Monday, March 26, 2012

Does TCT really look at what happens within the organization

In the last blog we looked at the criticism on the Transaction Cost Theory. In today's blog we focus on a specific drawback in the TCT which has enabled the evolution of different line of thought.

If we carefully look at TCT we realize that underlying all the discussion is that the organization under consideration is always thought to have a single objective towards which it functions. In reality this is really not the situation, in organizations there is always a possibility of conflicts arising. These goals are generally due to conflicting goals of those associated with the firm. The TCT believes that maximizing profit is the goal, however in reality - these goals within a firm are emerging and change over time and also shifts among organization members.

TCT though explains why organizations exist, fails when it comes to explaining how those associated with the firm agree on the goals set out to achieve. Just because, the economic exchange partners find it in their mutual self-interest to form an organization doesn’t mean that the differences in interests, tastes, and performances cease.

This sort of indicated the early departure from the neo-classical firm theories of which TCT was the primary one. Continuing from this blog we look at some theories which tackle this specific challenge of to the theory.

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