Transaction Cost Gruppe 7

How to understand information systems: Classical perspective: Data Flows Decision Support New approach: Transaction Cost

Limits in the conventional models Data Flow approach: Frequently used DFD, ER, OO Focus on the data flows in the organizations But organizations are complex, social structures People is the forgotten entity

Limits in the conventional models Decision Support Approach: Managers faces complex tasks and a complex environment They collect information to reduce uncertainty and support their decisions Focus on reducing uncertainty Focus on the decision making of the individual managers But managers are not “solo chess players!” Assumption: All share a common goal in the organization But ignores opportunistic behavior And ignores potential conflicts between decision makers

Limits in the conventional models

Transaction Cost Ciborra proposes the transaction cost approach to acknowledge both the economic and social nature of organizations An attempt at a short summary of the approach: An organization is a network of transactions. A transaction is an exchange of information or something of value from one actor to another. The resources it takes to facilitate the exchange, cost something. To reduce the cost, an information system can facilitate the transactions. The better the “fit” between organization and system, the lower the cost of the transactions. Example: if the delegation of a task from the UiO team to the WSU team takes more time than it would to just do it yourself, the transaction cost is too high.

Different kinds of costs Four types of cost: 1. Search costs; necessary to set up the minimal social unit for the exchange 2. Contracting costs; related to drawing up the contract that regulates the exchange 3. Control and Regulation costs; for the implementation of the contract under conditions of uncertainty 4. Maintenance costs; costs of resources employed to let the exchange develop from one phase to the next

Alternative organizations Market; the existence and full development of competition assure that the transactors about the equitability of the trade. There are no barriers in the marketplace and everybody can have access to the relevant information needed to carry out the trade. Example of a Market: “Life of Brain” : Haggling for a beard

Alternative organizations Bureaucracies; a hierarchical arrangement of transactions based on the social relationship known as legitimate authority. Legitimate authority is implemented in the contractual form of employment relations. Example of a Bureaucracy: The Ministry of Silly Walks

Alternative organizations Clan/Team; relies on the high identification among members, mutual sharing of goals and internalization of norms, values and traditions. Opportunism is low, and reliance on trust and sharing of values and norms must be adopted. Example of a clan: The knights who say “ni”.

Example from Brittain Case Study by Nicholson & Sundeep Brittish Company called Gowing Tension between management and one group of workers The workers prefered the clan/team structure Focus on informal methods, creative work, trust The management prefereed a bureaucratic structure Focus on formalism and documentation (routine work)

System types Ciborra also divide information systems into types: C-form; centralized system DC-form; decentralized systems DS-form; distributed systems CDB-form; centralized databases DDB-form; distributed databases Ciborra does not mention groupware systems specifically in connection to transaction cost as a form of system. However, we feel that groupware would be especially useful to a clan/team organization.

The ‘fit’

The project (UiO) Transaction cost within UIO sub team Search and contracting cost was low Control cost medium Maintenance cost medium Transaction cost regarding Virtual Teams Generally higher Search cost is dependent on finding right tools (E.g. WebCT) Contracting cost is dependent on tools (VC) Control cost is high since authority is reduced when not physically present Maintenance cost The usual organizational structure at IFI is teams/clans. This is ideally to respond to the high uncertainty and the high goal congruence.

The project (USA) Transaction cost with regards to the American sub team The cost of giving the Americans a task was lower than the benefit They were comfortable with the clan/team structure A common tool was provided to reduce search cost (WebCT) Contracting costs: Some, because we were initial skeptic to the American desire to do management Controlling cost: Medium Maintenance cost: Medium  Much effort required to proceed to next level of collaboration, and especially staying there.

The project (India) Transaction cost with regards to the Indian sub team Problems in the project with fitting the Indians into the project The transaction cost of giving the Indians a work task was higher than the benefit We expected the Indians to be familiar and comfortable with working in a team/clan structure But they were perhaps expecting a more bureaucratic structure. The relationship was dominated by high uncertainty and medium goal congruency  That might suggest a clan/team structure Also  Team/Clan structure is generally best to handle the high uncertainty factor in this project

Limits of Transaction Cost Model No model or perspective is perfect Economical Viewpoint Assumes opportunistic behavior Technological utopianism Threats ISD as a commodity