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Markets, bureaucracies and groups in the information society
Information Economics and Policy 1 (1983) 145-160. North-Holland
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MARKETS, BUREAUCRACIES AND GROUPS IN THE INFORMATION SOCIETY An Institutional Appraisal of the Impacts of Information Technology Claudio U. C I B O R R A Politecnico di Milano, 20133, Milano, Italy Universitfi della Calabria, Cosenza, Italy The issue regarding the impact of information technology on organizations is here reconsidered by applying a new analytical framework. Information technology affects the cost of transactions which take place under alternative institutional arrangements, such as markets, bureaucracies and groups; namely it shifts the boundaries which separate these different types of organizations. Information technology can affect the efficiency of the organizations which apply it and the organizational behaviour of their members. Empirical data show how computerization changes organizational patterns according to efficiency considerations. An enlargement of the framework to take into account alternative mechanisms for organizational participation, such as exit, voice and loyalty, allows to examine the impacts of information technology on participation possibilities within organizations.
Keywords.
I n f o r m a t i o n technology, t r a n s a c t i o n costs, impacts of a u t o m a t i o n , collective
action, participation costs, information society, markets, bureaucracies, groups, organizational change, exit, voice, loyalty.
I. Introduction 'Economic organizations are the means to achieve coordination among individuals and social groupings, which produce, distribute and consume goods and services making up the society wealth. Coordination, which is essentially an information and communication activity, can be carried out through different institutional arrangements, such as markets, bureaucracies, groups and mixes thereof. These institutional arrangements absorb resources to perform their tasks. An estimate of the costs of running markets, administrative hierarchies and heterarchical groups can be deduced by looking at the percentage of labour income absorbed by the 'organizers' (i.e., those who direct, coordinate, monitor and record economic activities of production): for the United States this is about 40 percent, roughly equally allocated to those who run markets and those who run administrations. ~ Information technology, in the various forms of office automation, telecommunications, edp, etc., will have widespread impacts on the quantitative and qualitative dimensions of the employment (e.g., on the subdivision between ~The estimates are due to Jonscher (1980), who has re-analized the matrix of employee compensation compiled by Porat (1977) for the year 1967 in the U.S. 0167-6245/83/$3.00 © 1983, Elsevier Science Publishers B.V. (North-Holland)
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'organizers' and 'producers'; the creation/distribution of professional skills, etc.), and on the organizations where work of production and coordination is performed, for the explicit aim of its application is a dramatic increase in productivity and efficiency of organizations. But efficiency is not everything when economic organizations are considered. They are also social systems characterized by a certain atmosphere and quality of collective life. After all, organizations have the purpose to further (part of) the interests of their members. They are the means to achieve the c o m m o n goals of groups of individuals. The consequences of the diffusion of information technology will also regard the new rules for the organization of individuals, their participation and their chances of collective action. For these reasons I propose here a study on the organizational impacts of information technology which deals primarily with the two issues of efficiency and opportunities for collective action (participation) in economic organizations. Specifically, this paper sets out the qualitative change in the population of organizations to be expected as a result of the influence of information technology on the efficiency of different organizational forms. It then puts forward a preliminary analysis of the opportunities for individuals to influence the goalseeking behavior of the computer-based organizations. In other words, given the diffusion of information technology, what will be the new set of organization constraints for individual participation and what will be the possibilities for members to negotiate their relation with the organization so as to influence its goals? The two issues are addressed as forecast exercises based on the discussion of qualitative empirical data. Several limitations characterize this type of approach, besides the lack of a robust statistical basis. These are the most important caveats: - T h e direct link between technology and organization is privileged in the analysis, diregarding other intervening social and economic factors that may change the shape of the organizations of the future. Thus, the analysis should be looked at as a ceteris paribus exercise. - T h e issue of employment is totally neglected. - T h e traditional issue concerning centralization vs. decentralization of power in computer-based organizations is not touched directly. But note that the problem of the most efficient mechanisms to exercise power and control (by setting up markets rather than hierarchies) can be dealt with using the frameworks presented here. •..... - N o cross-effect is considered between different organizations, i.e., how information technology may intervene in the relationships between government vs. firms, or unions vs. firms, etc. - T h e impacts of information technology on justice are ignored, i.e., on how institutional arrangements distribute rights and duties and determine the division of advantages from social cooperation [Rawls (1971)]. The latter reminds the reader that a full study of the organizational impacts
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of information technology would have to deal with at least the three issues of efficiency, collective action and equity. The paper is structured as follows. After section 2, which contains a short review of recent studies and normative considerations dealing more or less directly with the future impacts of new technologies on economic organizations, an analytical framework is put forward to understand organizational forms and information technology as complementary means to achieve efficient coordination. The framework is based on the notions of exchange and transaction costs and points out the role of information technology as a 'mediating technology' which can affect the pattern of contractual relations in different types of organizations. Section 4 contains empirical data regarding the impact of information technologies in a sample of manufacturing and service companies in Italy. A forecast exercise is carried out using the analytical framework to identify what might be the diffusion trends of alternative organizational forms in the information society. The 'quality of organizational life' is investigated in section 5, specifically the opportunities for individual participation. For the occasion the initial framework is integrated with the application of the concepts of organizational exit, voice and loyalty. Concluding remarks including issues of a more normative character follow.
2. Expected changes in economic organization Since the classic empirical study by Whisler (1970) on the impact of data processing on the organizational structures of a sample of insurance companies, the development of computer and telecommunication technologies (telematique or communication) indicates today the need for a broader approach to the evaluation of the organizational impacts of information technology. In what follows some of these developments together with their implications are briefly sketched.
Transborder dataflows. The availability of transborder data flows (TBDF) deeply affects multinational organizations. Specifically, data flows for control functions of headquarters about affiliates tend to increase the degree of centralization of the multinationals. Moreover, within the corporate structure new functional firms are created, such as trading companies, reinvoicing companies, etc., specialized in providing more and more coordination services to the group as a whole. The overall structure of the enterprise becomes a complex mix of product divisions, local affiliates and global functional centers [Antonelli (1981)]. The growth of T B D F seems to accelerate the process of international specialization as occuring within firms rather than between firms, thus confirming Porat's (1978) hypothesis according to which the information economy is largely bureaucratic in nature. The cottage industry. Emery (1978) and Trist (1981) see in microelectronics the opportunity for scaling down rather than up, dispersal rather than concentration, and self-management rather than external control of organizations. New forms of social and work organizations, such as 'community workshops',
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and the reassessment of the household as a socio-technical production system are envisaged. Bureaucracies will give way to self-regulating primary work systems loosely coupled through ephemeral networks. According to Rice (1980) computer conferencing may allow geographic decentralization with the shift of organizational units to rural areas, especially of routine and information transfer activities. Although the issue is a complex one, involving the appreciation of trade offs among telecommunication, transportation and energy solutions, preliminary studies don't exclude the advent of a new 'cottage industry'.
A self-service economy. Considering the structure of the whole economy, Gershuny (1978) identifies two main organizational changes which the diffusion of microelectronics may reinforce: Goods substitute services (the privately purchased and owned washing machine substitutes the laundry service), thus creating a different organization of the economy in which production carried out in the household becomes more important. -Enlargement of the tertiary sector as a consequence of the increased division of labour in the production of capital goods which substitute services. Large bureaucracies needed to provide services will give way to smaller organizations which coordinate, plan and control production and distribution of goods. -
Emerging markets. tertiary sector will
Lemoine (1981) indicates that the 'informatisation' of the
- l e n g t h e n the production cycle of marketable services, -stimulate the emergence of new jobs such as 'network managers', 'distributors of information', 'suppliers of data banks', etc., -transform the quasi-markets through which services are provided within the enterprises into real markets where information goods and services are bought and sold. Functional departments will turn into small, medium sized, highly specialized firms. Thus informatisation would appear as a driving force which reinverses the process whereby in the nineteenth century the 'visible hand' of management has taken over the market functions [Chandler (1978)]. This process is not exempted from risks. For one thing, Lemoine points out that the increased division of labour and the allocation of information service activities to the market may weaken the informal, unofficial exchange and processing of information which take place daily within the firm and which are, for example, of importance for the unions irr their bargaining activity. Will be there then more markets or more bureaucracy as a consequence of the diffusion of information technology? Will the information society be populated by more transparent or more opaque organizations? The traditional theory which looks at the impacts of computers as affecting managerial decision making in hierarchies falls short of grasping many of the organizational changes reviewed here. A new understanding is required to
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evaluate on a common basis the selective impacts of information technology on markets, bureaucracies and other economic institutions and the possible shifts among different institutional arrangements [Ciborra (1981a and b)].
3. A framework for the analysis of organization and information technology
In this section the preliminaries are put forward for a transactional view of the organization, its information system and information technology itself. This view differs from the traditional way of looking at organizations simply as decision-making hierarchies and considering computers as means to automate decision processes. We will focus successively on the new definition of organization and of information technology.
3.1. Organizations According to the New Institutional Economists [Williamson (1975)], organizations are stable networks of contractual arrangements to govern sets of transactions among individuals. The contractual arrangements define how individuals join together and coordinate their efforts to cope with the complexity of the task environment and the complexity of managing their getting together (exchange uncertainty). Contracts may vary in complexity: spot contracts regulate one-shot market transactions; contingent claims contracts whereby all future contingencies pertaining to the transaction are described and priced; contracts that because of high uncertainty require adaptative, sequential decision making (e.g., the employment relation); contracts that because of their higher duration and: complexity must be based exclusively on mutual trust, shared values and internalized norms. The web of these and other contracts is the texture which builds up, from the micro to the macro level, the economic organization. In this organizational perspective the information system of an organization can be defined as the network of information flows that are needed to create, set up, control and maintain the organization's constitutent transactions and relevant contracts. The information systems to support different types of contracts show distinct characteristics: for example the information system related to spot-contracting is highly formalized, while the one to support 'unwritten contracts' based on trust will be highly informal and idiosyncratic. Four main types of contractual arrangements (organizational forms) can be identified:
(i)
Hypointegrated organizations, where the network of transactions is full of holes, or failures. Transactions are only loosely coupled and no form of cooperation can be sure to encompass the whole organization, unless severe costs of transacting are incurred. An example is given by the system composed of a local government interacting with the economic and social institutions operating on its territory: bureaucratic institutions are mixed
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with market elements and for some activities neither government planning nor market forces are effective coordinating factors. The information system of an hypointegrated organization resembles a 'colander'. The gaps represent instances where information flows and transactions cannot go through and m e m o r y is dispersed [Ciborra, Gasbarri and Maggiolini (1978)]. (ii) Markets, where specialization and coordination are achieved through buying and selling of products and services. Costs of transacting are low and the existence of competition assures the transactors about equitability of trade. The market works as a decentralized control system, where the output of each agent is directly metered and rewarded [Alchian and Demsetz (1972)]. All the relevant information, i.e., price, quantity and quality, is available all over the market, and no special 'memory' function is required by the individual agent. (iii) Bureaucracies are more efficient arrangements of transactions when measurement of individual performance is more difficult due to 'team production' effects [Alchian and Demsetz (1972)], and idiosyncratic performance [Williamson (1975)] and transactions do not occur instantaneously among a large number of agents, so as to elicit rapidly and eliminate opportunistic behaviour stemming from a possible goal incongruence among agents. The hierarchic arrangement of transactions based on legitimate authority is more flexible to face varying circumstances which alter the term of trade and thus increase transaction costs. A body of rules and routines hierarchically structured represents the information system of the bureaucracy: rules convey the information so that decision makers can allocate resources in an adaptative, sequential and coordinated way. Rules represent the 'organizational memory' which embodies the knowledge necessary to maintain the basic pattern of transactions within the organization [Cyert and March (1963)]. (iv) Groups or clans, where the measurement of performance is more difficult, transactions are highly idiosyncratic and agents are 'locked in' once they initiate to transact so that an arrangement may take place where cooperants can rely on trust, sharing of values and internalized norms, rather than on intensive policing of individual output. The information system of a clan is highly idiosyncratic and non formalized; information exchange and communication take place through transmission of traditions, internalization of values and norms. Traditions represent the m e m o r y of the organization, accessible only after a long apprenticeship [Ouchi (1980)]. Note that real organizations include mixtures of these pure or ideal arrangements. For example, in a multi-divisional company one can identify an overall bureaucratic structure linking through legitimate authority relations the various divisions with the central office. A m o n g the divisions an internal market regulates the exchange of resources (transfer pricing). A n d both within the departments and in the central office, clan or group forms exist among managers, workers, etc.
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3.2. Information technology In the present framework information technology plays the role of a mediating technology, i.e., a technology which links several individuals through standardization and extension of linkages. The key feature (and impact) of information technology is the possibility of lowering the costs of transacting. Accordingly, data processing can be identified with other devices that lower such costs, for example middlemen and money. A few examples illustrate how the interaction between information technology and organization is explained in the transactional framework [see Ciborra (1981a)]. Consider first the issue of the organizational change of a functional organization into a multi-divisional. One of the reasons indicated to justify this change is economization on bounded rationality so as to overcome the 'control loss' from the office of the chief executive over the different functions, due to the radial expansion of the functional firm [Williamson (1975)]. Investment in vertical information systems may represent here an alternative to such an organizational change, because up to a certain extent it allows to economize on the bounded rationality of decision makers [Galbraith (1977)]. Hence, the availability of systems would push upward the size threshold passed which a change from functional to multidivisional organization is indicated. For the same reason, simple hierarchies become less justifiable below a certain size. Normally, costly decision making is one reason to give a 'peer group' a hierarchical arrangement [Williamson (1975)], but computer-based information systems (compatible with small group idiosyncracies) could support the complex communication network of a large group. Also, new forms of organizations could be explored. Consider the organizational rearrangement suggested by Strassman (1977) regarding a large functional bureaucracy oriented towards providing complex services to customers. In such an organization, functional administrative units are necessary for the specialization of skills. Costs of organizing the whole structure depend on size and complexity of the coordination and control tasks. The cost of producing the service is also correlated to the coordination costs, because the services requested by the customers must be processed sequentially through pockets of functional expertise scattered in the different administrative units. A different architecture for information handling allows to achieve greater organizational productivity and higher efficiency in the provision of the service. Namely, through 'information middlemen' who can package information products and responses to administrative needs of the customer, the information load necessary to centrally coordinate the internal work-load decreases. The middlemen are located between the bureaucracy and the customers so that the boundaries between bureaucracy and service market are redrawn. It is the middlemen who selectively access, on the basis of customers' requests, the administrative functions. The performance of the middlemen is easily monitored on the basis of the rate, cost and quality with which the output service is delivered to the customer. The middlemen act as qualified purchasers of services from the various functions; they will then assemble the services
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according to the customers' requests. The market between the bureaucracy and the middlemen provides an important coordinating function, for each administrative unit supplies the middlemen with a discrete and standardized product so that monitoring the unit's performance is made easier for the central office. By using personal computers, the middlemen can access, via a communication network, the specialized functions of even a very large, geographically dispersed bureaucracy. The network becomes a means for the local customer, through the middleman, to aggregate and coordinate various tasks to generate the complex service she or he needs.
4. Empirical data
The data of table 1 regarding a sample of Italian companies that have applied between 1978-1980 technological innovations, ranging from robots to computer-based information systems, show among other things how organizational structures are rather 'turbulent', i.e., undergo changes mainly simultaneously with technological ones [Ciborra and Roveda (1981)]. The same data can be organized differently to show future trends in the organizational population ecology. This is done in table 2, where the impacts of different technological forms are shown on the four main organizational forms previously examined (for some systems not studied during the empirical survey, such as EFT, office automation, and CAD data derived from the literature have been used). The main findings of table 2 can be summarized as follows: - t h e hypointegrated organizations undergo an integration process. The information technology fills some of the gaps of the 'colander' structure by providing cheap information goods and services to be sold on new, specialized markets. Data banks support and improve markets connecting previously isolated operators on the territory. Planning information systems integrate the workings of the administrative bureaucracy with the socio-economic processes taking place on the territory. Also, groups, coalitions of interest and more ephemeral social networks could be supported by distributed compunication. -market forms tend to strengthen and expand. Through standardization of transactions and services exchanged, markets are supported by information technology at the expenses of hypointegrated systems and bureaucracies. New markets are created and old markets are improved, for example through EFT in banking, data banks in the information, goods markets, transformation of services to be provided by administrative structures into information products, the design of computer-based internal markets among bureaucratic functions etc. (divisionalization, subcontracting etc.) introduce market elements into hierarchies, which can be supported by distributed systems, local networks and TBDF. - t h e bureaucracy becomes highly turbulent. On the one hand compunication supports the creation of very large multinational organizations. On the other
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these contain more and more internal market arrangements. In innovative environments, such as those where R & D units of the electronic industry operate, the bureaucratic organization is blended with flexible group or clan features to support matrix patterns. It has been found that information technology affects the bureaucratic form in the following way: - s m a l l hierarchies give way to small groups which manage transactions through local networks [this is the case of remote office work, see Olson (1981)]. -the size threshold between functional and divisional organizations is shifted upward: computer-based systems can support larger functional bureaucracies. -multidivisional forms can grow larger as mentioned above. In summary, the bureaucracy seems to become more and more a mechanism for distant coordination among diversified and scattered units, but it is increasingly mixed with markets elements and loses in efficiency rating as a means of local control. - groups expand their range of diffusion. In highly automated environments the actual work organization is the 'work group'. Subcontracting dissolves small hierarchies and departments of large hierarchies into small groups transacting through markets. Computer-messaging systems facilitate the shift from hierarchical organizations to different ones consisting of constantly changing teams when this is required by the failure of bureaucratic coordination and control mechanisms. As mentioned above these empirical trends cannot be regarded as a systematic forecast of the organizations mix which will populate the information society. In any case; they do not seem to contradict the scenarios outlined in section 2.
5. Participation in computer-based organizations How markets or administrative structures are shaped matters for the quality of life of individuals who operate within or in relation to organizations. The trends presented in the previous section can be further used to address the issue of the opportunities for participation in the new population of organizations, namely what will be the consequence for the role of individuals in organizations, if the forecast just outlined holds true? To provide a preliminary answer our analytical framework must be enlarged to take into account the organizational mechanisms of participation. [Williams o n (1976).] 5.1. Patterns a n d costs of organizational participation
According to Hirschman (1970), exit, voice, and loyalty are the basic mechanisms through which economic, social and political systems, individuals,
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business firms and organizations can recover and learn to recover from unsatisfactory behaviour due to low quality characteristics of the organization outputs. Exit and voice are the two main means of expressing participation, while loyalty is an intervening factor affecting the balance of the previous two in each specific situation. Exit is the typical participatory behavior of a customer who, unsatisfied with the product provided by an organization, 'punishes' that organization by not buying its products anymore. The individual with his or her decision strikes back at the unsatisfactory company and the invisible hand of the market acts so that the company loses its revenue if it does not restore the price or quality of its products. Exit can be easily carried out when transaction costs are low (transactors are not locked into the exchange). Exit is thus a 'clean', 'alienated' form of participation in the self-service economy. In contrast voice is the category of political action. It is exercised by members who are relatively locked into transacting with the organization and want to change it 'from within'. Voice is 'messy' because one has to make himself 'heard' and because there is always a graduation of alternatives for articulating interests. Exit and voice can be' both complementary and substitute strategies. The voice option, for example, is the residual way in which dissatisfied customers may react if the exit option is unavailable or proven to be uneffective. Exit can be the only move left when protest in bureaucracies does not affect the organization goals. Most frequently the two options are combined and loyalty alters the mix of the two strategies. If one is loyal to the organization and its outputs, he or she will rather exercise the voice option to a greater extent than exit. J To link the transactional framework with the analysis of participation modes, it is now necessary to analyse the costs of implementation of each participatory mechanism. Exit is typical of spot transactions occuring on the market. In this case it is a cheap alternative with - c o s t s of search for other substitute products and organizations,
- o p p o r t u n i t y costs due to loss of loyalty, if loyalty guarantees the rapid completion of transactions, higher flexibility in bargaining etc. Voice is characteristic of transactions where parties have made specific (idiosyncratic) investments. Its costs are: - t h e opportunity cost of foregoing the exit option,
- t h e direct cost of organizing and exercising voice, finding the appropriate means, time, resources, communication channels etc., - t h e costs of collective action, i.e., to set up a sufficient 'volume' to make voice be heard.
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Voice is likely to be more effective in 'small numbers' situations (i.e., in small bureaucracies and groups). For one thing, the expected effect of voice is a public good to the members of the organization and following Olson's (1965) analysis of the logic of collective action, only small organizations can hope to provide themselves with a public good. Secondly, small groups are more conducive to highly idiosyncratic investments by members. The cost of voice will get consequently higher as the number of transactors, goods and services in which to invest increases and the individual has to spend more resources in identifying faults of anyone of such elements. The costs of loyalty are related to the organizational and individual resources invested to establish sharing of values, c o m m o n traditions, informal communication and internalization of norms. Finally, note how the costs of exit, voice and loyalty boil down once more to information processing costs related to communication, control and exchange.
5.2. A forecast of participation possibilities We are now able to make a forecast of the future organizations to discuss the opportunities for organizational participation in the information society. If the forecast outlined in section 4 holds true, it is suggested that: - T h e integration of hypointegrated systems will affect positively the possibility of exercising more fully both exit and voice. This is a consequence of the general increase of the 'degree of organization' allowed by the diffusion of information technology. - T h e spreading of markets, both among and within firms and groups will make the (individualistic) exit option less costly, more widespread and attractive. - T h e enlargement of bureaucracies will affect the possibility of making voice coming from the bottom be heard at the top. The increased distance requires greater volume and organizational articulation of interests: (heads of) large departments or divisions can voice, but individuals and groups will have difficulty in getting their say through, if ad hoc communication structures are not provided for. The increased pervasiveness of bureaucracy will also make exit more difficult. - T h e splitting of small bureaucracies and the diffusion of small groups transacting through markets should enhance the efficacy of voice at local (group) level, decrease the attractiveness of exiting from self-managed units, and let loyalty play a relevant role in contrast with the trends regarding loyalty in markets and bureaucracies. The emerging picture is thus rather com0tex. In the information society, individuals seem to have to participate more explicitly as 'exchangers' rather than bureaucrats or politicians. Loyalty will be still important for small organizations, while there will be less incentives to be loyal to gigantic bureaucracies or to impersonal market forces. The advocates of decentralization should take into account such side effects: namely, it is often not appreciated that decentralization in an economy can mean extending markets thus fostering alienated participation forms such as exit.
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Of course, these conclusions have to be largely modified if information technology will be purposefully applied not only to the design of efficient economic organizations but also to design efficient participatory mechanisms, i.e., to improve chances of collective action. [Stone (1980).]
6. Concluding remarks Economic organizations form the building blocks of the institutions through which any economic policy and program can be implemented. The impacts of information technology on the economy must be studied not only around the issues of employment, production or power relationships but also for the widespread changes in the institutional arrangements through which the economic processes take place. Though with severe limitations, the paper puts forward a framework for analysing the institutional impacts of the new technology (thought of as a mediating technology) on the efficiency of economic organizations, as coordination and collective action mechanisms. The explorative forecasts regarding the future population of organizations stimulated by the diffusion of the new technology and the chances for individual participation should be integrated also by more normative preoccupations for the purposeful, institutional design of the future computer-based organizations. On the one hand, efficiency, as criterion of organizational design, prescribes the drawing of boundaries assigning transactions to markets, bureaucracies or groups or mixtures thereof, so as to minimize the overhead necessary to run alternative contractual arrangements. Information technology affects the costs of specific sets of transactions and can be considered as a support for the optimal, least cost organizational alternative. On the other, the participation criterion would indicate the design of organizations in which there would be an appropriate balance of exit, voice and loyalty, so as channels are provided to communicate dissatisfaction and exert influence from below in the cheapest and most effective way. Note how the participation criterion is related to dimensions which are absent from the efficiency framework, namely the definition of goals (effectiveness). Even in a normative perspective the two criteria are not independent: it is the nature of transactions and related costs of search, contracting, control and the information and communication systems available that determine the most efficient contractual arrangement and the mix of participation possibilities available to the transactors.
References Alchian, A.A. and H. Demsetz, 1972, Production, information costs and economic organization, American Economic Review 62, no. 5, Dec., 777-795. Antonelli, C., 1981, Transborder data flows and international b u s i n e s s - A pilot study, O E C D report DST1/ICCP/81.16, June (OECD, Paris).
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Chandler, A.D., 1978 The visible hand (Harvard University Press Cambridge, MA). Ciborra, C., 1981a, Information systems and transactions architecture, Policy Analysis and Information Systems 5, Dec. Ciborra, C., 1981b, A contractual view of information systems, Proc. EEC Conference on information technology and the representation of powerl Technical University Copenhagen, Nov. Ciborra, C. and C. Roveda, 1981, Impact of information technology upon organizational structures, in microelectronics, productivity and employment (OECD-ICCP, Paris). Ciborra, C., G. Gasbarri and P. Maggiolini, 1978, A participative approach to information systems design of hypointegrated systems, in: G. Bracchi, ed., Information systems methodologies (Springer, Berlin). Cyert, R.M. and J.G. March, 1963, A behavioural theory of the firm (Prentice Hall, Englewood Cliffs, N J). Emery, F.E., 1978, The fifth Kondradrieff wave (Centre for Continuing Education, ANU, Canberra). Galbraith, J.R., 1977, Organizational design (Addison-Wesley, Reading, MA). Gershuny, J., 1978, After industrial society? The emerging self-service economy (McMillan, London). Hirschman, A.O., 1970, Exit, voice and loyalty (Harvard University Press, Cambridge, MA). Jonscher, C., 1980, A theory of economic organization, PhD thesis (Department of Economics, Harvard University, Cambridge, MA). Lemoine, P., 1980, Informatisation and economic development, OECD report, DSTI/ICCP/80.17 (OECD, Paris). Olson, M.H., 1981, Remote office work: Implications for individuals and organization, CRIS working paper no. 25 (Graduate School of Business Administration, New York University, New York). Olson, P., 1965, The logic of collective action (Harvard University Press, Cambridge, MA). Ouchi, W.G., 1980, Markets, bureaucracies and clans, Administrative Science Quarterly 25, March, 129-141. Porat, M., 1977, The information economy: Definition and measurement, OT special publication 77-12(1) (US Department of Commerce, Washington, DC). Porat, M., 1978, Communication policy in an information society, in: G.O. Robinson, ed., Communications for tomorrow-policy perspectives for the 80s (Praeger, New York). Rawls, J., 1971, A theory of justice (Harvard University Press, Cambridge, MA). Rice, R.E., 1980, The impacts of computer-mediated organizational and interpersonal communication, in: M.E. Williams, ed., Annual Review of Information Science and Technology 15, 221-249. Stone, P., 1980, A new challenge to computer science, Scientia 1-5. Strassman, P.A., 1977, Organizational productivity-The role of information technology, in B. Gilchrist, ed., Information processing 77 (North-Holland, Amsterdam) 503-508. Trist, E., 1981, The evolution of socio-technical systems, Occasional paper 2, Ontario Quality of Working Life Center, June. Whisler, T.L., 1970, The impacts of computers on organizations (Praeger, New York). Williamson, O.E., 1975, Markets and hierarchies-Analysis and antitrust implications (The Free Press, New York). Williamson, O.E., 1976, The economics of internal organization: Exit and voice in relation to markets and hierarchies, American Economic Review 66,~no. 2, 369-377.
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MARKETS, BUREAUCRACIES AND GROUPS IN THE INFORMATION SOCIETY An Institutional Appraisal of the Impacts of Information Technology Claudio U. C I B O R R A Politecnico di Milano, 20133, Milano, Italy Universitfi della Calabria, Cosenza, Italy The issue regarding the impact of information technology on organizations is here reconsidered by applying a new analytical framework. Information technology affects the cost of transactions which take place under alternative institutional arrangements, such as markets, bureaucracies and groups; namely it shifts the boundaries which separate these different types of organizations. Information technology can affect the efficiency of the organizations which apply it and the organizational behaviour of their members. Empirical data show how computerization changes organizational patterns according to efficiency considerations. An enlargement of the framework to take into account alternative mechanisms for organizational participation, such as exit, voice and loyalty, allows to examine the impacts of information technology on participation possibilities within organizations.
Keywords.
I n f o r m a t i o n technology, t r a n s a c t i o n costs, impacts of a u t o m a t i o n , collective
action, participation costs, information society, markets, bureaucracies, groups, organizational change, exit, voice, loyalty.
I. Introduction 'Economic organizations are the means to achieve coordination among individuals and social groupings, which produce, distribute and consume goods and services making up the society wealth. Coordination, which is essentially an information and communication activity, can be carried out through different institutional arrangements, such as markets, bureaucracies, groups and mixes thereof. These institutional arrangements absorb resources to perform their tasks. An estimate of the costs of running markets, administrative hierarchies and heterarchical groups can be deduced by looking at the percentage of labour income absorbed by the 'organizers' (i.e., those who direct, coordinate, monitor and record economic activities of production): for the United States this is about 40 percent, roughly equally allocated to those who run markets and those who run administrations. ~ Information technology, in the various forms of office automation, telecommunications, edp, etc., will have widespread impacts on the quantitative and qualitative dimensions of the employment (e.g., on the subdivision between ~The estimates are due to Jonscher (1980), who has re-analized the matrix of employee compensation compiled by Porat (1977) for the year 1967 in the U.S. 0167-6245/83/$3.00 © 1983, Elsevier Science Publishers B.V. (North-Holland)
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'organizers' and 'producers'; the creation/distribution of professional skills, etc.), and on the organizations where work of production and coordination is performed, for the explicit aim of its application is a dramatic increase in productivity and efficiency of organizations. But efficiency is not everything when economic organizations are considered. They are also social systems characterized by a certain atmosphere and quality of collective life. After all, organizations have the purpose to further (part of) the interests of their members. They are the means to achieve the c o m m o n goals of groups of individuals. The consequences of the diffusion of information technology will also regard the new rules for the organization of individuals, their participation and their chances of collective action. For these reasons I propose here a study on the organizational impacts of information technology which deals primarily with the two issues of efficiency and opportunities for collective action (participation) in economic organizations. Specifically, this paper sets out the qualitative change in the population of organizations to be expected as a result of the influence of information technology on the efficiency of different organizational forms. It then puts forward a preliminary analysis of the opportunities for individuals to influence the goalseeking behavior of the computer-based organizations. In other words, given the diffusion of information technology, what will be the new set of organization constraints for individual participation and what will be the possibilities for members to negotiate their relation with the organization so as to influence its goals? The two issues are addressed as forecast exercises based on the discussion of qualitative empirical data. Several limitations characterize this type of approach, besides the lack of a robust statistical basis. These are the most important caveats: - T h e direct link between technology and organization is privileged in the analysis, diregarding other intervening social and economic factors that may change the shape of the organizations of the future. Thus, the analysis should be looked at as a ceteris paribus exercise. - T h e issue of employment is totally neglected. - T h e traditional issue concerning centralization vs. decentralization of power in computer-based organizations is not touched directly. But note that the problem of the most efficient mechanisms to exercise power and control (by setting up markets rather than hierarchies) can be dealt with using the frameworks presented here. •..... - N o cross-effect is considered between different organizations, i.e., how information technology may intervene in the relationships between government vs. firms, or unions vs. firms, etc. - T h e impacts of information technology on justice are ignored, i.e., on how institutional arrangements distribute rights and duties and determine the division of advantages from social cooperation [Rawls (1971)]. The latter reminds the reader that a full study of the organizational impacts
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of information technology would have to deal with at least the three issues of efficiency, collective action and equity. The paper is structured as follows. After section 2, which contains a short review of recent studies and normative considerations dealing more or less directly with the future impacts of new technologies on economic organizations, an analytical framework is put forward to understand organizational forms and information technology as complementary means to achieve efficient coordination. The framework is based on the notions of exchange and transaction costs and points out the role of information technology as a 'mediating technology' which can affect the pattern of contractual relations in different types of organizations. Section 4 contains empirical data regarding the impact of information technologies in a sample of manufacturing and service companies in Italy. A forecast exercise is carried out using the analytical framework to identify what might be the diffusion trends of alternative organizational forms in the information society. The 'quality of organizational life' is investigated in section 5, specifically the opportunities for individual participation. For the occasion the initial framework is integrated with the application of the concepts of organizational exit, voice and loyalty. Concluding remarks including issues of a more normative character follow.
2. Expected changes in economic organization Since the classic empirical study by Whisler (1970) on the impact of data processing on the organizational structures of a sample of insurance companies, the development of computer and telecommunication technologies (telematique or communication) indicates today the need for a broader approach to the evaluation of the organizational impacts of information technology. In what follows some of these developments together with their implications are briefly sketched.
Transborder dataflows. The availability of transborder data flows (TBDF) deeply affects multinational organizations. Specifically, data flows for control functions of headquarters about affiliates tend to increase the degree of centralization of the multinationals. Moreover, within the corporate structure new functional firms are created, such as trading companies, reinvoicing companies, etc., specialized in providing more and more coordination services to the group as a whole. The overall structure of the enterprise becomes a complex mix of product divisions, local affiliates and global functional centers [Antonelli (1981)]. The growth of T B D F seems to accelerate the process of international specialization as occuring within firms rather than between firms, thus confirming Porat's (1978) hypothesis according to which the information economy is largely bureaucratic in nature. The cottage industry. Emery (1978) and Trist (1981) see in microelectronics the opportunity for scaling down rather than up, dispersal rather than concentration, and self-management rather than external control of organizations. New forms of social and work organizations, such as 'community workshops',
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and the reassessment of the household as a socio-technical production system are envisaged. Bureaucracies will give way to self-regulating primary work systems loosely coupled through ephemeral networks. According to Rice (1980) computer conferencing may allow geographic decentralization with the shift of organizational units to rural areas, especially of routine and information transfer activities. Although the issue is a complex one, involving the appreciation of trade offs among telecommunication, transportation and energy solutions, preliminary studies don't exclude the advent of a new 'cottage industry'.
A self-service economy. Considering the structure of the whole economy, Gershuny (1978) identifies two main organizational changes which the diffusion of microelectronics may reinforce: Goods substitute services (the privately purchased and owned washing machine substitutes the laundry service), thus creating a different organization of the economy in which production carried out in the household becomes more important. -Enlargement of the tertiary sector as a consequence of the increased division of labour in the production of capital goods which substitute services. Large bureaucracies needed to provide services will give way to smaller organizations which coordinate, plan and control production and distribution of goods. -
Emerging markets. tertiary sector will
Lemoine (1981) indicates that the 'informatisation' of the
- l e n g t h e n the production cycle of marketable services, -stimulate the emergence of new jobs such as 'network managers', 'distributors of information', 'suppliers of data banks', etc., -transform the quasi-markets through which services are provided within the enterprises into real markets where information goods and services are bought and sold. Functional departments will turn into small, medium sized, highly specialized firms. Thus informatisation would appear as a driving force which reinverses the process whereby in the nineteenth century the 'visible hand' of management has taken over the market functions [Chandler (1978)]. This process is not exempted from risks. For one thing, Lemoine points out that the increased division of labour and the allocation of information service activities to the market may weaken the informal, unofficial exchange and processing of information which take place daily within the firm and which are, for example, of importance for the unions irr their bargaining activity. Will be there then more markets or more bureaucracy as a consequence of the diffusion of information technology? Will the information society be populated by more transparent or more opaque organizations? The traditional theory which looks at the impacts of computers as affecting managerial decision making in hierarchies falls short of grasping many of the organizational changes reviewed here. A new understanding is required to
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evaluate on a common basis the selective impacts of information technology on markets, bureaucracies and other economic institutions and the possible shifts among different institutional arrangements [Ciborra (1981a and b)].
3. A framework for the analysis of organization and information technology
In this section the preliminaries are put forward for a transactional view of the organization, its information system and information technology itself. This view differs from the traditional way of looking at organizations simply as decision-making hierarchies and considering computers as means to automate decision processes. We will focus successively on the new definition of organization and of information technology.
3.1. Organizations According to the New Institutional Economists [Williamson (1975)], organizations are stable networks of contractual arrangements to govern sets of transactions among individuals. The contractual arrangements define how individuals join together and coordinate their efforts to cope with the complexity of the task environment and the complexity of managing their getting together (exchange uncertainty). Contracts may vary in complexity: spot contracts regulate one-shot market transactions; contingent claims contracts whereby all future contingencies pertaining to the transaction are described and priced; contracts that because of high uncertainty require adaptative, sequential decision making (e.g., the employment relation); contracts that because of their higher duration and: complexity must be based exclusively on mutual trust, shared values and internalized norms. The web of these and other contracts is the texture which builds up, from the micro to the macro level, the economic organization. In this organizational perspective the information system of an organization can be defined as the network of information flows that are needed to create, set up, control and maintain the organization's constitutent transactions and relevant contracts. The information systems to support different types of contracts show distinct characteristics: for example the information system related to spot-contracting is highly formalized, while the one to support 'unwritten contracts' based on trust will be highly informal and idiosyncratic. Four main types of contractual arrangements (organizational forms) can be identified:
(i)
Hypointegrated organizations, where the network of transactions is full of holes, or failures. Transactions are only loosely coupled and no form of cooperation can be sure to encompass the whole organization, unless severe costs of transacting are incurred. An example is given by the system composed of a local government interacting with the economic and social institutions operating on its territory: bureaucratic institutions are mixed
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with market elements and for some activities neither government planning nor market forces are effective coordinating factors. The information system of an hypointegrated organization resembles a 'colander'. The gaps represent instances where information flows and transactions cannot go through and m e m o r y is dispersed [Ciborra, Gasbarri and Maggiolini (1978)]. (ii) Markets, where specialization and coordination are achieved through buying and selling of products and services. Costs of transacting are low and the existence of competition assures the transactors about equitability of trade. The market works as a decentralized control system, where the output of each agent is directly metered and rewarded [Alchian and Demsetz (1972)]. All the relevant information, i.e., price, quantity and quality, is available all over the market, and no special 'memory' function is required by the individual agent. (iii) Bureaucracies are more efficient arrangements of transactions when measurement of individual performance is more difficult due to 'team production' effects [Alchian and Demsetz (1972)], and idiosyncratic performance [Williamson (1975)] and transactions do not occur instantaneously among a large number of agents, so as to elicit rapidly and eliminate opportunistic behaviour stemming from a possible goal incongruence among agents. The hierarchic arrangement of transactions based on legitimate authority is more flexible to face varying circumstances which alter the term of trade and thus increase transaction costs. A body of rules and routines hierarchically structured represents the information system of the bureaucracy: rules convey the information so that decision makers can allocate resources in an adaptative, sequential and coordinated way. Rules represent the 'organizational memory' which embodies the knowledge necessary to maintain the basic pattern of transactions within the organization [Cyert and March (1963)]. (iv) Groups or clans, where the measurement of performance is more difficult, transactions are highly idiosyncratic and agents are 'locked in' once they initiate to transact so that an arrangement may take place where cooperants can rely on trust, sharing of values and internalized norms, rather than on intensive policing of individual output. The information system of a clan is highly idiosyncratic and non formalized; information exchange and communication take place through transmission of traditions, internalization of values and norms. Traditions represent the m e m o r y of the organization, accessible only after a long apprenticeship [Ouchi (1980)]. Note that real organizations include mixtures of these pure or ideal arrangements. For example, in a multi-divisional company one can identify an overall bureaucratic structure linking through legitimate authority relations the various divisions with the central office. A m o n g the divisions an internal market regulates the exchange of resources (transfer pricing). A n d both within the departments and in the central office, clan or group forms exist among managers, workers, etc.
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3.2. Information technology In the present framework information technology plays the role of a mediating technology, i.e., a technology which links several individuals through standardization and extension of linkages. The key feature (and impact) of information technology is the possibility of lowering the costs of transacting. Accordingly, data processing can be identified with other devices that lower such costs, for example middlemen and money. A few examples illustrate how the interaction between information technology and organization is explained in the transactional framework [see Ciborra (1981a)]. Consider first the issue of the organizational change of a functional organization into a multi-divisional. One of the reasons indicated to justify this change is economization on bounded rationality so as to overcome the 'control loss' from the office of the chief executive over the different functions, due to the radial expansion of the functional firm [Williamson (1975)]. Investment in vertical information systems may represent here an alternative to such an organizational change, because up to a certain extent it allows to economize on the bounded rationality of decision makers [Galbraith (1977)]. Hence, the availability of systems would push upward the size threshold passed which a change from functional to multidivisional organization is indicated. For the same reason, simple hierarchies become less justifiable below a certain size. Normally, costly decision making is one reason to give a 'peer group' a hierarchical arrangement [Williamson (1975)], but computer-based information systems (compatible with small group idiosyncracies) could support the complex communication network of a large group. Also, new forms of organizations could be explored. Consider the organizational rearrangement suggested by Strassman (1977) regarding a large functional bureaucracy oriented towards providing complex services to customers. In such an organization, functional administrative units are necessary for the specialization of skills. Costs of organizing the whole structure depend on size and complexity of the coordination and control tasks. The cost of producing the service is also correlated to the coordination costs, because the services requested by the customers must be processed sequentially through pockets of functional expertise scattered in the different administrative units. A different architecture for information handling allows to achieve greater organizational productivity and higher efficiency in the provision of the service. Namely, through 'information middlemen' who can package information products and responses to administrative needs of the customer, the information load necessary to centrally coordinate the internal work-load decreases. The middlemen are located between the bureaucracy and the customers so that the boundaries between bureaucracy and service market are redrawn. It is the middlemen who selectively access, on the basis of customers' requests, the administrative functions. The performance of the middlemen is easily monitored on the basis of the rate, cost and quality with which the output service is delivered to the customer. The middlemen act as qualified purchasers of services from the various functions; they will then assemble the services
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according to the customers' requests. The market between the bureaucracy and the middlemen provides an important coordinating function, for each administrative unit supplies the middlemen with a discrete and standardized product so that monitoring the unit's performance is made easier for the central office. By using personal computers, the middlemen can access, via a communication network, the specialized functions of even a very large, geographically dispersed bureaucracy. The network becomes a means for the local customer, through the middleman, to aggregate and coordinate various tasks to generate the complex service she or he needs.
4. Empirical data
The data of table 1 regarding a sample of Italian companies that have applied between 1978-1980 technological innovations, ranging from robots to computer-based information systems, show among other things how organizational structures are rather 'turbulent', i.e., undergo changes mainly simultaneously with technological ones [Ciborra and Roveda (1981)]. The same data can be organized differently to show future trends in the organizational population ecology. This is done in table 2, where the impacts of different technological forms are shown on the four main organizational forms previously examined (for some systems not studied during the empirical survey, such as EFT, office automation, and CAD data derived from the literature have been used). The main findings of table 2 can be summarized as follows: - t h e hypointegrated organizations undergo an integration process. The information technology fills some of the gaps of the 'colander' structure by providing cheap information goods and services to be sold on new, specialized markets. Data banks support and improve markets connecting previously isolated operators on the territory. Planning information systems integrate the workings of the administrative bureaucracy with the socio-economic processes taking place on the territory. Also, groups, coalitions of interest and more ephemeral social networks could be supported by distributed compunication. -market forms tend to strengthen and expand. Through standardization of transactions and services exchanged, markets are supported by information technology at the expenses of hypointegrated systems and bureaucracies. New markets are created and old markets are improved, for example through EFT in banking, data banks in the information, goods markets, transformation of services to be provided by administrative structures into information products, the design of computer-based internal markets among bureaucratic functions etc. (divisionalization, subcontracting etc.) introduce market elements into hierarchies, which can be supported by distributed systems, local networks and TBDF. - t h e bureaucracy becomes highly turbulent. On the one hand compunication supports the creation of very large multinational organizations. On the other
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these contain more and more internal market arrangements. In innovative environments, such as those where R & D units of the electronic industry operate, the bureaucratic organization is blended with flexible group or clan features to support matrix patterns. It has been found that information technology affects the bureaucratic form in the following way: - s m a l l hierarchies give way to small groups which manage transactions through local networks [this is the case of remote office work, see Olson (1981)]. -the size threshold between functional and divisional organizations is shifted upward: computer-based systems can support larger functional bureaucracies. -multidivisional forms can grow larger as mentioned above. In summary, the bureaucracy seems to become more and more a mechanism for distant coordination among diversified and scattered units, but it is increasingly mixed with markets elements and loses in efficiency rating as a means of local control. - groups expand their range of diffusion. In highly automated environments the actual work organization is the 'work group'. Subcontracting dissolves small hierarchies and departments of large hierarchies into small groups transacting through markets. Computer-messaging systems facilitate the shift from hierarchical organizations to different ones consisting of constantly changing teams when this is required by the failure of bureaucratic coordination and control mechanisms. As mentioned above these empirical trends cannot be regarded as a systematic forecast of the organizations mix which will populate the information society. In any case; they do not seem to contradict the scenarios outlined in section 2.
5. Participation in computer-based organizations How markets or administrative structures are shaped matters for the quality of life of individuals who operate within or in relation to organizations. The trends presented in the previous section can be further used to address the issue of the opportunities for participation in the new population of organizations, namely what will be the consequence for the role of individuals in organizations, if the forecast just outlined holds true? To provide a preliminary answer our analytical framework must be enlarged to take into account the organizational mechanisms of participation. [Williams o n (1976).] 5.1. Patterns a n d costs of organizational participation
According to Hirschman (1970), exit, voice, and loyalty are the basic mechanisms through which economic, social and political systems, individuals,
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business firms and organizations can recover and learn to recover from unsatisfactory behaviour due to low quality characteristics of the organization outputs. Exit and voice are the two main means of expressing participation, while loyalty is an intervening factor affecting the balance of the previous two in each specific situation. Exit is the typical participatory behavior of a customer who, unsatisfied with the product provided by an organization, 'punishes' that organization by not buying its products anymore. The individual with his or her decision strikes back at the unsatisfactory company and the invisible hand of the market acts so that the company loses its revenue if it does not restore the price or quality of its products. Exit can be easily carried out when transaction costs are low (transactors are not locked into the exchange). Exit is thus a 'clean', 'alienated' form of participation in the self-service economy. In contrast voice is the category of political action. It is exercised by members who are relatively locked into transacting with the organization and want to change it 'from within'. Voice is 'messy' because one has to make himself 'heard' and because there is always a graduation of alternatives for articulating interests. Exit and voice can be' both complementary and substitute strategies. The voice option, for example, is the residual way in which dissatisfied customers may react if the exit option is unavailable or proven to be uneffective. Exit can be the only move left when protest in bureaucracies does not affect the organization goals. Most frequently the two options are combined and loyalty alters the mix of the two strategies. If one is loyal to the organization and its outputs, he or she will rather exercise the voice option to a greater extent than exit. J To link the transactional framework with the analysis of participation modes, it is now necessary to analyse the costs of implementation of each participatory mechanism. Exit is typical of spot transactions occuring on the market. In this case it is a cheap alternative with - c o s t s of search for other substitute products and organizations,
- o p p o r t u n i t y costs due to loss of loyalty, if loyalty guarantees the rapid completion of transactions, higher flexibility in bargaining etc. Voice is characteristic of transactions where parties have made specific (idiosyncratic) investments. Its costs are: - t h e opportunity cost of foregoing the exit option,
- t h e direct cost of organizing and exercising voice, finding the appropriate means, time, resources, communication channels etc., - t h e costs of collective action, i.e., to set up a sufficient 'volume' to make voice be heard.
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Voice is likely to be more effective in 'small numbers' situations (i.e., in small bureaucracies and groups). For one thing, the expected effect of voice is a public good to the members of the organization and following Olson's (1965) analysis of the logic of collective action, only small organizations can hope to provide themselves with a public good. Secondly, small groups are more conducive to highly idiosyncratic investments by members. The cost of voice will get consequently higher as the number of transactors, goods and services in which to invest increases and the individual has to spend more resources in identifying faults of anyone of such elements. The costs of loyalty are related to the organizational and individual resources invested to establish sharing of values, c o m m o n traditions, informal communication and internalization of norms. Finally, note how the costs of exit, voice and loyalty boil down once more to information processing costs related to communication, control and exchange.
5.2. A forecast of participation possibilities We are now able to make a forecast of the future organizations to discuss the opportunities for organizational participation in the information society. If the forecast outlined in section 4 holds true, it is suggested that: - T h e integration of hypointegrated systems will affect positively the possibility of exercising more fully both exit and voice. This is a consequence of the general increase of the 'degree of organization' allowed by the diffusion of information technology. - T h e spreading of markets, both among and within firms and groups will make the (individualistic) exit option less costly, more widespread and attractive. - T h e enlargement of bureaucracies will affect the possibility of making voice coming from the bottom be heard at the top. The increased distance requires greater volume and organizational articulation of interests: (heads of) large departments or divisions can voice, but individuals and groups will have difficulty in getting their say through, if ad hoc communication structures are not provided for. The increased pervasiveness of bureaucracy will also make exit more difficult. - T h e splitting of small bureaucracies and the diffusion of small groups transacting through markets should enhance the efficacy of voice at local (group) level, decrease the attractiveness of exiting from self-managed units, and let loyalty play a relevant role in contrast with the trends regarding loyalty in markets and bureaucracies. The emerging picture is thus rather com0tex. In the information society, individuals seem to have to participate more explicitly as 'exchangers' rather than bureaucrats or politicians. Loyalty will be still important for small organizations, while there will be less incentives to be loyal to gigantic bureaucracies or to impersonal market forces. The advocates of decentralization should take into account such side effects: namely, it is often not appreciated that decentralization in an economy can mean extending markets thus fostering alienated participation forms such as exit.
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Of course, these conclusions have to be largely modified if information technology will be purposefully applied not only to the design of efficient economic organizations but also to design efficient participatory mechanisms, i.e., to improve chances of collective action. [Stone (1980).]
6. Concluding remarks Economic organizations form the building blocks of the institutions through which any economic policy and program can be implemented. The impacts of information technology on the economy must be studied not only around the issues of employment, production or power relationships but also for the widespread changes in the institutional arrangements through which the economic processes take place. Though with severe limitations, the paper puts forward a framework for analysing the institutional impacts of the new technology (thought of as a mediating technology) on the efficiency of economic organizations, as coordination and collective action mechanisms. The explorative forecasts regarding the future population of organizations stimulated by the diffusion of the new technology and the chances for individual participation should be integrated also by more normative preoccupations for the purposeful, institutional design of the future computer-based organizations. On the one hand, efficiency, as criterion of organizational design, prescribes the drawing of boundaries assigning transactions to markets, bureaucracies or groups or mixtures thereof, so as to minimize the overhead necessary to run alternative contractual arrangements. Information technology affects the costs of specific sets of transactions and can be considered as a support for the optimal, least cost organizational alternative. On the other, the participation criterion would indicate the design of organizations in which there would be an appropriate balance of exit, voice and loyalty, so as channels are provided to communicate dissatisfaction and exert influence from below in the cheapest and most effective way. Note how the participation criterion is related to dimensions which are absent from the efficiency framework, namely the definition of goals (effectiveness). Even in a normative perspective the two criteria are not independent: it is the nature of transactions and related costs of search, contracting, control and the information and communication systems available that determine the most efficient contractual arrangement and the mix of participation possibilities available to the transactors.
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