The Effect of Control Systems on Teams and Alliances: Trust and Cooperation in the New Collaborative Environment

Abstract

Because of conflicting incentives among participants, inter-firm (e.g., strategic alliances and joint ventures) and intra-firm (e.g., work teams) collaborations present a significant control challenge to managerial accountants. On the one hand, formal controls such as sanctioning and monitoring systems improve cooperation by reducing the incentives for opportunistic behavior. On the other hand, prior research finds that the mere presence of a control system causes decision makers to view the collaborative setting as inherently non-cooperative, and teammates and partners as inherently untrustworthy. In this paper, we conduct two experiments in which participants act as business collaborators. Through these experiments, we examine the effects of control on trust and cooperation in collaborative settings. Using the social psychological foundations of Attribution Theory, we posit and provide evidence that a strong control system can actually enhance the level of trust among collaborators. The mediating role of control-induced cooperation, along with the tendency of individuals to commit the Fundamental Attribution Error, provide the mechanism by which control systems can increase trust in collaborative environments. Further, we show that this increased trust has a positive effect on the subsequent level of cooperation among collaborators.

Keywords: collaboration, strategic alliance, joint venture, teams, control system, attribution theory, framing, trust, cooperation

JEL Classification: M40, M46