Configurations of Control: A Transaction Cost Approach

In this paper, I present a theory of management control based on Transaction Cost Economics.This theory seeks to integrate into a single framework a set of insights as to the natureof the organization's activities, the control problems that are inherent in these activities,and the unique problem solving potential of various archetypal control structures. The gistof the argument is that activities predictably differ in the control problems to which theygive rise, whereas control archetypes differ in their problem-solving ability, and thatalignments between the two can be explained by delineating the efficiency properties of thematch. This is a contingent configuration approach. It is a configuration theory in that itoffers a set of ideal types, conceived of as internally consistent and discriminating clustersof attributes from multiple dimensions that have a specific effect on control structureeffectiveness as the variable to be explained. But it is also a contingent approach in that itspecifies the conditions in which each of the archetypes is most effective.transaction cost economics;management control theory;configuration theory

Towards a Transaction Cost Theory of Management Control

In this paper, I present and discuss a theory of management control based on TransactionCost Economics. This theory specifies the composition of various archetypal control structures,and links these to their respective habitat. These are: (1) arm's length control; (2)machine control; (3) exploratory control; and (4) boundary control. The gist of the argumentis that activities predictably differ in the control problems to which they give rise, whereascontrol archetypes differ in their problem-solving ability, and that alignments between thetwo can be explained by delineating the efficiency properties of the match. This approachhas some interesting qualities. Its relatively simple theme seems to speak to a wide empiricaldomain, and can be used to make sense of a large set of different control practices.Furthermore, it offers a practicable way to address control structure effectiveness. Finally,the approach is empirically testable.transaction cost economics;management control theory

Sourcing of Internal Auditing: An Empirical Study

In recent years, the scope of internal auditing has broadened considerably, increasing the importance of internal auditing as part of the organization’s management control structure. This expanding role has changed the demands being put on internal auditors. Their new role requires different skills and competencies, and many organizations now need to face the choice whether to develop these broader competencies internally or to outsource internalauditing to outside service providers.This paper studies the factors associated with organizations’ internal audit sourcing decisions, building from a previous study by Widener & Selto (1999; henceforth W&S). In their study, W&S used Transaction Cost Economics (TCE) to explain the organization of internal auditing. Our study seeks to replicate their results, using newly collected data from 66 companies headquartered in the Netherlands. Our findings are supportive of W&S. Like W&S, we find asset specificity and frequency (both individually and in interaction) to be significantly associated with sourcing decisions in a regression model that explains 65% (adjusted R2 = 0.63) of the variance in outsourced internal auditing. Additional analyses reinforce the importance of these TCE variables in explaining organizations’ internal auditing sourcing behaviour.transaction cost economics;internal auditing;make-or-buy decision

Management Control, Results-Oriented Culture and Public Sector Performance: Empirical Evidence on New Public Management

New Public Management (NPM) has been guiding public sector reform for over 25 years. Its position on the design of effective management control rests on three key ideas: (1) performance improvement requires a results-oriented culture that emphasizes outcomes rather than inputs or processes; (2) public sector organizations need to introduce performance management based on targets, monitoring and incentives; and (3) public sector organizations should decentralize decision rights and reduce their reliance on rules and procedures. Focusing on the particularly influential version of NPM as advocated by the OECD, we examine the validity of these ideas theoretically and empirically. We conclude that NPM’s reform programme should be reconsidered. Although the evidence indicates that a results-oriented culture is positively associated with performance, we find little support for the assumed benefits of NPM-type performance contracting. In addition, the results suggest that both the effects of decentralization and the reliance on rules and procedures are opposite to NPM’s expectations