A Theory of Management Control Packages and Organizational Identity

This study aims to present the conditions under which the manager should use effort standards in addition to performance evaluations for management control (MC). Due to COVID-19, remote work has recently been encouraged worldwide; however, it may reduce organizational members’ sense of belonging or identity. It may be adequate to control using only performance evaluations in such cases. This study uses a mathematical model based on behavioral contract theory and focuses on the identities of organizational members and the standard-setting cost. First, the study clarifies that the conditions depend on the cost coefficient of setting effort standards and the strength of an individual’s identity. Second, as the noise in the performance measure increases, it becomes desirable to use both effort standards and performance evaluations. Thus, for example, industries with high uncertainty, such as biotechnology and high-tech industries, should combine performance evaluations with setting effort standards. This study contributes to theory by elaborating on the significance of identity, demonstrating its reverse functionality in MC, and providing empirical and field research suggestions. Empirical studies and field research on MC packages can be more fruitful by focusing on variables such as identity and noise in performance measures in multiple industries and specific events such as mergers and acquisitions, internal promotions, and remote work