Economic activities within and between networked organizations can be coordinated via hierarchies (internal coordination) or markets (external coordination). There are theories that explain both agency theory (Jensen & Meckling, 1976) and transaction cost economics (Williamson, 1985). It is assumed that networked organizations design their organization and network of trading partners such that the sum of internal and external coordination costs is minimized. The impact of information technology (IT) has been assessed in different ways. Malone, Yates, and Benjamin (1987) expected that IT will lower transaction costs and lead to increased market coordination. Clemons, Reddi, and Row (1993, p. 9) posited that organizations will “move to the middle”, that is, to “more outsourcing, but from a reduced set of stable partnerships” if non-contractible issues such as quality and trust play an important role. Empirical evidence (Holland & Lockett, 1997) shows that companies often mix aspects from both markets and hierarchies.
Key Terms in this Chapter
Business Rules: Rules that describe the inter-entity behavior in exceptional situations.
Process Integration: Adaptation of internal processes of the networked entities to improve the alignment with the collaborative process.
Networked Organization: An organizational structure of cooperating entities, for example, people, teams, orgnizational units, or organizations. The relations between the entities cross structural, spatial, and temporal boundaries relying on rich communications networks.
Language-Action Perspective: A communicative perspective on the structure and behavior of organizations.
Contract Design: The design of a TPA that is based on an enterprise model to facilitate writing and enforcing the contract.
Trading Partner Agreement (TPA): A contract that regulates the collaboration between the networked entities and supports process integration.
Collaboration Model: A model describing routine interactions between networked entities that can be supported by information systems integration.