Joining supply and demand conditions of IT enabled change: Toward an economic theory of inter-firm modularisation

This paper examines emergent information systems and technologies and explains under what supply and demand conditions inter-firm modularisation of information-based products and services and subsequent vertical deintegration of organisations is more likely. Research in organisational economics identifies transactional attributes such as coordination costs, asset specificity, and the economic non-separability problem to help explain and predict vertical de-integration. We extend this perspective by considering the modularisation of information-based products and services that is noticeable to the customer to develop a framework that joins the four cornerstones of (a) transaction-related efforts; (b) commitment-related contractual risks; (c) measurement-related contractual risks; and (d) modularisation-related impacts on value.