The Organizational Impact Of Information Technology: A Transaction Costs Perspective

Abstract

This chapter introduces a theoretical framework, rooted in transaction costs economics (TCE) that clarifies the influence of Information technology (IT) upon organizations, generates a series of research propositions, and suggests specific ideas for research. It proposes that environmental uncertainty, organizational structure, and organizational strategy strongly moderate IT's effect on these costs. According to TCE, an organization's structure minimizes the information costs associated with its operations. Discussion of the theoretical framework is amplified by reviewing research and generating propositions with respect to the influence of IT on internal coordination costs, external coordination costs, and production costs. Production costs are based on the technology and the inputs used to produce a good or service. Much research in the field of IT considers how improvements in information processing influence an organization's internal coordination processes. Internal coordination costs are incurred as information is transmitted among members of the hierarchy for decision-making and monitoring purposes.