Transaction Cost Theory & IT

Transcription

1 Management Information Systems 2011 Transaction Cost Theory & IT Prof. Dr. Elgar Fleisch, ETH Zürich & HSG

2 Agenda Basics of transaction cost theory Impact of IT on transaction costs Transaction cost-based impacts of IT on firm-level coordination Transaction cost-based impacts of IT on task-level, company size, concentration of power, and supplier diversity The move towards networked enterprises 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 2

3 Basics 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 3

4 Scarcity, division of labor, and coordination Read the 1-pager of Adam Smith for Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 4

5 The cost of coordination 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 5

6 The optimal division of labour Cost Total cost Transaction cost Production cost Opt* Division of labour Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 6

7 Impact of IT on transaction costs 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 7

8 Some numerical examples Transaction Traditional Internet Request account statement 1.08 USD 0.13 USD Answer customer enquiry 10 USD to 45 USD Answer inquiry: 1 USD to 5 USD Web self-service: 0.10 USD to 0.20 USD Purchase and sale of 100 shares 100 USD 9.95 USD Correction of personnel records 128 USD 2.32 USD Handling claim for travel 36 USD; 22 days 4 USD to 8 USD; 72 hours expenses Mailing of advertisment booklet 0.75 USD to USD 0 USD to 0.25 USD Settlement of an account (money transfer) 2.22 USD to 3.32 USD 0.65 USD to 1.10 USD 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 8

9 Form of coordination of work 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 9

10 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 10 A SURVEY IN THREE FRAMEWORKS Source: Alstyne, THE STATE OF NETWORK ORGANIZATION:

11 What is specificity? 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 11

12 Transaction cost-based impacts of IT on firm-level coordination Choosing the optimal coordination form Transaction Cost Market coordination Network coordination Hierarchical coordination Specificity 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 12

13 Transaction cost-based impacts of IT on firm-level coordination The 3 effects Transaction costs 1. Effect of fixed reduction 2. Effect of variable reduction 3. Effect specificity reduction Specificity 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 13

14 Transaction cost-based impacts of IT on firm-level coordination The new equilibrium Transaction costs (TC) Market coordination Network coordination Hierarchic coordination Level of Specificity (S) Legend: - IT by using IT 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 14

15 Impact of reduced transaction costs on division of labor on task level Cost Total cost Transaction cost Production cost Opt* Division of labour 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 15

16 Impact on company size 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 16

17 Impact on concentration of power 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 17

18 Impact on number of suppliers 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 18

19 Concluding example Electronic procurement of indirect (MRO) goods 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 19

20 Concluding example The old manual business process Requester Approver Buyer Supplier?? Search and choice of products - Approve request? Fill out the request form Order Fulfill the order Receive Product Product Deliver the product Legend: Manual process Electronic process 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 20

21 Concluding Example The new business process Requester Approver Buyer Supplier Search and select products in an electronic catalogue - Approve request Order via , Fax, EDI, emarket Fulfill the order Receive Product Product Deliver the product Legend: Manual process Electronic process 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 21

22 Concluding Example Transaction cost perspective high mid slight none USD Reduction 50-80% Process savings Product savings Inventory savings Paper-based Optimized process process Transaction costs per purchase order 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 22

23 The move towards networked enterprises 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 23

24 Revisiting the relationship between technology, market size, division of labour and speed of innovation 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 24

25 Networks as dominant coordination principle Attribute Internal Network Stable Network Dynamic Network Purpose Introduction of market principles in the company Vertical integration High - Ownership of production factors held centrally Transactions Long time frame High probability of repetition Communication Sustained, via (vertical) communication channels, 1:n / n:1 Organizational principles Profit centers, Shared services, Divisional organizations, Core competencies oriented organizations, Business process oriented organization, Fractal organization Flexibility through partial outsourcing of processes Medium - few participants dedicate their resources for a decentralized creation of value Long time frame High probability of repetition Sustained, directly, m:n Outsourcing, Supply Chain Management, Strategic alliances, Keiretsu Agility through massive outsourcing of processes Low resources of many partner are allocated projectoriented by a broker Medium time frame Medium probability of repetition On request, with limited life time, directly, m:n Virtual companies 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 25

26 Case example Volvo Source: Lee et al. (1997) 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 26

27 Case example baby supply Source: Lee et al. (1997) 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 27

28 Another example The 4 bedroom house 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 28

29 Case example Vollbad 2011 Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 29

30 Literature Adam Smith: Of the Division of Labour, in: An Inquiry into the Nature and Causes of the Wealth of Nations, Strahan and Cadell, London, Prof. Dr. Elgar Fleisch, Information Management Copyright ETH Zürich 30