Internal Governance of Design and Engineering: The Case of the Multinational Firm

Abstract

This paper examines the process of design and engineering in large-scale construction projects delivered by multinational organizations. The analysis is on the basis of using transaction cost economics to represent design and engineering as a stream of intra-firm transactions between the local contracting office and the network of subsidiary offices. The paper then applies the concept of asset specificity to process-level design and engineering knowledge and induces a theoretical framework on the basis of local and expertise specificity of assets. The framework posits that different levels of local and expertise specificity lead to different modes for intra-firm governance of work packages in design and engineering. The paper validates the theoretical framework with interview data from six major international design and engineering organizations and derives a set of management recommendations for practitioners. The framework takes the transaction cost theory into the realm of intra-firm governance represented as a stream of asset-specific transactions. The framework extends construction engineering and management literature with a transaction-based elaboration of the design and engineering process.