Session 5INTERORGANIZATIONAL RELATIONSHIPS

What we have learned? CH: 3 - Structure - Horizontal relationships within an organization CH:4 - Environmental Uncertainty- understanding uncertainty and dealing with it

CH:5 - Interorganizational relationships- Horizontal relationship across organizations and how they help in dealing with environmental uncertainty

Overview- Organizational Ecosystems

- Inter-organizational Framework: - Resource Dependence- Collaborative Networks- Population Ecology- Institutionalism

- Summary

Environment/ Goals/ Strategy/ Structure Analysis Process

Organizational Ecosystems - System formed by the interaction of a community of organizations and their environment

- Conflict and cooperation frequently exist at the same time-Large percent of new alliances in recent years have been between competitors -Ex. Samsung supplying for Apple

Interorganizational Relationships - A relationships across organizations

◦ Includes anything from relationships with suppliers, establishing agreements, joint ventures

- Enduring resource transactions, linkages that occur among two or more organizations

- Relationships necessary to obtain what the company needs

- Company might be forced into interorganizational relationships

INTER Across

Organizational Ecosystem

vs.

Interorganizational Relationships

Interorganizational Relationships Advantages

- Mitigates risk within the organization

- Increase competitiveness

- Knowledge acquisition

Disadvantages

- Less autonomy: reduce the freedom of each organization to make decisions

- Require alignment between each organizations GSS

- Difficult to manage due to efforts stemming from two or more organizations

Sabre Global Distribution System

Sabre is technology company specializing in software in which links airlines, online travel agents, hotels and travel buyers, it is owned and operated by Sabre HoldingsSabre is currently used by over 350,000 different travel agencies, 400 various airline carriers, 25 auto rental companies, 100,000 hotels and resorts and 17 cruise lines. Sabre Distribution Systems allows interorganizational linkages between various companies to occur, connecting customers with various businesses in which customers or other horizontally linked businesses to search, book, and price ticket travel.

Role of Management

- In business ecosystems, managers move beyond traditional responsibilities

- Managers must think about horizontal processes

- Not only horizontal relationships internally, but now include linkages with suppliers and customers

- Cooperative relationships with other contributors to the ecosystem

- Ex. Cancer fighting associations partnered with other companies with one goal

Interorganizational Framework

Interorganizational Framework - Resource dependence: describes rational ways organizations deal with each other to reduce dependence on the environment

- Collaborative networks: organizations allow themselves to become dependent on each other to increase value and productivity for both

- Population ecology: examines how new organizations fill niches left open by established orgs and how a rich variety of new organizational forms benefits society

- Institutionalism: examines how organizations succeed through congruence between an organization and the expectations from its environment

Interorganizational Framework - Perspectives for understanding the organization

◦ Framework for analyzing the different views of interorganziational relationships

- Organizations can be characterized based on whether: - ◦ Dissimilar or similar ◦ Competitive vs. Cooperative

- Managers can assess their environment and adopt strategies to suit their needs

Resource Dependence - Organizations depend on the external environment

◦(A resource is provided by other organization)

- Example: Magna Seating and GM ◦Goal: what should organizations do in order to minimize dependency?

Resource Dependence Resource dependence relies upon two important factors:

◦ 1) The overall demand and importance the resource has on the company. Example?

◦ 2) The extent of the monopoly of those who produce/control the resource have over its particular allocation and use. Example?

Resource Dependence Minimizing dependence on other organizations for the supply of important resources. How? Resource Strategy: Autonomy: - Purchasing ownership - Long-term contract - Trade associations

Resource Dependence Trying to influence the environment to make resources available. How?

Power Strategies: - Large, independent companies have power over small suppliers. Examples?

Resource Dependence(Strategy Comparisons)

Resource Dependence - The level of environmental uncertainty impacts the organization's goals

High-Resource Uncertainty Low-Resource Uncertainty

Goal: Finding the resource

Goal: Efficiency

Example: Oil company Example: GM

Collaborative Networks

-Companies join together to become more competitive and share scarce resources◦ Add value to both sides rather than just for their own benefit

-Performance measures are loosely defined, problems resolved through discussion◦ Shared information

-Dependence on another organization is seen to reduce rather than increase risk

Collaborative Networks

PROS

-Sharing risk when entering new markets

-Mounting expensive new programs

-Prerequisite for greater innovation, problem solving and performance

CONS

-Time consuming coordination

-Gaining consensus not only on your board but the other companies as well

Collaborative Networks

-Corporations are beginning to re-align to suit a more collaborative environment

-Companies can unite and share resources enabling them to be more competitive◦ For example: Collaborative networks are suited well to tech firms, when two

firms collaborate sharing ideas and resources (information, capital, research etc.) making them more likely to create new cutting-edge technology

Collaborative Networks

- Best aligned with an organic organization

- Open systems Emphasis: goals are growth and innovation

- Strategy: Prospector

- Example based on the framework: Cineplex and Scotia Bank

Collaborative Networks

Collaborative Networks

It is as if the brothers and sisters of a single family went into separate businesses and want to outdo one another, but they still love one another and will help

each other when needed.

Collaborative Networks Collaborative networks encourage associated firms to provide long-term investments while giving them the confidence to take a few risks. Collaborative networks provide a safety net for certain organizations as they have other organizations and resources to fall back on if needed.

For example, Exxon and Mobil Merger (1999)

This was a very substantial merger, Exxon and Mobil formed creating today's entity ExxonMobil, this was an $81 Billion agreement forming the largest company in the world. This merger was so large it required that the federal government get involved to restructure many of ExxonMobils gas stations to ensure monopolistic clauses were not infringed.

Obviously there was much to gain by this: increased resources, gaining the largest market share, greater revenues etc.

Collaborative Network - Questions... True and False, Mult Choice

Population Ecology

-Focus on diversification and adaptation within a population -Population – A set of organizations engaged in similar activities with similar patterns of resource utilization and outcomes.

-Organizations within the population compete amongst another for similar customers or resources (or both)

For example: Universities or other institutions compete amongst one another for resources from students and government to better their offerings, while they compete for students applying to multiple institutions.

Population Ecology -Consider biology and the natural selection theory --> "individuals with heritable traits suited to the environment will survive"

-Similar concept more suited to the business environment in which companies that change with the demands of the environment will survive.

Population Ecology Researchers must consider and analyze the large numbers and variation that occurs within organizations in society and why are organizations that are creating such diversity constantly appearing?

The environment is constantly demanding innovation and change, companies must adapt to these changes or a newer more innovative organization will assume their position within the market.

Older organizations are less likely to reform and change with the market where innovation more commonly comes from new organizations.

“Forbes magazine reported a study of American businesses over 70 years, from 1917 to 1987. Of the 22 that remained on the top 100, only 11 did so under their original names”

Population Ecology Barrier limiting organizations to develop and adapt to a changing environment:

-Significant investment in facilities à operations with specialized equipment and procedures (costly to abandon or develop/change operations)

-Personnel specialized in current operations

Limited info or difficulty changing the organizations current culture

(Some older directors may feel reluctant to change)

Population Ecology

"Niche" - 'A domain of unique environmental resources and needs'

Once an organization finds their particular niche it generally starts out small within the earlier stages but develops with the organization given the organizations overall success

NICHE Organizations will not succeed

Organizational Form: Specific resources and traits a business has in which can either be selected or rejected by the environment, these include: technology, products, goals, structure, personnel.

Population Ecology General Motors, recognizing the growing demand in wireless technology implemented 4G LTE wireless connectivity to many of their vehicles. Allowing passengers (children especially) to connect iPads, Laptops to the wireless network.

This new technology makes comparable vehicles such as SUV’s offered by GM diverse compared to that of SUV’s offered by Ford à Ford will have to adapt to the changing environment offering something similar or new to remain competitive.

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Population Ecology Model of Organizations

Population Ecology

Variation: The introduction of new organizational forms by entrepreneurs generally funded with venture capital from larger corporations - or sometimes setup by the government to provide new services.

--> Introducing a new process/software/application etc. to minimize or create a new method - making things simpler, more effective or introducing something completely new.

Population Ecology

Selection: Whether the new organizational form is suited to the environment and can survive - only a few variations are "selected in" by the environment and manage to survive over the long term.

If the new variations can find a niche and acquire the resources necessary to survive they will be "selected in". However if the newly introduced variations fail to find their niche or allocate the appropriate resources, they will be "selected out"

Population Ecology Retention: The preservation and institutionalism of selected organizational forms --> the environment is "retaining" them.

Certain companies (tech companies especially), products and services are valuable to the environment. For example: government, schools, Subway restaurants, Sony Playstation etc.

Although these institutions and companies seem permanent they are not immune to the effects or demands of the environment, therefore there is not security for the long term.

Population Ecology Survival Strategies: Recall, population ecology is much similar in theory to the natural selection. Companies must engage in competition or struggle for resources in order to survive.

New companies, although very competitive having introduced a new niche, face a greater struggle to survive within their environment competing against established companies of which have been operating for some time.

-Generalists and Specialists help us to identify various organizations as they operate through the struggles of a changing environment.

Population Ecology Generalists: are organizations that serve a very broad market offering a variety of products

- For example, General Electric (Clean Technology, Industrial Internet, Energy, Industry).

Specialists: organizations that have a narrower operational focus - they typically do one thing but do that one thing well

-For example, Apple (Consumer electronics, computers - focused on innovative technology)

Companies can diverge from a specialist to a generalist (or visa versa) based upon the environments demands and given availability and opportunities for the organization.

--> Specialists are in some situations more competitive than generalists

--> Generalists are able to reallocate resources (when needed) to adapt to change and demand

Population Ecology Game

Institutionalism

Institutional perspective: how organizations succeed through congruence between an organization and the expectations from its environment

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

◦ Intangible norms and values that shape behavior ◦ Organizations must fit within the cognitive and emotional expectations of their

audience ◦ Social responsibility for example: ◦ https://www.youtube.com/watch?v=ITcLLEC38V0

Institutional Environment Institutional environment: composed of norms and values from stakeholders about the correct way of organizing and behaving

◦ Customers, investors, associations, boards, government, collaborating organizations

For example: Customers at a bank expect the bank to have an educated and organized staff, have a strict hierarchy, and reporting systems

Government agencies expect transparency and following rules

Institutional Environment Institutional environment is new (ecommerce, online educations, etc.)

◦ Diversity is the norm◦ Fill emerging niches ◦ Unstable environment

Goals: market share, growth, resource acquisition, flexibility

Strategy: Prospector/ Analyzer --> Learning organization, research emphasis

Horizontal structure: relaxed hierarchy, few rules, open communication

Institutional Environment Institutional environment is established

◦ Meet the norms in the industry ◦ Adapt operations to the standard ◦ Stable environment

Goals: Profit, Stability

Strategy: Defender --> Production, efficiency, Reactor

Vertical structure: Strict hierarchy, many rules, centralized decision making

Institutionalism vs. Environment

Organizational Design

Institutional Dimension:

Formal structures reflect expectations of the environment rather than the demand of work activities

○ Might incorporate positons, set up costly websites, have Wifi, etc.

○ Structures are disconnected from technical work to obtain legitimacy

Institutional Similarity

- Emergence of a common structure and approach among organizations in the same field

◦ Strong need to appear legitimate ◦ Aspects of structure targeted toward environmental acceptance

Institutional Similarity

- Can use all of the mechanisms of mimetic, coercive, or normative forces to change

◦ Used when under conditions of dependence, uncertainty,

ambiguous goals, credentials

- Outcome - Organizations become homogenous

How does increasing similarity occur?

Mimetic forces: when organizations face uncertainty there is a pressure to copy other organizations

◦ Sometimes done without any clear proof that performance will be improved

How does increasing similarity occur?

Coercive forces: external pressure exerted on an organization to adopt structures, techniques, behaviors similar to other organizations

◦ Government mandates, health and safety regulations◦ Also coercive pressures between organizations where there is a power

difference

How does increasing similarity occur?

Normative forces: A sense of obligation or duty to high standards of performance based on professional norms

◦ Considered by the professional community to be up to date and effective

◦ Example : Information technology, accounting requirements, marketing techniques, collaborative relationships

Institutionalism

Inerorganizational relationships are defined by forces that cause organizations in a similar population to look like one

another

Summary

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