Changing the boundaries of the firm: Adopting and designing efficient management control structures

Purpose - To develop a model in which alternative patterns of management control are confronted with situational and institutional features in the context of transactional relationships. The model could be of use to managers in making rational decisions regarding the boundaries of the organization.

Design/methodology/approach - The model is developed by drawing on transaction cost economics extended with systems theoretical notions on trust.

Findings - Three patterns of management control are identified: a market pattern, a bureaucratic pattern and a trust pattern. Furthermore, the transactional and institutional factors that determine the choice of a control pattern or elements therein are identified and confronted with the three management control patterns.

Research limitations/implications - An extended transaction cost economics approach is rather static of nature and, therefore, could be criticized for its lack of attention to processes of gradual development. In practice, adoption and design of management control structures are only part of the story; there also is gradual development or evolution in management control. However, the implications of the model are restricted to rational decision making regarding the adoption/design of management control patterns.

Originality/value - The paper provides a relevant and usable model for the adoption and design of management control patterns.