Control: Organizational and Economic Approaches

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Control: Organizational and Economic Approaches

Kathleen M. EisenhardtDepartment of Industrial Engineering and

Engineering management, Stanford University

Presenter: Wen Zheng

Contents

Conclusion

Discussion

Empirical

Theory

Introduction

This paper want to explore control variables for organization designIntroduction

Theory

Empirical

Discussion

Conclusion

Problem Statement

This paper want to explore control variables for organization designIntroduction

Theory

Empirical

Discussion

Conclusion

Problem Statement

• Reward structure• Task characteristics• Information system

This paper want to explore control variables for organization design

Organization design often focus on structure solution.

Introduction

Theory

Empirical

Discussion

Conclusion

Problem Statement

• Reward structure• Task characteristics• Information system

This paper want to explore control variables for organization design

Theoretical Integration Empirical Test

Introduction

Theory

Empirical

Discussion

Conclusion

Problem Statement

Introduction

Theory

Empirical

Discussion

Conclusion

Organization Theory

Control Strategy

Performance Evaluation

Control

Behavioral based control

Outcome based control

Social or “people”

based Control

Information Characteristics

Task Programmability

Outcome measurability

Thompson(1967) Ouchi (1979)

Introduction

Theory

Empirical

Discussion

Conclusion

Organizational Theory

Perfect Imperfect

High Behavior or outcome control Outcome control

Low Behavior control Socialization “Clan” control

Adapted from Ouchi (1979)

OutcomeTask

Introduction

Theory

Empirical

Discussion

Conclusion

Agency TheoryAgency Problem

Incomplete information

Behavior Control Outcome Control

Complete Information

Determine the optimal contract for the Agent Services

-Behavior measurement

-Risk sharing-Outcome measurement

Assumptions: -Uncertain outcome and risk averse agent-Effort averse agent

Concerned with determinants of control strategy

Rational

Efficiency oriented

Information based

Distinguish between behavior and outcome based control

Introduction

Theory

Empirical

Discussion

Conclusion

Comparison(Similarity)

Introduction

Theory

Empirical

Discussion

Conclusion

Comparison(Difference)

O A

Cost Compare ability to measure behaviors

Compare costs of behavior control and outcome control

Reward Control is a measurement and evaluation process

Control is a measurement, evaluation, and reward process

Social or ”People” Control

Assume divergent performances for effort of workforce

Possible to reduce divergent preferences through social control

Role of Information

Task characteristics determine the information available

Information is a purchasable commodity

Uncertainty Control determined by measurement issue

Control determined by measurement and risk bearing issues

Introduction

Theory

Empirical

Discussion

Conclusion

Hypothesis

Task Characteristics-Task Programmability

Information System-Behavior Measurement-Outcome Measurement

Uncertainty

Control Strategy-Behavior based-outcome based

Introduction

Theory

Empirical

Discussion

Conclusion

Hypothesis



Uncertainty


Introduction

Theory

Empirical

Discussion

Conclusion

Hypothesis



Uncertainty


Introduction

Theory

Empirical

Discussion

Conclusion

Hypothesis



Uncertainty


Sample: 95 specialty stores in a Suburban Bay Area shopping centerIntroduction

Theory

Empirical

Discussion

Conclusion

Organization Sampling

Sample: 95 specialty stores in a Suburban Bay Area shopping center

Definition: Stores with less than 8,000 square feet of selling space

Characteristics: Size, turnover, promotion Reason:

• Provide a relative large number of comparable organizations which are conveniently located

• Provide a setting in which a normative and efficiency model should be descriptively accurate

• Social or “people ” control is not relevant

Introduction

Theory

Empirical

Discussion

Conclusion

Organization Sampling


Behavior Measurement

Outcome Uncertainty

Cost of outcome Measurement

Control

Alternative Explanations

Introduction

Theory

Empirical

Discussion

Conclusion

Measures (Construct)



Outcome Uncertainty


Control


Introduction

Theory

Empirical

Discussion

Conclusion

Measures (Construct)Preliminary interview

The amount of service in selling process. (less programmable)ServiceProductSelling timeTraining time



Outcome Uncertainty


Control


Introduction

Theory

Empirical

Discussion

Conclusion

Measures (Construct)Preliminary interview

Physical limitations on observation of salespeople by managementSelling Space Square footage of

the storeTotal number of store employeesNumber of salespeople per store

supervisor (managers, assistant managers



Outcome Uncertainty


Control


Introduction

Theory

Empirical

Discussion

Conclusion

Measures (Construct)Secondary source

Three measuresNumber of competitors in

the San Francisco SMSA by merchandise category.

Failure rates in 1975 by merchandise category

Failure rates in 1979 by merchandise category



Outcome Uncertainty


Control


Introduction

Theory

Empirical

Discussion

Conclusion


Depend on the cost of the outcome measurement system.The number of stores in the store

chain.The dichotomous ownership

variable



Outcome Uncertainty


Control


Introduction

Theory

Empirical

Discussion

Conclusion


Behavior based vs. outcome based reward structures.Outcome based: Commission,

commission against law and salary plus commission

Behavior based: Salary or hourly rate compensation



Outcome Uncertainty


Control


Introduction

Theory

Empirical

Discussion

Conclusion


Talbert and Bose (1978)Sex compositionPrice Type (specialty vs. department)Location (city vs. suburbs)

Introduction

Theory

Empirical

Discussion

Conclusion

Measures (Accuracy)Construct Internal

ConsistencyConvergent validity

Discriminant validity


0.72 0.33-0.54** 4 of 96


0.82 0.49-0.65*** 0 of 54

Outcome Uncertainty

0.82 0.52-0.76** 0 of 54

Cost of Outcome Measurement

0.75 0.6** 0 of 20

Note: 1. Measured by Standardized Cronbach Alpha 2. Measured by Range of correlations 3. Measured by # cross construct correlations>within correlations construct 4. Significant level: * 0.1 **0.05 ***0.01

Correlation Matrix

Discriminant Analysis

Introduction

Theory

Empirical

Discussion

Conclusion

Results

Discriminant Analysis Classification Table (N=54)

Introduction

Theory

Empirical

Discussion

Conclusion

Results

Humanist/attributionist argument that salient extrinsic reward diminishes intrinsic motivation should be used cautiously outside of the experimental laboratory.

Responsibility need not match controllability.

Introduction

Theory

Empirical

Discussion

Conclusion

Implications

Job Design----Simple and Routine job

Invest in information System

Outcomes based control---Simple evaluation scheme, a flexible job content

Employ people whose preference coincide with those of management----selection, training and socialization

Introduction

Theory

Empirical

Discussion

Conclusion

Organization Design Strategy

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Documents

Control: Organizational and Economic Approaches