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Testing alternative theories of the firm: transaction cost, knowledge‐based, and

measurement explanations for make‐or‐buy decisions in information services

Poppo and Zenger (1998)presented by Yaxian Xie

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Introduction

• Research Questions – Considering competing/alternative explanations based on

TCE, KBV and measurement issues, how is boundary choice driven by exchange attributes?

• Contributions – Comparative examination – DVs:

• Boundary choice • governance performance (methodological difficulty)

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A Model of Institutional Comparative Performance

Determinants of Comparative Performance

• Asset specificity

• Measurement difficulty

• Technological uncertainty

• Economies of scale

• Magnitude of skill set

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Method • Data

– Key informant – Sample: 1368 information service exchanges (across 152

companies)

• Measurement (DVs)– Exchange Performance (common features across market

and firm): • overall cost; quality of output or service; responsiveness to problems or

inquiries

– Boundary Choice • Percentage of outsourcing • Decision-making process measure

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Results

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Results (part)

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Conclusions

• Findings – Support TCE (asset specificity decreases market

effectiveness)– Consistent with agency theory and property rights

(measurement difficulties decrease internal performance; NOT market performance)

– Boundary choices matter (markets and hierarchies possess different capacities with various exchange attributes)

• Contributions – Comparative examination of multiple theories