Transaction Cost

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Transaction Cost

• Gruppe 7

2
How to understand information systems

• Classical perspective
• Data Flows
• Decision Support
• New approach
• Transaction Cost

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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

4
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

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Limits in the conventional models
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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.

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Different kinds of costs

• Four types of cost
• Search costs necessary to set up the minimal
  social unit for the exchange
• Contracting costs related to drawing up the
  contract that regulates the exchange
• Control and Regulation costs for the
  implementation of the contract under conditions
  of uncertainty
• Maintenance costs costs of resources employed to
  let the exchange develop from one phase to the
  next

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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
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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
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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.
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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)

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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.

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The fit
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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.

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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.

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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

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Limits of Transaction Cost Model

• No model or perspective is perfect
• Economical Viewpoint
• Assumes opportunistic behavior
• Technological utopianism
• Threats ISD as a commodity