Dynamic product demand, competitor innovations, and competitive pressures on costs all pose strategic challenges to companies. Many firms are responding to these challenges by modifying the way they organize their operations. During the 1980s, they have tended to externalize transactions by contracting out to the market or by engaging in longer-term contractual relationships with other firms. To preserve adequate control and coordination over this system of transactions, several organizational forms are employed which overlay market-contracting relations with integrative arrangements. Information technology enables the strategic benefits of externalization to be secured with considerably less risk of losing operational control, and thus promises to facilitate a major evolution in organizational design.
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