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Thursday, December 15, 2016

Cost of Business Transactions

Cost of transactions internally and externally have a determined impact on corporate profits through lowering general internal and external operating costs. When organizations improve upon their internal transactions by updating of processes and procedures, as well as the technology they use to conduct such transactions, they can improve overall performance. It is important to consider the benefits of internal transactions cost and external cluster costs when encouraging business growth.

All activities within an organization have transaction costs. Whether these are phone calls, emails, documents, movement of information, energy transfers, product movement, etc... it makes no difference. Each of these transactions can cost the company money and slow their productivity.

A common internal infrastructure improvement that lowers transaction costs and improves upon internal activity is IT systems. A large amount of money has been poured into this approach over the past few decades with great success. This include hiring, training, and updating technology infrastructure (Banerjee & Kumar, 2002).

Companies also exist within geographic infrastructure that exists both as a cluster and part of a larger regional hub. When regional infrastructure is weak then it will cost more to make transactions across companies. In turn, it will be more expensive to run a business in one city over another.

It is important to determine the internal costs of completing transactions as well as the external cost of completing business in that particular region. Businesses that develop their internal infrastructure should also consider pushing for external infrastructure changes in order to improve the region as well. Viewing transaction costs from internal and external vantage points can help improve positive adjustments.

Banerjee, S. & Kumar, R. (2002). Managing electronic interchange of business documents. Communications of the ACM, 45 (7).

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