Decentralization and Reliance on the Controllability Principle in the Public Sector

Abstract

Despite the growing devolution of budgetary responsibility in public sector organizations, little attention has been paid to the key notion of the controllability principle in this context. Drawing on neo‐institutional sociology, this paper explores the relationship between decentralization of decision‐making authority and reliance on the controllability principle (RCP) in the devolution of budgetary responsibility to the middle management level of a large Norwegian hospital. The results of a questionnaire survey only reveal a weak positive relationship between decentralization and RCP. Qualitative data are then used to probe further into the institutional factors impinging on this relationship, which have not been widely discussed in previous research. Our findings suggest that the possibilities of decentralization and thus enhancing managers’ control of major cost items, such as labour‐related expenses, are constrained by the actions of external as well as internal constituencies. RCP is also influenced by institutionally induced allocation practices, traditionally contributing to subjective, ex‐post adjustments of budgetary results but more recently manifested by the adoption of more objective allocations to demonstrate compliance with the cost containment ethos.