Digitalization drastically decreases transaction costs by decreasing effort to:
- Find business partners and customers through marketplaces
- Establish trust by providing ratings or offering the platform itself as a trust proxy
- Contract as platforms embed a standardized contracting process
- Coordination by enabling companies to leverage tools of online synchronous and asynchronous communication such as MS Teams, Github, Skype, E-mail, etc.
This decrease has profound impact on firm boundaries as Companies should set their boundaries to optimize cost of owning a resource vs transaction costs.
It allows them to operate with little ownership (asset light):
- A taxi company that doesn’t own cars or employ drivers - Uber
- A hotel company that doesn’t own a hotel - Airbnb
Allows companies to be focused on their key competencies. More employee and managerial attention to aspects of the company that delivers value.
Provides easy access to high quality resources and services to all companies. Acquiring needed capacity is easy (provided the company has money) and the company can easily select the quality. For example, companies can contract the same sewing houses that premium clothing brand uses or deploy high tech AI&ML workloads though cloud services.
Companies may need to consider also other factors when deciding on company boundaries as very open contractual network and crowdsourcing is not fit for all companies, specific areas, or innovations.