Abstract:
This thesis uses Transaction Cost Economics (TCE) theory to explain how human asset specificity influences firms' management control systems (MCS). The first hypothesis states that when human asset specificity in a transaction is low, the manager is likely to centralize all the decision management rights other than the execution right which is delegated to the individual workers, adopt task standards to evaluate individual workers' performance and trace incentive compensation to individual workers. The second hypothesis states that when human asset specificity in a transaction is high, the manager is likely to decentralize all decision management rights to worker teams, adopt job plans to evaluate the team performance and trace incentive compensation to the teams before allocating the compensation to individual workers based on their subjective performance. To test the hypotheses, the thesis uses firm-specified product variety strategy (PVS) as a proxy for low human asset specificity and customer-specified PVS for high human asset specificity. The hypotheses are tested in four New Zealand based case units, two for firm-specified and two for customer-specified PVS. The evidence in the two firm-specified PVS case units indicate that decision management rights are centralized other than the execution right which is delegated to individual workers, whose performance is evaluated through task standards. The incentive compensation is partly traced to the individual performance and partly to the firms' profits. The evidence in the two customer-specified PVS case units indicate that decision management rights are shared by the manager with his workers as one team and the performance of the team is evaluated against overall job plan measures. Incentive compensation is traced to the whole firm when many teams depend on each other. The thesis has implications for both theory and practice. For theory, the two hypotheses developed in this thesis can be tested in other contexts such as quality and lead time. If the results are consistent with the findings in this thesis, the theoretical generalization becomes more valid. For practice, consultants can use the theoretical framework developed in this thesis as a guideline to identify different MCS attributes for different levels of human asset specificity that fall between the low and high categories.