Examining the Implications of Organizational Structure Changes from a Transaction Cost Perspective

Firms' rationale to outsource parts of their IT function are mainly based on cost reduction. Many vendors applied a high level of standardization in organizing the delivery of IT services to decrease their cost level. Drawing on the Transaction Cost Economics the objective of our study is to examine how environmental uncertainty and asset specificity affect vendors' functional organizational structure and, in turn, influences ex-post transaction costs. A retrospective view on a case study was investigated from the perspective of a global outsourcing vendor. Our results suggest that the vendor's functional organizational structure can be considered as a mediator in minimizing the ex-post transaction costs. Executives and managers need to be aware that uncertainty and asset specificity may lead to an increase of the coordination costs. Therefore, vendors need to reassess their organizational structure regularly and implement adjustments to control their ex-post transaction costs.