Inter-organizational Transactions Cost Management with Public Key Registers: Findings from the Netherlands

Inter-organizational Transactions Cost Management with Public Key Registers: Findings from the Netherlands

Walter T. de Vries (Faculty Geo-information Science and Earth Observation, University of Twente, Enschede, Netherlands) and Hanneke Ester (Fontys University of Applied Sciences, Eindhoven, Netherlands)
DOI: 10.4018/ijpada.2015040102


Cross-organizational e-Government projects must comply with separate and alternative accounting systems. The compliance brings about two types of problems: the emergence of transaction costs because of having to create additional and often more complex, accounting systems and a reduction of financial autonomy and accountability of individual public agencies. Conceptually transaction cost theory, in particular through using the construction ‘asset specificity' and ‘uncertainty' can qualify these problems. Empirically, a case study approach helps to contextualize these problem in a given (inter-)organizational, economical and institutional environment. The present research employs these choices to explore how the Netherlands e-Government case of establishing national key registers affects the inter-organizational accounting practices and the financial autonomy of a single organization, the Dutch Kadaster. This domain study reveals that while cross-organizational e-Government projects indeed reach cost efficiency in back-office operations they also incur transaction costs in accounting. This increases the institutional uncertainty, while decreasing the asset specificity. Both effects imply a loss in autonomy and accountability of individual public organization, such as the Kadaster. Hence, while e-Government project may operate efficiently and effectively across organizations, it reduces that of individual organizations.
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1. Introduction

One of the most significant characteristics of e-Government projects is that these often transcend traditional organizational boundaries. This is because such projects aim at aligning or optimizing inter-organizational processes and services (Su et al., 2011), and by doing so aim at creating a more optimal mode of public sector back-office integration (Bekkers, 2007). The process of inter-organizational back-office integration is therefore an objective in itself, namely through the activities aimed at aligning and implementing the same information systems in different organizations, as a side effect, namely in the form of re-thinking and re-aligning internal information processes to an external information requirement. Back-office integration is claimed to decrease the public sector cost needed to produce and deliver information services (Khayyat, 2010; Nentwig et al., 2012), and to provide better and more appropriate services to the public. However, both these efficiency and effectiveness claims need to be investigated further.

First of all, a crucial dilemma in the internal and external alignment processes concerns the financial management of the newly introduced inter-organizational processes. In the situation where e-Government projects were tightly coupled to single organizations the integration of the back-office was financed and accounted for through the internal financial management and accounting mechanisms which could directly be connected to single organizations (either through traditional budget accounting or through activity-based cost accounting). The existing the e-Government-driven initiatives introduce however cross-organizational information systems (Bekkers, 2007; de Vries and Miscione, 2010), which has created a new challenge, namely how to manage and control the finances across the organizations. As the indicators of (cross-agency) process efficiency and effectiveness are fundamentally different from the financial management of single public organizations, which are usually managed through a system of allocating yearly budgets (Matheis et al., 2009), there is a fundamental problem of conflicting cost indicators. This provides an additional challenge for measuring and controlling costs.

Secondly, as a result of the first problem, there is a new problem of how to improve production processes and delivery of services if it cannot be directly related to the cost information at hand. Introducing and coordinating e-Government services is in most countries under the authority of a national program and/or national agency. Implementation bottle-necks hereby include the coordination and finding across different levels of administration (Khadaroo et al., 2013; Misuraca et al., 2013).

Thirdly, there is the problem of connecting external financial benefit to the intra-organizational financial cost gains if the two financial systems are not directly connected. Whereas internal financial management is primarily based on cost management and cost accounting principles, external benefits tend to use models of cost-benefits, benchmarking or stated choices for example (ECORYS-NEI, 2002; Heeks, 2008). The input and output cost parameters are fundamentally different, making the comparison of costs principally difficult.

Fourthly, and this adds to the fuzziness of existing cost-benefits calculations, most e-Government processes are not sufficiently built on a true business case model. There is often a chain of organizations involved and each incur investment costs, yet the actual effectiveness benefits (which are the basic indicators for any return on investment are only reached at the point where one of those organizations interact with consumers or citizens. Allocating all costs and all benefits for each organization, or for society as a whole is usually not done with current financial or business models of e-Government. As a result, neither a single organization, or the aggregate of all organizations cannot know exactly on which financial basis they should support or reject contributing to these projects, so they cannot make an informed financial cost/benefit decision.

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