Reassessing the fundamentals and beyond: Ronald Coase, the transaction cost and resource‐based theories of the firm and the institutional structure of production

Abstract

In this paper, three points are argued. The first is that Ronald Coase, best known as the forefather of transaction cost theory, foresaw many of the critical questions that proponents of the resource‐based view are concerned with today. The second is that resource‐based theory plays a potentially much more critical role in economic theory and in explaining the institutional structure of production than even many resource‐based scholars recognize. The last point is that a more complete understanding of the organization of economic activity requires a greater sensitivity to the interdependence of production and exchange relations. The arguments presented in this paper highlight important, but relatively ignored, elements in Coase's work that inform strategy research. More importantly, this paper makes the case for a triangular alignment between the triumvirate of governance structure, transaction, and resource attributes and demonstrates how the identity and strategy of a particular firm influences how its resources interact with the transaction and how the firm chooses to govern it. The general argument is then applied to the context of interfirm collaborative relations, where the key focus is broadened from just cost to also include skills/knowledge and the interdependence between cost and skills with respect to firm boundaries, both in terms of choice and nature. Such a broadening of focus enables us to additionally examine the transacting process as a productive endeavor, which underpins the co‐evolution of the competencies of partner firms. Copyright © 2002 John Wiley & Sons, Ltd.

A multi-level investigation of information technology outsourcing

“…In doing so, the study espouses Garrouste and Saussier's (2005) view that the establishment of a theory of the firm depends on the integration of its various components. It is a step toward a dialog between different theories (Madhok, 2002) and between IS and its reference disciplines, the former informing the latter (Lacity et al, 2010).…”

Costly Control: An Examination of the Tradeoff between Control Investments and Residual Risk in Interfirm Transactions

“…Prior studies have questioned why firms facing common transaction risks use interfirm controls with differing intensity (Fabrizio 2012;Madhok 2002). We posit that variation in the cost function that moderates the association between transaction risks and control investments provides an important overlooked explanation.…”

“…Prior studies argue that the pursuit of value creation moderates firms' responses to transaction conditions (Combs and Ketchen 1999;Madhok 2002) and alters firms' exposure to performance risk (Das and Teng 1996). Zajac and Olsen (1993) theorize that when interfirm transactions hinge on gaining access to unique resources, the emphasis of control shifts from preventing value appropriation to promoting value creation.…”

“…With the same conditions, a firm with greater resource needs is willing to bear greater control costs. Madhok (2002) similarly stresses that understanding resource considerations can be imperative for understanding why "there are variations in organizational form under similar transaction characteristics or, alternatively, why different firms organize similar transactions in different ways" (p. 51).…”

Outsourcing maintenance in complex process industries

“…Resources can be divided into resources and capabilities. In this respect, resources are tradable and non-specific to the firm, while capabilities are firm-specific and are used to engage the resources within the firm, such as implicit processes to transfer knowledge within the firm (Madhok, 2002;Hoopes, Madsen and Walker, 2003). This distinction has been widely adopted throughout the RBV literature (Barney, Wright and Ketchen, 2001).…”