Storage Virtualization, business and finance homework help
Eisenhardt.pdf
Chapter%20Sustainability%2C%20Technology%2C%20and%20Economic%20Pragmatism.docx
Using the 2 readings quote as much as possible (at least 8 quotes or more)
Question to be discussed
Jonathan Hujsak’s chapter on “sustainability’ really tails Hugos closely as it does the previous chapter on green. Many of the arguments in both previous chapters are reincarnate in this chapter. I do not see much value in re-discussing electricity and the carbon footprint. I was struck by several aspects of this chapter. The author writes (187): “Information technology holds the promise of revolutionary improvements in global enterprise sustainability that will dramatically enhance enterprise agility, increase operational efficiency, and even turn cost centers into profit centers.” Several innovations in data management are reshaping the IT landscape. These are discussed in the chapter: server virtualization, storage virtualization, desktop virtualization, and the near future network virtualization. As an executive, the question raised by the chapter regarding virtualization as a sustainability strategy is less than a yes/no, but a when/how. We will ask ourselves, and discuss, the extent to which the virtualization of processing portends the removal of a dedicated IT staff. We will discuss the extent to which the CIO is no longer the manager of a dedicated expert staff, but fully engaged in vendor management and service oversight. Finally we should ask ourselves the extent to which bricks and mortar will even define the corporation as an entity. The corporation, or at least its administrative wing, is more of an abstract. Does it matter if the processing engine of your corporate data is in Bangladesh or Nairobi? Does it matter what flag the vendor’s employees salute or what god they worship? Once we have achieved global network infrastructure stability and redundancy, we may find ourselves seriously questioning our understanding of “corporation” or even employment.
Academy
ol Managwneni Review.
1989. VoL 14. No. i, S7-7i
Agency Theory: An Assessment
and Review
KATHLEEN M. EISENHARDT
Stanford University
Agency
theory is
an important,
yet controversial, theory. This
paper
reviews agency theory, its contributions to organization theory, and
the extant empirical work and develops testable propositions. The
conclusions are that agency theory
(a)
offers unique insight into in-
formation systems, outcome uncertainty, incentives, and risk and (b)
is an empirically valid perspective, particularly when coupled with
complementary perspectives. The principal recommendation is to in-
corporate an agency perspective in studies of the many problems
having a cooperative structure.
One day Deng Xiaoping decided to take his
grandson to visit Mao. "Call me granduncle,"
Mao offered warmly. "Oh,
1
certainly couldn't
do that. Chairman Mao," the awe-struck child
replied. "Why don't you give him an apple?"
suggested Deng. No sooner had Mao done so
than the boy happily chirped, "Oh thank you.
Granduncle." "You see," said Deng, "what in-
centives can achieve." ("Capitalism," 1984, p.
62)
Agency theory has been used by scholars in
accounting (e.g., Demski
&
Feitham, 1978), eco-
nomics (e.g., Spence & Zeckhauser, 1971), fi-
nance (e.g., Fama, 1980), marketing (e.g., Basu,
Lai,
Srinivasan, & Staelin, 1985), political sci-
ence (e.g., Mitnick, 1986), organizational behav-
ior (e.g., Eisenhardt, 1985, 1988; Kosnik, 1987),
and sociology {e.g., Eccles, 1985; White, 1985).
Yet, it is still surrounded by controversy. Its pro-
ponents argue that a revolution is at hand and
that "the foundation for a powerful theory of or-
ganizations is being put into place" (Jensen,
1983,
p. 324). Its detractors call it trivial, dehu-
manizing, and even "dangerous" (Perrow, 1986,
p.
235).
Which is it: grand theory or great sham? The
purposes of this paper are to describe agency
theory and to indicate ways in which organiza-
tional researchers can use its insights. The pa-
per is organized around four questions that are
germane to organizational research. The first
asks the deceptively simple question. What is
agency theory? Often, the technical style, math-
ematics, and tautological reasoning of th©
agency literature can obscure the theory. More-
over, the agency literature is split into two
camps (Jensen, 1983), leading to differences in
interpretation. For example, Barney and Ouchi
(1986) argued that agency theory emphasizes
how capital markets can affect the firm,
whereas other authors made no reference to
capital markets at all (Anderson, 1985; Demski
&
Feitham, 1978; Eccles, 1985; Eisenhardt, 1985).
The second question is. What does agency
theory contribute to organizational theory? Pro-
ponents such as Ross
(1973,
p. 134) argued that
"examples of agency are universal." Yet other
scholars such as Perrow (1986) claimed that
agency theory addresses no clear problems,
and Hirsch and Friedman (1986) called it exces-
sively narrow, focusing only on stock price. For
economists, long accustomed to treating the or-
57
ganizatjon as a "black box" in the theory of the
firm, agency theory may be revolutionary. Yet,
for organizational scholars the worth of agency
theory is not so obvious.
The third question is. Is agency theory empir-
ically valid? The power of the empirical research
on agency
theory to explain organizational phe-
nomena is important to assess, particularly in
light of the criticism that agency theory is
"hardly subject to empirical test since it rarely
tries to explain actual events" (Perrow, 1986, p.
224).
Perrow (1986) also criticized the theory for
being un realistically one-sided because of its
neglect of potential exploitation of workers.
The final question is, What topics and contexts
are
fruitful for organizational researchers who
use agency theory? Identifying how useful
agency theory
can be to
organizational scholars
requires understanding the situations in which
the agency perspective can provide theoretical
leverage.
The principal contributions of the paper are to
present testable propositions, identify contribu-
tions of the theory to organizational thinking,
and evaluate the extant empirical literature. The
overall conclusion is that agency theory is a use-
ful addition
to
organizational theory. The
agency theory ideas
on
risk, outcome uncer-
tainty, incentives, and information systems are
novel contributions to organizational thinking,
and the empirical evidence is supportive of the
theory, particularly when coupled with comple-
mentary theoretical perspectives.
Origins of Agency Theory
During the 1960s and early 1970s, economists
explored risk sharing among individuals or
groups (e,g.. Arrow, 1971; Wilson, 1968). This
literature described the risk-sharing problem as
one that arises when cooperating parties have
different attitudes toward risk. Agency theory
broadened this risk-sharing literature to include
the so-called
agency
problem that occurs when
cooperating parties have different goals and di-
vision of labor (Jensen & Meckling, 1976; Ross,
1973).
Specifically, agency theory is directed at
the ubiquitous agency relationship, in which
one party (the principal) delegates work to an-
other (the agent), who performs that work.
Agency theory attempts to describe this relation-
ship using the metaphor of a contract (Jensen
&
Meckling, 1976).
Agency theory is concerned with resolving
two problems that can occur in agency relation-
ships.
The first is the
agency
probl&m
that arises
when (a) the desires or goals of the principal and
agent conflict and (b) it is difficult
or
expensive
for the principal to verify what the agent is ac-
tually doing. The problem here is that the prin-
cipal cannot verify that the agent has behaved
appropriately. The second is the
problem of
risk
sharing
that arises when the principal and
agent have different attitudes toward risk. The
problem here is that the principal and the agent
may prefer different
actions
because of the dif-
ferent risk preferences.
Because the unit of analysis is the contract
governing the relationship between the princi-
pal and the agent, the focus of the theory is on
determining the most efficient contract govern-
ing the principal-agent relationship given as-
sumptions obout people (e.g., self-interest,
bounded rationality, risk aversion), organiza-
tions (e.g., goal conflict
among
members), and
information (e.g., information is a commodity
which can be purchased). Specifically, the
question becomes. Is a behavior-oriented con-
tract (e.g., salaries, hierarchical governance)
more efficient than an outcome-oriented con-
tract (e.g., commissions, stock options, transfer
of property rights, market governance)? An over-
view of
agency
theory is given in Table 1.
The agency structure
is
applicable in a variety
of settings, ranging from macrolevel issues such
as regulatory policy to microlevel dyad phe-
nomena such as blame, impression manage-
ment, lying, and other expressions of
self-
interest. Most frequently, agency theory has
been applied to organizational phenomena
58
Table 1
Agency Theory Overview
Key idea
Unit of
analysis
Human
assumptions
Organizational
assumptions
information
assumption
Contracting
problems
Problem
domain
Principal-agent relationships should
reflect efficient organization of
information and risk-bearing costs
Contract between principal and agent
Seif-interest
Bounded rationality-
Risk aversion
Partial goal conflict among participants
Efficiency as the effectiveness criterion
Information asymmetry between principal
and agent
Infonnation as a purchasable commodity
Agency (moral hazard and adverse
selection)
Risk shanng
Relationships in which the principal and
agent have partly differing goals and
risk preferences (e.g., compensation,
regulation, leadership, impression
management, whistle-blowing, vertical
integration, transfer pricing)
such as compensation (e.g., Conlon & Parks,
1988;
Eisenhardt, 1985), acquisition and diversi-
fication strategies (e.g., Amihud & Lev, 1981),
board relationships (e.g., Fama
&
Jensen, 1983;
Kosnik, 1987), ownership and financing struc-
tures (e.g., Argawal
&
Mandelker, 1987; Jensen
& Meckling, 1976), vertical integration (Ander-
son, 1985; Eccles, 1985), and innovation (Bolton,
1988;
Zenger, 1988). Overall, the domain of
agency theory is relationships that mirror the
basic agency structure of a principal and an
agent who are engaged in cooperative behav-
ior, but have differing goals and differing atti-
tudes toward risk.
Agency Theory
From its roots in information economics,
agency theory has developed along two lines:
positivist and principal-agent Censen,
1983).
The
two streams share a common unit of analysis:
the contract between the principal and the
agent. They also share common assumptions
about people, organizations, and information.
However, they differ in their mathematical rigor,
dependent variable, and style.
Positivist Agency Theory
Positivist researchers have focused on identi-
fying situations in which the principal and agent
are likely to have conflicting goals and then de-
scribing the governance mechanisms that limit
the agent's self-serving behavior. Positivist re-
search is less mathematical than principal-
agent research. Also, positivist researchers
have focused almost exclusively on the special
case of the principal-agent relationship between
owners and managers of large, public corpora-
tions (Berle
&
Means, 1932).
Three articles have been particularly influen-
tial.
Jensen and Meckling (1976) explored the
ownership structure of the corporation, includ-
ing how equity ownership by managers aligns
managers' interests with those of owners. Fama
(1980) discussed the role of efficient capital and
labor markets as information mechanisms that
are used to control the self-serving behavior of
top executives. Fama and Jensen (1983) de-
scribed the role of the board of directors as an
information system that the stockholders within
large corporations could use to monitor the op-
portunism of top executives. Jensen and his col-
leagues (Jensen, 1984; Jensen & Roeback, 1983)
extended these ideas to controversial practices,
such as golden parachutes and corporate raid-
ing.
From a theoretical perspective, the positivist
stream has been most concerned with describ-
ing the governance mechanisms that solve the
agency problem. Jensen
(1983,
p. 326) described
this interest as "why certain contractual rela-
tions arise." Two propositions capture the gov-
ernance mechanisms which are identified in the
positivist stream. One proposition is that out-
59
come-based contracts are effective in curbing
agent opportunism. The argument is that such
contracts coalign the preferences of agents with
those of the principal because the rewards for
both depend on the same actions, and, there-
fore,
the conflicts of self-interest between princi-
pal and agent are reduced. For example, Jensen
and Meckiing (1976) described how increasing
the firm ownership of the managers decreases
managerial opportunism. In formal terms.
Proposition I: When the contract between the
principal and agent is
oufcome based, (he
agent is more
likely
to
behave in the interests
of
tbe principal.
The second proposition is that infonnation sys-
tems also curb agent opportunisn:i. The argu-
ment here is that, since information systems in-
form the principal about what the agent is actu-
ally doing, they are likely to curb agent oppor-
tunism because the agent will realize that he or
she cannot deceive the principal. For example,
Fama (1980) described the informcrtion effects of
efficient capital
and
labor markets on manage-
rial opportunism, and Fama and Jensen (1983)
described the information role that boarc^ of di-
rectors play in controlling managerial behavior.
In formal terms.
Proposition 2:
When the principal has informa-
tion to verify agent behavior, the agent
is more
likely io behave in the interests of the principal
At its best, positivist agency theory can be re-
garded as enriching economics by offering a
more complex view of organizations (Jensen,
1983).
However, it has
been
criticized by orga-
nizational theorists as minimalist (Hirsch,
Michaels,
&
Friedman, 1987; Perrow, 1986) and
by microeconomists as tautological and lacking
rigor (Jensen, 1983). Nonetheless, positivist
agency theory has ignited considerable re-
search (Barney & Ouchi, 1986) and popular in-
terest ("Meet Mike," 1988).
Principal-Agent ReBearch
Principal-agent researchers are concerned
with a general theory of the principal-agent re-
lationship, a theory that can be applied to em-
ployer-employee, lawyer-client, buyer-supplier,
and ether agency relationships (Harris
&
Raviv,
1978).
Characteristic oi formal theory, the prin-
cipal-agent paradigm involves careful specifi-
cation of assumptions, which are followed by
logical deduction and mathematical
proof.
In comparison with the positivist stream, prin-
cipal-agent theory is abstract and mathematical
and, therefore, less accessible to organizational
scholars. Indeed, the most vocal critics of the
theory (Perrow, 1986; Hirsch et al., 1987) have
focused their attacks primarily
on
the more
widely known positivist stream. Also, the prind-
pal-agent stream has a broader focus and
greater interest in general, theoretical implica-
tions.
In contrast, the positivist writers have fo-
cused almost exclusively on the special case of
the owner/CEO relationship in the large corpo-
ration. Finally, principal-agent research in-
cludes many more testable implications.
For organizational scholars, these differences
provide background for understanding criticism
of the theory. However, they are not crucial
Rather, the important point is that the two
streams are complementary: Positivist theory
identifies various contract alternatives, and prin-
cipal-agent theory indicates which contract is
the most efficient under varying levels of out-
come uncertainty, risk aversion, information,
and other variables described below.
The focus of the principal-agent literature is
on determining the optimal contract, behavior
versus outcome, between the principal and the
agent. The simple model assumes goal conflict
between principal and agent, an easily mea-
sured outcome, and an agent who is more risk
averse than the principal. (Note: The argument
behind a more risk averse agent is that agents,
who are unable to diversify their employment,
should be risk averse and principals, who are
60
Answers
Status NEW
Posted 05 Sep 2017 08:09 AM
My Price 10.00
----------- He-----------llo----------- Si-----------r/M-----------ada-----------m -----------Tha-----------nk -----------You----------- fo-----------r u-----------sin-----------g o-----------ur -----------web-----------sit-----------e a-----------nd -----------acq-----------uis-----------iti-----------on -----------of -----------my -----------pos-----------ted----------- so-----------lut-----------ion-----------. P-----------lea-----------se -----------pin-----------g m-----------e o-----------n c-----------hat----------- I -----------am -----------onl-----------ine----------- or----------- in-----------box----------- me----------- a -----------mes-----------sag-----------e I----------- wi-----------ll
Not Rated(0)
