1. FROM TRANSACTION COST TO TRANSACTIONAL VALUE ANALYSIS: IMPLICATIONS FOR THE STUDY OF INTERORGANIZATIONAL STRATEGIES
Edward J. Zajac & Cyrus P. Olsen
Journal of Management Studies, 30 (1):
Presented by Hyewon Ma
Fall 2018

2. CONTENTS Limitations of Standard Transaction Cost Analysis
A Single Firm Analysis of Cost Minimization
Over-Emphasis on Structural Aspects
Transactional Value Approach
A Joint Value Maximization Emphasis
A Processual Emphasis
Conclusion

3. Limitations in Standard TCE
The transaction cost perspective has at least two major limitations when used to analyse interorganizational strategies 1. A single party analysis of cost minimization neglects the interdependence between exchange partners and the issue of joint value in interorganizational strategies 2. Transaction cost theory overemphasizes the structural analysis of interorganizational exchange relationships and neglects processual issues.

4. Single Firm Analysis of Cost Minimization
Vertical Integration in Williamson (1975, 1985)
The efficient solution to a transaction cost minimization problem
Choice of market or hierarchy
Interorganizational strategies
Assume that neither partner in an interorganizational strategy wishes the relationship to be terminated prematurely due to one partner’s dissatisfaction (Interdependence)
Maximize co-operative joint gains
Ex. Firm Upstream and Firm Downstream
Transaction cost minimizing decision (to integrate vertically or not)
Interorganizational strategy (joint venture)

5. Over-Emphasis on Structural Aspects
Industrial organization issues in Williamson (1975, 1985)
Bounded rationality, opportunism, and uncertainty factors are actually assumptional conditions that do not vary but the intensity of the small numbers problem defines the intensity of a transaction cost problem
Asset specificity factor is another structural dimension that can be interpreted as referring to exit barriers in a exchange relationship
 Exchange relationship is primarily a structural one (comparison of ex ante and ex post structural properties)
Transformation in interorganizational exchange relationships over time needs to be understood in terms of developmental processes

6. Transactional Value Approach
A firm’s inclination to act opportunistically is often denominated by the estimate of the negative impact on the value of expected future exchanges with its partner
 Minimizing the transaction costs may be less relevant than maximizing net present value in the exchange relationship
Transaction cost and transactional value may often be correlated such that the pursuit of greater joint value requires the use of governance structures that are less efficient from a transaction cost perspective
VALUE
COST

7. Joint Value Maximization Emphasis
Emphasis on value maximization requires a recognition of the interdependence of the exchange partners
How to estimate expected value over the expected duration of the interorganizational strategy
Two firms with complementary skills
Organizations seeking to learn from each other
How to create that value
 Differences and similarities in interests
How to claim that value

8. Processual Emphasis Process of value creation and distribution
Figure 1. A stages model of interorganizational processes
Process of value creation and distribution
Initializing Stage
Each firm formulates its own strategic plans (More complex than ex ante cost assessment)
Firms project exchange into the future
First rounds of exchanges are conducted

9. Processual Emphasis Processing Stage
Figure 1. A stages model of interorganizational processes
Processing Stage
Parallel process views that the exchange occurs simultaneously over several channels of interdependent exchange
Firms project exchange into the future
Value is not only created but also claimed and distributed
Development of trust and relational norms

10. Processual Emphasis Reconfiguring Stage
Figure 1. A stages model of interorganizational processes
Reconfiguring Stage
This stage is triggered by reaching the end of the expected duration of the relationship or changes in the partner’s perceived value of the relationship
Re-evaluation and redefinition of exchange process
This stage typically will loop back to either the initializing stage or the processing stage
 Interorganizational exchange relations are influenced by dynamic developmental processes, with the processes themselves often subject to change

11. Conclusion Contributions
This article integrates Kogut (1988)’s three explanations for why joint ventures exist by showing that strategic and learning gains often increase transaction value while simultaneously increasing transaction costs
This article provides a richer depiction of interorganizational strategies than does standard transaction cost analysis
Limitation
Value framework for interorganizational strategies is admittedly abstract
Lack of explanation of how transaction cost and transaction value are correlated

12. Discussion
Discussion of structures that fall between markets and hierarchies
Zajac & Olsen (1993)’s Interorganizational structure (Joint venture)
Williamson (1991)’s Hybrid mode (Franchising)
Transactional value (Zajac & Olsen, 1993) and Competence perspective (Williamson, 1999)