IDEAS home Printed from https://ideas.repec.org/p/ecl/illbus/13-0100.html
   My bibliography  Save this paper

Joining Supply and Demand Conditions of IT Enabled Change: Toward an Economic Theory of Inter-firm Modulation

Author

Listed:
  • Gebauer, Judith

    (University of NC, Wilmington)

  • Mahoney, Joseph T.

    (University of IL)

Abstract

This paper examines emergent information systems and technologies and explains under what supply and demand conditions inter-firm modularization of information-based products and services and subsequent vertical de-integration of organizations is more likely. Research in organizational economics identifies transactional attributes such as coordination costs, asset specificity, and the economic non-separability problem to help explain and predict vertical de-integration. We extend this perspective by considering the modularization of information-based products and services that is noticeable to the customer to develop a framework that joins the four cornerstones of (1) transaction-related efforts; (2) commitment-related contractual risks; (3) measurement-related contractual risks; and (4) modularization-related impacts on value.

Suggested Citation

  • Gebauer, Judith & Mahoney, Joseph T., 2013. "Joining Supply and Demand Conditions of IT Enabled Change: Toward an Economic Theory of Inter-firm Modulation," Working Papers 13-0100, University of Illinois at Urbana-Champaign, College of Business.
    • Handle: RePEc:ecl:illbus:13-0100
    as

    Download full text from publisher

    File URL: http://www.business.illinois.edu/Working_Papers/papers/13-0100.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Langlois, Richard N., 2002. "Modularity in technology and organization," Journal of Economic Behavior & Organization, Elsevier, vol. 49(1), pages 19-37, September.
    2. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    3. Raymond F. Zammuto & Terri L. Griffith & Ann Majchrzak & Deborah J. Dougherty & Samer Faraj, 2007. "Information Technology and the Changing Fabric of Organization," Organization Science, INFORMS, vol. 18(5), pages 749-762, October.
    4. Ron Adner & Daniel Levinthal, 2001. "Demand Heterogeneity and Technology Evolution: Implications for Product and Process Innovation," Management Science, INFORMS, vol. 47(5), pages 611-628, May.
    5. Jongwook Kim & Joseph T. Mahoney, 2005. "Property rights theory, transaction costs theory, and agency theory: an organizational economics approach to strategic management," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 223-242.
    6. Steven D. Levitt & Chad Syverson, 2008. "Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 599-611, November.
    7. Akbar Zaheer & N. Venkatraman, 1994. "Determinants of Electronic Integration in the Insurance Industry: An Empirical Test," Management Science, INFORMS, vol. 40(5), pages 549-566, May.
    8. Ron Adner & Daniel Snow, 2010. "Old technology responses to new technology threats: demand heterogeneity and technology retreats," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 19(5), pages 1655-1675, October.
    9. Gary S. Becker & Kevin M. Murphy, 1994. "The Division of Labor, Coordination Costs, and Knowledge," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 299-322, National Bureau of Economic Research, Inc.
    10. Sheth, Jagdish N. & Newman, Bruce I. & Gross, Barbara L., 1991. "Why we buy what we buy: A theory of consumption values," Journal of Business Research, Elsevier, vol. 22(2), pages 159-170, March.
    11. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    12. M. Lynne Markus, 1994. "Electronic Mail as the Medium of Managerial Choice," Organization Science, INFORMS, vol. 5(4), pages 502-527, November.
    13. William M. Dugger, 1996. "The Mechanisms of Governance," Journal of Economic Issues, Taylor & Francis Journals, vol. 30(4), pages 1212-1216, December.
    14. Wanda J. Orlikowski & C. Suzanne Iacono, 2001. "Research Commentary: Desperately Seeking the “IT” in IT Research—A Call to Theorizing the IT Artifact," Information Systems Research, INFORMS, vol. 12(2), pages 121-134, June.
    15. Pamela Hinds & Sara Kiesler, 1995. "Communication across Boundaries: Work, Structure, and Use of Communication Technologies in a Large Organization," Organization Science, INFORMS, vol. 6(4), pages 373-393, August.
    16. Stigler, George J., 2011. "Economics of Information," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 35-49.
    17. Erik Brynjolfsson, 1994. "Information Assets, Technology and Organization," Management Science, INFORMS, vol. 40(12), pages 1645-1662, December.
    18. Carliss Y. Baldwin & Kim B. Clark, 2000. "Design Rules, Volume 1: The Power of Modularity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262024667, December.
    19. Manuel E. Sosa & Steven D. Eppinger & Craig M. Rowles, 2004. "The Misalignment of Product Architecture and Organizational Structure in Complex Product Development," Management Science, INFORMS, vol. 50(12), pages 1674-1689, December.
    20. Arvin Sahaym & H. Kevin Steensma & Melissa A. Schilling, 2007. "The Influence of Information Technology on the Use of Loosely Coupled Organizational Forms: An Industry-Level Analysis," Organization Science, INFORMS, vol. 18(5), pages 865-880, October.
    21. Erik Brynjolfsson & Thomas W. Malone & Vijay Gurbaxani & Ajit Kambil, 1994. "Does Information Technology Lead to Smaller Firms?," Management Science, INFORMS, vol. 40(12), pages 1628-1644, December.
    22. Tridas Mukhopadhyay & Sunder Kekre, 2002. "Strategic and Operational Benefits of Electronic Integration in B2B Procurement Processes," Management Science, INFORMS, vol. 48(10), pages 1301-1313, October.
    23. Teo, Thompson S. H. & Yeong, Yon Ding, 2003. "Assessing the consumer decision process in the digital marketplace," Omega, Elsevier, vol. 31(5), pages 349-363, October.
    24. Joskow, Paul L, 1985. "Vertical Integration and Long-term Contracts: The Case of Coal-burning Electric Generating Plants," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(1), pages 33-80, Spring.
    25. Kun Shin Im & Varun Grover & James T. C. Teng, 2013. "Research Note---Do Large Firms Become Smaller by Using Information Technology?," Information Systems Research, INFORMS, vol. 24(2), pages 470-491, June.
    26. George Stigler, 1939. "Production and Distribution in the Short Run," Journal of Political Economy, University of Chicago Press, vol. 47(3), pages 305-305.
    27. William G. Ouchi, 1979. "A Conceptual Framework for the Design of Organizational Control Mechanisms," Management Science, INFORMS, vol. 25(9), pages 833-848, September.
    28. Erik Brynjolfsson & Yu (Jeffrey) Hu & Duncan Simester, 2011. "Goodbye Pareto Principle, Hello Long Tail: The Effect of Search Costs on the Concentration of Product Sales," Management Science, INFORMS, vol. 57(8), pages 1373-1386, August.
    29. Brusoni, Stefano & Prencipe, Andrea, 2001. "Unpacking the Black Box of Modularity: Technologies, Products and Organizations," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 10(1), pages 179-205, March.
    30. Kaouthar Lajili & Joseph T. Mahoney, 2006. "Revisiting agency and transaction costs theory predictions on vertical financial ownership and contracting: electronic integration as an organizational form choice," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(7), pages 573-586.
    31. Gerardine DeSanctis & R. Brent Gallupe, 1987. "A Foundation for the Study of Group Decision Support Systems," Management Science, INFORMS, vol. 33(5), pages 589-609, May.
    32. Sendil K. Ethiraj & Daniel Levinthal, 2004. "Modularity and Innovation in Complex Systems," Management Science, INFORMS, vol. 50(2), pages 159-173, February.
    33. Nicholas S. Argyres, 1999. "The Impact of Information Technology on Coordination: Evidence from the B-2 “Stealth” Bomber," Organization Science, INFORMS, vol. 10(2), pages 162-180, April.
    34. Yannis Bakos & Erik Brynjolfsson, 2000. "Bundling and Competition on the Internet," Marketing Science, INFORMS, vol. 19(1), pages 63-82, May.
    35. Caves, Richard E. & Bradburd, Ralph M., 1988. "The empirical determinants of vertical integration," Journal of Economic Behavior & Organization, Elsevier, vol. 9(3), pages 265-279, April.
    36. Masten, Scott E. & Meehan, James Jr. & Snyder, Edward A., 1989. "Vertical integration in the U.S. auto industry : A note on the influence of transaction specific assets," Journal of Economic Behavior & Organization, Elsevier, vol. 12(2), pages 265-273, October.
    37. Kathleen M. Eisenhardt, 1985. "Control: Organizational and Economic Approaches," Management Science, INFORMS, vol. 31(2), pages 134-149, February.
    38. Lorin M. Hitt, 1999. "Information Technology and Firm Boundaries: Evidence from Panel Data," Information Systems Research, INFORMS, vol. 10(2), pages 134-149, June.
    39. Eric J. Johnson & John W. Payne, 1985. "Effort and Accuracy in Choice," Management Science, INFORMS, vol. 31(4), pages 395-414, April.
    40. Akkermans, Henk A. & Bogerd, Paul & Yucesan, Enver & van Wassenhove, Luk N., 2003. "The impact of ERP on supply chain management: Exploratory findings from a European Delphi study," European Journal of Operational Research, Elsevier, vol. 146(2), pages 284-301, April.
    41. Hoetker, Glenn, 2002. "Do Modular Products Lead to Modular Organizations?," Working Papers 02-0130, University of Illinois at Urbana-Champaign, College of Business.
    42. Sanjeev Dewan & Steven C. Michael & Chung-ki Min, 1998. "Firm Characteristics and Investments in Information Technology: Scale and Scope Effects," Information Systems Research, INFORMS, vol. 9(3), pages 219-232, September.
    43. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
    44. Jeffrey T. Macher & David C. Mowery & Timothy S. Simcoe, 2002. "E-Business and the Semiconductor Industry Value Chain: Implications for Vertical Specialization and Integrated Semiconductor Manufacturers," Economics Study Area Working Papers 47, East-West Center, Economics Study Area.
    45. Gebauer, Judith & Buxmann, Peter, 2000. "Assessing the Value of Interorganizational Systems to Support Business Transactions," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 36498, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    46. Edieal J. Pinker & Abraham Seidmann & Yaniv Vakrat, 2003. "Managing Online Auctions: Current Business and Research Issues," Management Science, INFORMS, vol. 49(11), pages 1457-1484, November.
    47. Clayton M. Christensen & Matt Verlinden & George Westerman, 2002. "Disruption, disintegration and the dissipation of differentiability," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 11(5), pages 955-993, November.
    48. Kivetz, Ran & Simonson, Itamar, 2003. "The Role of Effort Advantage in Consumer Response to Loyalty Programs: The Idiosyncratic Fit Heuristic," Research Papers 1738r, Stanford University, Graduate School of Business.
    49. Mabert, Vincent A. & Soni, Ashok & Venkataramanan, M. A., 2003. "Enterprise resource planning: Managing the implementation process," European Journal of Operational Research, Elsevier, vol. 146(2), pages 302-314, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lajili, Kaouthar & Mahoney, Joseph T., 2005. "Revisiting Agency and Transaction Costs Theory Predictions on Vertical Financial Ownership and Contracting: Electronic Integration as an Organizational Form Choice," Working Papers 05-0106, University of Illinois at Urbana-Champaign, College of Business.
    2. Kaouthar Lajili & Joseph T. Mahoney, 2006. "Revisiting agency and transaction costs theory predictions on vertical financial ownership and contracting: electronic integration as an organizational form choice," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(7), pages 573-586.
    3. Rajiv D. Banker & Robert J. Kauffman, 2004. "50th Anniversary Article: The Evolution of Research on Information Systems: A Fiftieth-Year Survey of the Literature in Management Science," Management Science, INFORMS, vol. 50(3), pages 281-298, March.
    4. Ali Tafti & Sunil Mithas & M. S. Krishnan, 2013. "The Effect of Information Technology-Enabled Flexibility on Formation and Market Value of Alliances," Management Science, INFORMS, vol. 59(1), pages 207-225, June.
    5. Kim, Sung Min & Mahoney, Joseph T., 2002. "Mutual Commitment to Support Exchange: Specific IT System as a Substitute for Managerial Hierarchy," Working Papers 02-0115, University of Illinois at Urbana-Champaign, College of Business.
    6. Anna Cabigiosu, 2018. "When do modular dominant designs emerge? A theoretical framework," Working Papers 05, Department of Management, Università Ca' Foscari Venezia.
    7. Kannan Srikanth & Phanish Puranam, 2014. "The Firm as a Coordination System: Evidence from Software Services Offshoring," Organization Science, INFORMS, vol. 25(4), pages 1253-1271, August.
    8. Ron Sanchez & Joseph T. Mahoney, 2013. "Modularity and economic organization: concepts, theory, observations, and predictions," Chapters, in: Anna Grandori (ed.), Handbook of Economic Organization, chapter 20, Edward Elgar Publishing.
    9. Marcelo Bucheli & Joseph T. Mahoney & Paul M. Vaaler, 2010. "Chandler's Living History: "The Visible Hand" of Vertical Integration in Nineteenth Century America Viewed Under a Twenty-First Century Transaction Costs Economics Lens," Journal of Management Studies, Wiley Blackwell, vol. 47(s1), pages 859-883, July.
    10. Constantinos S. Lioukas & Jeffrey J. Reuer & Maurizio Zollo, 2016. "Effects of Information Technology Capabilities on Strategic Alliances: Implications for the Resource-Based View," Journal of Management Studies, Wiley Blackwell, vol. 53(2), pages 161-183, March.
    11. Kim, Jongwook & Mahoney, Joseph T., 2008. "A Strategic Theory of the Firm as a Nexus of Incomplete Contracts: A Property Rights Approach," Working Papers 08-0108, University of Illinois at Urbana-Champaign, College of Business.
    12. Susan Helper & Mari Sako, 2010. "Management innovation in supply chain: appreciating Chandler in the twenty-first century," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 19(2), pages 399-429, April.
    13. Zand, Fardad & Van Beers, Cees & Van Leeuwen, George, 2011. "Information technology, organizational change and firm productivity: A panel study of complementarity effects and clustering patterns in Manufacturing and Services," MPRA Paper 46469, University Library of Munich, Germany.
    14. Nurmilaakso, Juha-Miikka, 2008. "Adoption of e-business functions and migration from EDI-based to XML-based e-business frameworks in supply chain integration," International Journal of Production Economics, Elsevier, vol. 113(2), pages 721-733, June.
    15. Gianluigi Giustiziero & Tobias Kretschmer & Deepak Somaya & Brian Wu, 2023. "Hyperspecialization and hyperscaling: A resource‐based theory of the digital firm," Strategic Management Journal, Wiley Blackwell, vol. 44(6), pages 1391-1424, June.
    16. Mahoney, Joseph T. & McNally, Regina C., 2004. "Explaining and Predicting the Choice of Organizational Form: Integrating Performance Ambiguity and Asset Specificity Effects," Working Papers 04-0109, University of Illinois at Urbana-Champaign, College of Business.
    17. Murmann, Johann Peter & Frenken, Koen, 2006. "Toward a systematic framework for research on dominant designs, technological innovations, and industrial change," Research Policy, Elsevier, vol. 35(7), pages 925-952, September.
    18. Gonzalez-Diaz, Manuel & Arrunada, Benito & Fernandez, Alberto, 2000. "Causes of subcontracting: evidence from panel data on construction firms," Journal of Economic Behavior & Organization, Elsevier, vol. 42(2), pages 167-187, June.
    19. Manuel González & Benito Arruñada & Alberto Fernández, 1997. "La decisión de subcontratar: el caso de las empresas constructoras," Investigaciones Economicas, Fundación SEPI, vol. 21(3), pages 501-521, September.
    20. Wang, Sen & Bogle, Tim & van Kooten, G. Cornelis, 2012. "Forestry and the New Institutional Economics," Working Papers 130818, University of Victoria, Resource Economics and Policy.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecl:illbus:13-0100. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/cbuiuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.