Monitoring and control of its workforce is an important consideration for all orga- nizations. The task becomes more complex in the context of the knowledge worker given that this employee has unique expertise and typically must be monitored by those who do not possess equivalent expertise. The key still lies in trying to align the goals of knowledge workers with those of the organizations for which they work.
This requires an expansion of the fundamental tenets of classical agency theory, a well-known economic theory that is concerned with goal alignment into the scenario of a knowledge worker agent (Wickramasinghe, 2000).
From a classical economic perspective, a firm is a unified entity that seeks to maxi- mise profit. Classical agency theory however shows that this is not necessarily the case (Jensen & Meckling, 1973, 1992). The theory describes the firm as consisting of agency relationships between a principal or manager and an agent or employee. The key being that the principal requires the agents to carry out certain tasks. In doing so it cannot be guaranteed that the decisions made by the agents will be aligned with the goals of the principal. Therefore the principal needs to guard against sub-optimal behaviour and the divergence between the agent performing activities which do not facilitate the achievement of the principal’s goals. In attempting to align the goals of the agent with those of the principal, the principal must incur some costs referred to as agency costs (Jensen & Meckling, 1973, 1992; Wickramasinghe, 2000). Agency costs consist of monitoring costs, residual loss, and decision information costs A monitoring activity is considered to be an activity conducted by the principal such as direct monitoring, as well as other methods of evaluating performance or even ways to limit the tasks the agent performs, to ensure that the outcomes are as the principal would desire (ibid.). Thus, the monitoring costs are the costs as-
Figure 1. Goal alignment, monitoring costs, and residual loss (Adapted from Wick- ramasinghe, 1999)
sociated with performing the monitoring activities. By incurring monitoring costs, goal-aligned behaviour increases. Residual loss represents the loss to the principal despite trying to align goals (ibid.). As residual loss increases goal alignment de- creases. The relationships between goal alignment and monitoring and residual loss are depicted in Figure 1.
Decision information (DI) costs are defined as the costs associated with moving localized information from the agent to the principal so that the principal can make a sound decision (ibid.). As the information moves up to the principal, the DI cost increases and goal alignment increases. This relationship is depicted in Figure 2.
In order to achieve a high level of goal alignment, principles have the option of incurring higher levels of monitoring or increasing the decision information costs.
However, in the case of a knowledge worker agent who has autonomy to make
Agency theory then tells us that given the change in the Monitoring costs above in Figure 1a (moving from M1 to M2), the impact on the Residual Loss is a corresponding decrease; i.e., RL2 << RL1.
Taken together figures 1a and 1b illustrate the dynamics discussed by Agency theory concerning the relationship between monitoring, goal alignment and residual loss.
What Agency theory is telling us is that an increase to the Monitoring Costs from M1 to M2 results in an increase to goal alignment from GA1 to GA2 – i.e., as we move along the curve from (GA1, M1) to (GA2, M2) goal alignment is increased because we have increased the amount (reflected by the increase to the monitoring cost of M2-M1) of monitoring.
Goal Alignment(GA)
M2 M1
GA1 GA2
Monitoring Costs (M)
Goal Alignment (GA)
RL1 RL2
GA1 GA2
Residual Loss (RL)
decisions, the decision right is with the knowledge worker agent (i.e., he or she makes the key decisions. In terms of the three costs previously mentioned, this means that (Wickramasinghe, 2000; Wickramasinghe & Ginzberg, 2001; Wickramasinghe
& Lamb, 2002):
1. The decision information cost is low.1 2. Goal aligned behaviour is low.
3. Residual loss is high.
There are two ways to address the problem of low goal aligned behaviour with simultaneous high residual loss (ibid.), which is both significant and has wide spread implications for the organisation: (1) Move the decision-making to the principal.
However the major problem with this approach is that it is the knowledge worker agent who has the expertise to make the decision not the principal. (2) Increase the monitoring of the knowledge worker agent. Clearly, the second choice is preferable and the solution lies in the careful structuring and design of technology. Essentially an asymmetry of information exists between principal and knowledge worker agent. This indicates that IS/IT (information systems /information technology) in general and KMS (knowledge management systems) in particular can be used as a tool connecting these two players by aiding decision-making and communication.
Figure 3 depicts the scenarios. Wickramasinghe (2000), and then Wickramasinghe and Lamb (2002) have conducted research that demonstrates that the shift in the monitoring cost curve from M to M’ in Figure 3 is as a direct result of self-monitoring Figure 2. Goal alignment and decision information costs (Adapted from Wickra- masinghe, 1999)
Goal
Alignment (GA)
Decision Information Cost (DI) GA3
GA4
DI1 DI2
As one moves from point (DI1,GA3) to (DI2, GA4) agency theory tells us that the decision information costs increase and so does the level of goal alignment.
This corresponds to the activity of the localized information being passed to the principal so that the principal can carry out key decision making activities.
behaviour induced and enabled by the IS/IT/ and/or KMS (such results have been confirmed by studies conducted by Coombs, Knight, and Willmott (1992). The role of self-monitoring in increasing goal aligned behaviour of knowledge workers is critical; and the enabling role of KMS in particular, has far reaching consequences on managing knowledge workers.
Scenario 3 in Figure 3 depicts the situation after the implementation of significant technology that has the potential to enable and induce “self-monitoring” behavior.
What we see is an increase in goal alignment and a decrease in the residual loss without a corresponding increase in the monitoring costs (as agency theory would predict) rather as a result of the shift to the monitoring cost curve in Figure 3b
Figure 3. Agency theory for the knowledge worker (Adapted from Wickramasinghe, 2000; Wickramasinghe & Ginzberg, 2001; Wickramasinghe & Lamb, 2002)
Figure 3c. Goal alignment (GA) vs.
residual loss (RL) Figure 3b. Goal alignment (GA) vs.
monitoring costs (M) Figure 3a. Goal alignment (GA) vs.
decision information costs (DI)
GA DI GA
GA
RL M’
M GA3
GA2 GA1
DI1 DI Cost M0 M1
M Cost RL Cost
RL3 RL2 RL1
Scenario 3 in figure 5-3 then, depicts the situation after the implementation of significant technology that has the potential to enable and induce “self-monitoring” behavior. What In the context of a knowledge worker agent the DI cost is fixed and low; say DI1 (as in Figure 3a), from this agency theory tells us that the corresponding level of goal alignment will also be low – GA1. We then have the following possible scenarios depicted in Figures 3b and 3c:
Scenario 1: no monitoring (i.e., base case) – Total cost (TC1) = DI1 +RL1 +M0 = TC1 and GA 1
Scenario 2: monitoring with minimal KMS (i.e., no or little knowledge management systems) Total cost (TC2) = DI1 + M1 + RL2 = TC2 and GA2 > GA1 Scenario 3: substantial KMS (i.e., the practices with the respective billing/practice management systems) Total cost (TC3) = DI1 + M1 + RL3 = TC3 and GA3 >> GA2
Thus the impact of substantial KMS enabling self monitoring is that GA3 >> GA2,GA1; TC3 <<TC2, TC1
Furthermore, the shift in the curve M to M’ represents the role of self monitoring in effecting a higher level of goal alignment (GA3) – we can represent this mathematically by the change in the gradients of the two functions (M and M’:
Gradient of curve M = (GA2-GA1) / (M1-M0) Gradient of curve M’= (GA3-GA1) / M1 –M0)
Gradient (M’) - Gradient (M) = self monitoring cost which is at least in part borne by the knowledge worker agent
from M to M’. This shift is attributed to the technology induced self-monitoring behavior of the knowledge worker agent. Thus, for the same amount of monitoring performed by the principal (M1) we have a higher level of goal alignment (GA3) and also a decrease to the residual loss (RL3). This is clearly in contradiction to what is predicted by agency theory because agency theory does not consider that monitoring costs could be borne by the agent; or that in complex organizations, the agent might be a member of the collective principal entity.