Process-based transaction cost analysis: a cost management exploration in SCA Packaging

Abstract: Firms compete with each other to earn the highest profit. A wide range of issues needs to be considered in order to do so – decisions about products, markets, customers and, not to forget, organisation have to be made. Concerning organisation, a business firm can choose to make a particular thing (a good or service) by itself or to buy it from someone else. The decision determines the way in which the exchange – the ‘transaction’ – is organised. Transaction cost theory explains why some transactions are made within the realms of one company and why others are made between independent firms: the transaction is either ‘integrated’ or carried out over the market. This work is part of a process, in which transaction cost analysis is developed towards a fine-tuned theory of organisation. The thesis is an argument for a process-based cost structure analysis. In a case study, cost incurrence in two paper mills owned by SCA Packaging is explored. The conclusions, based on a detailed study of cost incurrence, indicate that actually incurred transaction costs represent a low share of total cost incurrence and that the cost-efficiency of the company may depend more on how activities are performed than on organisational structure. This contradicts transaction cost theory. Proxies of transaction costs, the ‘transaction cost attributes’, are biased by a structural preoccupation and misses important cost dynamics. The process-based cost structure analysis explicitly takes cost dynamics into account and may in that way improve the analysis and explanation of specific degrees of vertical integration and coexisting mixes of different forms of organisation. Thus, the process-based cost structure analysis may proceed where the transaction cost analysis ends.