Trust or control Governance Concepts for Virtual Organizations'

1
Trust or control ? Governance Concepts for
Virtual Organizations.
Christoph Lattemann1 / Thomas Köhler2 University
of Potsdam 1Professor for Corporate Governance
and E-Commerce 2Professor for Teaching-Learning
Research and Multimedia
2
Motivation

• Traditional governance concepts (behavioral
  control / output control) are not effectively
  applicable in Virtual Organizations due to
  inadequate assignment
• Concepts of social control are becoming more and
  more important
• Research Question
• Which governance concepts (behavioral control,
  output control, social control) can be used
  efficiently in which type of Virtual Organization
  ?

3
Definition Virtual Organizations

• Temporary, project-oriented type of cooperation -
  weak structure (in traditional sense)
• Concentration on core competencies and
  cooperation in network-like structures
• Abandonment of institutionalization and central
  managerial functions
• High degree of ICT orientation
• Intensive unilateral and reciprocal relations
• Usage of trust and loose agreements as governance
  and management tools
• Uniform marketing and presentation
• Costumer-oriented, individualized products
• (Net work of legally and economically autonomous
  enterprises)

4
Efficiency of behavioral control, output control
and social control

• Changed environment due to ICT and
  decentralization (management and governance)
• Behavior can not be measured reliably
• ICT-mediation decreases social context cues
  SpKi86
• ICT-mediation changes social behavior
• Anomic behavior in computer mediated environments
  KiSp86
• Reduced tolerance FuSh91
• Absence of transferable behavior SchEh96
• Output may not be assigned properly to network
  units

? Governance Problem

• Solution social control as a
• concept for governance
• strategic competition factor BaHa94 Kr97

5
Conditions for the employment of different forms
of control
Ambiguity of task
low
high
high
Measurability of output
Conditions in Virtual Organization
low
Eb00, Ou79
supplementary instrument to other forms of
control DaTe98, Eb02
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Social Control /Trust A brief definition

• Concept of social control treated controversially
  in science
• Social control is particularly based on the
  concept of trust
• Trust is defined with respect to the New
  Institutional Economics - as a
• voluntary input of risky assets under the
  abdication of explicit contractual protection and
  control
• Rip98, p. 268
• Social control is a core instrument for the
  governance in virtual organizations
• Trust is a constructional characteristic of all
  forms of virtual organizations Pow96, Sy96,
  Ha95, LoSy94, Pic02
• With the concept of trust, it should be
  guaranteed that the partners are able to organize
  their activities Be00, p. 164

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Four types of trust

• in general trust is an unconditioned disposition
  of a person Pe96
• specific or conditioned trust, depends on
  situation and subjective assessment of
  trustworthiness of a person Pe96
• trust may also be seen as confidence regarding
  systems, positive expectation or attitude in
  relation to abstract systems Lu00, Gi90
• reputation, publicly available information about
  trustworthiness Ko00

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Instruments of social control

• objective management instruments
• Appropriate social standards and institutional
  framework
• Activation of common enterprise cultures,
  rituals, ceremonies Ou79
• Use of common (standard) ICT Kö03, Al02
• personnel management instruments
• Persons who work on (public) relations and
  conflict management Hau97
• Job Rotation Al02
• Trainings Al02

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Simplified way of argumentation positive
correlation between degree of deployment of ICT
and the importance of (social) control
Effectiveness of direct forms of control decrease
Degree of ICT deployment (mediation increased)
Degree of virtualization increased
Demand /Need for efficient control and motivation
mechanisms increase
Reduction of social bindings and social
context (social cues)
Social control concepts -depending on type of
Virtual Organization
Social control concepts -depending on type of
Virtual Organization
Changed economic environment
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Classification of Virtual Organizations
Group and team processes
Spherical Networks
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Correlation between Virtualization and Social
Control
Borders of Virtual
Borders of Virtual
Border of Virtual
Border of Virtual
Elements
Elements
Organization
Organizations
Connection between
Connection between
Virtual Organizations
Virtual Organizations
Virtual
Virtual
high
Teams/Projects,
Teams/Projects,
Temp. VO
Meta Networks
Meta Networks
Traditional
Traditional
Importance of social control
Enterprises
Enterprises
Spherical
Network
MiSn86
Permanent VO
Cluster
open
closed/ fixed
low
high
low
Degree of Virtualization
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Some practical examples
13
Further Research

• How does the use of governance instruments affect
  the different forms of trust?
• How can the degree of efficiency of different
  instruments of social control be measured?
• Is the permeability of organisational borders in
  relation to partner organizations a specific
  characteristic of Spherical Networks or can this
  structural component be identified in other forms
  of virtual organizations as well?
• How negotiate independent partners the decision
  to use governance tools?

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• Thank you for your attention!
• Your questions?
• Further information cp. www.uni-potsdam.de

15
Literature

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• Bu99 Burr, W. Koordination durch Regeln in
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