Transaction cost management strategies and practices for a global open economy chihiro suematsu

Management for Professionals Chihiro Suematsu Transaction Cost Management Strategies and Practices for a Global Open Economy Management for Professionals For further volumes: http://www.springer.com/series/10101 ThiS is a FM Blank Page Chihiro Suematsu Transaction Cost Management Strategies and Practices for a Global Open Economy Chihiro Suematsu Graduate School of Management Kyoto University Kyoto Japan ISSN 2192-8096 ISSN 2192-810X (electronic) ISBN 978-3-319-06888-6 ISBN 978-3-319-06889-3 (eBook) DOI 10.1007/978-3-319-06889-3 Springer Cham Heidelberg New York Dordrecht London Library of Congress Control Number: 2014943950 # Springer International Publishing Switzerland 2014 This work is subject to copyright All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed Exempted from this legal reservation are brief excerpts in connection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work Duplication of this publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher’s location, in its current version, and permission for use must always be obtained from Springer Permissions for use may be obtained through RightsLink at the Copyright Clearance Center Violations are liable to prosecution under the respective Copyright Law The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use While the advice and information in this book are believed to be true and accurate at the date of publication, neither the authors nor the editors nor the publisher can accept any legal responsibility for any errors or omissions that may be made The publisher makes no warranty, express or implied, with respect to the material contained herein Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com) Preface Over the course of human history, businesses and societies have desperately sought to reduce two types of costs: production costs and transaction costs The recent proliferation of Internet-based innovations (e.g., online marketplaces) and the numerous ways in which IT can be applied have caused transaction costs to come under more critical consideration To illustrate, consider that the development of nearly all IT applications features an exclusive emphasis on minimizing transaction costs For example, the costs and efforts expended by the author and publisher to deliver this book to you (including those related to translation, advertisement, presentation, travel, delivery, and problem solving) were roughly 0.01 % relative to what doing so would have cost a century ago These cost savings extend to the readers as well; the costs all the individuals incurred to procure this book are roughly % of what they would have been a century ago Clearly, transaction costs have dropped substantially in the last hundred years In contrast, the gross domestic products of developed countries have increased only five to ten times during the same time period It seems obvious that the rapid proliferation of the Internet and reductions in transaction costs are interconnected Despite their continuous decline, transaction costs have never been acknowledged as a type of expense per se Instead, transaction costs have traditionally been dismissed as a component of production costs Financial accounting is useful for tracking the costs associated with physical goods, but not for human activities, which comprise the majority of transaction costs Transaction costs are believed to account for at least 50 % of the gross domestic products of developed countries Our research similarly shows that 98 % of all costs incurred by a distribution company are transaction costs Even a software development subcontractor (and therefore, should have low transaction costs) is characterized by substantial transaction costs; up to 60 % of all costs incurred by this company are transaction costs Although production varies by industrial sector, business type, company, department, and individual, transaction structures tend to be invariable Therefore, it is possible to identify a universal procedure for measuring, analyzing, and streamlining transaction costs in a variety of contexts By identifying such a procedure, we can enable routinization, systemization, and IT utilization These outcomes can result in a significant increase in productivity for the company that implements them v vi Preface Given the above, in this book, the universal structure of transactions is analyzed and new methodologies for management derived from a focus on transaction costs are proposed The management of transaction costs is the key for promoting valueadded activities and innovation in particular, which have played significant roles in the intensified competition around the globe Our research has demonstrated the utility of the proposed methodologies for those companies that implement them It is the author’s hope that the readers of this volume will adopt a new perspective to understand the simple structure of transactions, which have affected (and continues to affect) the open global economy, thereby allowing them to enjoy the same advantages The author would like to thank Martin Op ’t Land, Jan Verelst, Junichi Iijima, Jan Dietz, Will Baber, Hawa Munisi, Shintaro Sengoku, Elias Sanidas, Aeon Karris, Stephen Boyd, Kenichi Ohmae, and Yoshiyuki Nunotani Kyoto, Japan March 2014 Chihiro Suematsu Introduction Understanding Globalization and the Internet from the Viewpoint of Transaction Costs Globalization is clearly interconnected with the spread of the Internet Its influence is getting more intensive as well as extensive Its advance is bringing about drastic structural changes around the world This book aims to provide a unified account on these structural changes and a mechanism to cope in this environment using the viewpoint of transaction costs The book also aims to show that what we normally see as drastic changes actually proceed according to a simple logic To see this as such, it is necessary that we overcome old paradigms and adopt a new perspective Japan is a typical example of the failure to adapt due to her successful experiences in the past The Internet has encouraged numerous innovations Almost all of these innovations have targeted producing creative ways in reducing transaction costs In fact, we can understand globalization as the outcome of the continuous effort to reduce transaction costs Before the advent of the Internet, many transactions were impossible to execute because of obstacles such as physical distance and institutional differences Because of continuous reduction of transaction costs, however, many transactions have become possible Companies and other organizations can access more sources with much lower prices for innovative parts and products, raw materials, and even workers, engineers, and professionals As the transactions between new partners increase rapidly, new transaction costs are generated New business opportunities also become available to make these transactions more efficient Reducing transaction costs has become more important than before and its relevance continues to increase As drastic reduction of the cost of transacting with the rest of the world has resulted in making business transactions around the world more convenient, division of business processes among different companies is even being advanced The ease of transactions with many partners has enabled the shift toward modularity in product architecture All emerging countries have pursued the development model of outsourcing pioneered by Taiwan, India, and China, which is considered to be a type of modularity As transactions are considered as the blood of the economy, it is not vitalized in case of stagnation and vice versa Activation of transactions makes impacts on economy unfathomably vii viii Introduction Reduced transaction costs lower the cost and widen the breadth of transmitted information This in turn accelerates the creation of de facto standards Network externality effects, bandwagon effects, and economies of scale effects have further promoted standardization and therefore “winner-takes-all”—that is, market monopoly Profit accrues to a single company that captures the standard On the other hand, it becomes difficult for companies even to survive if they find themselves in the second or third position Companies therefore aspire to dominate standards creations As such, they have to join a severe and endless competition in the capturing of standards In this competition, it is a must for them to continue improving the quality of their product and their service without letup The range of free offers (in terms of functions, usage periods, and number of users) continues to expand and it is quite common for product prices to become free today Actually almost all services provided on the Internet and most application software products for mobile smartphones are being offered at no cost Open source software products such as the Android (an OS for smartphones) are also increasing rapidly Furthermore, more and more digital contents are becoming free Theoretically it is even possible that prices are offered below variable cost Hatsune Miku from Japan heralded this digital content revolution The trend toward free product offers is even affecting real businesses outside the Internet Reduced transaction costs among the general populace are bringing about a revolution in human communication such as what is being seen in the Facebook revolution There are even numerous number of Internet services that provide a platform to share and exchange idle resources in storage at home without cost to the consumers The platform matches the needs and availability of idle resources in the form of old clothes, automobiles, guest rooms, vacation houses, fallow farmland, and construction equipment This type of services has become more popular especially after the Lehman shock in 2008 as many people have become more inclined to conserve Since many of these services are run by NPOs, we can expect that they may become more popular around the world as a new lifestyle The transaction cost is a hindrance in the transmission of information Hence, its proper management is closely related to the promotion of creativity and innovation Innovation does not happen when the necessary information is not transmitted as an outcome of high costs of transactions among involved parties Hindrances to innovation such as “Valleys of Death” (between product development and business development), “Devils River” (between research and product development), and “Darwinian Seas” (between business development and business success) can be overcome by reducing some of the transaction costs involved In this book, a number of frameworks that stimulate innovation will be introduced by showing illustrative cases that have drastically reduced transaction costs such as open innovation and open source An analogy of the concept of a transaction cost is how an individual processes thought Information transmission within the brain does not exist as frictionless (i.e., transaction costs ¼ 0) If past information can be used freely, we can expect that the brain’s capacity for data processing and creativity will increase immensely Introduction ix In other words, what is important is to reduce the transaction costs between the past and future versions of ourselves The technique in handling transaction costs in knowledge management within organizations may be applied as well As creativity is defined as “the combination of information,” the technique in managing modularity can be applied as to improve managing personal creativity The issue of transaction “costs” is not simply an issue of reducing costs as is often misunderstood Transactions involve the following constituents: searching for a partner, gathering information, negotiation and agreement, exchange, and ex post exchange Transactions become more effective when more resources are spent in each constituent (“effectiveness” can be understood as the capability of companies to fulfill their objectives such as increase in sales, development of better products, stronger brand awareness, increase in market share, and human resources and organizational development) Because resources are not infinite, transaction cost management is an issue of resources allocation and not simply an issue of reducing costs Since business activities can be determined as effective only in the future, it is therefore impossible to judge their effectiveness objectively unless one can predict the future Businesses make and execute plans that the upper management assumes as effective based on their past experiences However, businesses can improve their effectiveness by making use of acquired resources after eliminating wastage such as redundant activities and functions Many examples of wastage and redundancy in transactions that are easily observed in companies will be cited in this book The principle of a transaction cost can be applied both extensively and intensively Transaction costs should actually be used as a new index in tracking valueadding activities for businesses At the same time, its management is relatively simple Since all human activities can be considered as different forms of transaction, they can be analyzed within this unified framework encompassing the macro and the micro such as industries, companies, sections within companies, and individuals Managing Transaction Costs from the Concept of Transaction Interface In managing transaction costs, we need to know where and how they accrue It is therefore vital how transaction costs can be visualized and be understood as a structure Accounting is almost perfect in tracking mainly the costs of (physical) goods In this institution, however, transaction costs are not tracked and their mechanism remains unclear What is not measurable cannot be managed Human activities, effectively transactions, are the bases of adding value and we can expect that they will continue to be the most important resource But the reality is that their management is only based on past experience and intuition Transaction cost economics has produced two Nobel Prize winners in economics: Ronald H Coase and Oliver E Williamson Many researches have been 10.2 Promotion of Innovation Through Reduction of Transaction Costs 259 However, many fixed interfaces that assist in the procurement have been appearing on the Internet For example, LinkedIn standardized human resources’ database/network and has increased its popularity worldwide Whether they know each other in advance or not, various job offers and job-hunting information are widely shared Because the information is accurate and abundant, it has contributed greatly to human resources procurement Also, transactions of procuring business support functions such as lawyers, patent attorneys, certified tax accountants, overhead operations (e.g., accounting, general affairs, and IT), and various consultants became easier through various online matching websites AnnaLee Saxenian asserted in her previously cited book Regional Advantage (Saxenian 1994) that networking was the key success factor of Silicon Valley companies in the 1990s Interfaces have become stratified on the network and have advanced significantly from that time 10.2.3 Transactions for Business Innovation Within a Company Innovations within a company may be promoted by improvements of the related transactions Seeds of technological innovation in a company are usually developed by an R&D department The significant issue here is how to manage the balance between freedoms in inspiration (allowing any subject one desires) versus limits from marketability and feasibility in order to facilitate innovations Thus far, there exists a general tendency of ignoring the marketability and feasibility due to the difficulty to evaluate them (effectiveness) However, the number of valueless researches has increased excessively from such lack of management and interference, while the freedom of such researchers has become a part of vested rights The decision on objectively screening off projects that have lower possibility of innovation becomes important for promoting successful innovations As for marketability and feasibility, an information-sharing interface between each researcher and the director based on the viewpoints of potential market size, expected penetration, expected own market share, and cost prediction can be useful, namely, Pro Forma In addition, fixed interfaces of project management that monitor and manage the progress of technology development should be shared (e.g., the phase gate model) Also, as resource efficiency in commercialization increases when the seeds of innovation from R&D match the needs of business divisions, the establishment of matching interfaces between R&D and business divisions is effective For example, business divisions may fund seed projects in R&D that match their market needs and, in return, R&D accepts their requests derived from their business development Recently, in addition to seed development in R&D, companies have increasingly introduced business development systems focusing on marketing ideas-driven innovations such as new business plan contests and intrapreneurship systems When the cost expenditure on these trials increases, the probability of innovation occurrence also increases obviously However, it does not imply simple increase in 260 10 Innovation and Transaction Cost amount, of course; rather, it is a significant managerial decision for the investment trade-off between current operations and innovation The interfaces of the cross-functional team, introduced in Chap 1, cover most of the transactions that occur during the process of commercializing the seeds of innovation, which include “how to propose an idea of innovation,” “who should evaluate it and how,” “how to organize the team in charge,” and “who authorizes the implementation and how.” If a company puts emphasis on innovation rather than current operations and fixes these interfaces properly, then the numerous transactions in the commercialization process become smooth and efficient, resulting in significant increases in the success probability 10.3 Structure of Innovation Breakdown Innovation is doomed to breakdown Without the capabilities to solve the structure, it is impossible to overcome it In spite of the significance of innovation, most of it does not lead to expected results In order to realize it, numerous transactions need to be completed within the long process of taking an idea to commercialization Those are the aforementioned sequential transactions, each of which is by far more difficult to execute than ordinary First of all, if the quality of the idea (i.e., the expected value in the future) at the beginning is unpromising, the transaction is hardly executed (should not be executed) Also, the planning capability, execution capability, enthusiasm, physical and mental strength, problem-solving capability, and the learning ability of the person who claims his idea will lead to a successful innovation are scrutinized In reality, most of the proposed transactions will be unqualified to this point; a diamond in the rough must be searched for among enormous piles of sand Current businesses may have resulted from the success of an innovation in the past, but luck and coincidence must also account for a large share of the cause It is hard to say that a company will be as lucky as it was in the past when it achieved a successful innovation to create its current business It is quite possible that although the total amount of available resources may have increased by far, things that have been lost are more influential than the increased resources Namely, organizations have lost enthusiasm, desire, self-motivation, critical thinking, and a problemsolving capability, which are indispensable for the innovation needed for growth and expansion and were possessed by the founders This is because of the organizations’ history; people who followed fixed interfaces have been selected; people who questioned or proposed new methods were excluded because they interfered with efficiency during the process of growing in scale It had been necessary for the companies to invest in artificially fostering the culture where the employees were conscious about creating innovations even in their day-do-day operations and challenging to development of necessary capabilities 10.3 Structure of Innovation Breakdown 261 Assuming that a person with high capabilities and desire made the proposal of promising seeds for innovation, this is the point where the real difficulties of innovation start As for the seeds with a high possibility of success, the allocation of resources (capital, competent human resources, channels, and so forth) is necessary However, this leads to depriving resources that belong to current vested right holders It is hard to earn the compliance of the current vested right holders, who had succeeded in their innovations in the past It is easy for them to assert that the seeming diamond in the rough is a grain of sand because effectiveness cannot be evaluated objectively; someone should deal with unreasonable interference from them Without very powerful leadership, it is impossible to raise the seeds of uncertain innovation when considering these power political relationships Interest oppositions that are hard to solve logically occur invariably with innovation Interest oppositions within organizations are solved smoothly if there is strong leadership (even though it accompanies risk of dictatorship), and it is basically impossible to solve under unanimous solution system In Chap 6, it was explained that predominating leaders are unfavorable in village communities and changes are rejected, as it leads to heterogeneousness This is one of the biggest reasons why Japanese society is weak at innovation The issue which has been preexisting from the past has just been manifested under the growing global competition The decline of the Japanese economy is synchronously proceeding with the phenomenon, which includes globalization by digitalization, intensified competition by globalization, and increased significance of innovation for intensified competition The forte of the Japanese village community was the gradual improvement, which functioned in an environment where everyone could agree on the direction, such as when catching runners up front and the only necessary consensus building is fine adjustments When nobody raised an objection, changes on a small scale could be processed quickly, which functioned extremely well in simple transactions of production such as production cost management, quality control, and inventory control, even without IT utilization However, on the other side, it is safe to say that the organizational techniques for handling major changes on a large scale that accompanied shifts of resources from vested rights holders to emerging forces have never been developed As for such complicated and large-scale transactions, customs and tacit knowledge that have managed fixed interfaces spontaneously are no longer enough In village communities, the capability of managing fixed interfaces is very limited Too much time must be expended for the new developments or modifications to reduce transaction costs, the consequence of which makes it impossible to process innovations, which require the most difficult transactions in sequence These days, Japan seems to prostrate not just revolutionary innovation but also even extremely small changes along with loss of vitality The growing tone of nationalistic argument in the media and academia, such as “what we need is only encouragement,” “make greater use of our strength,” or “current situation is nothing wrong,” may contribute to short-term escape from the 262 10 Innovation and Transaction Cost reality, forgetting about the currently accumulated problems However, following the global movements, understanding indispensable changes, and flexibly complying with them are essentially required Substitutionability of transaction partners was included in the definition of degree of modularity in Chap 4; one of the major functions of interfaces is facilitating transactions of substitutes When interfaces are established, people try to earn their positions, and people try not to be deprived of their power In other words, competition is promoted; efforts, growth, change, and innovation are revitalized Epilogue The reduction of transaction costs as a goal of innovation was introduced in Chap 1, with examples of various business models that spread from the late 1990s The reduction of transaction costs has been globalizing the competition, which has been overly heated up There are more than two billion poverty-stricken people who are living on less than US dollars a day in developing countries, and transactions involving all these people as production workers will become possible in the near future It results in lower production costs and further decline in prices along with the reduction of the transaction costs Google’s drive navigation software on mobile phones has brought down the value of on-board navigation systems, originally priced at several hundred thousand dollars, to practically zero Their self-driving cars will replace taxi drivers soon It is just around the corner when the value of Microsoft’s software, priced at a few hundred dollars, becomes zero too Various services with amazing convenience can be obtained on smartphones, for free or less than a few dollars Tablets, which are the platform for content sales, are sold under cost and expected to be free soon Amazon has been decreasing a physical delivery fee and 3G telecommunication fee Extending this strategy, a business model providing cars under cost or free in order to monopolize the content platform on-board to show drivers restaurants and shops is also possible The intensified competition for standardization has a significant impact on competitions in general In a “winner-takes-all” economy, companies gain “all or nothing”; in order to dominate market shares, companies increasingly provide products and services at zero prices It started with software programs or services on networks that incur nearly zero variable costs and is now spread to physical business products In the Chinese online commerce market, competition became so intensified that various products were sold under cost, and this will certainly affect other markets such as India and other developing countries In India, 900 million people already possessed cell phones before the spread of fixed phones, and mobile commerce is expected to be in use before the establishment of physical distribution systems As for the Indian mobile business industry, where rapid growth is regarded as being certain, Amazon, Softbank, companies with Indian business leaders who have returned from Silicon Valley, and India’s IT behemoths (e.g., Tata and Infosys) have already entered the market and the competition is intensifying It C Suematsu, Transaction Cost Management, Management for Professionals, DOI 10.1007/978-3-319-06889-3, # Springer International Publishing Switzerland 2014 263 264 Epilogue has been reported that even Wal-Mart is planning the entry China has a market size of 1.35 billion people, and India has 1.2 billion people The outcome must be enormous when the standard position is acquired When even a few companies with the same goal and intention enter the market, it will result in great impact on price competition Even physical goods have been obtained free of charge these days since numerous design diagrams with open source license are distributed, which make extremely low-cost production at home possible by 3D printers In the spring of 2012, one of my students graduated and left for Silicon Valley to start up a company Being called a genius software programmer, with a sleeping bag and a dream of developing his software business to the size of Google, he lives and works in a free small space that his acquaintances offered in their office The business can be continued for a few years only by dozens of thousands of dollars funding from an angel For him, the few years cannot be a big risk, and if it turns out great, his dream will come true and make him a great fortune Such young generation is gathered at Silicon Valley and other places They, of course, are to start from zeroprice models Many of those must aim at business models of reducing transaction costs, where infinite business opportunities still await Some of them will successfully reduce transaction costs and furthermore production costs, which enlarges the application range of zero-price models This could be more than inflation through increasing the monetary base or even deflation, requiring radical conversions in the economy, financial policies, and the way economic activities should be The philosophy of sharing or zero prices is born in the USA, especially from antiauthoritarianism It has a strong root among innovators and accompanies resistance characteristics against vested rights that destroy innovations It started off with Internet-related activities and businesses and developed through synchronization of sharing and exchanging services on consumers’ idle resources at home (e.g., automobiles, houses, rooms, fallow farmland, used clothing, and other discarded articles) Their counterstrategy against the destruction of innovation is the zero-price model; it must become a great threat to the vested right holders Conservative companies that fail at innovation in the market or within organizations are faced with the higher possibility of becoming victim to the zero-price model challenged by incomparably smaller-sized companies The reduction of transaction costs has been progressing gradually and latently ever since the history of human beings started and is now reaching the level where the fundamentals of economic activities may be changed By having unconventional viewpoints, the existence of enormous transaction costs—that is latent everywhere— becomes clear As long as there are human activities in the market or within organizations, there lie infinite opportunities to reduce transaction costs If transaction costs are reduced, transactions that were practically impossible in the past become possible, and new transactions occur, the costs of which consequently become new targeted objects for reduction All the reduced costs can be recycled as resources That is, the new competition on developing these new enormous resources begins now Index A Accounting, Activity log, 217 Activity monitoring, 218 Activity time, 220 Ad hoc interface, 50 Adidas, Adobe Acrobat, 15 Advertisement revenue model, 92 Affiliate program, 92 Agreement cost, 31 AIDMA, 248 Air B&B, 16 Alibaba, 5, All-free-download.com, Amazon, 5, 7, 10 American Airlines, 198 American national standards institute (ANSI), 59 Android OS, 12 Angel network, 258 Answers.com, Anti-globalism, 11 Antitrust law, 196 Apple, 7, 9, 106, 172 Apples-to-apples comparison, 224 Application IC, 172 App Store, Architecture, 100, 151 ARM, 172 Asics, Ask.com, ASPLA, 173 Asset specificity, 193, 206 Astronomy, ASUKA, 173 ASUS, 9, 83, 197 AT&T, 196 Attendance management, 217 Auction, Automotive industry, 119 Aviation industry, 98 B Balanced score card (BSC), 43, 44 Bandwagon effect, 74 Bargain goods, 92 Baseband IC, 172 Battery, 102 Battery charger, 105 B2B collaboration, 18 Bilateral lock-in, 197, 201 The Bill Foundation, 13 Blogs, Blue light emitting diode, 199 Boeing 787, 98 Book review, 13 Bosch, 174 Bounded rationality, 193 Brainstorming, 234 BRIC, 173 Bridge engineer, 104 British disease, 188 Bug Tracking System, 12 Bulky products, Bureaucracy, 136 Bureaucratic rigidification, 160–162 Business customs, 61 Business development system, 259 Business laws, 59 Business modeling tool, 246 Business model of zero-price, 14–16 Business process, 49 C Suematsu, Transaction Cost Management, Management for Professionals, DOI 10.1007/978-3-319-06889-3, # Springer International Publishing Switzerland 2014 265 266 Business process outsourcing (BPO), 42 Business-to-business (B2B), Business-to-consumer (B2C), Buyers’ side transaction cost, 32 C 3C, 248 Capitalism, 51, 113 Certificate business, 90 Chain food shop, 23 Chassis, 102 Chief technology officers (CTOs), 184 China, 8–9, 187 Cisco, Closed standard, 85 Closed vertical integration, 97 Cloud computing, 101, 250 Cloud computing service, 91 CMMI, 69 Coase, R.H., 51, 127, 192 COBIT, 69 Coding system, 48 Collaboration coordinator, 18 Collaboration resource, 30 Combine, 199 Commercial law, 59 Commodity, 59 Commodity good, 230 Commodity product, 24 Common modularity family (CFM), 102 Common sense, 59 Communication, Company-based organization, 131 Company-to-company level, 221–223 Compatibility standard, 71 Competing organization, 180 Competition, 113 Composite of components, 119 Computer aided design (CAD), 168 Computer language, 17, 61 Computer program, 17 Connection, 26–27 Connection cost, 31 Consensus, 234 Consumable expenses, 220 Contract manufacturing services (CMS), Control right, 113 Convenience store, 23 Conventional distance, 206 Coordination meeting, 101 Copyright, 86 Corporate philosophy, 56 Index Cosmetics industry, 91 Cost allocation, 220 CouchSurfing, 16 Courseware material, 13 Covisint, Creative commons, 13, 88 Creativity, 239 Credit information, 27 Cross-functional team (CFT), 54 Cross-licensing agreement, 199 Cumbersome, Currency, 62 Current Versioning System, 12 Customer billing, 217 Customer center, 23 Customer relationship management (CRM), 48 Customer segmentation, 227, 248–249 Customer services, Customization, 23 Customs, 57 CVS, 60 D Darwinian Seas, 256 Database, 4, 244 Decentralization, 131–132 Decision making, 234 Dedicated assets specificity, 197 Deductive logical thinking, 152 De facto standard, 86 De facto standard strategy, 90 Degree of openness, 85 de jure standard, 86 Dell, Dell model, Delphi, 174 DEMO, 246 Department of Defense, 137 Department-to-department level, 223 Design concept, 55 Design house, 171 Designing interface, 146 Design methodologies., 143 Deutsche Industrie Normenausschuss (DIS), 59 Development project management, 12 Devils River, 256 Digital contents, Direct department, 30 Directory, 48 Direct resource, 30 Distance, 206 Distribution of human resources, 183 Index Division, 110, 131–132 Divisionalized organization, 131 3D printer, 13 Drive My Car Rentals, 16 Dun & Bradstreet (D&B) reports, 198 DuPont, 137 E e-auction, ebXML, 69 e-commerce, Economic Partnership Agreements (EPAs), 11 Economies of scale, 24, 25, 34, 52, 59, 77, 80, 111, 123, 132, 187 Economies of scope, 82 Effective cycle, 158 Effectiveness, 37 Efficiency, 37 eLearning, 89 Electrical signal, 52 Electric vehicle, 98 Electronic data interchange (EDI), 4, 201 Electronic Data Systems, 137 Electronic design automation (EDA), 172 Electronic manufacturing services (EMS), Electronic money, 76 Electronic parts industry, 121 Elevator, 22 Embedded system, 172 Employment cost, 220 Enterprise resources planning (ERP), 48 Erikson, 137 Escrow service, EU, 11, 14 EU government, 11 Exchange, 28 Exchange cost, 31 Execution management, 234 Ex post processing, 28 Ex post processing cost, 31 Externality, 73 External memories, 250 Eyeballs, F Facilitators, 249 Fallow farmland, 16 Fast food shop, 22 Fax machines, Feng Tai, Filing index, 48, 244 First-mover advantages, 82 Fisher body, 197 267 Fixed interface, 50 Fixing, 49 Flea market, 59 Flexible organization, 161 F35 Lightning II, 103 Fluid dynamics, Fon, 15 Foundry, 100 Foxconn, 9, 106, 212 Frameworks, 244 Franchiser, 22 Free discussion, 243 Freemiums, 15 Free sample, 91 Free Trade Agreements (FTAs), 11 Freewheeling communication, 242 Free WiFi, 15 Frequency, 206 Fujitsu, 173 Fukushima nuclear plant disaster, 164 Functional allocation, 112 Functional interface, 130–131 G Garbage Can Model, 40 Gates, B., 101 General electric (GE), 21, 79 General motors., 197 Genetic engineering, Giant, GitHub, 12 Global Foundries, 171 Global horizontal division, 98 GlobalNetXchange (GNX), Gmail, 14 GNU General Public License (GPL), 12 Google, 7, 9, 13, 14, 197 Google+, 15 Google Books, 15 Google Documents, 15 Google Glass, Google Hangout, 15 Google Maps, 14 Google TV, Governance structure, 191, 194, 203 Groupon, 16, 92 H HALCA, 173 Hamburger, 93 Hard disk drive (HDD), 20 Headquarter, 132 Heavy industries, 268 Help forum, Heterogeneous module, 112 Hierarchical interface, 129–130 Hierarchy, 127 Hitachi, 171, 173 H&M, Hold-up problem, 194 Homologous module, 111 Hon Hai Precision Industry, 9, 106 Horiba, 176 Horizontal distribution of functions, 25, 98 Hotel, 21 HotPads, 16 HTC, HTML, 60 HTML5, 148 Hub-and-spoke system, 101 Human asset specificity, 197 Humanitarianism, 141 Human memory, 250 Humanoid character platform, 13 Hunting team, 122 Hypothesis setting, 248 Hyundai KIA Motors, 102, 186 I IBM, 97, 171, 196 IDEF, 246 Independence of decision making, 118 India, 5, 8–9 Indirect cost, 168 Indirect department, 30, 168 Individual-to-individual level, 223–224 Inductive logical thinking, 152 Industry classification, 24 Industry sector, 21 Information exchange, 241 Information-processing capability, 251 Information security, 165–166 Information sharing, 241 Innovation, 255 Innovation breakdown, 260–262 Institutional, 206 Integral model, 116 Integrated transaction processing provider, 10 Intel, 7, 172 Intellectual property (IP) core, 100 Intelligent transportation system (ITS), 103, 174 Interconnection, 109 Interconnection interface, 72 Interest opposition, 261 Interface externalitie, 74 Interface media, 115 Interface standard, 71–73 Index Internalization, 203 International electrotechnical commission (IEC), 106 International financial reporting standards (IFRS), 139 International organization for standardization (ISO), 59 International telecommunication union (ITU), 106 Internet explorer, 196 Internet Phone, 15 Intraindividual information-processing, 250 Intraindividual interface, 251 Intraindividual transaction, 250 Intrapreneurship system, 259 iPad, 7, IP core vendor, 172 iPhone, ISO9000, 69, 109 ISO14000, 69 IT development project, 37 Item-based payments, 92 IT life cycle management, 39 IT outsourcing industry, 104 IT system, 138 iTunes store, 7, 70 J Jack Welch, 79 Japanese Industrial Standards, 102 JAVA, 86 JAVA consortium, 66 Joint Strike Fighter (JSF) program, 103 K Kaizen, 238 Keiretsu, 203 Keyence, 176 Key performance indicators (KPI), 44, 246 Khan Academy, 13 Kindle Fire, 7, Knowledge management, 241 Kobo, Kurarey, 70 Kyocera, 176 Kyoto, 176 L Labor Standards Act, 187 LandShare.net, 16 Law of the jungle, 188 Laws, 61 Index Learning-curve effect, 112 Lease, 87 Ledger, Lee Kun-Hee, 107, 187 Lenovo, 171 Lexus, 23 LG, 186, 197 Light emitting diode (LED), 199 Light frame construction industry, 139 Line, 15 LinkedIn, 259 Linux, 12, 87 Load balancing, 112 Lock-in, 200 Logistics system, 10 Lost Decades, 58 Louis V.G., Jr., 171 Low-cost carriers (LCCs), 10 M M&A, 202 Machine learning, 24 Mac OS, 145 Mainframe computer, 138 Maintenance service, 22 Make/buy choice, 204 Management consulting firm, 29, 141 Management control system, 49 Manualization, 73 Margaret Thatcher, 188 Marketing, 139 Marketing ideas-driven innovation, 259 Marketplaces, 4–7 Massachusetts Institute of Technology (MIT), 13, 88 McDonald, 164 Mechanical parts, 52 Media player, 9, 15 MediaTek, 9, 172 Meeting, 232, 244 Meeting rules, 244 The Melinda Gates Foundation, 13 The Merchant of Venice, Merida, Metrological standard, 73 Micro innovation, 258 Microsoft, 7, 9, 12, 81, 196 Microsoft Bizspark Program, 15 Micro-USB, 105 Micro water energy, 19 MIKT, 173 Miku Hatsune, 13 269 Mini computer, 138 Ministry of Economy, Trade and Industry (METI), 103, 174 MIRAI, 173 Mission, 56 Misumi, 198 Mitsubishi chemical, 70 Mitsubishi Electric, 173 Mobile phone, 11, 173 Modularity, 97, 209 Module, 97 Monetary exchange, 11 Monetary unification, 11 Mono-dukuri, 175 Monopoly, 200 Moore’s law, 19 Motherboard, 100 Motivation, 113 Motorola, 9, 83 MRO, 92 Multi-level structure, 221 Murata Manufacturing, 176 Music online marketplace, Mutually exclusive collectively exhaustive (MECE), 153 My.freecycle, 16 N National revolution, Natural languages, 61 NEC, 173 Negotiation/Agreement, 28 Negotiation cost, 31 Nested structure, 224 Netbook PC, Network effect, 73 Network externality, 69, 73 Networks, New business plan contest, 259 Next-11, 173 Nexus, Nexus 4, 83 Nexus 7, 9, 83 Nexus 10, 83 Nexus Q, Nichia, 199 Nichicon, 176 Nidec, 70, 176 Nike, Nintendo, Nitto Denko, 176 Nokia, 270 Non-contact charging, 106 North American Free Trade Agreement (NAFTA), 11 Not-for-profit online marketplace, 16 Not-invented-here syndrome, 89, 97 Novelty, 239 nVidia, 172 O Objectivity, 152 Object orientation, 100 Object-oriented programming, 53 Object-oriented software development, 246–247 Occupational qualification system, 139 Omron, 176 Online game service, 92 Online marketplaces, 4–7 Online recycling site, 16 Online rental listing site, 16 Online to offline (O2O), 16 Oodle, 16 Open courseware, 13, 88 Open Handset Alliance, 66 Open innovation, 17–18, 89 Openization, 212 Open source, 246 Open source hardware, 13 Open source initiative, 87 Open source project, 17 Open source software, 12 Open standard, 85–86 Open systems interconnection (OSI), 76 Operation interface, 72 Opportunistic behavior, 192 Oracle, 86 Organizational resource, 31 Outsourcing service provider, 132 Ownership, 51, 113 P Palm, Panasonic, 137, 173 Patent, 87, 199 PC industry, 98 PC market, 171 PC motherboard, PDF, 60 Performance standard, 71–73 Personal blog, Personal data assistant (PDA), Personal file sharing service, 91 Index Personal knowledge management systems, 250 Personnel management system, 140 Peter, F.D., 180 Pharmaceutical industry, 91 Phase gate model, 259 Phone directory assistance, 15 Photocopier, 22 Physical asset specificity, 197 Picasa, 15 Pin-Tie, 102 Plan-do-check-action (PDCA), 154 Platform, 101 PMBOK, 140, 245 Policy, 56 Postal mail system, Pou Chen, Power political relationship, 261 Presentation, 27 Presentation cost, 31 Problem solvers, 61 Product data management (PDM), 48, 107 Production, 29, 222 Production cost, 26, 222 Production department, 35 Productivity, 37 Product life cycle, 169 Product market strategies, 65 Product reputation comment, 13 Pro Forma, 245–246, 259 Project finance, 258 Pro-patent policies, 211 Property right, 85, 86 Property rights theory, 113 Prosper, 16 Protocol, 246 Public domain, 86 Public transportation system, 14 Q Q&A Web site, 6, 15 QCD, 248 Qualcomm, 172 Quality, 72 Quasi-monopoly, 211 Quora, R Railway company, 198 Raison d’etre of organization, 179–186 Rakuten, 5, Rationality, 193 Index R&D activity, 229–230 R&D strategy, 89 Reebok, Renault/Nissan group, 98 Renesas Electronics, 173 Rental, 87 RentMyCar, 16 Reputation, Resale price maintenance, 198 Research and development, 184 Residual control right, 113 Resource sharing, 112 Resources procurement, 258–259 Restaurant business, 23 Retailer, 198 Return on investment (ROI), 37 Ride comfort, 102 Right of modification, 86 Right of publicity, 87 Right of redistribution, 86 Right of reproduction, 86 Right of sales, 86 Right of use, 86 Roaming services, 11 Robot program, 142 Rolls-Royce, 98 Ronald Coase Research Institute, 213 Roomorama, 16 S SabbaticalHomes, 16 Sales activities daily report forms, 47–48 Sales activity, 227, 230 Sales force automation (SFA), 140 Sales promotion materials, 224 Sales reporting form, 245 Samsung, 107, 186 Schumpeter, J.A., 255 Search engine, 14 Search function, 252 Second source, 195 Security exchange market, 59 Security psychology, 75 Selection and concentration, 79, 204 Selete, 173 Service, 21 Service science, 171 Shanzhai, 9, 172 SharedEarth.com, 16 271 Shared value, 56 Shop floor, 238 Silicon Valley, 18, 138 SIM card, 11 Simon, H., 193, 208 Singapore, 187 Site specificity, 197 Skill certification, 59 Skype, 15 Smart grid, 19 Smartphone, 11 Smart TV, SME, 124, 201 SMIC, 171, 172 SNS, 15 Social capital, 58 Social game, 6, 15 Social innovation, 256 Socialism, 113 Social lending, 16 Social networks (SNSs), Social search engine, Software program, 53 Solar energy, 19 Sony, 9, 21, 173 Sourcing cost, 204 South Korea, 186 Specialty retailers of private label apparel (SPAs), Specific asset, 193 Specific knowledge, 207 SQL, 60 Standard cost, 71 Standardization, 49 Standardization bodies, 59 Standard oil, 196 Standard procedure, 71 Standard process, 71 Standards, 65, 67 Stanford, 13 STARC, 173 State-run company, 199 Strategic business unit, 131 Strategy, 56 Subcontract act, 198 Substitutability, 209 Substitutionability, 117 Sun Microsystems, 86 Supercomputer, 138 Supply chain management (SCM), 272 Surface, Suriawase, 175 Switching cost, 200 Switching costs related to production, 200–201 Switching costs related to transactions, 201 SWOT, 248 System on a chip (SoC), 173 T Tacit knowledge, 57, 153, 207 Tagging systems, 252 Tag system, 48 Taiwan, 8–9, 171, 187 Tanaka, K., 240 Taobao, Tariff, 11 TCP/IP, 60 Tea-party movement, 188 Technological innovation, 256 Telecommunication protocol, 60 Telecommunication speed, 20 Telephones, Thingsverse, 13 Thinking Process, 250–252 Third-party logistics, 10 Third way, 188 TI, 172 Timekeeper, 249 Time-share resort condo, 93 Tire, 102 Tose, 176 Toshiba, 173 Toyota, 169 Trading rule, 59 Traffic information sharing, 13 Tram, 14 Transaction, 1, 222 Transaction conditions, 28 Transaction cost, 1–44, 191, 219, 222 Transaction cost, definition, 213 Transaction cost economics (TCE), 191 Transaction interface, 32 Transfer price, 131 Trans-Pacific Partnership (TPP), 11 Transportation, 62 Tree structure, 249 Trulia, 16 Trust, 58 Trust building, 212 TSMC, 9, 171, 172 TV commercial, 23 Twitter, Index U Udacity, 13 Ultrabook PC, UMC, 171 UML, 246 Uncertainty, 206 Unification, 132 UNIQLO, Universal Serial Bus, 105 University of California at Berkeley, 18 University-to-business collaboration, 18 UNIX, 87 Upper-layered interface, Usage frequency, 146 Use fee, 85 V Valeo, 174 Valleys of Death, 256 VCR, 145 Veblen, T., 208 Venture capitalist, 258 Venture-related innovation, 258–259 Vertical integration, 204 Veto, 185 Video phone, 11 Village communities, 180 VISTA, 173 Visualization, 227 Vocational license, 59 Volkswagen, 98, 102 W Wal-Mart, 5, Watch, 52 Waze, 13 Wearable computer, Web, WEB 2.0, Western digital, 171 WhipCar, 16 Wiki, 13 Wikipedia, 13, 15, 251 Williamson, O.E., 192 Wind energy, 19 Windows, 196 Windows OS, 12, 196 Wine, 66 Winner-takes-all, 65, 69–70 Work flow, 49 Work process, 248 Worldwide retail exchange (WWRE), Index Y YouTube, 6, 15 Yue Yuen Industrial, Yulong, 273 Z ZARA, Zero-price business model, 91 Zilok, 16 Zopa, 16 ... such as Amazon, Taobao of China, and Rakuten of Japan, innumerable sellers and buyers execute transactions in compliance with their standardized transaction procedures As prices and transaction. .. before consideration What is important is to analyze their advantages, disadvantages, key success factors, and solutions for disadvantages in an integral manner and evaluate the applicability for. .. Transaction Costs Are Incurred Establishment of a transaction interface incurs transaction costs 26 1.4.1 Transaction Cost Structure of Transactions and Transaction Cost Incurrence A transaction