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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27837
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| Title: | Organizational PArtnerships and the Virtual Corporation |
| Authors: | Bakos, Yannis
Brynjolfsson, Erik |
| Issue Date: | 1997 |
| Publisher: | Kluwer Academic Publishers |
| Citation: | Chapter 4 in 'Information Technology and Industrial Competitiveness: How
Information Technology Shapes Competition,' Kluwer Academic Publishers, 1997 |
| Series/Report no.: | CeDER-PP-1997-03 |
| Abstract: | Organizations are transforming their relationships with their business
partners. For example, instead of playing off dozens or even hundreds of
competing suppliers against each other, many firms are finding it more
profitable to work closely with only a small number of
"partners". While these firms generally increase their amount
of outsourcing, by focusing on a small number of partners they create
value networks that are often referred to as
"value-added-partnerships", "virtual organizations"
or "modular corporations". In this work we explore some causes
and consequences of this transformation. We apply the economic theory of
incomplete contracts to study the optimal number of business partners,
with particular attention to the role of information technology.
Surprisingly, we find that organizations will often maximize profits by
limiting their options and reducing their own bargaining power. This may
seem paradoxical in an age of cheap communications costs and aggressive
competition. However, unlike earlier studies that focused on
coordination costs, we focus on the critical importance of providing
incentives for business partners. Our results spring from the need to
make it worthwhile for business partners to invest in
"non-contractibles" like innovation, responsiveness and
information sharing. Such incentives will be stronger when the number of
competing partners is small. The findings of the theoretical models
appear to be consistent with observations from empirical research which
highlight the key role of information technology in enabling this transformation. |
| URI: | http://hdl.handle.net/2451/27837 |
| Appears in Collections: | CeDER Published Papers
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