This paper aims to describe an application of key concepts in agency theory to organizational development. Specifically, it seeks to highlight that formal control systems, the ways to regulate employees' performance, are associated with an important factor for organizational development – the capacity for improvement.
The paper presents a literature review on organizational development and agency theory, and an empirical examination of the relationships between bureaucratic control systems, task programmability and the organization's capacity for improvement. The hypotheses of interrelationships among different control systems, task programmability and the capacity for improvement were tested with a sample of 237 employees in the service industry.
Results indicate that input control is a significant factor in determining an organization's capacity for improvement, and task programmability moderates the relation between a bureaucratic control and the organization's capacity for improvement.
Research limitations/implications -
The results are based on a cross-sectional self-report study. It is advisable to include managers' assessment of subordinates' capacity of improvement in further research.
The effect of formal controls on organizational performance was controversial. This paper reveals the moderating role of task programmability in a control-performance relationship. In doing so, this paper sheds light on how a manager can enhance his/her subordinates' performance on organizational improvement through different control tactics.