The Role of Formal Control and Trust in Interorganizational Relationship Monitoring in Finnish Public Sector Organizations

• In Event: 1.02 Government Research Concurrent Session: Reporting & Accountability

Abstract

The aim of this study is to explore the role of formal control and trust in interorganizational relationship monitoring of financial accounting outsourcing (FAO) in the public sector context. Drawing on transaction cost economics (TCE) and interorganizational control literature, we analyse six written contracts and conduct 21 interviews with personnel of municipal organizations. Our analysis indicates that duration and experience of FAO as well as the organizational structure and interorganizational relationship are related to the role of trust, which can play a substitutive or complementary role with detailed contracts. The bigger the organization and the shorter the duration of collaboration, the more the control is based on detailed contracts and jointly specified development groups, both of which representing hierarchical and hybrid arm’s length control. Further, when goodwill and competence trust increase over time, the role and significance of the contract decreases. Goodwill trust also seems to play a key role in mutual solving of problems arising after the implementation of the outsourced service. Trust may act as complementary or substitute or both for contracts and other formal control mechanisms in complex public sector environments. All control archetypes could be found in municipal organizations studied.

Authors

• Benita Maria Gullkvist, Hanken School of Economics

• Arja Flinkman, University of Eastern Finland