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Change and continuity within governmental organizations:

Organizational innovation within the German Ministry of Finance

Martina Korzin University of Munich (LMU)

Geschwister-Scholl-Institute of Political Science (Comparative Politics) martina.korzin@gsi.uni-muenchen.de

Paper to be presented at the IPSA’s 22nd World Congress of Political Science Session: Structure and Organization of Government

Panel: Organizational Dynamics of Central Government Organizations across Time

July 8-12 2012, Madrid

(First draft, please do not quote without permission, comments very welcome)

Abstract: This paper studies organizational continuity and change within governmental organizations. Under the general assumption of Europeanization- and internationalization-processes leading to adaptive pressure with respect to state institutions, the paper focuses on the various types of change, their scope and change-processes. Due to an intensifying need of cross-sectional co-ordination, the paper is especially interested in the extent of organizational change in terms of innovation – referring to an increase in mutual adjustment in the form of informal relations, working- or project groups. The theoretical framework for the study of organizational conti-nuity and change is initially developed under consideration of neo-institutionalist and neo-contingency approaches. The general assumption of the paper is that according to a ‘logic of consequentiality’ innovation needs to be observable as an organizational reaction to environ-mental changes, however as organizations adapt according to a ‘logic of appropriateness’ the extent as well as specific forms of organizational innovation are of interest. This is followed by the empirical analysis, during the course of which the paper rests on the study of one Ger-man governmental organization, the Federal Ministry of Finance, confronted with extensive changes in its environment and thus a high adaptive pressure.

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1. Introduction It is often stated that state institutions change as a consequence of transnationalization. Trans-nationalization describes the erosion of boundaries between internal and external politics, the span across multiple levels of political action above and below the nation state and the multi-plication of types of actors (Djelic/Quack 2008; Grande et al. 2007). Thus nation states face coordination-problems in overcoming environmental complexity and providing effective problem-solving capacity (Messner 1998). Consequently, the role of a nation state changes as a result of its embeddedness in arrangements of multilevel governance, and it moves towards becoming an ‘interdependence manager’ (Messner 2002: 28). Using the same line of argu-ment, the final report of the committee of inquiry ‘Globalization of the global economy – Challenges and answers’ (German Bundestag 2002: 421) contends that state institutions take over a ‘hinge-function’ between the different levels of politics so as to be able to effectively concentrate scattered resources on solving and managing problems of interdependence. Ac-cordingly, governmental organizations are confronted with a greater need of coordination on the intra- and inter-organizational as well as on the transnational level (cf. Metcalfe 1994; Peters 1998; Thurner 2008; Thurner/Pappi 2009), and thus it has become apparent that there is a necessity for organizational adaptation. Different modes of organizational adaptation are possible within governmental organizations, and these can result in centralization, differentiation and other more innovative forms of or-ganizational adaptation, such as networks and project forms. As the modes of differentiation and centralization rather reinforce coordination problems instead of solving them, the aim of this paper is to analyze the relevance of innovation with regard to organizational adaptation. The underlying research question is consequently:

To what extent are ‘innovative’ modes of reorganization within governmental organi-zations observable in the course of transnationalization processes?

For the purpose of the present analysis, the fields of organization theory and political science are linked in order to develop a framework for the analysis of change and continuity in gov-ernmental organizations (cf. Rolland/Roness 2011; Roness/Sætren 2009).1 The present analy-sis focuses on change and continuity of structures and processes/procedures within organiza-tions and thus concentrates on the substance and processes of change, under consideration of the formal and informal dimension. Therefore, the theoretical base of the analysis builds pri-marily on a neo-institutionalist, especially historical-institutionalist but also sociological-institutionalist, and a neo-contingency approach. In this regard, the debate about exogenous and endogenous sources of change (of institutions/organizations) is a major issue in both the neo-institutionalist and organization theory literature, and in both strands of literature it is generally assumed that changes in the environment are likely to cause changes in the organi-zation itself (Child 1972; Meyer/Scott 1983; Scott/Meyer 1994; Pierson 2004; Thompson 1967). In order to examine the substance and process of change, the interest of the study rests on the impact of Europeanization and internationalization processes on departmental organizations at the federal level, such as federal ministries. The German Ministry of Finance serves as a start-ing point for the empirical analysis of this paper. The organization is confronted with exten-sive Europeanization- and internationalization-influences and is, beside the Chancellery, the major actor in dealing with the ongoing Global Financial- and Euro-crises. Accordingly, it can be expected that the adaptation pressure is very high, also with regard to cooperation on the transnational level, and organizational adaptation can therefore be expected. The starting point for the empirical investigation will be primarily the chancellorship of Angela Merkel                                                                                                                1 Generally a separation between the two research strands is observable; Roness and Sætren (2009) refer in that respect to Olsen (1991) and Pfeffer (2006).  

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(2005-2012) because of the tremendous relevance of European and international policy during this period. With respect to the research method, the study will build on a qualitative ap-proach, by combining official document analysis2 and semi-structured interviews3 with repre-sentatives of the respective organization, to generate the relevant data for the analysis of or-ganizational change. The paper starts with theoretical considerations on change and continuity in public sector or-ganizations. In this regard, the study focuses on the one hand on the historical-institutionalist assumption of path-dependency (cf. Hall/Taylor 1996; Pierson 2000a, b, 2004), as well as on the sociological-institutionalist assumption of a ‘logic of appropriateness’ (March/Olsen 1984, 1989), and on the other hand on a neo-contingency approach, building on the assumption of strategic action of organizations, even in times of uncertain, ambiguous and changing envi-ronments (Breilmann 1990; Child 1972; Mintzberg 1979; Schreyögg 1995). On this basis, the extent of the establishment of organizational innovation relying on mutual adjustment, re-garded as problem-appropriate, will be analyzed within the Ministry of Finance in the course of the empirical analysis. 2. Theoretical considerations: Institutional stability causes specific forms of organizational change With regard to the analysis of specific forms of organizational change within national gov-ernmental organizations, what (substance) has changed will be examined in the light of the general assumption of institutional stability. In relation to the question of what changes, i.e. the substance of change, the analysis focuses on the dimensions of: type of change, which can be centralization, differentiation or innovation; and scope of change, referring to change with-in, of or among established organizational configurations; as well as the character of change, which can be either formal or informal. With regard to the assumption of institutional stability leading to specific forms of institutional change, the analysis will further focus on different types of gradual institutional change and the relationship between the formal and informal organization. 2.1 The substance of change: Centralization, differentiation and innovation In relation to the first dimension of the substance of change, the type of change, it can be dif-ferentiated between centralization, differentiation and innovation of organizational configura-tions. With respect to centralization, environmental changes reinforce the centralization of decision-making power, which possibly leads to the establishment of a (informal) core execu-tive or the ‘presidentialization’ of parliamentary systems, possibly neglecting dispersed exper-tise (Fleischer 2010; Fleischer/Parrado 2010; Johansson/Tallberg 2010; Pogunkte/Webb 2005; Rhodes 1995). In contrast, differentiation can be observed in the course of a further differentiation at the horizontal level through the establishment of new conventional units or organizations, which has the effect of intensifying coordination problems due to a higher need of coordination between the dispersed decision-making competencies (Eberlei/Weller 2001; Felder et al. 2002; Felder/Wolfswinkler 2003). Thus differentiation and centralization rather reinforce coordination problems than solving them. Innovation refers to the introduction of ‘innovative’ organizational elements, understood within this analysis as horizontal coordina-tion structures, relying on mutual adjustment (Galbraith 1973). Whereas the former two types have been studied comprehensively in the literature with respect to governmental organiza-

                                                                                                               2 To examine formal re-organization processes, and in order to identify possible interview partners, the study builds primarily on the analysis of the organization charts, available from 2005-2012 for the Ministry of Finance.  3 To guarantee anonymity the interviews have been coded.  

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tions, research into the latter has not been so extensive (for an exception cf. Lægreid et al. 2011). Studies about organizational innovativeness put forward the positive influence of lateral struc-tures (as opposed to a centralization and differentiation of decision-making capacity), such as projects, task forces or matrix organizations4 (Kaul 2000; Messner 2002), less formalization, a higher degree of flexibility as well as more process-oriented adaptations (as opposed to pri-marily formal structural changes) on decision-making and problem-solving processes (cf. Benz/Hesse 1990; Mintzberg/Waters 1985). Further, in accordance with a structural-instrumental perspective (Lægreid et al. 2011; Verhoest et al. 2010) it can be expected that in order to fulfill specific tasks and achieve results, as well as the need to balance performance-deficits through reorganization measures, similarities between organizations within an organi-zational field facing the same adaptive pressure, gradually increase because they converge around the most efficient organizational form (Harmsen 1999: 84). The notion of an organiza-tional field refers to “those organizations that, in the aggregate, constitute a recognized area of institutional life” (DiMaggio/Powell 1983: 148). However, the scope of an organizational field can vary and refer to organizations within a policy area, a state or an international sphere (Verhoest et al. 2010: 39). Within this study, the notion of an organizational field refers to all organizations across/within different states, confronted with the same external pressures, namely the need for organizational adaptation in order to cope with internationalization and Europeanization pressures (cf. Leibfried/Zürn 2006; Messner 2002; OECD 1996; Zürn 1998) and economic and political crises (the Global Financial Crisis (GFC) and the ongoing Euro-crisis) (Donahue 2010; ‘t Hart et al. 1993). According to a ‘logic of consequentiality’, in the sense of “how formal structure is designed in an instrumental rational way” (Verhoest et al. 2010: 33), and the above described prob-lems of an increase in complexity and a resulting higher need of coordination, it is thus as-sumed that innovative forms of reorganization need to be observable across governmental organizations if they are still to be able to provide effective problem-solving. Assuming that the introduction of ‘innovative’ modes of reorganization represents a necessary condition, the focus of this study will be on the effects of the organizational structure (referring to the capac-ity, the horizontal as well as vertical specialization (Egeberg 2007; Gulick 1937)) in order to guarantee effective problem solving. In order to examine the establishment of horizontal structures, the study builds on the typolo-gy of Mintzberg (1979, 1980, 1996), referring to three main models of governmental organi-zations that incorporate different types of structural configuration: the Government-as-Machine Model, the Performance-Control Model and the Government-as-Network Model (the following remarks refer to Mintzberg 1996: 80f.).5 The Government-as-Machine Model en-compasses the configuration of the Machine Bureaucracy, relying on a standardization of rules and regulations. Inherent to this model are consistency and reliability, as well as a lack of flexibility and responsiveness to changing circumstances. Next, the Performance-Control Model’s ideal structure is the divisionalized structure. In this model, a control and planning superstructure is supported by a microstructure of individual divisions, each with separate performance targets. However, this study argues that in order to maintain this structure, the                                                                                                                4 These have so far been empirically observable in specific policy areas, such as environment and foreign affairs, as well as in specific countries, especially in Sweden and the Netherlands (Jongh/Captain 1999; Kaul 2000; Kaul/Le Goulven 2003; Liefferink 1997).  5 Mintzberg (1996) mentions two further types: the Virtual-Government Model, relying on the assumption that the best government is no government in the sense of carrying the Performance Model to its natural limit, and the Normative-Control Model, whereby control is rooted in values and beliefs. As traits of these types are not of importance for the empirical analysis of organizational change within the respective government organizations they will be left out of this study.  

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Performance-Control Model also relies heavily on expertise and a constant update thereof, thus incorporating strong traits of the Professional Bureaucracy. Finally, the Government-as-Network Model (Messner 2002; Mintzberg 1996; Schout 1999), which is the opposite of the Machine Model – depending on loose instead of tight, interactive instead of sharply segment-ed and open instead of standardized coordination mechanisms, corresponds to the Adhocracy. In this model, lateral relations prevail in order to solve arising problems, relying on informal coordination. The Network Model’s superstructure resembles the microstructure in that indi-vidual projects function within a web of interrelated projects. Mintzberg concludes that the Government-as-Machine Model and the Performance-Control Model can be regarded as the dominant models with respect to governmental organizations, with both possibly having traits of the Government-as-Network Model (cf. Messner 2002; Mintzberg 1996; Schout 1999). However, due to environmental changes, such as transnation-alization and external crises, that require further mutual adjustment among all affected organ-izational units, the institutions of nation states are under extreme pressure to innovate and move towards the Network Model. Messner (2002: 35) argues accordingly that more flexible problem-solving structures of an inclusive nature (sector-, level- and policy), which overcome interdependence-, complexity- and coordination-problems for a specific period of time, need to be established in order to supplement highly horizontally specialized organization struc-tures. Table 1 depicts the various models, their corresponding coordinating mechanisms and indicators, as well as the resulting type of change: Table 1: Types of configuration and corresponding coordinating mechanisms/indicators as well as resultant

type of change

Types of configuration Coordinating mechanisms/indicators Type of change Government-as-Machine Model (Machine Bureaucracy)

Standardization of work/Job-descriptions, guidelines (e.g. operating procedures, specific instructions and information rules, general policy guidelines)

Centralization

Performance-Control Model (Professional Bureaucracy and Divisionalized Form)

Standardization of skills/Provision and upgrade of expertise by training of employees (language-, practical-, expert-courses etc.)

Differentiation

Standardization of outputs/Objectives (commitment to values, independ-ent divisions with policy responsibility and own organizational form)

Government-as-Network Model (Adhocracy)

Mutual adjustment/Establishment of horizontal coordination mechanisms (e.g. informal relations, liaison roles, task forces, project- and working groups)6

Innovation

Source: own table, on the basis of Mintzberg (1979, 1996) and Schout (1999).

In order to define the characteristics of the configuration looked at in the case study, the first step of the analysis will build on these three types of government models so as to eventually examine the respective type of change – centralization, differentiation or innovation – that has occurred to the dominant configuration. For the purpose of analyzing the various types of change, the study again relies on Mintzberg (1979, 1980) and the assumption that the coordi-nating mechanisms represent the fundamental structural elements, the ‘glue’ between the var-ious parts of an organization. Therefore, changes within or of the organizational configura-tions will be reflected in changes/adaptations in the use of specific coordination mechanisms (cf. also Schout 1999). It is assumed that in the course of a very dynamic and uncertain envi-ronment, coordinating mechanisms need to be adapted, e.g. by the formulation of new rules, an upgrade in expertise, the creation of international units or improving horizontal coordina-tion. Hence, in order to measure the type of change – centralization, differentiation, innova-tion – the study relies on an analysis of the extent of change of the coordinating mechanisms. On this basis, the scope (within, of, among) of change can also be examined: 1) Structural (and procedural) change in the form of adaptations made to coordinating mechanisms within

                                                                                                               6 For a continuum of lateral coordination mechanisms cf. Galbraith (1973: ch. 5).  

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each type of configuration an organization consists of (upgrade/adjustment of existing config-uration) and 2) a possible changed balance between the existing coordination mechanisms, which results from adaptations, could consequently lead to a new dominant configuration, i.e. a change of the configuration, which could be regarded as a ‘quantum leap’ (Miller/Friesen 1984). As a quantum leap requires very drastic changes, it is also possible that an organization can adjust in the way of strengthening elements of another configuration and thereby create a hybrid structure (Schout 1999: 90). These two major possibilities, changes within or of the dominant configuration(s), are discussed extensively within the literature (cf. Breilmann 1989; Mintzberg 1979; Miller/Friesen 1984; Schout 1999). This dimension will be expanded in the present analysis by an inter-organizational aspect, i.e the possibility that all three types of changes (centralization, differentiation and innovation) can also occur among organiza-tions. 2.2 Organizational change under the conditions of institutional stability In line with the assumption of institutional stability in the context of the analysis of change within governmental organizations, it is assumed that values, ideas and beliefs (Christensen et al. 2007) about how an organization should function are path-dependent (Pierson 2004) and influence decisions about the formal structure of an organization to a great extent (Yesilkagit 2010). Thus decisions about the organizational design taken in the past affect – i.e. hinder or further – present decisions about reorganization measures as they are very change-resistant. Instead of focusing on goals (according to a ‘logic of consequentiality’), decisions are de-pendent on prevalent ideas and beliefs. Accordingly, decisions about organizational change are based on a ‘logic of appropriateness’ (March/Olsen 1989). Thus the organizational culture affects organizational changes on the formal and informal level. The culture of an organiza-tion, in terms of persisting structures as well as ideas and beliefs, may thus hinder or further specific types of organizational adaptation, such as ‘innovation’ (Lægreid et al. 2011), as “or-ganizational path dependencies constrain what is regarded as appropriate” (Verhoest et al. 2010: 35; see also March/Olsen 1989: 160). Therefore, with regard to the notion of institu-tional stability and the assumption of change occurring to a ‘logic of appropriateness’ it is further assumed that institutional change is most likely to occur in form of a gradual change process as well as with respect to the informal organization. Gradual institutional change In relation to the process of how change comes about, according to Streeck and Thelen (2005: 9), one can differentiate between abrupt or gradual change-processes. Due to institutional sta-bility, gradual change is more likely to happen than abrupt change, and can occur in terms of displacement, layering, drift or conversion (Mahoney/Thelen 2010; Streeck/Thelen 2005). Table 2: Process of change: modes of gradual change

Mode of change

Definition Mechanism

Displacement Replacement of existing institutions by new ones, introduction of new institu-tions, that directly compete with (rather than supplement) an older set of insti-tutions

Defection

Layering New elements are introduced on top or alongside existing institutions Differential growth Drift Changed impact of existing institutions due to shifts in the environment Deliberate neglect Conversion Changed enactment of existing institutions due to their strategic redeployment Redirection,

Reinterpretation Source: Mahoney/Thelen (2010); Streeck/Thelen (2005).

On the basis of the assumptions of path-dependency (Pierson 2004) and adaptation according to a ‘logic of appropriateness’ (March/Olsen 1989), it is argued that change needs to be ana-

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lyzed in the context of persisting institutions that lead to specific change-processes, namely gradual change in the sense of displacement, layering, drift and conversion. The important point is that organizational cultures (as well as, on a higher level, administrative traditions) do not necessarily avoid change but may actually give rise to change and make the occurrence of informal and incremental change processes more likely (Christensen/Lægreid 2001, 2007; Knill 2001; Peters/Painter 2010: 237; Yesilkagit 2010). As shown empirically by Jacobsson et al. (2004) in their study about the Europeanization of Nordic central governments:

“On a higher level, the organizational design of the central administrations might appear fairly robust, but at the same time, major changes are possible within the loosely defined or-ganizational categories that characterize the administrative models of the various countries. In other words, we find both robustness and flexibility, meaning that new organizational solu-tions for handling challenges from the EU tend to supplement existing arrangements without becoming alternatives to them or replacing them. In sum this implies an increase in the com-plexity of the civil service. Existing arrangements persist while at the same time new arrange-ments are added” (Jacobsson et al. 2004: 86f.).

The common observable empirical pattern Jacobsson et al. (2004) identify here corresponds to a specific type of incremental change described by Streeck and Thelen (2005), namely lay-ering (but also implicitly conversion (cf. Knudsen 2000: 173)), referring to the introduction of new arrangements on top of or alongside existing ones. However in this case the consequen-tial possibility exists of institutional drift occurring (cf. Pierre 2010: 200). In the course of the present analysis it will be examined if innovation, as one specific type of organizational change, also mainly corresponds to one specific type of gradual change. Innovation on the informal level Building on the literature on the relationship between the formal and informal organization (Barnard 1950; Downs 1967; Mayntz 1958, 1998), it is further assumed that a link between the character of change – formal and informal – as well as the various types of change – cen-tralization, differentiation and innovation – exists, e.g. between informalization and innova-tion. This is also shown by the study of the transnationalization of the central governments of the Nordic states by Jacobsson et al. (2004: 100):

“This suggests that there is an interplay between robust formal organizational structures and flexible informal relations based on anticipated reactions and autonomous adaptations”.

Thus, with respect to the relationship between the formal and informal organization, it is as-sumed that informal structures most likely represent a parallel-structure to the formal organi-zation (Mayntz 1998) e.g. there can be formal innovation but at the same time informal cen-tralization (cf. Knudsen 2000; Schout 1999).7 Accordingly, the interest of the study rests on the empirical relevance of different modes of formal and informal innovation within the Min-istry of Finance. Table 3: Interplay between type and character of change

Type and character of change

Non-innovative Innovative

Formal Change within the existing configuration, most likely in the form of differentiation

Gradual change within, of, among the existing configuration(s)

Informal Most likely in terms of centralization Higher necessity if low level of formal innova-tion

                                                                                                               7 Informal structures can also be a step on the way to eventual changes on the formal level (Héritier 2007). How-ever this study focuses more on the relationship in terms of the informal organization as a substitute for deficits of the formal organization (Mayntz 1998).  

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On the basis of the identified need for governmental organizations to ‘innovate’ on the one hand and under the general assumption of institutional stability as well as the subsequent as-sumptions of institutional change being gradual and primarily on the informal level on the other, the extent of organizational ‘innovation’ will be analyzed within the following.    3. The Analysis of organizational innovation within the Ministry of Finance  The empirical question is whether changes in the coordinating mechanisms are observable, due to an increased complexity and need for coordination, and to what extent this results in ‘innovative’ change. In order to examine continuity and change within the Ministry of Fi-nance, the dominant configuration within the organization will be identified so as to be able to analyze to what extent changes have taken place. 3.1 Dominant coordinating mechanisms in the Ministry of Finance The organizational structure of the Ministry of Finance is characterized by an extremely high degree of horizontal specialization (consisting of nine divisions) as well as vertical specializa-tion (reaching from the minister and management level to the level of state secretaries, the heads of divisions as well as heads of sub-divisions, composed of units, which represent the operative level) (Federal Ministry of Finance 2012a). Regarding the high level of labor divi-sion, the Ministry relies on specific job descriptions by relating specific tasks within the min-istry to one specific office (e.g. head of division) and pay group (#6, #9). In terms of its size, the Ministry of Finance is a comparatively large ministry composed of approximately 2000 employees.8 The Ministry mainly relies on the standardization of rules and skills as the pre-vailing coordinating mechanisms within fairly independent divisions, each of which encom-passes a high level of expertise. Intra-organizational coordination mainly depends upon on lead-management and co-signing (Federal Ministry of Internal Affairs 2011; #3, #5). This refers to both the Machine-Model and the Performance-Control-Model, as well as having traits of the Network-Model by relying under specific conditions on working- and project groups (Federal Ministry of Finance 2012b, #1). In relation to changes in the main coordinating mechanisms, which could eventually lead to a change in the dominant configuration, it is thus of interest to see if an increase in complexity and a higher need for coordination leads simultaneously to an increase of mutual adjustment in the form of project groups.9 This would indicate a shift to the Network Model, as opposed to the major modes of lead management and co-signing, representing standardized coordina-tion mechanisms that indicate the formal existence of the Machine Model as well as the pre-vailing standardization of skills, a high degree of expertise and the standardization of outputs within the single divisions, referring to the Performance-Control Model. On the basis of the prevailing structural configuration and the corresponding coordinating mechanisms within the Ministry of Finance, a high necessity for change in terms of innovation results:                                                                                                                8 See:  http://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/BMF-Image-broschuere.pdf?__blob=publicationFile&v=5.    9 In regard to intra-ministerial horizontal structures §10, paragraph 2 of the Joint Rules of Procedure of the Fed-eral Ministries (Gemeinsame Geschäftsordnung der Bundesministerien, GGO) specifies: “For temporary tasks with a complex nature, which require the employment of staff of various divisions or units, it is preferable that project groups be established. The management, goal and competencies, as well as staff appropriations and material expenses need to be defined in the project order” (own translation, MK).  

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Table 4: Necessity of change of the coordinating mechanisms within the Ministry of Finance

Ministry of Finance Coordinating mechanism/ means

Standardization of work High level of labor division; Relying on lead-management and co-signing (intra- and inter-organizational level) and high degree of vertical communication (gener-ally including all hierarchical levels); Federal pay regulation, which relates specific tasks within one ministry to one specific office and pay group

Standardization of skills Relying on a high level of expertise within the single units/divisions Standardization of outputs Relying on fairly independent divisions Mutual adjustment

Only temporary non-standardized mutual adjustment

Dominant configuration

Machine Model/Performance-Control Model (under specific conditions traits of the Network Model)

Necessity of change

Intra-organizational High (à Change of existing form towards the Network Model) Inter-organizational High (à Change of existing form towards the Network Model)

3.2 Empirical results: An increase of mutual adjustment? The analysis of changes in the coordinating mechanisms rests on the analysis of the organiza-tion charts of the Ministry of Finance, other official documents and the first empirical results obtained from interviews with representatives of the Ministry of Finance as well as the Minis-try of Internal Affairs and the Chancellery. On the basis of the analysis of the empirical data the extent of organizational change in terms of the establishment of lateral structures will be analyzed under consideration of changes with respect to the formal and informal organization and specific types of gradual institutional change. In the course of the conduction of the inter-views, it became clear that the establishment of new conventional units and the integration of new tasks into existing units, referring to a further divisionalization and a focus on stability inherent to the Performance-Control and the Machine Models, represent the major mecha-nisms utilized in reacting to environmental changes (#1, #2, #3, #5). However, the establish-ment of horizontal structures in the form of project groups, referring to an increase in mutual adjustment and thereby the Network Model, appears to increase at least in individual divisions (Federal Ministry of Finance 2012a). In the following, the focus will be on an observable increase in mutual adjustment, resulting in working- and project groups. However, in order to evaluate the extent of innovation recent examples for the common modes of adaptation of a further horizontal organizational differen-tiation on the one hand, and an integration of new tasks within the existing structure as reac-tions to Europeanization and internationalization processes on the other. The analysis of the extent of mutual adjustment focuses first on the extent to which formal as well as informal intra-organizational horizontal coordination structures have been established in order to pro-vide effective and comprehensive problem solving. Further it will be examined if inter-organizational horizontal structures exist and if so, in which area. Therefore changes in the organizational culture of the Ministry of Finance, giving rise to innovation, will first be pre-sented in order to analyze on this basis the influence thereof on innovative activity. Changes in respect to organizational culture: the issuing of guidelines On the basis of the general assumption of organizational change occurring according to a ‘logic of appropriateness’, changes in the variable of the organizational culture with respect to a change about the ‘appropriateness’ of organizational structures is of interest. Considering the influencing role of the organizational culture with respect to organizational innovation in terms of the introduction of horizontal structures, the unit that deals with organizational ques-tions within the Ministry of Finance   has published a project-guide for the Ministry, which exists in its general structure since 2005 but has been revised since then (the current version is

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from January 2012, cf. Federal Ministry of Finance 2012b). The goal of the project-guide is to upgrade the understanding and acceptance for project work within the Ministry, and it is de-signed to be of practical assistance for all employees that work, currently or in the future, in project groups. Therefore, the project-guide initially describes the fundamental methods and techniques of project work, and subsequently provides practical advice for the establishment and the realization of projects (Federal Ministry of Finance 2012b: 3). Generally, the initiative to establish capacities, such as a unit or a project, comes from the head of one division but could as well come from the respective state secretary or the minister in specific, highly rele-vant cases. Project groups need to be further distinguished from working groups, which repre-sent a less formalized form of mutual adjustment than a project in order to deal with specific tasks outside the line organization. As working groups can reach from very little to highly institutionalized structures, but always informal, they are not listed anywhere and do not have to be reported, which means that not even the unit that deals with organizational questions knows how many working groups or similar organizational forms exist within the Ministry, characterized by high informality and low institutionalization (#1).10 The main differences between project- and working-groups are subsumed in Table 5: Table 5: Main differences between project- and working-groups

Project Working group Cause No difference: effective and efficient handling of complex, division- and/or unit-encompassing tasks Goal Clear and measureable project goal Clear and measurable goal definition not necessary Competencies Displacement of competencies from the line

organization for the period of the project No own decision-making power

Scope of work More than 200 man-days No specification of the scope of work Resources (budget)

Partial or complete release of the project mem-bers

No defined personnel-resources

Duration Clearly defined project duration (min. 3 months, max. 5 years)

No time period defined (less than 3 months or continuing task possible)

Organization Fixed, temporary organizational structure Loose, where necessary temporally not defined organizational structure

Source: Ministry of Finance 2012b: 6.

With regard to the relevance of project groups, the project-guide states that project work is still the exception, however the number of projects continuously increases. Therefore it is of interest to see if the publication of the project-guide has made a difference with regard to the establishment of projects. Due to the fact that prior to the publication of the project-guide the number of existing projects had not been counted, it is difficult to state that there has been an increase in the number of projects, also under consideration that no detailed regulations or guidelines were previously specified. However, it can be said that since the publication of the project-guide, the number of the established projects has constantly grown (cf. organization charts, #1) and members of the Ministry perceive the issuing of the guidelines as the basis for the actual establishment of horizontal coordination structures, in other words for innovative activity (#2, #5). It can thus be assumed that the issuing of the project-guide as well as the assistance of the organizational unit in the course of the establishment of a project group facil-itates the establishment of horizontal coordination structures by positively influencing an ‘in-novative organizational culture’ within the Ministry of Finance.

                                                                                                               10 However, even if a specific task results in the establishment of a project organization, this does not necessarily mean that they are reflected on the organization chart. Only projects that stretch over a longer period of time and whose content is of considerable relevance for the Ministry of Finance, and are managed by at least the head of one unit, are represented on the organization chart. An overview of all the ongoing projects exists in the schedule of responsibilities of the Ministry of Finance (at this point of time nine projects are listed in the schedule of re-sponsibilities, of which two are currently in the process of termination (#1)).  

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The establishment of horizontal structures on the formal and informal level In order to examine the effects of Europeanization- and internationalization-processes on the organizational structure of the Ministry of Finance the starting point for the analysis was the examination of an increased need for mutual adjustment especially with respect to the Euro-pean policy division and the Financial market policy division. The analysis of the organiza-tion charts and the interviews revealed an increased occurrence of project groups within the European policy division of the Ministry of Finance as opposed to an increase in informal working groups within the Financial market policy division (Federal Ministry of Finance 2012a, #1). In the following these forms of innovation will be described in more detail. Regarding intra-organizational structures within the Ministry of Finance – relying on mutual adjustment – the establishment of three project groups as a direct consequence of Europeani-zation-processes within the European policy division especially stands out: 1) the project ‘Stability reform of the European economic and monetary union’; 2) the ‘Pilot-project Ger-man-French working unit within the Ministry of Finance and MINEFI (DFA)’; and 3) the project ‘European jurisdiction’ (initially located within the division on Federal financial rela-tions, constitutional law and legal matters, then transferred to the European policy division). In the following, the three projects will be analyzed in more detail as examples of a change in coordinating mechanisms towards the Network-Model. The project ‘Stability reform of the European economic and monetary union’ was established in response to the creation of the so called ‘Van Rompuy Task Force’11 and existed over ap-proximately one year, having only recently been terminated. The negotiation process on the European level required, if the Ministry of Finance wanted to actively bring in its German position, a common negotiation-process in the form of a division-encompassing structure in order to formulate a common position. The project group encompassed around eight employ-ees from three divisions (the numbers varied due to changes during the year). After initially formulating a strategy and dividing the work, regular meetings, sometimes even of the whole group, were held (#2). After the adoption of the eight texts on the European level, the project task has been regarded as effectively fulfilled and terminated, and the project structure was dissolved. The establishment of the ‘Pilot-project German-French working unit’ can be traced back to a common decision of the German Finance Minister, Wolfgang Schäuble, and the French min-ister of Finance, Christine Lagarde, to have in both ministries a common working unit.12 The project also existed for approximately one year and has been terminated recently. The task of the project group was to prepare common positions for the German and French finance minis-ters in relation to specific topics on which they needed to be ready to make an announcement, e.g. in Brussels at the next ministerial meeting. Accordingly, the goal of the project group was to produce identical preparations for the two ministers, thus only one German-French position exists, in the form of one note in English, which they could present together. In cases where no common position could be established, these structures were also used in order to approach each other in controversial topics or at least go through a process that enabled the ministers to understand the differing positions (#2). The major task of the project was of a coordinating nature. It was composed of three employees, among them a French exchange civil servant,                                                                                                                11 A working group around the President of the European Council, Herman van Rompuy, was established, con-sisting of the finance and economic ministers of the 27 member states of the European Union to decide on con-sequences of the crisis. The result of this working group was six texts, the ‘sixpack’, followed by the ‘twopack’, for more information see: http://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Europa/Stabilisierung_des_Euro/2010-10-22-rompuy.html.  12  The formal decision was made on February 11th 2011 at the 43th Franco-German Finance and Economic Council.  

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who were the point of contact for the management-level of the ministry, if there existed an order or request of a German-French nature. The project members then tried to coordinate the work with regards to content and get it into the ‘right’ form so that it is recognizable. Apart from the coordinators, the other members of the project group were task dependent. Accord-ing to the nature of the topic the project group dealt with, for example members of the Tax division or the Financial market policy division were involved (#2). This working unit was also the point of contact for the French colleagues, they knew if a common paper or minister-preparation should be produced, they were their German counterpart. The project ‘European jurisdiction’ existed effectively for around two years (#3). The goal of the project group was on a very general level to improve the prospects of success of proceed-ings before European courts that affect the Ministry of Finance (specifically in the area of direct taxes). The measures that were accordingly formulated in a plan of action, as the basis for the project, were to improve the conduct of cases, influence the expert audience (through expert opinions, the organization of an international conference on European tax law (which resulted in the publication of a conference transcript (Kruthoffer-Röwekamp 2010), a working visit to the European Court of Justice (ECJ) as well as half-yearly meetings of professors with the respective state secretary) and the examination of the German tax regulations (preventive, modifications in cases that could be regarded as potentially problematic through the ECJ). The project group consisted on average of 15 members and was mainly composed of employ-ees of the Legal and the Tax division (single members also belonged to the Federal budget division or the Customs division) belonging to 10-12 different units. However, what has been perceived as very problematic for the project structure were the personnel resources of the project, the percentage of the partial release of the project members. The project management worked 80 percent of its working time for the project, besides a ‘managing director’, whose tasks were more of an administrative nature, who worked for 100 percent for the project, but some of the other project members were only partially released to work in the project struc-ture for 5 percent, which was not ideal (#3). Turning from formal changes to informal changes within the Ministry of Finance, during the interviews it became clear that within the European policy division far-reaching changes also happened on the informal level. With respect to mutual adjustment, it became clear that, due to less time to react, the standardized modes of lead-management and co-signing have been replaced in large parts by mutual adjustment on an informal level, e.g. in the form of tele-phone calls (#2). In addition to the formal project groups listed above, in the course of the Euro-crises a highly informal working group, composed of very important representatives of the Ministry, existed within the division. The degree of informality of this working group can be evaluated as very high, as the members were not allowed to talk to anybody about it, not even with their own supervisors (#2). During the conduction of the interviews it became clear that representatives of this division perceive these developments as indicating a more general trend, towards an increasing importance of informality in the process of mutual adjustment (#2). With respect to the Financial policy division, it stands out that no formal horizontal coordina-tion structures (in the form of project groups) have been established since 2005. This is de-spite the fact that this division was, and still is, confronted with far-reaching changes in its international environment. However, on an informal level, the establishment of horizontal structures can be observed to deal with temporary problems within the international subdivi-sion of this division. For example, one parliamentary commission of inquiry has been estab-lished in the course of the state intervention to rescue the system relevant bank Hypo Real Estate, whose consequence was the establishment of a corresponding working group within the division. Another working group has also been set up to work out the details of the Finan-

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cial Market Stabilization Law in 2008. Accordingly, with respect to the Financial market pol-icy division, it can be shown that horizontal informal structures were established rapidly, with the aim of dealing with complex tasks of a unit-encompassing nature, and coexist with a high degree of formal horizontal differentiation and no formal horizontal structures. Further, de-spite the establishment of formal horizontal structures within the European policy division, the importance of informal mutual adjustment is emphasized in the context of very urgent problems (#2, #5). In the case of very urgent problems that require an ad-hoc solution, the difficulty with project groups is the relatively high administrative requirements, especially in the course of their establishment (#3, #5). However, if project structures are more frequently used, the administrative requirements are no longer perceived to be as high (#2). With respect to inter-organizational horizontal structures (referring to the German cabinet), no formal projects were found to exist that could be traced back to internationalization and Euro-peanization processes. It appears that the establishment of formal project groups has greater significance within the area of common service provision/modernization for the federal minis-tries and their subordinate agencies, as for example the project-group ‘service centers’13, with the goal to transfer standardized administrative services into service centers, tasks such as salary payments, onto one external service provider, e.g. the Federal Office of Administration, so that the federal ministries and their subordinate agencies can focus more on their core tasks (#10, #11)14. The problem with inter-organizational coordination structures is clearly identi-fied in the inclusion of the political level as soon as ‘hot topics’ are affected (#2). Contrary to this, as has been shown by the example of the German-French working unit, horizontal struc-tures on a transnational level within the policy field of financial policy are established and perceived as very important (#1, #2, #3). Further differentiation and conversion of existing units Regarding a further organizational differentiation and conversion of existing units, which oc-cur in response to Europeanization and internationalization processes in order to balance per-formance deficits (thus according to a ‘logic of consequentiality’), selected examples of or-ganizational adaptation will be presented in the following. However these can be regarded as rather reinforcing coordination problems than solving them, due to a further dispersion of expertise instead of concentration thereof within lateral structures. Within this context, the establishment of the unit Foreign media (Referat Presse Ausland) on the management-level of the ministry first needs to be mentioned. The unit was established in order to react appropriately and be able to communicate the position of the Ministry of Fi-nance in the course of the GFC and the ongoing Euro-crises to the foreign media. This unit has the primary task of communicating the position of the Ministry of Finance to the outside, and it is responsible for preparing the Minister for interviews, press conferences, etc., when-ever foreign media is included. On the initiative of Minister Schäuble, the unit was estab-lished in 2010 in order to work against the tendency towards ‘isolation’ in international fo-rums, e.g. the G20 meeting or the Euro-group, by upgrading the communication of the Minis-ter’s position to the foreign media and thereby strengthening the bargaining position of the Finance Minister. Therefore, the establishment was not considered as an ‘image- or luxury-project’ but as a direct consequence of the GFC in the form of the necessity for a structural

                                                                                                               13 See: http://www.verwaltung-innovativ.de/cln_115/nn_1978508/DE/Regierungsprogramm/dlz/dlz__inhalt.html#Anker14.  14 Another example would be the establishment of federal IT-service centers: http://www.verwaltung-innovativ.de/cln_115/nn_1978508/DE/Regierungsprogramm/dlz__it/dlz__it__node.html?__nnn=true.  

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organizational change, as the existing structures15 were not perceived as being effective in that respect (#4). It further needs to be mentioned that the Ministry of Finance is so far the only Ministry, which established such a unit. Not even the Chancellery translated this perceived external pressure into organizational adaptations (Federal Chancellery 2011). With regard to the influence of other ‘direct consequences’ of Europeanization and interna-tionalization on coordinating mechanisms, a closer look at the Financial market policy divi-sion seems very interesting. Due to recent developments on the European and international level in the area of Financial market policy and the increasing work load, which reached a peak in 2009 (#1), one could expect organizational change to occur (due to the complexity of the tasks, most likely in the form of mutual adjustment). However, the empirical analysis of changes within this division reveals the following pattern: new tasks primarily caused the establishment of new conventional units within the existing divisions, pointing to a further divisionalization. For example, parallel to the formation of the Federal Agency for Financial Market Stabilization in the course of the GFC, one new unit with the competency of legal and technical supervision was established in 2008. Further, the unit dealing with the banking sec-tor was split up in the course of the GFC because the task area became so broad that it was not possible to deal with within one unit (#5). Thus, the tasks of the emerged units have been specified further into regulatory issues of the banking sector on the one hand, and banking supervision on the other. Correspondingly, due to far-reaching changes on the European level, the division European policy also finds itself at the moment in a process of re-organization in the sense of a com-plete strategic conversion of the division as a direct reaction to the ongoing Euro-crisis (#2). The adaptations are the following: First, the capacities for country-analysis (Euro-zone and non-Euro-zone) are upgraded in the form of new units with the goal of monitoring and the early identification of country-risks, second, a new unit is established that is responsible for the new crisis management mechanisms (European Financial Stability Facility (EFSF), Euro-pean Stability Mechanism (ESM)), and third the personnel capacities for compliance with the legal information obligation with respect to the German Bundestag and Bundesrat are upgrad-ed to improve the cooperation between the government/Ministry and the Parliament. However, all these examples show that, instead of upgrading mutual adjustment to deal with complex tasks, only adjustments within the existing configuration are observable. Further-more, within this context of strengthening individual divisions and upgrading expertise, the Financial market policy- and the European policy division have been supported through the allocation of new employees (#1, #2, #7). This has been authorized by the Parliament despite the target of a yearly overall reduction of 1.5 percent of the positions within the federal ad-ministration since 2009 (#1, #8, #10). With respect to the European policy division, the allo-cation of new positions is very outstanding: 12-15 new positions were authorized for the divi-sion, which is a large number considering its total size of less than 100 employees (#2).16 The

                                                                                                               15 On a formal level, the German Ministry of Foreign Affairs holds the responsibility for the support of foreign media, however it is not perceived as fulfilling this task in a satisfactory manner, as the introduction of this new unit reveals. However, there are points of contact to the existing structures: The new foreign media unit has established informal and, to a very small degree, institutionalized structures in the form of a network of contacts to the press offices in the relevant embassies and consulates, consisting of telephone calls and talks but no regu-lar telephone conferences (e.g. Paris, Washington, New York, London but also Athens, where the employees of the unit have no language skills and are thus very dependent on local information). These informal structures can be so intense that, in some cases, the press offices in the respective embassies send the foreign media unit their own overview and analysis of the media of the host country (#4).  16 During the German Presidency of the European Council in the year 2007 the European policy division was temporarily strengthened on a personnel level. Recently an increase of ‘Europe-specific’ tasks that cannot be assigned to the individual divisions effects a growing relevance of the European policy division, which is in turn

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strengthening of the divisions on the personnel level, resulting from an increase of tasks and the far-reaching character of problems, points towards an increasing importance of the two divisions (#1, #2, #7). During the course of the interviews, it became clear that the integration of new tasks into ex-isting structures and the possible conversion thereof represents the most commonly used strat-egy in order to handle newly occurring problems (#1, #2, #3, #5, #6, #8, #10). With regard to the Ministry of Finance, as the Financial Market Policy division was (and still is) confronted with high changes in its environment, which not only suppose intra- but also inter-organizational coordination (e.g. coordination in the course of finding a common German position for the Financial Stability Board (FSB) with the Federal Financial Supervisory Au-thority (BaFin) and German Federal Bank as the other German members of the FSB), a closer look seems promising. One notices that no formal project-groups (Ministry of Finance 2012a; #1, #5) have been established within this division. With respect to the example of the Finan-cial Stability Board, the task of the intra-organizational coordination of the common position of the Ministry of Finance in order to transfer it onto the international level rests within the unit ‘International financial markets; Financial Stability Board’. However this unit has been subject to conversion: previously the ‘task FSB’ played only a minor role within the unit, but due to developments on the international level17 the strategic orientation of the unit changed completely without any structural changes (e.g. no changes in size). The changes can mainly be observed on the personnel-level: whereas previously approximately ¼ of the employees of the unit were concerned with the FSB, the relation has now increased to ¾. Also, the person-nel-structure has changed massively within the last 15 months. The unit was previously strongly market-oriented, consisting mainly of economists, whereas it is now a strongly legal-oriented regulatory unit, consisting primarily of jurists (#5). Nevertheless, the empirical analysis also revealed the necessity of a higher need of coordina-tion in regard to the deployed change-mechanisms. Together with the shift of one sub-division (International finance and monetary policy) from the Financial market policy division to the Policy principles division, a conversion of the Policy principles division took place with re-gard to its upgrade of international scope.18 As the need for coordination between the sub-division ‘National and international financial markets and financial market regulation’ and the now in Policy principles division situated unit ‘Global economy and monetary issues; G7, G8 and G20’ is extremely high, the role of the aforementioned unit ‘International financial mar-kets; Financial Stability Board’ changed in terms of its increasing coordination task. Whereas the unit dealing with the G20 could previously directly access the relevant units situated in the Financial market policy division, now the unit ‘International financial markets; Financial Sta-bility Board’ coordinates the position within the division and then communicates it to the unit ‘Global economy and monetary issues; G7, G8 and G20’, situated in the Policy principles division (#5). However, although an increase of the need for coordination and the coordina-tion task of the unit ‘International financial markets; Financial Stability Board’ increased due to structural modifications, no parallel change in coordination procedures (resting on the standardized operating procedures of lead-management and co-signing) between the two divi-sions dealing with financial market policy took place.                                                                                                                                                                                                                                                                                                                                                          indicated by its growth in size.  17 During the G20-summit in April 2009 in London, the decision was made to transform the Financial Stability Forum into the Financial Stability Board, an international organization that supervises the international financial system and articulates recommendations. Thus its importance grew correspondingly as it became a forum for decision-making instead of a discussion-forum.  18 During the interviews it became clear that the new allocation of the sub-division did not necessarily happen due to functional reasons but rather due to personnel reasons, in order to provide the new head of the Policy principals division with a wider scope of competencies and thereby converting the scope of the division (#1, #5).  

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In addition, it also needs to be mentioned that due to the fact that almost every unit is con-fronted with a European and international dimension in their every day work, the need of a change of coordinating mechanisms within individual functional units is observable (#1, #2, #6). In the case of the Ministry of Finance, the overriding goal of the Europeanization of the whole ministry is formulated by the management of the ministry in the context of the annual target agreements of the heads of divisions and the responsible state secretaries and the goals of the divisions formulated on this basis (#2). On a formal level, the upgrading of the European competency within the individual divisions and functional units is envisaged through various measures. On the one hand, European-specific practical training courses are offered by the European policy division as well as by the Federal Academy of Public Administration.19 On the other hand, language courses are offered by the Ministry of Finance in order to advance the language skills of the employees (#2, #6). In matters of the internationalization of the individual divisions and functional units, especially with regard to the international tax subdivision, the Federal Finance Academy, which comprises one unit that especially deals with international tax law (as well as European Community law) and offers practical advanced training in this area, also needs to be men-tioned.20 Regarding the Europeanization of the individual divisions on an informal level, the head of the Department for Financial Affairs of the Permanent Representation of the Federal Republic of Germany to the European Union visits the Ministry of Finance on a regular basis and gets in touch with the different heads of divisions to give them an impression about the division-relevant processes in Brussels – what their room for maneuver is and what this requires (#2). Besides, the personnel alternate between the divisions of the Ministry of Finance. Employees that have previously been in the Budget division come to the European policy division and then go back or first work in another division before going back to their original division (#1, #2). In addition, it is preferred that new employees (not only within the European policy divi-sion but also in the other divisions) spend a period of time at the Department for Financial Affairs at the Permanent Representation of the Federal Republic of Germany to the European Union in Brussels, so that they are familiar with the processes on the European level. Also, staff are sent into European or international structures, and it is hoped that they can optionally remain in the structures so that one division or functional unit has a point of contact within an institution in order to establish understanding for ones own position (#2, #6). Contrary to the approach of establishing horizontal problem-solving structures, it appears that one of the ma-jor instruments to deal with the challenges resulting from Europeanization and internationali-zation is the upgrade of European and international competency on the unit-level. On the basis of the presented examples for the establishment of horizontal structures on the one hand and the prevalent modes of a further differentiation, a conversion of existing units and the strengthening of the individual divisions in order to deal with new challenges, the change-processes of the observed adaptations will be characterized within the following. Characterization of the prevalent change-processes As specified within the project guide, project groups represent an organizational form that can be established on a temporary basis, in addition to the existing organizational structure, in order to solve specific cross-sectional problems (Ministry of Finance 2012b). Thus the pro-cess of institutional change in the course of the establishment of project groups can be charac-                                                                                                                19See:http://www.bakoev.bund.de/DE/03_Unser_Angebot/01_Fortbildungsveranstaltungen/01_Themen/25_Europa/europa_node.html.  20See: http://www.bundesfinanzakademie.de/.  

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terized as formal layering. However, with regard to the termination of formal project groups or the establishment of informal working groups, it is very interesting to see what their ‘or-ganizational consequences’ are.21 It appears that various possibilities exist: First, a project can be terminated due to task-fulfillment or shifts in the environment, and the structure disappears on the formal level but the possibility exists that structures are still used on an informal level; second, the project-structure results in the establishment of a new conventional organizational unit within the existing organization, third, the project-group is integrated into an already ex-isting organizational unit; and fourth, informal horizontal structures can remain in the sense of an informal parallel-structure or represent a step on the way to formalization (Héritier 2007; Mayntz 1998). The study revealed that, with respect to the project ‘Stability reform of the European econom-ic and monetary union’, although the formal structure has been terminated and dissolved, now in the context of every-day work former members tie up to these former structures in an in-formal way – even though no formal lateral structures between the divisions exist anymore, informal lateral structures still persist between the divisions and can be used if the necessity exists (informal layering) (#2). As regards the ‘Pilot-project German-French working unit’, after its termination the working unit will be integrated within an existing unit (institutional conversion) within the European politics division (Bilateral relationships). A corresponding change can be observed within the MINEFI on the French side, as they are also in the process of modifying their organization chart accordingly. However this process is not terminated yet. The vision exists that, in the end, one common unit with two offices will be established (#2). Concerning the project ‘European jurisdiction’, the structure has been dissolved through the ‘non-decision’ of the relevant state secretary (institutional drift), followed by a formal request of the termination of the project by the project management. With respect to the consequences of informal horizontal structures – working groups and other forms of informal mutual ad-justment – the presented examples support the assumption of informal arrangements repre-senting a parallel-structure in terms of informal layering rather than a step towards formaliza-tion. Consequently with regard to the process of change, the following pattern is observable: Table 6: Types of gradual institutional change observed within the Ministry of Finance

Ministry of Finance Types of gradual institutional change Identified changes

Conver-sion

Drift Displace-ment

Formal Layering

Informal Layering

Project ‘European Jurisdiction’

o x

Project ‘Stability reform of the European economic and monetary union’

o x

Project ‘German-French working unit’ o x Adaptations within the Financial Market policy division: working group on the Financial Market Stabilization Law; HRE inquiry committee

o x

Establishment of Unit Foreign Media x Re-organization processes within the European policy division

x

Establishment of new units within the Financial policy division

x

Upgrade of European competency within the individual divisions/units

x

Strengthening of the Financial policy and European policy division (personnel level)

x

International orientation of the Policy principals division x (x= process of change with respect to the establishment and existence of the arrangement; o= organizational consequence)

                                                                                                               21 The analysis also revealed that despite the existence of formal project guidelines the organizers can still be skeptical towards the establishment of project groups, as the biggest problem is seen in the ‘organizational con-sequences’ and the implementation of project results, i.e. the transfer into the line-organization without an up-grade in personal after a project has been terminated (#8, #10).  

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The classification of the analyzed changes with regard to their process-character shows that the establishment of horizontal coordination mechanisms, thus innovation, coincides with institutional layering, on both a formal and informal level, rather than displacement. As for-mal project groups as well as informal working groups are established on a temporary basis on top of the existing organizational structure, organizational change seems to occur accord-ing to a ‘logic of appropriateness’ rather than to a ‘logic of consequentiality’. After the termi-nation of projects, the common pattern is that the structures are dissolved due to a perceived task-fulfillment (drift) or transferred into existing structures (conversion): no project group has been transferred into a newly created unit so far. Although the growing necessity for more flexible, temporary and problem-specific inter-organizational structures, composed of various experts, is perceived within the government organization, so far no such changes in the form of displacement – flexible horizontal structures replacing the highly vertically and horizontal-ly specialized line organization – are observable. The major problem seen in this respect is the existing federal pay regulation, which relates specific tasks within one ministry to one specific office (e.g. head of division) and pay group (#6, #8). As opposed to the establishment of for-mal project groups in the sense of formal layering, the common observable reaction to chang-es in the environment refers to the conversion – the strategic redeployment – of existing units. 4. Conclusion On the basis of the analysis of changes in the coordinating mechanisms, with a focus on an increase in mutual adjustment, the extent of innovation within the Ministry of Finance can be classified as follows: Table 7: Extent of innovation within the Ministry of Finance

Type and character of change

Non-innovative Innovative

Formal Further differentiation on the management-level, within the European policy and Financial market policy divi-sion; strategic conversion of units and divisions; overriding goal of the ‘Europeanization’ of the whole ministry resulting in a strengthening of individual units and divisions

Issuing of formal project guidelines Project groups within the European policy division (Stability reform of the European economic and monetary union, European juris-diction, German-French working unit)

Informal Less centralization but more ‘strengthening’ of single divisions within the organization observable (increase in personnel in times of budgetary constraints (Finan-cial market policy- and European politics division))

Working groups within the Financial policy division Increase in informal coordination within the European policy division (everyday mutual adjustment and highly informal working group)

The results reveal the following pattern: considering the scope of change, the observed chang-es in coordinating mechanisms, which can be directly linked to changes on the European and international level, result mainly in change within the dominant configuration. The Perfor-mance Control Model within the Ministry of Finance seems to be strengthened – in terms of non-innovative organizational adaptations on a formal level by a further differentiation and a corresponding upgrade in expertise within the individual divisions and units, resulting in their conversion. On an informal level one could probably speak of a strengthening of individual divisions within the Ministry rather than centralization. With regard to organizational change in terms of innovation, the picture is more differentiated – within the European policy divi-sion the formal establishment of horizontal coordination structures, in the form of project groups, appears to become increasingly important as well as informal mutual adjustment. With respect to the establishment of the German-French working unit, even a change in coor-dinating mechanisms among organizations, pointing to a high intensity, is observable. By strengthening elements of the Network-Model one could possibly speak of the establishment of a hybrid structure with respect to the European policy division. However, other divisions

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still mainly rely on individual units and the standardized coordination mechanisms of lead-management and co-signing on a formal level, and at the same time a corresponding change in coordinating mechanisms, referring to the set-up of informal working groups, occurs within these divisions, as exemplarily shown by the Financial market division. Other divisions that are not frequently confronted with new problems but deal more with routine and standardized, recurring tasks, such as the Privatization division or the division dealing with the Federal budget, reveal less change in the sense of an increase in mutual adjustment on a formal or informal level (Ministry of Finance 2012a, #1). Accordingly, task specific features (cf. Lægreid et al. 2011) could serve as one explanatory factor for the observed differences between the individual divisions. The establishment of formal horizontal structures within the European policy division could thus be explained by its coordinating character: through the growth in EU-competencies, the points of contact be-tween individual divisions have increased and problems occurring within these areas could best be solved within a project structure, encompassing the experts from the specialized divi-sions. Drawing on the explanatory factor of the task area of the divisions, it is nevertheless very interesting, as already mentioned, that no project groups have been established since 2005 on an intra- and inter-division level within the international subdivision of the Financial market policy division, even though far-reaching changes in its environment have taken place. The new tasks the division is confronted with were perceived as permanent tasks and there-fore either integrated within existing units or new units were established in order to adequate-ly handle the new tasks (#5). However, as has been shown within the Financial market policy division, the establishment of informal working groups goes along with the lack of change in the coordinating mechanisms on the formal level. Further, as shown by the process of the establishment and determination of project groups, the orientation of the heads of the organizations and divisions could serve as another explanatory factor for specific forms of reorganization, relying on a change in coordinating mechanisms. The establishment of horizontal coordinating mechanisms is dependent on the attitude of the leadership, as the initiative to establish project groups can be traced back to the heads of the divisions, in some cases the initiative even comes from the minister. The study revealed that for some heads of division, project groups appear to represent an organizational form that enables them to work with experts from different divisions in order to solve a specific task or work on a particular problem over a specific period of time (#2, #3). Over the duration of the project group, the employees need to comply with the instructions of the project management, which can belong to another division and some heads of divisions dislike this and are accord-ingly averse to project-groups in general (#2). Regarding the organization chart of the Minis-try of Finance, it stands out that at the same time the head of the European policy division changed, the first projects within the division appeared on the organization chart in April 2011. The initiative to establish the project groups came from different points: in the case of the project ‘Stability reform of the European economic and monetary union’, the initiative came from the head of the division; in the case of the two other projects, the initiative came from the minister – the project ‘European jurisdiction’ was established under Minister Steinbrück, whereas the request to establish the ‘Pilot-project German-French working unit’ came directly from Minister Schäuble (and, on the other side, the French Minister of Fi-nance). The origin of the initiative naturally also affects the relevance of a project group with-in the organization, as the ‘Pilot-project of the German-French working unit’ reveals, which is perceived to be of high relevance within the Ministry of Finance (#2). The role of the leader-ship-attitude towards project-groups and the effect of their willingness to work together in a division-encompassing way – to release personnel to work within an other hierarchical order for a certain amount of time or support project groups within other divisions even though the lead-competency for the specific topic rests within one’s own division – represents a crucial

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variable for the establishment, extension and success of a project group. This can be shown by the example of the project ‘European jurisdiction’: the responsible state secretary until the end of 2009 strongly supported the project and was himself very engaged in the project group through constantly showing interest in the work of the project group, leading the discussion rounds with professors, participating at the organized conference, etc. However, after changes in personnel, and especially with the taking office of the new responsible state secretary “who was not a big friend of project groups” (#3), in the beginning of 2010 the course of the deci-sion-process (and the subsequent ‘non-decision’) about the extension of the project group revealed the significant influence of the variable leadership-attitude on organizational innova-tion Summing up, the starting point of the paper was the assumption that due to changes in the international and European environment of the German Ministry of Finance, the necessity for the establishment of horizontal coordination structures – organizational innovation – exists according to a ‘logic of consequentiality’. In addition, under consideration of the variable of institutional stability and the assumption of organizations adapting according to a ‘logic of appropriateness’, it was assumed that innovative organizational change most likely occurs in the form of gradual change as well as on the informal level. This has been mainly confirmed by the empirical analysis: innovative modes of reorganization, the establishment of horizontal coordination structures, occurs mainly in the form of (formal and informal) layering, whereas non-innovative forms of change, a further differentiation in terms of the establishment of new units and the integration of new tasks into existing units, occur in terms of formal layering (new units are established alongside existing ones) and conversion (the strategic redeploy-ment of existing units). As has also been shown with the example of the conversion of the Policy principles division, by extending its international scope, coordination problems in-crease in the course of non-innovative adaptations rather than solving them. Regarding the extent of innovation on the informal level, it appears that non-innovation on the formal level is supplemented by innovation on the informal level, as has been shown with the empirical evidence from the Financial market policy division. As the increasing numbers of project groups within the Ministry show, formal innovation becomes more and more relevant (at least in some divisions) and is perceived by some heads of divisions as a problem-adequate structure with respect to increasing environmental challenges. In light of the pre-sented examples of changes in coordinating mechanisms, the question can be raised as to whether general trends will grow out of the observed changes. It remains to be seen if these examples of gradual change will consequently have transformative results. On the basis of the observed changes with respect to the establishment of lateral problem-solving structures it needs to be said that at this point of time a further upgrade of horizontal structures appears to be necessary, especially with regard to the observable further organizational differentiation on the horizontal level. Organizational responses to an increasing environmental complexity re-main to be in general inadequate, only the European policy division within the Ministry of Finance can be regarded as an exception thereof. Finally, further research will focus on evidence from other German ministries; it is of interest to see if similar patterns are observable in relation to the extent of innovative adaptation, the occurrence of specific processes of change and the relationship between changes on the for-mal and informal level. It is further of interest as to whether other ministries have also pub-lished project guides, which can be considered as a first step towards a change within or even of the dominant configuration. In terms of the evaluation of the intensity of the observed changes, evidence of organizational change within governmental organizations in other Euro-pean countries will be gathered so as to be able to review the observed changes from a com-parative point of view.

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Interviews: #1: Representatives of the Ministry of Finance #2: Representative of the Ministry of Finance #3: Representative of the Ministry of Finance #4: Representative of the Ministry of Finance #5: Representative of the Ministry of Finance #6: Representative of the Ministry of Finance #7: Representative of the Ministry of Finance #8: Representative of the Chancellery #9: Representative of the Chancellery #10: Representative of the Ministry of Internal Affairs #11: Representative of the Ministry of Internal Affairs