+

Chapter Five: Interorganizational RelationshipsJennifer Lee-Plevnik and Krystle Vlasman

+ Overview of the Chapter

Organizational Ecosystems Interorganizational Framework

Resource Dependence

Collaborative Networks

Population Ecology

Institutionalism

+ Organizational Ecosystems

Interorganizational Relationships – the relatively enduring resource transactions, flows, and linkages that occur among two or more organizations

Organizational Ecosystem – a system formed by the interaction of a community of organizations and their environment

+ Microsoft’s Organizational Ecosystem

Microsoft

Consumer Electronics

Information Communications

Personal Computers

+ Is Competition Dead?

Traditional Competition – a distinct company is competing for survival and supremacy with other stand-alone businesses

Coevolution - the evolution of two or more species that interact closely with one another, with each species adapting to changes in the other1

Wolves and caribou

1 www.thefreedictionary.com

+ The Changing Role of Management

Think about horizontal processes rather than vertical structures

Suppliers and customers are now becoming a part of the team through horizontal linkages

Use coevolution to work with them

+ Interorganizational Framework

Helps managers switch from top down to horizontal management

Characterization: Whether the organizations are similar or dissimilar Whether the relationships are competitive or cooperative

Managers can study their environment and adopt strategies to suit their needs

+ Interorganizational Framework

Resource Dependence

Population Ecology

Collaborative Network Institutionalism

Organization Type

Dissimilar

Orga

niza

tiona

l Re

latio

nshi

p

Competitive

Cooperative

Similar

+ 1. Resource Dependence

Traditional view of relationships Try to minimize their dependence on other

organizations Amount of dependence is based on two factors:

Importance of the resource Monopoly power

+ Resource Strategies

Alter the interdependent relationships Interlocking directorships Join trade associations Sign trade agreements Merge with another firm Take political action

+ Power Strategies

Large, independent companies have power over small suppliers Ask suppliers to absorb more costs Ship more efficiently Provide more services

+ 2. Collaborative Networks

Traditional: Organizations work alone, believe in individualism and self-

reliance

Collaborative network: Companies join together to become more competitive and

to share scarce resources

+ Indigo.ca

Bricks-and-mortar Bought Coles and Chapters Partnership with Blue Nile and iUniverse Created a virtual ecosystem

+ Why Collaboration?

Sharing risks when entering new markets Reducing costs of expensive new programs Enhancing organizational profile Competition can be fierce in some areas while they are

cooperating in others Like competing with a sibling

Encourages long term investment

+ From Adversaries to Partners

Traditional: Adversarial New: Partnership* Low dependence* Suspicion, competition, arms length

* Detailed performance measures, closely monitored* Price, efficacy, own profits* Limited information and feedback

* Legal resolution of conflict

* Minimal Involvement and up-front investment, separate resources

* Short-term contracts* Contract limiting the relationship

* High dependence* Trust, value added to both sides, high commitment* Loose performance measures, problems discussed* Equity, fair dealing, both profit* Electronic linkages to share information, problem feedback, and discussion* Mechanisms for close coordination, people on-site* Involvement in partner’s product design and production, shared resources* Long-term contracts* Business assistance beyond the contract

+ Example: Bombardier

Building a business jet with organizations from all over the world

Rely heavily on suppliers for design support and shared development costs and market risks

30 different suppliers 500 design members (250 are from outside suppliers) $250 million invested by Bombardier

+ 3. Population-Ecology Perspective

Population-Ecology Perspective focuses on organizational diversity and adaptation within a

population of organizations

Population a set of organizations engaged in similar activities with

similar patterns of resources utilization and outcomes

+ Why do New Organizations Form?

Adaptation of older organizations limited New organizations bring innovation and change Established organizations become antiquated New organizations form that “fit” the environment

+ Limitations of Organizational Change

Hannan and Freeman said organizations don’t change because: Heavy Investment in:

Plants Equipment Specialized Personnel

Limited Information Established POV of Decision Makers Historical Organizational Success Difficulty changing organizational culture

+ Organizational Form and Niche

Organizational form: organization’s specific technology, structure, products, goals, and personnel, which can be selected or rejected by the environment

Niche: domain of unique environmental resources and needs

+ Elements in the Population-Ecology Model of Organizations

VariationLarge

number of variations appear in

the population

of organization

s

SelectionSome

organizations find a

niche and survive

RetentionA few

organizations grow large and

become institutionalized

in the environment

+ Population Ecology Model

Assumption: new organizations are always appearing in the population

Population change defined by 3 principals: Variation: appearance of new, diverse forms in a population

of organizations Selection: whether a new organizational form is suited to

the environment and can survive Retention: preservation and institutionalization of selected

organizational forms

+ Strategies for Survival

Struggle for existence: organizations are engaged in a competitive struggle over resources, and each organizational form is fighting to survive

Birth/survival of new organizational are based on several factors: Urban area % of immigrants Political turbulence Industry growth rate Environmental variability

+ Strategies for Survival

Generalists vs. Specialists Strategy Generalists: organizations with a wide niche or domain,

that is, those that offer a broad range of products or services or that serve a broad market

Specialists: organizations that provide a narrower range of goods or services or that serve a narrower market

+ 4. Institutionalism

Institutional Perspective: organizations survive and succeed through congruence between an organization and the expectations from its environment

Institutional Environment: composed from norms and values from stakeholders

Legitimacy: organization's actions are desirable, proper, and appropriate within the environment’s system of norms, values, and beliefs

Argues organizations need legitimacy from their customers

+ Institutional View and Organizational Design

Organizations have 2 essential dimensions: Technical Dimension: governed by norms of rationality and

efficiency Institutional Dimension: governed by expectations from

external environment

+ Institutional Similarity

Institutional Similarity (or Institutional Isomorphism) is the emergence of a common structure and approach among organizations in the same field

Three core mechanisms: 1. Mimetic Forces: pressure to copy or model other

organizations Explains why fads occur in business world

+ Institutional Similarity

2. Coercive Forces: external pressures exerted on an organization to adopt structures, techniques, or behaviours similar to other organizations Influenced by:

Law New regulation Another organization

+ Institutional Similarity

3. Normative Forces: pressures to change to achieve standards of professionalism, and to adopt techniques that are considered by the professional community to be up-to-date and effective Universities, consulting firms, trade associations, and

professional training institutions develop norms among professionals

Companies accept norms through a sense of obligation to have high performance standards

Norms almost have a moral/ethical requirement