Post 2: Organizations and Transaction Costs

     My experience with an organization is with my internship last summer that had me working for a part manufacturer and distributor for cars, trucks, boats, and wind turbines. My role at this company was as part of the marketing team, which was in charge of cataloging the products among other things. The structure of the company was rather interesting for a few reasons. First, it is a German company, with the building I interned at being one of the main manufacturers and distributors in North America. The second reason the structure was interesting is rather specific to the marketing team in that because of our area of expertise and the equipment we were using we were similar to a support staff for the rest of the office in many ways. Because of these two reasons, I had very much a first person view of the benefits and failures of a hub and spoke style structure of running a company, both internationally and internally. Internationally, it was nearly flawless, the language barrier was a non-issue and hardly ever was there a need for direct communication over-seas, at least from what I could see, and our branch was fairly autonomous, without much need for direction. The only problem I ever saw encountered was when having to deal with time sensitive cases, however those were few and far between and hardly the norm. Thus leading me to believe that hub and spoke, at least at an international level, can be conducted fairly successfully. When it comes to the same kind of system internally within the building I was interning, hub and spoke somewhat surprisingly encountered more hiccups and had its flaws revealed. As an intern as part of a ‘support staff’ as I described it before, I was the spoke to a much larger spoke and therefore my perspective may be a bit skewed. However, from my experience there was large amounts of information and data flow lag which set many deadlines behind. The difference that I saw between the international hub and spoke and the internal one was the reliance that people placed on each other. The amount of times I was asked to stop what I was doing to help with something else in another department meant that now what I had to put on hold what I was doing previously as well as get caught up on a new project and do that. This lead to deadlines being pushed back and inefficiencies that couldn’t be avoided without changing the entire system. My experience has lead me to believe that hub and spoke system works much better when the more autonomous and self-sufficient the spokes are.

     As far as transaction costs go, being an intern I had very limited interaction with customers. However, one of the few projects that did have me interacting people outside of the company had me interacting with some suppliers for parts that we would then be passing on to consumers. This project had me emailing suppliers to get them to sign documents making sure they were producing their product in an appropriate way that meets our standards. While many companies complied, there were several companies who refused. For these companies the transaction cost of signing the documents and doing business with us was too high. The only problem with this though, is that several car manufacturers (i.e. Ford, GM, etc.) had told us that we needed to do business with several of these companies who weren’t submitting the signed documents. In these cases, our company was forced to bear the transaction costs of doing business with the noncompliant companies, meaning our company was taking on the uncertainty and risk by continuing to do business with the other uncooperative companies.