collis montgomery, chapter 5 by dwi joko pramudito song young kang
DESCRIPTION
Is the firm possesses resources that provide a competitive advantage in business Yes consider of competing in the business No should not be active in the businessTRANSCRIPT
Organizational Limit to Firm Scope
Collis & Montgomery, Chapter 5
ByDwi Joko PramuditoSong Young Kang
Introduction
Many corporation still expanding, entering new businesses and markets, and becoming larger and more complex
Others are reducing the scale and the scope of activities
The chapter addresses limit to the scope of the firm
Organizational Economics
Scope of the Firm: Resources and Competitive Advantage Is the firm possesses resources that
provide a competitive advantage in business
Yes consider of competing in the business
No should not be active in the business
Scope of the Firm: Market or Hierarchy Why should a particular business or
activity be performed inside the firm?
The choice lies between The Market or The Hierarchy
Corporate hierarchy will be efficient when it can be shown to be the organizational arrangement that minimizes the sum of production and governance cost
The Market
Benefit of the Market: More efficient at information processing Incentives
Cost of the market Transaction cost theory Market Failure:▪ Opportunism▪ Asset specificity▪ Uncertainty▪ High Frequency
The Hierarchy
Benefit of the Hierarchy: One party has authority over anyone
else Unified ownership reduce the pursuit of
local goals When intense coordination is needed
among parties to a transaction Cost of the Hierarchy:
Beureaucracy Agency Cost
The Choice
Market Hierarchy
Benefit Informational Efficiency
Authority
High-powered Incentives
Coordination
Cost Transaction Cost
Bureaucracy
Market Power Agency Cost
The Limit to Firm Scope
A Spectrum of Governance Structure
Choosing The Scope of the Firm Bias to the Market
Activities should be performed outside rather than inside the firm
The production cost benefit that independent suppliers can exploit and the governance cost benefit of high-powered incentives and decentralized information processing
Choosing The Scope of the Firm A Decision Process
1. Disaggregate the Industry Value Chain2. Competitive Advantage3. Market Failure4. Need for Coordination5. Importance of Incentives
Thank You