Management control systems and trust in outsourcing relationships

• Published in: Management accounting research Vol. 14; no. 3; pp. 281 - 307
• Main Authors: Langfield-Smith, Kim, Smith, David
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier Ltd 01.09.2003; Elsevier Science Ltd
• Subjects: Accounting; Alliances; Business management; Business strategies; Case studies; Economic networks; Electricity; Information technology; Management control systems; Management controls; Outsourcing; Strategic alliance; Studies; Subcontracting; Transaction cost economics; Transaction costs; Trust; Australia; Transaction cost economics; Strategic alliance; Outsourcing; Trust; Management control systems
• ISSN: 1044-5005; 1096-1224
• DOI: 10.1016/S1044-5005(03)00046-5

Outsourcing is a form of strategic alliance that has increased in popularity over the past decade. However, there has been limited research that studies the design of management control systems (MCS) and the role of trust in such inter-firm relationships. This paper draws on a model by van der Meer-Kooistra and Vosselman [Acc. Organ. Society 25 (2001) 51] to examine how control mechanisms and trust are used to achieve control in a single case study of an electricity company and its outsourced IT operations. An analysis of the characteristics of the transaction, environment and parties, indicated that the control strategy adopted appeared to be a trust based pattern of control, rather than a market based or bureaucratic based pattern. Control was achieved through outcome controls and social controls developing over time, and through the development of trust, particularly goodwill trust. This paper adds to the growing knowledge of the design of control systems and trust in outsourcing relationships.