Social exchange theory Essay

Main dependent factor ( s ) :

Value and public-service corporation: net income, wagess, blessing, position, repute, flexibleness, and trust

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Main independent factor ( s ) :

Exchange relation, dependence, and power

Summary of theory

Social exchange theory was formed by the intersection of economic sciences, psychological science and sociology. The theory was developed to understand the societal behavior of worlds in economic projects, harmonizing to the theory ‘s instigator Hormans ( 1958 ) . There is a cardinal difference between the two the theories: economic exchange and societal exchange theories, which is the manner in which the histrions are seen. Exchange theory “ positions histrions ( individuals or a house ) as covering non with another histrion but with a market ” ( Emerson, 1987, P.11 ) , responding to assorted market features ; while societal exchange theory sees the exchange relationship between specific histrions as “ actions contingent on honoring reactions from others. ” ( Blau, 1964, P.91 )

Presents, assorted signifiers of societal exchange theory exist, but all of them possess the same drive force which basically is the same cardinal construct of histrions interchanging resources via a societal exchange relationship. Where societal exchange ( e.g. , Ax ; By ) is the knowing transportation of resources ( ten, y… ) between several histrions ( A, B… ) ( Cook, 1977 ) . A web theoretical account ( Cook, 1977 ) with market belongingss ( Emerson, 1987 ) is the evolved signifier of the theory which antecedently was a dyadic theoretical account. The nucleus of the theory is best captured in Homans ‘s ain words ( 1958, P.606 )

“ Social behavior is an exchange of goods, material goods but besides non-material 1s, such as the symbols of blessing or prestigiousness. Persons that give much to others seek to acquire much from them, and individuals that get much from others are under force per unit area to give much to them. This procedure of influence tends to work out at equilibrium to a balance in the exchanges. For a individual in an exchange, what he gives may be a cost to him, merely as what he gets may be a wages, and his behavior alterations less as the difference of the two, net income, tends to a upper limit. “ In decision, societal exchange theory is best understood as a model for explaining motion of resources, in imperfect market conditions, between couples or a web via a societal procedure ( Emerson, 1987 ) .

Agency Theory or Principal-Agent Problem

Key dependent factor ( s )

Efficiency, alliance of involvements, hazard sharing, successful catching

Key independent factor ( s )

Information dissymmetry, contract, moral jeopardy, trust

Summary of Theory

In economic sciences, the principal-agent quandary treats the proficient enlistments that come up under conditions of unfinished and asymmetric information when a principal hires an agent. A assortment of mechanisms could perchance be used in an effort to aline the involvements of the agent with those of the principal, for case piece rates/commissions, net income sharing, efficiency rewards, the agent posting a bond, or fright of fire. The principal-agent job is seen in the bulk of employer/employee relationships.

Agency theory is focussed at the ever-present bureau relationship, which fundamentally is: one party ( the principal ) entrusts work to another ( the agent ) , who carries out that work. The declaration of the two jobs in an bureau relationship that can happen is the primary concern of bureau theory. First, is the bureau job which surfaces when ( a ) the desires or ends of the principal and agent struggle and ( B ) it ‘s hard or expensive for the principal to authenticate what the agent is really making. The quandary here is the principal ca n’t corroborate that the agent has behaved appropriately. Second, is the job of hazard sharing that arises when the principal and agent have dissimilar attitudes towards the hazard. The job at this point is that the principal and the agent may visualize different actions since they have different hazard penchants.

Relationship between theory and Information Systems

Agency theory sees the house as a link of contracts amongst interested persons. The proprietor employs agents ( employees ) to put to death work on his/her behalf and delegates some decision-making power to the agents. Agents must be under changeless supervising and direction ; this stems the debut of direction costs. As houses grow accordingly direction costs rise. Information engineering minimises bureau costs by supplying information without trouble so that directors can supervise a larger figure of people with fewer resources.

Simply, technological alterations support the bureau theory, which enables directors to oversee more employees at a decreased cost. Technology in general, and information systems peculiarly, salvage companies tonss of money by cut downing the figure of directors needed to supervise larger Numberss of workers.

Transaction Cost Theory or Transaction cost economic sciences

Main dependent factor ( s )

Administration construction, grade of outsourcing, outsourcing success, inter-organizational coordination and coaction

Main independent factor ( s )

Coordination costs, dealing hazard ( chance costs ) , coordination costs, operational hazard, self-interest hazard, plus specificity, uncertainness, trust

Summary of Theory

In the field of economic sciences and its related subjects, a dealing cost is a cost incurred while doing an economic exchange. A assortment of dealing costs exist, for case, hunt and information costs are the costs incurred in finding if a needed good is available on the market, who has the lowest monetary value, etc… The costs required to accomplish a satisfactory understanding with the other party to the dealing, pulling up an suited contract, etc. , is known as the bargaining cost. Patroling and enforcement costs are costs that make certain the other party abide the footings of the contract, and taking appropriate action ( on a regular basis through the legal system ) if this turns out non to be the instance.

Transaction costs consist of costs incurred in the procedure of looking for the best supplier/partner/customer, the cost of drawing-up a purportedly “ airtight ” contract, and the costs of monitoring and implementing the transporting out of the contract. Transaction cost theoreticians province that the entire cost incurred by a house can be grouped fundamentally into two constituents: dealing costs and production costs. Transaction costs, which are frequently referred to as coordination costs, are the costs of “ all the information processing necessary to organize the work of people and machines that perform the primary procedures, ” whereas production costs comprise the costs incurred from “ the physical or other primary procedures necessary to make and administer the goods or services being produced ” .

Relationship between theory and Information Systems

Transaction cost theory is based on the impression that a house incurs dealing costs when the house buys on the market place in comparing to doing merchandises for itself. Traditionally, in an effort to cut down dealing costs houses would ‘ve gotten bigger, hired more employees, integrated vertically and horizontally, and would ‘ve taken over small-company. IT helps houses cut down the cost of market engagement ( dealing costs ) and helps houses minimise their size while bring forthing the same or even greater sum of end product.

In simplified footings, dealing cost theory supports the thought that aid or through the aid of engineering concerns can minimise their costs of treating minutess with the same accent and enthusiasm that they attempt to minimise their production costs.


Traditionally, the Chief Information Officer ( CIO ) ‘s occupation description entailed guaranting that the Business Strategy and Information Systems scheme were aligned. Successful information technology/business alliance, nevertheless, entails more than executive degree communicating and scheme interlingual rendition.

Achieving alliance is normally done by set uping a set of well-planned procedure betterment plans that consistently tackle obstructions and travel farther than executive degree conversation to filtrate through the full IT organisation and their civilization.

IT/Business Alignment Cycle

A by and large used methodological analysis is the “ IT/Business Alignment Cycle ” , which introduces a straightforward model that the IT organisation can take on to pull off a wide scope of activities. The rhythm ‘s four stages are: program, theoretical account, manage, and step. Organization-wide shared outlooks between concern and IT directors are fostered using this rhythm, and a cosmopolitan model is defined for a wide-range of activities that jointly serve to aline IT and concern aims. Within the rhythm the best patterns and common procedures within and between IT functional groups are identified which makes IT/business alliance sustainable and scalable. When incorporate and automated with package applications and monitoring tools the model maps optimally.

Plan Phase:

In this stage concern aims are translated into quantifiable IT services. This stage aids in shuting the spread between what concern directors need and expect and what IT can present. Giga Research reports that IT leaders in ill aligned organisations are still seeking to clarify engineering direction issues to their concern co-workers and have n’t made that spring to groking concern issues and pass oning with them on a business-minded degree.

To bridge the spread between what concern expects and what IT can present, IT must hold an on-going duologue to clarify concern demands in concern footings. Without any on-going duologue, it ‘s hard for IT to find which IT services to offer or how to expeditiously assign IT resources to maximise concern value. Besides, when concern demands alteration, IT ought to set and modify the service offering and IT resources appropriately.

CIO ‘s should accept the usage of a regimented service degree direction procedure that will take to understanding on precise IT services and service degrees required to back up concern aims. IT direction can so interpret service definitions and service degrees into cardinal regulations and precedences that empower and guide IT resources.

Last, IT needs a method to step and track both concern degree services and the implicit in capablenesss that support the services.

Model Phase:

An substructure should be designed to optimise concern value. The theoretical account stage pinpoints resources needed to present IT services at dedicated service degrees. This stage involves mapping IT assets, procedures, and resources back to IT services, so prioritising and be aftering resources that support those concern critical services.

The bottom line in mensurating the victory of an alliance is the extent in which IT is working on the things which concern directors care about. This implies that IT must hold procedures in topographic point for prioritising undertakings, undertakings, and support. To efficaciously prioritise resources, IT needs a service impact theoretical account and a centralised constellation and plus direction depository to link the substructure components back to particular IT services. This merger is critical if IT is to expeditiously be after, prioritise, and invariably present services at agreed-upon service degrees while besides understating costs.

Manage Phase:

Consequences should be driven through amalgamate service support. The manage stage permits the IT staff to present sworn degrees of service. Assurance from the CIO that the organisation meets outlooks by supplying a individual location for concern users to subject all service petitions and by prioritising those petitions based on pre-defined concern precedency.

Without a individual point-of-service petition, it is n’t easy to pull off resources to accomplish agreed-upon service degrees. Furthermore, missing a system for efficaciously pull offing the IT substructure and all alterations, the IT staff is faced with the danger of doing failures.

In order for the IT staff to guarantee the effectivity of the service desk they need to supply:

  • A technique for prioritising service petitions based on concern impact.
  • A well-organized alteration direction procedure to cut down the hazard of negatively impacting service degree committednesss.
  • An IT event direction system to supervise and pull off constituents that support concern critical services.
  • The basic operational prosodies that enable service bringing at promised degrees, in add-on to the agencies for mensurating and tracking the promotion of service degree committednesss utilizing these prosodies.

Measure Phase:

Involves the confirmation of committednesss coupled with betterment of operations. Cross-organization visibleness into operations and service degree committednesss is improved in this stage. Conventional IT direction tools operate in functional silos which confines informations aggregation and operational prosodies to focussed countries of functionality, associating more to engineering than to concern aims.

Component-level prosodies and steps are decidedly indispensable for go oning service handiness. However, to back up real-time resource allocation determinations, these steps must be construed in a broader concern context, with the inclusion of their connexions to business-critical services. Without a concern context for interpreting steps and prosodies, isolated functional groups ca n’t acquire a holistic position of IT services that sustain concern aims.

By perpetrating to the rhythm and integration and automatizing activities utilizing package solutions, it ‘s possible to aline a whole organisation to do logical betterments that prevail over obstructions.

Competitive Forces Model

Porter ‘s competitory forces and schemes is one of the popular and effectual theoretical accounts for explicating a scheme. After analyzing a figure of concern organisations, Michael E. Porter proposed that troughs can explicate a scheme that makes an organisation achieve a higher degree of profitableness and cut down exposure if they understand five forces in the industry environment. Porter found the undermentioned forces determine a company ‘s place vis- & A ; Atilde ; -vis rivals in the industry:

  1. The competition among bing rivals
  2. The menace of new entrants
  3. The menace of replacement merchandises and services
  4. The bargaining power of purchasers
  5. The bargaining power of providers

Porter ‘s model ( competitory forces theoretical account ) has long been acknowledged as a valuable tool for concern people to use when believing about concern scheme and the impact of IT. Porter ‘s model illustrates why some houses do better than others and how they gain competitory advantage. It besides analyzes a concern and identifies its strategic advantages, every bit good as, showing how enterprisers can develop strategic advantages for their ain concern. And in conclusion, it shows information systems contribute to strategic advantages.

The menace of new entrants: The menace of new entrants to an industry can make force per unit area for established organisations, which might necessitate to keep down monetary values of addition their degree of investing. The menace of entry from in an industry depends mostly on the sum and extent of possible barriers, such as cost.

The power of providers: Large, powerful providers can bear down higher monetary values, bound services of quality, and displacement costs to their clients, maintaining more of the value for themselves. The concentration of providers and handiness of replacement providers are important factors in finding supplier power.

The power of purchasers: Powerful clients, the impudent side of powerful providers, can coerce monetary values down, demand better quality or services, and therefore drive up costs for the supplying organisation.

The menace of replacements: The power of options and replacements for a company ‘s merchandise or service possibly affected by alterations in cost, new engineerings, societal tendencies that will debar purchaser trueness, and other environmental alterations.

Rivalry among bing rivals: In most industries, particularly when there are merely a few major rivals, competition will really closely fit the offering of others. Aggressiveness will depend chiefly on factors like figure of rivals, industry growing, high fixed costs, deficiency of distinction, capacity augmented in big increases, diverseness in type of rivals and strategic importance of the concern unit.

Information Systems & A ; Competitive Advantage

In order to be competitory, companies must hold a grade of adeptness, nimbleness, flexibleness, innovativeness, productiveness, economy and client centricity. It must besides aline its IS scheme with general concern schemes and aims.

Given the five market forces mentioned above, Porter and others have proposed a figure of schemes to achieve competitory advantage:

Low-cost Leadership

Information systems can be used achieve the lowest operational costs and the lowest monetary values. For case, Wal-Mart has utilized IT to develop anefficient client response systemthat straight links client behavior back to distribution, production, and supply ironss.

Merchandise Differentiation

Information systems can be used in the procedure of enabling new merchandises and services, or significantly altering the client convenience in the usage of an bing merchandises or services. Mass customization enables organisations to offer separately trim merchandises or services through the usage of mass production resources.

Focus on Market Niche

Using information systems enables a house to nail a specific market focal point, and therefore leting them to function this narrow mark market better than rivals. Information systems can back up this scheme because it can be used to bring forth and analyse informations for usage in finely tuned gross revenues and selling techniques. Companies can now analyse client purchasing forms, gustatory sensations, and penchants closely so that they expeditiously and efficaciously flip advertisement and selling runs to smaller and smaller mark markets.

Strengthen Customer and Supplier Intimacy

The usage of information systems tightens linkages with providers and develops familiarity with clients. Switch overing costs addition when and where at that place ‘re strong linkages between clients and providers ( write off a client or company incurs in lost clip and outgo of resources when altering from one provider or system to a viing provider or system ) .


  • The theoretical account is a strong tool for competitory analysis at industry degree, compared to PEST analysis
  • It provides utile input for executing a SWOT Analysis


  • Care should be taken when utilizing this theoretical account for the followers: do non undervalue or underemphasize the importance of the ( bing ) strengths of the organisation ( Inside-out scheme ) .
  • The theoretical account was designed for analysing single concern schemes. It does non get by with synergisms and mutualities within the portfolio of big corporations.
  • From a more theoretical position, the theoretical account does non turn to the possibility that an industry could be attractive because certain companies are in it.
  • Some people claim that environments which are characterized by rapid, systemic and extremist alteration necessitate more flexible, dynamic or emergent attacks to scheme preparation.
  • Sometimes it may be possible to make wholly new markets alternatively of choosing from bing 1s.

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