The Cost of Working Together
Why Harmonizers Solve Transaction Cost Problems
One Takeaway: Growth Isn't One Sided introduced harmonizer thinking as the solution to cross-functional coordination challenges. But harmonizer thinking isn't just about facilitating and reducing friction. It's about redesigning the internal rules of the organization so that different types of work can coexist productively. Transaction cost economics helps explain both why coordination breaks down and how harmonizer thinking creates measurable value 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 does harmonizer thinking create economic value beyond just “improving teamwork”?
The answers come from Nobel Prize-winning economist Ronald Coase. One of Coase’s most important insights were about 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 harmonizer thinking actually builds to address these costs—new internal rules that make coordination possible where it wasn’t before. It doesn’t just reduce the cost of working together. It creates the conditions that allow the company to execute strategies that competitors cannot.
Two Companies, Same Opportunity, Different Outcomes
Two mid-market SaaS companies—both around 200 employees, both Series B—noticed the same thing in their customer data. Large clients were churning because the product didn’t integrate their CRM workflows they already relied on. Both companies had the engineering talent to build the integration. Both had sales teams hearing the same request on every enterprise 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 negotiating 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 spec 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 spec. 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 thinking in action). Someone at Company B 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 structures to solve. They didn’t just schedule a cross-functional meeting. They built a different way of operating.
They created a team with shared budget authority across product, sales, and customer success. This wasn’t a committee that met weekly to argue. It was 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 established joint success metrics. Success wasn’t “did the integration ship” or “number of deals closed.” Instead they aligned first on contract renewal rate for existing enterprise accounts. Customer success brought direct insight from support conversations into design sessions. It wasn’t some snazzy PowerPoint summary, but instead as 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. Enterprise renewal rate hit 94%. Then, sales started closing new enterprise accounts. They were able to shift their focus and show an integration built by people who understood real workflows.
Company A’s coordination costs did more than slow them down. 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. Those costs consumed the opportunity. By the time they shipped, the market had moved.
But notice what Company B actually did. They did more than make things move faster. They built new rules and structures 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 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.
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.
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 harmonizer thinking serves. The goal is to create coordination mechanisms that approximate what prices do. Working across teams and priorities to reveal relative value, align incentives, and pull together distributed information—without formal pricing systems that would likely create their own problems.
Companies exist at the boundary where internal transaction costs equal external market costs. Harmonizer thinking can extend this boundary—not just by making existing coordination cheaper, but by designing new internal rules and systems that make coordination possible where it previously wasn’t. 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 implicit, they have an explicit 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 still can make poor allocation decisions. Time ends up spent negotiating internal resource allocation rather than creating value. (Economists call this “bargaining costs.”)
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 improved. 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 mechanisms, 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.
Traditional solutions struggle to solve this. 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. 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 Harmonizer Thinking Creates Market-Like Systems
Without prices, you need alternatives to figure out what’s valuable and align incentives. Harmonizer thinking solves this by designing new internal rules and structures.
Creating “shadow prices” through budget authority. Rather than forcing departments to negotiate every idea, you 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 budget authority they’re willing to commit. 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. Track which teams are helpful versus get in the way on cross-functional work. Create a quarterly “collaboration index” that shows which teams respond quickly and contribute to solving difficult problems. Teams with high scores get priority access to experiment resources. This creates economic 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, 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 eliminates the incentive to focus on individual metrics at the expense of collective success.
Creating information aggregation systems. Synthesize distributed knowledge into actionable formats. Operations knows customers are struggling with a specific workflow. Product needs explicit requirements. Marketing needs business cases. Someone thinking like a harmonizer translates between these different focus areas. They make sure distributed information actually influences decisions. This approximates what price signals do in markets.
Harmonizer Thinking as Institutional Entrepreneurship
Notice what these mechanisms represent. Shadow prices, reputation markets, profit-sharing structures, information aggregation systems. These aren’t project management tools. They’re new rules and structures built inside the organization. Harmonizer thinking isn’t about running the existing system more efficiently. It’s about 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. 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. Harmonizer thinking does this inside the firm. It notices that the current rules and structures make cross-functional cooperation irrational. Then it builds new ones where cooperation becomes the rational choice.
This is the critical distinction between harmonizer thinking and project management. A project manager serves an important function by coordinating within existing structures. They schedule meetings, track deliverables, manage timelines. Harmonizer thinking redesigns the structures themselves. When a project manager sees departments failing to cooperate, they escalate to leadership or add process. When someone thinking like a harmonizer sees departments conflicting, they ask: what would make cooperation the default? Then they build the solution.
Project management reduces friction within the current system. Harmonizer thinking creates a new system where the friction doesn’t exist in the first place.
This is why harmonizer thinking creates capabilities that competitors can’t easily replicate. You can copy a project management methodology. You can’t copy the accumulated knowledge of how to redesign systems so that silos naturally reinforce each other’s work. That knowledge is embedded in relationships and organizational norms. These take time to evolve and can’t be transferred through a best practices document.
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. Formal mechanisms work well here. Clear procedures, defined responsibilities, and systematic communication keep transaction costs low. Requirements are well-specified. 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. The work is more complex than operations but still follows recognizable patterns.
Creator coordination is where traditional mechanisms 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 not only slows experimentation down. It 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, harmonizer thinking designs each to fit. The organization achieves lower total transaction costs than competitors who apply one-size-fits-all methods.
Why Some Coordination Problems Cost More Than Others
Oliver Williamson, another Nobel-winning economist, extended 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. But, product development can’t easily access it. Regional sales teams understand local dynamics. But, they don’t transfer to other regions. Engineering builds expertise with technologies. But, other teams can’t use their systems. Creator functions develop insights about emerging opportunities. But, operator functions can’t immediately act on them.
This specialization creates value. It also traps knowledge. The customer service rep who has handled thousands of conversations has 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. 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.
Everything else is where harmonizer thinking creates 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 Harmonizer Thinking
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.
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 economic value of harmonizer thinking is in opportunity cost reduction. 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. Harmonizer thinking extends this boundary. It 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. Harmonizer thinking can shift this dynamic.
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 harmonizer thinking sees coordination costs grow slower. Four mechanisms drive this.
Reusable coordination systems means the 10th cross-functional project likely costs less than the 1st because the systems already exist.
Built up relationship capital means trust from early collaborations reduces negotiation costs later. Teams that have worked together coordinate faster next time.
Improved information gathering means better knowledge of where expertise lives, reducing search costs even as the organization grows.
Shared success frameworks can be re-used for new initiatives at much lower cost than the original design.
Companies without harmonizer thinking face decreasing returns to scale. They either stay small, accept high coordination costs, or outsource the hard stuff. Each option limits them. Companies that apply harmonizer thinking have better odds at facing increasing 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: Where Does the Knowledge Live?
Understanding how harmonizer thinking reduces transaction costs is essential for executing complex strategies. But it raises a deeper question. How do you know what to coordinate?
The market-like mechanisms we’ve discussed—shadow prices, reputation systems, shared success metrics—all assume that the relevant information can be gathered and acted on. But as companies grow, the knowledge needed for good decisions becomes increasingly distributed. The sales rep knows something engineering doesn’t. The customer success manager sees patterns that product can’t access. The regional operator understands local dynamics that headquarters has never encountered.
This is the knowledge problem. Small companies can run on founder instincts because founders know everything happening in the business. Large companies can’t—and the process of centralizing information often destroys the very context that makes it valuable.
Next, we’ll explore why centralized decision-making fails as you grow, when to centralize versus decentralize authority, and how harmonizer thinking serves as a knowledge broker between the people who have information and the people who need it.
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 harmonizer thinking does more than make coordination cheaper. It serves a dual function.
First, it reduces transaction costs by creating mechanisms that approximate what markets do. Shadow prices reveal relative value. Shared success metrics align incentives. Information aggregation systems synthesize distributed knowledge. Reputation systems enable cooperation.
Second, and more importantly, it redesigns the internal rules of the game. It builds new operating structures that make it possible for operators, refiners, and creators to reinforce each other’s work rather than compete for resources.
The competitive advantage goes to organizations that understand harmonizer thinking not as coordination management, but as system building. 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.