Transactional Theory Characteristics
1. Operational Expenses
Operational activities may
either be performed by the entity itself or by other party. For example
material can either be produced itself or can be bought from supplier.
2. Labour hired or outsourced
Labour either can be hired
or outsourced. this decision is taken on the bases of cost. it means that
organization will always go for cheaper option.
3. Relationship based on activity
Under this theory
relationship between owner and manager bases on the activity scale performed
within organization.
4. Production cost
Production cost is cost
incurred by the entity in ideal circumstances. Where there is a perfect market
conditions.
5. Transaction cost
Transaction cost is cost
which incurred due to imperfect market conditions. This is deemed to be higher
than production cost.
6. Transaction internally
Organization
should do maximum work internally, so that it can reduces the transaction cost.
Vertically integration is concept to be followed. Internal work reduces market
uncertainties and risk associated with supplier.
