Erfolgswirkung des Management-Stils: Eine dynamische Betrachtung von Wachstumsunternehmen (Entrepren

Erfolgswirkung des Management-Stils: Eine dynamische Betrachtung von Wachstumsunternehmen (Entrepreneurship) (German Edition) eBook: Ludwig Voll.
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It continuously influences other management processes steps and does not build on a sequential understanding. However, its relevance for small business management lies in its interaction with the remaining management functions. However, instead of investigating the effects of the constituting elements, this study aims at providing evidence for the performance effects of different management control forms.

Hence, the research framework employed in this study is required to cover the different relevant elements of management control in an exhaustive, but at the same time mutually exclusive, way. This chapter provides an overview of the potential research frameworks for management control. From the broad selection of frameworks available, this study presents six relevant frameworks. After defining the requirements and criteria for the selection, one framework is selected and presented in detail.

Initially, the evolutionary approach was developed in the context of strategic management, but in course of time it migrated into the field of general management as well. In the opinion of the author, the approach is highly valuable, but too complex to serve as an understanding of control in SMEs. See also Kirsch , pp. The final framework has not emerged from the literature yet. The comparability of results is increased significantly as a result of this.

Instead of building a research set of management controls for this work, the author chose to build on an existing management control framework from the literature. Overview of considered research frameworks 40 Self control Social control Indirect Control Direct control To structure the presentation of potential research frameworks, this study uses the underlying understanding of control in the specific frameworks. The first group of frameworks considers management control as a cybernetic process based on systems theory and is, therefore, referred to as the systems-based approach.

For a summary refer further to Chapter 2. In his book The Twelve Principles of Efficiency he proposes 12 principles for increasing efficiency in organizations. While the majority of the principles refer to the discipline of operational management, two principles specifically refer to management control or can be interpreted as two of the first proposals of controls for organizations: Reliable records and written-standard practice instructions.

Despite the general applicability of the approach, the selection of the principles by EMERSON IS rather vague, but it builds an interesting foundation for further work on management control. Managers use belief systems to define, communicate and implement key values and directions for the organization. Boundary systems set limits and process restrictions on the actions of employees.

Potential techniques of a boundary system are explicit standards of execution or codes of conduct that are derived from the risk factors they try to mitigate. Diagnostic systems are considered as formal feedback systems that monitor results and correct deviations in comparison to specified standards of performance, such as business plans or budgets of key performance indicators KPIs. Diagnostic systems are expected to restrict failure on key business dimensions but also bear the risk of simultaneously restricting innovation. Thereby, he develops a set of propositions that are still valid in today's business setting.

Other principles encompass clearly defined ideals, common sense, competent counsel, discipline, the fair deal, dispatching, standards and schedules, standardized conditions, standardized operations and efficiency rewards. Refer further to Emerson Emerson , p. Through regular meetings with their employees, managers strive to influence their behavior but at the same time generating stimulation, innovation and creative thinking with them.

He proposes five relevant dimensions for the analysis: However, in the opinion of the author of this study, the framework presents a framework for analysis, rather than a descriptive framework, and only extends management control marginally. The framework consists of eleven elements and the links between the elements that contribute to the design of an overall MCS. Interestingly, both researchers intentionally exclude culture and other external factors from their overall framework; however, they acknowledge a potential impact on the effectiveness of control and integrate it as a contingent factor in their framework.

The overall framework consists of the following elements: Ditillo , p. In contrast to administrative controls, he also includes the concept of social control. Instead of describing mechanisms and organizational controls, it merely describes different positions, from which an MCS in an organization could be reviewed. OUCHI develops a control framework for the analysis of organizational controls. By observing the parts distribution division of a large company, he evaluates how the management of the purchasing department and the warehouse department ensures behavior of the employees that is oriented towards organizational goals.

He also subsumes formal rewards, sanctions, recruitment policies and training. However he does not focus on behavior controls at all. Cf Hopwood , pp. Hopwood , p. During the early years of his research he subsumed the social aspects of control as a sub function of personnel control. Owing to increasing research and also on account of his interest on the importance of the social relationships between the employees he took the social aspects and integrated it as the fourth management control form.

Despite the fundamental similarities, the frameworks differ significantly in relation to their scope, definition of control forms and covered control forms. In order to identify an appropriate framework for this study, the requirements regarding the framework are developed now. The following section summarizes two requirements for selecting a framework and then discusses the selection process.

First, the framework needs to be aligned with the overall research objective to study indirect forms of control in SMEs. The key elements of indirect controls are socio-cultural 44 Ouchi , p. A typical application of market mechanisms in this perspective is the application in the purchasing department. By asking the market to put in bids for a standardized product, the final negotiated price can be assumed to be valid.

His initial work can be found in Merchant a. Merchant b , p. Secondly, the research framework for control typology should provide a specific logic to map specific control practices and tools against the elements. In the opinion of the author, they are not specific enough for two reasons: Instead of being focused, the concept of administrative controls is rather broad and out-of-focus. Consequently, as the approach is not specific enough, it is not considered further for application in this thesis.

This split between direct and indirect forms of control, both specific and comprehensive, is expected to fit the research targets best. Personnel control builds on the natural tendency of employees to control and motivate themselves. Davila , p. By building on a previously used research framework, this study ensures the comparability of results as outlined in Chapter 2.

Personnel control controls neither process nor outputs, but focuses on the process of recruiting and selecting the best-matching employees to perform the tasks upfront. Training and development assists this as it continuously communicates desired behavioral standards and provides feedback to the workforce. Personnel control is executed, if both task programmability and outcome measurability are low.

Researchers and engineers are, therefore, selected based on previous successful projects and based on their socialization experiences from good universities, with the presupposition that they will know the necessary steps for target achievement. Standardized recruiting processes, placement concepts, training schedules and development processes are techniques to achieve personnel control.

Cultural control builds on the effect of social interaction amongst the members of a group. There, the social and moral pressures of the communities are stronger than any legal contracts. Potential management practices are codes of conducts, group-based rewards, role-models or top-management communication.

The terms cultural control and clan control are often used synonymously. Behavior control Results control Personnel control Cultural control Definition Control of employees to enforce positive behaviors Monitoring and rewarding of target achievement Input control and development of human ressources Social control of employees using norms and values Prerequisite Task programmability Outcome measurability Individual motivation Emotional tie between employees Design of prerequisites Setting and communication of expected norms and values Recruiting policies Mission statement Training Managers as role models Job Design Group-based incentives Retention Interaction Responsibility of employee for KPI Management role Definition of standard processes Output orientation Encouraging meritocracy Conducting process reviews Management techniques examples Physcial or administrative restrictions e.

Overview of selected research framework The four forms are further grouped into two previously described classes of control. Depending on the interaction effect with the employees they are referred to as direct and indirect controls. In case the manager employs process or result standardization, both forms are referred to as direct controls. Although this could be considered as a sign of a broad and holistic research approach towards management control, it must also be seen as a weakness. To overcome this Own illustration. They describe formal controls as written management-initiated mechanism, while self- and social controls, and worker-initiated mechanism are referred to as indirect controls.

Although both segmentations are valid, however, this study chose not to adopt it as it is potentially misleading: Consequently, the segmentation into direct and indirect controls is chosen to avoid any misunderstanding. Styhre , p. MCS consists of different techniques to influence organizational behavior in a desired way. Various studies investigated the effects of specific management control techniques on organizational outcomes. They were investigated separately and the respective direct performance effects were determined.

However, already in early s, ANTHONY stated that in order to capture fully the impact of management controls, researchers must focus on the simultaneous use of multiple controls. Refer also to Chapter 4 for a detailed review on various control forms. Despite the early indications, current researchers raised this topic again, e. Bart , p. Liao , p. At the same time, the individual control forms are inseparable from one another as they are tied to each other. It is not, as claimed by most of the literature on control e.

In businesses like Global we have in a sense a lot of complexity and uncertainty, but this has been counteracted with efforts to create a vast bureaucratic and output measuring apparatus. This information can be useful in improving the controls at a later time. Building on the controlling literature, BART investigates the difference between the controls of new products in comparison to the controls of established products in 12 large Canadian firms. He specifically points out that the reduced usage of formal controls should not be interpreted as an absence of bureaucracy or formal control.

Indeed, if a high-output strategy was used, formal controls were an integral part of the control system. Tsui ; Huselid ; MacDuffie Arthur ; MacDuffie Bart , pp. By surveying marketing executives, the researchers found that the choice for a specific control combination is predicted by organizational characteristics like size and profitability and task complexity. However, despite the finding of a positive effect on person-role conflict and ambiguity, the study was not able to show a positive effect on job performance. Using an identical framework of four combinations high, low, bureaucratic and clan control they determine the consequences on further dimensions like emotional exhaustion, organizational commitment, turnover intentions of the salesperson, and an extended model of job satisfaction.

See also Chapter 6. In order to study control combinations in managerial application, a relevant typology is required. Combinations are defined using the associated control forms of results and behavior control direct controls as well as personnel and cultural indirect controls. The combinations are defined using the extent of the two dimensions of direct and indirect control.

Specifically, the extent of direct control is determined by using the average of the underlying indicators of results and behavior control. Indirect control is constructed accordingly. Finally, combinations are grouped in accordance with their extent into high and low usage on both dimensions and are analyzed in a matrix. High control combinations are considered configurations where managers use both direct and indirect controls in a strong extent. Contrasting this, managers who use low levels of both forms are considered to apply the combination of low control. Bureaucratic control is an MCS focusing on traditional controls such as results and behavior control, while only using low levels of indirect controls.

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Figure 7 visualizes the four control combinations. Overview of management control combinations This study seeks to investigate both the usage patterns amongst SMEs and the performance effects for four distinguished combinations of high and low, and direct and indirect control forms.

To sum up, the control combinations are of high academic and practical relevance as they address a rather configurational management research approach. Hence, an extension to control in general management and to SMEs would be beneficial for the field. To specifically address the gap in research, this study chose to investigate control combinations from the perspective of an SME CEO and to develop knowledge on the performance consequences of control combinations further. Before defining a structural model of interdependencies, the core relationships between management control forms and the respective outcomes have to be reviewed.

Initially, the researcher needs to determine the direction of causality of the MCS in their model. Fundamentally, an MCS can be considered as an outcome dependent variable or the 52 Own illustration adapted from Jaworski et al. Despite a case study on MCS packages in a young, high-growth firm; however, this study is not concerned with the performance impact. Sandelin , pp.

Besides the strong practical relevance of this research setting, the decision was based on two other reasons. The first is that other researchers suggest investigating MCS as an independent entity as previous research yielded effects in this perspective. In order to define the consequences in detail, researchers need to define four topics: Management control consequences can be structured into three main blocks. Firstly, researchers considered various notions of the usage and usefulness of MCS in organizations.

However, MCS could also be considered as an outcome of effectiveness. The following example illustrates this. In the case of a low organizational performance, it could be of particular interest how companies choose to configure their strategy and respective MCS and which forms of control are of particular importance as a consequence of this in this case. On the one hand, as employees are potentially forced to use specific tools although they are considered of little use to their operations; thus, these results are interesting rather from a descriptive perspective.

Further, linking certain outcomes like usefulness, satisfaction or adoption rates to organizational outcomes is currently considered rather critical. Secondly, previous work determined the effects on behavioral outcomes of controls. Consequences like job satisfaction, job-related tensions, or stress play an important role in the identification and commitment of employees into organizational goals or strategies and were studied by various researchers. Despite the importance of behavioral consequences of controls in organizations, this study chose not to investigate them in detail, as significant previous research in large and small organizations already reviewed the effects.

Previous studies in fact suggest an effect of control intensity on performance. For a summary of findings of previous research in SMEs, please refer to Chapter 1. Paauwe , p. Hall , p. Hiddemann showed this specifically for young firms. Researchers found direct effects of control on performance; others claim that the performance effects are highly dependent on contingent factors.

The best-practice approach implies that a certain control form must be of a best-practice nature and have a direct effect on performance, while the contingent approach claims that environmental factors have to be taken into consideration. They found that a contingent perspective on management control was superior in comparison to a universal perspective.

As the discussion shows, the results on the nature of the control effect on performance are ambiguous, which is confirmed by recent research. On the other hand, by testing the effect of moderators on control effectiveness, it also takes a contingent perspective. A comparison of both approaches is expected to contribute to the discussion of the overall nature of control. In summary, previous research found evidence both for the universal and also for the contingent perspective.

In order to address both research streams, this study conducts a comparison of both perspectives. As outlined before, previous studies predominantly investigated controls directly affecting outcomes. Child , pp. Liao , pp. For a similar perspective see a following paper Liao , p. This is in line with success factor research in the field of HRM. See Sels et al. After determining the fundamental effect, other researchers could try to extend the model by employing causal chains between controls and performance.

Direct link or a fit relationship. In comparison to the direct effect, the fit relationship builds on contingency theory that explains MCS effects based on contextual factors. High performance is expected where there is strong congruence between contingencies and the resulting MCS configuration. Both approaches, the direct effects and fit-approaches, were previously used in accounting research and are considered valid. However, this study takes the perspective of a direct relationship between controls and performance as it is building on the well established agency theory. Control forms build on one of three agency problems, decrease principal-agent costs and directly influence organizational performance.

Principal-agent theory does not suggest a fitrelationship based on contingent factors. However, this study, by investigating moderating factors and their interaction effects on performance, still considers the contingent effects in the research model. In addition, the direct approach is in line with several other research efforts in this field. Previous research supports the assumed relationship and suggests a positive effect of controls on organizational performance.

Huselid , p. Chenhall , p. In order to address these previous findings on the contingent effect as well, this study chose to include moderating factors in its research approach. As the evolution of organizations and their growth is an integral part of this study see also Chapter 1. Secondly, increasing size and sales are associated with evolving issues of communication and coordination, as hierarchies and management functions are required to manage the organization. Thirdly, organizations are mastering critical phases during their life cycle.

In order to grow further, they have to master different crises. The critical phases are as well associated with the beginning of a new organizational life cycle stage. In contrast to size and age, they bear the advantage of comparability across industries. For example, an important step in the life of an organization is the transition from the founder to a professional management team. However, the factors leading to a specific MCS configuration, especially the choice of indirect controls is of highly important nature as well.

In order to address this open research question, there is an undergoing research activity at the chair of management sciences for engineers and scientists of RWTH Aachen University in this area. Greiner , p. For example, crises of leadership, autonomy, or control. Transition from one life cycle stage to another cannot be determined solely by the age or size.

As Fallgatter , p. Increased experience enables managers to choose relevant control forms and be more effective in their application, as they previously experienced both failures and successful implementations. Independent from the location where they gained their experience as a manager, their familiarity is expected to be beneficial for the application of different control forms. Hence, this study determines the effect of an experienced management team on control effectiveness as well.

As previously discussed, MCS and their performance effect are expected to be influenced by internal and external contingencies. This study examines the effects on the control—performance relationship by investigating the contingencies associated with the evolution of an organization. To sum up, to contribute to the development of management control research, this study chose to extend the consequences of controls investigated significantly. While previous academics focused their research efforts on the adoption and implementation patterns, current research lacks the coverage of organizational performance.

To address this research gap, this study chose to enrich the theoretical discussion by investigating alternative control consequences and to determine the effect of control intensity increase on organizational performance. In addition, this study intends to contribute to research by investigating the nature of management control. The question whether management control is of direct effect or contingent upon other factors remains unsolved up to now. Davila , pp. Chenhall , pp. The summary of the findings on the three liabilities builds on the definition of liabilities for young, growing firms as previously applied by other researchers but takes into consideration the specific characteristics of SMEs.

Their limited size restricts the endowment with sufficient resources in various dimensions human resources in general, management and specifically financial resources. Alternative manifestations of this issue are procedural bottlenecks in their organizations due to limit availability of human resources.

A small size and agile organizational structures can also be translated into a significant advantage in comparison to a large and potentially slow competitor. However, this study focuses on the liabilities of SMEs, as they have important implications for the usage of controls in SMEs. See also Engelen , p. The definition of specific liabilities of organizations builds on an analytical framework previously developed at the Chair of Business Administration for Engineers and Scientists of Prof.

The framework has been adopted to match the requirements of small organizations in contrast to young organizations. For example, on the usage for young organizations refer to Claas , p. In addition, the degree of functional specialization amongst employees is rather small; SME staff is required to cover rather broad functional areas in comparison to large enterprises.

But limitations are not only bound to management activities but are also tied to data systems. Limited financial resources also result in the absence of sophisticated controlling processes or elaborate enterprise resource planning ERP -systems, that are used in large organizations to provide information and data for control activities. Second, the liability of informality affects SMEs by the absence of a formal structure and a low level of standardization.

The need for individual communication rises quadratically with the number of employees involved. With growing company size, informal or implicit control mechanisms lose their effect as communication complexity increases exponentially and direct communication with every employee is not an option any more. The liability of informality is especially important in the context of management control, as it allows this study to research indirect controls in an ideal research environment.

However, an alternative approach is to include it in the liability of smallness, as both liabilities are interconnected with each other. Finally, ownership and management in SMEs are typically integrated in one person ownermanager dominance. On the one hand, a central authority for controls emphasizes its effects due to the management attention; on the other hand, a strong concentration on only one person also can be a disadvantage in the case of limited time for control activities in line with the liability of smallness.

As a consequence of the SME liabilities, this study explicitly considers the organizational characteristics of SMEs when determining the performance consequences of control forms and related moderating effects. Kazanjian , p. Refer to the section above. Liabilities of SMEs in relation to management control 62 Own illustration. Despite the fundamental importance of the research framework, the confirmatory approach of this study requires a theoretical foundation in order to derive propositions about the relationships between management control forms and performance.

A theoretical framework provides an in-depth understanding of the relationships between theoretical concepts and highlights the most relevant questions of a research situation. What follows is a detailed description of both selected frameworks Chapter 3. SJURTS , during her literature review on theories of control, aggregated nearly 20 theoretical frameworks. In a first step, theoretical frameworks of control can be Cf.

Cardinal ; Cardinal et al. For an overview on all potential theories see Sjurts , pp. Sjurts , pp. As previously outlined in Chapter 2. Therefore, the theories describing behavioral aspects of control are favored for this study. In a second step, the hierarchical perspective of control can be used to distinguish theoretical foundations: This study aims at understanding the effects of management control within small and medium sized organizations and how it is executed by the SME management. Hence, it aims at suggesting to the managers how to interact with their employees and influence their behavior.

Hence, a managerial perspective is chosen. The selection process is summarized in Figure 8.

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Bosetzky ; Braverman Behavioral accounting focuses on the interaction between accounting practices and the employees. The primary role of accounting figures are for information, while they can induce some sort of control, as they also can be used to perform target-actual comparison. Literature from the field of meso-polictics understands that formal organizational structures are interest related reflections of reality that are aligned with the societal context and develop accordingly.

The theory focuses primarily on the execution of control and power, while disregarding any goals or forms of control. Boreham ; Storey Selection of a theoretical framework In the following section, the three remaining applicable theories of control, namely, the behavioral based approach of control, agency theory and social control theory are discussed further. Agency theory describes the problems involved in a separation of decision-making and execution and suggests potential solutions.

It can be applied to specific situations in organizations, stakeholder relationship or even politics. The main focus of the theory is a contractual relationship between a risk-neutral principal and his risk-averse agent. Building on Own illustration. Among others, applications of the approach can be found in Kavcic et al. Social control theory considers the adoption of the norms or habits of individuals in the context of an organization. It specifically seeks to explain the social processes to increase or secure conformity in organizations.

The two involved parties, the individual and the group he enters, aspire at reducing their differences in norms and values. The theory assumes that an individual adjusts his behavior once confronted with a group of individuals who share an alternative value set. Behavioral science theory integrates the two important notions of behavioral influence and the psychological consequences of control. However, it does not include the effects of specific control forms and rather lays out the framework in which control forms operate.

Hence, due to the lack of specificity to determine the effects of individual control forms and its rather psychological perspective, it is not applied to this study. Agency theory is an established theoretical concept, appropriate for the specific research setting and has previously been used to explain the effects of management control. At the same time, as detailed in Chapter 1. In this context, the agency theory is not able to cope with this notion, as the effects are typically based on a contractual relationship instead of a social one.

This study, therefore, chose social control theory to supplement the agency theory in relation to the indirect control forms. Both applied theories are presented in detail below and discussed in terms of their application to management control. Eisenhardt , p. While TCE focuses on the general relationship among economic actors, the principal-agent theory specifically refers to situations where the two involved parties can be identified as one party principal contracting another party agent.

The main goal of the manager is the optimal design of controls, incentive schemes and employee interaction in order to minimize agency costs. Kieser , p. Macintosh , p. All three cost types are interrelated: However, one configuration is preferable to another, when its overall agency costs are lower.

Despite numerous research efforts, the absolute size of agency cost cannot be measured empirically.


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They share common assumptions about people, organizations, and information but differ in their mathematical rigor, dependent variable, and style. Jensen , p. Frequently, researchers mix up the different streams into the principal-agent theory. To avoid misinterpretation, this study refers from now on to agency theory as its theoretical foundation. The normative stream strives to derive complex analytical models and system behaviors in order to evaluate the effects of incentive systems.

Due to the strict nature of the assumptions, While the normative stream of the agency theory is rather mathematical and aims at describing the principal-agent relationship from a formalized perspective, the descriptive stream of the agency theory has significantly stronger empirical background.

Due to its stronger empirical orientation and less restrictive set of assumptions, this study uses the frequently applied descriptive stream. In the following chapter, the three fundamental issues of agency theory are discussed, and it will be followed by a short summary of the potential solutions to solve them. The principal cannot observe all critical characteristics of the agent upfront and will learn about them only after closing the contract ex-ante issue.

The characteristics thus cannot be altered without the occurrence of significant costs. The acceptable price of the principal will range between organizational researchers can derive only very few outcomes for organizational design. For an overview on the analytical modeling within the normative stream, refer to Laux Researchers also refer to this term as hidden characteristics, as the principal is unable to observe the agent's qualification or level of motivation ex-ante. Akerlof , pp. Adverse selection can be mitigated by either decreasing informational asymmetry or by alignment of interests.

Literature suggests four fundamental solutions: Potentially, he employs certifications, references or previous education to show his eligibility for the task. In the case of the used vehicles market, the seller of a good quality car might acquire a certification of a vehicle supervisory company e. Screening is associated with monitoring costs for the principal such as time and effort in order to decrease the information asymmetry.

By offering contractual alternatives, the agent is expected to choose the most appropriate one for his health status. To overcome adverse selection, the buyer of a used vehicle could negotiate a return guarantee institution or offer an incentive for a defined mileage incentive system. Hence, by implementing either appropriate institutions or an incentive system, the principal ensures that a goaloriented pre-contract behavior is in the best interest of the agent as well. II Moral hazard refers to problems that occur after the closing of the contract ex-post between the principal and his agent.

Moral hazard is a consequence of two potential difficulties: Examples of limited observability are missing in the case of the principal or a physical distance has set in between both parties. The second reason is the inability of the principal to judge the actions of the agent due to missing expert knowledge, e.

For example, this could be achieved by developing a specific contract with a satisfaction clause or the potential loss of reputation in case of misbehavior. Besides this lock-up between the principal and the agent, there is another problem leading to the incompleteness of contracts—as the principal is not able to define the contract with his agents to the utmost detail, Researchers also refer to this term as hidden information or hidden action, as the principal is unable to observe critical information to his personal welfare or agent behavior during execution.

Macintosh , pp. A detailed review of shirking on the job can be found in Auster This is in line with the findings of TCE; for a discussion also refer to Kieser , pp. In case the development of fully comprehensive contracts were possible and enforceable in a court of law, the problem of hold-up would be irrelevant. Two potential solution mechanisms address the issue of hold up: Theoretical suggestions from agency theory The major underlying assumption of the agency theory is that a decrease in agency costs is favorable and results in an increased organizational performance.

If organizations, 72 Cf. Williamson , p.

Own illustration building on Picot et al. Five exogenous critical issues can be distinguished, but also addressed by the theory extension: Nevertheless, this also occurs if a principal is, for example, changing interaction model significantly after the hiring wages or hierarchies. Researchers extended the agency theory by introducing the concept of double moral hazard.

Organizational reality, however, is typically confronted with multiple agents in teams. The problems of unobservability of information and action increase in teams, as the principal is unable to observe not only individual efforts but also team results. To address this issue, research extended agency theory to multiple-agent models by designing adapted incentive schemes and control mechanisms. Ex-post contractual conflicts resulting from adjustment or divergent interpretation of contracts are ignored in the ex-ante perspective of the theory.

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Baiman , pp. Refer also to Chapter 3. From a formal, analytical perspective, an extension of the model to multiple periods is possible, but results, however, in an increasingly complex set of additional assumptions. Firstly, it assumes that the preferences or goals of agents and principals are known. The behavioral assumptions cover only opportunistic actions during execution but not the goal development process itself. Hence, in case the preferences of both contracting partners are not explicitly known, the agency model does not apply.

However, the possibility for a lack of respective skills is not covered by the fundamental assumptions of the model. A contract selected only on the basis of agency could be disadvantageous even to other contracts. The overall applicability to the organizational sector Cf. The effect of this is that mechanisms resulting from these social relationships are the central element of social control theory.

Typically, social control is not only exercised by superior managers but also executed by individuals on all levels over one another. Social control processes build on a shared pattern of beliefs and expectations. These beliefs and expectations influence the development of norms that shape the behavior of individuals and groups. The first is the natural tendency of an individual to reduce the difference in norms and values between him and a group and reach conformity. The advantage of social control is its perceived lower level of external authority: With social controls, we often feel as though we have great autonomy, even though, paradoxically, we are conforming much more.

For an exemplary application to organizational problems refer also to Laux , pp. O'Reilly , p. Implicitly, the theory of social control includes a comparison between two normative systems—one of the individual and the other of the organization. However, the direction of adaptation is assumed to initiate from the group to end at the individual.

An adjustment of the group norms based on external impulses is not suggested by the social control theory. This process of adapting to defined values can also be described as a learning process or secondary socialization of humans. Based on his research, Ross was inspired to develop the topic of social control and developed his ideas further.

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For details, see Spencer ; Ross ; Ross Janowitz , p. Social control theory gained significant importance in the field of sociology and was considered to be a core concept to analyze social organizations at that time. See Janowitz , p. Hebden ; Louis Mintzberg , p. Social control theory builds on two key assumptions. First, it assumes the relevance of social acceptance and recognition for humans in their workplace. SCHEIN describes this in the sense that the motivational structure of working humans is not only induced by the specific work they are performing but also by the acceptance and positive relationship to their colleagues.

While being confronted with conflicting attitudes, individuals are willing to change themselves to a certain extent. Therefore, the main concern of the theory is a sociological understanding of adaptation effects within groups. I Primary effect mechanism is the socialization of the individual with the established rules and values and the adoption process. The individual, hence, adjusts his personal values, beliefs and attitudes; he also learns, adopts and internalizes the values and finally identifies Etzioni , p. Hopwood , pp. Schein , pp. Social control theory is a concept that describes effect mechanisms of social control rather than associated problems in comparison to the problem of moral-hazard in agency theory.

Hence, it rather focuses on the preconditions for social control and how it affects the individual's behavior. To ensure this, organizations specifically select their new employees to match this requirement. On the one hand, employers could choose to specifically hire employees who already match their required profile in relation to their norms and values. On the other hand, organizations choose to hire new employees based on their expected adaptability to conformity. They may not already share the same norms, but as they are shown to have been adaptable during education, in their personal life or during previous employments, they are expected to behave accordingly again.

As new employees observe social norms and realize their existence, they are expected to anticipate the related social pressure to enforce them. This effect can also be associated with self-control, as the individual compares his own behavior against the norms and values of the organization and derives countermeasures to conform to the general norms.

After discussing the key mechanisms, the levers for management are now reviewed further. As the function of self-control cannot be triggered directly by management, two solutions to influence employee behavior emerge: By explicitly determining the desired corporate norms, as well as bringing them into the organization, managers are able to shape a corporate culture that, once deployed, initiates social control processes.

This requires i an explicit knowledge of the required values of the company and ii a dedicated process of employee selection to ensure minimum errors in the different levels of selection. As the individuals are confronted with the corporate norms and face potential social control processes, proleptic effects are initiated as a result.

The second key mechanism is the selection of human resources that are expected to be susceptible for social control effects and open for conformity adoption capability control. These mechanisms can be attributed to different control forms in the research framework and are integrated into the framework in the following chapter.

The performance effect of social control builds on the assumption of an optimized usage of the existent organizational resource base. As outlined in the conceptual foundations of control, the aspect of efficient resource allocation enables organizations to achieve their strategic goals with minimum levels of resources involved and, thereby, ensures effective execution of strategies and plans. Although social control theory does not predict enhanced performance as its main objective, the outcome — an adoption process of employees — supports the optimal resource allocation that finally results in increased organizational performance.

In relation to control combinations, social control is expected to interact with other controls in a substantial way. On the one hand, control practices that focus on selecting human resources with a matching skill, motivation and experience set are expected to support social control, as they can ensure a minimum level of adaptability.

Etzioni , p. Especial focus on the performance effect of control is described in Chapter 2. Personnel selection reduces the need for social control during organizational membership, as it selects employees who are expected to adapt to social norms. Skinner , p. But although less accessible than other theories, it developed a body of previous research that describes consequences for organiational application as well. Secondly, one could question the assumption of employees being social-men. Even if individual employees would not behave like social men, socialization mechanisms would apply to the remaining men that would then start to initiate countermechanisms to the actions of the individuals.

For the regulatory effects of society on indivuals refer to Ellickson , pp. Finally, the two theories and related suggestions are integrated into one approach that is matched against the management control forms presented by the research framework of MERCHANT in Chapter 2. Hence, the problem of information asymmetry arises, as the manager is not aware of all the information required to implement the tasks successfully or prevent his subordinate from shirking. In addition, employees can be expected to bear a certain opportunistic behavior and have interests different from those of their supervisor.

Besides the agency assumptions, the issues presented by agency theory are of particular relevance for this study as well. An agent could easily lower his efforts of implementation, without being realized by the principal. A potential employee agent interested in contracting with the principal is not interested in revealing full information on his qualifications and, hence, is subject to the problem of adverse selection. Due to the validity of both the underlying agency assumptions and the three agency problems, agency-theory is expected to deliver valuable insights for this research study.

On the other hand, SMEs are characterized by a social interaction between the individuals. The dominance of the owner-manager and low degrees of formal organization lead to frequent interaction amongst group members. In fact, certain advantages of SMEs, such as quick decisions and innovative products, are a consequence of high levels of interaction amongst the employees with all their related social aspects. Pichler , pp. Although agency theory provides a solid understanding of the design of controls in organizations, it is deficient in its explanatory power in the aspect of social relationship amongst organization members.

Using two theoretical frameworks in an integrated way allows this study to deal with the characteristics of SMEs and to derive hypotheses for all four control forms. Both theories are valuable especially in their combination, as both cover rich areas of management control, in particular, the differentiation between formal and informal control. This is achieved in three steps. First, the issues and aspects covered by both theories are integrated, as they are relevant to the research objects. As outlined in the paragraph above, all four issues raised in the theories apply to SMEs and the function of management control.

Hence, they are considered being equally relevant to this study and are used to describe the overall situation. Second, the related suggestions to solve these issues are incorporated into an overall theoretical framework. Each theory suggests different mechanisms ranging from alignment of interests over monitoring activities up to personnel selection processes.

The suggestions are then clustered by their related problems. During the final step, the proposed management control forms are mapped against suggested solutions to show how management control can address the overall questions. Each management control form, as derived from the management control framework of MERCHANT, is then evaluated in relation to its contribution to the different solution elements.

There is a manifest rationale behind this approach. As the suggested solutions of the two fundamental theories have been developed and empirically tested by a number of previous scholars, they can be considered established. In case this study is able to match the proposed management control forms against the previously established and accepted solutions, a direct effect of the control forms, as proposed by the fundamental theories, can be assumed. In the following paragraphs, both theories are presented in their relationship to describing the different control forms.

As outlined in Chapter 3. It can also be understood as an alignment of interests between the principal and the agent by designing an appropriate incentive system for the agent: This allows the principal as well, to ex-post monitor the performance of the agent and to act accordingly, by adjusting goals or work parameters during the subsequent work sequence. Therefore, behavior control can be regarded as a manifestation of solutions, among others, of the moral hazard problem. It addresses the solution of the adverse-selection problem by intensifying the screening process.

Detailed interviews and skill profile matchmaking processes ensure that the potential employee matches both explicit and implicit company requirements. The communication of the agent during the application process can also be understood as a form of signaling. By showing his technical skills and personal attitudes in his application and the interviews, he actively presents the desired characteristics to the potential employer. Social control theory, on the other hand, depicts the effects of socialization and the resultant control effects in organizations.

It delivers two basic propositions for management control. First, it describes the importance of selecting employees who i already match the required norms of the group and values or ii who are open to adapt them. This process of selecting the best-matching human resources can also be understood as a function of personnel control over the workforce.

Second, the theoretical framework describes the effect of commonly accepted norms on the behavior of individuals and the desire of men to reach conformity. Cultural control, by its core means, aims at designing and communicating behavioral norms 83 and values to employees and, thereby, influencing them. Hence, cultural control can also be linked to the mechanisms of social control theory.

The leftmost column represents the two frameworks and the related proposed solutions. The x-axis of the summary shows the four proposed management control forms. Every proposed solution from the theoretical framework is related to a certain management control form, while their relationship is represented by a tick mark. The figure illustrates that all four management control forms can be linked to suggestions from the chosen theoretical frameworks. Theoretical framework, problems and suggested solutions A. Results control Behavior control PAT: Moral hazard ex post: Conceptual relationships between control theories and research framework In summary, this sub-chapter described how the two selected theories, agency and social control theory, can be used to describe the consequences of management controls.

By addressing critical management issues that are part of the concept of management control in SMEs, both theories add significant conceptual value to this study. To determine the effects of each individual control forms, the control forms are then matched against previously suggested solutions. All four management control forms are expected to have an influence on 84 Agency theory could also be linked to cultural control: But as social control theory was specifically developed to cover cultural and social elements, it can be easily applied to this study.

Hence the next step is to formulate hypotheses to test the assumed effects against empirical data. A variety of potential theories were reviewed to explain the effects of management control on company performance. After comparing the available theories with the requirements put forward by the research design, a detailed selection process reveals two frameworks that fit the objectives best.

Both theories, agency theory and social control theory, are then reviewed with regard to their concept, assumptions and offered solutions for control. By matching the proposed theories to the chosen management control framework by MERCHANT, this study suggests a positive effect of the different management control forms on company performance. In addition, the combination of the control forms is expected to be beneficial in comparison to the use of a single form. As the theoretical foundation for this study is defined now, the following chapter develops the hypotheses and the research model.

By using agency theory and complementing it with the concept of social control theory, this study seeks to provide empirical evidence for the suitability of both theoretical concepts. To achieve this, both theories are used during the hypotheses formulation and finally are evaluated at the end of the study with regard to their theoretical contribution to the overall research questions. Perrow , p. Firstly, this study seeks to provide evidence for the beneficial effect of indirect controls on company performance. The hypotheses for all four control forms are thus developed in Chapter 4.

Contemporary entrepreneurship : multidisciplinary perspectives on innovation and growth

Secondly, the assumed consequences of control combinations are described in Chapter 4. Thirdly, the hypotheses for research questions two and four, which concern age research question two and other life cycle oriented moderators research question four are discussed in Chapter 4. First, it builds on theoretical considerations to determine the linkage between the chosen theoretical framework and the management control framework. Then, it presents relevant empirical research from large corporations and related disciplines.

Finally, findings from the SME literature complement the hypothesis formulation. To complement agency theory and to account for the focus on indirect forms of control, social control theory is considered as a second theoretical foundation. The fundamental assumption of this study is that the four management control forms can be attributed to the solutions provided by the agency and social control theory.

The conceptual relationships used to derive hypotheses are summarized in Figure Each management control can be considered to build on different solution techniques from the theories. For example, the overall concept of personnel control consists of techniques that address issues both from the problem of adverse selection and ensure the predisposition to adapt to external norms.

Executing management controls will, therefore, reduce or eliminate the presented issues. The following chapters build on this assumption, explaining how management control forms are associated with the suggested solutions and linking it to previous empirical results. The process of how to achieve defined targets is not predetermined and is to be defined by the agent.

The encouragement to ensure goal consistent behavior in this case is the incentive system. Results control addresses the agency issue of moral hazard. By using an incentive system and only a little interaction, the principal is able to reduce his overall control costs, while ensuring an alignment of interests. The overall control costs are expected to be moderate, as the agent, besides taking the risk of underperformance, has only negligible control or signaling costs.

As the fundamental mechanisms of interest alignment remain identical in small organizations, the characteristics of SMEs are not expected to influence the positive effects of results control. Hence, research from both areas is considered in this study. This performance effect even increased in large corporations. Merchant , p. Previous research on results control yielded considerable information on organizational performance. HILTROP , for instance, found that an incentive based compensation system has positive effects on product quality, change acceptance and firm performance.

YAO , in his study on state-owned enterprises in China, was able to show that the productivity growth was primarily driven by the incentive system in the organization. This listing has ended. This amount is subject to change until you make payment. For additional information, see the Global Shipping Programme terms and conditions - opens in a new window or tab This amount includes applicable customs duties, taxes, brokerage and other fees.

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Seller assumes all responsibility for this listing. A book that has been read and does not look new, but is in excellent condition. No obvious damage to the book cover, with the dust jacket if applicable included for hard covers. No missing or damaged pages, no creases or tears, no underlining or highlighting of text, and no writing in the margins. Some identifying marks on the inside cover, but this is minimal. Very little wear and tear.