Bureaucratic limits of firm size: Academic summary

The research tests Oliver Williamson’s proposition that transaction cost economics can explain the limits of firm size. Williamson suggests that diseconomies of scale are manifested through four interrelated factors: atmospheric consequences due to specialisation, bureaucratic insularity, incentive limits of the employment relation and communication distortion due to bounded rationality. Furthermore, Williamson argues that diseconomies of scale are counteracted by economies of scale and can be moderated by adoption of the multidivisional organisation form and by high internal asset specificity. Combined, these influences tend to cancel out and thus there is not a strong, directly observable, relationship between a large firm’s size and performance. A review of the relevant literature, including transaction cost economics, sociological studies of bureaucracy, information-processing perspectives on the firm, agency theory, and studies of incentives and motivation within firms, as well as empirical studies of trends in firm size and industry concentration, corroborates Williamson’s theoretical framework and translates it into five hypotheses: (1) Bureaucratic failure, in the form of atmospheric consequences, bureaucratic insularity, incentive limits and communication distortion, increases with firm size; (2) Large firms exhibit economies of scale; (3) Diseconomies of scale from bureaucratic failure have a negative impact on firm performance; (4) Economies of scale increase the relative profitability of large firms over smaller firms; and (5) Diseconomies of scale are moderated by two transaction cost-related factors: organisation form and asset specificity. The hypotheses are tested by applying structural equation models to primary and secondary cross-sectional data from 784 large U.S. manufacturing firms. The statistical analyses confirm the hypotheses. Thus, diseconomies of scale influence the growth and profitability of firms negatively, while economies of scale and the moderating factors have positive influences. This implies that executives and directors of large firms should pay attention to bureaucratic failure.bureaucratic failure, diseconomies of scale, transaction cost economics

Bureaucratic limits of firm size: Practitioner's summary

The research tests Oliver Williamson’s proposition that transaction cost economics can explain the limits of firm size. Williamson suggests that diseconomies of scale are manifested through four interrelated factors: atmospheric consequences due to specialisation, bureaucratic insularity, incentive limits of the employment relation and communication distortion due to bounded rationality. Furthermore, Williamson argues that diseconomies of scale are counteracted by economies of scale and can be moderated by adoption of the multidivisional organisation form and by high internal asset specificity. Combined, these influences tend to cancel out and thus there is not a strong, directly observable, relationship between a large firm’s size and performance. A review of the relevant literature, including transaction cost economics, sociological studies of bureaucracy, information-processing perspectives on the firm, agency theory, and studies of incentives and motivation within firms, as well as empirical studies of trends in firm size and industry concentration, corroborates Williamson’s theoretical framework and translates it into five hypotheses: (1) Bureaucratic failure, in the form of atmospheric consequences, bureaucratic insularity, incentive limits and communication distortion, increases with firm size; (2) Large firms exhibit economies of scale; (3) Diseconomies of scale from bureaucratic failure have a negative impact on firm performance; (4) Economies of scale increase the relative profitability of large firms over smaller firms; and (5) Diseconomies of scale are moderated by two transaction cost-related factors: organisation form and asset specificity. The hypotheses are tested by applying structural equation models to primary and secondary cross-sectional data from 784 large U.S. manufacturing firms. The statistical analyses confirm the hypotheses. Thus, diseconomies of scale influence the growth and profitability of firms negatively, while economies of scale and the moderating factors have positive influences. This implies that executives and directors of large firms should pay attention to bureaucratic failure.bureaucratic failure, diseconomies of scale, transaction cost economics

BRUCE: a program for the detection of transfer-messenger RNA genes in nucleotide sequences

A computer program, BRUCE, was developed for the identification of transfer‐messenger RNA (tmRNA) genes. The program employs heuristic algorithms to search for a tRNAAla‐like secondary structure surrounding a short sequence encoding the tag peptide. In the 57 completely sequenced bacterial genomes where tmRNA genes have been reported previously, BRUCE identified all with no false positives. In addition, BRUCE found 99 of the 100 tmRNAs identified previously in other bacteria, red chloroplasts and cyanelles. The output of the program reports the proposed tRNA secondary structure, the tmRNA gene sequence and the tag peptide

Managerial diseconomies of scale: Literature survey and hypotheses anchored in transaction cost economics

This working paper tests Oliver Williamson’s proposition that transaction cost economics can explain the limits of firm size. A review of the relevant literature corroborates Williamson’s theoretical framework and five hypotheses are formulated: (1) Bureaucratic failure, in the form of atmospheric consequences, bureaucratic insularity, incentive limits and communication distortion, increases with firm size; (2) Large firms exhibit economies of scale; (3) Diseconomies of scale from bureaucratic failure have a negative impact on firm performance; (4) Economies of scale increase the relative profitability of large firms over smaller firms; and (5) Diseconomies of scale are moderated by two transaction cost-related factors: organisation form and asset specificity. (The working paper is the foundation for the doctoral thesis “Bureaucratic Limits of Firm Size: Empirical Analysis Using Transaction Cost Economics” (Canback 2002) available at http://canback.com/henley.htm, the British Library, and UMI. The thesis contains a full statistical analysis of the hypotheses described in this paper, based on a sample of 784 U.S. manufacturing firms.)transaction cost economics, diseconomies of scale, bureaucratic failure

Transaction cost theory and management consulting: Why do management consultants exist?

The paper sheds light on two questions, using transaction cost theory: 1) Why do management consultants exist, and 2) why do they organize in independent firms. The paper also contains a history of the management consulting industry.transaction cost theory, management consulting

Diseconomies of scale in large corporations: Theory and empirical analysis

Managerial diseconomies of scale are often discussed but seldom studied. The purpose of the current research is to open up avenues of inquiry into this potentially important topic. The research tests whether diseconomies of scale influence corporate performance. It uses Coasian transaction cost economics and Williamson’s thinking on the nature of diseconomies of scale and the limits of firm size (Williamson 1975, 1985; Riordan and Williamson 1985) to develop a theoretical framework for describing diseconomies of scale, economies of scale, and moderating factors. It validates the framework against the relevant literature and translates it into five hypotheses. The hypotheses are tested in structural equation models against the 784 largest firms in the U.S. manufacturing sector in 1998. The findings are consistent with Williamson’s limits-of-firm-size framework. -------------------------- This working paper is not for the faint of heart. It is 151 pages long and contains a fiendish statistical analysis. However, the research has been widely praised. For example, Dr. Robert Axtell of the Brookings Institution wrote: "First, I find it a very nice monograph and this is not just because the subject interests me. Your literature review is thorough, the statistical methodology is appropriate, and the results are clean and important. Second, I think you have significantly pushed the frontier of testing 'transaction cost' ideas. Adherents of that school will be in your debt. Third, and most specifically, I think your analysis of the U-shaped neoclassical cost function is excellent, and gives away your experience beyond academic economics--it takes a practitioner to debunk propositions that are empirically false, although logically compelling. My mentor, Herbert Simon, would have approved. Congratulations on a very strong piece of work!" Also, the research won first prize in the EDAMBA (European Doctoral Programmes Association in Management and Business Administration) competition for best European doctoral dissertation in 2002.bureaucratic failure, diseconomies of scale, transaction cost economics

Toward an Integrated Strategy Development Framework: A New Synthesis based on The Giants of the Past

The goal of this paper is to to take the most important contributions to strategy science since the late 1950s and integrate them into coherent perspective. It brings together the ideas of Profs. Joe Bain, Michael Porter, Birger Wernerfeldt, and Roger Martin. It then overlays these micro-economic contributions with societal, economic, and technological trends. It finally adds a section on the process for developing strategies based on the framework

Where in the world is the market? : The income distribution approach to understanding consumer demand in emerging countries

Finding, measuring and capturing market opportunities in emerging countries are critical tasks for multinational con- sumer goods companies. Central to these tasks is the need to collect and analyze income distribution data within a globally coherent framework and to move beyond income metrics based on national averages. This article describes a new framework and dataset that achieves this goal and demonstrates how income distribution data, combined with consumer and marketing data, can be incorporated into simple demand models such as the Bass diffusion model or the Golder-Tellis affordability model to understand market dynamics. Our analytical effort is the first example of income distribution data being used to assess market opportunities in emerging countries. We find that demand models based on the number of people within various income brackets at national or local levels are superior to models based on average income. We further find that combining income distribution data with pricing, marketing spending, consumer behavior and distribution coverage data makes it possible to measure which factors drive demand at the brand level — even in hard-to-analyze countries

Where in the world is the market? : The income distribution approach to understanding consumer demand in emerging countries

Finding, measuring and capturing market opportunities in emerging countries are critical tasks for multinational con- sumer goods companies. Central to these tasks is the need to collect and analyze income distribution data within a globally coherent framework and to move beyond income metrics based on national averages. This article describes a new framework and dataset that achieves this goal and demonstrates how income distribution data, combined with consumer and marketing data, can be incorporated into simple demand models such as the Bass diffusion model or the Golder-Tellis affordability model to understand market dynamics. Our analytical effort is the first example of income distribution data being used to assess market opportunities in emerging countries. We find that demand models based on the number of people within various income brackets at national or local levels are superior to models based on average income. We further find that combining income distribution data with pricing, marketing spending, consumer behavior and distribution coverage data makes it possible to measure which factors drive demand at the brand level — even in hard-to-analyze countries