impact of IT adoption on Multinational firm boundary decision Flashcards
Two Theories are important to examine how IS influence organisations
- agency theory
- Transaction cost economics
agency theory
- agent cares more about best for them rather for the principal
3 agency costs
- monitoring costs (watch them)
- bonding costs (proof they re trustworthy)
- residual loss (occurs anyways if agents don t act in companies interest)
solving agency costs
-monitoring
- contracts
- human nature is not evil
decision information cost
cost of (mis-)communication; increases when decision right moved higher in the hierarchy; but if moved to bottom-> agency costs increase
internal coordination cost
combination of agency& decision information cost
How IT helps with reducing decision and agency costs
decision: gather information for decision
agency: track performance
Transaction cost theory
Using market has costs, sometimes cheaper to do things in-house
two categories of market transaction costs
Maintaining contractual relationships
Loss of operational efficiencies
Vertical size of a firm
- the range of how many parts a firm uses own parts
- lower market transaction costs
- internal coordination costs increase
Horizontal size of a firm
- measure of how many markets firm serves
- as horizontal increases:
scale economies increases - faces internal and external coordination costs and operations costs
Roles of IS in an organisation
- Operations: increases scale efficiencies
- Transaction processing
- Decision support
- Monitoring
- documentation and communication
Operations
- IT intensified economies of scale by allowing mass production (reduced cost of manufacturing through flexible manufacturing systems)
Transaction processing
operational efficiency by lowering transaction costs
decision support
It collects information relevant to managerial decision and even makes decision (simulation)
monitoring and performance evaluation
- effective monitoring devices
->reducing agency costs
documentation and communication
-maintains records of status and change and maintains communication channels -> decreasing internal coordination costs
how IT impacts decision rights
IT improves access to information for upper management -> decision making becomes more centralised (up)
IT improves monitoring -> reduced agency costs -> firms trust employees -> decentralised (down)
two opposing effects firms leading to hybrid structure
ITs impact on firm size
IT reduces external costs (coordinating with external partners) -> more horizontal
IT improves managing larger operations -> reducing internal costs
IT also creates economies of scale
