Friday, 29 May 2009

Transaction costs

Transaction cost is a concept that our director told me to think about. I’ve been struggling to understand how it could relate to what I’m doing, so am happy to find the concept referred to in Sturdy et al’s new book {Sturdy, 2009 #1132}.
“McKenna describes consultants as ‘pre-eminent knowledge brokers’ on the basis of their ‘status as outsiders’ and the ‘economies of knowledge’ this brings compared to insiders – they have flourished .. because they have remained outside the traditional boundaries of the firm’”(p9).
Sturdy et al say this view is founded on transaction cost economics whereby ‘the very reason why clients hire consulting firms is the fact that consultants have the ability to gain experience, expertise, methods and tools in one industry or organization and then apply them in another, thereby saving the client the costs of developing them in-house’ {Armbrüster, 2006 #1150}.
"But this view is also evident more generally. Consultants are seen to bring either technical or process expertise from the outside.”
There are so many theories reflected in the literature: neo-institutionalism, social embeddedness, actor-network theory, and dramaturgy are some they list, but they stress:
“much of the prescriptive literature reflects some of the assumptions of transaction cost economics.” (p23)
They note that boundaries have received growing attention and that
“boundaries are a particular contemporary concern in relation to three road areas: variations of the ‘make or buy’ decision inherent in transaction cost economics (TCE)…” (p28, my italics)
That's an aspect to consider - whether or not to buy, though I'd thought of it as opportunity costs rather than transactional costs.

The next paragraph describes criticism of TCE that emphasises concerns with efficiency. Perhaps I've paid little attention to efficiency. Do I need to?

STURDY, A., CLARK, T., FINCHAM, R. & HANDLEY, K. (2009) Between innovation and legitimation - boundaries and knowledge flow in management consultancy. Organization.

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