Interaction Costs: A Definition

Interaction costs represent the money and time that are expended whenever people and companies exchange services, goods or ideas. The exchange can occur within companies, among companies or between companies and customers. This exchange can take many everyday forms, such as management meetings, conferences, phone conversations, sales calls, reports and memos. In a very real way, interaction costs are the friction in the economy. Changes in interaction costs, can cause entire industries to reorganize rapidly and dramatically.

Today, with the impact of constantly improving technologies, companies and their customers are able to do business in a manner that is causing a major paradigm shift in how business is conducted. For instance, a "Private Communication Networks" (PCN) allow companies and individuals to communicate and exchange data far more quickly, securely and cheaply than ever before.  A Shared Procurement Network (SPN) within the real estate industry is indicative of how our basic assumptions about corporate organization are being overturned. Clearly, the "interaction costs" within the business process have declined.

Value Chain: A Traditional and Virtual Definition

The stages involved in creating value in the physical world are often referred to as links in a value chain. The value chain is a model that describes a series of value-adding activities connecting a company's supply side with its demand side. By analyzing the stages of a value chain, managers are able to redesign their internal and external processes to improve efficiency and effectiveness. At the heart of the value chain is "information," and yet by tradition, the value chain model treats information as a supporting element of the value-adding process, not as a source of value itself.

The economics of information is undergoing a fundamental shift: a shift that will precipitate changes in the structure of entire industries, and in the methods that companies compete. The Shared Procurement Network (SPN) is but one example have how real estate companies are becoming enjoined. The advantage's associated with multi-corporate group purchasing exceed the competitive advantage of not doing so. This shift is made possible by the wide spread adoption of Internet technologies, - but it is less about technology than it is the fact that a new behavior and acceptance for electronic communication is reaching critical mass. Millions of people are communicating at home and at work. It's an explosion of connectivity, that threatens to undermine the established value chains for businesses in many sectors of the economy.