THE GOVERNANCE OF TELECOMMUTERS: AN AGENCY AND TRANSACTION COST ANALYSIS

ABSTRACT Telecommuting is a topic of interest for practitioners and scholars alike. However, research on telecommuting is only beginning to scratch the surface (Siha & Monroe, 2006). To better understand the phenomenon, there is a need to understand organizational, managerial, and worker motivations and practices. One challenge for management is to develop control strategies that accurately monitor and evaluate remote employee work. To this end, this paper develops a framework for the managerial control of telecommuting employees based on an integration of transaction cost and agency theories. Specifically, this paper contributes to managerial theory by investigating the effect of transaction uncertainty, outcome uncertainty, and work utility on the utilization of two forms of organizational governance, behavioral and output controls. Propositions are developed and ramifications for further research and practice are discussed. INTRODUCTION This paper seeks to stimulate research about the managerial challenges of a constantly evolving bureaucratic workforce. Specifically, this work seeks to add to organizational theory by integrating transaction cost theory and agency theory with forecasted trends in the governance of telecommuting employees. Telecommuters, or "teleworkers", are employees that are allowed to perform organizational work from a residence, or other location, instead of reporting to a centralized office location (Siha & Monroe, 2006). While the two managerial theories have been applied in a large number of organizational settings and circumstances, there have been no prior attempts to integrate these theories to forecast the effects of uncertainty on the control of a telecommuting workforce. This paper proposes a managerial framework that incorporates transaction uncertainty (from transaction cost theory) and outcome uncertainty (from agency theory) as determinants of employee control. First, the two theories are described and then adapted to present the hierarchical governance of a telecommuting workforce. After which, propositions are developed about which managerial control mechanisms are to be used under varying degrees of transaction and outcome uncertainty, considering the gravity of the work to be produced and the level of trust in the employee. LITERATURE REVIEW Transaction-Cost Theory Transaction costs are the costs of negotiating, monitoring, and governing exchanges between people (Williamson, 1975). In transaction cost theory, a main purpose of the organization is to reduce the overall costs of exchanging goods and services in the environment and the costs of supervising exchanges within the organization. In-house transaction costs are generally labeled as "bureaucratic" or "hierarchical" costs and are the costs that are germane to this analysis. Internal business exchange structures of interest here are those that concern the governance aspect of distance employees, commonly referred to as "telecommuters". Determinants of Transaction Costs The major determinants of transaction costs are identified as transaction uncertainty (Jones, 1987) and performance ambiguity (Ouchi, 1980; Jones, 1987). Transaction uncertainty is associated with the extent that the employer-employee alliance is not consistent. This is primarily due to a lack of familiarity of the employer with the employee. The lesser the degree of familiarity with the employee, the more confirmation concerning the employee's work methods, attitude, and capability is necessary for the employer. Transaction uncertainty may decline over time, with augmented communication and interactivity, allowing the operational relationship of both parties to become less unpredictable (Jones, 1987). Performance ambiguity is linked to the accepted hazard that an employee takes on when work is carried out for an organization (Ouchi, 1980). Specifically, the implicit exposure involves the costs that must be endured by the employee when work is delivered that does not have acceptable utility for the employer. …