Mitigating the dark side of agile teams: Peer pressure, leaders’ control, and the innovative output of agile teams

Increasingly, organizations have been employing self‐managing teams to circumvent bureaucratic controls and stimulate innovation. However, this goal is not easily achieved; in many situations, informal controls replace formal controls. This study develops a multi‐level perspective of control. We explicitly analyze control mechanisms at different levels of the organization and how they affect innovative team output. We theorize and empirically investigate a potential downside of horizontal social control mechanisms at the team level (i.e., peer pressure) affecting self‐managing teams’ innovative outcomes. We also discuss managerial control mechanisms at the organizational level (i.e., interactive and diagnostic management control systems) that may help to mitigate such negative effects. We theorize how they may influence the innovative output of self‐managing teams, both directly and interactively. We chose a multi‐level, multi‐source setting for our study and ran three parallel surveys with employees in a Fortune 500 firm where 248 team members, 126 internal team leaders, and 97 organizational leaders enabled us to create a unique database of 97 self‐managing software development teams. Our findings confirm that peer pressure is common among established agile teams and that it negatively influences the innovative output of the agile teams. Moreover, our findings show that the magnitude of the effect of peer pressure is contingent on control mechanisms at higher levels within the organization. This enables us to provide new theoretical insights regarding the paradoxical effect of managerial control systems when it comes to flat organizations and autonomous teams. Additionally, we provide practical guidelines for managers who increasingly adopt agile practices but at the same time face issues with regard to innovation.