Tenuous model better than none?

INN322 – Information Systems Consulting

WEEK ONE: Long-winded common sense?

Dawson et al present a sometimes highly ephemeral series of propositions based on opaque qualitative research and interpretation (the research data is not presented in any great detail), and propose that a new Theory of Relationship Constraints better explains information asymmetry in information systems (IS) consulting, with a principal focus on control mechanisms to curb sharp practices.

I am still not entirely certain how this model supplants agency theory or the sub-trope of principal-professional lens speculation.

Agency theory might be summarised to mean the consideration of conflictsd arising from a relationship between a principal who/which hires an agent, where the agent might be motivated by self interest to pursue goals that not in the principal’s best interests. Sharma (1997) summarises effective principal control as being limited by the cost of monitoring and metering, where monitoring is a supervisory function, and metering is a quantitative outcomes stipulation (pp 761-762).

Sharma gave a pretty neat explanation of agency theory and its assumptions in a series of footnotes on pages 768-769:

The logic of mainstream agency theory usually is revealed as follows. The principal owns the capital and, needing certain work to be done, offers a contract in a competitive market for agents. The agent (competing with other agents for the principal’s business) accepts the contract and is then bound by it by the force of a centralized legal system that respects the property rights of the principal and the sanctity of contracts. Moreover, as Eisenberg notes, “[T]he authority of an agent can be terminated by his principal at any time … [and] an agent must normally follow his principal’s instructions” (1976: 2-3). The principal, in other words, has both the power to design the contract (because of the competitive market for the agent’s services) and to enforce it (because of the rule of law that encourages accumulation of capital through property rights of the principal). Hence, although equity is at the base of the philosophical foundation of neoclassical economics, I argue that mainstream agency theory as developed strongly suggests a power asymmetry favoring principals.

A principal’s decision to “purchase” information in the form of asymmetry-reducing devices actually is equivalent to making an investment decision. The expectation is that such an investment will bear fruit by reducing suboptimal performance by the agent-it will, in effect, reduce the costs of monitoring, bonding, and risk-incentive divergence.

Principals also sometimes hire professionals to perform tasks that they themselves can perform but do not have the time to do. Such instances influence the relative task-related knowledge of the principal to that of the professional, and they affect the agency contract in ways that I discuss later in this manuscript.

There are instances, I admit, where many shareholders of large corporations do not have the management know-how to evaluate managers. Even so, this asymmetry of knowhow is not an essential condition in the owner-manager agency literature.

In this context the professions are seen by Sharma as distinguished from other occupations by a body of abstracted knowledge (p. 763), that are called tacit knowledge by Dawson, et al.

… much like doctors and lawyers, professionals in advertising, banking, and consulting apply in their work a body of knowledge and techniques acquired through training and experience, have a service orientation and distinctive ethics, and have a great deal of autonomy and prestige in the modern economy. (Sharma, 1997, p 763.)

From observations in the field, many researchers solidified the view that professions did, indeed, have a great deal of say in how their work was done and how their services were delivered. Hughes (1958), for example, observed that professions had a sharp mandate and a license, explicit or implicit, to control their own work, to define proper conduct, and to influence technical content and scope of problems addressed, as well as styles of delivery of expert services. As another prominent sociologist noted, “Not only do professions presume to tell the rest of their society what is good and right for it: they can also set the very terms of thinking about problems which fall in their domain. (Sharma, 1997, p 764.)

Sharma points out that agency theory assumes a controlling position for the principal, and the legitimacy of such a position, (p 767) probably based on an economic model of agent compensation (as servant of principal).These explanations seem almost as if taken for granted in Dawson, et al. But they are somewhat dated and of questionable applicability in an era in which even the once revered MBA appears to be a commodity, and the title ‘professional’ is claimed by a whole range of vocations that seem not to share the dynamics of traditional professions, such as medicine, law, engineering, architecture, and so on.

Back to Dawson, et al. They state that there aren’t any studies showing principals to act opportunistically (p 145). I wonder whether that is still true. Do corporations not regularly sack large swathes of agents? But maybe that is beyond the scope of the IS consulting domain.

Explicit and Tacit knowledge are presented as both necessary for domain competency (pp 146-147). That makes sense to me, and resonates with the other work on knowledge management I have done in this course (for example, knowledge creation, knowledge and its uses, and contemporary application of knowledge by professionals.

Explicit knowledge in IS: use of technology; knowledge of utility of applications and emerging functionality; knowledge of system development and project management methods; and knowledge of IS planning and execution methods (pp 148-149).

Tacit knowledge in IS: experience and insight into all of the above, plus insight and vision applicable to contract. Tacit knowledge seen as reducing specificity of contract, but contracting for explicit knowledge increases specificity (p 172).

Active and passive opportunism: ‘Active blatant opportunism is the deliberate misrepresentation of facts, while passive opportunism means withholding critical information, even when requested.’ (p 150). See also: ‘Relational contract violations occur in two forms: the inequitable sharing of emerging benefits and burdens and unilateral use of power.’ (p 150).

Metering: where the principal seeks a contract that sets out specific outcomes and deliverables (p 150).

Co-production: client/principal participation in the production of deliverables (p 151).

Social constraints: self control as professional ethics and concern for reputation; community control via consultant superior, partner, peer; bureaucratic control by supervision and governance (either client or consultancy firm?); client control is direct or third party supervision of consultant (p 152). However: ‘studies of professional opportunism assume the existence of an established professional community with the ability to formally sanction members. However, IS consulting does not require membership of a formal community and therefore lacks this restraint on opportunism’ (p 152).

Fixed price contracts: confers advantage to client if consultant unaware of client culture and constraints for project. Too many unknowns to quote accurately (p 159, 164).

Least costly control: Suggestions arise that principals might adopt the least costly control mechanisms (pp 162-166, 172). It seems to me that the authors make the same mistake as economists in assuming perfect rationality in economic actors. Sometimes actors act oninstinct, unseen considerations (like politics and ‘arse covering’) against their apparent best interests.

Signalling and screening: Boasting of one’s abilities or achievements? Reference checking or old boy network intelligence gathering? (p 159.) Signalling also seen as favourting party with advantage in information assymetry (consultant?), and screening for the party with disadvantage in information assymetry (principal?) (pp 170-171).

Assymetry control mechanisms. Assymetry is the inequality in knowledge between contracting parties. The model is illustrated below, showing types of control mechanisms employed by the parties, and suggesting levels of detail in contracts (specificity) suited to those mechanisms (pp 160-168).

INN322-conrtract-specificity-and-information-assymetry

Generally the observations presented seem to connect with my own experiences as a consultant and consumer of consultancy services. I worry, as always, only about how deterministic my peers and instructors will be in insisting on the universalisability of the model, and the corresponding absence of judgement.

Conceptually, TRC has a close lineage with the signaling and screening literature base. TRC, like signaling and screening, attacks information asymmetry as the root
cause of opportunism and predicts that clients and consultants will first attempt to reduce disadvantageous information asymmetry and then will adopt different constraints based on the level of information asymmetry that is present and the type of knowledge used. By returning the focus to information asymmetry, TRC can help explain the underlying cause of opportunism, and this allows formal contracts and social constraints to be more consistently applied in obviating opportunism.
(p 173).

The authors seem to suggest that contract specificity means greater reliance on social controls, echoing, in some way, an academic collegiality I have elsewhere described as a mark of professional competence.

Completely missing from the discussion is malevolence and stupidity, both of which I have observed as not infrequent qualities in management circles. Not talking about these aspects to a relationship constraints theory seems cowardly and not at all helpful. Nor is there a discussion of the increasing trend in the US, and flowing for there to other geographic jurisdictions, of a kelptomaniacal plutocracy in which it appears legitimate to exploit every last loophole to extract valuye and even cheat others.

That is indeed a devolution into into ‘Akerlof’s prediction of a marketplace populated solely by unscrupulous actors’ (p 175). What are we being told here about ethics? The suggestion is that we should have them, but not what they should look like.


Dawson, G. S., Watson, R. T., & Boudreau, M. (2010). Information Assymetry in Information Consulting: Toward a Theory of Relationship Constraints. Journal of Management Information Systems, 27(3), 143-177. doi: 10.2753/MIS0742-1222270306.

Sharma, A. (1997). Professional as Agent: Knowledge Asymmetry in Agency Exchange. The Academy of Management Review,
22
(3), 758-798.