Wednesday, March 21, 2012

Understanding Hybrid Organizations using TCT

In the last blog we looked at TCT being applied to Multi-National Organization. In the current blog we focus our discussion on a class of organizations which are not completely market based or nor hierarchy based.

When we look at business environment, we find quite a few organizations which operate on the basis of long term contracts, some which are joint-ventures, a large number of franchisees and some interesting cases of network organization (for example the Japanese auto industry). These organizations are not completely based on markets for their transactions nor are they completely based on an internal hierarchy to handle transactions. These are called - hybrid organizations for the sake of analysis in TCT.

If we look at the reason for their very existence - it could be pointed to the stronger incentives and adaptive capabilities comparative to the hierarchies while simultaneously offering a greater administrative control comparative to the markets. If the stability of these organizations is considered it wouldn’t be very difficult to realize that the success of these models indicates that they are relatively stable for a considerable period of time. These sorts of hybrid organizations come in with their own set of pros and cons with respect to the issues of opportunism, information asymmetry, knowledge transfer etc. This is a separate subject of discussion not within the purview of today’s blog. 

With this article, we conclude the discussion on application of TCT; however it would be interesting to just make a mention of some of the other applications which we haven’t discussed. These include the application of TCT to understand 
  • How firms are financed
  • Role of Corporate Governance
  • Influence of Trust on exchanges in a transaction 

are some of these.

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