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The Juxtaposition of Social Surveillance Controls with Traditional Organizational Design Components
Sally K. Widener, Margaret B. Shackell, and Elizabeth A. Demers
Executive Summary
Theoretical and empirical accounting, economics, and management literatures have long recognized both the importance of, and interdependencies among, the three primary components of organizational architecture: incentive compensation, the delegation of decision rights, and performance measurement. As Roberts states, “The substitution and complementarity relations among choice variables give structure to the problem of organizational design.” Our study directly addresses this notion of complements and substitutes by empirically examining the relations among the relatively contemporary concept of social surveillance controls and the firm’s traditional architectural design choices. Social surveillance controls consist of vertical surveillance mechanisms, which involve monitoring from the top level of the organization, as well as horizontal surveillance controls, such as teams that include peer monitoring. Our study is motivated by the fact that, although surveillance controls are known to play an integral role within organizations, their role within the overall design of the firm’s architecture is not well understood. We hypothesize that incentives (percentage of annual bonus and stock option compensation), performance measures (output measures), and the allocation of decision rights (delegation of broad decision-making powers) are complementary choices. We also hypothesize that horizontal surveillance will complement the allocation of decision rights, while the remaining relations among each of the vertical and horizontal surveillance controls and each of the traditional organizational design components will be substitutes for one another. Our findings are broadly consistent with these predictions, and we thus make a contribution to both the organizational design and surveillance control literatures by documenting the complementary and substitute roles of traditional aspects of organizational architecture together with the horizontal and vertical surveillance controls.
Our study consists of data from field-based and telephone survey interviews of 53 sales/marketing vice-presidents of business-to-consumer Internet firms. Our results suggest that vertical surveillance is a substitute for delegation in that firms with higher levels of vertical monitoring allocate fewer decision rights throughout the sales and marketing department. Our finding that firms with higher levels of team usage use less incentive compensation to motivate and align behavior suggests that horizontal surveillance in the form of peer pressure is a substitute for incentives. Together, these findings suggest that vertical and horizontal surveillance controls replace the more traditional aspects of organizational design. Finally, we find that the allocation of decision rights is positively associated with the use of incentives and that the use of incentives and reliance on output measures are complements.
The implication of our findings for managers and boards who are responsible for a firm’s organizational design is that there are complements and substitutes available in the choice of organizational design components. Our results suggest that in relatively small entrepreneurial firms’ sales and marketing departments, principals use incentives to offset the loss of control that arises from the allocation of decision rights, and they rely on output measures to evaluate employee behavior. Furthermore, there is some evidence that the relation between performance measures and incentives is a complementary one in our setting, suggesting that output measures are viewed as relatively accurate and precise in this context and thus managers can use them to reduce the cost of incentive compensation. The implications of our study are relevant to organizational design decisions at the departmental level or within smaller business units.