With every technological wave, we always hear the same promise: to produce more, faster, with fewer resources. Yet the same question always comes up: where are the productivity gains, and above all, who benefits from them?
In a previous article, I discussed Shapiro’s law and how certain players in the chain claim most of the value (Are you familiar with the “value chain squeeze” or how your suppliers and customers are stealing your productivity gains?). Another approach, older but still relevant, is that of Ronald Coase. His work provides a useful framework for understanding why the reconfiguration of organizational boundaries, facilitated by technology, often produces an illusion of gain rather than real value creation.
In short:
- Technological advances reduce visible costs by shifting work to other players (customers, employees, suppliers), but this reorganization does not guarantee real value creation.
- Ronald Coase’s theory sheds light on how businesses redefine their boundaries based on transaction costs, which evolve with technologies and economic contexts.
- Self-service systems outsource tasks to customers, generating apparent gains for the business but at the risk of losing satisfaction and loyalty if the perceived balance is disrupted.
- Internally, transferring support tasks to employees lightens the back office but increases the invisible workload, eats into productive time, and can reduce motivation and actual productivity.
- Outsourcing increases strategic dependence and risks, as shown by the case of Boeing, where the quest for efficiency backfired into costly vulnerability, illustrating that value capture remains the central issue.
Coase and the boundaries of the firm
In 1937, Ronald Coase published The Nature of the Firm. He wondered why, if the market is supposed to allocate resources optimally, why were there businesses that internalized part of the work?
The answer lies in the concept of transaction costs. Contracting with a supplier requires time, research, negotiation, and monitoring. As long as these costs exceed those of internal coordination, it is more rational to integrate the activity, but as soon as outsourcing becomes more efficient, companies outsource.
This boundary is therefore not fixed. It evolves according to context: new technologies, market developments, internal coordination capabilities. The business then appears not as a stable entity but as an organization in motion, whose contours are redrawn according to the relative costs of each option.
Technology is reconfiguring boundaries
Coase’s contribution remains relevant in the digital age. Digital tools lower certain transaction costs, making outsourcing simpler, more quickly, and less expensive. At first glance, this seems to confirm Coase’s intuition: where the market is more efficient, the business retreats.
But the digital revolution is not limited to choosing between doing it yourself or buying from a supplier. It also allows tasks to be transferred to two other players: the customer and the employee. The boundary becomes porous in all directions, and the core of the organization seems to be offloading, yet what we believe to be an immediate saving is often simply a transfer of work.
From the counter to self-service, customers work for the enterprise
Banks, airlines, and large retailers have widely adopted the self-service model. Transactions that previously required an employee, such as depositing a check, checking in for a flight, or paying at the register, are now carried out by the customer themselves, using a machine or an application.
For the business, the gain is immediate: fewer staff, lower fixed costs. But the transaction has not disappeared, it has simply changed hands. As long as customers consider the exchange to be balanced, they are willing to devote their time to it, but as soon as the experience deteriorates or the relationship loses value, the cost shifts back in the form of dissatisfaction, loss of loyalty, or even defection to a competitor.
From support to self-management, employees become their own department
Internally, the logic is the same. Digital tools make it possible to transfer tasks previously performed by supportfunctions to employees: entering expense reports, booking travel, administrative management, and reporting (Employee self-service: how far to go before you go too far). This is something I have observed and even lamented on numerous occasions, as it is often necessary to acknowledge that support functions tend to organize their efficiency at the expense of operational staff (Processes designed for the wrong people: the #2 irritant of employee experience).
On paper, the business is streamlining its back office, but in practice, it is the employees who absorb the workload. The time spent on these micro-tasks adds up, eating into the time that should be devoted to the core business. Added to this is a cognitive load that undermines motivation and reduces actual productivity. The apparent gain is often offset by invisible costs.
From factory to subcontracting, efficiency becomes dependence
Subcontracting illustrates Coase’s logic even more directly. When a supplier produces better or cheaper, the business outsources. Balance sheets appear lighter, fixed assets decrease, and flexibility seems to increase.
But the story doesn’t end there. Outsourcing creates strategic dependencies and new complexity: quality control costs increase, coordination becomes more cumbersome, and reputational and logistical risks accumulate. The immediate economic gain can therefore turn into vulnerability in the medium term.
This is one of the points I could have added to my article on the dramatic consequences of the change in corporate culture at Boeing (Boeing: a culture and a slogan can kill a business). Divisions that possessed real expertise but expertise that was deemed non-strategic (the manufacture of fuselages, etc.) became spin-offs, turning them into external service providers. This was certainly more profitable, but at the cost of collaboration, quality control, and dependency issues that forced Boeing to buy back the entity they had outsourced.
Not only did the production and quality problems cost Boeing a fortune, but while the sale of the entity to an investment fund had brought in $1.2 billion, it cost $4.3 billion to buy it back. And even then, they were only able to buy back part of the business, normally valued at over $8 billion, because in the meantime, Spirit AeroSystems (as it is called) had started working with competitors, notably Airbus, which took over the rest of the business at that point.
And I won’t even mention the 787 affair, for which Boeing decided not only to outsource manufacturing but also the design and development of major sub-assemblies, willingly losing control of detailed design and industrial processes for the first time in its history.
Not really a profitable decision in the end.
Bottom line
This overview shows that reconfiguring organizational boundaries does not automatically lead to productivity gains, because while the business reduces its visible costs, it transfers the work to other players. As long as customers, employees, or suppliers agree to absorb the burden, the balance is maintained, but as soon as they demand compensation in the form of lower prices, increased support, or better conditions, or worse, default, the gain disappears overnight and may even turn into losses.
In the short term, relocation provides relief, but in the long term, it creates nothing if the transfer does not translate into consolidated value. This is precisely where Coase’s thinking intersects with Shapiro’s: the important thing is not how much work is shifted, but who captures the value generated by this shift. The major cloud platforms illustrate this: client businesses reduce their internal costs, but it is AWS, Microsoft, or Google that capture most of the profit.
Bottom line, the real issue is not to constantly shift boundaries, but to ensure that this redrawing of boundaries produces something other than an accounting illusion. Moving work does not create productivity, and only the ability to transform this transfer into value ultimately determines who really benefits from the operation.
FAQ
Ronald Coase shows that businesses exist to avoid excessive transaction costs (negotiation, control, supplier search). Boundaries are not fixed: they evolve according to the relative costs between the market and internal organization. Digital technology accentuates this movement by reducing certain costs, but it does not always create real value. For managers, the real challenge is therefore to measure the hidden costs behind every decision to insource or outsource.
Digital technologies enable businesses to transfer tasks to customers (self-service) and employees (self-service administrative processes). This gives the impression of fast wins but is actually based on a redistribution of work. If this burden becomes too heavy or degrades the experience, the advantage disappears. The apparent savings can then turn into a loss of customer satisfaction or a decline in internal productivity.
Self-service reduces costs by decreasing the need for staff, but the task is still performed, now by the customer. As long as the customer finds the experience smooth and fair, the model works. However, if the service becomes restrictive, it generates dissatisfaction and a loss of loyalty. The benefit therefore depends less on automation than on the quality perceived by the end user.
Outsourcing lightens balance sheets and increases short-term flexibility, but it creates dependencies and risks: quality control, more complex coordination, logistical or reputational vulnerabilities. The example of Boeing shows that these choices can cost more in the long term than the initial savings. Outsourcing therefore requires careful assessment of the hidden effects on overall performance.
Reducing visible costs does not always mean creating value. When work is shifted to customers, employees, or suppliers, the balance can be upset if they demand compensation. In this case, the apparent gains quickly disappear. The real issue is knowing who actually captures the value generated. Large digital platforms illustrate this phenomenon by concentrating profits, leaving customer businesses with what is often a superficial economy.
Related articles:
Are you familiar with the “value chain squeeze” or how your suppliers and customers are stealing your productivity gains?
Do enterprises really outsource the right things ?
External social networks are not only for marketing purposes
10 things I believe about the ROI of Enterprise 2.0
Can enterprises organize themselves as markets
The future of enterprise (#1) : the status quo
