A comprehensive framework for interfirm control

As the body of research on interfirm control has developed, academics have primarily focused on two modes of control. Those that study formal modes focus on how companies manage relationships through the use of contracts, regulations and company bylaws. Academics that examine informal modes of control turn their attention to personal relationships between employees, firms, trade organizations, internal company cultures and other, less codified norms.

Other researchers have developed and tested theories that focus almost entirely on either formal or informal modes of control, but few look at the breadth of control mechanisms. With his latest piece, Gilliland breaks down the barriers between the outlooks for a more nuanced, realistic take on control systems. His framework acknowledges it’s typically a combination of formal and informal mechanisms that govern behavior.

“You’re supposed to be at work at a certain time and you have certain responsibilities and you’re evaluated on them. In your evaluation, they write out a report which is a formal control,” Gilliland describes control methods. “But maybe your department norm is to start work 30 minutes late every day and make up time on the weekend – you’re not there from eight to five every day. Those are informal controls. But they mishmash together, and it’s really messy, but that’s the way life is. It’s kind of messy.”

In an attempt to reconcile the strengths and blind spots of formal and informal perspectives, Gilliland applied another dimension to the framework, and classified how the control is exerted: within a dyadic system between two parties, through self-control and by a third-party organization.

Relationships between two companies, known as dyadic control systems, rely on formal controls such as contracts that set standards, outcome and process monitoring to ensure performance, and incentives and sanctions. Informally, these relationships rely on interpersonal bonds and communication, informal or unspoken understanding of goals and sanctions and incentives with smaller consequences to enforce control. Within a company, firms use formalized controls such as bylaws and codes, performance reviews and promotions, bonuses and firings to encourage compliance, and informal systems such as ethical codes, employees’ moral principles and cultural norms to shape behavior, and those who don’t meet standards are sometime ostracized.

Companies don’t interact within a vacuum, and third-party control systems enforce external expectations on their interactions. Sometimes, these are formal systems, such as trade law, economic regulation and judicial powers that drive compliance through court decisions and regulatory sanctions. Trade groups, consultants and stakeholders provide informal pressure on firms using public discourse and trade-organization level sanctions to maintain the status quo.

Many theories, one framework

Interfirm control is a very broad topic in the academic world, and Gilliland’s framework pulls from many academic books and peer-reviewed studies dating back to the ’30s. With the breadth of the topic, as well as the niche, academic-heavy appeal of it, Gilliland looks to expand the discipline and help researchers apply theories’ strengths where they’re most applicable.

“We’re not looking at little bits and pieces of control. We’re talking about it as general framework,” Gilliland explained. “The idea when you do this at an academic level is it presents new researchers with many areas to study, and not everybody’s going to study the whole framework, but they can choose pieces and parts of it.”