This is a follow up to a post covered here a few days ago which looked critically at outsourcing, starting from the fundamental question first posed by Coase on what organisations should do and what they should buy. This second post is at one level a short summary of the first one, but it’s also rather more than that. It puts forward a slightly different way of framing the question, making the point that time and uncertainty are relevant to the decision, as well as pure transaction cost narrowly defined.
There are transactions, which are in the moment, and imply no further commitment or relationship. There are contracts, which are a commitment to future transactions, and depend on shared assumptions about the future conditions in which those transactions will happen. And there are organisations, which exist in the space beyond contractual precision and certainty.
To complete the hat trick, there is also a separate post applying this thinking to Capita. Even for those less interested in the company, it’s worth reading to the end to get to the punch in the punchline:
In important ways, this is the service that Capita provided and still provides: the ability to blame problems on computers and computer people, while ignoring the physical reality of policy