Integrating IT-Enabled Social Networks with Transaction Cost Economics and the Resource Based View of the Firm

Prior research has mostly focused on transaction cost economics (TCE) to interpret the effect of information systems (IS) on organizational governance structures. A TCE based approach predicts that information technology (IT) will lead to increased use of electronic markets to coordinate economic transactions from electronic hierarchies. However, there is contradictory evidence in the literature regarding the rise and importance of cooperative relationships, joint ventures, and value-added partnerships integrated through information systems. To reconcile these contradictions, this paper analyzes the effect of IT on governance structures based on the TCE, social network theory, and the resource based view (RBV) of the firm. The most important aspect of this paper is that instead of overemphasizing the economic perspective, as has been done in prior IS research, it pays equal attention to economic, social, and knowledge perspectives of the firm. By considering variables such as product demand uncertainty, human specificity, task complexity, and frequency of interaction, the effect of IT on governance structure has been analyzed. In this paper, we suggest that, in knowledge intensive companies, a greater degree of outsourcing will take place, not through markets as hypothesized by earlier researchers, but through an increasing number of social networks. This differentiation can not be understood in simple economic terms because social networks are not based on contracts. Therefore, we suggest that the integration of IT-enabled social networks with the TCE and RBV of the firm leads to a better understanding and improvement of decision-making and corporate governance structures in knowledge intensive firms