Management And Accounting Web

Ouchi, W. G. 1979. A conceptual framework for the design of organizational control mechanisms. Management Science (September): 833-848.

Summary by Patrick Brisley
Master of Accountancy Program
University of South Florida, Fall 2000

Control/Controllership Main Page | Management Theory Main Page

Ouchi attempts to answer two main questions in this article:

1. What are the mechanisms through which an organization can be managed so that it moves towards its objectives?

2. How can the design of these mechanisms be improved, and what are the limits of each basic design?

What is Organizational Control?

Tannebaum - "Sum of interpersonal influence in an organization."

Etizioni - "Control in organizations as equivalent to power."

Three mechanisms of management and their basic principles:

Markets - Prices convey all of the information necessary for efficient decision-making.

As a pure model, a market is a very efficient mechanism of control.
In a frictionless market, decision-makers would need no other information.
Rarely exists in practice.

Bureaucratic - Involves close personal surveillance and direction of subordinates by superiors.

Information necessary for task completion is contained in rules.
Rules are created arbitrarily.
If a rule is expressed qualitatively rather than quantitatively, the cost of administration can be expected to be higher.

Clans - Operate on ceremony and ritual and the form of control is very subtle.

Informal social system.
Elaborate control mechanisms can go unnoticed, however can still be effective.

Social Requirements of Control (Table 1)

Norm of Reciprocity - Should one party try to cheat another, the cheater will be punished by all members of the social system, not just the victim.

Legitimate Authority - Higher office holders have the legitimate right to command and to monitor lower persons, within some range.

Traditions - Social agreement on a broad range of values and beliefs; relies upon a deep level of common agreement and a high level of commitment.

Designing Control Mechanisms - 2 ways (Table 2)

Search for and select people who fit the needs of the organization exactly:

Advantages and Disadvantages of the Clan Mechanism

Higher commitment by employees.
Increased hiring costs (search, wages, etc.).
Lower Evaluation Cost.
Employee turnover is harmful.

Develop a managerial system to instruct, monitor, and evaluate people who do not exactly fit the needs of the organization:

Advantages and Disadvantages of the Bureaucratic Mechanism

Greater Labor pool to select from.
Increased evaluation measures.
Can withstand high employee turnover.
Cost of implementation.

Two views of organizational control:

1. Organizations can be controlled through the mechanisms of markets and bureaucracy. Performance measurement is required.

2. Loose Coupling - Organizations that control through narrow measurements will ultimately decline due to those evaluations. The clan form, stressing values and objectives is preferable.

*In almost all organizations, various combinations of the control mechanisms will be found.

_____________________________________________

Also see Martin's note that compares the three mechanisms discussed in this article in a table format.

Related summaries:

Amabile, T. M. 1998. How to kill creativity: Keep doing what you're doing. Or, if you want to spark innovation, rethink how you motivate, reward, and assign work to people. Harvard Business Review (September-October): 77- 87. (Summary).

Bailey, C. D., L. D. Brown and A. F. Cocco. 1998. The effects of monetary incentives on worker learning and performance in an assembly task. Journal of Management Accounting Research (10): 119-131. (Summary).

Blake, R. R. and J. S. Moulton. 1962. The managerial grid. Advanced Management Office Executive 1(9). (The Grid).

Bonner, S. E. and G. B. Sprinkle. 2002. The effects of monetary incentives on effort and task performance: Theories, evidence, and a framework for research. Accounting, Organizations and Society 27(4-5): 303-345. (Summary).

Deming. W. E.1993. The New Economics For Industry, Government and Education. Cambridge: Massachusetts Institute of Technology Center for Advanced Engineering Study. (Summary).

Herzberg, F. 2003. One more time: How do you motivate employees? Harvard Business Review (January): 87-96. (Summary).

Katzenbach, J. R. and J. A. Santamaria. 1999. Firing up the front line. Harvard Business Review (May-June): 107-117. (Summary). The authors discuss five unique practices used by the Marine Corps).

Kohn, A. 1993. Why incentive plans cannot work. Harvard Business Review (September-October): 54-63. (Summary).

Martin, J. R. Not dated. Simon's levers or control in relation to the balanced scorecard. Management And Accounting Web. http://maaw.info/ArticleSummaries/ArtSumSimon'sLeversofControl.htm

McGregor, D. M. 1957. The human side of enterprise. Management Review (November): 22-28. Reprinted from the Proceedings of the Fifth Anniversary Convocation of the School of Industrial Management, MIT, April 9, 1957. (Summary).

Ouchi, W. G. 1979. A Conceptual Framework for the Design of Organizational Control Mechanisms. Management Science (September): 833-848. (Summary 2).

Ouchi, W. G. and A. M. Jaeger. 1978. Type Z organization: Stability in the midst of mobility. Academy of Management Review. (April): 305- 314. (Summary).

Pfeffer, J. 1998. Six dangerous myths about pay. Harvard Business Review (May-June): 109-119. (Summary).

Shields, M. D., F. J. Deng and Y. Kato. 2000. The design and effects of control systems: Tests of direct- and indirect-effects. Accounting, Organizations and Society 25(2): 185-202. (Summary).

Simons, R. 1995. Control in an age of empowerment. Harvard Business Review (March-April): 80-88. (Summary and related Note).

Spekle, R. F. 2001. Explaining management control structure variety: A transaction cost economics perspective. Accounting, Organizations and Society 26(4-5): 419-441. (Summary).

Sunder, S. 2002. Management control, expectations, common knowledge, and culture. Journal of Management Accounting Research (14): 173-187. (Summary).