Controls and Cooperation in Dynamic Environments : The Role of Involvement in Control Design

The modern business environment is a dynamic one, and organizations must be adaptive. In addition, organizations rely increasingly upon groups. This study provides an examination of the effectiveness of controls in dynamic, cooperative environments. As control, we study a mechanism that provides immediate feedback about peer behavior which has been shown to be effective in facilitating cooperation across the accounting, economics, and management literature. However, in a dynamic environment, feedback mechanisms can become outdated and lose their effectiveness. We argue that this likely happens when feedback is incomplete, i.e., feedback is not provided for the full set of employees' strategies. We predict and find that while incomplete feedback is effective in static environments, it is only effective in dynamic environments that require employees to adapt their strategy when employees were initially involved in the development of the feedback system. Involvement matters because it increases employees' understanding of the consequences of everyone's actions and increases trust. Implications for the literature and practice are discussed