Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
Control/Controllership Main Page |
Management Theory Main Page
The purpose of this paper is to describe three control mechanisms and their applicability to organizations. The three types of control include: 1) the market pricing mechanism, 2) bureaucratic control and 3) the clan. The following tables provide a summary of Ouchi's discussion of the requirements of each type or control system.
| Ouchi's Three Control Mechanisms | ||||
| Requirements | Market | Bureaucracy | Clan* | |
| Social agreements |
Reciprocity |
Reciprocity and authority (i.e., the employee gives up autonomy for pay). | Reciprocity, authority and shared values and beliefs. | |
| Information needs | Nature | Explicit competitive price for each task or exchange. | Explicit rules and regulations - e.g., accounting systems | Implicit - traditions, e.g., the U.S. Senate. |
| Completeness | Complete | Incomplete, but stated | Complete, but unstated | |
| Accessibility and understandability to newcomers | Accessible and understandable | Accessible and understandable |
Inaccessible and not understandable. |
|
| How developed | Supply and demand. | Must be created or designed. | Develops naturally. | |
| Information systems capability of coping with participants heterogeneity and turnover | Capable | Capable | Incapable | |
| Applicable method of controlling people | Self select based on price mechanism. | Select employees with little screening and design a system to instruct, monitor and evaluate them. | Select employees with careful screening to insure the skills and values needed. | |
| Ouchi's Three Control Mechanisms | |||
| Requirements | Market | Bureaucracy | Clan* |
|
Cost of system: Search and acquisition. Training Supervision |
Variable. Zero. Zero. |
Low cost. Low cost. High cost. |
High cost. High cost. Low cost. |
|
Timing, need and feasibility of defining the process and measuring efficiency. |
Not needed. | Short run, critical need. | Long run, less significant need. Process may be black box plus high interdependence and synergy. |
| How participant's commitment to organization's objectives is obtained. | Self interest based on price mechanism. | Self interest supported and motivated by training, rules and close supervision insure compliance. | Self interest based on common values. |
|
When the control mechanism should be emphasized, i.e., will be the most efficient method. (Note that high interdependence causes low clarity of performance measurement.) |
When interdependence is low, or zero and there is a single task or exchange, or when it is feasible and economical to establish a competitive market price for each multi-task or exchange. |
When the levels of worker diversity and employee turnover are high, the level of
interdependence is low and the clarity of individual
performance measurement is high. These requirements tend to produce many specialties and sub-specialties to reduce the interdependence. Rules and close surveillance are required for each specialty and sub-specialty. |
When the levels of worker diversity and turnover are low and the level of interdependence is high. The clarity of individual performance is low and teamwork is critical. |
* According to Ouchi, a group of people with a common specialization represents a profession, the citizens of a political unit make up a culture and the collection of individuals within a unique organization is a clan.
Note that all organizations have hybrid systems that contain elements of all three control mechanisms. Systems designers must decide how much emphasis to place on each form. "In a sense, the Market is like a trout and the Clan like a salmon, each a beautiful, highly-specialized species which requires uncommon conditions for its survival. In comparison the bureaucratic method of control is the catfish - clumsy, ugly, but able to live in the widest possible range of environments and ultimately, the dominant species. The bureaucratic mode of control can withstand high rates of turnover, a high degree of heterogeneity, and it does not have very demanding informational needs."
There is a conflict. American society is becoming more pluralistic, i.e., made up of more diverse ethnic, religious and cultural groups, but increasingly more interdependent. The need for Americans to work together is increasing while it is becoming more difficult for them to do so.
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Related summaries:
See Patrick Brisley' Summary for more discussion of this paper.
Chenhall, R. H. 2003. Management control system design within its organizational context: Findings from contingency-based research and directions for the future. Accounting, Organizations and Society 28(2-3): 127-168. (Summary).
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Ouchi, W. G. and A. M. Jaeger. 1978. Type Z organization: stability in the midst of mobility. Academy of Management Review (April): 305-314. (Summary).
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