Abstract

The world has observed the evolution of business structures from the multi-divisional model, which internalizes various functions within firms, to the systems integration model, in which firms exert control over related entities through external coordination. This structural change is termed ‘business evolution’ because it resembles to natural evolution. The transaction cost and the knowledge based views are used to explain this change. As technology progresses, the business world first responses by integrating various functions within firms, thus bypassing high transaction costs by using external procurements. The arrival of information technology accelerates the flow of information, leading to an increase in knowledge of firms and a subsequent reduction in transaction cost. This gives rise to a systems integration era when businesses are more intertwined in complex global value chains. The author proposes a new ‘holistic framework’ as a way to cope with this complexity. This framework integrates value chain with industry-, resource- and institution-based views. The value chain enables us to analyse firms within their interrelated environments, looking at it as a chain of interlinked activities. Furthermore, the incorporation of these three approaches and their interactions should provide a better understanding of possible factors that can influence firms and their related entities.