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): 131-145 Presented by Jiayue (Julie) Ao, Fall 2016

Overview Interorganizational Strategies Limitations of Transaction Cost Perspective A Single Firm, Cost Minimization Emphasis A Structural Emphasis Transactional Value Analysis Joint Value Maximization Emphasis A Processual Emphasis Conclusions

Interorganizational Strategies Interorganizational strategies are formed voluntarily by two (or more) organizations seeking to create and sustain a relationship that is valuable to both firms. Crucial transactional issue is both organizations’ concern. There is a fundamental transformation in interorganizational exchange relationships. Example: Joint ventures

Limitations of Transaction Cost Perspective When applied to interorgnaizational strategies, the standard transaction cost analysis involves only one of the two parties engaged in an interdependent exchange relationship. Neglects the interdependence between exchange partners Williamson’s view overemphasizes the structural analysis of interorganizational exchange relationships and neglects processual issues. Neglects development processes

A Single Firm, Cost Minimization Emphasis Williamson (1975-1985) Vertical integration The efficient solution to a transaction cost minimization problem Example: Firm Upstream (Firm U) and Firm Downstream (Firm D) The decision to integrate vertically reflects: A single firm, rather than multi-firm One firm’s “make or buy” decisions Consider only its own transaction costs

A Structural Emphasis Williamson (1975-1985) Logic of market structure- conduct-performance paradigm Small numbers (number of buyers or sellers) & Bilateral monopoly (number of firms in an industry) Asset specificity & Exit barriers Having certain structural properties before contract execution and other structural properties after contract execution (ex ante and ex post) Fails to recognize that “fundamental transformation” is a process

A Joint Value Maximization Emphasis How to estimate expected value over the expected duration of the interorganizational strategy? How to create that value with the partner firm? Gains that emerge form differences in interests (traded off to create mutual benefit) Gains that emerge form similarities in interests (blocked or hidden) Need for taking a processual approach How to claim that value?

A Processual Emphasis

Conclusions The article integrates strategic, learning, and transaction cost approach A different approach from transaction cost perspective in interorganizational strategies

Perspectives

What I Have Learned Transaction Value vs. Transaction Cost Greater value or Minimize costs More optimistic view or more pessimistic view Multi-firm or Single firm Think differently Derive new theories based on classic ones Different environment Different industries

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