Control, Coordination, Agency Theory, Stewardship Theory in the IS - Term Paper Example

Control, Coordination, and Agency and Stewardship Theories in IS 1. What is the relationship between agency and stewardship theory and various theories of self-control? Two of the most important theories that are extremely useful in developing information systems for project management are the stewardship and agency theories. According to Eisenhardt (58), agency theory provides a framework for resolving two sets of problems in agency relationships: 1) problems arising from possible divergences in goals between the principal and the agent given attempts by the principal to monitor or verify actions or the behavior of the agent; and 2) difficulties arising from divergences in risk preferences between the principal and the agent. Eisenhardt provided an overview of agency theory (59): 1. The key idea forwarded by the theory is that the principal agent relationship should mirror the efficient organization of information and costs/risks. 2. The unit of analysis and point of departure is the contract between the principal and the agent. 3. Men and women are assumed to be motivated by self-interests, have bounded rationality, and averse to risks. 4. The agent and the principal are assumed to have partially divergent goals and that they have unequal access to information. It is assumed that organizations are effective when they are efficient. 5. Information is assumed purchasable and typical contract problems revolve on moral hazard, adverse selection, and sharing of risks. 6. The problem domain of the agency theory focuses on relationships in which the principal and the agent may have divergent goals and risk preferences. The domain involves resolutions on compensation, regulation, leadership, impression management, whistle blowing, vertical integration, and transfer pricing. According to Eisenhardt, the ten propositions of the Agency Theory are as follows (60-63): 1. The agent is more likely to behave consistent with the interests of the principal when the contract is based on outcomes. 2. The agent is more likely to behave consistent with the interests of the principal when the principal can monitor the behavior of the agent. 3. Behavior-based contracts favor while outcome-based contracts do not favor information systems. 4. If there is uncertainty in outcomes then behavior-based rather than outcome contracts will be favored. 5. If agents are aversed to risks then they will favor behavior-based rather than outcome contracts. 6. If the principal is risk-averse, then the principal will favor contracts based on outcomes rather than behavior. 7. Conflict of goals between the principal and agents are most likely in outcome-based contracts and less likely in behavior-based contracts. 8. Programmable tasks favor behavior rather than outcome-based contracts. 9. Measurable outcomes favor outcome rather than behavior-based contracts. 10. Behavior-based contracts are most likely in situations where the length of relationship is longer but outcome-based contract is more likely in shorter relationships. For Davis, Shoorman, and Donaldson, “the crux of agency theory is that principals delegate authority to agents to act on their behalf” but does not specify total control of the agent (23). In contrast, Davis and his co-authors have described steward theory as “collectivists, pro-organizational, and trustworthy” (20). It is the dominant paradigm in governance research even if researchers find limitations in the theory (Davis and co-authors 20). For the steward in the steward theory, “pro-organizational, self-serving behaviors have higher utility than individualistic, self-serving behaviors” (Davis and co-authors 24). Further, “a steward’s behavior will not depart from the interests of his or her organization” (Davis and co-authors 24). “Even where the interests of the steward and the principal are not aligned, the steward places higher value on cooperation than defection” (Davis and co-authors 24). Actually, “stewardship theory has its roots in psychology and sociology and was designed for researchers to examine situations in which executives as stewards are motivated to act in the best interests of their principals” (Davis and co-authors 24). The model of man in the theory is that of a steward whose behavior is “collective, because the steward seeks to attain the objectives of the organization (e.g., sales growth or profitability).” The steward “believes that by working toward organizational, collective ends, personal needs are met” (Davis and co-authors 25). According to Davis and co-authors (25), if the executive motivations fit the model of a man under the stewardship theory, “empowering governance structures and mechanisms are appropriate.” A steward’s autonomy should be deliberately extended to maximize the benefits that can be derived from a steward because a steward can be trusted can be trusted and “is motivated to behave in ways that are consistent with organizational objectives” (Davis and co-authors 25). Manz, Mossholder, and Luthans defined self-control as an informal mode of control “when an individual set his own goals, self-monitors goal achievement, and rewards or self-sanctions himself accordingly (Kirch, Sambamurthy, Ko, and Purvis 486). Self-control is one of the two modes of informal controls in Information Systems Project Management (Kirsch 218). The other mode of informal control is clan control (Kirsch 217).1 For this writer, self-control can be interpreted as self-motivation or simply motivation. According to Davis and co-authors (29-31), there are several ways in which motivation can favor or disfavor stewardship and agency contracts. The effects that motivation has on stewardship and agency contracts were discussed by Davis and his co-authors (29-31) and their propositions can be rephrased as follows: 1. People whose self-control or control on the self is governed by higher order needs are more likely to be stewards rather than agents. It should follow that those who are governed by lower needs are more appropriate for agency arrangements. 2. People whose self-control or control is governed by intrinsic rather than extrinsic factors are more likely to become stewards rather than agents. 3. Those whose control on the self is consistent with organizational goals are more appropriate to serve as stewards. Thus, people who deeply identify themselves with the personality of the organization are more likely to become stewards rather than people who have low identification with the organization. The goals of agents may diverge with the principal if the agents do not have a promise of payment from the principal. 4. People who have a strong commitment to the values upheld by an organization and whose control on the self are consistent with the values of the organization are more appropriate to become stewards of the organization. 5. People who are more likely to use personal power or power that originate from interpersonal relationships (e.g., influence) rather than institutional power are more likely to become stewards. In other words, people who can control their selves in the quest for institutional power are more likely to become stewards. 6. People who value involvement are more likely to be appropriate to become stewards. In other words, people who can control their selves from dominating others are more likely appropriate to become stewards. 7. People who are collectivist are more likely to develop principal-steward relationships than people who individualistic. Thus, individuals who tend to allow the collective to rule the self are more likely to become stewards. It is important to point out that Kirsch, Sambamurthy, Ko, and Purvis pointed out that when outcomes are difficult to measure, self-control becomes very important and, thus, this may imply that stewardship arrangement may be more appropriate if individuals share the goals of an organization. Similarly, the authors also said that “low levels of behavior observability will be associated with the exercise of self-control" (Kirsch, Sambamurthy, Ko, and Purvis 488). This also suggests the appropriateness of stewardship arrangements for behavior that are difficult to observe, provided individual interests converge deeply with the goals of an organization. Meanwhile, the various theories on self-control or control of the self can revolve on the role of the collective, organizational values, organizational goals, organizational commitment, values, and higher or lower order needs. To the extent that an individual allows his or her self be controlled by the collective, organizational values, organizational goals, organizational commitment, organizational values, and higher order needs, the more appropriate a stewardship arrangement becomes. In contrast, an agency contract only requires that that the individual surrenders his or her control over his or herself for a price. The key requirement in agency arrangement is the willingness of the agent to surrender his or her control over his or her self to the principal for a price. The agent may or may not be skillful in advancing the interests of his or her principal but what matters most in the principal-agent arrangement is that the agent must advance the interests of his or her principal. Because a principal-agent arrangement does not require shared goals when the agent is unpaid, corporate governance in an agency contract may emphasize control rather than collaboration as discussed in the work of Sundaramurthy and Lewis (398). 2. What is the difference between control and coordination? What aspects of control are unrelated to coordination? What aspects of coordination are unrelated to control? Give examples. In Information Systems, coordination is different from control (Sabherwal 155). Coordination in Information Systems focuses on managing interdependence among individuals or activities involved in an overall task (Sabherwal 155 citing the work of several authors). In contrast, Sabherwal pointed out that control focuses on improving performance relative to a set of overall goals when the goals of individual stakeholders like employees differ from the goals of the larger entity (Sabherwal 155 citing the work of several authors). Sabherwal’s definition implies that unity of purpose and independent interdependence mainly characterize coordination but are unrelated with or absent in control.2 This means that the bodies, individuals, groups, and organizations coordinated may have converging goals and objectives but can be essentially independent. At the same time, based on Sabherwal’s definition, the absence of unity of purpose and absence of independence characterize control but are unrelated to coordination. This means that the bodies, individuals, groups, and organizations that are subjected to control may not have common objectives but controls are used to marshal controllee activities and behaviors to meet an objective or objectives of the body, individual, group, and organization using the controls or the controller. This also means that in an environment of controls, there is a situation of hierarchy in which bodies, individuals, groups, and organizations are obligated or required to follow certain commands of a particular body, individual, group, or organization using the controls or the controller. Citing several sources in the literature in Information Systems, some of the coordination mechanisms that Sabherwal identified in Information Systems include the following (156): standards, hierarchy, targets or plans, vertical information systems, direct contact, liaison roles, task forces, and integrating roles. Further, again citing several sources in Information Systems literature, Sabherwal idenfified some of the possible ways in which coordination can be classified (156): formal impersonal, formal interpersonal, and informal interpersonal, standards, schedules, plans, mutual adjustment, teams, task-task, task-resource, resource-resource, vertical/horizontal, coordination by programming, and coordination by feedback. Building on the classification system of earlier writers, Sabherwal adopted four broad types of coordination (156, 158): standards, plans, formal mutual adjustment, and informal mutual adjustment. According to Sabherwal, uncertainty plays a key role in the choice of coordination mechanism and the coordination mechanism initially chosen may give way to other coordination mechanism in the course of Information System project development (159). According to Sabherwal, one example in which uncertainty plays a role in the choice of coordination mechanism is a vendor’s non-involvement in the requirements analysis that resulted to a lack of understanding of system need (171). Efficiency considerations can also influence how coordination will be implemented (Sabherwal 172). Equity considerations are also important in the choice of coordination mechanisms because coordination mechanisms should reflect an equitable distribution of roles, tasks, and contribution of resources even if equity arrangements can also be modified during the course of an Information Systems project (Sabherwal 173). Again, and for several times, Sabherwal emphasized that coordination mechanism can change over the course of an Information System project. The idea of a changing or coordination mechanism found in the work of Sabherwal is consistent with Kirsch’s view of an Information System Development “that is not just a technical process of building an information system, but also a social process involving stakeholders from multiple organizational units” (Kirsch, Portfolio of Control Modes and IS Project Management 215). An interesting point with regard to coordination is that coordination enables us to mobilize several groups that are independent similar to the case described by Majchrzak, Jarvenpaa, and Hollingshead (147) but the use of control will usually allow us to mobilize a limited number of groups. The use of computer technology will allow us to mobilize groups internationally and globally through coordination and tools of coordination (Malone and Crowston 88). With regard to control, Kirsch emphasized that control is exercised via mechanisms used by controllers to ensure proper controllee behavior that, when successfully implemented, “result in the regulation of behavior” or where the “controllee adjust his behavior accordingly” (Kirsch, Portfolio of Control Modes and IS Project Management 217). Kirsch pointed out that “rules and regulations” can be one example of control because “they articulate acceptable behavior” and organizations use them “to ensure that employee conduct their work in a way that is consistent with organizational goals” (Portfolio of Control Modes and IS Project Management 217). For Kirsch, there are two modes of control that are the formal and the informal modes of control. The modes of formal control are the outcome and behavior control (Kirsch, Portfolio of Control Modes and IS Project Management 217). Rules and regulations are often used for behavior control (Kirsch, Portfolio of Control Modes and IS Project Management 217, citing several writers). In behavior control, controllers observe the behavior of controllees who are rewarded based on the extent they follow the behavior required by the controller among the controllees ((Portfolio of Control Modes and IS Project Management 217). Citing several authors, Kirsch described informal modes of control as controls “based on social or people based strategies (Portfolio of Control Modes and IS Project Management 217). According to Kirsch, “clan control is implemented by promulgating common values, beliefs, and philosophy within a clan, that is defined as a group of individuals who are dependent on one another and who share a set of common goals” (Portfolio of Control Modes and IS Project Management 217). According to Kirsch, “rather than requiring employees to follow a written set of procedures, the socialization process, as well as rituals and ceremonies, serve to identify and reinforce acceptable behaviors” (Portfolio of Control Modes and IS Project Management 217). Thus, it follows that what Kirsch have in mind in clan control is that the controller is an authority figure of the employer in which the controllees are employees of the controller. It is important to bear in mind that the controller does not have a convergence of goals with the controllees but the controller imposes nevertheless among the controllees a behavior that would enable to controller to achieve his or her goals. Citing the 1979 work of Ouchi, Kirsch said, “clan control will be implemented when neither outcomes are measurable nor appropriate behaviors are known” (Portfolio of Control Modes and IS Project Management 218). Citing the work of several writers, Kirsch said that “a second mode of informal control is self-control or self-management, in which an individuals sets his own goals for a particular task, and then proceeds to self-monitor, self-reward, and self sanction” (Portfolio of Control Modes and IS Project Management 218). Again, citing several writers, Kirsch added, “unlike clan control, in which control stems from sharing norms and values with a group, self-control is a function of individual objectives and standards and intrinsic motivation” (Portfolio of Control Modes and IS Project Management 218). In the example chosen by Kirsch (Portfolio of Control Modes and IS Project Management 218): “An ISD project manager, for example, may believe that a quality control (QC) function is critical within an ISD team and so sets a goal of delivering a ‘quality’ system. To meet this goal, she designs a process incorporating quality mechanisms into the specific development effort; that process includes defining specific QC tasks and monitoring the effectiveness of the QC function. She then intrinsically rewards herself for successfully building, quality control into the development process. All of this takes place outside the exercise of formal or clan control.” Kirsch elaborated that in “organizations where self-control is valued and encouraged, rewards are based, in part, on how well individuals self-control” (Portfolio of Control Modes and IS Project Management 218). This statement and the immediately preceding paragraph from Kirsch differentiate self-control that can emerge within an environment of coordination versus self-control that can emerge within an environment of control. In an environment of controls, there is entity that rewards self-control if the entity’s objectives are met because that entity is the one marshaling others towards the realization of a set of overarching objectives. In control, it is usually the employer or an employer’s primary agent who is marshaling the rest towards an overarching set of objectives.3 In contrast, in an environment of coordination, an entity leading the coordination work may not or is not obligated to reward the rest who have adopted self-control for coordination because it is understood that each of the participant in the coordination work has their respective organization that may or may not reward them. Citing various sources, Kirsch also identified internal and external forms of control in which the superior is active in the former and where professional indoctrination and training are the ones active in the latter (Portfolio of Control Modes and IS Project Management 218). Examples where the mentioned modes of control were used can be found in Roseland Corporation, Megamax Products, and Transatlantic Foods that were all discussed in Kirsch (Portfolio of Control Modes and IS Project Management 218-219). Kirsch emphasized that an important and continuing challenge in Information Systems Development is the development of control systems for complex tasks (The Management of Complex Task, 1). Nevertheless, for complex tasks, Kirsch affirmed the importance of both outcome and behavior modes of control (The Management of Complex Task, 1). Meanwhile, Gallivan intelligently pointed out that controls may be effectively used in the absence of trust and expressed his concerns that there is a need for a balance between control and trust (277). It seems logical (subject to further confirmation via a literature review) that organizations, including organizations engaged in Information Systems Development, will be more sustainable if trust is promoted within organizations and excessive controls may be interpreted as the absence of trust or lack of valuation for trust within an organization. 3. In the case study of a project failure, Providian Trust, what controls were used on whom? What controls should have been used? The appointment of an agent in the person of the new CEO, Stephen Walsh, can be identified as one form of control that the Board of Directors has adopted for the entire organization of Providian Trust. It is likely that the Board of Directors believe that the new CEO, Stephen Walsh, will be a better agent for the principal compared to the predecessors of Stephen Walsh. The Audit Committee is also a form of control mechanisms which the Board of Directors employed to monitor, evaluate, and assess the performance of the internal auditor, Peter Storey. The Audit Committee had lost confidence in the internal auditor and recommended that external auditor, Steinman & Smith, conduct an analysis of the project documentation prior to implementation. The intended use of an external auditor is a standard control mechanism to institute a system for validating reports and need not be associated with distrust for the internal auditor. The tone of the document “Providian Trust: Tradition and Technology” projects a great distrust for the internal auditor, Peter Storey. However, regardless of whether Peter Storey is worthy of trust or not, it is a standard corporate practice to have an external auditor look into company finances, covering as well an audit of how the company has been managed by its agents. The use of external auditors is part of a control system in which both management and the Board of Directors create a system for validating the reports of the internal auditor and management, regardless of whether or the Board of Directors has trust for the internal auditor and management. In the context of the Providian Trust, the Board of Directors of Providian Trust constitutes as the principal where in the employees are the agents (the higher-ranking officers and bodies with the organization constitute as the more primary agents of the principal and wherein the ultimate principal is the body of investors of shareholders of the Providian Trust). Providian Trust had organized a project steering committee, project implementation committee and project team with the task of converting the trust division’s “outdated information system” into a more efficient system using ACCESS PLUS, a “a new trust and custody management software made by SELECT ONE.” Based on organizational structure presented in Exhibit 4 (p. 13) of the document, “Providian Trust: Tradition and Technology,” the organizational structure provides a control system: operations of the Project Team headed by Todd Benari is controlled by the Project Implementation Committee headed by Michael LeBlanc. In turn, the Project Implementation Committee is controlled by a Project Steering Committee headed also by Michael LeBlanc. The Project Implementation Committee composed mainly of Vice Presidents is controlled by the Steering Committee that is composed mainly of Senior Vice Presidents. Michael LeBlanc, himself, is Senior Vice President for Trust, Investment, and Treasury. It is not clear from the organizational chart presented in Exhibit R of the document “Providian Trust: Tradition and Technology” (p. 13) to whom the Steering Committee is accountable. However, it should follow that the Project Steering Committee, Project Implementation Committee, and the Project Team is accountable to the Board of Directors in which the CEO provides a monitoring role for the Board of Directors. Essentially, however, the Project Team is accountable to the Project Implementation Committee and in turn the Project Implementation Committee is accountable to the Project Steering Committee, and the Project Steering Committee is accountable to the Board of Directors. Organizationally, the CEO has a higher rank over the Senior Vice Presidents but the Project Steering Committee is primarily accountable to the Board of Directors although the CEO is the agent of the Board of Directors, being the principal in an agent-principal relationship. In addition, based on Exhibit 4 of the document “Providian Trust: Tradition and Technology” (p. 13), both the Audit Committee and the Executive Risk Management Committee exercise monitoring and feedback supervision and, thus, co-control with the CEO, over the Project Steering and Implementation Commitees. The Audit Committee have expressed reservations over the project that seeks to develop a more efficient information system using ACCESS PLUS. However, the bases of the reservations of the Audit Committee are not clear. Thus, first and foremost, the most important agenda to advance in the problems expressed in the document, “Providian Trust: Tradition and Technology,” is to define the outcomes that we want from the project. For this writer, this means that we must develop a system of coordinative mechanisms in which all of the most relevant departments define the outcome or output they want from the project. For this writer, the most relevant departments or units that should participate in the definition of the output they want from the project are as follows: the unit pertaining or addressing CFO, Corp Services, HR, Risk, the Department or unit handled by LeBlance, Investment, and Banking. It is important that these departments or units define the output they want from the project. Based on the determination of the specifics of the output that they want from the project, key representatives from Providian Trust or the Project Steering Committee can have a discussion with the technical officers form SELECT ONE to discuss what output or outcome specifics are appropriate in developing a more efficient system. The Project Steering Committee can be assigned to develop a mechanism of feedbacks between the entire organization of Providian Trust and SELECT ONE so there can be good definition of outcomes and output expected from the project. After an outcome-based control is established, Providian Trust can moved into developing a behavior-based control that is more than those expressed on page 7 of the document, “Providian Trust: Tradition and Technology.” On page 7 of the document, “Providian Trust: Tradition and Technology,” the phases and deadlines were merely identified. In contrast, what is more important is to plan the details of the system that can transform Providian Trust into a more efficient company. Thus, there must be details on the outcomes or output desired to transform Providian Trust into a more efficient company. The schedule of conversion on page 7 of the document, “Providian Trust: Tradition and Technology,” does not provide those details. Finally, after outcome and behavior controls are established, the company can move towards establishing clan controls and promoting the creation of self-control mechanisms among employees. Work Cited Davis, James H., F. David Shoorman, and Lex Donaldson. “Toward a stewardship theory of management.” Academy of Management Review 22.1 (1997), 20-47. Eisenhardt, Kathleen M. “Agency theory: An assessment and review.” Academy of Management Review, 14.1 (1989), 57-74. Faraj, Samer and Yan Xiao. Coordination in fast-response organizations.” Management Science, 52.8 (2006), 1155-1169. Gallivan, Michael J. “Striking a balance between trust and control in a virtual organization: A content analysis of open source software case studies.” Information Systems Journal, 11.2 (2001), 277-304. Harvard Business School. “Providian Trust: Tradition and Technology.” Boston, MA: Harvard Business School Publishing, 1999. Kellog, Katherine C., Wanda Orlikowski, and JoAnneYates. “Life in the trading zone: Structuring coordination across boundaries in postbureaucratic organizations.” Organization Science, 17.1 (2006), 22-44. Kirsch, Laurie J. “The management of complex tasks in organizations: Controlling the systems development process.” Organization Science, 7(1), 1-21. Kirsch, Laurie J. “Portfolios of control modes and IS project management.” Information Systems Research, 8.3 (1997), 215-239. Kirsch, Laurie J., V. Sambamurthy, Dong-Gil Ko, and Russel Purvis. “Controlling information systems development projects: the view from the client.” Management Science 48.4 (2002), 484-498. Majchrzak, Anne, Sirkka L. Jarvenpaa, and Andrea Hollingshead. “Coordinating expertise among emergent groups responding to disasters.” Organization Science, 18(1), 147-161. Malone, Thomas W., and Kevin Crowston. “The interdisciplinary study of coordination.” ACM Computing Surveys, 26.1 (1994), 87-119. Manz, C. and H. Angle. Can group management mean a loss of personal control: Triangulating a paradox. Group Organizational Studies, 14 (1986), 309-334. Sabherwal, Rajiv. “The evolution of coordination in outsourced software development projects: A comparison of client and vendor perspectives.” Information and Organization, 13.3 (2003), 153-202. Sundaramurthy, Chamu and Marianne Lewis. “Control and collaboration: Paradoxes of governance.” Academy of Management Review, 28.3 (2003), 397-415. van de Ven, Andrew, Andre Delbecq and Richard Koenig. “Determinants of coordination modes within organizations.” American Sociological Review, 41.2 (1976), 322-338. Read More