The Impact of Information Technology on the Organization of Economic Activity: The "Move to the Middle" Hypothesis.

Author List: Clemons, Eric K.; Reddi, Sashidhar P.; Row, Michael C.;
Journal of Management Information Systems, 1993, Volume 10, Issue 2, Page 9/1/1935.
Investments to increase the level of explicit coordination with outside agents have generally resulted in increased risk to the firm; firms have traditionally avoided this increased risk by becoming vertically integrated or by underinvesting in coordination. This paper argues that information technology (IT) has the ability to lower coordination cost without increasing the associated transactions risk, leading to more outsourcing and less vertically integrated firms. Lower relationship-specificity of IT investments and a better monitoring capability imply that firms can more safely invest in information technology for interfirm coordination than in traditional investments for explicit coordination such as co-located facilities or specialized human resources; firms are therefore more likely to coordinate with suppliers without requiring ownership to reduce their risk. This enables them to benefit from production economies of large specialized suppliers. Moreover, rapid reduction in the cost of IT and reduction in the transactions risk of explicit coordination makes possible substantially more use of explicit coordination with suppliers. The resulting transaction economies of scale, learning curve effects, and other factors favor a move toward long-term relationships with a smaller set of suppliers. We call this combination--a move to more outsourcing, but from a reduced set of stable partnerships--the "move to the middle" hypothesis.
Keywords: interorganizational coordination;market governance;outsourcing
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#271 0.164 technology investments investment information firm firms profitability value performance impact data higher evidence diversification industry payoff return findings decisions greater
#151 0.158 costs cost switching reduce transaction increase benefits time economic production transactions savings reduction impact services reduced affect expected optimal associated
#52 0.097 supply chain information suppliers supplier partners relationships integration use chains technology interorganizational sharing systems procurement buyer interfirm coordination enterprises flexibility
#171 0.095 markets industry market ess middle integrated logistics increased demand components economics suggested emerging preference goods interesting form recent vertically chinese
#187 0.090 learning model optimal rate hand domain effort increasing curve result experts explicit strategies estimate acquire learn referral observational skills activities
#256 0.088 coordination mechanisms work contingencies boundaries temporal coordinating vertical associated activities different coordinate suggests dispersed coordinated horizontal relative demand spatial hours
#162 0.077 structural modeling scale equation implications economies large future framework perspective propose broad scope resulting identified leading analyzed second interviews analysis
#154 0.074 memory support organizations information organizational requirements different complex require development provides resources organization paper transactive depth process outside difficult breadth
#274 0.074 outsourcing transaction cost partnership information economics relationships outsource large-scale contracts specificity perspective decisions long-term develop requirements economic association factors hypotheses