cybersecurity and protecting privacy Wang et
al., 2017
The outlook of blockchain technology for construction engineering management
Frontiers of Engineering
Construction Industry (Contract, supply chain management and
equipment leasing)
Theoretical discussion
BCT can be used to
"eliminate the verification time" (p.
70), "facilitate
automated procurement and payment" (p. 70),
"improve transparency and traceability" (p. 70), with notarization -related p. ,
transaction-related p.
, and provenance -related applications p.
70).
would not necessarily) lead to transaction cost effects – depending on whether operational efficiencies are discussed that are related to externalities and transactions with other organizations.
While Davidson et al., (2016). see the transaction cost framework applicable in the analysis of the impact of blockchain technology by calling it "governance technology" they do not state a specific corporate governance implication. Shermin (2017) indicates a high impact on governance, increasing the number of market-based transactions essentially making markets more efficient.
Catalini and Gans (2017) indicate a change in the setup of industries and specific occupations with new trades emerging and others disappearing rather than a more general change in market structure.
Nowitzki and Kozma (2017) also discuss that Blockchain technology would have a higher relative impact if transaction costs are comparatively high in a specific situation.
All four papers state these discussions on a theoretical foundation – discussing the features of blockchain technology from a theoretical standpoint and what applications in the market they would imply. There is no empirical data collection or case analysis involved in cooperation with experts that are directly involved in the transaction processes. We refer to Table 10 for an overview of all relevant literature.
Table 10: Literature Review: Blockchain Technology and Transaction Cost Theory
Author (Year) Title Journal
Transaction
Costs Effect Purpose
Catalini and Gans, 2017
Some simple economics of the blockchain
National bureau of economic research, working paper
Cost of verification, cost of networking
Reduce cost, change digital marketplace:
Increased competition, democratic decision making, new business models
'The paper contributes to the nascent literature on blockchain by providing an economic framework for understanding how the technology changes the types of transactions and platforms that can be sustained in the economy"
(p. 3).
Davidson et al., 2016
Economics of
Blockchain
Proceedings of Public Choice Conference
(1) Reduces uncertainty, or unforeseen contingencies;
(2) costs of writing contracts; (3) costs of enforcing contracts.
Impact of blockchain technology on the economic structure;
uncertainty, writing contracts and enforcing contracts is reduced, bargaining and haggling costs will stay the same
Argues that new
institutional economics (I.e.
transaction cost economics) […] is an appropriate framework to be used for analysis because blockchain can be viewed as
"governance technology" (p.
2).
Shermin, 2017 Disrupting governance with blockchains and smart contracts
Strategic change – briefings in entrepreneurial finance
Reduce transaction costs
Reducing bureaucracy through lower transaction costs.
"The purpose of this article is to explain how
blockchains and smart contracts bypass traditional principal–agent dilemmas of organizations, and radically reduce transaction costs, thus creating the emergence of new decentralized organizational structures— decentralized governance— that were not feasible before" (para. 3).
Nowiński and Kozma, 2017
How Can Blockchain Technology Disrupt the Existing Business Models?
Entrepreneurial business and economics review
Transaction costs:
operational efficiencies, shortening transaction execution time
Change of business models, reduce time for transaction execution, decline in operational costs,
"This study shows that blockchain technology may affect diverse dimensions of business models in diverse industries" (p. 173), benefits from the blockchain technology implementation are "comparably greater if transaction costs are relatively large as compared to transaction margins" (p.
184).
Several academic papers have been researching the impact of new and innovative technologies on engaging in business transactions. The review of such literature helps in understanding the general effect of new, innovative technological solutions on the business and can provide basic insights into the directionality of the effect of any further improvements to certain aspects of the technology.
While specifically the impact of Blockchain technology has not been researched in a multitude of broad use cases it is necessary to review what effect a similar, yet less advanced technology had on the supply chain. This provides us with an indication that can be related to further applied research on expected operational effects of blockchain technology.
The review of papers connecting impacts of organizational systems with transaction cost theory brought up seven papers which are directly relevant. They were quite dispersed across both, time and content dimensions. Two papers in 1986, upon the onset of commercial use of personal computers discussed the implications of information technology on transaction costs (Bakos and Treacy, 1986; Malone, Yates and Benjamin, 1987). They say information technology reduces coordination cost and complexity (Malone et al., 1987) and contracting and monitoring costs (Bakos and Treacy, 1986). While Malone et al., (1987). state that this will lead to a more market-based economy, Bakos and Treacy (1986) state that the dynamics of industries will shift. Four papers published in the early 2000s were mainly concerned with the effects of the internet on transaction costs but also generalize their views as "information technology" (Clemons, Reddi and Row, 2000), "Interoganizational systems" (Premkumar, 2000) or research the intersection between
interorganizational systems and physical distribution in terms of tracing technology (Buhr, 2003).
Straub, Rai and Klein (2013) then go a step further in researching digital supply networks – systems that connect organizations with each other via automatic data transfer. It is important to reiterate here that a system as described by Straub et al. (2013) would be different from the blockchain technology discussed in this paper as it would not include a decentralized ledger, but data would have been stored on a server with one of the organizations involved that would then have full control over the entire information. Research states that information technology reduced coordination cost and opportunism risk (Clemons et al., 2000), interorganizational systems reduce the cost of exchanging and processing information (Premkumar, 2000), digital supply networks and the internet lead to higher performance (Straub et al., 2014; Lancioni, Smith & Schau, 2003).
Tracing technology reduces overall transaction costs by improving monitoring and reporting processes. All papers reviewed in this section agree that transaction costs would be reduced to some degree and/or transactions become more efficient. Buhr (2003) and Clemons et al., (2000) agree with Malone et al., (1987). that this will ultimately lead to more transactions based on market- and competition principles. We refer to Table 11 for an overview of all relevant literature.
Table 11: Literature Review: Interorganizational Systems and Transaction costs
Author, Year
Title Costs effects Technology
Type
Conclusion Buhr,
2003
Traceability and Information Technology in the Meat Supply Chain:
Implications for Firm Organization and Market Structure
Reduces transaction cost by improving reporting, providing access in real time, providing digital record and can improve monitoring
Traceability Technology
Leads to a more market-based supply chain
Bakos and Treacy, 1986
Information Technology and Corporate Strategy A Research Perspective
"Information
technology can have a direct impact on these variables through its effect on bounded rationality, for example by reducing contracting
and monitoring costs (thus mitigating the effect of opportunism), improving the generation and evaluation of alternatives (thus mitigating the effect of environmental uncertainty
and complexity), and either decreasing or Increasing information asymmetries"
(Theoretical links, para. 2).
Information Technology (in general)
"transaction cost theory can be used to create detailed explnatory models of the impact of information
technology on strategic performance."
(p. 117)
Lancioni et al., 2003
Strategic internet application trends in Supply chain management
Enhances productivity and thereby reduces cost
Internet "The most significant benefit of the Internet for supply chain
managers is in the provision of rapid, accurate and comprehensive information about each stage in their
supply chain
systems. In addition, the Internet has provided managers with
the ability to be agile in managing their supply network" (p. 217).
Straub et al., 2014
Measuring Firm Performance at the Network Level A Nomology of the Business Impact of Digital Supply Networks
Asset specificity through process customization (dependence) leads to customized marketplace relationships and higher performance.
Digital Supply Networks, evolution of Internet
Digital Supply Networks make the supply chain more efficient and effective.
Premku mar, 2000
Interorganizational Systems and Supply Chain Management, An Information Processing Perspective
Reduces the cost of exchanging and processing information. Increase information availability and processing capacity, enabling better monitoring
Interorganiza tional systems
Interorganizational systems facilitate the flow of information along the supply chain and thereby ensures the smooth flow of goods.
Clemons et al., 2000
The Impact of Information Technology on the Organization of Economic Activity:
The "Move to the Middle" Hypothesis
IT reduces coordination cost, operations risk and opportunism cost
Information technology
IT is the main factor for changing economic landscapes, the end of vertical integration.
Malone et al., 1987
Electronic Markets and Electronic Hierarchies
It reduces coordination costs, reduce complexity.
Information technology
IT leads to shift in governance structure towards more market-based transactions.
Since blockchain technology can be understood as an interorganizational system with improved features, it can be derived that it would have similar effects as interorganizational systems. This connection would be supported by the theoretical discussions of the papers connecting blockchain technology and transaction cost. All papers mentioned above that connect information technology application (whether those are blockchain technology or other systems) seem to relate these technologies with reduced transaction costs.
Among all papers found concerning the interactions of blockchain technology and supply chain management or transaction cost theory, only a few of the papers reach beyond theoretical discussions of expected implications or relationships. Many papers, especially in the early stages of the development of knowledge and understanding of blockchain technology, rely on interpreting applicability of features described by the technology itself. This interpretation has been conducted mainly by researchers in academic environments. These might not have the same information of the applicability of blockchain technology features as procurement experts using transaction processes throughout their practical work. This research is intending to get insights into the effects of blockchain technology on the transaction costs during procurement process and how these effects come about – using insights coming directly from procurement experts.
5 R ESEARCH A NALYSIS
During the next step of the analysis we determined the major factors through which Blockchain Technology can affect the cost and value of the processes, compiling all responses to each question and comparing the responses to responses from other experts.