Why do we have business organisations?

• In the industrial area, we could harness power, it was imp to true realised that power and reach economies of scale. Everyone came together to work there. We needed large numbers of people -that’s how employment contracts started
• Space and time is becoming irrelevant - if you’re just dealing with info. if there is a physical good, there still is some contact.
• If space and time is irrelevant, we are becoming towards a gig economy. Freelancing is the fastest growing career choice. Tech has made is possible. Small companies of 4-10 people will offer all services, no one will hire.
• Mass production is going out of fashion, everyone wants unique. Mass manufacturing etc etc is not preferred in the west. It will slowly come to India also.
• In the old era, I went to my village carpenter to make my furniture because of trust. Now today, trust is built by offering exchange services.
• In the industrial era, old family business could not build trust outside local area. Couldn’t sell it outside the village. No one knew him. No trust.
• Organisation is essentially going outside of your network to do business and transactions
• ten years back no one would have bought furniture online

Organisations exist because markets fail

• Costs are incurred to conduct any transaction whether in the market or in the organisation
• If transaction can be efficiently conducted in the market, there is no need for organisations
• When one doesn’t know how to select a good product, they rely on the trusted seller to choose and buy. So organisations exist because markets failure which is not addressed by branding now. earlier it was addressed by known sellers who guided us what to buy and we trusted them. Now that is not possible.
  • Markets fail because human beings are boundedly ration and opportunistic
    • Boundedly rational- Limits to which human beings are able to rational in their decision making
      • Ex - alphonso mango sellers who lie to us about the mango to make a sell, buyers don’t know how to recognise a good mango from a bad mango
    • Opportunistic - Tendency of human beings auto act guile, particularly when decisions are complex
• Consumers don’t know how to buy, so they need trusted brands to buy from
• Organisations exist because there is so much doubt in the market, there is stiff competition,
• Trust is essential for transactions:
  • Eg- Basmati rice
  • House/apartment

<aside> 🤑 Transaction Cost Perspective

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• Information cost
  • Costs incurred in deciding on the relevant information, acquiring the information, and processing it to make a decision