Chapter 1 critiqued the extant literature on major military change, suggesting that

the intra-organizational diffusion of innovation is an important but much overlooked

issue. In this chapter, we present a theoretical framework to fill this void. We argue

that material and normative factors related to intra-organizational control can be

complementary, and that examining synergies via a modified principal-agent

framework augurs well for a systematic explanation of military transformation. The

core claim here is that the capacity of service entrepreneurs to hone and sustain

transformation is largely a function of the internal structure of delegation and

oversight. These factors specify the division of authority and range of preferences

for exploration versus exploitation in task environments, the costs of monitoring

and enforcing new tradeoffs between these preferences, and the incentives for

opportunism within the organization. If properly aligned, they can profoundly

narrow the gap between what military commanders ask for in terms of change and

how subordinates choose to respond. Given the intrinsic uncertainty, however, we

add that principals must rely on elements of common knowledge to legitimate new

directions and boost the credibility of commitments to transformation. Specifically,

shared assumptions about professionalism and appropriate methods for problem-

solving, as opposed to common understandings of service mission, provide points of

leverage for organizational entrepreneurs to reduce the transaction costs of overseeing

change. Thus, while the scope of success at institutionalizing military transformation

depends critically on getting the incentive structure “right”—aligning choices and

behavior across different levels of hierarchy-the efficiency of doing so turns on the

instrumental use of managerial norms.