Academic journal article International Journal of Management

Organizational Structure, Operational Coordination and Relational Signals: How Voluntary Actions by Organizations Lead to Formal Control Structures

Academic journal article International Journal of Management

Organizational Structure, Operational Coordination and Relational Signals: How Voluntary Actions by Organizations Lead to Formal Control Structures

Article excerpt

This paper constructs a logic of the interplay between a formal control structure, operational co-ordination and trust building through relational signalling in an interfirm relationship. It posits that there inevitably is a control structure deficit that is compensated by voluntary coordinating actions that signal the absence of opportunism and, thus, ongoing commitments to the relationship. These voluntary local actions may in turn produce new control structures. Essentially, the paper demonstrates how voluntary action (in both a relational and an operational sense) may institutionalise into new formal control structures.

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Introduction

This paper aims to contribute to further theory building in the area of control in interfirm relationships and, thus, in hybrids. Central to our analysis is the notion of hybridisation. Hybridisation is a continuous and creative process, through which new phenomena are produced out of two or more elements normally found separate (Miller et. al, 2008). We expect control structures to be the results of rather formal processes of hybridisation, implying negotiation between individual actors. These control structures provide the basis for formal control practices and are incorporated in a governance structure, an "institutional framework within which transactions are executed" (Williamson, 1979, p. 239). Essentially, the institutional framework takes the form of a contract concluded at the outset of the relationship, but also includes additional institutional arrangements such as service level agreements and minutes of formal meetings. The formal control structures aim to co-ordinate, constrain, safeguard and incentivize the actions of the parties involved. In doing so, these structures both meet coordination requirements and compensate for appropriation concerns (a distinction introduced by Dekker, 2004 on the basis of Gulatti and Singh, 1998).

However, control structures incorporated in a governance structure and the related control practices do not suffice. As a consequence of fundamental uncertainty and bounded rationality it is impossible for individual actors to foresee all potential opportunism and, thus, to fully align interests in advance. Furthermore, it is impossible to plan and co-ordinate all activities in advance. Therefore, contracts, and thus formal control structures and related practices, are necessarily incomplete. There is a control structure deficit. Effective coordination and effective interest alignment not only require formal arrangements but also voluntary actions from the local positions in the relationship. In addition to the formal governance structure there is a need for emergent operational coordination and for an emergent signalling of the absence of opportunistic behaviour that could not be compensated for by contractual measures. By explicitly signalling absence of opportunistic behaviour parties communicate to each other that they stay committed to the relationship and, thus, that they prioritise their long-term self-interests above short-term self-interests. Thus, both relational signalling (Lindenberg, 2000; Vosselman and Van der Meer-Kooistra, 2009) and emergent operational coordination add to formal controls incorporated in a governance structure. However, this paper will demonstrate that contractual control structures and practices, relational signalling and operational coordination not only add to each other, but also interact with each other. It constructs a narrative that demonstrates how unexpected events during the execution of operations and transactions entail voluntary coordinating activities, that, in turn, provide for opportunities to signal the absence of opportunism and, thus, ongoing commitments to the relationship. These voluntary local actions may in turn produce hybrid forms of control. In this sense, the paper demonstrates how voluntary action (in both a relational and an operational sense) may institutionalise into control structures. …

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