The hybrid model

The hybrid model is a combination of centralization and decentralization; the primary benefit of the implementation of the hybrid model approach is that it provides the prospect of combining the advantages of both centralization and decentralization as can be viewed from figure 21(Leenders & Johnson, 2000). According to the authors the hybrid structure is the most commonly used structure within large organizations.

Disadvantages Advantages Advantages Disadvantages

Figure 21: The hybrid model (Leenders & Johnson, 2000)

To apply this model for municipality Enschede certain assumptions need to be established. The first assumption is that due to the IBO many executive activities such as financial administration are being performed in an inter-organizational SSC. Furthermore, due to outsourcing and or privatization of executive activities such as Onderhoud Enschede, municipality Enschede becomes a small, agile and flexible organization (Regie-organisatie). Since many organizational activities are being performed externally, municipality Enschede significantly reduced the number of employees to approximately 800 fte. The outsourcing and or privatization of activities has also a significant effect on the number of employees in the financial function, this number has been reduced predominantly due to the IBO to approximately 60 fte. Figure 22 applies the hybrid model in the case of municipality Enschede.

Hybrid

Decentralization Centralization

Figure 22: The hybrid structure of municipality Enschede

In the hybrid model financial administration will be performed externally by the IBO, they will perform executive activities such as accounts payable-receivable, ledger and financial administration support (FAM). The IBO is also responsible for risk management, audits, 213A GW and management information. The IBO has a close link with Concern since Concern is the contractor and they perform shareholder ship. Each of the four programs has a business control unit in which planning and control employees and the controller are situated. The business control units are responsible for financial advisory and control on primary processes of the program; no financial administrative activities are present in the programs. Furthermore, a distinction based on the nature of financial activities is being made in the business control units. Only activities of financial policy nature are performed in the business control units, for these activities it is crucial to be close to the primary processes. Activities of financial operational nature are not performed in the business control units but are centralized in department Concern or are performed in the IBO. Preferably, the business control unit consists of one controller supported by a couple of financials. Team Consolidation, which is part of Concern, ensures the coordination and development of planning and control products. Team Consolidation is solely responsible for the guidelines, formats and for the consolidation of the planning and control products. Financial strategists, financial policy employees and treasurers are part of Team Financiën. Team Financiën is also responsible for advisory on shareholdings and contract ship towards the IBO and the outsourced/privatized business units. Team Financiën also performs an integral check of board proposals. The concern controller is also positioned in Concern but functions as an autonomous authority. The task of the concern controller is to support, advise and monitor the efficiency, effectiveness and legitimacy of the municipal organization.

Advantages

The hybrid model can provide advantages of both centralization and decentralization:

 Enhanced understanding of local needs: The hybrid model offers business unit

autonomy and control over key functional activities, which leads to enhanced understanding of local needs and therefore to more situation-specific advisory. The quality of decision-making is improved due to the specialized advisory (Leenders & Johnson, 2000; Keuning & Eppink, 1990).

 Increased professionalism: The hybrid organizational model is especially suitable as a

model in case of externalization and detachment of business units. The influence of politics shrinks which gives the externalized business units the space to run their unit like a normal business, which has a positive effect on the professionalism (Karré &

Program 2 Program 1 Program 3 IBO - Financial administration - Risk management - Management information Concern  Team Consolidatie  Team Financiën  Concern Controller Program 4 Business control unit

 Higher speed of change: Technological and societal changes occur with indefinite speed, the hybrid model allows the organization to act quickly due to enhanced understanding of local needs, which guarantees the quality of services (Leenders & Johnson, 2000; Karré & Ribeiro, 2005).

Challenges

The hybrid model has also several challenges that should be kept in mind in case of implementation of the hybrid model:

 Competence friction between line and decentralized units: The decentralized units

(staff offices) can cause competence friction by acting in the responsibilities of the line management that can cause vagueness and competence friction between the decentralized unit and central unit (Keuning & Eppink, 1990).

 Tensions between central unit and decentralized units: The central unit has the

desire to control, coordinate and standardize processes; this can conflict with the desire for autonomy and freedom of the decentralized units. These tensions can have negative impact on the functioning and perception of decentralized units (Kloosterboer & Sterk, 1996).

One of the investigated case study subjects of this research applies the hybrid model for the financial function. This municipality is pre-eminently a Regie-organisatie, which means that they have outsourced and or privatized many executive activities. Consequently, they have a small civil service size of about 777 fte in total and 40 fte in the financial function. Where the other case study subjects chose centralization as a mean to solve the coordination and overlap in activities problem, the municipality with the hybrid model can prevent this kind of problems since they have a small and agile civil service in which there is less room for coordination problems. As mentioned in the advantages the hybrid model leads to enhanced understanding of local needs and therefore leads to more situation-specific advisory. Which is especially needed since the programs and the business control units fulfill a commissioning role towards the outsourced and or privatized business units. On the other hand the hybrid model municipality also recognizes that standardization must be extra organized since the hybrid model has more fragmentation compared with the centralized model. However, organizing standardization is much easier in a small organization where is less need for customization compared with a large organization. This financial function model has also vulnerable elements; the substitution of employees is much less compared with a centralized model. In a centralized model employees can replace each other much easier in case of sickness for example.