The Role of Management Controls in Transforming Firm Boundaries and Sustaining Hybrid Organizational Forms
Shannon W. Anderson and Henri C. Dekker (2014) "The Role of Management Controls in Transforming Firm Boundaries and Sustaining Hybrid Organizational Forms", Foundations and Trends® in Accounting: Vol. 8 (Forthcoming)
57 Pages Posted: 23 Aug 2014
Date Written: April 29, 2014
Coase (1937) first explained the existence of firms and the boundaries between them as an emergent solution to minimizing the costs of accessing markets -- what Williamson (1975) later termed ‘transaction costs.’ Over time, innovations in management control and changes to legal structures have reduced the costs of monitoring, raised the costs of behaving opportunistically, and created ways for partners to commit credibly to future actions. At the same time, entrepreneurial firms have developed inimitable resources that are a basis for collaborating with partners who have complementary resources (Penrose 1959). Together these forces have transformed the dichotomous choice of ‘make’ versus ‘buy’ into a selection among a more nuanced set of hybrid modes of organization (e.g., strategic alliances, joint ventures, and supply chain partnerships). The hybrid structures blend characteristics of arms-length market transactions with modes of governance and control that are more common to large decentralized firms. The thesis of this paper is that innovation in management control has been central to the emergence, diversity and stability of hybrid organizational forms. Extending the arguments of Coase, Williamson, and Penrose, a review of the accounting literature highlights the important role that management controls have played in transforming the question from explaining firm boundaries to explaining how transactions that appear to be fraught with transactions hazards are rendered profitable and sustainable to transaction partners. We review empirical research in management accounting to support our thesis and identify areas for further inquiry.
Keywords: management control, transactions cost economics, strategic alliance, resource based view
JEL Classification: M4, L14, K12
Suggested Citation: Suggested Citation