A Transactional Approach to Organizing Efficiency

Abstract

A third mode of mediating transactions, the collective, which is based upon trust and commitment, is added to Williamson `s market and hierarchical modes. The three modes provide a starting point for considering the efficiency of integrating organizations. The characteristics of the three modes as arrangements for mediating transactions are examined in the light of the two underlying dimensions of communication feedback and collaboration. Feedback is seen as a proxy for cost and would be minimized for efficient mediation of transactions providing effective integration is achieved. To mediate transactions the two fundamental problems of bounded rationality and opportunism have to be coped with by the involved parties and each mode provides a particular combination of collaborative and feedback devices for doing this. In general, it is suggested that as transactional complexity increases more feedback and collaboration is needed and hence a move from the market mode through the hierarchical mode to the collective mode needs to be made. The constituent variables of complexity are discussed and so too are the effects of the surrounding institutional environment upon the operation of each mode. The conditions under which more communication might occur than a simple concern for efficiency would suggest are also examined.