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Examining the Implications of Organizational Structure Changes from a Transaction Cost Perspective: a Longitudinal Study of an Outsourcing Vendor

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Author Info

  • Albert Plugge

    (Faculty of Technology, Policy and Management Delft University of Technology, The Netherlands)

  • Jacques Brook

    (Maastricht School of Management, the Netherlands)

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    Abstract

    Since firms’ rationale to outsource parts of their IT function are mainly based on cost reduction, many vendors applied a high level of standardization in organizing the delivery of IT services to decrease their cost level. As the environment of firms changes frequently, it is of key importance for vendors to assess how these exogenous developments affect their organizational structure. Changing the organizational structure, however, may affect the cost structure of the outsourcing arrangement over time. Drawing on the Transaction Cost Economics the objective of our study is to examine how environmental uncertainty and asset specificity affect vendors’ functional organizational structure and, in turn, influences ex-post transaction costs. A retrospective view on a case study was investigated from the perspective of a global outsourcing vendor. Studying various client episodes and the vendor’s response we find that an increase of the degree of asset specificity leads to higher transaction costs. Our results suggest that the vendor’s functional organizational structure can be considered as a mediator in minimizing the ex-post transaction costs. Executives and managers need to be aware that uncertainty and asset specificity may lead to an increase of the coordination costs. Therefore, vendors should need to reassess their organizational structure regularly and implement adjustments to control their ex-post transaction costs. The paper concludes with implications for practitioners that can help vendors in managing their cost structure.

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    File URL: http://web2.msm.nl/RePEc/msm/wpaper/MSM-WP2011-12.pdf
    File Function: First version, 2011
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    Bibliographic Info

    Paper provided by Maastricht School of Management in its series Working Papers with number 2011/12.

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    Length: 26 pages
    Date of creation: Sep 2011
    Date of revision:
    Handle: RePEc:msm:wpaper:2011/12

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    Related research

    Keywords: outsourcing; strategic management; organizational structure; transaction cost;

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    References

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    1. Germain, Richard, 1996. "The role of context and structure in radical and incremental logistics innovation adoption," Journal of Business Research, Elsevier, vol. 35(2), pages 117-127, February.
    2. Paswan, Audhesh K. & Dant, Rajiv P. & Lumpkin, James R., 1998. "An Empirical Investigation of the Linkages among Relationalism, Environmental Uncertainty, and Bureaucratization," Journal of Business Research, Elsevier, vol. 43(3), pages 125-140, November.
    3. Doll, WJ & Vonderembse, MA, 1991. "The evolution of manufacturing systems: Towards the post-industrial enterprise," Omega, Elsevier, vol. 19(5), pages 401-411.
    4. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-61, October.
    5. Jér�me Barthélemy & Bertrand V. Quélin, 2006. "Complexity of Outsourcing Contracts and "Ex Post" Transaction Costs: An Empirical Investigation," Journal of Management Studies, Wiley Blackwell, vol. 43(8), pages 1775-1797, December.
    6. Spekle, Roland F., 2001. "Explaining management control structure variety: a transaction cost economics perspective," Accounting, Organizations and Society, Elsevier, vol. 26(4-5), pages 419-441.
    7. John, George & Weitz, Barton A, 1988. "Forward Integration into Distribution: An Empirical Test of Transaction Cost Analysis," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(2), pages 337-55, Fall.
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