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

Author

Listed:
  • Albert Plugge

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

  • Jacques Brook

    (Maastricht School of Management, the Netherlands)

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.

Suggested Citation

  • Albert Plugge & Jacques Brook, 2011. "Examining the Implications of Organizational Structure Changes from a Transaction Cost Perspective: a Longitudinal Study of an Outsourcing Vendor," Working Papers 2011/12, Maastricht School of Management.
  • Handle: RePEc:msm:wpaper:2011/12
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    File URL: http://web2.msm.nl/RePEc/msm/wpaper/MSM-WP2011-12.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    outsourcing; strategic management; organizational structure; transaction cost;
    All these keywords.

    JEL classification:

    • M19 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Other
    • M15 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - IT Management

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