Proceedings of the 8th International Conference on Intellectual ...

Maurizio Massaro and Andrea Moro
<strong>the</strong> development <strong>of</strong> a common KL approach by ei<strong>the</strong>r facilitating or reducing it. Irrespective <strong>of</strong> its
relevance, <strong>the</strong> connection between trust, control systems and KL process is definitely underinvestigated.
This research attempts to investigate <strong>the</strong> link between trust and management control
systems (focusing on <strong>the</strong> definition <strong>of</strong> levers <strong>of</strong> control) in order to analyze <strong>the</strong> impact that <strong>the</strong>se tools
could have on KL processes.
2. Literature review
Present research elaborates a conceptual framework that shows how trust factors as described by
Mayer et al (1995) - namely ability, benevolence and integrity - could be used toge<strong>the</strong>r with <strong>the</strong> levers
<strong>of</strong> control (LOCs) described by Simons (1995) - namely, belief, boundary, diagnostic and interactive
LOCs - to create a dynamic tension that enables effective knowledge leadership processes.
2.1 Trust
The importance <strong>of</strong> trust in human relationships is highlighted by various authors, since trust as a
variable is far too important to be overlooked (Nooteboom, 2002). Incorporating trust shifts <strong>the</strong>
attention from <strong>the</strong> traditional approach linked to transaction cost economics and agency <strong>the</strong>ory to a
wider approach where interpersonal ties and relationships are taken into consideration (Barney,
1990). The extensive literature on trust emphasizes that its presence reduces agency problems (e.g.
Ring and Van de Ven, 1992); cuts transaction costs (e.g. Macaulay, 1963); and affects a firm’s
boundaries as defined by transaction cost economics (Langhfield-Smith, 2008). Trust can impact on
control mechanisms by reducing monitoring and control activities (e.g. Zand, 1972); it has been found
to decrease <strong>the</strong> use <strong>of</strong> legalistic remedies (Sitkin and Roth, 1993); it supports cooperation among
firms (e.g. Doz, 1996); and aids decision making when information is scarce (e.g. Luhmann, 2000).
Trust presupposes a situation <strong>of</strong> risk, where <strong>the</strong> potential loss from being involved in a trusting
relationship may be greater than <strong>the</strong> gain. According to Mayer et al., (1995), trust is based on <strong>the</strong>
personal predisposition to trust and on three trustworthiness factors namely: ability; benevolence; and
integrity. Ability consists <strong>of</strong> attributes such as skills and competence and is domain specific. Trust built
upon ability cannot necessarily be generalized to o<strong>the</strong>r situations because <strong>of</strong> <strong>the</strong> domain related
element <strong>of</strong> ability. Benevolence is defined as <strong>the</strong> extent to which a trustee is believed to voluntarily do
good to <strong>the</strong> trusting party: it is relationship specific. Integrity is <strong>the</strong> truster’s perception that <strong>the</strong> trustee
adheres to a set <strong>of</strong> moral/ethical principles considered acceptable to <strong>the</strong> truster: it is person specific.
2.2 Levers <strong>of</strong> control
Simons defines management control systems as “formal, information-based routines and procedures
managers use to maintain or alter patterns in organizational activities” (Simons, 1995, p.5). He argues
that <strong>the</strong>re are"[…] four key constructs that must be analyzed and understood for <strong>the</strong> successful
implementation <strong>of</strong> strategy: core values, risks to be avoided, critical performance variables, and
strategic uncertainties. Each construct is controlled by a different system or lever, <strong>the</strong> use <strong>of</strong> which [...]
creates <strong>the</strong> opposing forces - <strong>the</strong> yin and <strong>the</strong> yang - <strong>of</strong> effective strategy implementation" (Simons,
1995, pp.6-7). Simons defines <strong>the</strong> four systems <strong>of</strong> levers that are used to exercise control as “levers
<strong>of</strong> control” (LOCs) which are usually articulated as: belief, boundary, diagnostic and interactive
systems.
The belief system is “<strong>the</strong> explicit set <strong>of</strong> organizational definitions that senior managers communicate
formally and reinforce systematically to provide basic values, purpose and direction for <strong>the</strong>
organization” (Simons, 1995, p.34). As a consequence <strong>of</strong> <strong>the</strong> correct use <strong>of</strong> <strong>the</strong> belief system,
organizations are able to explore, create and use endeavor-engaging appropriate actions for
coordinating all <strong>the</strong> efforts <strong>of</strong> <strong>the</strong> organization in <strong>the</strong> same direction. The boundary system “delineates
<strong>the</strong> acceptable domain <strong>of</strong> strategic activity for organizational participants” (Simons, 1995, p. 39) and
provides <strong>the</strong> organization with specific behavior constraints. Thus, all <strong>the</strong> parts <strong>of</strong> <strong>the</strong> organization are
able to understand what is permissible and what is not. The diagnostic system is intended to motivate
components <strong>of</strong> an organization to align <strong>the</strong>ir performance with organizational objectives. Feedback
and measurement systems involve actions such as score keeping and <strong>the</strong> analysis <strong>of</strong> deviations from
standards as <strong>the</strong> basis for monitoring employee actions. The collected information actions allow <strong>the</strong>
analysis <strong>of</strong> <strong>the</strong> progress towards goals and to take corrective action when necessary (Mundy, 2010).
Finally, <strong>the</strong> interactive system is forward-looking and characterized by active and frequent dialogue
between top managers and middle managers through debate about organizational strategic problems
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