The Optimal Control Bargain: A Simulation Model of Complex Control Systems

Overview This paper investigates how managers develop and implement complex control systems. Within, I present several hypotheses which integrate and extend current independent conceptualizations of organizational control. I use a simulation-based model to test several control-related hypotheses. Results of this study provide support for the newly emerging " broader " perspective on organizational control research and outline how managers can improve organizational performance by simultaneously addressing diverse elements of their control systems. Theory As organizations adapt to the pressures of an increasingly competitive global marketplace, managers are replacing their rudimentary command-and-control techniques with complex control and coordination strategies. While scholars agree that control is a central component of organization theory, they are unable to fully understand and explain these increasingly dynamic forms of control. This is largely due to the fact that organizational control research has been compromised by several theoretical and empirical deficiencies(Cardinal, Sitkin, and Long, 2000). First, individual control studies have investigated primarily the application of singular forms of control. Second, researchers investigating various facets of organizational control have never developed a common, integrated conceptual consensus. Third, control studies are generally too static and have evaluated controls only at specific points in time. For example, transaction cost theory(Ouchi, 1980; Williamson, 1975) and agency theory(Eisenhardt, 1989) outline alternative mechanisms for directing boundedly rational, self-interested and opportunistic employees. While anecdotal and emerging theoretical work has suggested that managers utilize both approaches in their control initiatives, little is known about how managers concurrently apply both transaction-based and agency-based controls. Because we have yet to develop an integrated conceptual framework, researchers possess a relatively limited understanding of how these fundamental elements of control are combined within complex organizational systems. This paper increases our understanding of organizational control by integrating the transaction-based concept of control systems with the agency-based concept of control targets. After describing these concepts, I discuss the theoretical and empirical bases for integrating them. Control Systems In an effort to minimize transactions costs in environments where actors pursue different goals, and individual performance cannot be perfectly rewarded, managers implement three types of control systems: the market, the bureaucratic, and the clan (Ouchi, 1980). Within market