Automating Coordination Mechanisms - Markets, Hierarchies, and Associations

This paper revisits the ”move to the market” hypothesis proposed by Malone et al. (1987) and argues that, although compatible with empirical results, the theoretical basis of this hypothesis is flawed since no clear distinction is made between coordination mechanisms and forms of governance. Based on this distinction, a theoretical framework is developed which has two main advantages compared to other modes of explanation: (1) it can easily deal with a number of theoretical inconsistencies created by existing modes of explaining IT's impact on the organization of economic activity; (2) it allows for deriving a number of hypotheses which, if not rejected by empirical tests, allow for a greater degree of confidence in the nature of the causal relationship between IT and the organization of economic activity. The paper proceeds by first developing a set of hypotheses concerning IT's impact on coordination mechanisms and, building upon this analysis, developing a second set of hypotheses concerning IT's impact on governance forms. As a novelty, these hypotheses predict the increasing importance of associative forms of governance as IT is used to automate coordination mechanisms. Implications of these hypotheses from a management and a regulatory point of view are tentatively discussed