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Functionalism Revisited: A practice based Functionalism
Unformatted Document Text:  Functionalism Revisited 7 that TCE models tend to describe the market (as governance choice) as “atomistic.” That is, transactions overtime (historicity) between two parties are not under consideration of relationship building. In relation to this notion, Perrow (1993) also observes that asset specificity is a bilateral relationship. He aptly points out that the very asset specificity that a distributor acquired through the interaction with its manufacturer is limited in its own use. That is, in most cases, the firm would not be able to use the gain with another firm. TCE and PAT is subject to these kind of criticism because the bases of argument stem from economics, which indeed concerns atomized, rationalized, decision making individuals under sets of universal conditions (market, for example). In addition to this, the advance of communication technology (computer networked organizational environment) makes the above view more complex than it was in the first place. Communication Technology Cooperative interorganizational relationships such as strategic alliances can help firms gain new competencies, conserve resources, and share risks, move more quickly into new markets and create attractive options for future investments (Hutt, Stafford, Walker, & Regingen, 2000, p.51). According to the above perspectives, using in-house facilities and personnel (through acquiring or creating internal business units or branch) becomes less attractive once inter-organizational communication becomes cheaper, easier, faster, and more efficient than dealing with an organization’s internal units. In an extreme sense, this approach suggests that an organization should seek out outsourcers in most of its activities except the core competent ability. Big organizations were expected to suffer from inefficient operations of their business units and inabilities of fast restructuring. Small and medium sized, newly created organizations were anticipated to prosper. However, this approach also leads to unsolvable quandaries on some issues. First, it is often dismissed that the cost of running internal units becomes cheaper as well. Internal units also can be efficiently operated under the minimal operating costs (modularization of business units). Such conflict on the effects of technology suggests that perhaps it is not the contingent direction that should become an issue; but how organizations adopt and use the information technology and how they evolve. Second, because of IT, assessment of these approaches becomes more complex. For example, the rationales for outsourcing in relation to the implementation of IT are (1) better communication, and (2) reduced asset specificity risks. The former effect is rather universally applicable to both in-housing and outsourcing rationales. The latter notion is based on the idea that managing valuable information through IT, the firm may be able to reduce the risk of asset specificity of a potential partner. For example, a distributor might use the consumer information, which is a crucial part for the manufacturing plan, to leverage negotiations

Authors: Kim, Hyo.
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Functionalism Revisited 7
that TCE models tend to describe the market (as governance choice) as “atomistic.” That is, transactions
overtime (historicity) between two parties are not under consideration of relationship building. In relation
to this notion, Perrow (1993) also observes that asset specificity is a bilateral relationship. He aptly
points out that the very asset specificity that a distributor acquired through the interaction with its
manufacturer is limited in its own use. That is, in most cases, the firm would not be able to use the gain
with another firm.
TCE and PAT is subject to these kind of criticism because the bases of argument stem from
economics, which indeed concerns atomized, rationalized, decision making individuals under sets of
universal conditions (market, for example). In addition to this, the advance of communication technology
(computer networked organizational environment) makes the above view more complex than it was in the
first place.
Communication Technology
Cooperative interorganizational relationships such as strategic alliances can help firms gain new
competencies, conserve resources, and share risks, move more quickly into new markets and create
attractive options for future investments (Hutt, Stafford, Walker, & Regingen, 2000, p.51). According to
the above perspectives, using in-house facilities and personnel (through acquiring or creating internal
business units or branch) becomes less attractive once inter-organizational communication becomes
cheaper, easier, faster, and more efficient than dealing with an organization’s internal units. In an
extreme sense, this approach suggests that an organization should seek out outsourcers in most of its
activities except the core competent ability. Big organizations were expected to suffer from inefficient
operations of their business units and inabilities of fast restructuring. Small and medium sized, newly
created organizations were anticipated to prosper.
However, this approach also leads to unsolvable quandaries on some issues. First, it is often
dismissed that the cost of running internal units becomes cheaper as well. Internal units also can be
efficiently operated under the minimal operating costs (modularization of business units). Such conflict
on the effects of technology suggests that perhaps it is not the contingent direction that should become an
issue; but how organizations adopt and use the information technology and how they evolve. Second,
because of IT, assessment of these approaches becomes more complex. For example, the rationales for
outsourcing in relation to the implementation of IT are (1) better communication, and (2) reduced asset
specificity risks. The former effect is rather universally applicable to both in-housing and outsourcing
rationales. The latter notion is based on the idea that managing valuable information through IT, the firm
may be able to reduce the risk of asset specificity of a potential partner. For example, a distributor might
use the consumer information, which is a crucial part for the manufacturing plan, to leverage negotiations


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