ABSTRACT
The simplest way to look at the relationship between technology and organisation is based on the analysis of the impact technology has on the governance structure of the firm: i.e. vertical integration – hierarchy-based mechanisms – versus vertical-disintegration – market-based mechanism or outsourcing. Vertical integration is apparently more convenient than outsourcing to deal with the uncertainty technological and non-technological changes determine in the relationships between the firm and its competitors. Indeed, following transaction cost economics, vertical integration would increase self-enforcement as the agents will have less incentive to take advantage of the contract incompleteness generated by market disturbances (Williamson 1975: 23-5, 1985: 43-63). It is thus argued that market uncertainty presumably increases vertical integration and decreases outsourcing. Moreover, as Gonzalez-Diaz et al. (2000) point out, if uncertainty interacts with specificity, the costs of recontracting in front of higher uncertainty could be prohibitive, thus favouring vertical integration only if the transaction requires specific investments. However, if re-contracting is easy (and considering, for example, the managers’ aversion to profit variability) outsourcing could be more convenient than vertical integration.
