Configurations of Control: A Transaction Cost Approach

Abstract

In this paper, I present a theory of management control based on Transaction Cost Economics. This theory seeks to integrate into a single framework a set of insights as to the nature of the organization&apos's activities, the control problems that are inherent in these activities, and the unique problem solving potential of various archetypal control structures. The gist of the argument is that activities predictably differ in the control problems to which they give rise, whereas control archetypes differ in their problem-solving ability, and that alignments between the two can be explained by delineating the efficiency properties of the match. This is a contingent configuration approach. It is a configuration theory in that it offers a set of ideal types, conceived of as internally consistent and discriminating clusters of attributes from multiple dimensions that have a specific effect on control structure effectiveness as the variable to be explained. But it is also a contingent approach in that it specifies the conditions in which each of the archetypes is most effective.

Keywords: management control theory, transaction cost economics, configuration theory

JEL Classification: M, M41, G3, M49