The author examines the determinants of control loss in the marketing channels of 40 U.S. manufacturers, each of which has vertically integrated into wholesale distribution by the establishment of manufacturers’ sales branches. The central hypothesis tested is that the efficiency of a vertically integrated system depends on the adoption of organizational forms which enable the firm to limit the degree of control loss and subgoal pursuit predictably resulting from vertical expansion. Control loss is operationalized in terms of the extent to which the travel and entertainment expenses of branch sales personnel exceed necessary levels. The results demonstrate the important influence of organizational structure and control systems on the efficiency of marketing operations. The findings are interpreted in terms of Williamson's organizational failures framework.
Get full access to this article
View all access options for this article.
References
1.
AlchianA. A. (1950), “Uncertainty, Evolution, and Economic Theory,”Journal of Political Economy, 58, 211–21.
2.
AldrichHoward E. (1979), Organizations and Environments, Englewood Cliffs, NJ: Prentice-Hall, Inc.
3.
AnthonyRobert N., and DeardenJohn (1980), Management Control Systems.Homewood, IL: Richard D. Irwin, Inc.
4.
ArmourHenry, and TeeceDavid (1978), “Organizational Structure and Economic Performance: A Test of the M-Form Hypothesis,”Bell Journal of Economics, 9(Spring), 106–22.
5.
ArndtJohan (1979), “The Domestication of Markets: From Competitive Markets to Administered Interorganizational Marketing Systems,” in Contemporary Issues in Marketing Channels, LuschRobert F., and ZinserPaul H., eds. Norman, OK: Distribution Research Program, University of Oklahoma Printing Services.
6.
BagozziRichard P. (1980), Causal Models in Marketing.New York: John Wiley & Sons, Inc.
7.
BagozziRichard P. (1981), “An Examination of the Validity of Two Models of Attitude,”Multivariate Behavioral Research, 16, 323–59.
8.
BagozziRichard P., and PhillipsLynn W. (1982), “Representing and Testing Organizational Theories: A Holistic Construal,”Administrative Science Quarterly, 27, 459–89.
9.
BeckerSelwyn W., and NeuhauserDuncan (1975), The Efficient Organization.New York: Elsevier Scientific Publishing Company, Inc.
10.
BentlerPeter M., and BonettDouglas G. (1980), “Significant Tests and Goodness of Fit in the Analysis of Covariance Structures,”Psychological Bulletin, 88, 588–606.
11.
BishopYvonne, FeinbergStephen E., and HollandPaul W. (1975), Discrete Multivariate Analysis: Theory and Practice.Cambridge, MA: MIT Press.
12.
BoomsmaA. (1982), “The Robustness of LISREL Against Small Sample Sizes in Factor Analysis Models,” in Systems Under Indirect Observation: Causality, Structure, and Prediction, JöreskogK. G., and WoldH., eds. Amsterdam: North Holland.
13.
BradburnNorman, and SudmanSeymour (1979), Improving Interview Method and Questionnaire Design.San Francisco: Jossey Bass.
14.
BucklinLouis P. (1966), A Theory of Distribution Channel Structure.Berkeley, CA: Institute of Business and Economic Research.
15.
CalderBobby J., PhillipsLynn W., and TyboutAlice M. (1981), “Designing Research for Application,”Journal of Consumer Research, 8, 197–207.
16.
CampbellDonald T., and FiskeDonald W. (1959), “Convergent and Discriminant Validation by the Multitrait-Multimethod Matrix,”Psychological Bulletin, 56, 81–105.
17.
ChandlerA. D. (1978), The Visible Hand.Cambridge, MA: Harvard University Press.
18.
CoaseR. H. (1937), “The Nature of the Firm,”Economica, new series, 4, 386–405.
19.
CoreyRaymond, and StarrSteven (1971), Organizational Design: A Marketing Approach.Boston: Division of Research, Harvard University, Graduate School of Business Administration.
20.
DewarRobert, and WerbelJames (1979), “Universalistic and Contingency Predictions of Employee Satisfaction and Conflict,”Administrative Science Quarterly, 24, 426–48.
21.
EtgarMichael (1976), “The Effect of Administrative Control on the Efficiency of Vertical Marketing Systems,”Journal of Marketing Research, 13(February), 12–24.
GewekeJohn F., and SingletonKenneth J. (1980), “Interpreting the Likelihood Ratio Statistic in Factor Models When Sample Size is Small,”Journal of the American Statistical Association, 75(March), 133–7.
24.
GuilfordJ. P., and FruchterBenjamin (1973), Fundamental Statistics for Psychology and Education, 5th edition.New York: McGraw-Hill Book Company.
25.
HallRichard (1977), Organizations: Structure and Process.Englewood Cliffs, NJ: Prentice-Hall, Inc.
26.
JöreskogKarl, and SörbomDag (1978), LISREL: Analysis of Linear Structural Relationships by Method of Maximum Likelihood.Chicago: National Educational Resources.
27.
LawlerE. E. (1971), Pay and Organizational Effectiveness: A Psychological View.New York: McGraw-Hill Book Company.
28.
MarchJames G., and SimonHerbert A. (1958), Organizations.New York: John Wiley & Sons, Inc.
29.
McCammonBert C. (1970), “Perspectives for Distribution Programming,” in Vertical Marketing Systems, BucklinLouis P., ed. Glenview, IL: Scott Foresman and Company.
30.
MeyerMarshall W. (1972), Bureaucratic Structure and Authority.New York: Harper & Row.
31.
MonteverdeKirk, and TeeceDavid (1980), “Supplier Switching Costs and Vertical Integration in the U.S. Automobile Industry,”Bell Journal of Economics, 13(Spring), in press.
32.
OuchiWilliam G. (1974), “The Relationship Between Organizational Structure and Organizational Control,”Administrative Science Quarterly, 22, 95–113.
33.
OuchiWilliam G. (1980), “Markets, Bureaucracies and Clans,”Administrative Science Quarterly, 25(March), 541–4.
34.
PascaleRichard T., and AthosAnthony (1981), The Art of Japanese Management: Applications for American Executives.New York: Simon and Schuster.
35.
PenningsJohannes (1973), “Measures of Organizational Structure: A Methodological Note,”American Journal of Sociology, 79, 674–86.
36.
PenningsJohannes (1975), “The Relevance of the Structural-Contingency Model for Organizational Effectiveness,”Administrative Science Quarterly, 30, 393–410.
37.
PerrowCharles (1979), Complex Organizations: A Critical Essay.Glenview, IL: Scott Foresman and Company.
38.
PfefferJeffrey (1978), Organizational Design.Arlington Heights, IL: AHM Publishing Corporation.
39.
PhillipsLynn W. (1981), “Assessing Measurement Error in Key Informant Reports: A Methodological Note on Organizational Analysis in Marketing,”Journal of Marketing Research, 18(November), 395–415.
40.
PhillipsLynn W. (1982), “Managing Control Loss in Corporate Marketing Channels: An Organizational Analysis,” working paper, Harvard University Graduate School of Business Administration.
41.
PhillipsLynn W., and BagozziRichard P. (1982), “On Measuring Organizational Properties: Methodological Issues in the Use of Key Informants,” working paper, Stanford University, Graduate School of Business.
42.
PorterMichael E. (1980), Competitive Strategy.New York: The Free Press.
43.
Research Institute of America (1970), Controlling Salesmen's Expenses, Report No. 37.
44.
SchoonhovenClaudia B. (1981), “Problems with Contingency Theory: Testing Hidden Assumptions within the Language of Contingency Theory,”Administrative Science Quarterly, 26, 349–77.
45.
SeidlerJohn (1974), “On Using Informants: A Technique for Collecting Quantitative Data and Controlling for Measurement Error in Organization Analysis,”American Sociological Review, 39, 816–31.
46.
SilkAlvin, and KalwaniManohar (1982), “Measuring Influence in Organizational Purchase Decisions,”Journal of Marketing Research, in press.
47.
StantonWilliam J., and BuskirkRichard H. (1974), Management of the Sales Force.Homewood, IL: Richard D. Irwin, Inc.
48.
SteerPeter, and CableJohn (1978), “Internal Organization and Profit: An Empirical Analysis of Large U.K. Companies,”Journal of Industrial Economics, 27, 13–30.
49.
SternLouis W., and El-AnsaryAdel (1982), Marketing Channels.Englewood Cliffs, NJ: Prentice-Hall, Inc.
50.
SudmanSeymour, and BradburnNorman M. (1974), Response Effects in Surveys: A Review and Synthesis.Chicago: Aldine Publishing.
51.
TeeceDavid J. (1976), Vertical Integration and Vertical Divestiture in the U.S. Oil Industry.Stanford, CA: Institute for Energy Studies.
52.
TosdalHarry (1957), Sales Force Management.Homewood, IL: Richard D. Irwin, Inc.
53.
VancilRichard F. (1979), Decentralization.Homewood, IL: Richard D. Irwin, Inc.
54.
WeberMax (1947), The Theory of Social and Economic Organization (orig. ed. 1925), A. M. Henderson and T. Parsons, trans. New York: Free Press.
55.
WilliamsonOliver E. (1964), The Economics of Discretionary Behavior: Managerial Objectives in the Theory of the Firm.Englewood Cliffs, NJ: Prentice-Hall, Inc.
56.
WilliamsonOliver E. (1970), Corporate Control and Business Behavior: An Inquiry into the Effects of Organization Form on Enterprise Behavior.Englewood Cliffs, NJ: Prentice-Hall, Inc.
57.
WilliamsonOliver E. (1975), Markets and Hierarchies: Analysis and Antitrust Implications.New York: The Free Press.
58.
WilliamsonOliver E. (1979), “Transaction Cost Economics: The Governance of Contractual Relations,”Journal of Law and Economics, October, 22, 233–61.
59.
WilliamsonOliver E. (1980), “The Economics of Organization: The Transaction Cost Approach,”American Journal of Sociology, 87, 548–77.
