A review and discussion of management control in interfirm relationships

Description
Several years have passed since Hopwood (Hopwood, A. G. (1996). Looking across rather than up and down: on the
need to explore the lateral processing of information. Accounting, Organizations and Society, 21, 589–590) proclaimed the
need to explore the lateral processing of information, transcending legal organizational boundaries. Since then, many contributions
in the management accounting literature have been published in an effort to overcoming this shortage. The aim
of this work is to investigate whether these contributions have brought the possibilities of that powerful intuition to its full
potential development.

A review and discussion of management control in inter-?rm
relationships: Achievements and future directions
Ariela Caglio, Angelo Ditillo
*
Universita` Bocconi, SDA Bocconi School of Management, Via Roentgen 1, 20136 Milan, Italy
Abstract
Several years have passed since Hopwood (Hopwood, A. G. (1996). Looking across rather than up and down: on the
need to explore the lateral processing of information. Accounting, Organizations and Society, 21, 589–590) proclaimed the
need to explore the lateral processing of information, transcending legal organizational boundaries. Since then, many con-
tributions in the management accounting literature have been published in an e?ort to overcoming this shortage. The aim
of this work is to investigate whether these contributions have brought the possibilities of that powerful intuition to its full
potential development. To this end, the paper provides a review of the theoretical and empirical literature on management
control in inter-?rm contexts by organizing contributions according to the breadth of the control solutions they investi-
gated, i.e., control archetypes, management control mechanisms, and cost and accounting controls. Our objective is not
only to present the state of the art in this ?eld, but also to evaluate critically the corresponding achievements and to assist
in developing new research questions. To address the limitations of the extant literature, we propose the prominence of con-
trol problems (cooperation, coordination, appropriation concerns) as a way to integrate the di?erent streams of research,
and we highlight some important variables (structure of interests, component and cognitional complexity of tasks) that
have been neglected so far by management accounting contributors but, as has been suggested in the organizational
literature, may in?uence control choices. We also identify several areas ripe for future research.
Ó 2008 Elsevier Ltd. All rights reserved.
Introduction
Several years have passed since Hopwood (1996,
p. 589) proclaimed the need to explore the lateral
processing of information, transcending legal orga-
nizational boundaries. One of the most suggestive
of Hopwood’s points was that, although there had
been a rhetoric of change and redirection in the
management control research to keep pace with
the new organizational realities, in practice the
research community had largely continued to be sat-
is?ed with its ?xation on the traditional hierarchical
organization.
Thereafter, many contributions in the manage-
ment accounting literature have been published in
an e?ort to overcome this de?cit and to explore
the forms and features of controls and accountings
in inter-organizational settings. The aim of this
work is to investigate whether these contributions
have brought that powerful intuition to its full
potential development. Thus, this paper is an e?ort
to review and organize the growing literature on
inter-organizational controls.
0361-3682/$ - see front matter Ó 2008 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2008.08.001
*
Corresponding author. Tel.: +39 0258362576; fax: +39
0258362561.
E-mail address: [email protected] (A. Ditillo).
Available online at www.sciencedirect.com
Accounting, Organizations and Society 33 (2008) 865–898
www.elsevier.com/locate/aos
Our speci?c purpose is to provide a lense through
which to analyse such literature, di?erent from the
ones adopted in previous contributions (e.g., Dek-
ker, 2004; Ha?kansson & Lind, 2007), and which
allows us to point to inconsistent results and limita-
tions that are not obvious, have not been identi?ed
hitherto, and can be used as a basis for mobilizing
future research. The present work is a selective sur-
vey of the literature, as it concentrates on papers
published in the major accounting journals and that
have studied formal, non-equity-based, contractual
relationships between legally autonomous parties.
These include supplier partnerships, subcontracting
and outsourcing arrangements, and strategic alli-
ances. The contributions to the literature have
denoted these relationships di?erently and have
labelled them as ‘inter-organizational relationships’,
‘inter-?rm settings’, ‘hybrid organizational forms’,
and ‘networks’.
To approach a review of this literature, we clas-
sify papers on the basis of inter-organizational con-
trol solutions, seen in terms of di?erent breadths of
analysis (see Fig. 1): some papers have focused on
control archetypes (de?nite mixes of di?erent con-
trol mechanisms), others on management control
mechanisms (speci?ed individually rather than as
included in ‘ideal’ archetypes), and still others on
cost and accounting controls (control mechanisms
based on cost and accounting information). More
speci?cally, those on control archetypes attempted
to develop an exhaustive taxonomy of comprehen-
sive patterns of di?erent kinds of controls, including
both management control mechanisms and other
forms of control, such as price-like devices, compet-
itive biddings, contracts and hostage arrangements,
information on partners’ reputations, personal con-
sultation and various levels of interaction. The con-
tributions on management control mechanisms
concentrated instead on a subset of controls. The dif-
ference between the latter and those on control
archetypes is that those on management control
mechanisms focused on the description of manage-
ment control mechanisms per se, without including
them into ideal forms or patterns that address control
in its entirety. While, for example, van der Meer-
Kooistra and Vosselman (2000), Spekle´ (2001),
Ha?kansson and Lind (2004) concentrated their
attention on exhaustive taxonomies of controls
(market-based, hierarchical/bureaucratic or alterna-
tive), the authors we classi?ed in the second cate-
gory focused on the use of speci?c control
mechanisms, such as information systems (Tom-
kins, 2001), trust (Dekker, 2004; Coletti, Sedatole,
& Towry, 2005), incentive systems (Baiman &
Rajan, 2002a; Dekker, 2004), performance monitor-
ing and rewarding (Dekker, 2004).
1
Some other con-
tributions have been even more speci?c and have
studied cost and accounting information exchanges
as potential channels for partners’ control, concen-
trating on open book accounting (e.g. Kaju¨ ter &
Kulmala, 2005) and the use of cost techniques, such
as the total cost of ownership (e.g. Wouters, Ander-
son, & Wynstra, 2005), the value chain analysis (e.g.
Coad & Cullen, 2006), or the inter-organizational
cost management methodologies (e.g. Cooper &
Slagmulder, 2004).
Starting from this classi?cation, we will present
achievements and limitations from the existing man-
agement accounting literature in three separate
sections.
Through the ?ne-grained description and com-
parison of control archetypes, we will highlight the
contradictions of these contributions, which depend
on a static conception of controls. Their assumption
is that, once contingent variables change, controls
evolve in a direct way. One of the implications of
this logic is that the contributions o?er limited
insights into the multifaceted reality of practice;
only ‘simple’ archetypes of control are investigated,
whereas ‘more complex’ and varied combinations of
control traits empirically observed are not fully
explained. In addition, the comparison of control
archetypes will reveal that the role of accounting-
based mechanisms is only marginal. In fact, these
Control archetypes
Cost and
accounting
controls
Management controls
Fig. 1. The varying breadths of inter-organizational controls.
1
For a more thorough discussion concerning the ‘archetypal’
approach to management controls see Spekle´ (2001, p. 427) and
Vosselman (2002, p. 134).
866 A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898
contributions have included accounting in ‘pack-
ages’ of mechanisms that are mainly associated with
hierarchical/bureaucratic models of control,
neglecting its use and role in alternative forms.
Regarding the management controls papers, we
will concentrate our analysis on speci?c inter-?rm
management control mechanisms and their contin-
gent variables and show some gaps that are mainly
linked to the de?nition of variables as well as to the
way in which their relationships have been analysed.
On one hand, variables conceived for intra-organi-
zational analysis have been simply transplanted to
inter-organizational settings without questioning
their appropriateness; on the other hand, the impact
of these variables has been analysed by evaluating
one variable at a time or, when more variables are
included in the investigation, the relationships
between them are assumed to be linear without con-
sidering any interaction e?ects.
Finally, to present achievements and limitations
of cost- and accounting-based controls contribu-
tions, we will focus on the unit of analysis, the point
of view adopted in the data collection, and the type
of arrangements. The examination of these contri-
butions in this light will show that, especially in
multiple relationship contexts, the investigation of
cost and accounting controls from the point of view
of the focal ?rm has concealed the other partners’
concerns about possible opportunistic uses of
accounting information and has distorted the per-
ception of the usefulness of open book accounting.
The extant literature reports collaborative uses of
inter-organizational accounting techniques that are
not completely convincing since they have been uni-
laterally witnessed and advocated. Moreover, it will
reveal that there is some ambiguity in the account-
ing literature related to how inter-organizational
relationships have been studied. In fact, while
authors have sometimes positioned themselves as
contributors on networks, in reality, they have
focused on dyadic inter-organizational relation-
ships. This has led them to neglect that inter-?rm
relationships are often nested within a wider net-
work of relationships and to underestimate the
in?uence of the network’s architecture on cost and
accounting controls.
In addition, we will describe the roles of cost and
accounting controls in di?erent typologies of rela-
tionships and highlight possible avenues for future
research related to the fewer contributions analysing
the uses of accounting in downstream relationships,
in whole value chains and in horizontal relationships.
Through the classi?cation of inter-organizational
control solutions, we will also highlight that the
three streams achieve conclusions whose consistency
has not yet been veri?ed. The proposal of a perspec-
tive that suggests the prominence of control prob-
lems represents a starting point from which to
verify such coherence and to integrate the ?ndings
of the di?erent streams of research, as well as to
identify some variables that have been described in
the organizational literature as important determi-
nants of possible control solutions, but which have
been neglected in the management accounting
contributions.
We will conclude with a discussion of the types of
relationships whose control issues have not yet been
speci?cally addressed in the literature and which
represent an avenue for future research.
Control archetypes in inter-?rm settings
Drawing largely from transaction cost econom-
ics, organizational theory and trust-based literature,
management accounting contributors have sug-
gested the existence of di?erent control patterns in
inter-?rm relationships. These archetypes have been
categorised as market-based, hierarchical/bureau-
cratic, or as alternative models variously labelled,
and have been conceptualized, despite the resem-
blance of terminology, on the basis of di?erent ele-
ments.
2
For example, while Ha?kansson and Lind
(2004) mainly considered the use of price vs. hierar-
chical mechanisms and the content and characteris-
tics of information exchanges for the de?nition of
patterns, van der Meer-Kooistra and Vosselman
(2000) and Lang?eld-Smith and Smith (2003) also
2
For almost a decade the micro analytical stream of New
Institutional Economics (Transaction Cost Economics) was
concentrated on the well known trade-o? between markets and
hierarchies. The assumption was that the only viable way to
organize inter-?rm relationships was through market forms of
organization, whereas the hierarchical one was con?ned to the
internal organization. In the 1990s the focus was progressively
shifted to what Williamson (1991) identi?ed as hybrids, which not
only began to be considered additional practicable forms of
organization for inter-?rm relationships other than the market,
but were also judged as the much more common way of
regulating transactions (Me´nard, 2004). In the management
accounting literature, all the control archetypes that are not
market-based can be referred to as these hybrid forms of
organization, even if they are labelled in many di?erent ways.
Only Spekle´ (2001) adopted the term ‘hybrid’ to identify all those
inter-?rm control archetypes that are not founded on market
elements.
A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898 867
considered the contents and features of contracts
and the adoption of various forms of performance
measurement and evaluation systems, possibly inte-
grated by social as well as informal mechanisms.
The di?erent control archetypes are satisfactorily
adopted in contexts characterized by a variety of
transaction characteristics, environmental features
and party qualities. However, some contributors
have focused only on a subset of these contingent
variables: Ha?kansson and Lind (2004) concentrated
mainly on complementarities and similarities of
activities; Spekle´ (2001) focused on uncertainty
and on asset speci?city;
3
Vosselman (2002) and Sar-
torius and Kirsten (2005) added the level of fre-
quency; and van der Meer-Kooistra and
Vosselman (2000) and Lang?eld-Smith and Smith
(2003) included also the measurability of output,
the number of potential transaction parties, the level
of social embeddedness, and the relevance of institu-
tional factors and party characteristics.
What follows describes the various archetypes of
control and the contexts in which they can be suit-
ably adopted (see Table 1 for a detailed presentation
of the archetypes and their corresponding contin-
gent variables, and to compare conclusions).
Market-based patterns
Management accounting contributors seem to
agree that, in market-based patterns, the informa-
tion necessary to regulate transactions is included
in the price, which is linked to standardized activi-
ties and outputs. The contracts are not detailed,
there are no speci?c investments, and if one party
to the relationship behaves opportunistically, alter-
native parties can be chosen without incurring rele-
vant switching costs (van der Meer-Kooistra &
Vosselman, 2000; Ha?kansson & Lind, 2004; Sarto-
rius & Kirsten, 2005). This pattern has argued as
proper in the context of high to low level of uncer-
tainty (Spekle´, 2001; Sartorius & Kirsten, 2005), low
asset speci?city (van der Meer-Kooistra & Vossel-
man, 2000; Lang?eld-Smith & Smith, 2003; Sarto-
rius & Kirsten, 2005), high task programmability
and output measurability (van der Meer-Kooistra
& Vosselman, 2000; Lang?eld-Smith & Smith,
2003) and complementary and dissimilar tasks per-
formed independently of each other but dependent
on their common standardized product (Ha?kansson
& Lind, 2004). Therefore, in the presence of e?ective
market mechanisms, no speci?c management con-
trol mechanism is needed and the only control con-
cerns the regular measurement and evaluation of the
performance of the other partners (Ha?kansson &
Lind, 2004). Similar market-based control models
have also been suggested to be suitable when the
level of asset speci?city is moderate (Spekle´, 2001)
and the level of frequency is low (Sartorius & Kir-
sten, 2005).
4
Bureaucratic/hierarchical patterns
A similar consensus seems to exist among the
authors with reference to the hierarchical/bureau-
cratic patterns of control. In these situations,
detailed contracts should be used to monitor the
performance, hostage arrangements should ensure
compliance to contractual provisions, payment
should be based on real activity output, and con-
trols should include speci?ed norms, standards,
detailed rules and rigid performance targets. The
aim of these controls is to guarantee continuous
supervision, performance measurement and evalua-
tion (van der Meer-Kooistra & Vosselman, 2000;
Lang?eld-Smith & Smith, 2003). To take advantage
of this, companies need a continuous exchange of
very detailed information concerning the technical
and economic aspects of the activities performed
and the use of resources (Ha?kansson & Lind,
2004). According to the literature, this hierarchi-
cal/bureaucratic pattern should be adopted when
the environment is characterized by medium uncer-
tainty (van der Meer-Kooistra & Vosselman, 2000;
Sartorius & Kirsten, 2005); the context is based on
moderate asset speci?city (van der Meer-Kooistra
& Vosselman, 2000; Lang?eld-Smith & Smith,
2003; Sartorius & Kirsten, 2005), high task pro-
grammability and output measurability, as well as
low to medium repetitiveness of transactions (van
der Meer-Kooistra & Vosselman, 2000; Lang?eld-
3
Spekle´ (2001) used another contingent variable for explaining
the choice of control patterns, namely the intensity of post hoc
information impactedness. However, there has been no agree-
ment on the de?nition of this variable: it has been considered the
same as output measurability by some contributors (e.g., Lang-
?eld-Smith & Smith, 2003, p. 286); it has been de?ned as the ‘the
extent to which asymmetries in emergent transaction-relevant
information cannot be eroded without cost’ by others (e.g.,
Cuganesan & Lee, 2006, p. 144). For this reason, it has not been
explicitly considered in the review proposed in this paper.
4
Spekle´ (2001) proposed a number of patterns that are not all
seen as suitable for inter-?rm relationships. On this point see also
Lang?eld-Smith and Smith (2003).
868 A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898
Table 1
Control archetypes and their contexts
Control archetypes Denomination Characteristics Contextual variables Authors
Market models Market based pattern Contact phase
Competitive bidding
Transaction characteristics
Low asset speci?city; high repetition;
measurability of activities and output; short
to medium term contract
van der Meer-Kooistra and Vosselman (2000)
Contract phase Transaction environment characteristics
No detailed contracting;
payment based on
Standardized activities or
output
Many potential transaction parties; market
price contains all the market information;
social embeddedness and institutional factors
are not relevant
Execution phase Party characteristics
Periodical, expost
competitive bidding
Not important, because there are many
parties with the same characteristics due to
which switching costs are low
Market control Competition-induced
standards and compliance
Transaction characteristics
High or low uncertainty (low or high ex ante
programmability of contributions) and low
asset speci?city (in outsourcing relationships)
Spekle´ (2001)
Boundary control (market-based) Market forces Reliance on
reputation e?ects to avoid
substandard performance
High uncertainty (low ex ante
programmability of contributions), moderate
asset speci?city (procurement of goods and
services)
Spekle´ (2001)
Outsourcing (External market
transactions)
Competitive market forces
Transaction characteristics
Low to high degree of uncertainty/complexity
and occasional to recurring frequency and
volume
Vosselman (2002)
Additional inter?rm
bureaucratic control devices
Services characteristics
Standard
Market based pattern No speci?c control
instruments required as
market mechanisms
dominate
Transaction
High task programmability; high output
measurability; low asset speci?city; high
repetition of transactions
Lang?eld-Smith and Smith (2003)
(continued on next page)
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Table 1 (continued)
Control
archetypes
Denomination Characteristics Contextual variables Authors
Competitive bidding at periodic intervals; Transaction environment
No detailed contracting; Market prices linked to
standardised activities and outputs
Many potential parties; Market price contains all the
market information; Social embeddedness and
institutional factors not relevant
The role of trust Parties
Trust is not relevant-switching costs are low Not important
Market Collection of information on prices of the
standardized product from di?erent suppliers and on
the ‘‘consuming” activities of other buyers.
Accounting is used to ensure the normative
requirement of reciprocity in exchange relationships:
collecting and summarizing market prices, overseeing
the implementation of contracts, estimating market
opportunities and threats, and developing decision-
making models based on market prices
Activities are complementary and similar, that is when
there are scale e?ects. They will be performed
independently of each other in any speci?c sense, but
they will be highly dependent on their common
standardized product
Ha?kansson and Lind (2004)
Classical contracting Spot market Low frequency; low asset speci?city; uncertainty (there
is ability to walk away; there are substitutes; short
duration; high ex ante control; low ex post
importance; low information shared; legal contract
enforcement)
Sartorius and Kirsten (2005)
Neo classical
contracting
Speci?cation contracting Low-medium frequency; low-medium asset speci?city;
uncertainty (there is ability to walk away - lower than
for classical contracting; there are substitutes - less
than for classical contracting; short/medium duration;
lower ex ante control; low/medium ex post
importance; low/medium information shared;
complex-legal contract enforcement)
Sartorius and Kirsten (2005)
Hierarchical
models
Bureaucracy based
pattern
Contact phase Transaction characteristics
Medium to high asset speci?city which can be
protected by contractual rules; low to medium
repetition; measurability of activities of output based
on contractual rules; medium to long term contract
van der Meer-Kooistra and
Vosselman (2000) Pre-selection of potential suppliers; bidding
procedures; detailed selection criteria
Contract phase
Transaction environment characteristics
Detailed and comprehensive contracting; payment
based on real activities output
Future contingencies are more or less known; medium
to high market risks; institutional factors in?uence the
contractual rules
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Execution phase Party characteristics
Supervision; performance measurement and
evaluation; detailed ex post information processing;
direct intervention
Competence reputation; medium risk sharing attitude;
asymmetry in bargaining power
Arm’s length control
(hybrid)
Detailed, reasonably complete contracts Hostage
arrangements to ensure compliance to contractual
provisions
Transaction characteristics Spekle´ (2001)
Arbitration to resolve con?icts
Low uncertainty (high ex ante programmability of
transactions); moderate asset speci?city (in
outsourcing relationships)
External buy-out (A service unit is placed outside the organization) Transaction characteristics Vosselman (2002)
Competitive market forces, that can be weakened by
top management through regulation of transactions
Low to high degree of uncertainty/complexity;
occasional to recurring frequency and volume
New non-managerial roles for top management Services characteristics
Standard
Arm’s length (hybrid
structure)
Rather incomplete contracts (prices, quantities and
quality (KPIs) were largely left open, their values
being decided on in annual negotiations; how these
negotiations were to be conducted - e.g. procedures,
budget formats - thus more or less setting the stage for
subsequent gap ?lling)
Transaction characteristics
Low uncertainty (high ex ante programmability of
transactions); moderate asset speci?city (carve out of a
business)
van den Bogaard and Spekle´
(2003)
Increased transparency, clearer accountability and
stronger orientation on results
Arbitration to resolve con?icts such as joint and
steering committees
Bureaucratic based
pattern
Outcome and behaviour controls, focused on direct
intervention by outsourcing party
Transaction Lang?eld-Smith and Smith
(2003)
Rigid performance targets; detailed rules of behaviour;
detailed contracts; comprehensive selection criteria
and formal bidding; hostage arrangements
High task programmability; high output
measurability; moderate asset speci?city; low to
medium repetition of transactions
The role of trust Transaction environment
In selecting the outsources, when human knowledge
and skills are important to the quality of the work, the
outsourcing ?rm must perceive high levels of
competence trust and contractual trust in the
outsourcer
Future contingencies known; medium to high market
risks; institutional factors in?uence contractual rules
Parties
Competence reputation; medium risk sharing attitude;
asymmetry in bargaining power
Hierarchy Direct coordination and adaptation based on
information about the technical and economic aspects
of the activities performed and the use of resources
Activities are complementary and similar Ha?kansson and Lind (2004)
(continued on next page)
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Table 1 (continued)
Control
archetypes
Denomination Characteristics Contextual variables Authors
Accounting is used to
support decision making
and performance
evaluation
Neo classical contracting Strategic alliance Medium frequency; Medium asset speci?city;
Uncertainty (There is ability to walk away - less than
in neoclassical contracting-speci?cation contracting;
there are substitutes - less than in neoclassical
contracting-speci?cation contracting; medium
duration; low ex ante control; medium ex post
importance; medium information shared; Complex
contract enforcement)
Sartorius and Kirsten (2005)
Bilateral relational Formal cooperation High frequency; high asset speci?city; uncertainty (low
ability to walk away; no substitutes; long duration; no
ex ante control; high ex post importance; high
information shared; bilateral contract enforcement)
Sartorius and Kirsten (2005)
Alternative
models
Trust based pattern Contact phase Transaction characteristics van der Meer-Kooistra and
Vosselman (2000) Trust, stemming from friendship, former contractual
relationships or reputation
High asset speci?city; low repetition; activities or
output cannot be measured well; long term contract
Contract phase Transaction environment characteristics
International contracting; framework contracts;
contractual trust; loose links between payment and
activities and output
Future contingencies are unknown; high market risks;
social embeddedness; institutional factors in?uence the
relation
Execution phase Party characteristics
Personal consultation and coordination; development
of competence trust and goodwill trust; process
oriented and culture based control mechanisms
Competence reputation; experience in networks;
experience with contracting parties; risk sharing
attitude; no asymmetry in bargaining power
Exploratory control
(hybrid)
Relatively unspeci?c ‘general thrust’ contracts Transactions
High uncertainty (low ex ante programmability of
contributions); moderate asset speci?city (in
outsourcing relationships)
Spekle´ (2001)
Latent (but easily activated) or endogenized
competition to ensure commensurate performance
Performance assessment based on broad, emergent
standards
Information sharing self-enforcing because of the
participatory, interactive nature of the process of
contract execution
Trust based pattern Outcome and social controls develop over time Transaction Lang?eld-Smith and Smith
(2003) Broad non-speci?c contracts that develop time;
performance assessed through broad emergent
standards; high levels of information sharing and
communications
Low task programmability; low output measurability,
that tends to increase over time; high asset speci?city;
low repetition of transactions
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Smith & Smith, 2003; Sartorius & Kirsten, 2005);
and the activities are closely complementary and
similar (Ha?kansson & Lind, 2004). In addition,
according to van der Meer-Kooistra and Vosselman
(2000) and Lang?eld-Smith and Smith (2003), this
model is suitable when institutional factors in?uence
contractual rules, and parties are characterized by
competence reputation, a medium risk-sharing atti-
tude, and asymmetry in bargaining power.
Alternative patterns
Management accounting scholars do not seem to
share a similar consensus on the alternative arche-
types of control. These alternative archetypes are
based on substantially di?erent elements—trust
(van der Meer-Kooistra & Vosselman, 2000; Lang-
?eld-Smith & Smith, 2003), decentralized coordina-
tion and intensive communication (Ha?kansson &
Lind, 2004), and the establishment of outsourcing
relationships (Spekle´, 2001)
5
—and are considered
suitable in di?erent situations. In situations where
transactions are highly uncertain, the transaction
environment is very risky, and parties are character-
ised by competence reputation, experience in net-
works, a risk-sharing attitude and a symmetrical
bargaining power, van der Meer-Kooistra and Voss-
elman (2000) and Lang?eld-Smith and Smith (2003)
proposed an archetype founded mainly on trust, sus-
tained by personal consultation and intensive com-
munication and, in general, by informal-social
forms of controls. Behaviour controls are not con-
sidered suitable, and formal controls are said to
emphasise output controls that develop over time
through the sharing of private information. By con-
trast, Ha?kansson and Lind (2004) illustrated the via-
bility of the business relationship or cooperation
model, on the basis of which coordination is not
5
Following Spekle´ (2001), van den Bogaard and Spekle´ (2003)
investigated speci?c governance devices, copied from the hierar-
chy, to control inter-organizational relationships, including
sequential planning, budgeting, and internal con?ict settlement.
The authors argued that these control mechanisms interact with
strategy in a complicated way, and that the classic notion of
structure-follows-strategy is inverted. Drawing on transaction
cost economics, they showed that, in a process of business carve-
out in the chemical industry, actual strategy was sticky and
relatively insensitive to changing managerial agendas because of
the pervasive control demands that derived from asset speci?city
and that operated as a barrier to change. They concluded that the
control structure adopted by the company was the result of a
compromise between strategic intentions and control
considerations.
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A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898 873
centrally orchestrated and the entities involved
match their plans and interact to seek a suitable solu-
tion, in situations where activities are complemen-
tary and dissimilar. Finally, when uncertainty is
high because of low ex ante programmability of con-
tributions, and asset speci?city is moderate, Spekle´
(2001) suggested the establishment of outsourcing
relationships with a limited number of suppliers,
which allows a comparative assessment of their per-
formance (hybrid form of exploratory control).
The variety of the characteristics of archetypes
and of the corresponding situations leads to some
inde?niteness of conclusions when diverting from
the ideal market-based and hierarchical/bureaucratic
forms of control. This inconclusiveness is even more
severe if we consider that the ?ndings proposed by
contributors are in some cases contradictory. For
example, while van der Meer-Kooistra and Vossel-
man (2000) and Lang?eld-Smith and Smith (2003)
suggested the use of market based patterns when
asset speci?city is low and repetition is high, Spekle´
(2001) recommended the use of some market-based
models in a context of moderate asset speci?city,
while Sartorius and Kirsten (2005) made the same
recommendation in a context of low frequency.
In addition, the literature on control archetypes as
a whole, though contributing to our understanding
of how inter-?rm relationships may be designed
and managed, has been constrained by a static con-
ception of the link between the characteristics of
transactions and controls—once the nature of the
relationship changes, controls change in a linear
direct one-to-one relationship. One of the main con-
sequences of this logic is that only ‘simple’ archetypes
of control have been investigated, while ‘more com-
plex’ combinations of control traits observed in prac-
tice have been neglected.
6
This may explain, for
example, the contradiction found in the literature
between the theoretical expectations of Spekle´
(2001), in the case of moderate asset speci?city, and
the empirical evidence collected by van der Meer-
Kooistra and Vosselman (2000) in a context with
the same characteristics. In fact, while the former
referred to an ideal archetype, the latter investigated
an empirical form observed in reality. The extension
of the static conception to a more non-linear,
dynamic view of control would lead to a process per-
spective that recognizes that di?erent models may be
present at the same time with reference to the same
relationship, and that inter-organizational relation-
ships may jump between di?erent ideal types over
time. This would suggest the need to identify those
factors that may explain the evolution and change
of inter-organizational relationships. Attempts to
achieve these objectives have been made by, for
example, Thrane (2007), using a non-functionalist
theoretical perspective. Thrane’s paper, departing
from simple control patterns, regarded as either mar-
ket-based, hierarchical/bureaucratic, or trust/rela-
tional, sought to analyse the multiplicity and
complexity of trajectories that an inter-organiza-
tional relationship may explore. The analysis showed
that the control pattern that the inter-organizational
relationship assumes is the emergent, self-organized
outcome of the interactions in the network, the per-
turbations that push the relationship to oscillate
between di?erent patterns and to undertake new
areas of the inter-organizational space. Thrane’s
main conclusion was that this process does not occur
in a deterministic way or randomly, but through a
process that may be the result of certain institutional
factors and which pushes the network into speci?c
trajectories. Further research in this direction might
contribute to expanding our knowledge on the con-
trol archetypes’ coexistence and evolution.
Another limitation that can be found in the liter-
ature on control archetypes is that the use of
accounting has been explored only to a limited
extent, and some of the conclusions achieved are
contradictory. Some of the contributions described
do not recognize an explicit use of accounting in
controlling inter-organizational relationships. For
example, Vosselman (2002) and Sartorius and Kir-
sten (2005) did not mention any accounting-based
control mechanism in any of the patterns they
described. One of the main reasons for this conclu-
sion is that accounting was originally developed for
well de?ned, limited entities. Therefore, inter-orga-
nizational relationships that blur the clearly set
boundaries which accounting presupposes may be
problematic for its use. Other contributors have
referred to the use of accounting indirectly when
discussing performance targets and evaluation; in
many cases this use has been associated only with
hierarchical/bureaucratic forms of control. For
example, van der Meer-Kooistra and Vosselman
(2000) incorporated performance measurement
and evaluation, some of which is accounting-based,
in a ‘package’ of mechanisms, including also super-
vision, detailed ex post-information processing and
6
For a similar discussion applied to organizational mecha-
nisms, see Grandori (2004).
874 A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898
direct intervention. Only Lang?eld-Smith and Smith
(2003) recognized the adoption of performance tar-
gets both in the bureaucratic pattern and in the
trust-based archetype. More speci?c attempts to dis-
cuss the use of accounting were made by Ha?kansson
and Lind (2004). Not only did these authors explic-
itly recognize the use of accounting in the various
control patterns they identi?ed, but they also di?er-
entiated its role. According to Ha?kansson and Lind,
accounting is used to monitor and in?uence people’s
behaviour in the hierarchical coordination, to
ensure the normative requirement of reciprocity in
market coordination, to contribute to the establish-
ment of common values and beliefs, and to sustain
the organizational tradition in the business relation-
ship. However, while the role that they assigned to
accounting in the hierarchy was clearly stated and
supported by data, the role that accounting assumes
in alternative models was vaguely and ambiguously
de?ned and was not empirically rooted in their anal-
ysis. Further research needs to be conducted to dee-
pen our knowledge concerning the features of
accounting in the di?erent control archetypes, and
of the role that accounting can assume given the dif-
ferent contextual variables.
Management control mechanisms of inter-?rm
relationships
Several authors have analysed management con-
trol mechanisms, speci?ed individually rather than
as included in comprehensive control archetypes.
Their works have concentrated either on a speci?c
type or on a subset of management control mecha-
nisms used in inter-?rm relationships, and have not
attempted to de?ne archetypal models that link
these mechanisms to other forms of control—such
as the contract, the price or the competitive bidding.
Contributions di?er on the basis of their focus either
on the contingent variables, or the consequences of
the adoption of certain management control mech-
anisms in inter-organizational relationships (see
Table 2 for a summary). The literature reviewed
reveals that some voids are related to the way in
which variables have been de?ned and analysed
and their relationships investigated.
Tomkins (2001) analysed information systems used
for planning a collaborative future (cooperation
achieved through information, labelled as ‘type 1’)
and for mastery of events between partners (coordina-
tion achieved through information, de?ned as ‘type
2’). Tomkins maintained that the use of these systems
is contingent upon the level of interdependence and
trust as evolving along the relationship life cycle and
that the impact of interdependence changes with the
evolution of the relationship. When interdependence
is very low, at the beginning of the relationship, ‘type
1’ informationis usedtocontrol the partner’s attributes,
values, integrity and ethics, while ‘type 2’ information is
adopted to assess the costs and bene?ts of the relation-
ship. When interdependence is medium, at the explor-
atory/screening stage, more detailed (internal) ‘type 1’
information on a speci?c partner’s attributes and aspi-
rations is exchanged, and more articulated ‘type 2’
(external) informationonscenariodevelopment, strate-
gic options and alternative relationships is collected.
With the growth of interdependence at higher levels,
inthe commitment development stage, ‘type 1’ informa-
tion is used to control the achievement of milestones
and processes, whereas ‘type 2’ information is collected
to assess joint competitive positions, investments and
pro?t/risk-sharing schemes. Finally, when interdepen-
dence is high, at the commitment development stage,
while information exchanged for cooperation purposes
regards open book accounting and transparency of
activities available for inspection, information used
for mastery of events concerns the results andthe future
returns fromthe relationship, together withthe explora-
tion of possibilities for extending the relationship and
an assessment of the portfolio of investments and
endowments. The impact of trust also evolves along
the relationship life cycle. Its e?ect on information sys-
tems is characterised by an inverted U-shape, with a
positive relationship between trust and information at
earlier stages of the relationship and a negative associa-
tion between them in later stages of the relationship,
once trust intensity becomes established at high levels
(Tomkins, 2001, p. 170).
Drawing on Gulati and Singh (1998), Dekker
(2004) analysed the management of appropriation
concerns and the coordination of tasks, which need
to be dealt with through formal mechanisms—dis-
tinguished in outcome and behaviour—and infor-
mal mechanisms such as partner selection and
trust. According to the author, the coordination of
tasks is the result of the degree of interdependence
and task uncertainty, and appropriation concerns
are the e?ect of asset speci?city,
7
environmental
uncertainty and the level of frequency. These issues
in?uence the collaborating ?rms’ need to invest in
7
On the relevance of asset speci?city, see also Roodhooft and
Warlop (1999).
A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898 875
selecting a good partner and to design and imple-
ment formal control mechanisms. Investing more
e?ort in ?nding a good partner decreases the adop-
tion of formal controls, and the presence of good-
will and capabilities trust moderates the
relationship between, respectively, appropriation
concerns and coordination requirements and the
use of formal controls and partner selection e?orts.
These studies indicatedassociations betweenarange
of variables and inter-organizational controls and
helped to clarify the relevant determinants of the latter.
However, some limitations, which may have generated
potential bias or partiality of results, derive from the
way in which the variables have been analysed.
The impact of uncertainty has been only margin-
ally explored. Despite being considered as a key var-
iable in the management accounting literature in the
forms of environmental uncertainty (Simon, 1962;
Galbraith, 1973; Williamson, 1975; Chenhall, 2003)
and task uncertainty (Perrow, 1970; Ouchi, 1979;
Chenhall, 2003), its impact on inter-?rm control
mechanisms has been only partially investigated.
Only Dekker (2004) included both environmental
and task uncertainties in his model, yet the role of
uncertainty was considered subordinate to other
variables such as interdependence and asset speci?c-
ity. As a consequence, a deeper theoretical under-
standing and a broader empirical investigation to
isolate potentially di?erent e?ects of these various
typologies of uncertainty on the choice of control
mechanisms in inter-organizational contexts is still
lacking (Das & Teng, 2001). In fact, it is not clear
which control mechanism should be activated to deal
with di?erent sources of uncertainty related to the
inputs required, outputs expected, and the transfor-
mation process itself (Me´nard, 2004).
The conceptualization of interdependence
adopted in the literature is either very general or
constrained to a speci?c dimension without the
authors’ considering the potential multidimension-
ality of this variable when applied to inter-?rm rela-
tionships. For example, Tomkins (2001) did not
provide any speci?c de?nition of the variable, and
simply assumed that interdependence increases
along the development of an ‘ideal’ relationship.
Similarly, Dekker (2004) referred to a mono-dimen-
sional de?nition of interdependence, work?ow
(Thompson, 1967), which has been developed in
the analysis of inter-departmental relationships
within ?rms. Alternative and more intensive forms
Table 2
The relationship between management control mechanisms and their antecedents and outcomes
Management control mechanisms Antecedents Outcomes Mediating variables Authors
Information systems for collaborative
planning and mastery of events
Interdependence Trust Tomkins
(2001)
Control systems Information technology Inter-?rm
linkages
tightening
Frances and
Garnsey (1996)
Trust Cooperation Coletti et al.
(2005)
Cooperation Baiman and
Rajan (2002a)
Performance measurement systems Performance Cooperation (information
sharing, problem solving,
adaptability to changes,
restraint from the use of
power)
Mahama
(2006)
Outcome control (goal setting,
incentive systems, performance
monitoring, rewarding)
Interdependence Task
uncertainty Asset speci?city
Environmental uncertainty
Frequency
Partner selection Capability
trust Goodwill trust
Dekker (2004)
Behavioural control (structural
speci?cations, organizational
structuring, behaviour monitoring)
Interdependence Task
uncertainty Asset speci?city
Environmental uncertainty
Frequency
Partner selection Capability
trust Goodwill trust
Dekker (2004)
Socialization processes Information
sharing
Restraint from the use of
power
Mahama
(2006)
876 A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898
of mutual dependence can arise in inter-organiza-
tional relationships related to the degree in which
parties need jointly to spend time in interacting with
each other in order to manage the relationship or to
accomplish their work (Macintosh & Daft, 1987;
Gresov & Stephens, 1993; Bensaou & Venkatraman,
1995; Abernethy, Bouwens, & van Lent, 2004).
While, traditionally, this type of interdependence
was assumed to be absent in markets and intensive
in hierarchies, this form of mutual dependence
needs to be explicitly recognized and analysed inde-
pendently from work?ow interdependence. In fact,
work?ow interdependence requires that actions be
properly interwoven, sequenced and timed through
programming and communication. On the contrary,
joint action interdependence generates ‘team pro-
duction’ situations for which it is di?cult to deter-
mine each ?rm’s contribution and may be solved
by the direct observation of behaviours so as to
de?ne a fair distribution of value (Alchian & Dem-
setz, 1972). Therefore, the e?ects of the two forms of
interdependence need to be analysed separately.
Trust is another variable whose e?ect on control
mechanisms is still unclear. While the literature has iden-
ti?ed either a substitutive or a complementary relation-
ship between trust and control along the life cycle of the
relationship, conclusions are not de?nitive (Sitkin &
Roth, 1993; Ring & Van de Ven, 1994; Das & Teng,
1998; Tomkins, 2001). One of the reasons for this could
derive fromthe di?erent roles that control andtrust may
assume in the governance of inter-?rm relationships. In
fact, while the relationship between these two variables
has beenanalysedbyassumingthat control mechanisms
mainly serve the role of aligning the partners’ objec-
tives—therefore, being potentially replaceable by
trust—control mechanisms may also be adopted to
coordinate the tasks of the partners and, because of this,
they cannot be approximated or sustained by trust
(Dekker, 2004). In addition, trust can be introduced
for reasons other than to integrate partners’ objectives,
such as to increase the ability of partners to manage
the process of knowledge development and learning
(Kale, Singh, & Perlmutter, 2000), so it would not be
replaceable by formal controls. Therefore, by consider-
ing the multiple roles that formal control mechanisms
and trust may play in inter-organizational relationships,
it maybe possible toclarifywhy, insome cases, trust and
control assume a certain relationship and, in others, an
opposite relationship.
More recent contributions have focused on the
consequences of adopting management control sys-
tems in inter-?rm relationships.
Coletti et al. (2005) studied the impact of control
systems on the level of trust and, through experimen-
tal analysis, showed that control systems can actually
increase the level of trust among partners, provided
the control systemis strong enough to generate coop-
eration and that this attitude towards cooperation is
also held by collaborators. Coletti et al.’s data also
suggested that increased trust has a positive e?ect
on the future level of cooperation among partners.
As a whole, their ?ndings indicated an increasing
marginal bene?t of control system strength arising
from the trust that control-induced cooperation
engenders. Similar conclusions have also been
achieved by Baiman and Rajan (2002a), who dis-
cussed the incentive problems to which buyer–sup-
plier relationship transactions are subject. These are
mainly related to the fact that the buyer can expropri-
ate some of the surplus created by the supplier’s
investment, thereby weakening the supplier’s ex ante
incentives to invest. Thus, when the supplier and
buyer negotiate and agree on the quantity and trans-
fer price, they have unequal relative bargaining pow-
ers, and this a?ects the supplier’s ex ante investment
incentives. According to Baiman and Rajan, the
introduction of control mechanisms that increase
the level of information-sharing among the supply
chain members contributes to mitigating these prob-
lems and making the contracting parties somehow
more inherently cooperative and trustworthy.
Mahama (2006) investigated the impact of man-
agement control systems on cooperation in strategic
supply relationships, focusing on the link between
two management control types (performance mea-
surement systems and socialisation processes) and
cooperation, and howthat link translates into desired
relationship performance. Mahama’s evidence
showed a positive relationship between performance
measurement systems and the four dimensions of
cooperation (information-sharing, problem-solving,
adaptability to changes, restraint from the use of
power) but that socialization practices were posi-
tively linked only to information-sharing. Mahama
also found that, except for the information-sharing
dimension, cooperation is positively related to per-
formance, while the relationship between informa-
tion-sharing and performance was only indirect and
mediated by the e?ect of the restraint from the use
of power.
Finally, Frances and Garnsey (1996) showed that
control mechanisms supported by information tech-
nology tightened inter-?rm linkages, reduced costs
throughout the system, and made UK supermarkets
A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898 877
gain in?uence on suppliers through positive feedback
e?ects. Also, Cuganesan and Lee (2006)
8
analysed
the impact of information technology on extant con-
trols in both the inter-organizational and intra-organi-
zational relationships that co-existed in a procurement
network. Contrary to the limited number of studies
that have described information technology as un-
problematically reinforcing dominant interests,
Cuganesan and Lee showed that suppliers were not
merely passive agents of information technology, but
that they used it to their own ends and to increase the
stability of procurement relationships, consequences
that were unintended by the buyers, who introduced
the technology in the ?rst place. While information
technology does not contain any inherent properties
or e?ects, these latter are shaped by the actions of pur-
posive organizational participants who build, promul-
gate and/or use this technology. The authors
concluded that informationtechnology gave bothbuy-
ers and suppliers an increased ability to act upon each
other through a dialectic of accounting control.
One limitation that is common to all the aforemen-
tioned studies on management control mechanisms is
that, with the exception of Dekker (2004), they tended
toanalyse one variable at a time without trying toinves-
tigate the interaction between the variables. Some con-
tributions outside the major accounting journals have
attempted to do so. For example, Das and Teng
(2001) proposed a framework to link uncertainty, risk
and management control. They found that tasks char-
acterized by low output measurability and high pro-
grammability are in good accord with the incidence of
relational risk
9
and should be regulated through behav-
ioural control; tasks contemplating high output mea-
surability coupled with low knowledge of the
transformation process accord with performance risk
10
and need to be controlled through output mechanisms;
and social control is valuable when both output mea-
surability and knowledge of the transformation process
are low and a combination of relational and perfor-
mance risk is present.
Cost and accounting controls in inter-organizational
relationships
Other contributions in the management accounting
and control literature have focused on the forms and
functions of cost and accounting controls in inter-orga-
nizational settings. In doing so, they have suggested the
roles that cost accounting mechanisms may play in
inter-?rm settings and a diversity of speci?c cost
accounting techniques extending from the total cost of
ownershipinsupplychainrelationships (e.g. Ittner, Lar-
cker, Nagar, & Rajan, 1999; Wouters et al., 2005) and
value chain analysis in supply networks (e.g. Dekker,
2003) to target costing, inter-organizational cost man-
agement (e.g. Carr & Ng, 1995; Mouritsen, Hansen, &
Hansen, 2001; Cooper & Slagmulder, 2004) and open
book accounting (e.g. Seal, Cullen, Dunlop, Berry, &
Mirghani, 1999; Kaju¨ter & Kulmala, 2005). Though
these authors generally share an interest in understand-
ing cost and accounting information exchanges at an
inter-organizational level, they have provided empirical
evidence that adopts units of analysis with various
widths, using the points of view of a variety of entities
included in the set of relationships under investigation
and concentrating on inter-organizational arrange-
ments with di?erent numbers of contractual partners.
In addition, they have focused their attention on di?er-
ent roles of cost and accounting controls in various
typologies of inter-organizational relationships.
In order to clarify the achievements and limita-
tions of previous contributions we classify them
according to three dimensions. The ?rst is the unit
of analysis, de?ned as the number of relationships
actually considered in the investigation. We propose
two categories, ‘‘dyad” (one relationship) and ‘‘net-
work” (more than one relationship), and a further
distinction within each of these two categories.
Regarding dyads, we classify contributions accord-
ing to whether they focus on a speci?c relationship
(between two clearly identi?ed ?rms, e.g., the assem-
bler and subcontractor ‘‘A”) or on an average rela-
tionship between a ?rm and a certain category of
counterparts (a generic relationship between the
buyer and its suppliers). For networks, we distin-
guish between contributors that, while they analyse
multiple relationships, concentrate on a signi?cant
subset of the whole network (e.g., the buyer and
8
Given that Cuganesan and Lee (2006) adopted actor network
theory (ANT) to study procurement network controls and that
they maintain that ‘‘control is not something that is an inherent
property or a pre-de?ned consequence of some antecedent condi-
tion”, we have decided not to force this contribution into Table 2.
9
Relational risk is de?ned as the probability and consequences
of not having satisfactory cooperation. This risk arises because of
the potential for opportunistic behaviour on the part of the
partners (Das & Teng, 1996).
10
Performance risk refers to the probability and consequences
of inter-organizational objectives’ not being achieved, despite
satisfactory cooperation among partner ?rms. This may be the
result of adversarial factors, such as intensi?ed rivalry, new
entrants, demand ?uctuations, changing government policies, a
lack of competence of the partner ?rms, and sheer bad luck (Das
& Teng, 1996).
878 A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898
the ?rst-tier suppliers) and those that maintain the
analysis at the level of the whole network.
The second classi?cation is the point of view,
which indicates whether the ?ndings reported have
drawn upon a single point of view in the relation-
ship/s (usually that of the focal ?rm) or take into
consideration also the perspectives of the other
counterparts in the relationship/s.
Finally, the third classi?cation is the type of
arrangement, which refers to the number of parties
included in the inter-organizational agreement under
analysis. We di?erentiate between bilateral arrange-
ments, which involve only two parties, and multilat-
eral ones, which involve three or more. With
reference to this last category, we also distinguish
between situations in which there is a one-to-many
arrangement, that is a centralized network, and those
in where there is a many-to-many arrangement, that
is a highly connected network (see Table 3 for the rel-
ative positioning of the cost and accounting controls
papers according to these three dimensions).
By intersecting the unit of analysis and the point of
view, we aim to understand whether the perspectives
of all the parties included in the unit of analysis have
been actually investigated by contributors. For exam-
ple, the study of a dyad, i.e., a buyer–supplier relation-
ship, would require the analysis of both parties’ points
of view—the buyer and the supplier—whereas, in the
case of a network, to be consistent, the investigation
should include as many partners as possible, and, ide-
ally, all of them. Where there is incoherence between
these two dimensions, we will de?ne the related limita-
tions of extant studies. We alsointersect the typology of
arrangements with the unit of analysis in order to verify
the consistency between the object of the investigation
and the unit of analysis. For example, the study of a
multilateral type of arrangement would require the
entire network as a unit of analysis, while the study of
a bilateral one-to-one type of arrangement would
require the speci?c relationship as the unit of analysis.
This veri?cation is useful because, as anticipated in
the introduction, there is some ambiguity in the
accounting literature related to the meaning of inter-
organizational relationships. One of the causes could
be that authors sometimes position themselves as con-
tributors to the subject of ‘‘networks” while, in reality,
they focus on ‘‘single inter-organizational relation-
ships”. Also, in this case, we will develop some re?ec-
tions on the limitations in the extant literature.
We also provide an overview and a description of
the roles of cost and accounting controls in inter-
organizational settings by relating the former to
the typology of relationships in which such roles,
either pointing to speci?c technical functions or to
more symbolic ones, have been witnessed. For this
purpose, we di?erentiate inter-organizational rela-
tionships into vertical ones (either upstream or
downstream) and horizontal ones (based on
whether they are between complementors or com-
petitors).
11
We also classify contributions according
to whether they have provided a ‘‘functionalist”
explanation of accounting roles or a ‘‘non-function-
alist” one
12
(see Table 4 for this overview). This
classi?cation is helpful in understanding whether
there are inter-organizational contexts in which
the roles of accounting have not yet been studied;
that would be interesting to explore, given their
peculiarities and the potential impacts that the latter
may have on accounting functions and uses.
The pervasiveness of the analyses of inter-
organizational cost and accounting controls
One of the few contributions to have adopted a
unit of analysis that is both coherent with the points
of view considered in the empirical observation and
the type of arrangement investigated is the one by
Seal et al. (1999). The authors study a speci?c dyadic
relationship that is a one-to-one arrangement from the
perspective of both partners. The initiation of a more
systematic sharing of accounting information comes
from the assembler who, in turn, o?ers to support
actively the continuous improvement e?orts of the
supplier and to fund partially its development pro-
jects. However, the process of establishing some
open-book accounting practices is also described as
being slow and time-consuming because of weak-
nesses in the cost accounting systems of the two ?rms.
11
We draw this distinction from De Wit and Meyer (2004) who,
in turn, quoted Porter (1980) and Reve (1990) to classify
relationships between ?rms into vertical and horizontal ones.
More speci?cally, the latter are either indirect horizontal
relationships with industry outsiders (i.e., the producers of
complementary goods or services), named ‘‘complementors”, or
direct horizontal relationships with industry insiders (i.e., the
producers of similar goods or services), named ‘‘competitors”.
12
We make this categorization drawing from Chenhall (2003),
who maintains that functionalist approaches are those that
consider the utility of accounting in achieving purposeful
outcomes and assume that accounting assists managers in
accomplishing organizational goals, while non-functionalist (or
‘‘alternate”) approaches point to the fact that the roles that
accounting may play are in?uenced also by factors other than the
rational economic and technical, such as social, institutional or
political motivations. On this point see also Macintosh (1994),
Baxter and Chua (2003).
A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898 879
Table 3
The pervasiveness of the analyses
a
on cost and accounting controls
Point of view
Type of
arrangement
Focal/dominant ?rm Multiple
Unit of analysis Bilateral
(One-to-many)
Multilateral
(One-to one)
Multilateral
(Many-to-many)
Bilateral
(One-to-one)
Multilateral
(One-to-many)
Multilateral
(Many-to-many)
Network Entire network Coad and Cullen (2006) Mouritsen (1999)
A subset of the
network
Thrane and Hald (2006),
Chua and Mahama (2007)
Carr and Ng (1995),
Cooper and
Slagmulder (2004)
Kaju¨ ter and
Kulmala (2005)
Dyad Average
relationship
Wouters et al. (2005), Ittner
et al. (1999), Dekker (2003),
Mouritsen et al. (2001),
Seal et al. (2004), Kulp (2002)
Kaju¨ ter and
Kulmala (2005)
Mouritsen and
Thrane (2006)
Speci?c relationship Seal et al.
(1999)
Cooper and
Slagmulder (2004)
a
Authors are positioned in more than one quadrant when their contribution is based on multiple case studies, each one having adopted di?erent units of analysis and points of view.
For example, Kaju¨ ter and Kulmala (2005) investigated four manufacturing networks: one in Germany and three in Finland. The unit of analysis was the average supplier relationship
for the German network, and some selected buyer–supplier relationships for the Finnish ones; the points of view adopted were that of the focal ?rm for the German network and those
of both the focal ?rms and the suppliers for the Finnish networks. Cooper and Slagmulder (2004) observed three Japanese supply chains. In two, they speci?cally analysed the
relationship between the focal ?rm and a ?rst-tier supplier, taking both points of views into consideration; in the third supply chain, they examined the relationships between one focal
?rm and two of its suppliers, one ?rst-tier and one second-tier supplier and took the points of view of all three ?rms.
8
8
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.
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A
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(
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5
–
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8
In contrast to Seal et al. (1999),
13
many con-
tributors have adopted just one ?rm’s point of
view in describing inter-organizational cost
accounting mechanisms (see the left side of Table
3). Typically, the perspective assumed has been
the one of the most relevant organization in the
relationship/s.
14
For example, the contributors
concerned with the use of the total cost of owner-
ship (TCO)
15
have taken the point of view of the
buyer to carry out their empirical investigations.
Wouters et al. (2005) focused on the TCO
approach in one-to-many arrangements, viewing it
as an application and extension of activity-based
costing logic at an inter-organizational level that
supports purchasing managers in the screening of
potential partner suppliers.
16
The authors sug-
gested that TCO techniques can be used not only
for the initiation of closer relationships with sup-
pliers, but also in the management of such rela-
tionships as a progressive way of doing business
together. Though interesting, Wouters et al.’s con-
clusions derived from a survey that included only
the focal ?rms, i.e., the buyers, without taking
into consideration the perceptions and experiences
of their suppliers. Moreover, even within the
buyer ?rms, the authors stated that they adopted
just the point of view of purchasing and mainte-
nance managers and treated these actors as infor-
mants on the average relationship between the
focal ?rm and its suppliers. Ittner et al. (1999)
also studied the TCO and other advanced supplier
selection criteria and monitoring practices in order
to understand whether they are used in supplier-
buyer partnerships (one-to-many arrangements)
and whether they are positively related to perfor-
mance (Carr & Ittner, 1992; Ellram & Siferd,
1998). They concluded that those organizations
which make extensive use of supplier partnerships
without employing non-price selection criteria,
more frequent meetings with suppliers, greater
supplier involvement in strategic planning, and
supplier certi?cation practices, earn signi?cantly
lower pro?ts, have lower product quality, and
have a smaller portion of acceptable long-term
suppliers than do organizations that do employ
such practices. In reaching these conclusions, they
use survey data that are limited in that they are
collected from the buyers (thefocal ?rms) and
relate to average relationships’ practices. As the
authors themselves recognized, a more powerful
13
In another paper Seal, Berry, and Cullen (2004) take the
perspective of the focal ?rm to study inter-organizational
accounting in a supply chain (a one-to-many arrangement). Since
the information was collected at the dominant ?rm the ?ndings
refer to the average relationships this ?rm entertained with its
supply chain partners.
14
Even if the contributions on control archetypes and manage-
ment control mechanisms potentially also su?er from this same
limitation (e.g., Frances & Garnsey, 1996; Lang?eld-Smith &
Smith, 2003; Sartorius & Kirsten, 2005; Mahama, 2006), this
issue seems to be present to a lesser extent in this literature. In
fact, while authors of theoretical papers have tried to propose a
neutral view of control in the analysis of inter-?rm relationships
(Tomkins, 2001; Spekle´, 2001; Vosselman, 2002) – Vosselman
used his case on Leaden University only to set the scene, so his
paper is labelled as theoretical–empirical contributions have
attempted to provide a more balanced perspective on the issue of
inter-organizational control. For example, van der Meer-Koois-
tra and Vosselman (2000) suggested that they take the perspective
of the outsourcer in building their model but, in the empirical
analysis of the outsourcing of maintenance activities, they
collected data by interviewing ‘both the outsourcing party and
the suppliers’ (p. 63). In their study of a well developed business
relationship in the telecom industry between Ericsson and Telia,
Ha?kansson and Lind (2004) also tried to report a comprehensive
understanding of the relationship by means of interviews and
?eld visits conducted at both sides of the relationship, given that
they ‘received the full support of both companies even to the
extent of having two o?ces assigned to [them] in Ericsson, one
within the central accounting unit and the other in the Key
Accounts Telia unit. This arrangement gave [them] access to
Ericsson’s intranet. In addition, access was given to economic
reports, internal letters, detailed statements, organizational
charts, documents relating to strategy and technical and com-
mercial reports. In Telia, in addition to interviews [they] were
given access to written documents including organizational
charts’ (p. 57). Dekker (2004), as well, in his contribution on
the strategic alliance between NMA Railway signalling and
Railingrabeheer, studied the constructs of interest ‘from both
partners’ perspectives’ (p. 35), and held semi-structured inter-
views and informal discussions with boundary spanners of both
?rms, who were the designers of the governance structure and
were involved in the management and operation of the alliance
(pp. 35–36). Similarly, Cuganesan and Lee (2006), in their study
of a procurement network, collected data using a semi-structured
interview with identi?ed representatives of the transaction centre,
as well as procurement professionals from buy-side organizations
and general managers from sell-side organizations in the network.
Finally, Coletti et al. (2005) examined the e?ects of control on
trust and cooperation in collaborative settings by using experi-
ment as an empirical method, maintaining a balanced view on the
behaviour of the collaborating parties.
15
Several authors have studied this inter-organizational cost
accounting approach that allows ?rms to account for all the costs
that are caused by buying at a certain supplier, such as the costs
of ordering, delivery, quality and administration (Carr & Ittner,
1992; Ellram & Siferd, 1998; Degraeve, Labro, & Roodhooft,
2000).
16
On this topic see also Anderson, Thomson, and Wynstra
(2000).
A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898 881
test of the model’s implications would require an
investigation of individual supplier contracts and
of the selection criteria and monitoring practices
used to identify and control each supplier’s
relationship.
Dekker (2003) also focused on buyer–supplier
relationships and studied the use of value chain
analysis (VCA)
17
in a one-to-many arrangement
for controlling and coordinating supply chain
interdependences. Dekker maintained that, to
reap the full bene?ts of such analysis, VCA
would need to be performed jointly and coopera-
tively by buyers and suppliers sharing sensitive
cost and performance information. Following this
line of reasoning, Dekker (2003, pp. 21–22) main-
tained that the ?rm under investigation employed
collaborative VCA for initiating discussions with
suppliers, for jointly communicating and negotiat-
ing, for making cooperative decisions at the level
of the entire supply chain, and for de?ning how
to allocate supply chain results. In this vein,
the ?rm under study made clear that cost
accounting information would not be used in
an adversarial way. Although this argument is
convincingly sustained in the paper, Dekker indi-
cated that such considerations derive from study-
ing the inter-organizational setting just from the
point of view of the focal ?rm, i.e., the buyer,
and, more speci?cally, from having collected data
only from its department of logistics. Dekker
explained that he could not interview suppliers
and explore their view of the relationships and
information exchanges with the focal ?rm, so
he did not collect any information about speci?c
relationships with suppliers, ‘which limits the
insight into relational issues, such as an individ-
ual supplier’s trust and concerns about appropri-
ation’ (p. 9).
Similarly, Coad and Cullen (2006) described
the adoption of value chain analysis at an
inter-organizational level in an entire network.
Though notable because their contribution is
one of the rare studies of a whole supply chain
(a one-to-many agreement) and because it is com-
prehensive in terms of sources of data, people
interviewed and observations overtime, the empir-
ical analysis has been carried out from the point
of view of the focal ?rm. The authors partici-
pated as action researchers to a project of
inter-organizational value chain analysis spon-
sored by the central ?rm and had the opportu-
nity to visit some suppliers’ and customers’
sites. However, they could not interview the focal
?rm’s partners in depth. This is one of the study
limitations that Coad and Cullen mentioned at
the end of their paper, saying that their ‘interpre-
tation of organisational and inter-organisational
phenomena has been heavily in?uenced by the
attitudes, beliefs and values expressed by the
management and employees of School Trends
Ltd. [the focal ?rm]’ (p. 366). The authors sug-
gested that access to the management and
employees of the central ?rms’ suppliers and buy-
ers would give more complete insights into issues
such as inter-organizational institutions, trust,
power and politics, and should be considered
critical to improving future research.
With reference to the use of cost accounting prac-
tices for the management of inter-?rm relationships,
another common topic in the management account-
ing literature has been the need for ‘accounting
openness’ between parties. This necessity translates
into the use of open-book accounting practices in
supplier–buyer relationships that demand transpar-
ency on cost information, including data that would
traditionally be considered proprietary (Lamming,
1993, p. 214). For example, Mouritsen et al.
(2001) illustrated the experience of a focal ?rm of
an outsourcing network (a one-to-many arrange-
ment) that lost control over production after pro-
duction had been outsourced. Similarly to
Mouritsen (1999),
18
they observed that the exchange
of accounting information at an inter-organiza-
tional level enabled control at a distance, but may
also have had a symbolic meaning. Although Mou-
ritsen et al. (2001) gave comprehensive and multi-
faceted view of the case studies (as they involved a
high number of informants compared to other con-
17
On this topic see Hergert and Morris (1989), Shank (1989),
Shank and Govindarajan (1992, 1993).
18
Mouritsen (1999) describes two modes of management
control, one of which is the ‘‘virtual organization”. This one is
based on the idea that accounting and information systems may
be used to inscribe not only one ?rm’s internal processes but also
its inter-organizational relationships with customers and subcon-
tractors. To de?ne such mode, the author draws on the
experience of a ?rm trying to govern a production network
beyond its boundaries. Evidence is provided based on the
information collected at the focal ?rm which is also said to be
the ‘‘informational centre” (Mouritsen, 1999) of an entire
network, involving also external customers (a many-to-many
arrangement).
882 A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898
tributors), they examined the two outsourcing net-
works from the point of view of the two focal ?rms
on its average relationships.
Thrane and Hald (2006) investigated the topic of
accounting information-sharing between ?rms,
studying a supply ?eld and gathering data on a cen-
tral ?rm and its cooperation with customers and
suppliers (a one-to-many arrangement). Though they
conducted 38 interviews at both the focal company
and its suppliers, representing a subset of the net-
work, they reported the perspective of the focal ?rm
in order to make the analysis more manageable, to
reduce complexity and to make their ?ndings com-
parable to the vast majority of analyses on inter-
organizational accounting, ‘as they, too, delimit
their supply ?elds, networks and inter-organiza-
tional relations to the perspective of a focal ?rm’
(p. 296).
Finally, Chua and Mahama (2007) analysed a
one-to-many arrangement in the form of a supply
alliance. Even if they were given permission to con-
tact all the suppliers independently and even if they
participated in several supply management meet-
ings, in e?ect, they reported quotes from the manag-
ers of the focal ?rm, while describing the situation of
suppliers only indirectly. While maintaining that
inter-?rm alliances should be studied within the lar-
ger networks in which they are located, they gave
details on a subset of the network, that is, on the alli-
ance between the focal ?rm and its two largest sup-
pliers. On the upside, Chua and Mahama provided
a comprehensive illustration of accounting controls
concerning the inclusion of signi?cant third and
fourth parties outside the supply alliance, that is,
stockholders and government agencies.
19
In exploring inter-organizational cost accounting
mechanisms, other authors have approached the
topic in a more balanced way by taking into consider-
ation the perspective of both the focal ?rm and some
of its partners (multiple points of view, see the right
side of Table 3). Nevertheless, these contributors
retained the limitation of having selectively included
only some of the parties involved in the arrangement,
so the unit of analysis is inconsistent with the type of
arrangement they aim to investigate.
Carr and Ng (1995), for example, described Nis-
san’s method for total cost control as being charac-
terised by an approach based on open book
accounting and target costing principles. The authors
illustrated how such an approach was applied in the
context of UK transplant operations and how it
was extended to encompass the local network of sup-
pliers (a one-to-many agreement). Carr and Ng’s unit
of analysis was constituted by a subset of the total
supply network and composed of a subcontractor
and ?ve selected suppliers. In practice, the relation-
ships examined in detail were the ones with a ?rst-tier
supplier and a second-tier supplier, while the other
three dyadic relationships were explored as con?rma-
tory evidence of the main ?ndings.
Cooper and Slagmulder (2004) also studied the
use of target costing in inter-?rm relationships
20
as
the core of inter-organizational cost management
(IOCM) practices. The authors suggested that target
costing is an arm’s-length cost management tech-
nique, as it does not actively involve the supplier
in the buyer’s cost management program. The key
extension of this cost accounting mechanism
beyond ‘intra-?rm’ cost management logics would
be the active involvement of both the buyer and
the suppliers in the joint management of costs and
in the collaborative identi?cation of opportunities
for joint cost reduction. According to Cooper and
Slagmulder, cost information derived from IOCM
is central to the control of the inter-organizational
relationships and inter-?rm cooperation. To achieve
these ?ndings, Cooper and Slagmulder adopted a
partial approach to the underlying agreements they
studied. The authors announced that they observed
three Japanese supply chains, having mainly the
form of a one-to-many arrangement, but they actu-
ally gathered empirical evidence on subsets of these
supply chains, that is, the relationships between two
focal ?rms and one of their ?rst-tier suppliers, and
the relationships between one focal ?rm and two
of its suppliers, a ?rst-tier and a second-tier one.
The authors a?rmed that they simply ‘documented’
the general relationships between the three focal
?rms and their entire supplier bases (p. 3).
By contrast, a more embracing perspective was
adopted by Mouritsen and Thrane (2006) who used
a process approach to investigate how accounting
contributes to the establishment of inter-?rm rela-
tionships. In studying three horizontal many-to-
many agreements, they included the three central
19
Chua and Mahama (2007) applied the actor network theory
to show that external parties had an in?uence on the choice and
operation of accounting controls in the connection of the focal
?rm to the larger environment.
20
On this topic see also Kato, Boer, and Chow, 1995; Monden,
1995; Cooper and Chew, 1996; Koga, 1998.
A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898 883
?rms and some of its partners, plus some external
actors. These are mainly the owners of the ?rms
composing the networks, plus some other network
contact persons. As a drawback of this comprehen-
siveness, the speci?cities of each relationship in the
networks are not made explicit Mouritsen and
Thrane’s ?ndings are on the average relationship
that each focal ?rm entertains in the network with
its partners.
Finally, an example of a study with a broad and
quite coherent empirical unit of analysis is that by
Kaju¨ ter and Kulmala (2005). The authors pointed
to the fact that the existing evidence on the uses of
open-book accounting is rather sparse, and little is
known about how to make it work. They investi-
gated the reasons why open-book accounting is suc-
cessful in some cases and often fails in others,
founding their analysis on a contingency framework
that included network-speci?c factors. Their ?nd-
ings indicated that, as regards the exogenous envi-
ronmental factors, disclosure of cost data is likely
to occur in cases of intense competition and conse-
quent pressures to cost reductions, as well as in envi-
ronments characterised by economic growth trends.
Among endogenous ?rm-speci?c contextual vari-
ables inducing open-book accounting, the authors
found evidence for large size, the use of advanced
cost accounting systems, a cooperative approach
to supply chain partners, and a ?rm’s long-term
commitment to the relationships. Network-speci?c
factors, such as the type of network (mature, hierar-
chical), the type of product (functional), the exis-
tence of a speci?c infrastructure for the open-book
process, and a high level of mutual trust may con-
tribute to explaining the success of implementing
open-book accounting. Kaju¨ ter and Kulmala’s
analysis was carried out on four manufacturing net-
works (many-to-many arrangements), one in Ger-
many and three in Finland. Regarding the ?rst
network, the authors mentioned that they could
not gain direct access to the suppliers, so data on
them had to be based on internal documents pro-
vided from the perspective of the buyer (i.e., the
focal ?rm) on the average relationship with them.
(See the left side of Table 3.) Concerning the Finnish
networks, the authors studied three subsets com-
posed of the focal ?rms together with some selected
suppliers and interviewed at least one person, either
the managing director or the entrepreneur.
In sum, the left side of Table 3 shows that,
‘although paying lip service to the interests of the
supplier, much of the literature looks at cost man-
agement through the eyes of the purchaser’
21
(Seal
et al., 1999, p. 310). In two respects, this has not
yet permitted scholars to provide a complete picture
on the topic. First, it has concealed the suppliers’
concerns about possible information abuses and
opportunistic uses by the buyer. Second, given that
most of the aforementioned studies have reported
accounting data disclosures that are unidirectional
(from the partners to the focal ?rm), it has not
helped in clarifying the advantages, if any, for sup-
pliers in adopting a transparency logic: while it is
clear that the focal ?rm would pro?t from knowing
its counterparts’ costs, the returns for the counter-
parts are less obvious, so it would be interesting to
analyse them from an unbiased perspective. More-
over, the adoption of a unique perspective in the
investigation of the uses of accounting practices,
such as the TCO and the VCA, in inter-organiza-
tional settings is problematic because it undermines
the credibility of the considerations regarding their
support of inter-?rm cooperation. In fact, given that
it has always been the point of view of the dominant
?rm that is reported in the discussion, the call for
collaborative uses of such techniques has not been
completely convincing since it has been unilaterally
advocated and witnessed. Would the point of view
of partner suppliers be as ‘optimistic’?
But the issue of inter-organizational accounting,
examined from the point of view of suppliers as
well, could be even more multifaceted than that.
In fact, it is necessary to consider that, by choosing
the accounting method to use, a ?rm could manip-
ulate its cost information, and that the disclosing
suppliers could manoeuvre their costs to their
21
One exception is represented by Kulp (2002), whose focus of
analysis was on a di?erent stage of the supply chain, i.e., on
downstream relationships between manufacturers and retailers.
After having analytically modelled such relationships, she uses a
survey to show that manufactures are more willing to choose a
Vendor Managed Inventory (VMI) system when the retailer
communicates more precise internal accounting information (i.e.,
sales and inventory) and when the manufacturers’ systems
guarantee reliability of the information transmission and receipt.
The willingness of a retail ?rm to share internal accounting
information with the manufacturer and the reliability of trans-
mission also impact the relative pro?tability, and in turn, the
total supply-chain pro?ts deriving from the VMI system com-
pared with the traditional one. These ?ndings refer to an
empirical investigation of respondents from 53 divisions of
manufacturers in the food and consumer packaged goods
industry, reporting from the point of view of the focal ?rm
about the practices adopted in the ‘average’ dyadic relationship
with their retailers.
884 A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898
advantage. Paradoxically, openness could conceal
opportunistic behaviours that would not be detected
if the issue is examined only from the point of view
of the receiver of such information, i.e., the focal
?rm. This might also lead to the exploration of a
topic that has been under-examined thus, related
to the need to standardize inter-?rm cost accounting
systems, or at least to audit them (Kulmala, 2002).
On the other hand, the one-sided perspective
adopted by contributors has made it di?cult to go
in depth in the investigation of the relationship
between accounting openness and trust. There are
contrasting views on this issue: Mouritsen et al.
(2001, p. 225) introduced trust as a prerequisite of
such openness, while Seal et al. (1999) indicated that
open-book accounting was ‘constitutional’ in the
establishment of cooperative and trusting agree-
ments. The inclusion of multiple points of view
and the investigation of each speci?c relationship,
not an account of the ‘average one’ from the focal
?rm’s perspective, could help in explaining why, in
some relationships, trust is an outcome of account-
ing openness while, in others, trust is a source of
duration of each relationship in the network,
depending, for example, on the life cycle stage
(Tomkins, 2001).
In addition, the right hand side of Table 3 shows
that, in the management accounting and control lit-
erature, apart from some few exceptions,
22
there is a
lack of a true network perspective because of the rel-
ative partiality of the contributions’ units of analysis
when compared with the complexity of the underly-
ing types of arrangements. In fact, though taking a
multiple perspective, these contributors have con-
centrated on dyads or on some subsets of relation-
ships often de-contextualised from the complex
arrangements within which they are embedded.
23
As a consequence, although being important to
understand cost and accounting controls in inter-
organizational settings, the aforementioned contri-
butions are characterised by a general underestima-
tion of the impact of the network’s architecture on
such controls, even though this has been recognized
as fundamental to the study of inter-?rm contexts
and the peculiarities of their regulating mechanisms
(Powell, 1990; Ring & Van de Ven, 1994; Jones,
Hesterly, & Borgatti, 1997). Generally speaking,
the choice to focus on a subset of relationships in
a network is problematic because relational contexts
are strongly characterized by the social dimension
of relationships and, in such inter-organizational
settings, actions and outcomes are particularly
a?ected by structural embeddedness
24
(Granovetter,
1985, 1992). A selective orientation in de?ning the
unit of analysis has hindered the exploration of
the impact that other actors and/or relationships
have on the relationship(s) under analysis and on
their di?erential in?uence, both on the relation-
ship-speci?c cost accounting choices and on the
overall cost and use of accounting controls at the
network level. Cost and accounting control forms
may also depend on how many participants interact
with one another at the network level, on the likeli-
hood of interactions among all network partici-
pants, and on the likelihood of these participants
talking about these other interactions (Granovetter,
1985, 1992). As Chua and Mahama (2007, p. 48)
stated, despite the increasing acknowledgment that
inter-?rm alliances are nested within broad net-
works, most accounting research represents them
as dyadic relationships, necessarily simplifying the
multifaceted reality of such alliances. Baiman and
Rajan (2002b)
25
also emphasised the need for
understanding accounting choices in the ‘rich’
exchange environment within which they are made,
as the single dyadic relationship could be compli-
cated by the relationships that each of the parties
may have with signi?cant others (Chua & Mahama,
2007, p. 52).
22
See, for example, Mouritsen (1999) and Coad and Cullen
(2006).
23
Table 3 shows another important characteristic of manage-
ment accounting literature on inter-organizational relationships,
i.e., the fact that most contributors have analysed centralised,
one-to-many networks. More ‘egalitarian’ networks are less
studied. Given that networks’ structure, as clari?ed in this
section, in?uences the features of their governance mechanisms, it
could be interesting to study cost and accounting controls in
networks with di?erent degrees of centralization and in a
comparative way.
24
Structural embeddedness refers to the extent to which a
‘dyad’s mutual contacts are connected to one another’ (Grano-
vetter, 1992, p. 35; Jones et al., 1997).
25
Baiman and Rajan (2002b) discussed and de?ned an optimal
disclosure strategy and developed an analytic model based on a
buyer–supplier relationship. They also pointed to the fact that it
would be interesting to include multiple external suppliers in the
analysis so as to understand how the subsequent increase in the
buyer’s power would impact their disclosure policy and the
surplus they appropriate. On the problem of opportunism in
sourcing decisions, see also Demski and Sappington (1993), who
pointed to the existence of a two-sided moral hazard problem.
We did not include Baiman and Rajan’s paper in Table 3 because
it is based on an analytical framework.
A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898 885
Table 4
The roles of cost and accounting controls in vertical and horizontal relationships
a
Vertical relationships Horizontal relationships
Upstream Downstream Complementors Competitors
Functionalist
approaches:
Initiation of the relationship (Wouters et al., 2005; Ittner et al., 1999;
Seal et al., 1999)
Management of the relationship:
– improvement initiatives(Wouters et al., 2005; Dekker,
2003; Carr and Ng, 1995; Mouritsen, 2001; Cooper and
Slagmulder, 2004; Kaju¨ ter and Kulmala, 2005; Seal
et al., 1999)
– increase production e?ciency and earlier incorporation of
innovations (Cooper & Slagmulder, 2004; Baiman and
Rajan, 2002b)
– fair division of pro?ts (Dekker, 2003; Carr and Ng, 1995;
Cooper and Slagmulder, 2004; Kaju¨ ter and Kulmala,
2005; Seal et al., 1999)
– enhance trust and cooperation (Ittner et al., 1999; Baiman
and Rajan, 2002b; Dekker, 2003; Cooper and Slagmulder,
2004; Kaju¨ ter and Kulmala, 2005; Seal et al., 1999)
– integrative device to manage and coordinate interdepen-
dencies (Dekker, 2003; Thrane and Hald, 2006)
Management of the relationship:
– integrative device to manage
and coordinate interdependen-
cies (Thrane & Hald, 2006);
– reduce costs – the inventory
related ones (Kulp, 2002)
De?nition of responsibilities, control and performance measurement
(Wouters et al., 2005; Carr and Ng, 1995; Mouritsen, 2001; Seal et al.,
1999)
Nonfunctionalist
approaches:
Constitutional role (Seal et al., 1999) Inscriptions to make organizational
relationships visible (Mouritsen, 1999)
An actor, a force in establishing
and developing inter-?rm
relationships (Mouritsen &
Thrane, 2006)
An actor, a force in establishing
and developing inter-?rm
relationships (Mouritsen &
Thrane, 2006)
An abstract symbol and an expert system that supports the
disembedding and reembedding of transactions (Seal et al., 2004)
As capabilities (rules and routines) that
act as modalities which link institutions
and activities (Coad & Cullen, 2006)
A stabilizer of inter-?rm
relationships (Mouritsen &
Thrane, 2006)
A stabilizer of inter-?rm
relationships (Mouritsen &
Thrane, 2006)
A means for the re-presentation and re-translation of corporate
identity and phenomena (Mouritsen, 2001)
An actant that acts upon relationships and open up opportunities for
managerial intervention (Thrane & Hald, 2006)
Inscriptions to make organizational relationships visible (Mouritsen,
1999)
As capabilities (rules and routines) that act as modalities which link
institutions and activities (Coad & Cullen, 2006)
Both a medium and an outcome of the identities and meanings socially
constructed within the action net (Chua & Mahama, 2007)
a
Authors appear more than once in the table because they used di?erent theoretical approaches (i.e., Thrane and Hald, 2006), because they identi?ed multiple roles for accounting,
or because they referred to di?erent kinds of relationships.
8
8
6
A
.
C
a
g
l
i
o
,
A
.
D
i
t
i
l
l
o
/
A
c
c
o
u
n
t
i
n
g
,
O
r
g
a
n
i
z
a
t
i
o
n
s
a
n
d
S
o
c
i
e
t
y
3
3
(
2
0
0
8
)
8
6
5
–
8
9
8
On the positive side, there is a methodological
reason for choosing to direct the analysis onto
dyads and subsets of relationships rather than on
networks. Such a focus enables useful theoretical
models to be de?ned that could not be built without
simplifying network complexity. In turn, the com-
putational di?culties of modelling networks make
them a perfect research area for the employment
of alternative research methods (Chua & Mahama,
2007, p. 48) and for exploring new avenues of
research from a methodological point of view. The
more a research method permits the overall and
simultaneous investigation of such complex nexus
of relationships, the more the view of cost and
accounting-based mechanisms and roles in inter-
?rm relationships could become comprehensive,
varied and uniquely speci?ed.
One possible avenue through which to mobilize
future research meaningfully in this direction is to
investigate cost accounting in inter-organizational
relationships through social network analysis
(SNA), a body of techniques and tools that is novel
to the accounting literature
26
but which has already
been employed in a large variety of settings, ranging
through sociology, anthropology, social psychol-
ogy, strategy and organizational studies. The in?u-
ence of the network architecture on inter-
organizational cost and accounting controls could
be usefully taken into account and analysed through
a vast array of qualitative measures typical of
SNA—centrality, density, connectivity
27
etc.—that
can be used to direct attention to peculiar features
of inter-organizational cost accounting information
exchanges.
Another way to overcome the partiality of the
object of analysis is to approach more carefully
the unit of analysis and the type of arrangement in
empirical investigations without needing to use
novel research methods. This would require the
thorough consideration and ex ante mapping of
the relevant relationships, as well as of the key coun-
terparts implied in such relationships. In any case,
compared to this alternative, SNA would have the
advantage of allowing the measurement of net-
worked structures and systems, which would be
almost impossible to describe with research method-
ologies such as case studies and surveys, which do
not use relational concepts and do not provide tests
of hypotheses about network architecture and struc-
tural properties (Wasserman & Faust, 1994).
The roles of accounting in inter-organizational
relationships
With reference to the roles of cost and account-
ing controls, many and varied uses have been
described for accounting in inter-organizational
relationships, ranging from speci?c functions to
more symbolic purposes.
The functions of inter-organizational accounting
have been broadly described with reference to
accounting’s uses in upstream relationships, i.e., in
supply chains. The management accounting litera-
ture has emphasised the application of total cost
of ownership (TCO) techniques in sourcing choices
for the screening and management of suppliers
(Carr & Ittner, 1992; Ellram & Siferd, 1998; Degra-
eve, Labro, & Roodhooft, 2000). For example,
Wouters et al. (2005) suggested that purchasing
managers may employ TCO techniques to quantify
the costs involved in acquiring and using di?erent
o?erings and to decide about the initiation of a
long-term relationship with a certain supplier (Carr
& Ittner, 1992; Ellram & Siferd, 1998). In addition,
the authors underscored that TCO techniques can
also be employed to build commitment into the
relationship. In fact, once TCO information is
available and reliable, and once the ?rm has some
concrete success stories of using that information
to obtain tangible bene?ts from improved sourcing
decisions, the ?rm can begin to use TCO techniques
to identify areas for potential development to
enhance mutual pro?tability. TCO information also
plays a signi?cant role in the de?nition of the sup-
26
To our knowledge, in the management accounting literature,
there are just a couple of examples of the use of social network
analysis: Chapman (1998) and Masquefa (2008). However, both
authors applied SNA at an intra-?rm level.
27
The idea of the centrality of individuals and organizations in
their networks is one of the earliest to have been pursued by
social network analysts. The origins of this idea are in the
sociometric concept of the ‘star’, i.e., that person who is the most
popular or stands at the centre of attention in his or her group.
Bavelas (1950) initially investigated the formal properties of
centrality and, since his pioneering work, a number of competing
concepts of centrality have been proposed, e.g., degree centrality,
betweenness centrality, closeness centrality, and eigenvector
centrality. (For a review of these concepts, see Wasserman &
Faust (1994), Soda (1998).) Density describes the general level of
linkage among the nodes in a network as the number of actual
ties, expressed as a proportion of the maximum possible number
of ties. Connectivity, the minimum number of nodes whose
removal would cause the group to become disconnected or would
reduce the group to a single member, measures the cohesion of a
group at a general level. (See Wasserman & Faust, 1994; Soda,
1998; White & Harary, 2001.)
A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898 887
pliers’ performance reviews and rewards, and, in
maintaining so, Wouters et al. (2005, p. 168) like
Ittner et al. (1999), indicated that accounting infor-
mation can be employed to foster cooperation
between ?rms in the supply chain.
By contrast, Dekker (2003) underscored the lim-
itations of TCO, compared to Value Chain Analysis
(VCA), for managing improvement initiatives in
upstream relationships. In fact, in its pure form, a
TCO approach focuses only on the e?ects on the
buyer’s costs of buying at a certain supplier, while
a VCA takes into account the costs of all the ?rms
in the supply chain and recognizes the interdepen-
dencies of their activities and costs. Starting from
such a consideration, Dekker focused on the use
of value chain analysis for coordinating inter-?rm
interdependences and for managing inter-organiza-
tional enhancement programmes. Drawing on
Shank (1989) and Shank and Govindarajan (1992,
1993), Dekker proposed a traditional de?nition of
VCA as a structured method used to suggest where
costs can be reduced or di?erentiation can be
improved by coordinating and optimizing inter-?rm
linkages between activities. On the other hand, Dek-
ker also pointed out that the traditional view on
VCA (Shank & Govindarajan, 1992) suggests that
the analysis is performed by one ?rm looking
beyond its boundaries to its suppliers. However, in
practice, to reap the full bene?ts of such analysis,
VCA would need to be performed jointly and col-
laboratively by both buyers and suppliers, so Dee-
ker suggested that open book accounting
28
is an
important constituent of collaborative VCA. An
interesting conclusion of the case study is related
to the peculiarities that characterise the use of
accounting information in inter-?rm settings. While,
in a hierarchy, one party can usually leverage
accounting information to develop directives for
another, in an inter-organizational setting, even
when cost information points to obvious directions
for improvement, parties must ?rst negotiate and
then agree on such projects before any action can
be undertaken. Empirical evidence reveals a di?er-
ent use of the cost information for coordination
purposes, which is in joint communication, cooper-
ation and negotiation between the partners (Dek-
ker, 2003, pp. 21–22). In this sense, accounting is
essential to making decisions at the inter-organiza-
tional level and to de?ning how to allocate supply
chain outcomes.
While Dekker (2003) focused on the sharing of
accounting information to support VCA, other
authors emphasised the use of open-book account-
ing in upstream relationships as linked to the appli-
cation of well known approaches for cost reduction
and planning, such as target costing and functional
analysis (Carr & Ng, 1995; Dyer, 1996; Cooper &
Slagmulder, 1997, 1999; Mouritsen et al., 2001). In
theory, sharing sensitive accounting information is
potentially useful for goal-setting, planning and
control, and as a deliberate strategy for fostering
cooperation and generating trust between ?rms in
a supply chain (Kulmala, 2002; Munday, 1992). In
practice, observations have shown open-book
accounting applications that emphasise monitoring
the e?ciency of supply chain activities and the initi-
ation of process improvement initiatives at an inter-
organisational level. Carr and Ng (1995), for exam-
ple, described how Nissan has been able to achieve
total cost control through the whole supply chain
by means of peculiar techniques called ‘‘Total Cost
Reduction Activity” and ‘‘Total Cost Achieving
Activity” and how the ?rm has used open book
accounting for performance measurement as a
means to control the discrepancies of suppliers from
the target cost. Mouritsen et al. (2001) analysed the
processes of developing inter-organizational con-
trols such as open book accounting systems and tar-
get costing/functional analysis in an alarm systems
manufacturer. The authors described how some
control problems related to the outsourced develop-
ment processes initiated a debate about which con-
trol strategies the ?rm needed to use inter-
organizationally. Target cost management, through
its functional analysis component, is suggested and
implemented thereafter to re-establish control over
the partnership. More speci?cally, functional analy-
sis encouraged the ?rm and its suppliers to engage in
a systematic discussion about the functionalities of
the products; it gained strategic importance because
it allowed the ?rm to maintain a strong market posi-
tion. Regarding open-book practices, the authors
reported that the alarm systems manufacturer
showed the overall purchasing budget to its suppli-
ers as a way to emphasise the importance of cost
e?ciency.
28
Likewise, Kaju¨ ter and Kulmala (2005) recognized the role of
open-book accounting as a means for improving the cost
e?ciency of supply chains and as a tool for building trust into
buyer–supplier relationships. However, the two authors just
‘‘suggested” such roles, as they mainly focused on how to make
open-book accounting work and on which are the main reasons
for its failure.
888 A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898
Cost information was also central to the control
of upstream inter-organizational relationships for
Cooper and Slagmulder (2004). The authors
observed that relational contexts are characterized
by incomplete contracting. Because it is neither pos-
sible nor practical to develop contracts that com-
pletely specify all of the potential outcomes of the
interactions between both parties (Baiman & Rajan,
2002b), inter-organizational cost information
exchanges may be used to reduce the unavoidable
information asymmetries between the buyer and
the supplier, especially regarding the relationship
between the speci?cations for the outsourced item
established by the buyer and the resulting costs at
the supplier. Evidence shows that partner ?rms
use IOCM to enable their design teams to coordi-
nate e?ectively with the aim of identifying low-cost
solutions by either changing the speci?cations of the
outsourced items or the end product itself.
29
Seal et al. (1999) studied the role of accounting in
a partnership between a buyer and a supplier and
discussed three important roles of management
accounting information in inter-?rm relationships
related to the use of such information: in the
make-or-buy decision that can lead to the initiation
of a partnership, in the actual management of the
partnership, and in the establishment of the part-
ners’ responsibilities to each other, which can also
be seen in terms of performance measurement.
According to the authors, the analogy between
transfer pricing and negotiating over cost reductions
in inter-organizational relationships is evident. In
fact, agreements about transfer pricing rules are
important stabilizers within companies that are divi-
sions of a common owner. The problem of stability
is even more important in strategic partnerships.
Nonetheless, equity and legitimacy must be granted
in the inter-?rm agreement not by means of author-
ity since, in such arrangements, there is no single
owner of the management accounting system and
no central authority to lay down accounting rules.
The process of agreeing on costing issues and shar-
ing bene?ts thus becomes an aid to collaboration in
the absence of authority. Therefore ‘‘technical solu-
tions that merely demonstrate how the costs and
bene?ts of a partnership are identi?ed and measured
are important but must also contribute towards the
overriding issues of agreeing an equitable distribu-
tion of the costs and bene?ts of co-operation” (p.
320). In this sense, the authors identi?ed a constitu-
tional role for accounting in the formation and
management of trusting relationships that may tran-
scend the technical level to become more
symbolic.
30
In close proximity to this symbolic idea of
accounting, Mouritsen (1999) and Mouritsen et al.
(2001) observed that the sharing of accounting
information makes it possible not only to bench-
mark di?erent suppliers along the value chain and
to redesign production and distribution processes,
thus leading to cost reductions, but may also take
part in the re-presentation of phenomena such as
technology, organization and strategy, thereby re-
translating organizational power-relations, identity
and core competencies of the ?rms involved into
the hybrid relationship. From this perspective, man-
agement controls are inscriptions (Robson, 1992)
that represent certain aspects of the inter-organiza-
tional relationship’s life on paper and do not have
an intrinsic character and purpose or any a priori
role in organizational life. Therefore, inter-organi-
zational accounting is involved in the shaping of
many associated and heterogeneous elements (Mou-
ritsen et al., 2001, p. 225) and is part of a wider set
of strategic issues forming organizational bound-
aries, duties, responsibilities and competencies (Cal-
lon, 1986; Latour, 1987; Law, 1992).
The contribution by Mouritsen (1999) constitutes
a notable exception because it concentrates on both
upstream relationships and downstream ones. Mou-
ritsen’s paper is, together with Coad and Cullen
(2006) and Thrane and Hald (2006), one of the
few to have analysed the role of accounting in a
whole value chain. Coad and Cullen indicated that
accounting can be viewed as rules and routines that
act as modalities and link institutions and activities,
29
In a similar vein, Baiman and Rajan (2002b) pointed to the
fact that more and earlier sharing of information associated with
network relationships enables greater e?ciency and higher speed-
to-market through earlier incorporation of innovations into the
design and production process.
30
Seal et al. (2004) maintained that a useful way of interpreting
inter-?rm accounting is to see it as involved in the wider changes
in the social relationships of production that are characteristic of
modernity (Giddens, 1991a, 1991b). More speci?cally, the
authors conceived inter-?rm accounting as ‘‘an expert system
that is produced and re-produced through the interactions
between supply chain actors and wider institutional in?uences”
(p. 74) and interpreted inter-?rm accounting practices as modal-
ities. In a similar vein, Chua and Mahama (2007) pointed to the
functions of inter-organizational accounting and to the fact that
it is both a medium and an outcome of the identities and
meanings that are socially constructed within a certain action net.
A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898 889
while Thrane and Hald, using three di?erent per-
spectives—the interpretive, the functionalist and
the constructionist–illustrated how accounting, in
addition to having an integrative role, gradually
emerged as an actor and constructed and recon-
structed the boundaries in the focal ?rm’s supply
?eld, unveiling also the link between accounting
and issues of identity.
Finally, two contributions stand alone in this
overview. Kulp (2002) is, to our knowledge, the only
paper in the management accounting literature that
describes the role of accounting with a speci?c focus
on downstream relationships. The author maintained
that accounting information exchanges at an inter-
organizational level can help to reduce inventory-
related costs and increase partners’ pro?ts. The
achievement of these objectives depends on the
detail with which the retailer chooses to disclose
its internal accounting information to the manufac-
turer and the ability of the manufacturer to receive
and employ this information in its decision-making
processes. The contribution by Mouritsen and
Thrane (2006), represents an exception in the man-
agement accounting literature, as the authors ana-
lysed the role of accounting in horizontal
relationships. They concluded that, in such settings,
accounting has a technical role but is also a force
contributing to the initiation and development of
the relationships. In particular, by observing three
di?erent horizontal networks through the lens of
actor-network theory, they illustrated the stabilising
e?ects of accounting on the behaviour of networks
that are inherently unstable (Mouritsen & Thrane,
2006) and described accounting as an actor support-
ing the creation and the shaping of inter-organiza-
tional relationships.
Table 4 shows that the roles that accounting may
play in inter-?rm, networked contexts have been
extensively investigated with reference to upstream
relationships, where both speci?c technical func-
tions and more symbolic roles have been witnessed
by extant contributors. On the other hand, there
are far fewer contributions on downstream relation-
ships, on whole supply chains (both upstream and
downstream relationships) and on horizontal rela-
tionships, either with complementors or competi-
tors. More speci?cally, while non-functionalist
approaches have been used to analyse the roles of
accounting in more varied inter-organizational set-
tings, the functionalist ones have mainly been
employed to study accounting in upstream relation-
ships. This is an important indication on the rela-
tionships to which future contributors should
direct their attention, and on which kinds of
approaches could be fruitfully employed in their
investigations so as to be potentially innovative.
In addition, this categorization reveals that there
is a need for further exploration of the roles of
accounting, as some conclusions developed with ref-
erence to vertical relationships cannot be extended
to all the possible typologies of inter-?rm relations.
Horizontal relationships raise a range of supple-
mentary questions, not the least of which is whether
and how it is feasible to disclose accounting infor-
mation in all relationships (including the ones with
competitors), and what the speci?cities of open
book accounting and other accounting practices
could be when applied to more parity-based inter-
organizational relationships. For example, the fact
that open book accounting has been studied almost
exclusively with reference to vertical upstream rela-
tionships could be the reason it has been said to
have, potentially, varied roles in theory, while, in
practice, its function has been mainly relegated to
monitoring the e?ciency of inter-organizational
activities. In fact, in supply chain relationships, it
is generally expected that accounting information
would be used to control and compare di?erent
partners in order to identify ways to enhance pro?t-
ability. Alternatively, investigations that refocus on
the uses of accounting in horizontal relationships
could unveil other functions of open book account-
ing that might be speci?c to these relationships, e.g.,
accounting for competitive analysis, for the evalua-
tion of various di?erentiation opportunities, or as a
means by which to lower the risk of the relationship.
Alternate theories, problems of control and avenues
for integrating inter-organizational control
contributions
We have analysed several contributions which
cover a broad range of issues concerning the use
of controls in inter-?rm relationships. However,
the extant literature is still in the process of being
developed. The classi?cation according to the di?er-
ent breadths of controls has shown speci?c limita-
tions and revealed that conclusions and ?ndings
tend to be autonomous and only partly overlapping.
As a consequence, to foster progress in this area,
contributors could either address the limitations
highlighted in the previous sections, with reference
to each ‘stream’, or try to integrate these di?erent
890 A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898
streams so as to encompass the inconsistencies of
previous research and ?ll its voids.
One way to achieve such integration is to refocus
attention on control problems rather than on control
solutions (i.e., ideal control archetypes, speci?c man-
agement control mechanisms, and cost and account-
ing-based controls) (see Fig. 2). This is the
perspective adopted by contributors in disciplines
such as organizational economics, organization the-
ory and strategy, which have drawn on di?erent the-
oretical domains to de?ne the control problems
typical of inter-?rm settings. Among these theoreti-
cal domains, transaction cost economics has argued
that partners in inter-?rm relationships need to safe-
guard themselves against the others’ opportunistic
behaviour, whose risk increases with growing asset
speci?city, uncertainty and frequency of exchanges
(Williamson, 1985, 1991; Park & Russo, 1996; Zen-
ger & Hesterly, 1997). Similarly, agency theory has
also suggested that, under conditions of uncertainty,
because of adverse selection and moral hazard prob-
lems, ?rms cannot be sure that partners are operat-
ing in the interests of the cooperative venture.
Taken together, transaction cost economics and
agency theory have dealt primarily with the issue
that autonomous partners may have incentives to
cheat and free-ride in order to attain their own spe-
ci?c goals at the expense of the objectives of the col-
lective undertaking, so they need to introduce
mechanisms to align their objectives (cooperation
problems). Traditional contingency organizational
theory complements the previous theories and has
argued that collaborating ?rms need to establish
division of labour, the modalities to carry out
inter-organizational activities, the involvement
required in the relationship, and the level of mutual
satisfaction to be achieved. The resulting interde-
pendencies require some form of coordination,
and the joint actions should be aligned across orga-
nizational boundaries so as to guarantee a match
between partners’ interfaces (coordination prob-
lems). Finally, the resource-based approach has
highlighted that inter-?rm relationships are under-
taken because ?rms may not own all the resources
and capabilities needed to earn sustainable rents
and are not able to develop them in a su?ciently
timely way and at a reasonable cost; as a result, they
need to share their resources with better endowed
and more knowledgeable counterparts and often
make investments to pursue mutually bene?cial
goals (Teece, Pisano, & Shuen, 1997; Madhok,
1998). Consequently, they need to ensure that the
value of the joint output is perceived by the parties
to be clearly and fairly distributed (Jarillo, 1988),
and that the resources exchanged are not misappro-
priated by their counterparts (appropriation
problems).
Also the management accounting literature has
drawn on these theoretical domains to deal with
the speci?c roles that control mechanisms may play
in achieving cooperation (Baiman & Rajan, 2002a;
Dekker, 2003; Cooper & Slagmulder, 2004), main-
taining coordination (Tomkins, 2001; Dekker,
2004), and solving appropriation concerns (Seal
et al., 1999; Baiman & Rajan, 2002a; Dekker,
2003, 2000). Yet, these control problems have
always been addressed secondary to the major
emphasis on their control solutions. The focus on
control problems instead, as Dekker (2004) has par-
tially done, would allow management accounting
scholars to integrate and compare the results
reported in the literature that were developed with
reference to di?erent breadths of control, and to
highlight some of the variables that are key in
explaining controls con?gurations and that have
been neglected thus far in the management account-
ing ?eld.
Regarding integration opportunities, focusing on
control problems could produce bene?ts both in the
literature development and in the completeness of
the description and interpretation of reality. In
terms of the literature advancement, a focus on con-
trol problems would induce researchers to look
across the di?erent streams that have thus far devel-
oped independently, each with its own set of ques-
tions and conclusions. Such an e?ort could be
fruitful because the existing division in the literature
Control archetypes
Cost and
accounting
controls
Management controls
Coordination problems
Cooperation problems
Appropriation problems
Fig. 2. The focus on control problems for a combinative view of
control solutions with di?erent breadths.
A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898 891
may be an artefact of the development of the ?eld;
thus, it may not necessarily re?ect reality but be
the result of some initial in?uential works that took
the control solution perspective as a way of address-
ing the inter-organizational control phenomena.
What remains unanswered is how, if at all, these
streams relate to one another and how valid and
complete the explanations provided within each of
them are.
In terms of the potential improvement in the
investigation of reality, a focus on control problems
would stimulate researchers to integrate and com-
pare the solutions proposed in the three streams of
research. In fact, while these streams have each
identi?ed di?erent control solutions, given the same
circumstances, it is not clear whether the joint use of
these solutions is feasible. What types of control
solutions can be combined to solve a speci?c prob-
lem? At which level of intensity? Can complemen-
tarities of control solutions vary in sign depending
on the intensity of adoption? Can di?erent combina-
tions of control solutions be e?ective under the same
circumstances? Is there any ceiling to the e?ective
adoption of control mechanisms of di?erent kinds
to solve the same control problem? More speci?-
cally, it would be useful to understand whether the
solutions proposed in the three streams of research
are compatible, given the same level of a speci?c
contextual variable. For example, in the case of high
asset speci?city, the stream on control archetypes
suggests the use of alternate models of control
(more based on trust) (e.g., Lang?eld-Smith &
Smith, 2003); that on control mechanisms proposes
the use of formal behavioural and output control
only mediated by trust (e.g., Dekker, 2004); and
the one on accounting and cost controls indicates
the adoption of inter-organizational accounting
techniques and considers trust as a contextual factor
characterizing the relational environment (e.g.,
Cooper & Slagmulder, 2004). Thus, it is not clear
whether these solutions are compatible or can be
incorporated in an integrative framework. Other
insights deriving from a crosswise view of the litera-
ture could be related to investigating the in?uence
that certain variables that are considered to be rele-
vant in only one of the three streams would have on
the control solutions proposed by the other two.
For example, the in?uence of the level of interde-
pendence (e.g., Tomkins, 2001) or of the type of net-
work (e.g. Kaju¨ ter & Kulmala, 2005) could be
analysed with reference to the use of control arche-
types and their relative e?ectiveness.
Without addressing these issues, it is di?cult to
state whether there are areas of common ground
across the streams of research or what the inconsis-
tencies and ambiguities are that may be ripe for
future research. However, by dealing with them, a
‘combinative view’ of control solutions with various
breadths could be developed, and a ‘grammar’ for
distinguishing to what problems the di?erent mech-
anisms can be selectively applied could be identi-
?ed
31
(see Fig. 2). Following this line of reasoning,
the rationale for constructing control alternatives,
rather than merely evaluating them, would be fos-
tered, which would help in predicting what combi-
nations of control archetypes, management control
mechanisms and cost and accounting controls to
expect, rather than simply considering them individ-
ually and separately, and learning them empirically
and post hoc, as has been done thus far in the liter-
ature. The exploration of the potential blending of
controls would also contribute to designing new or
unusual combinations, without being forced to
interpret them as ‘bad proxies’ of superior theoreti-
cal models (Milgrom & Roberts, 1990; Grandori,
2004).
In addition, the emphasis on control problems
could suggest the investigation of some important
elements neglected so far in the management
accounting literature. Organization theory has pro-
posed the relevance of some variables in solving
control problems in inter-?rm relationships. These
variables refer to the structure of interests or the
preferences of the player ?rms, computational com-
plexity and cognitional complexity (Grandori,
1997). While management accounting contributions
have been generally open to incorporating the previ-
ous variables considered signi?cant in the new insti-
tutional economics and organizational theory to
explain the organizational forms to control inter-
?rm relationships, they have failed to incorporate
the latest developments in these theoretical
domains. The inclusion of the structure of interests
and the computational and cognitional complexities
in the management accounting analysis could repre-
sent a key to moving our understanding forward
because they would enrich the form of the causal
models proposed in the literature and transform
the shape of the explanatory links proposed to
explain the use and characteristics of control mech-
31
For this combinative view of mechanisms, see Grandori
(2004).
892 A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898
anisms in inter-?rm relationships. New causal rela-
tionships could emerge in which existing manage-
ment accounting models could be integrated with
the additive, intervening or interaction (both inde-
pendent and moderator) roles of these new variables
(Luft & Shields, 2003).
Analysis of the structure of interests of the par-
ties involved in the inter-?rm relationship would
contribute to explaining how to solve the coopera-
tion problem and would innovate with respect to
the universal assumptions of both transaction cost
and agency theory (which tend to assume diverging
interests of partners), and organization contingency
theory (which tends to assume converging interests
of parties) (Grandori, 1997). These theories have
been adopted as theoretical backgrounds in many
management accounting contributions (e.g., Ander-
son, Thomson, & Wynstra, 2000; van der Meer-
Kooistra & Vosselman, 2000; Kaju¨ ter & Kulmala,
2005). Between these two extremes of a continuum,
which extends from non-cooperation deriving from
strongly con?icting preferences of entities to the
natural convergence of the partners’ dominant strat-
egies, there is a wide variety of mixed motivational
contexts (Marschak, 1954, 1955; Grandori, 1997).
One possible context is that in which parties have
di?erent preferences in relation to a set of issues,
but it is possible to agree ex ante on a set of proce-
dures that allocate resources as a function of the
‘weight’ of each actor and the intensity of each
?rm’s preferences for each resource. For instance,
in sub-contracting agreements, sub-contractors
may decide to accept their apparently ‘subordinate’
positions on the basis of trade-o?s between reduced
pro?t and a reduced risk. This structure of interests
would have an impact in terms of controls. In fact,
in this case, the regulation of the relationship would
require a mix of bureaucratic control mechanisms
that include exchange of information and the de?ni-
tion of rules that specify reciprocal behaviours
(Marschak, 1954, 1955; Grandori, 1997). This
impact of the structure of interests on controls
might help clarify and solve some of the contradic-
tions found in the management accounting litera-
ture (e.g., Seal et al., 1999; Mouritsen et al., 2001;
Kaju¨ ter & Kulmala, 2005) concerning why open
book accounting fails in some circumstances and
succeeds in others. The independent or moderator
interaction role of the structure of interests could
contribute to explaining why some ?rms open their
books and how, in exchange for an advantageous
condition (like a lower risk), they would be willing
to act as subordinates and provide the information
required by the principal counterpart.
In contrast, a variable that may help to clarify
how to solve coordination problems is the compo-
nent complexity related to the number of parties
involved in the relationships, the number of activi-
ties to carry out, and the level of interconnection
among them (Wood, 1986; Grandori, 1997; Ditillo,
2004). For example, in buyer–supplier relationships,
when the buyer needs to refer to multiple suppliers
to obtain components for the manufacturing of a
speci?c product, the number of parties and transac-
tions to coordinate might be high. This a?ects the
control mechanisms adopted by ?rms because, in
this case, the number of entities involved requires,
as suggested by classic organization theory, that
the information exchanges by the parties be codi?ed
and formalized and that the tasks be regulated by
rules and procedures to ensure that timing and
interfaces among entities are respected (Galbraith,
1977; Mintzberg, 1979; Grandori, 1997). The com-
ponent complexity may play an additive or indepen-
dent-variable interaction role in explaining why, in a
context of moderate asset speci?city, Lang?eld-
Smith and Smith (2003) suggested the use of a pure
bureaucratic pattern of control, whereas Spekle´
(2001) proposed the use of a market-based pattern
of control. The intervening e?ect of component
complexity might provide some grounds on which
to reconcile these apparently contradictory results.
In Spekle´ (2001), the intensive use of bureaucratic
mechanisms could be the result of component com-
plexity, rather than the e?ect of moderate asset
speci?city.
Finally, another variable that may contribute to
explaining appropriation concerns is cognitional
complexity (Grandori, 1997; Ditillo, 2004), which
is a situation in which contributions (inputs) and
outcomes (outputs) are unmeasurable and unobserv-
able. This may occur when ?rms collaborate on
innovative activities that require the provision of
knowledge resources. With knowledge resources, it
is di?cult to evaluate the e?ort and contribution of
each party to the ?nal output, thus making the issue
of how to de?ne the appropriations of each partner
particularly di?cult. The control of these relation-
ships is expected to be based on social peer-based
mechanisms, rather than on rules and controls for-
malized into obligational contracts (Grandori,
1997). The appropriation concerns would remain
largely unresolved ex ante and left to ex post adjust-
ments thorough speci?c decisions and negotiations
A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898 893
embedded in a context of mutual con?dence and
trust. Looking at cognitional complexity might make
it possible to solve some of the contradictions found
in the literature with reference to the relationship
between trust and control. Coeteris paribus, cogni-
tional complexity could play an additive role in
explaining the use of trust as a mechanism to solve
appropriation problems in a context of knowledge
development and learning (Kale et al., 2000).
Concluding remarks
The purpose of this paper has been to review the
management accounting research that has examined
management controls in inter-organizational con-
texts, and to assess the achievements in this area. In
so doing, we have considered the progress that has
been made in addressing such issues, identi?ed the
shortcomings of extant literature, and noted oppor-
tunities for advancement of research in this ?eld.
Despite the accomplishments of the various con-
tributions that have been published on the topic,
their responses to inter-organizational control
research issues present speci?c limitations, as high-
lighted with reference to the di?erent breadths of
inter-organizational controls in the second, third
and fourth sections and more general ?aws related
to the emphasis on control solutions, rather than
on problems, and to the neglect of some relevant
explanatory variables.
In addition to these limitations, voids left by pre-
vious contributors represent other challenges and
areas ripe for future research for scholars who
would like to engage in the debate of controls in
inter-organizational settings.
One void is related to the fact that, despite the
development of cooperative agreements of various
kinds in practice, the literature on management con-
trols has studied di?erent forms of supply gover-
nance but has neglected distribution governance
forms such as franchise-based and licence-based
agreements. Buyer–supplier relationships have been
intensively investigated (e.g., Wouters et al., 2005;
Ittner et al., 1999; Dekker, 2003; Cooper & Slagmul-
der, 2004), as have subcontracting and outsourcing
relationships (e.g. Carr & Ng, 1995; Mouritsen,
1999; Lang?eld-Smith & Smith, 2003). Analysis of
other possible inter-organizational forms down-
stream in the value chain, which have not yet been
developed, would complement the ?ndings achieved
so far with reference to relationships upstream in
the value chain, would o?er the chance to observe
and substantiate further possible combinations
and con?gurations of inter-organizational control
solutions, and would deepen our understanding of
the roles of accounting in inter-?rm relationships.
Another void in the literature is due to the pri-
mary focus on agreements characterised by a more
powerful focal ?rm with respect to other partners
(e.g., van der Meer-Kooistra & Vosselman, 2000;
Kaju¨ ter & Kulmala, 2005; Mouritsen & Thrane,
2006). The role of accounting and control mecha-
nisms in more parity-based forms of alliances
(e.g., agreements between two competing ?rms at
the same stage of the value chain, or arrangements
involving a two-way, rather than a one-way, trans-
fer of know-how, products or services) is poorly
understood, and an important contribution would
be the identi?cation of control problems and
related control solutions in settings where no dom-
inant ?rm can choose or force any control option
against the interests and willingness of other
partners.
Another issue that merits further re?ection is that
of trust. The extant literature has shown how di?-
cult it is to build trust in supply chain relationships
and that there can be mutually reinforcing links
between the sharing of accounting information
and the establishment of trusting relationships. In
interactions with competitors, problems of oppor-
tunism and moral hazard are more severe by de?ni-
tion: future research could explore the uses of
accounting and its speci?c roles in what Hamel,
Doz, and Prahalad (1989) called ‘competitive
collaboration’.
An additional area for future research in man-
agement accounting and control studies concerns
the need for more comparative work to ascertain
diversities and similarities in control issues and
choices across inter-?rm agreements of di?erent nat-
ures. For this purpose, there could be di?erent ways
for classifying inter-?rm agreements. One could be
in terms of their legal/contractual properties (i.e.,
franchising, licensing, etc.), which is the classi?ca-
tion usually employed by previous management
accounting scholars, although these di?erent con-
tractual forms have been very little compared and
associated, either with reference to each single cate-
gory or across categories.
Finally, besides comparative assessments, more
studies with an emphasis on processes and dynamics
are needed. In fact, relationships can be expected to
change throughout their life cycle, leading to oppo-
site trajectories even though the starting point may
894 A. Caglio, A. Ditillo / Accounting, Organizations and Society 33 (2008) 865–898
have been the same. For example, when initiating a
relationship, two ?rms that are unaccustomed to
each other may experience some trust issues. Start-
ing from this situation, they could decide either
not to formalize their agreement so as to stay ?exi-
ble and have the possibility of exiting the relation-
ships, or to engage immediately in a formal
contract that insures them against opportunistic
behaviour. In the ?rst case, as time goes by, the rela-
tionship could evolve into a complex cooperation
association with a high commitment of resources
and a high formalization of exchange conditions.
In the second case, as partners get to know each
other and the potential for opportunism diminishes,
the formal agreement signed at the beginning could
lessen in importance. By studying the relationships
at a particular point in time, these peculiar evolu-
tions and their di?erential in?uences on control
choices could be completely lost.
In conclusion, by acknowledging the accomplish-
ments of prior research and addressing the limita-
tions and the voids highlighted in this paper,
researchers may provide new answers to questions
unsatisfactorily resolved by previous contributions,
and generate new questions whose answers could
foster the development of a more comprehensive
notion of inter-organizational controls in inter-?rm
settings.
Acknowledgements
We thank the two anonymous reviewers and the
participants at the AOS Conference (Universita`
Bocconi, 2005) for their suggestions. We are also
grateful to CIMA for their funding on the project
‘Accounting in Networks: Techniques and
Applications’.
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