Established model
Transaction cost economics
Oliver E. Williamson · 1975
Whether to do something yourself or have someone else do it turns on the cost of the arrangement, not the price of the work.
Its place in the frameworkBusiness Core›Partners
What it does
Searching, negotiating, specifying, monitoring and enforcing all cost something, and they rise sharply when what is being exchanged is hard to specify or requires investment useful to only one buyer. That is the real argument for keeping something in-house: not that it is cheaper to make, but that the contract would be impossible to write.
- Reach for it when
- At every make-or-buy decision, and when a partnership keeps needing renegotiation.
- Where it stops
- The costs it turns on are largely unmeasurable in advance. It explains arrangements convincingly after the fact and predicts them poorly.
Oliver E. Williamson, Markets and Hierarchies, Free Press, 1975; The Economic Institutions of Capitalism, Free Press, 1985.
Why it sits at Partners
The organisations the business depends on to do things it does not do itself. Partnership is a capability decision before it is a commercial one.
A model is only useful when you reach for it at the right moment. This one answers a question that arises here — so it is filed here, and nowhere else. These are the working areas it serves:
- Partner selectionThe make-buy-partner decision in transaction cost economics, and alliance research on partner fit across capability, culture and commitment.
- The agreementContracting practice on service levels, remedies and termination; the consistent finding that exit provisions are agreed when relationships are good and needed when they are not.
- GovernanceAlliance governance research on the role of joint decision structures in partnership survival.
- Value reviewStandard vendor and alliance review practice; the discipline is scheduling it rather than triggering it.
What it touches elsewhere
Nothing in a business is decided on its own. A conclusion reached with this model at Partners lands in these other cores, whether or not anyone follows it there.
- Business CoreWhat is not a core competency is a candidate for a partner or for the supply chain.
- Goal CoreA goal depending on a partner inherits that partner’s constraints and timelines.
- Market CoreSome partners reach customers the organisation cannot reach alone.
- Time CoreContract terms and renewal dates are timing constraints on the whole plan.
Filed at the same place
These answer questions that arise at Partners too. Where they disagree with this one, the disagreement is the useful part.
- Co-opetition and the value netThe players around a business are customers, suppliers, competitors and complementors — and the last one is usually missing from the map.
Elsewhere in Business Core
- Tuckman’s stages of group development
- Belbin Team Roles
- Herzberg’s two-factor theory
- Jobs to be done
- The Kano model
- The value proposition canvas
- The business model canvas
- The Van Westendorp price sensitivity meter
- Value-based pricing
- Core competence
- VRIO
- The resource-based view
- The theory of constraints
- Lean thinking
- Stakeholder theory
- The power–interest grid
- DuPont analysis
- Break-even and cost–volume–profit analysis
- Unit economics
- The Kraljic Matrix
- The bullwhip effect
- The SCOR Model
- On-time in-full
- Overall equipment effectiveness
- Value stream mapping
- The three lines model
- ISO 31000 risk management
- Maslow’s hierarchy of needs
- Kotter’s eight-step change model
- Situational leadership
- The Lean Startup
- Design thinking
- Porter’s value chain
- The McKinsey 7S framework
- The growth–share matrix
- Six Sigma and DMAIC
These are other people’s models, named here so you can go to the source and use them properly. The Omnigoal is not affiliated with their authors and is not endorsed by them; nothing of theirs is reproduced here — no canvas, no diagram, no wording. Each is described in our own words, with the originator credited, because the framework is a place to put thinking, not a replacement for the people who did it. Model names and trademarks belong to their respective owners and are used here only to refer to the work itself.
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