The Cost of Working Together

Why Harmonizers Solve Transaction Cost Problems

One Takeaway: Your business faces cross-functional coordination challenges. Growth Isn’t One Sided introduced Harmonizers as a solution to these challenges. But Harmonizers aren’t just middle men who reduce friction. They redesign internal systems so that different types of work can coexist productively. Transaction cost economics helps explain both why coordination breaks down and how Harmonizers can create measurable value. They do this by building new ways of working together, not just managing existing ones.

Often, the most valuable business opportunities need coordination between different types of work. In these situations operators, refiners, and creators must work together. These challenges don’t fit into any single department’s responsibilities. These “Bill problems” tend to be very persistent. Solving them requires cooperation that your organization may unintentionally disincentivize.

This raises important design questions. Why do departments struggle to work together even when cooperation would clearly benefit the business? What makes internal coordination harder as companies grow? And how do Harmonizers create economic value beyond just “improving teamwork”?

The answers come from Nobel Prize-winning economist Ronald Coase. One of Coase’s most important insights focused on something called transaction costs. Transaction costs are the cost of the hidden friction that comes from working with others. But understanding the problem is only half the story. The other half is understanding what Harmonizers can actually build to address these costs. Harmonizers build new internal rules that make coordination possible where it wasn’t before. They reduce the cost of working together. But they also create the conditions that allow the company to carry out strategies that competitors cannot.

Two Companies, Same Opportunity, Different Outcomes

Let’s start with an example. Two mid-market SaaS companies—both around 200 employees—noticed the same thing in their customer data. Large clients were churning because the product didn’t integrate their customer management (CRM) tools they already relied on. Both companies had the engineering talent to build the integration. Both had sales teams hearing the same request on every sales call. The opportunity was obvious and urgent. Their largest contract renewals were six months out. Without the integration, those accounts were likely to leave as well.

Company A (traditional coordination): Product and sales spent three months going back and forth on what the integration should look like. Sales wanted a features that would close the deals they were losing. Product wanted a design that would scale beyond CRM to other enterprise tools. Engineering flagged that the sales-driven ideas would create technical debt. They claimed this would slow development for the next two years. Each team escalated their case to the CEO, who split the difference in a way that satisfied nobody.

The project got approved, but with fragmented ownership. Product owned the technical side. Sales owned the go-to-market. Customer success owned onboarding. They each reported into different VPs with different priorities. Engineering built the integration based on product’s spec . But, they didn’t hear directly from customers about how they’d actually use it. Sales kept promising features on calls that weren’t in the spec. Customer success learned about the new integration the week before launch. They had no documentation, no training, and no input into the user experience.

The integration shipped five months late. By then, two of their three largest accounts had already signed with a competitor. The accounts that stayed found the new product clunky. It technically worked, but it didn’t match their actual workflows. This happened because nobody with direct customer knowledge had real authority in the design process.

Company B (Harmonizer coordination): Company B’s Harmonizer recognized this wasn’t simply a product problem, a sales problem, or a customer success problem. Instead it was a coordination problem. It required new rules and systems to solve. They needed a new way of operating to take on the task.

The Harmonizer created a team with shared budget authority across product, sales, and customer success. The goal was to build a team with a pooled budget that had to agree on how to spend it. That single change meant every function had to reveal what they actually valued. It kept them from simply lobbying for their priorities.

They created joint success metrics. Success wasn’t “did the integration ship” or “number of deals closed.” Instead they focused first on contract renewal rate for existing enterprise accounts. Customer success brought direct insight from support conversations into design sessions. It wasn’t some PowerPoint summary no one looked at. These front-line leaders were an active voice in the room with authority over design decisions. Sales participated in technical scoping so they understood what they could and couldn’t promise. Engineering heard directly from customer feedback. This meant they understood what “works” actually meant in practice. They didn’t focus on building a product. They focused on building a product that actually was helpful.

The integration launched three months after kickoff ahead of schedule. The design reflected actual customer workflows. This happened because the people with that knowledge had decision-making authority. They weren’t passive advisors. Their account renewal hit 94%.

Not only did Company A’s coordination costs slow them down, they consumed the opportunity.

The months of internal negotiation. The misaligned incentives. The information that never reached the people who needed it. Leaders focused on empire building rather than value generation. By the time they shipped, the market had moved.

But notice what Company B’s Harmonizer actually did. They did more than make things move faster by locking everyone in a room and trying to starve everyone until a solution was built. They bent the existing rules. They created new rules and systems that changed the alignment and focus of the work. Things like shared budget, joint metrics, cross-functional authority changed the rules of how they normally operate in their day to day. The value wasn’t making people “play nicer.” It was creating systems where coordination became the rational choice rather than a self-sacrifice.

Why Internal Coordination Becomes More Expensive as Companies Grow

Coase won the Nobel Prize for asking two big questions that explain why coordination challenges become more severe at scale.

1) If markets coordinate millions of strangers efficiently through price signals, why do firms exist at all? Because sometimes internal coordination is cheaper than market coordination. It’s more efficient to hire employees than negotiate separate contracts for every task. Internal teams share information more easily than external contractors. Long-term employment enables trust that one-time market transactions can’t provide.

2) If firms are better than markets, why doesn’t everything happen inside one giant company? Because internal coordination has hidden costs that increase as organizations grow. These transaction costs eventually exceed the benefits of internal coordination. This is exactly the pattern we saw in Growth Isn’t One Sided when growing companies start moving slowly despite having more resources.

(These two points are bit of an oversimplification, but they’re useful for our current use)

The Fundamental Problem: No Internal Price Signals

Markets coordinate through prices. When demand increases, prices tend to rise. This sends a signal to producers to increase supply. No meetings required. No approval processes. No internal politics. Prices combine all the distributed information about supply and demand into a single number. That number guides decision-making.

Coase showed that sometimes authority within a firm is cheaper than prices for coordination. But this creates a new problem. Without prices, how do you know what internal activities are actually valuable?

In a market, if marketing needs engineering support, they’d pay a price that reflected the opportunity cost of the engineers. If the feature is worth $500K to marketing but engineering time costs $200K, the transaction happens. If engineering time costs $800K, marketing declines. Prices reveal relative value. Inside a firm, marketing and engineering argue in meetings about priorities. Unfortunately, there’s no true price mechanism to reveal relative value. The decision ends up hinging on political influence rather than economic value.

As organizations grow so too do the substitutes for prices. More meetings, approval layers, negotiation cycles, and budget processes. These all become more expensive. More functions specialize. More hierarchy deepens. More competing priorities. More information gets lost between decision-makers and front-line knowledge.

This is one dimension of the economic function Harmonizers serve. Their goal is to create coordination mechanisms that attempt to fill the gap from missing prices. They work across teams and priorities to reveal relative value, align incentives, and pull together distributed information.

As Coase explained, companies tend to exist at the boundary where internal transaction costs equal external market costs. Harmonizers can extend this boundary. They do this by making existing coordination cheaper. But also, by designing new internal rules and systems. These new systems make coordination possible where it previously wasn’t. They reduce transaction costs and they create new capabilities. The first dimension makes the firm more efficient. The second makes the firm more effective.

The Hidden Costs of Internal Coordination

Every time departments need to collaborate, they face costs that don’t appear on income statements. While the costs are hidden, they have a real impact on effectiveness.

Information costs multiply. How long does it take to figure out who owns the customer onboarding process? Which team has authority to approve market experiments? In a 20-person company, you know who does what. In a 200-person company, finding the right person requires asking around. In a 2,000-person company, entire directories exist just to solve this search problem. People spend time searching for information and expertise in an ever changing closed environment.

Negotiation costs expand. Marketing wants engineering resources for new features. Sales wants operations to customize processes for key accounts. Customer service wants product changes. Engineering wants to reduce technical debt. All are valuable. None has a price that reveals relative value. So, organizations hold endless meetings. They create priority maps. They escalate to executives. And after all this the company can still can make poor allocation decisions. Time ends up spent negotiating internal resource use rather than creating value.

Enforcement costs emerge. In markets, contracts and reputation create accountability. Inside firms, internal commitments often lack formal enforcement. When marketing promises product features, how do you ensure engineering can deliver? Internal accountability relies on informal relationships and goodwill. These mechanisms can work great in small organizations where everyone knows everyone. But, they quickly break down as organizations grow. Relationships become more distant. Individual reputation effects matter less in larger groups.

The “Bill Problem” as Transaction Cost Failure

Bill identifies a cross-functional problem that would create significant business value. He realizes improving customer onboarding needs to be imporved. Solving it requires cooperation from teams that don’t have customer onboarding in their performance metrics. Product gets measured on feature rollout. Sales gets measured on deals closed. Customer success gets measured on support ticket resolution. None gets measured on onboarding quality.

Without pricing systems, cooperation becomes irrational from each department’s perspective. Product loses time rolling out new features by helping with onboarding. Sales loses time that could close more deals. Customer success takes time from support tickets. Each is incentivized to optimize for their individual metrics. As a result, the problem goes unfixed and the business loses value.

Appeals to “teamwork” ignore the reality that people respond to incentives, not intentions. Formal processes add bureaucratic costs without solving the incentive problem. Often organizations create unclear ownership that increases transaction costs rather than reducing them.

This is where Harmonizer thinking becomes valuable. Instead of relying on misaligned incentives, Harmonizer thinking focuses on system changes so collaboration serves individual interests. They use tools like:

• Shared project budgets where all functions have authority

• Cross-departmental success metrics tied to joint outcomes

• Resource-sharing arrangements that benefit all participants

• Reputation systems that reward collaborative behavior.

As a result, coordination becomes attractive rather than punishing.

This is not to say companies should avoid managing specialized silos using traditional approaches. There is still value there especially for scalable problems. This approach is important when opportunities and situations arise that require more than a single specialist team solve the problem. You need the right approaches for the right problems.

How Harmonizers Might Create Market-Like Systems

Without prices, you need ways to figure out what’s valuable and align incentives. Harmonizers help close this missing information gap by designing new internal rules and structures.

Creating “shadow prices” through budget authority. Rather than forcing departments to negotiate every idea, Harmonizers can create project budgets with shared control. Marketing and engineering both have authority over a $2M feature development budget. Neither can unilaterally spend it. They must agree on allocation. This creates a pseudo-market. Each side reveals how valuable they think specific initiatives are by how much they’re willing to commit. To help combat budget creep, team members could receive bonuses based on the amount of budget they conserved and the revenue they generate. Marketing won’t push for low-value features because that consumes budget they control. Engineering won’t reject valuable features because that wastes shared resources.

Building “reputation markets” for internal services. Harmonizers could track which teams are helpful versus get in the way on cross-functional work. They could create a quarterly “collaboration index.” This would show which teams respond quickly and contribute to solving these difficult problems. Teams with high scores get priority access to experiment resources. This creates incentives for cooperation. Future cooperation becomes the value that motivates current cooperation. This helps approximate what repeated market relationships create.

Designing “profit-sharing” for shared outcomes. When operators, refiners, and creators need to collaborate, Harmonizers can structure success so each function benefits. A new product launch requires operator reliability, refiner optimization, and creator innovation. Rather than separate success metrics, they share a revenue target. Everyone gets bonuses based on net-new revenue regardless of individual functional contributions. This reduces the incentive to focus on individual metrics at the expense of collective success.

Creating information aggregation systems. Harmonizers can pull together distributed knowledge into actionable formats. Operations knows customers are struggling with a specific workflow. Product needs explicit requirements. Marketing needs business cases. The Harmonizer translates between these different focus areas. They make sure distributed information actually influences decisions. This approximating what price signals do in markets. At the very least, Harmonizers can quickly direct you to exactly the coworker you need to talk to in order to have a full picture of a problem you’re working on.

Harmonizers as Institutional Entrepreneurs

Notice what these mechanisms represent. Shadow prices, reputation markets, profit-sharing structures, information aggregation. These aren’t project management tools. They’re new rules and systems built inside the organization. The Harmonizer isn’t running the existing system more efficiently. They’re designing new systems that change the rules of the game based on the fact that the market is changing.

This connects directly to what we discussed previously (here and more in depth here) about the distinction between management and entrepreneurship. Economist Israel Kirzner described the entrepreneur as someone who notices misalignments. These are essentially gaps between how resources are currently arranged and how they could be arranged to create more value. Economists Peter Klein and Nicolai Foss explain these actions are built on judgment. Harmonizers do this inside the firm. They know when to calculate and when to judge. They notice that the current rules and structures make cross-functional cooperation irrational. They build new ones where cooperation becomes the rational choice.

This is the critical distinction between a Harmonizer and a project manager. A project manager serves an important function by coordinating within existing structures. They schedule meetings, track deliverables, manage timelines. A Harmonizer redesigns the system when something new presents a challenge. When a project manager sees departments failing to cooperate, they escalate to leadership or add process. When a Harmonizer sees departments conflicting, they ask: what would make cooperation the default? Then they build the solution.

This is the big advantage from Harmonizers. They create internal systems that competitors can’t easily replicate. You can copy a project management methodology. You can’t copy the built up knowledge of how to redesign systems so that different silos naturally reinforce each other’s work in your specific context. That knowledge is embedded in relationships and organizational norms. These take time to evolve and can’t be transferred through a best practices playbook.

How Different Work Types Affect Transaction Costs

The operators, refiners, and creators framework maps directly onto different transaction cost patterns.

Operator coordination involves standardized processes and predictable outcomes. Traditional management systems work well here. Clear procedures, defined responsibilities, and communication keep transaction costs low. Success criteria are measurable. You know what good looks like.

Refiner coordination sits in the middle. It requires systematic analysis combined with operational knowledge. Structured improvement processes, data sharing, and performance measurement can manage these costs (again mostly traditional management practices). The work is more complex than operations but still follows recognizable patterns.

Creator coordination is where traditional management ideas break down. Uncertain outcomes and experimental approaches generate high transaction costs under standard processes. Innovation needs flexible coordination that can handle changing requirements. Bureaucratic overhead slows experimentation down or even kills it.

The Harmonizer advantage is providing different coordination mechanisms for different types of work. Instead of one approach that works well for operators but stifles creators, or one that gives creators freedom but leaves operators without structure, the Harmonizer designs each to fit. The organization achieves lower total transaction costs than if they were to apply one-size-fits-all methods.

Why Some Coordination Problems Cost More Than Others

Oliver Williamson, another Nobel-winning economist, built on Coase’s insights. He identified a key factor in coordination difficulty that he called “asset specificity.” This refers to how specialized and non-transferable certain capabilities or knowledge become.

When knowledge becomes highly specialized, it creates bottlenecks. Customer service develops deep understanding of specific problems that product development can’t easily access. Regional sales teams understand local dynamics that don’t transfer to other regions. Engineering builds expertise with technologies that other teams can’t use. Creator functions develop insights about emerging opportunities that operator functions can’t immediately act on.

This specialization creates value. It also traps knowledge. The customer service rep who has handled thousands of conversations has invaluable insight into product pain points. But translating that knowledge for product developers requires time, context, and bridging different functional languages. Those translation costs often exceed the value of any single insight in isolation. Organizations become less intelligent collectively even as individual teams become more capable.

Routine activities work well with traditional management systems. When knowledge is standardized and transferable, tools like SLAs, defined processes, and clear reporting structures keep coordination costs low. The knowledge moves easily between parties because it doesn’t require much translation.

Everything else is where traditional systems start to fail—and where Harmonizers create the most value. Some of this work is genuinely uncertain, like innovation projects where you can’t write an OKR specifying what the solution looks like before you’ve discovered it. Some of it is simply complex, requiring multiple functions to coordinate around problems that don’t fit any single team’s reporting structure. What these activities share is that predefined targets and standard processes can’t handle them. They need ongoing relationships with understood expectations but flexible execution. Not business as usual. Not top-down oversight. A more robust approach built for the activities where most cross-functional opportunities live.

Measuring the Value of Harmonizers

Traditional metrics like meeting hours, approval rounds, and email volume capture coordination effort. They don’t capture opportunity cost. Transaction cost economics points us to better measures to understand the value of Harmonizer work.

• Coordination time. Time from problem identification to solution implementation. If cross-functional initiatives drop from 6 months to 2 months, that’s 4 months of opportunity captured sooner. Plus resources freed for the next problem.

• Resource reallocation. Percentage of time shifted from coordination to production. If engineering drops from 30% to 10% of time in cross-functional negotiations, that’s 20% more capacity for actual development.

• Opportunity capture rate. Percentage of identified cross-functional opportunities actually pursued. Moving from 20% to 60% means 3x more opportunities converted to real initiatives.

• Coordination efficiency. Value created per unit of coordination effort. Dropping from 500 to 100 person-hours of coordination per $1M value created is a 5x improvement.

The key insight: stop measuring how much coordination is happening. Measure how much value creation is happening relative to the effort spent coordinating. The value of Harmonizers is in opportunity cost reduction which leads to new revenue. Resources that would have been consumed by overhead instead create customer value, develop capabilities, or capture market opportunities.

Why This Creates Competitive Advantage

Coase’s insights suggest companies should bring activities in-house when internal coordination costs are lower than market alternatives. Harmonizers extend this boundary. They can change the economics of firm size.

Traditional economic theory says coordination costs eventually exceed the benefits of scale. This is why conglomerates often trade at discounts. The costs of managing diverse businesses outweigh the synergies. Harmonizers can shift this dynamic to a degree.

Traditional scaling sees coordination costs grow faster than headcount. A 10-person company coordinates easily. A 100-person company manages with some overhead. A 1,000-person company can drown in process.

Scaling with Harmonizers sees coordination costs grow slower. Four mechanisms drive this.

1. Reusable coordination systems means the 10th cross-functional project likely costs less than the 1st because the systems already exist.

2. Built up relationship capital means trust from early collaborations reduces negotiation costs later. Teams that have worked together coordinate faster next time.

3. Improved information gathering means Harmonizers develop better knowledge of where expertise lives. This reduces search costs even as the organization grows.

4. Harmonizers can re-use shared success frameworks for new initiatives at much lower cost than the original design.

Companies without Harmonizers face larger decreasing returns to scale. They either stay small, accept high coordination costs, or outsource the hard stuff. Each option limits them. Companies with Harmonizers have better odds at maybe facing increasing (or at least less decreasing) returns to scale. They grow larger while maintaining coordination efficiency. They execute strategic complexity that competitors can’t match.

Think about what this looks like in practice. Apple coordinates hardware, software, and services internally while competitors manage these through market relationships. Uber and Lyft’s city-level teams coordinated with central platform development faster than competitors who either centralized everything or fully decentralized. Amazon coordinates across different work types faster than competitors who silo functions.

This advantage is sustainable. Competitors can copy your products, marketing, and pricing. They struggle to copy your coordination efficiency. It depends on accumulated relationship capital, evolved ways of working, and embedded practices that take time to build. You can’t transfer them through a best practices document.

Looking Ahead: The Innovation Challenge

Understanding how Harmonizers reduce transaction costs is essential for executing complex strategies. But it raises a deeper question. Why do organizations that excel at coordination often struggle with innovation?

The systems that reduce transaction costs for operational coordination can at times increase them for experimentation. Structures that align work on known initiatives can kill experimental discovery. Reputation systems that reward reliable coordination can punish intelligent failures. Measurement frameworks that make coordination efficient can make innovation invisible.

Next, we’ll dive more into why operational efficiency and innovative discovery need different approaches. We’ll look at why measurement systems that enable optimization often kill experimentation. And we’ll see how the concept of creative destruction applies inside organizations.

The Bottom Line

Transaction cost economics explains why coordination challenges get worse as companies grow. Coase showed that organizations exist where internal coordination costs equal external market costs. As firms grow, internal costs rise. More meetings. More approvals. More negotiations. More monitoring.

But Harmonizers do more than make coordination cheaper. They serve a dual function.

First, they reduce transaction costs by creating mechanisms that approximate what markets do. Shadow prices reveal relative value. Shared success metrics align incentives. Information gathering systems pull together distributed knowledge. Reputation systems enable cooperation.

Second, and more importantly, they redesign the internal rules of the game. They build new operating structures that make it possible for operators, refiners, and creators to reinforce each other’s work rather than compete for resources in a world where yesterday’s business may be different than tomorrow’s.

The competitive advantage goes to organizations that understand Harmonizers not as coordinators who manage existing systems, but as builders of new ones. The economic value isn’t found in making collaboration cost less. It’s making the firm capable of strategies that competitors with inferior systems cannot execute.