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8 - The economics and sociology of knowledge distribution: organizational structure and governance

Published online by Cambridge University Press:  22 September 2009

Thomas Armbrüster
Affiliation:
Witten/Herdecke University
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Summary

Chapter 2 outlined the reasons why consulting firms exist as independent firms. The core of the argument has been that consulting firms can realize economies of scale if they focus on tasks that require a particular type of knowledge: analytical knowledge to solve problems which occur infrequently or aperiodically in an individual client organization but frequently across firms, industries, or regions. Economizing on knowledge by clients means hiring consultants for tasks which involve high coordination costs (such as coordination between different domains or regions), which are dissimilar to client operations and to each other, and which involve low asset specificity, such as analytical capabilities that do not require investments in physical assets.

Moreover, chapter 2 also outlined the economic changes that have occurred since the 1980s. Production, service, and financial processes are both increasingly dispersed geographically and based on a higher degree of abstraction than a few decades ago. Technological progress, less expensive means of communication, and decreasing costs of transport and logistics have made it increasingly possible to produce components at the most inexpensive place and assemble them at another site. The intra-industry trade index and foreign direct investment rose slowly until the 1970s, but then picked up pace in the 1980s, continuing in the 1990s. The globalization of production and services, which has been under way for many years, has increased in the past twenty years.

To client firms, this globalization of production and services means that new kinds of analytical tasks and abstractions need to be performed.

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Publisher: Cambridge University Press
Print publication year: 2006

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