant to change issues (e.g. Leonard-Barton 1992). They may also
disperse, for example in organizations pursuing multiple and sedimented strategic
objectives such as professional public service organisations (e.g. McNulty/Ferlie
2004).

Within the HRM-organizational performance linkage, the concept delineates the

mediating role of the “strength” of the HRM systems to leverage HR capital as well as
to control for the required employee behaviours. Additionally and with regard to
modernizing the civil service system, we have to charge for change issues related to
the HRM system itself (e.g. Perry 2010; Llorens/Battaglio 2010). The re-alignment of
the HRM system represents the degree to which a new procedural logic is enacted
and applied to its current practices (Gratton/Truss 2003). Thus, devaluation of an
established HRM system is part of the problem. Using a 2x2 matrix, defined in terms
of (1) the strength of the well-established personnel system, and (2) the degree of
 13

strength of HRM-based reforms, four potential situations can be distinguished.

Despite the proposed effect related to consistent signals through the HRM system
(Bowen/Ostroff 2004, Gratton/Truss 2003), we have to consider the risk of ambiguity
in strategic HR policies, and its crucial effect on coping with transformational
situations in public organisations.

HR strategy: The creation of linkage or integration between strategic aims, HRM

systems and organizational performance is the cornerstone of strategic HRM
research (Gratton et al. 1999). In their seminal paper Wright/McMahan (1992, 298)
term HR strategy as the pattern of planned HR deployments and activities intended
to enable an organization to achieve its goals. With regard to these patterns of HR
strategy, this approach distinguished two sets of strategic alignment:
• strategic contingencies or circumstances and the vertical linkage (or external
alignment) between organizational goals and individual objectives, and
• the horizontal linkage (or internal alignment) to ensure coherence among bundles
of HRM practices, e.g. high-commitment or high-performance work systems (e.g.
Way/Johnson 2005; Snell/Shadur/Wright 2001, Lengnick-Hall et al 2009,
Gratton/Truss 2003).

The proposed dimensions of strategic alignment associated with a resource- and

capability-based view of strategy stress the importance of their adjustment to
organizational changes, and how this effect enfolds. As Tyson (1997) point it out, the
concept of HR strategy may be interpreted either in terms of organizational aims, the
variety of HR policies or systems and partly their successful implementation (e.g.
Gratton/Truss 2003; Khilji/Wang 2006), or as an intra-organisational process of
decision-making, leadership and managing by which HR policies or actions are
negotiated and combined to pursue organizational aims. Thus, the concept refers to
a constellation of forces, e.g. factors, mechanisms, their relationships and co-
evolution, that enable or constraint HR strategy formulation and implementation
leading to a unique outcome over time, e.g. either a strong or weak strategic HR
policy more or less aligned to organizational strategy and capability development
(Hendry/Pettigrew 1992, Luoma 2000, Clardy 2008, Trsuss 2009b).
 14

Within the different approaches to adjust the link between organizational strategy and
HR development, respectively the distinct logic of strategic alignment (e.g.
Gratton/Truss 2003; Clardy 2008, Bingham/Eisenhardt 2008), Luoma (2000)
differentiates three modes of strategic alignment. The needs-driven HRD relates to a
skill-performance gap, and the opportunity-driven HRD refers to employee
development and growth. The capability-driven HRD highlights both the
enhancement of HR capital, for example by a coherent and strong training system,
and the appropriateness of HR development to the organizational setting as an
enabling mechanism of capability development (Hendry/Pettigrew 1992). It is
important to note, that the proposed figure not only creates distinct HRD-approaches
but also suggests the opportunity to value each strategic approach differently. Thus,
as Clardy (2008) argues, an organization’s HRD strategy has to be profiled in terms
of the extent to which it refers to specific features, e.g. its tasks, resources, HR
systems, and performance criteria (Luoma 2000, 783). While the first two ones are
well-established approaches, Clardy (2008) and others (Wright/Dunford/Snell 2001,
Clardy 2008, Chadwick/Dabu 2009) extend the capability-driven approach and
distinguish specific HRD activities related to the valuation of HR capital and (re-
)configuration of organizational capabilities.

Referring to strategic HR development processes, we are concerned with the

services, roles, and contributions that organizational members like senior and line
managers or HR executives undertake in the course of strategic alignment and how
they enact HR policies and their effectiveness (Tyson 1997, Wright/Dunford/Snell
2001, Truss 2001). With regard to this issue, the literature commonly refers to the
multiple-constituency of HR functional roles, thereby addressing the different status
and departmental power of HR departments (e.g. Teo/Rodwell 2007, Farndale/Hope-
Hailey 2009). This stream of research distinguishes strategic HR roles, associated
with the usual degree of involvement in organizational decision-making, as well as
administrative HR roles, associated with the degree of professionalism in executing
HR policies (e.g. Ulrich 1998, Truss 2008, 2009b). Related to the proposed effort to
be more strategic in public HRM, Truss (2008, 2009b) and others (e.g. Pichault 2007,
Teo/Rodwell 2007, Truss 2001) highlight the complex nature of HRM-based reforms,
and suggest that issues to become more strategic do not replace functional
professionalism and operational involvement in line management activities.
 15

Nevertheless, Truss and Gill (2009) argue, that managing the HR functions
strategically relates to structural and social relationships that emerge from its
operational as well as from strategic involvement. Thus, a strategic HR role
incorporates a specific form of social capital (and departmental power) as source to
cope with issues of HR strategy formation (Tsai 2000; Adler/Kwon 2002,
Farndale/Hope-Hailey 2009).

Additionally, and partly distinct from this approach, a resource- and capability-based
view of strategy emphasises the antecedent organizational and strategic routines by
which public organizations cope with capability development (Eisenhardt/Martin
2000, Ridder/Bruns/Spier 2005; Pablo et al. 2007). Thus, even understanding that
structural and social relationships are a source of HR development, public
organisations must still recognize that the temporal and sequential order to couple
HR assessment and capability development is a critical antecedent to gain
organizational benefits (e.g. Teece/Pisano/Shuen 1997, Eisenhardt/Martin 2000).

More specifically, this strand of research identifies different effects with regard to the
patterns of resource allocation through which the organization purposefully creates or
modifies its organizational capabilities (e.g. Helfat et al. 2007, Bower/Doz/Gilbert
2005).The literature regularly distinguishes induced and autonomous strategic
activities (e.g. Burgelman 2002, Bower/Doz/Gilbert 2005) as well as integration and
learning modes of how capability development occurs (e.g. March 1991, Zollo/Winter
2002, Benner/Tushman 2003). Public management literature somewhat refers to this
assumption (e.g. Pablo et al. 2007, Bryson/Ackermann/Eden 2007). Several studies
highlight the relevance of management and leadership behaviour as contingent
factors of strategy formation, and, thereby, reflect a particular order of change and
related patterns of resource allocation (e.g. Jones 2002, Stewart/Kringas 2003).
Partly, the nature of leading change is emphasized to consider the pluralistic setting
of collective leadership in public organizations, especially related to the distribution of
professional knowledge and autonomy (Denis/Lamothe/Langley 2001;
Denis/Langley/Rouleau 2005), and how public organisations induce plans and formal
structures in order to strategize on resource allocation and change (Gioia/Thomas
1996, Gioia et al. 1994). Moreover, research on public organizational change has to
consider the emergent effects evolving from autonomous strategic leadership and
 16

organisational learning (e.g. Burgelman 2002, 16, March 1991). Thus, the concept of
institutions to change reflects issues that frame HR strategy formation in public
organisations, usefully characterized as the distribution of strategic leadership roles,
and the antecedent routines to create strategic alignment by knowledge integration
as well as learning procedures.

METHODS

The present study investigates the link between strategic HR management,

organizational change and performance in public organisations. Despite increasing
interest in this topic, there is a gap in the public management literature in identifying
how HR management, e.g. its policies, strategies, actors as well as the underlying
HRM systems – contributes to organizational change and development. Thus, the
study addresses how the formation of HR strategies evolves in managing
organizational change in local governments. As proposed, the concept HR strategy
formation refers to the process by which an organization develops and deploys its
human resources to enhance organizational effectiveness. This is partly different to
the concept of strategy formulation (or policy making in the public sector) that is how
an organization intends or plans to develop its resources to an organizational end
(Mintzberg 1978). Therefore, the data analysis takes a fine-grained look at the
antecedents of HR development in local government and investigates why some
local authorities are successful as agents of organizational change whereas others
fail to be become more strategic in their HR management.

The purpose of the study can best be described as theory elaboration in which the
research design is driven by pre-existing conceptual ideas on strategic HR
management, especially from a resource- and capability-driven perspective, and
aims to identify relationships and generative mechanisms of strategic change in local
government previously not addressed in the literature (e.g. Lee/Mitchell/Sablynski
1999, Sminia 2009). Following Eisenhardt (1989), the research design is partly
deductive and partly inductive which allows gaining insights from the data without
denying concepts that have been useful previously (e.g. Sminia 2009).
 17

Research design and setting

This study used a multiple-case research design (Eisenhardt 1989, Yin 2003;
Lee/Mitchell/Sablynski 1999). Multiple cases support a replication logic to investigate
processes of organizational change and strategy formation in HR development in six
municipalities in Germany. The primary unit of analysis covered the patterns of HR
development in municipalities related to a new budget law that enforced local
authorities (counties, municipalities) to accounting change. The embedded unit dealt
with the particular managerial capacity to deal with HR related issues of this
organizational change, e.g. the distributed leadership roles as well as the managerial
and organizational routines to configure the implementation process at different
organizational levels (top/level, financial/HR department). The analysis was carried
out using a temporal bracketing strategy (Langley 1999, Denis/Lamothe/Langley
2001) decomposing the chronological data into three periods of time that become
comparative units of analysis within the cases.

Table 1 describes the six municipalities and the implementation projects that were
studied. The six research sites were part of an interorganizational project for
developing a new budget law to introduce accrual accounting in the state of North
Rhine-Westphalia (Germany). Starting in 1999, the ministry of the interior decided to
launch a project in cooperation with six municipalities. The aim of this project was to
develop a concept of ‘New Local Financial Management’ (NKF) according to the
needs of local government in North Rhine-Westphalia. The municipalities started to
implement NKF from 2001 to 2003 and improved the concept until 2005. All
municipalities intended to implement NKF in the entire organization. However, only
one case (case F, the smallest municipality) planned to implement NKF
simultaneously in every office (realized 2003); whereas, all other municipalities
planned to implement NKF in three (or more) waves, e.g. time schedules ranged
from 2006 (case A), 2008 (case D, C) up to 2009 (case B). The new budget law
came into force in 2005. As of that date, every municipality in North Rhine-
Westphalia had to introduce NKF by 2009. At the organizational level, the temporal
bracketing strategy was used to differentiate the frontiers of three time periods: the
initiation period, the developmental period, and the implementation period. The
frontier between the initiation (beginning 1999, or by reform history depending on the
case) and the developmental period was assigned by starting the first wave of
 18

accounting change (time period starting 2001 or later; depending on the case),
whereas the frontier between the developmental and implementation period was
assigned by implementing accounting procedures across all organizational units
(time period starting 2003 or later; depending on the case).

For the purpose of this study this sample satisfied important criteria for a multiple-
case design (Yin 2003, 46ff.). First, within the common context of a new budget law
the research sides are comparable with regard to their specific aims and resource
investments related to accounting change. All the sites are well-known with respect
to their modernization approach; and this generally matched the research questions.
Within the research setting, there are no municipalities which deny accounting
change, or solely react on the legal pressure. Second, with regard to the replication
logic, the research sides represented important differences in size, financial
resources, organizational structure; and reform history as the participation of
municipalities was driven by the intention to cover their various types in North Rhine-
Westphalia. The multiple-case design supports the inquiry focusing on how local
authorities develop their HR and organizational capabilities to adapt to accounting
change, and the desire to match subgroups of embedded change processes to
investigate why municipalities are more or less different in dealing with their
opportunities to leverage HR development to accounting change issues.

Case Inhabitants Annual gross Number of Experience in Conversion to NKF

(in thous. in budget (mill. € in offices/pilot NPM***)
2003)* 2003)* offices
A 590 1,439 27 - 7 Extensive 01.01.2006
B 573 2,973 35 - 7 Extensive 01.01.2009
C 270 631 37 - 5 Less extensive 01.01.2008
D 108 219 30 - 3 Minor 01.01.2008
E 44 59 13 - 5 Minor 01.01.2005
F 21 27 9 - 6**) Minor 01.01.2003

Table 1: Description of the case studies

*) Source: Landesdatenbank Nordrhein-Westfalen. (http://www.lds.nrw.de)
**) Restructuring and complete conversion to NKF
***) Criteria-based assessment of local reform experiences related to stated elements of the ‘German’
model of public management reform called ‘Neues Steuerungsmodell – NSM’ (Reichard 2003)
 19

Data sources
The case studies involve data sources collected at two different points, including
semi-structured interviews and documents. The data-sourcing was organized in three
sections. First, in order to identify the reform history and idiosyncrasies of
modernizing local governments within the municipalities, initial interviews were
conducted at the end of the initiation period (2001) with project managers (n=6)
responsible for the implementation process about how they perceive and organize
the implementation of accrual accounting. Addressing change management in
modernizing public financial management, a semi-structured questionnaire was
developed to gain more insights about the main concepts which derive from the
literature. Second, 4 to 9 semi-structured interviews were conducted in each case
which typically lasted from 60 to 120 minutes. The interviews included respondents
from top management, financial management, human resource management, and in
particular those managers responsible for the implementation process. Third, at the
frontier of developmental and implementation period the same set of interviews were
conducted to capture the emergence of HR strategy formation. In all cases multiple
informants, internal documents, and public documents were used to obtain different
perspectives and to ensure for the validity of the data. All of the interviews were
taped, transcribed and coded with a software program for qualitative data analysis.

Data Analysis
Prior research has suggested that the model of personnel administration limits the
opportunities to introduce New Public Management and therefore, a shift to public
HR management should enhance the implementation of accrual accounting. The
investigation of this relationship was informed by concepts summarized in table 2.
Following Langley (1999), the analysis was guided by a temporal bracketing strategy
to decompose the time scale of accounting change into three successive periods: the
initiation period, the developmental period, and the implementation period. Further, a
visual mapping strategy was used to investigate how HR strategy formation occurs in
each period, and to identify those forces and mechanisms that enable or restrict HR
strategy formation. Hereby, I used the concepts from the literature and developed
sub categories by identifying recurring themes within these periods. The data set
allowed me to compare particular features of HR strategy formation across the cases
 20

and to examine how strategizing, managing change, and strategic HR issues evolved
in each period. I used the embedded design to corroborate findings at different levels
of management (top/middle) and divergent organizational areas (financial
department, HR department and operational units). Furthermore, temporal bracketing
and the embedded design opened the opportunity to investigate the antecedents to
HR development, especially focusing on distributed leadership roles and routines
contributing to strategic alignment across the periods. Drawing initially from the
viewpoints espoused by my informants, I developed a set of factors and their
relationships and investigated whether these findings emerged at subsequent sites
and over time, using sets in which matched-pair cases were applicable (Eisenhardt
1989, Yin 2003). The analysis was assisted by categorizing municipalities according
to the concepts, by identifying similarities as well as differences between the pairs,
and by using flow charts to describe events and sequences related to the formation
of HR strategies (Eisenhardt 1989, 544, Miles/Huberman 1994).

ANALYSIS OF DATA

Organizational change and development: Modernization agenda and

patterns of resource investments as contextual features
Since 1999, public policy programs to change the cash-based accounting system in
German local governments have shifted significantly. The enactment of new budget
laws enforced local authorities (counties, municipalities) to shift their cash-based
systems to the financial world of double-entry bookkeeping and accrual accounting,
frequently related to cost calculation, budget balancing, and performance
measurement (e.g. Budäus/Behm/Adam 2003, Reichard/Bals 2002, Pollit/Bouckaert
2004). Thus, it is important to note that – at institutional level - the introduction of new
budget laws marks a significant shift from a more voluntary and incremental process
to the coercive power of legal regulation. The institutional shift initiates - at
organizational level - a new and different phase of modernizing financial and
managerial accounting in German Local Governments (e.g. Reichard 2003).

Referring to organizational level the implementation of a new budget law could be

regarded as a distinct and radical change inevitably associated with specific issues of
HR development. Thus, two contextual characteristics have to be considered:
 21

• First, local governments face the legal pressure to restructure their formal rules and
procedures of financial decision-making, and have to invest in the applicability of
their prevailing resources. Therefore, investing in HR development by recruiting or
training programs remains one part in a portfolio of resource investments, e.g.
technological resources, or restructuring organizational systems.
• Second, the legal reframing adjusts the pressure to modernize local public financial
management because it enhances the comprehensiveness and complexity of
implementation. In spite of European reform trends so far (e.g. Lüder/Jones 2003),
the new legal framework comprises core elements of a new budgeting and
accounting system, but varies in how extensively the modernization of the local
public financial management should take place. With reference to principles of
double-entry book-keeping the opportunities range from accrual accounting with
extended cost calculation to a modernization approach which serves accrual output-
based budgeting and performance auditing in public services (e.g.
Budäus/Behm/Adam 2003, 344-66; Rubin/Kelly 2005; Carlin/Guthrie 2003).

Clearly, the analysis showed that local governments account for the legal pressure
as well as for their opportunities, therefore, resource investments do not exclusively
draw on legal threats imposed by the new budget law. But similarly, the value and
strategic direction of accounting change depends on their path of modernization and
organizational renewal. Thus, the following section outlines contextual features to
explore and differentiate how HR management relates to the scale, pace and
sequencing of accounting change at the local level. The main findings are
summarized in table 3 and discussed below.

First of all, the findings suggested that context issues (e.g. organizational size,
financial pressure) and reform history matter, but directing and managing change as
well. For example, organizational size is most importantly related to the initiation
period of reform activities, but to a lesser extent to modernization issues. The group
of large municipalities (case A, B, C) initiated reform activities partly earlier and more
comprehensive than the small and middle-sized municipalities. But, the group of
large municipalities (case A, B, C) did not pursue a common modernization agenda
just like the group of the small- and middle-size municipalities (cases D, E, F). Case
A, one of the largest cities in its area, similar to case F, a very small and remote
 22

municipality, targeted a more radical and total approach to modernize public

management, governance and service delivery. For instance, in case F the transition
from cash-based to accrual accounting (2003) is followed by activities to reorganize
and reduce public service departments as well as political committees (2003), and to
restructure the financial accounting department (2005). The Chief Financial Officer
stated it as: “The ‘NKF’ is a valuable source of development helping us to step
forward in our management capacity”. In case A the comprehensive modernization
process started in 1993, including the internal decentralization of public service
responsibilities (1997) and the implementation of cost accounting (1998) followed by
input-oriented budgeting and contracting (1999-2000). Thus, the transition to accrual
accounting was seen as an essential part of the strategic logic underpinning the
process of modernizing public services, as the project manager (case A) revealed:
“We have the objective to become a service and efficiency oriented public
administration, and NKF offers the chance to fulfil these aims”.

Second, the availability of financial means is commonly valued as a critical source of

modernizing local government. Within the research setting, the group of
municipalities which is confronted with ongoing financial pressure consisted of a
smaller, a middle-size, and a larger municipality (case A, D; F) whereas in one case
financial pressure increased in the developmental period (case C). However, the
cases suggested that financial pressures are important (case C, D). But again, tight
budgets did not necessarily narrow strategic choices to an incremental or more
fragmented approach to implement accrual accounting (case A, F). The first state is
observed in case C. Within the developmental period, the scheduled implementation
failed due to its financial requirements and an unbalanced budget situation.
Revealing the scope of resource investments needed to implement accrual
accounting, the city council denied the estimated budgets claimed by the project
management (2003). Thus, the political rejection necessitated decisions to redirect
the aims of accrual accounting formulated in the developmental period and to
reorganize the responsibilities for the implementation period (from 2005). But, as the
cases mentioned above had illustrated (case A, F), pursuing a more radical agenda
to modernize public management is not inevitably ruled out in periods of increasing
financial pressure or budget restriction.
 23

A third observation related to reform history and resource dependencies. Large as

well as small- and medium-sized municipalities disposed of different experiences with
the application of managerial accounting, especially in fields like cost calculation, or
budgeting. The cases demonstrated that idiosyncratic capabilities in public financial
management affected the implementation of accrual accounting. This state is
differently observed in two pair of cases: the small- and middle-size cases (a) and the
large municipalities (b).

(a) The small- and middle-size cases illustrated the obsolescence of former resource
investments and the risk of resource dependencies. Partly not disposing financial
capabilities, these municipalities estimated (in the initiation phase) or experienced (in
the developmental phase) the necessity of making extensive resource investments.
Referring to technological change and the outdated cameralistic applications, to draw
on well-established cooperations with data-processing providers was a common
solution to improve technological resources (case D, E, F). But, cooperation projects
decreased gradually because of their limited capacity to develop competitive
technological solutions. Subsequently, technology gaps occurred within the
developmental period by increasing costs, variety in time frames, and heterogeneity
in education and training. Note that increasing threats of resource dependencies
forced strategic decisions towards capability substitution, as case E illustrated. The
emerging risk of failure induced a radical switch from the improvement of cameralistic
applications to a new commercially oriented technological solution.

(b) The large municipalities exhibited resource dependencies related to the portfolio
of technological, organizational, and human resources. Disposing of financial
capabilities, these municipalities valued the implementation effort against the
opportunity to re-align their rather fragmented activities (case B, C) or to enforce the
modernization of public service management (case A). These cases demonstrated
resource dependencies as well. Case A illustrated that the value of modernization
enhanced a more radical approach to adopt commercial standards, especially with
regard to technological resource investments (launched in 1996). These investments
were linked with the centralization of financial accounting (launched in the initiation
period - 2001, planned within the developmental period - 2005), both decreasing
commercial knowledge available. The effect was twofold. Primary, the necessary
 24

commercial knowledge had to be developed by training programs, internal knowledge

transfers, or job rotations. Secondary, the allocation of commercial knowledge changed
within the workforce. Due to these effects, HR related activities started to ensure that
designated HR investments were in line with the direction of accounting change.

The final observations related to the HR department and its strategic role at the
outset of accounting change. Considering the traditional role of personnel
administration, it was interesting to note that four research sites had already
strengthened their HR departments (case A, B, C, and D) whereas one research site
started to formulate a standard HR development program (case E). Professionalism
was indicated as the municipalities configured centralized sub-units responsible for
core HR functions, e.g. staffing, education, and personnel development. Partly, the
responsibility for HR management, organizational development and information
technology were joined as specific units in a common division (case C, D). Regularly,
the head of the HR departments were qualified by further education and self-
improvement.

As one consequence, the HR departments more or less successfully implemented

modular concepts for education and training programs, specific modules for
performance appraisals, and to some extent goal setting procedures. For instance, in
the majority of cases HRM projects to launch a standard education and training
program were appreciated by politicians. But the formulation procedures in
themselves were time-consuming (as in case E, evolving from 2001 up to 2005) and
partly rejected in their final stages (as in Case D, because of political assessment).
As another consequence, strategic HR role definition remained vague and
ambiguous. Commonly, the HR departments claimed for their administrative and
transformational role and formal linkages between HR and the line at different levels.
For instance, HR officers in each case described how they had been involved in
individual decision making (e.g. staffing) and organisational change issues (e.g.
restructuring of sub-units). But as well and despite their formal position, responsibility
to initiate strategic involvement was assigned to line or project management. Thus,
formal responsibility for HR development in the case of strategic change seemed to
be mixed and messy. The first state is observed in case A. Referring to accounting
change, the project manager (case A) complained the decentralization of HRD
 25

responsibility and the lack of structural integration to launch a timely balanced HR

training program. The second state is observed in case E. Referring to workforce
planning and designing HR staffing programs, the HR officer stated the mayor`s
authority to react on personnel decisions. This ‘background job’ decreased the
effectiveness as well as credibility of HR decision making.

Thus, the key distinction was that the process of HR strategy formation referred to
the more general level of managing accounting change and implementation than to
the strategic role of the HR department itself. Notwithstanding the particular case, the
small sized local authority (case F) highlighted the relevance of its change
management capacity enabling the degree of strategic involvement of key
stakeholders by pre-configuring roles, responsibilities, and the sequential order of
change. In case F, the part-time HR position concerned an administrative HR role but
the HR officer was strongly involved into the project management group. The small
size of the local authority led to a project configuration focused on involving (and
restricting) the interests and influence of key stakeholders, e.g. politicians,
department heads. Managerial responsibility was given to the Chief Financial Officer;
whereas, the project administration was assigned to the financial department itself.

In general, the New Public Financial Management was a strategic domain of the
finance department; therefore, local governments put their Chief Financial Officer
(CFO) in charge of the accounting change induced by the budget law. This was
illustrated by all cases as they established the project management group within the
finance department. Furthermore, the municipalities recruited accountants to
constitute a project management group consisting of employees highly qualified in
commercial knowledge or well-experienced in cameralistic accounting. Note that
allocation of resources and authority differed from each other (figure 1).
 26

Figure 1: Patterns of accounting change

New Public Financial Inter-organizational level

Management

Organizational level
(e.g. reform history, resource
investments, modernization
A B C D E F agenda)

Intraorganizational level

local project groups in the

department of finance

different project structure

(roles, responsibilities)

For instance, in one case a new staff unit was set up with an externally recruited
project leader. Managerial responsibility was strongly related to the Chief Financial
Officers but loosely involved into the conventional routines of the financial
departmental (case C). Consequently, the project leader was put in charge of
concept development, but did not have any managerial authority towards internal
constituencies, e.g. department heads, politicians, or the financial department
authorities. Regularly, the project management was located within the department of
finance (case A, B, D, E, F), but the division of managerial responsibility was a
different one. The middle-sized municipalities (case D, E) added the “implementation
job” to the ordinary area of responsibility of the head of the financial sub-unit. By
contrast, the large municipalities (case A, B) integrated the project management
formally like a sub-unit into the financial department. For example, in case A the
project management was assigned as task force headed by a financial officer who
was jointly responsible for budget planning and dedicated to the financial sub-unit.
Again, the smallest municipality was an exceptional case. Managerial responsibility
was directly assigned to the CFO and by project management closely associated
with key constituencies, e.g. mayor, politicians, department heads, and the financial
 27

department itself. Finally, it is worthy to note that in general politicians were assigned
as “generously indifferent” to accounting change referring to positive attitudes, formal
political support and limited interests to strategic aims and opportunities within the
initiation period.

Simultaneously, formal structures and procedures were arranged in the way in which
organizational units (e.g. HR, information technology) as well as workers’
representatives should participate and cooperate. Therefore, formal institutions and
the strength of reform experience regulated managerial responsibilities and the
appointment of strategic HR roles within the project management group. For
instance, in case B managerial responsibility was assigned to the financial officer
who was in charge of financial accounting and budget planning. Project
administration was executed by a staff unit which strongly supported the
development and implementation by a detailed scheduling of tasks. The HR
department defined itself as a service provider for accounting change, and the chief
HR officer demanded their involvement. Therefore, the HR department developed
and administered the internal training program for accrual accounting. Case A is
partly different and stated the relevance of modernization experience. As mentioned
above, accounting change was assigned to be the core driver to become a service-
oriented local authority. Again, accounting change was the strategic domain of the
financial department, but managerial leadership was embedded into an
institutionalized setting of organizational routines to coordinate and exploit the
modernization agenda (e.g. mission statement, budget plans/controlling, and
benchmarking). Therefore, one project manager commented: ‘The team falls back on
well-established structures’. In this case, procedures of change management were
thoroughly formalized, partly decentralized and supported by a staff council
agreement in case that it had already been directed to consolidate the enduring
modernization process.

HR strategy formation – How does HR development and resource

leveraging occur in accounting change?
The most obvious reason why public organizations develop their employees is to
improve their current knowledge, skills, and abilities to a desired end. If employees
 28

cannot perform at a particular level, they will not achieve the level of effectiveness
the organization requires to achieve its goals. Additionally, public organization invest
in HR development to increase an employee`s psychological commitment to the
organization (e.g. Selden 2009, 85ff.). Referring to the application of a new budget
law at the organizational level, considerable emphasis is given to job training and
skills development and, as such, it is not surprising that HR development is regarded
as a crucial activity for accounting change. For instance, the German Kommunale
Gemeinschaftsstelle (KGSt) – an association of municipalities for managerial reforms
(e.g. Reichard 2003) – prescribed a concept and instruments for a common HR
training and development plan (in 2003, 2004). The intergovernmental project group
itself revealed and published (in 2002; 2003) HRD practices of some municipalities
(case A, B, F) as “best practice”-approaches. More specifically, HR development for
accounting change represented a significant resource investment for accounting
change. For example, in one case the estimated spending for a training program
covered around € 530 thousand for the developmental period from 2004 to 2007.
Therefore, the necessity to invest in HR development was a commonplace in the
ongoing debate on how to put accounting change into practice.

Perhaps the most striking feature of this longitudinal study is to identify how these
HRD systems evolve. Thus, the study investigated the degree to which HR systems
enabled the acquisition or development of HR and leveraged them to organisational
outcomes. The analysis was oriented by a criteria-based methodology using a set of
standard criteria which derived from previous research on strategic and public HR
management (e.g. Gratton et al. 1999; Gratton 1999; Donahue/Selden/Ingraham
2000). This type of analysis is valued because it provides a useful method to
evaluate public management and strategic HR management systems in a way that
facilitates comparisons across different units of state or local governments (e.g.
Moynihan/Ingraham 2003; Kneedler Donahue/Selden/Ingraham 2000). Following
Gratton et al. (1999; Gratton 1999) the analysis used descriptive clusters of
performance-related and transformational-related HR processes to capture the
induced value of linkages between strategic HRD systems and individual and
organizational performance. Specifically, a gap-analysis stressed the relevance of
strategic alignment and the adjustment of HR-related processes to account for the
generative mechanisms of the formation process. Thus, the analysis applied a three-
 29

dimensional concept to investigate the formation and strength of HR management

systems across each of the six cases (e.g. Gratton et al. 1999, Bowen/Ostroff 2004).

Although the procedural logic of HR-related processes was apparent in the initiation
period and across the cases, the results illustrated varying strength in HR strategy
formulation. The core pattern of HR development was competence-related and
focused the transformation of the commercial knowledge base by HR training
programs (short-term cycle) and planning leadership and workforce development
(long-term cycle). More specifically, the developmental period illustrated that
pressure to invest in HR development increased when the implementation of accrual
accounting proceeded.

Table 4 summarizes the evidence. The findings indicated that processes to identify
the HR gap were shaped by the short-term link between HR training programs and
accounting change issues (e.g. prelimary fixing of accounting procedures, introducing
software applications), which, partly, increased transformational-related processes
(e.g. planning workforce and leadership development). Comparing the research sites
revealed that shifting the procedural logic of HR development was regulated by
strategic direction and threats to enhance HR investments. Additionally, opportunities
to re-direct the cluster of competence-related processes from short-term training to
transformational-related processes drew the attention away from additional HR-
related processes. Nevertheless, failures to implement HR training programs
successfully were evident as well (case C, D, E).

Short-term trainings and gaps to HR development: In all of the research sites the
project management groups claimed a considerable need to identify required skill
developments. Thus, the ongoing accounting change increased the efforts to develop
skills essentially necessary for `running the system´ throughout the organization.
Within the initiation period, the project groups of the large and middle-sized
municipalities (case A, B, C, D) appointed HR task forces to execute standard
procedures to design HR training programs, for example identification of target
groups and development needs (e.g. project managers, skilled financial managers
and employees, departmental/line managers and employees responsible for financial
issues, politicians), designing training programs or modules (e.g. advanced training in
 30

bookkeeping, accounting, budgeting) and determination of effective delivering

formats, including decisions about the provider (internal/external). Note that standard
procedures to design short-term trainings were partly insufficient because of different
requirements within the target groups and their changing role within the
developmental and implementation period. With one exception (case F), this flaw
was illustrated at each research sites. In the developmental period, large and middle-
sized municipalities started the implementation with selected pilot offices in order to
gain experiences with the application of accrual accounting. Thus, activities were
dominated by a more technical and operational mode of implementation. In the
ongoing course of action, the complexity of HR development increased according to
the variety of public service and department characteristics (e.g. size, configuration of
tasks, or degree of financial responsibilities) and forecasts of procedural failures (e.g.
time delays due to lacking software applications). Furthermore, the common standard
of short-term training induced further resource dependencies. In particular, small-
and middle-sized municipalities (case D, E) were bounded by established inter-
organizational partnerships to regional colleges of further education. As a
consequence, assessing workforce development by designing short-term training
programs remained as a rather uncertain issue.

Therefore, identifying the prospective development of the workforce and estimating

the value of leveraging commercial competencies was a shortcoming at the outset of
the developmental phase. This state was observed during the developmental period
when the necessity increased to develop and assign accounting knowledge to
organizational sub-units (e.g. case A, B, D). In order to understand gaps in HR
development and to stress the alignment of HR-related processes to organizational
development a set of managerial activities enfolded. For instance, in case B a `Junior
Special Training Program´ was launched to build a cadre of high-specialized
accountants supporting the implementation procedure; but thereafter, the necessity
arose to reassign these highly qualified employees to areas of responsibilities within
new accounting workflows. The distinct value of such a core group appeared not only
in individual promotion (case A, B, D) and higher payments (case A), but also in the
growing risk of headhunting. Promotion as well as turnover required job analysis,
evaluation and rating, and partly upgrading the accounting positions (case A, B, D).
As well, formulating concepts to restructure accounting workflows mentioned the
 31

necessity to dispose consequences for the workforce (e.g. a more centralized

configuration, upgrading of positions, and redeployment of employees). This was
illustrated especially by case A. Therefore, HR planning was enforced to align current
requirements with long-term issues of HR development. In particular, in large
municipalities the complexity which appeared from heterogeneous public services
forced processes to align the prospective workforce capabilities with the current
allocation of commercial competencies throughout the organisation.

Cluster of transformational-related processes: Four of the research sites developed

long-term consequences out of their modernization agenda and the prospective
workforce capability. Again, the smallest municipality (case F) was the exceptional
case because of its directed outcomes and the specific architecture of strategy and
HR development. Here, the scenario to change local governance encouraged a
process of organizational development whereby the prospective workforce consisted
of the project group itself proposing capability reconfiguration. Thus, restructuring
financial management capabilities, workforce development, and individual promotion
were a simultaneous effect of the experience-based learning model of managing
change. As already mentioned, the ongoing accounting change increased the
complexity to assess the prospective workforce capabilities within the larger
municipalities (case A, B, C). In particular, within the core target group cameralistic
accountants were responsible for financial accounting or budgetary controlling in the
financial department as well as their managerial counterparts within the operational
services (e.g. social welfare, library, maintenance depot, or sports). Note that
implementation schedules and partly the anticipated centralization of financial
accounting enhanced work force planning and fixed the formulation of HR
development programs (e.g., General higher qualification of public management
accountants - case A; modular trainings for different target groups - case A, B;
planned, but failed by political decision - case C). In terms of HR development,
accounting change issues caused transformational-related HR processes to provide
staffing appropriate to changing financial management responsibilities on the one
hand (organizational level outcome), and to launch incentives expected by public
employees with regard to their investment in accrual-based knowledge on the other
hand (individual level outcome).
 32

Missing value – organizing the horizontal alignment of HR-related processes: After

all, one observation related to the concept of horizontal fit and how competence-
related HR processes were aligned to HRM systems more directly associated with
behaviour control. Note that accrual accounting was intentionally linked with
performance-related HRM systems (e.g. performance metrics, objective setting,
contracting). For instance, the project leaders commented that contract management
and performance measurement had to be an essential part of accounting change.
Thus, one project leader (case B) suggested: “The understanding for specific
performance metrics appears with the daily practice of bookkeeping. Then a
reporting system will develop. With that department heads will learn to deal.” But the
evidence illustrated that the initiation of such performance-related processes failed.
In addition, the research revealed that the strength of competence-related processes
weakened the coupling of accrual accounting with HRM systems to enhance public
service performance. For example, the large municipalities (case A, B) debated the
benefits of generally accepted benchmarks and their applicability to well-established
internal performance metrics. But both research sites kept this process apart, and
even vaguer with regard to the outcomes of accounting change. Others (case D, E,
F) acknowledged the problem, but it was considered as a ‘planned project drawing
on NKF’ (CFO, case F). Only one of all the cases initiated a process to develop a
‘management for results’ -system (case A). Thus, the findings illustrated the
subordinate role of performance metrics and contract management, and, therefore,
leaved open whether and how strategic leadership roles and behaviour would have
been rearranged by performance-oriented HR management systems.

The strategic direction of these transformational-related processes stemmed from the

agenda to modernize public financial management as outlined by the project
management group. Nevertheless, the evidence illustrated that the municipalities
failed to develop long-term consequences out of the modernization agenda and to
align accounting change, prospective workforce development, and the allocation of
an extended commercial knowledge base. Partly, weaknesses of this linkage related
to the HR management capacity to identify and enforce clusters of HR-related
processes. First of all, the failure to create an HR strategy was a managerial
shortcoming within the initial implementation phase. Second, with the increasing
pressure on the allocation of commercial competencies, the failure to change
 33

resource investments arose, partly caused by political decisions, or by a more short-

term orientated project management group. Third, the evidence indicated that the
linkage was strengthened when the modernization agenda was associated with
increasing organizational commitment to HR investments, caused by the budget law
and enhanced by the strategic direction of resource investment patterns. Therefore,
the shift to transformational-related processes was built gradually by an ongoing
assessment of the workforce capability.

Thus, the mediating effect of an HR strategy stemmed from processes to enable the
understanding of the resource gap by developing HR related interventions out of the
modernization agenda and the prospective development of the workforce. Comparing
the patterns of competence-related processes within the research sites showed why
the formation of an HR strategy caused divergent effects. Table 5 summarizes the
evidence. Pattern matching accounted for two important exceptions, as in one case
the implementation of accounting change failed due to political assessment (case C)
and in one other the modernization approach strongly differed with regard to each of
the other research sites (case F). Therefore, the analysis was based on two sets of
matched-pair cases: the middle (case D, E) and the large municipalities (case A, B).

Failure to implement accounting change - rigidities constraining competence-related

processes in middle-sized municipalities: The first observation is that the procedural
logic of HR-related interventions tended to be a rather modular and short-term
oriented HR development limited to expected demands of the initiation and
developmental period. Thus, project administration issues as well as low
professionalized HR department illustrated why this direction of HR interventions
evolves.

In both middle-sized municipalities, managerial responsibility and project

administration were administered by financial officers as an additional task of their
daily- workload, partly supported by externally recruited project employees. Here, the
integration of professionalized HRM knowledge failed with regard to the following
issues:
• Referring to the complexity of accounting change, the level of experience with this
type of organizational change was low. Change processes or activities similar to
 34

accounting change were not directed before. Indeed, the relevance of HR

interventions (e.g. short-term training) was generally accepted, but the project
management group as well as HR managers valued the actual necessity as low.
• Within the HR departments, experiences with former HR interventions justified
expectations that queried the adoption of a strategic HR role. This state is
illustrated in case D. Within the initiation period, the HR department arranged a
task force to professionalize the outmoded short-term training procedure. But as
already mentioned, in its final phase the proposed HR development concept
failed. The municipal council honoured the induced HRD strategy but denied the
required resources. Similarly, in case E the improvement of HR development was
a ‘planned project’ starting in 2001 and induced in 2005. Again, neither the HR
department nor the HR strategy formulation were involved or aligned to
accounting change. Thus, as opposed to the formal integration into the project
administration, HR officers delegated managerial responsibility for HR-related
processes to the project management group.
• Capabilities in HR and change management were still “under construction”.
Recruiting HR managers is based on administrative careers and further education
in HR management. Furthermore, HR managers lack professionalism as agents
of change due to short reform histories in which they were unable to develop the
required expertise.

In general, HR management initiated or continued professionalization of its

operational capabilities but their integration within the accounting change failed.
Managerial responsibility for HR-related processes was partly vague, or more or less
explicitly delegated to the project management group. The effect was twofold. First,
initiation of HR investments depended on the HR expertise of the project managers,
and how HR interventions came to their interest. The state is illustrated in case D.
Gap analysis was based on informal relationships referring to project employees
searching for operational expertise from the HR department. Second, the direction
and sustainability of HR investments depended on the success and continuity of
managerial leadership within the periods of change. When objectives or aims of
resource investments changed (case E), or when project management failed by
turnover or promotion (case D), then HR investments were jeopardized substantially
over time. More specifically, there are no managerial or organizational routines to
 35

deal with HR investments. For instance, in case D the turnover of the CFO led to the
promotion of the project manager and the project co-manager. Therefore, not only
did managerial responsibility decrease, but the expertise in accounting and change
management as well. In case E the particular situation changed as the CFO enforced
redirecting accounting change to a more radical approach. Thus, cooperation with an
accounting consultancy substituted any strategic HR department role by delivering an
operational short-term HR training program.

Structural assets to implement accounting change - institutions emphasizing

transformational-related processes: As mentioned above, the large municipalities
differentiated their HR departments to professionalize their HR systems. A further
observation revealed that the municipalities induced structures and procedures to
arrange in a way in which organizational units as well as worker councils should
participate in modernization projects. This is illustrated by an employment agreement
in case A. Therefore, formal institutions and the strength of past experience regulated
the integration of HR capacity into accounting change, e.g. the constellation of HR
management responsibilities and the appointment of leadership roles within the
project management group.

In both research sites the general order of implementation constituted the managerial
responsibility for HR investments. In case B accounting change is defined as a core
task of the financial department. Managerial responsibility and project administration
was assigned to the financial department and executed by a staff unit which strongly
supports the implementation by a detailed scheduling of tasks. The HR department
defined itself as a service provider for accounting change, and the chief HR officer
demanded their involvement into the project management group. Therefore, a HRD
task force developed, administered, and reviewed a modularized HR training
program for accrual accounting. The observations in case A were partly different.
Managerial responsibility was integrated into an institutionalized set of managerial
leadership roles and organizational routines to coordinate and exploit the
modernization agenda (e.g. mission statement, budget plans/controlling, and internal
benchmarking). Change management roles were partly decentralized and formalized
as the strategic agenda was already directed to consolidate the enduring
modernization process. Again, accounting change was defined as strategic domain
 36

of the financial department with managerial responsibility assigned to the project

group. But, as a project member expressed: ‘The team falls back on well-established
structures’.

A second observation related to the induced HR strategy. HR strategy formulation

referred to the direction of accounting change, and therefore varied with regard to
competence-related HR processes. In case B, the HR strategy prolonged the
approach to professionalize public financial management to an internal, target-group
oriented, consecutive planning of HR development. The competence-related process
was directed to ensure availability of accounting knowledge with regard to planned
implementation phases. Flexibility within this order stemmed from its core elements:
first, designing modularity within the HR training program, second, realigning the HR
programs to changing needs by the HRD task force, and third, the specific career
program to provide professional advice and mentoring to organizational units and
public services. In case A, the HR strategy was assessed with regards to the
prospective workforce capability. Thus, resource flexibility was the distinct value. This
state is illustrated by two observations. First, cooperating with a regional college for
public management education, a HRD task force designed a course of studies with a
final degree as “Certified Public Management Accountant”. Second, certified
accountants were assigned to each unit or public service ensuring the operational
availability of accounting knowledge. Note that the HR strategy was critically audited
for two reasons: by the audit office because of its deficient input-output equation (HR
input: high quality, costly; output: less specified) and therefore vague organizational
benefits, and by department heads because of the individual benefits of higher
education and, again, more vague departmental benefits. Thus, the distinctiveness of
the HRD system collided with non-consensual agreements on its organizational
effectiveness.

Finally, both cases illustrated the emerging relevance of restructuring financial

workflows and indicated indicating the necessity of a more strategically oriented HR
capital management. To enhance effectiveness and acceptance, restructuring
financial workflows aimed to re-arrange positional congruence. For instance, more
centralized accounting responsibilities reflected the HR investments into the higher
level of managerial and operational accounting expertise. More prospectively, one
 37

financial officer stated a radical change to a more strategically induced assignment of

the public management accountants: ‘We don’t support the idea of rotation anymore:
I would work three years with the social welfare office, then three years with the
youth welfare office, then three years with the financial department and then again
three years with the land registry office. This practice which we have followed up till
now […] will not be continued anymore. Related to the financial and accounting
system we have recognized that we need more continuity, and we need specialized
knowledge. And if somebody has first decided to work in this area, then he should
also do so for a couple of years.’

However, the difference to be emphasized is how the prospective workforce

capability was made available for and integrated into accounting change. The
findings can be redefined in terms of institutions to change that direct the partial
leadership constellations and enhanced the strategic involvement of HR capacities
within the accounting change. Thus a final observation was important. Linking and
leveraging HR development to organizational capabilities were supported by
generative mechanisms to increase the mutual understanding of operational
procedures and strategic opportunities of accounting change. Obviously, this state is
illustrated by the concept of internal consultancy in case B. The project management
group anticipated the necessity to transfer accounting knowledge to public services.
Thus, the concept of internal consultancy realized by junior accounting specialists
was introduced to exploit the mutual relationship between accounting procedures and
capability development. In case A the relevance of mutual relationships emerged
throughout the development phase. Powered by its first experiences with accounting
changes at the department level, the project management group arranged an
advisory and mentoring concept “... symbolizing its fortune by a four-leave clover”
(project member, case A). Just like the internal consultancy, a more formalized and
integrated implementation procedure supported the transfer of accounting expertise
to organizational units. Thus, the term integrated explicitly referred to the different
fields of accounting expertise (e.g. financial, accrual, cost, and asset accounting)
necessary to support the departmental transition from a cash-based to an accounting
system.
 38

DISCUSSION AND CONCLUSIONS

The introduction to this paper emphasized the necessity to explore how and why the
relationship between HR management, organizational strategy and performance in
public organisation occurs. Whereas a number of scholars have suggested that
strategic HR management is a catalyst that enables organizational change and the
improvement of public service delivery (Truss 2009b, Harris 2005, Boyne 2003),
others have found that becoming a strategic partner or agent of organizational
change is a crucial issue of HRM-based reforms in public organisations (Teo/Rodwell
2007, Harris 2005, Pichault 2007). Some scholars put forward that strategic HRM
research needs to account for structural and social relationship to investigate how the
strategic alignment of HR management and change in public service delivery evolves
(Truss/Gill 2009, Snell/Shadur/Wright 2001). However, the relationship between HR
management and organizational change remains ambiguous and contradictory. Prior
research has suggested that a strategic approach directly addresses the area of HR
processes by which public organisations deploy their human resources when an
organizational strategy changes. In this paper the lens of a resource- and capability-
driven perspective was adopted to undertake an exploratory investigation into how
the process of HR strategy formation evolves. The study conducted qualitative
research in six case study organizations, focusing on accounting change in German
local government enforced by a new budget law.

The focus was on the process of HR strategy formation in organisational change,

rather than the more generally impact that modernized HRM systems may have on
individual or organisational level outcomes. As the critical review pointed out, the
study builds on prior research into the contextual relevance of organizational
archetypes, the significance of the “strength” of the HRM system, and the importance
of distributed leadership roles to explore how HR strategy formation in public
organisations occurs. As there are templates of accounting change (e.g. Rubin/Kelly
2005), the concept of archetypes captures the distinct setting of incremental or more
radical modes of accounting change where HR strategy formation evolves. Previous
research on leadership in public organisations laid emphasis on the collective nature
and distribution of HR leadership roles, especially referring to risks of unifying
leadership and induced strategy formation in public HR management (e.g.
 39

Denis/Lamothe/Langley 2001, Truss 2009a). Thus, a resource- and capabilities-

based perspective adds the concept of dynamic capabilities that judged for
managerial and organisational routines as generative mechanisms of organizational
change and renewal.

When considering the strategic role of HR management at the outset of accounting

change, the study found broadly that the municipalities exhibited idiosyncratic modes
of organisational change. Whereas modernization proposals associated with the new
budget law and the six local authorities themselves stated the significance of a
transformational shift in public financial management by accounting change, the
study identified the distinctiveness of strategy formation and resource allocation at
the organizational level. The study showed that contextual characteristics (e.g.
reform history, organizational size, or tight budgets) affected the transition to accrual
accounting, but they appeared not as contingencies determining the modernization
agenda. Despite their crucial financial situation, two of the municipalities (case A, F)
developed a more radical agenda to change public management and service
delivery, whereas, another municipality (case C) had to adjust its agenda for
accounting change because of increasing financial pressures and decreasing political
support. When considering the strategic agenda of accounting change, the study
found that the induced modernization agenda depended both on value commitment
and the degree of resource investments. This dependency was obvious in the two
middle-sized municipalities (case D, E), where the shift to the new accounting system
was valued and sponsored by the top level (e.g. the mayor, the CFO), but decreased
because of lacking resources (e.g. managerial responsibility and authority,
accounting skills). Specifically, case B illustrated the mutual relationship and why the
strategic agenda changed because of the reassignment of managerial capacity and
accounting expertise by incorporating an external accountancy. Similarly and as
mentioned above, case C demonstrated the reverse direction, when political and
financial support was taken back in a large municipality. However, these results
reflect previous findings that have emphasized to distinguish modes of organizational
change in public organizations (e.g. Osborne 1998, McNulty/Ferlie 2004), and
accentuate their idiosyncratic nature at the level of local authorities. Regardless of
modernization proposals and commonalities for accounting change, the findings
illustrated the tension between introducing a modernization agenda and allocating
 40

resources necessary to accounting change. Thus, the findings reveal the risks of
resource rigidity (Gilbert 2005) and the relevance of distributed strategic-decision
processes and emergent strategy making in local governments (Mintzberg 1978;
Burgelman 2002).

Concerning the status and distribution of strategic HR leadership role, the study
explored how the strategic role of the HR department was linked in with the
accounting change. Prior research has highlighted the significance of functional
professionalism, strategic involvement, and structural or social relationship to cope
with HR related requirements of organisational change (Truss 2009a: 2008;
Teo/Rodwell 2007). The study found evidence for strengthening professionalism by
centralizing of HR functions or implementation of standardized HR programs in all
municipalities. Nevertheless, strategizing on HR-related processes appeared as
more vague and ambiguous. Ways contradicting the strategic role of HR departments
were different, including devolution of HR managerial responsibility to the line in large
cities (case A), ad-hoc interventions of decision makers in middle-sized municipalities
(case D) and, most important, delegating the assignment of strategic roles to line or
project management (case C, D, E). As accounting change was a strategic domain of
the financial department, strategic involvement of HR department was pre-configured
by change management and executed by HR-related task forces (A, B, F). In
particular, the findings illustrated the risk of routine rigidity when a decreasing change
management capacity jeopardized the HR role (case C, D, E). However, in the area
of accounting change and its assigned nature to be a strategic change in local
governments, strategizing on HR-related processes referred more to the process
level of managing and configuring organisational change than to a strategic role of
the HR department itself. This reflects findings of other studies that have emphasized
that the enactment of strategic HR roles can better be explained by the enabling
setting and co-evolutionary forces of strategic HR choices (Truss 2009a; Kneedler
Donahue/Selden/Ingraham 2000, Pichault 2007).

In terms of HR development and the strength of the HRM system, the study found
that in accounting change the shift from required short-term trainings to
transformational-related HR processes gradually evolved by an ongoing assessment
of prospective workforce capability. Whereas modernization proposals as well as the
 41

six local authorities advocated a HRM-policy emphasizing Person-Job fit and HR

training programs, the findings illustrated how the procedural logic of
transformational-related HR processes comes about. In particular, during the
initiation phase HR gap analysis was broadly dominated by a “running the system”-
mode of accounting change, including the identification of required skill
developments. However, forecasts of procedural failures in the middle-sized
municipalities (case D, E), the variety of public service characteristics and formalized
implementation schedules in the cities (case A, B, C), and more broadly the induced
reconfiguration of financial workflows (case A, B, F) increased the complexity of HR
development in the ongoing course of action. Ways in which HR strategy making
evolved included appointing of HRD task forces, developing sophisticated HR
development programs, and thereby emphasizing the prospective workforce
development. The study showed that three of the cases (case A, B, F) improved their
opportunities to strengthen and align the HRM system (case A: an opportunity-driven
approach, B: a needs-driven approach), while others failed for different reasons,
including the risk of employee turnover and decreasing change management
capacity (case C, D). Note that the distinctiveness of competence-related HR
processes partly collided with non-consensual agreements on their organisational
benefits and the expended financial efforts (case A, C). Considering the strategy
making aspects of HR-related processes in both periods, the study illustrated that the
mediating effect of HR strategies stemmed from processes to enable the
understanding of a resource gap, and that organizational failures induced the switch
between different levels of strategic integration of HR development. This reflects prior
research pointing out the necessity of vertical integration (e.g. Gratton 1999;
Way/Johnson 2005; Shell/Shadur/Wright 2001), and reveals that forces of strategic
alignment change over time. Thus, the temporal bracketing strategy of the study
shows the evidence of strategic alignment by mechanisms of coupling
(Denis/Lamothe/Langley 2001) and considers evolving HRD patterns to cope with
transformational situations in local governments (Clardy 2008).

Referring to the distributed role of leadership, Denis, Lamothe, and Langley (2001)
proposed a see-saw theory of collective leadership and strategic change in public
organizations implying the need to cope with these opposing forces. When
considering the distribution of HR leadership roles in accounting change, the
 42

temporal bracketing strategy of this study emphasized forces that enabled (or
constrained) HR strategy formation leading to a unique outcome over time. The study
showed that the realized HRD performance can be traced back to managerial and
organizational routines contributing to strategic alignment. The large cities (case A,
B, C) illustrated strategic opportunities of accounting change and HR development,
and the very small municipality (case F) as well. Nevertheless, the middle-sized
municipality (case D, E) seemed to be “caught in the middle”.

Comparing the patterns of accounting change of the “middle” municipalities, the

study found evidence that getting a little more than “sponsorship” by upper echelons
(case D: the mayor, case: the CFO) increased the risks for accounting change, HR
strategy formulation, and strategic alignment. As already mentioned, in both cases
change management capacity was partly weak. According to this, a “delegation”-
effect became more important. The “middle” municipalities illustrated the tension
between professionalizing operational HR capabilities and the devolution of
managerial HR responsibilities to the line, followed by a low degree of formal or
informal integration of HR activities. Strategic alignment failed because initiating HR-
related processes was delegated to a project management weakened by a faulty
resource allocation. Thus, accounting change and HR strategy formation depended
on the success and continuity of managerial leadership within the periods of
accounting change, including specific risks of failure at the individual level (e.g. low
managerial HR management skills). More specifically, there were no managerial or
organisational routines regulating the managerial responsibility for HR investments
as in the large municipalities. Both cases illustrated that strategic involvement was
negotiated by the HR department (case B) or already institutionalized by a set of
formal and informal routines (case C), and that HR management was executed by
task forces to coordinate and control HR development over time. Overall, the
patterns of accounting change revealed that professionalism and operational
involvement do not replace issues to become more strategic in HR management and
to cope with capability development. This reflects the finding of other studies (e.g.
Teo/Rodwell 2007, Truss/Gill 2007), and illustrated that it is beneficial to account for
the evolution of HR management in strategic change.
 43

In terms of HR development and public service improvement, the study found that
leveraging HR development to organizational capabilities depended on further
mechanism supporting the transfer and integration of accounting knowledge. This
was observable comparing the patterns of accounting change of the large cities
(case A, B). In both cases, distinct transformational-related HR processes adjusted to
their modernization agenda and accounting change were realized. In case B a more
needs-driven HRD strategy was valued, whereas in case A resource-flexibility is
valued by a more opportunity-driven strategy launching Certified Public Management
Accountants. Due to the outcomes of HR development both cases exhibited HRD
systems encouraging the transfer of accounting knowledge to the variety of
organizational units. Thus, the distinct process of leveraging HR outcomes of a
needs- or opportunity-driven HRD-approach to capabilities of public services was
illustrated by more formalized procedures of internal consultancy (case B) and
mentoring (case A) intended to bundle different fields of accounting expertise. Thus,
the departmental transition from cash-based to accrual accounting – the operational
mode of accounting change – and the opportunity to develop organizational
capabilities – the strategic mode of accounting change – depended on strategic HR
development and the order to link accounting knowledge with public service
improvements. Thus, it remains to be investigated how such patterns of relationship
are likely to facilitate value creation in public services. This can built on prior research
on accounting change (Bogt, H.J. ter 2008); control of professionalism in public
services (Broadbent/Laughlin 2001; Ferlie/Geraghty 2005); and the concept of
relational archetypes (Kang/Morris/Snell 2007) offering further insights into patterns
of learning and continuous improvement that facilitate public service performance.

Overall, this study has valued a resource- and capability-driven perspective to

investigate the process of HR strategy formation in six German local governments. It
strongly appears that concepts like strategic HR management, strategic integration or
involvement derive different insights into the linkage of organizational change, HR
development and capability improvement. This builds on prior research in the area of
public management (e.g. Truss 2009b; Teo/Rodwell 2007; Pichault 2007) and
strategic HR development (Snell/Shadur/Wright 2001; Clardy 2008, Luoma 2000),
but emphasizes the sequential and co-evolutionary order of HR strategy formation
and strategic change in public organizations. This is an aspect of strategic HRM
 44

research that reveals several issues for further research. For example, Denis,
Lamothe, and Langley (2001) reported a see-saw theory of managerial leadership
and strategic change implying the need to identify generative mechanisms or forces
of coupling or alignment. This study deals with forces of alignment in strategic HR
management that refer to different layers of strategic change as indicated by the
distinction of strategic HR development (Garavan 2007) and aligning HRD to
capability reconfiguration (Clardy 2008; Kang/Morris/Snell 2007). One limitation of
this study is that it is based on a specific research setting representing German local
governments, and that the analysis focuses the link between strategic HR
development and managing accounting change. Of course, it would be useful to
explore this issue with a more mixed sample of public organisations and with a
different setting of strategic change. But as the results indicated, it would be
beneficial to explore the interrelationship between HR development and capability
reconfiguration considering the variety of public services in local government. Putting
emphasis on this relationship remains as the final step in a cascading process of
modernizing local governments by accounting change concerning its radical impetus.
 45

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Table 2: Conceptual focus and categories for analyzing data
Conceptual Focus Core categories
Contextualized • Path
research: degree of • legal regulation
modernization • structural inertia
(archetype,
organizational
change)
• Strategy
• value commitment
• managerial capacity
• resource development
How: patterns of • HRD Strategy
strategic HRD • HR capital / Leverage
to capabilities
• Clusters of HR
development
• HRD policy/system
• Multiple constituencies
• strength of HRM
system/ policy
Why: Institutions to • Distributed HR leadership
change HR roles
development • Strategic,
administrative role
(degree of
responsibility)
• Structural relationships
(social capital)
• Routines contributing to
strategic alignment (level of
integration, involvement)
51
Minor categories
• Reform history, administrative policy
• Financial pressure, (former) resource
investments/dependencies, political support
• values of modernizing public services, e.g.
improving public services (effectiveness),
modernizing managerial capacity (efficiency)
• Strategic direction/impetus, e.g.
opportunities/threats, expectations about outcomes
• Portfolio of resource investments, e.g. technology,
human resources, organizational restructuring,
relevance of financial resources
• Leading change, e.g. status and influence of project
management, resource allocation, time schedule,
networks, acceptance/resistance
• procedural logic of HR development
o Basic: HR capital/Capability-driven
o HRD: Needs-driven (traditional/
entrepreneurial), opportunity-driven, capability-
driven
• clusters of HR development
o performance-related HR processes
ƒ Recruiting/Short-term training
ƒ Objective setting/ rewards
o transformational-related HR processes
ƒ Leadership / workforce development
ƒ Organizational development
• Perception of HRD strategy, managerial/political
support, resource commitment
o Degree of Distinctiveness/ Consistency/
Consensus
• HR systems and practices
o HR related plans, procedures, programs
o Managerial responsibility, operational
involvement, political support
o Developmental-related experiences/ expertise
• setting of leadership roles
o Formal structure, e,g. project management
o Social relationship, e.g. informal procedures
• Organizational routines to change
o Coordination/exploitation: induced plans,
procedures, programs, strategic integration,
horizontal linkage
o Learning/ exploitation: autonomous activities,
impetus, strategic involvement, vertical linkage
 5
Table 3: Path to strategic change: reform, history, resource investments and value commitment
Case A Case B Case C Case D Case E Case F
Context (2003)
• Inhabitants (thous) 590 573 270 108 44 21
• Annual gross budget 1.439 2.973 631 219 59 27
(mill € )

Path
• Reform history Initial date: 1993; Initial date: 1998-2000; Initial date: 1996-1998; Initial date: - (1999); Initial date: - (1999); Initial date: - (1999);
Implementation of NPM- Implementation of Implementation of NSM- Implementation of some Implementation of some Implementation of
related concepts, finance-related concepts related concepts, no financial-related concepts financial-related concepts specific, task-related
common direction (budgeting, cost common direction (budgeting), no common (cost calculation), no NPM-concepts,
calculation), specific direction common direction reforming public
direction administration

• Financial pressure High financial pressure, Less financial pressure, Less financial pressure, Financial pressure, Less financial pressure, Increasing financial
budget restriction successful in budget increasing over time budget restriction budget consolidation pressure, budget
consolidation (2003->) restriction

• Resource dependencies Substitution: Adaptation Transformation : Substitution: Adaptation Evolution : Improvement Evolution1: Improvement Evolution : Improvement
(with regard to of commercial Improvement of of commercial of cameralistic of cameralistic of cameralistic
technological change) applications; (Quasi) cameralistic applications, applications; (Quasi) applications, selective; applications, selective; applications, selective;
Internal technical service selective; External Internal technical service) External cooperation, External cooperation, External cooperation,
cooperation investments by data- investments by data- investments by data-
processing centre processing center processing center

(with regard to Centralizing of financial Centralizing of financial Decentralized financial Centralized, no Centralized, no Centralized, restructuring
organizational change/ accounting during the accounting, restructuring Accounting, partial restructuring restructuring financial department after
restructuring) implementation period, planned after transition to restructuring to transition to NKF
reorganizing workflows NKF centralize

Strategy „modernize“ „professionalize“ „modernize“2 “sponsorship” (CFO) “sponsorship” (CFO) „modernize“

• Value of modernizing NKF as core driver to NKF as core concept to NKF as core concept to value of concept, value of concept, NKF as initial point and
modernize public services professionalize financial modernize public no reform agenda no reform agenda core driver to modernize
management management public management

• Directed outcomes Deployment of PFM, Modification of PFM,
emphasis on emphasis on (functional)
opportunities opportunities, increasing
coherence to financial
processes and systems
Deployment of PFM,
emphasis on (functional)
opportunities, increasing
coherence to financial
processes
Modification of PFM, Modification of PFM, Deployment of PFM,
domain of threats, domain of threats, Emphasis on
increasing coherence to increasing coherence to opportunities, radical
financial systems systems restructuring local
governance

1
Case E: Switch to transformational change - Decision to adapt a commercial application supported by external consultancy
2
Case C: Switch to professionalize - Decision to redirect strategic aims of accounting change due to decreasing political support
 5

• Political support Yes, formal reporting to Yes, interests are limited Yes, interests are limited no, currently no no, currently no Yes, participation of
politicians, interests are to general information to general information information policy, no information policy, no politicians in initial
limited to general (e.g. presentations), no (e.g. presentations), no input from politicians input from politicians phase, active information
information (e.g. input from politicians input from politicians themselves themselves policy, informal
presentations), no input themselves themselves coverage, no input from
from politicians politicians themselves
themselves
• Managerial capacity Project management as Project management as a Managerial responsibility Promotion decreases Project management as Managerial responsibility
specialized task, core task of the financial located by a staff unit, managerial responsibility an additional task of a located by CFO, close
managerial responsibility officer responsible for directly reporting to the (moving of the CFO, financial officer associated with political
by a project leader budget plans, located in CFO, external recruiting promotion of the project responsible for budget responsibility associated
integrated in a financial the financial department of project leader manager), reorganisation plans, high turnover of with the mayor (called
sub-unit (budget plan), of responsibilities, project staff the "Minister of Foreign
closely associated with management as an Affairs")
key actors of the additional task of the new
modernization process financial officer
(mayor, CFO)
• Strategic HR role Professionalized, Professionalized, Structuring functional Centralized, personnel Centralized, personnel Centralized, personnel
reorganizing functional reorganizing functional tasks, including administration, HRD plan administration, administration, part-time
tasks, including tasks, including administration, failed by political successfully planning HR work
staffing/recruiting, administration, staffing/recruiting, decision rejected, ad-hoc development
education/training, staffing/recruiting, decision making
devolved HR education/training,
responsibility devolved HR
responsibility

Table 4: Human Resource Management - Strategy and focus of HR-related processes
Case A
Context (2003)
• Inhabitants (thous) 590
• Annual gross budget 1.439
(mill € )
• Employees
Strategic HR role Personnel-department,
functionally differentiated,
professionally responsible
for different HR-related
processes
Resource gap
Gap analysis Assessment of prospective
workforce capabilities,
related to financial
workflows
Scanning people trends Ad hoc information,
frequently discussed,
systematic scanning
denied
Creating a people Prospective scenario of
strategy financial workflow and
decision making,
alignment with
opportunities of a
competence-enhanced
workforce, coordinated by
NKF task-force
Performance-related
processes (short-term)
• Recruiting/ Internal/external
Short-term training Recruiting (project
employees)
Key competencies
required, General higher
qualification of financial
Case B
573
2.973
Personnel-department,
functionally differentiated,
professionally responsible
for different HR-related
processes
Assessment of workforce
capabilities, alignment
with current requirements
Systematic scanning of
short-term and long-term
HR needs, internal trends
Plans created, alignment
with current capabilities,
coordinated by NKF task-
force
Internal/external
Recruiting (project
employees)
Specific competencies
required, modular for
different target groups,
5
Case C Case D Case E Case F
270 108 44 21
631 219 59 27
Personnel-department HR responsibility HR responsibility
only partial involved "delegated" to NKF task "delegated" to NKF task
force, ad hoc cooperation, force
information not
systematically provided to
HR manager
Assessment of workforce No systematic diagnosis No systematic diagnosis Assessment of workforce
capabilities capabilities, related to
financial department
Systematic scanning of no reliable data on Informal information, not Small target-group,
short-term and long-term workforce capabilities established, “planned informal information
HR needs, internal trends (e.g. commercial project” to improve HR
knowledge, experiences), services
impressionistic
information
Plan created, failed by Implementation of PE - no systematic process Prospective scenario to
political decisions program failed, no short- change public
term plan for NKF- management, systematic
competencies, focus on process of organizational
delivering current development
objectives
External recruiting External recruiting External recruiting Internal recruiting and
(project leader) (project employees) (project employees) development, (project
employees)
Training on the job, no Training on the job, no Training on the job, ad Training on the job, partial
systematic analysis, ad systematic analysis, ad hoc qualification, support by financial
hoc qualification for hoc qualification for switching to radical consultants
selected target groups selected target groups, technological change leads

experts (civil
servants/manager) within
financial workflows and
decision making
• Objective setting/ Vague, currently no
rewards strategic plan for objective
setting, performance
metrics, or rewards,
“planned project” drawing
on NKF
Transformational-
related processes
(long-term)
• Organizational History of successful
development transformational changes,
well-structured
communication and
implementation processes
Capabilities in change
management, supported
by NKF task force
• Leadership Identification of
development prospected capabilities, no
systematic processes to
provide HR development
• Workforce Focus on key competences
development required for prospective
financial capabilities
(‘Certified management
accountant’), individuals
aware of some career
imperatives
5
training near the job, internal knowledge to a systematically
timely differentiated, by transfer, access to general analysis and ad hoc
order of target groups and qualification offers qualification by external
implementation activities, consultant
updating of training
program
General, ad hoc, core No, failed by political Missing, no links to Missing, no links to “planned project” drawing
performance metrics, decision objectives, metrics, or objectives, metrics, or on NKF
partial related to rewards rewards
objectives, not explicit
related to rewards
No pressure, restructuring Mixed transformational Ad hoc, more tactical Ad hoc, more tactical No history of
in financial workflows change, disconnected activities activities transformational changes
follows implementation of
accrual accounting
Current capabilities by Current capabilities by Low experience Low experience Building capabilities for
NKF task force, JSP as work force, ad hoc, change management by
“stepping stone” to relatively limited “work-in-progess”
implement accrual
accounting
Definition of new roles in No, failed by political No forward planning, ad No, moving of financial Informal forward
financial management decision hoc selection to assign experts planning, ad hoc selection
(e.g. mediator in positions to assign positions
transformational
processes), “Junior
Special Program (JSP)”
for developing higher-
specialized people, range
of systematic processes to
provide HR development
Detailed planning of No, failed by political Focus on current Focus on current Small target group, not in
necessary development of decision capabilities, no capabilities, no place
knowledge and skills, communication of communication of
developing of specific prospective HR policies prospective HR policies
career imperatives,
individuals aware of some
career imperatives

Table 5: Patterns of accounting change, HR development and capability reconfiguration
Strategic direction/
Critical events
Direction of change
• Directed outcomes
Structure of change
• Managerial
responsibility
• Project administration
HRM capacity
• Strategic HRM role
• Gap analysis
• Creating a people
strategy
Institutions to change
• Managerial routines
• Leadership
constellation
The “large” municipalities
case A: Modernize to a service-
oriented local authority
Deployment of PFM, emphasis on
opportunities
Project management as
specialized task, managerial
responsibility by a project leader
integrated in a financial sub-unit
(budget plan),
Project executed by a functionally
independent project group, located
in sub-unit of financial department
Personnel-department, functionally
differentiated, professionally
responsible for different HR-related
processes
Assessment of prospective
workforce capabilities to financial
workflows
Prospective scenario of financial
workflow, alignment with
opportunities of a competence-
enhanced workforce, coordinated
by NKF/HRM task force
Due to reform history well-
established change management
procedures, involvement of several
actors as a common standard
Partly diffuse power relationships,
formalized coordination, closely
associated with key players
(mayor, CFO)
case B: Professionalize public
financial management
Modification of PFM, emphasis on
(functional) opportunities
Project management as a core
task of the financial officer
responsible for budget plans,
located in the financial department
Project execution by a staff unit
which is assigned to the sub-unit
responsible for budget plans
Personnel-department, functionally
differentiated, professionally
responsible for different HR-related
processes
Assessment of workforce
capabilities, alignment with current
requirements
Plans created, alignment with
current capabilities, coordinated by
NKF/HRM task force
Well-established cooperation of
CFO and project manager, well-
experienced NKF project manager
Strong, professionally oriented
project management within the
department of finance
The “middle” municipalities
case D: Moving of CFO,
promotion of project manager
Modification of PFM, domain of
threats
Promotion decreased managerial
responsibility, reorganisation,
project management as additional
task of new financial officer
Project group with operational
responsibility, but low hierarchical
support for project coordination
no reliable data on workforce
capabilities, informal relationships,
not systematically provided to HR
managers
No systematic diagnosis,
responsibility "delegated" to NKF
task force
no short-term plan for NKF-
competencies, focus on delivering
current objectives of project group
no reform agenda, therefore no
perception or reaction to the
project group at top management
level
Project group with low authority,
concentrated on operative
implementation
5
case E: “switch” from
incremental to radical
technological change
Modification of PFM, domain of
threats
Project management as an
additional task of a financial officer
responsible for budget plans
Task force with operational
responsibility, but low hierarchical
support, informal cooperation
Informal information, not
established, HR development as
“planned project” to improve HR
services (realized in 2005)
No systematic diagnosis,
responsibility "delegated" to NKF
task force
no systematic process
CFO promotes project partly
because of institutional interests,
project management is additional to
daily workload of line management
Diffuse power relationships, no
hierarchical support, lack of power
to distribute the NKF into offices

• Processes to Internal coordination and process
coordinate design, strong linkages and
leadership dealing with parallel
projects
• Processes to learn Coordination of internal process
(knowledge transfer) activities (e.g. offices), support by
qualified project assistants
(process consultants), internal
knowledge transfer
Internal coordination by a detailed
schedule, strong linkages to
parallel projects (accounting/HR
development)
Coordination of internal process
activities (e.g. offices), support by
qualified project assistants (project
consultants), internal knowledge
transfer
5
Basis design for project planning, Internal coordination of technical
technical-related adjustments tasks, failure in coordination
because of moving project
employees
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