Control at the boundaries Henri Dekker VU Amsterdam EIASM New directions in Management Accounting...
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Transcript of Control at the boundaries Henri Dekker VU Amsterdam EIASM New directions in Management Accounting...
Control at the boundaries
Henri DekkerVU Amsterdam
EIASMNew directions in Management Accounting
December 14-16 2006
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Control choices at the boundaries… and the boundaries of control Some trends in IOR use Control choices in IORs Partner selection Relational governance & trust Performance effects Learning to govern ‘New’ research directions
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Interfirm relationships Alliances, JVs, buyer-supplier rel., networks,
licensing, franchising, knowledge sharing, ….. Broad concept (Gulati, ‘98):
voluntary arrangements… exchange, sharing or co-development… products, technologies or services… wide range of motives & goals… variety of forms… across vertical and horizontal boundaries.
Realize goals unattainable alone (in time) Resource acquisition; scale & scope
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Trends in IOR use Anderson & Sedatole (2003): US firms 1985-2000
0
2,000
4,000
6,000
8,000
10,000
12,000
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
Nu
mb
er
of
Co
llab
ora
tio
ns strategic alliances
joint ventures
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Sector distributionsAlliances by Industry Category
0
2000
4000
6000
8000
10000
12000
OtherServiceWholesale/RetailManufacturing
Anderson & Sedatole (2003)
Growth in service;
manufacturing declines
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Since 2000…. (Anderson & Sedatole, ‘06)
0
2,000
4,000
6,000
8,000
10,000
12,000
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Year
Nu
mb
er
of
Co
llab
ora
tio
ns strategic alliances
joint ventures
Decline: 9/11; SOX; economic conditions
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Emerging economies: BRIC 1986-2005
I&C: mainly manufacturingManufacturing
declines; growth in
service
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Governance: Alliances vs. JVs
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IORs types – Dutch firms ’06 (N=439)
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Number of different IORS21% has no IORs
18% is involved
in 3 types
Automatic fill function?
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Sequence of events - Gulati (‘98)
Alliance decision
Partner selection
Governance design
Dynamic evolution
Alliance performance
Partner performance
Socialnetworkinfluence
A B
C
D
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Control problems in IORs
Drivers of governance choices(Gulati & Singh, ‘98)
Appropriation concerns Transaction features (TCE)
Coordination requirements Task interdependencies
Dependence Beyond the transaction
Relational risk & performance risk(Das & Teng, ‘01)
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Control mechanisms Most studies are at the level:
Market vs. Hierarchy … vs. Hybrid Make-or-buy ; Equity vs. non-equity Equity: incentive alignment .. and assumed to reflect increased use of (o/b)
control mechanisms (e.g. Gulati & Singh, ‘98)Which controls, how used & why?
More fine-grained understanding of controls & management processes needed
Recent studies in accounting (mostly case evidence)
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Forms of control examined Contract clauses & non-contractual controls Control mechanisms & dimensions Ex-ante & ex-post controls
Contracts & IOR management
Control purposes E.g. incentives and decision making & adaptation (Too) much focus on incentives/safeguarding?
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E.g. contract functions
Safeguarding & incentives (TCE, AT) Coordination, adaptation & communication (OT)
Knowledge repositories (Mayer & Argyris, ‘04)
Signaling commitment (Klein-Woolthuis et al., ‘04) ….?
Under which conditions are different contract functions favored?
How do contract clauses / dimensions relate to different functions?
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Use of controls - questions‘We know very little about the policies and procedures
that support performance attainment in the day to day life of the alliance’ (Anderson & Sedatole, ‘03)
Functions of control mechanisms in IORs? Contracts & use of controls during IOR management Which factors influence these choices?
How do controls help shaping IORs (cf. Mouritsen & Thrane, ‘06)?
How does IOR control evolve & adapt over time? How related to informal controls?
Partner selection & relational governance
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Partner selection Search for complementary resources
(Geringer, ‘91) Selection criteria: Valuable partner resources
But.. also to mitigate appropriation concerns (Gulati & Gargiulo, ’99) Reduced need for governance Blumberg (‘01): search effort increases with risk Selection process as alternative to control?
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Partner selection However… learning while searching
Focused search & knowledge acquisition (Huber, ‘91)
Enhanced design of governance structures In response to anticipated control problems
Appropriation concerns (goodwill) Coordination needs (capabilities)
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Partner selection & governance
Dekker (2006 SSRN)
Control problems •Appropriation concerns •Coordination requirements •Dependence
Governance design
Partner selection
+
+
+ / - ?
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Partner selection, knowledge acquisition & governance
WP, with Van den Abbeele
Control problems •Appropriation concerns •Coordination requirements •Dependence
Governance design
Partner selection
Information acquisition
Potential & chosen
supplier(s)
Contract & controls
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Some evidenceDutch (817) & Belgium (287) IT transactions
Search effort associated with control problems Volume(+), asset specificity(+), uncertainty(+),
dependence(-)
Governance ext. increases with search effort Selection phase facilitates learning
transaction environment, partner & contingencies Information availability increases with focused search More comprehensive ex ante contracts + o/b controls
during transaction management
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Some questions Effect selection process on governance
choices? Confidence generation vs. information acquisition
How do firms search & select? Sources of information (networks, referral) Types of information acquired (e.g. Tomkins, ‘01) Partner choice (criteria)
Development of contract clauses & controls How are they developed?
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Relational governance
How are governance and selection choices affected by informal (relational) controls?
Trust !
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TrustAntecedents, forms & effects (Adler ‘01) Calculative, relational, institutional Repeated ties & 3rd parties (networks)
1st hand & 2nd hand information Trust substituting or complementing
control? Goodwill trust vs. Capability trust (Sako, ‘92)
Differential impact on use of controls? Differentially impacted by use of controls?
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Repeated exchanges & trust Development of ‘relational trust’
Prior ties, relational embeddedness /governance, shadow of the past, etc.
Promote social norms & values, and routines ‘Partner experience’: reliability & competence
Effect on selection & governance choices? Economizing on or improving control? Information availability (Huber, ’91; Tomkins,
‘01) Moderating influence on control problems
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Partner selection, experience& governance design
Control problems
•Appropriation concerns
•Coordination requirements
•Dependence
Governance
design
Partner
selection
Partner
experience
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Some evidence (IT transactions…)
Selection effort decreases with partner experience
Sticking to “trusted” partners But: Firms with experience react more strongly to
control problems (more efficient search?) … and have more (1st hand ) supplier information, in
turn affecting use of contracts & controls
Differential effects of experience on governance Less governance for appropriation concerns &
dependence; more for coordination Substitutes and complements
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Torturing tiesIs trust always ‘good’? Misplaced trust (‘trust me, I know what I’m
doing’) Ties can torture! (Krackhart, ‘99)
‘Simmelian ties’ Reduced incentives for innovation, adaptation &
change; inertia ‘The strength of weak ties’ (Granovetter, ‘73)
Locating information, dispersion of ideas, information brokerage…
Though less effective for transfer of tacit knowledge & idea development
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Some questions How do different forms of trust affect formal
control choices and vice versa? (Under which conditions) are trust & control
substitutes or complements? What are the costs of trust?
Trust or control? How does trust affect partner selection? C
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Performance effects of governance Meta-analysis TCE studies (Geyskens et al., ‘06)
“Good” governance matters Governance design fitting multiple dimensions
Transaction, task & relationship characteristics Anderson & Dekker (’05): Differential responses of
high & low performing transactions
Governance design
Misalignment
Cost ofcontracting
Control problems
Ex post problems
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Control benefits & costs
Tradeoff: risk mitigation & cost of control Without considering governance costs, is ‘misfit’
really misfit… or e.g. a deliberate choice (gamble)?
Do more (fitting) controls improve performance? How costly is good governance? Which choices & tradeoffs do firms make in
governance design? And how? E.g. firm differences in contracting efficiency?
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Learning to govern
Mayer & Argyris (‘04): Prior learning triggers future contract changes
Sampson (‘05): returns of alliance experience Learning curve; diminishing returns to scale & time
Firms with prior ties improve patenting in new alliances A few help most, marginal incremental benefits of
many Both partner specific and general partner experience Recent experience matters most; knowledge
depreciates Most valuable under high ambiguity & uncertainty
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Learning to govern How does learning to govern take place?
How do firms embed prior experiences & knowledge into new IORs?
Transfer & adaptation of governance structures(?) Many firms adapt old structures (± 20% of IT cases)
Role of dedicated alliance management functions (Ireland et al. ‘02)?
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Concluding remarks
Fascinating area! Diversity of questions
Too many …. Diversity of theoretical approaches &
methods Integration (e.g. RBV, TCE & social networks) Case, surveys, experimental, analytical & archival
Challenging (e.g. data collection)
Thank you!