INTERORGANIZATIONAL RELATIONS: STRATEGIC ALLIANCES

At the organizational level of analysis, network theories examine interorganizational relations (IOR). Emergent properties arise when orgs interact, exchange, bargain, compete, collaborate, ...

Network theorists try to explain origins and consequences of IOR ties.

Requires new theoretical concepts (e.g., governance forms)?

Are IORs simply the aggregation of individuals’ relations?

Do organizations have motives & emotions, interests & goals? Can orgs trust one another, or is trust only among people?

How do persons occupying role of organizational agent behave differently than when acting as self-interest individuals?

What cross-level person-organization relations are important?

Org’s ties to employees, shareholders, customers/clients

Varieties of Interorg’l NetworksInterorg’l interactions involve many communication & exchange relations, creating various types of interorganizational networks:

► Spot market transactions

► Relational contracting

► Mergers & acquisitions

► Interlocking board directorates

► Joint ventures & IJVs

► Strategic alliances

Network analysts examine relational contents & structural forms among interconnected organizations. They seek to explain:

(1) Which orgs decide to form interorg’l relations & what types of ties?

(2) What are the patterns of interorg’l communication & resource exchanges in those networks? What density, centralization, etc.?

(3) How do networks shape org’l behaviors & performance outcomes?

Where Do IOR Come From?IOR originate in combinations of environmental constraints and endogenous network structures that generate new social-economic relations intended to acquire control of resources & maximize org’l performances (profit, R&D innovation, sales,regulatory autonomy)

Relational Embeddedness

Structural Embeddedness

Positional Embeddedness

Structural Differentiation

Strategic Interdependence

NETWORKFORMATION

Gulati & Gargiulo dynamic model with endogenous feedback loop from present network structure (past alliances, common 3rd parties, joint centralities) to transform future alliances:

Optimizing IOR BenefitsOrgs often cooperate as well as compete with the same orgs. Which network forms optimize an org’s IOR benefits, such as profits, market share, growth, legitimacy, political support?

Network closure – Closely knit ties among org’l set facilitates trust, cooperative exchanges, & collective action; safeguards against information asymmetries & opportunism (deception; “self-interest with guile” - Williamson)

Network diversity – Sparse ties to orgs not linked to current partners span structural holes to gain brokerage benefits, access diverse resources, and learn innovative ideas

Contingency H: Alternative forms of IOR networks are better suit to achieving different organizational objectives:

(1) Close-knit networks optimize benefits from collaboration

(2) Diverse networks optimize gains from competitive benefits

An Org-Field TheoryIOR analyses also focus on explaining relational structures at the complete network level, disregarding individual persons or orgs.

Kenis & Knoke (2002) combined organizational field with network properties to develop a field-net explanation of aggregate change

Communication ties (info exchanges) are the primary IOR, a necessary prerequisite to future interfirm collaborations

Changes in the communication network’s formal properties (density, centralization) alter opportunities for firms to find available partners

Rates of change vary nonlinearly, initially accelerating with changes in communication network structures, then slowing with saturation or ceiling effects

But, given its heavy longitudinal data demands, how testable is this so-called “theory”?

Networks Change AlliancesChanges in the formal properties of an organizational field’s communication network generate nonlinear rates of change in interorganizational tie-formation rates (e.g., strategic alliances):

DENSITY

RECIPROCITY

TIE CONFIRMATION

CONNECTIVTY

CENTRALIZATIONRATE OF STRATEGIC ALLIANCE FORMATION

MULTIPLEXITY

SUBGROUP COHESION

HIERARCHY

Strategic Alliances

Strategic alliance: at least two partner firms that (1) remain legally independent; (2) share benefits, managerial control over performance of assigned tasks; (3) make contributions in strategic areas, e.g., technology or products (Yoshino & Rangan 1995)

Between market relations & org’l hierarchies reside several short-lived, hybrid forms of interorganizational relationships

Hierarchical Relations

---------------------------------------------------------

JOINT VENTURES COOPERATIVES EQUITY INVESTMENTSR&D CONSORTIASTRATEGIC COOP. AGREEMENTSCARTELSFRANCHISINGLICENSINGSUBCONTRACTOR NETWORKSINDUSTRY STANDARDS GROUPSACTION SETS

---------------------------------------------------------Market Relations

SA governance forms vary in the types of legal and social mechanisms that coordinate and safeguard the alliance partners’ resource contributions, allocate their joint administrative responsibilities, & divide the rewards from their collaboration (Todeva and Knoke 2003)

Micro-Managing Alliances

Communication networks can facilitate flows of information among potential partners about alliance opportunities. CEO friendships, board interlocks, professional ties can all serve as intelligence-gathering channels. Because trust among partners is so crucial for success, communicating with partners-of-partners can help to verify past performance or misconduct.

Evolutionary processes induce IOR as repeated experiences raise partners’ familiarity. Growing trust [among org agents?] lowers transaction costs by eliminating the need for written contracts as safeguards against opportunism (Ring & Van de Ven 1994; Gulati 1995)

o NYC dress firms used embedded social ties to conduct business transactions requiring coordinated, nonmarket problem-solving (Uzzi 1997)

o Cellular firms found potential new partners through interpersonal contacts of their managers participating in technical committees (Rosenkopf et al. 2001)

o In alliance implementation, institutionalized procedures build trust and mutual obligations vital for success of projects governed jointly by autonomous firms (Larson 1982)

Strategic Alliance NetworksRepeated alliances among orgs create strategic alliance networks

Strategic alliance network “set of orgs connected through their overlapping partnerships in different strategic alliances” (Knoke 2001:128; Todeva & Knoke 2002). Firms are closely tied to one another through many direct alliances or many indirect ties through third firms (i.e., partners-of-partners).

A firm’s strategic alliance network ties increases probability of accessing and using valuable resources held by the firm’s partners, including their:

Financial resources, credit extensions

Knowledge, information, technologies and patents

Marketing expertise, country/culture penetration

Organizational status, corporate, & brand reputations

Trustworthiness & lower risk (but also moral hazards)

Global Information Sector

Basic CSC concepts could help to explain the evolution of the strategic alliance network in the Global Information Sector (GIS). This sector increased collaborative agreements exponentially 1990-2000, creating a complex web of overlapping partnerships.

Five NAICS info subsectors (publishing; motion pictures & sound recording; broadcasting & telecomms; info services & data processing) plus computer, telecomm, semiconductor manufacturing industries

145 multinational corporations: 66% USA, 16% Europe, 15% Asia Alliance & venture announcements in news media, 1989 to 2000 Total of 3,569 alliances involving two or more GIS organizations

Next two figures show mean strategic alliances among 30 most-active firms & MDS distances/clusters on dyads’ # of annual partnerships.

Altho Japanese firms have higher probability of mobilizing resources from compatriots, what difficulties may they be creating for themselves by concentrating their strategic alliances so heavily among other Japanese firm partners?

GIS Core Alliances in the Triad

J apan-Europe

Europe-USA

USA-J apan

Europe

J apan

USA

ME

AN

AL

LIA

NC

ES

6

5

4

3

2

1

0

Y R91

Y R95

Y R00

1991 GIS (MDS Stress = 0.102)

1.5.5-.5-1.5

1.0

0.0

-1.0

TOSHIBA

TI

SUN

SONY

SIEMENS

PHILIPS

ORACLE

NTT

NOVELLNEC

MOTOROLAMITSUBISHI

MICROSOFT

MATSUSHITA

INTEL

IBM

HP

HITACHI

FUJITSU

FT

ERICSSON

COMPAQ

CISCO

BT

BS

BCE

ATT

APPLE

SAMSUNG

1995 GIS (MDS stress = 0.142)

1.81.51.31.0.8.5.3.0-.3-.5-.8-1.0-1.3-1.5-1.8-2.0-2.3

1.5

1.0

.5

0.0

-.5

-1.0

-1.5

TOSHIBA

TI

SUN

SONY

SIEMENS

SAMSUNG

PHILIPS

ORACLE

NTT

NOVELL

NEC

MOTOROLA

MITSUBISHI

MICROSOFT

MATSUSHITA

INTEL

IBM

HPHITACHI

FUJITSU

FT

ERICSSON

COMPAQ

CISCOBT

BS

BCE

ATT

APPLEAOL

2000 GIS (MDS stress = 0.137)

2.01.51.0.50.0-.5-1.0-1.5-2.0

2.0

1.5

1.0

.5

0.0

-.5

-1.0

-1.5

TOSHIBA

TI

SUN

SONY

SIEMENSSAMSUNG

PHILIPS

ORACLE

NTT

NOVELL

NEC

MOTOROLA

MITSUBISHI

MICROSOFTMATSUSHITA

INTEL

IBM

HP

HITACHI

FUJITSU

FT

ERICSSON

COMPAQ

CISCO

BT

BS

BCE

ATT

APPLE

AOL

Gulati, Ranjay and Martin Gargiulo. 1999. “Where Do Networks Come From?” American Journal of Sociology 104:1439-1493.

Kenis, Patrick and David Knoke. 2002. “How Organizational Field Networks Shape Interorganizational Tie-Formation Rates.” Academy of Management Review 27:275-293.

Knoke, David. 2001. Changing Organizations: Business Networks in the New Political Economy. Boulder, CO: Westview.

Todeva, Emanuela and David Knoke. 2002. “Strategische Allianzen und Sozialkapital von Unternehmen.” (“Strategic Alliances and Corporate Social Capital”) Kölner Zeitschrift für Sociologie und Sozialpsychologie. Sonderheft 42:345-380.

Yoshino, Michael Y. and U. Srinivasa Rangan. 1995. Strategic Alliances: An Entrepreneurial Approach to Globalization. Cambridge, MA: Harvard University Press.

References