A Key to Global Success: the Role of Organizational Adaptation
According to the transaction costs theory, organizational structure of a firm can be considered as an institutional device of adaptation to uncertain conditions of incomplete contracting within business environment and thus to the transaction costs reduction. The proper adaptation course manifests itself through the predictive economic behaviour of a firm and reliable contract performance of both sides of business arrangement. Oliver Williamson has recently admitted in his work that ’one of the advantages of focusing on adaptation is that it brings added meaning to the idea of mutual gain. It is elementary that gains from trade will always be realized by moving onto the contract curve. But how is this to be accomplished in a world where complex contracts are incomplete and are implemented over time in the face of disturbances, for which contingent provisions either have not been made or, if made, are often in error? More attention to the choice of governance structures that have good adaptive properties (and less to concentrating all of the actions on the ex ante incentive alignment stage) is one of the central lessons of viewing economic organization through the lens of incomplete contracting’ .
The transaction costs concept posts that it is a comparative institutional method that has to be used for choosing a particular organizational mode. What governance structure would suit best in the given present institutional conditions for a particular business? By valuing alternative governance structures the following factors should be estimated:
complex of consumers’ preferences;
costs of company formation;
specific character of production technology;
idiosyncrasy of all parties involved into the business process;
level of asset specificity required for the production line;
propensity of the organizational structure to opportunism;
legal and state regulatory politics and their sensitivity to contract violation .
Having briefly evoked the issue of internal organization of business transactions at the global scene, one could notice the importance of the issue for achieving forming organizational success. The transaction costs approach offers the researchers of economic organization a slightly different point of view concerning the examined question. The introduced institutional concept of transaction specificity of organizations could be useful in transition economies, such as Ukrainian. Discontinuous institutional changes associated with the transition and subsequent frequent adjustments of institutions through the trial-and-error method require corresponding adaptations of transaction management structures. In accordance with the transaction costs approach, choosing a certain contracting scheme will be aimed at satisfying the condition of transaction costs minimization and survival of a firm.
References: 1. Williamson, O. E. The Economic Institutions of Capitalism. New York: Free Press, 1985. 2. Coase, R. H. The Institutional Structure of Production // American Economic Review. — 1992. — №82. — September. 3. Hopkinson, G. C., Hogarth-Scott, S. Franchise Relationship Quality: Microeconomic explanations // European Journal of Marketing. — 1999. — Vol. 33. — No. 9/10, — P. 827 – 843. 4. DiMaggio, P. and Powell, W. W. The New Institutionalism in Organizational Analysis, 1991. 5. Menard, C. The Economics of Hybrid Organizations // Paper Presented at the 6th Annual Conference of ISNIE, 2002. 6. Williamson, O. E. Examining Economic Organization through the Lenses of Contract // Paper Presented at the 6th Annual Conference of ISNIE, 2002.
Peculiarities of Economic Integration of Ukraine into the European union
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