Control: Organizational and Economic Approaches

1. Control: Organizational and Economic Approaches Kathleen M. Eisenhardt Department of Industrial Engineering and Engineering management, Stanford University Presenter: Wen Zheng

2. Contents Introduction Theory Empirical Discussion Conclusion

3. Problem Statement Introduction Theory Empirical Discussion Conclusion • This paper want to explore control variables for organization design

4. Problem Statement Introduction Theory Empirical Discussion Conclusion • This paper want to explore control variables for organization design • Reward structure • Task characteristics • Information system

5. Problem Statement Introduction Theory Empirical Discussion Conclusion • This paper want to explore control variables for organization design • Organization design often focus on structure solution. • Reward structure • Task characteristics • Information system

6. Problem Statement Introduction Theory Empirical Discussion Conclusion • This paper want to explore control variables for organization design • Theoretical Integration • Empirical Test

7. Organization Theory • Information Characteristics • Task Programmability • Outcome measurability Thompson(1967) Ouchi (1979) Introduction Theory Empirical Discussion Conclusion

8. Organizational Theory Introduction Theory Empirical Discussion Conclusion Task Outcome • Adapted from Ouchi (1979)

9. Agency Theory Determine the optimal contract for the Agent Services Introduction Theory Empirical Discussion Conclusion • -Risk sharing • -Outcome measurement • -Behavior measurement Assumptions: -Uncertain outcome and risk averse agent -Effort averse agent

10. Comparison(Similarity) Introduction Theory Empirical Discussion Conclusion • Concerned with determinants of control strategy • Rational • Efficiency oriented • Information based • Distinguish between behavior and outcome based control

11. Comparison(Difference) Introduction Theory Empirical Discussion Conclusion

12. Hypothesis Introduction Theory Empirical Discussion Conclusion Task Characteristics -Task Programmability Control Strategy -Behavior based -outcome based Information System -Behavior Measurement -Outcome Measurement Uncertainty

13. Hypothesis Introduction Theory Empirical Discussion Conclusion Task Characteristics -Task Programmability Control Strategy -Behavior based -outcome based Information System -Behavior Measurement -Outcome Measurement Uncertainty

14. Hypothesis Introduction Theory Empirical Discussion Conclusion Task Characteristics -Task Programmability Control Strategy -Behavior based -outcome based Information System -Behavior Measurement -Outcome Measurement Uncertainty

15. Hypothesis Introduction Theory Empirical Discussion Conclusion Task Characteristics -Task Programmability Control Strategy -Behavior based -outcome based Information System -Behavior Measurement -Outcome Measurement Uncertainty

16. Organization Sampling Introduction Theory Empirical Discussion Conclusion • Sample: 95 specialty stores in a Suburban Bay Area shopping center

17. Organization Sampling Introduction Theory Empirical Discussion Conclusion • Sample: 95 specialty stores in a Suburban Bay Area shopping center • Definition: Stores with less than 8,000 square feet of selling space • Characteristics: Size, turnover, promotion • Reason: • Provide a relative large number of comparable organizations which are conveniently located • Provide a setting in which a normative and efficiency model should be descriptively accurate • Social or “people ” control is not relevant

18. Measures (Construct) Introduction Theory Empirical Discussion Conclusion • Task Programmability • Behavior Measurement • Outcome Uncertainty • Cost of outcome Measurement • Control • Alternative Explanations

19. Measures (Construct) • Preliminary interview • The amount of service in selling process. (less programmable) • Service • Product • Selling time • Training time Introduction Theory Empirical Discussion Conclusion • Task Programmability • Behavior Measurement • Outcome Uncertainty • Cost of outcome Measurement • Control • Alternative Explanations

20. Measures (Construct) Introduction Theory Empirical Discussion Conclusion • Task Programmability • Behavior Measurement • Outcome Uncertainty • Cost of outcome Measurement • Control • Alternative Explanations • Preliminary interview • Physical limitations on observation of salespeople by management • Selling Space Square footage of the store • Total number of store employees • Number of salespeople per store supervisor (managers, assistant managers

21. Measures (Construct) Introduction Theory Empirical Discussion Conclusion • Task Programmability • Behavior Measurement • Outcome Uncertainty • Cost of outcome Measurement • Control • Alternative Explanations • Secondary source • Three measures • Number of competitors in the San Francisco SMSA by merchandise category. • Failure rates in 1975 by merchandise category • Failure rates in 1979 by merchandise category

22. Measures (Construct) Introduction Theory Empirical Discussion Conclusion • Task Programmability • Behavior Measurement • Outcome Uncertainty • Cost of outcome Measurement • Control • Alternative Explanations • Depend on the cost of the outcome measurement system. • The number of stores in the store chain. • The dichotomous ownership variable

23. Measures (Construct) Introduction Theory Empirical Discussion Conclusion • Task Programmability • Behavior Measurement • Outcome Uncertainty • Cost of outcome Measurement • Control • Alternative Explanations • Behavior based vs. outcome based reward structures. • Outcome based: Commission, commission against law and salary plus commission • Behavior based: Salary or hourly rate compensation

24. Measures (Construct) Introduction Theory Empirical Discussion Conclusion • Task Programmability • Behavior Measurement • Outcome Uncertainty • Cost of outcome Measurement • Control • Alternative Explanations • Talbert and Bose (1978) • Sex composition • Price • Type (specialty vs. department) • Location (city vs. suburbs)

25. Measures (Accuracy) Introduction Theory Empirical Discussion Conclusion Note: 1. Measured by Standardized Cronbach Alpha 2. Measured by Range of correlations 3. Measured by # cross construct correlations>within correlations construct 4. Significant level: * 0.1 **0.05 ***0.01

26. Results Introduction Theory Empirical Discussion Conclusion • Correlation Matrix • Discriminant Analysis

27. Results Introduction Theory Empirical Discussion Conclusion • Discriminant Analysis Classification Table (N=54)

28. Implications Introduction Theory Empirical Discussion Conclusion • Humanist/attributionist argument that salient extrinsic reward diminishes intrinsic motivation should be used cautiously outside of the experimental laboratory. • Responsibility need not match controllability.

29. Organization Design Strategy Introduction Theory Empirical Discussion Conclusion • Job Design----Simple and Routine job • Invest in information System • Outcomes based control---Simple evaluation scheme, a flexible job content • Employ people whose preference coincide with those of management----selection, training and socialization

30. Thank You !