Generation of risk in networks of organisations J S Busby R E Alcock Lancaster University School of Management

1. Generation of risk in networks of organisations J S Busby R E Alcock Lancaster University School of Management

2. Background • ‘Supply chain management’ an increasingly important discourse • Tendency to vertical disintegration/international cooperation (Chen & Paulraj 2004) • Networks of firms with ‘reciprocal exchange relations’ (Andersen & Christensen 2005) • Now seen more as self- rather than focal firm-organised (_______) • A better unit of analysis for competition (Chen & Paulraj 2004) • And for specialisation/competitive advantage (Dyer 1996) • And perhaps then also for risk management • But prior supply chain ‘risk’ work on threat to supply chain (Harland et al 2003; • Kleindorfer & Saad 2005; Sodhi 2005)

3. Purpose • To find out how networks of organisations generate (perceptions of) risk • Exploration of risks generated by ‘network-ness’ • But not a test of whether networks cf firms increase risk • Two case studies • Hatfield rail crash: the ‘fragmentation’ issue • Sudan 1 contamination scandal: the ‘globalisation’ issue • Both centrally involved supply chains • Both led to a societal response that overshadowed physical harm • Analysis of press commentary • How risk was constructed by commentators around the two events • How ‘network-ness’ of the organisations was implicated

4. Theory • Model of indirect capability • Economic theories of firm boundaries often concern risk • Transaction cost economics (Williamson 1993): risk of opportunism • Agency theories (Eisenhardt, 1989): agent-principal differences on risk • But these ignore communities of practice (eg Podolny and Page 1998) • And the risk is purely internal • So theory of indirect capabilities (eg Araujo et al 2003) more promising • Knowledge from continued association within mutual specialisation • Eg about how to gain access to external capabilities • Resembles ‘heedfulness’ found in HROs (Weick and Roberts 1993)

5. Methods • Analysis • Locate press articles over lifetimes of events to present (762 and 190) • Look at frequency over time • Plot sequence of events and conditions reported • Generate taxonomy of described deficits in indirect capability • “…A replacement piece of track had been lying beside the line waiting to be fitted by 'renewal contractor' Jarvis since May. But it was left to sit there over the summer because Railtrack found it too difficult to persuade operators to cut back on the number of trains while it shut down the route…”

6. Cases Hatfield: main events Jan 1999 Rail at Hatfield identified as suffering from fatigue Oct 1999 Rail fracture at Aycliffe led to new guidelines Feb 2000 Rail again assessed as needing urgent replacement Mar 2000 27-hour track possession scheduled but rail not arrived Apr 2000 Delivery completed; only time to re-rail partially May 2000 Start of summer timetable with fewer maintenance slots Jun 2000 ‘Clock stopped’ on overdue repairs Jul 2000 Ultrasound test classified as unreadable Sep 2000 Grinding on rail Oct 2000 Derailment Oct 2002 Railtrack replaced by Network Rail Sep 2004 Corporate manslaughter charges dropped Oct 2005 Infrastructure firm and contractor fined

7. Cases Hatfield: network of organisations Franchising Director Rail Regulator Passenger Train Operators Infrastructure Maintenance Suppliers Rolling Stock Companies Infrastructure Company Subcontractors Track Renewal Suppliers Rolling Stock Maintenance Suppliers Freight Train Operators Other Service Providers

8. Cases • Hatfield: profile of press commentary • Caveat • Articles not all about Hatfield but eg law on ‘corporate killing’ • Or later accidents, excessive pay for senior managers, privatisation…

9. ‘…train drivers had reported frequent 'rough rides' on that stretch of high-speed line... such is the complexity of the present system of management, it is almost impossible for one person to get a handle on any problems and make sure they are sorted out.’ Cases Hatfield: types of deficit in indirect capability Type Example Community dissolution Failure to maintain continuous technical authority Contextualisation loss Failure to retain local experience Global helplessness Failure to adapt to changed types of business Goal narrowing Failure to moderate conflicting incentives Informational impoverishment Failure to overcome commercial secrecy Interfacial under-control Failure to check work Member cascading Failure to manage cascaded tiering Norm gradient Failure to avert standards attenuation away from core Practice diversity Failure to achieve uniformity in service Relational credulousness Failure to accredit capability Responsibility diffusion Failure to achieve rigorous contracts

10. Cases Sudan 1: main events May 2003 France informed EC of Sudan I in Indian chilli products July 2003 UK implementation of EC emergency measures UK FSA issues 1st ‘food alert’ Jan 2005 FSA by now issued 56 alerts involving > 200 products Feb 2005 Premier Foods informed FSA of positive test in Worcester Sauce Actions of 2003 failed to locate 5 tonne consignment at Premier Foods Procured from Unbar Rothon, East Anglia Food, EW Spices, Gautam Exports FSA issued press release and placed 360 products on website FSA added 60 products to list and issued second press release FSA added 146 more products, taking total to 474 May 2005 FSA recalled foods contaminated with Para Red found in tests for Sudan Contaminated spice from Ramon Sabater (Spain), originally Uzbekistan EU member states agreed detection limit/extended certification

11. Cases Sudan 1: network of organisations Spice Merchant/Processor Spice supplier Exporter Importer Seasonings & Colourings Blender/Manufacturer Food Manufacturer Food/Meal Manufacturers Food/Meal Retailers

12. Cases Sudan 1: profile of press commentary

13. Cases Sudan 1: types of deficit in indirect capability Type Example Actor precipitateness Failure to manage reaction lag Geographical diffusion Failure to stop proliferation of potential contaminants Diversity reduction Failure to manage vulnerability of ‘narrow point’ Exchange complexity Failure to manage trace quantities Goal narrowing* Failure to manage effects of ‘beauty pageants’ Hazard proliferation Failure to limit transmission of contaminant Informational impededness* Failure to disseminate instruction rapidly Inventory legacy Failure to manage the latency risk in inventory Member cascading* Failure to control quality in a cascaded supply chain Norm gradient* Failure to maintain integrity in testing upstream Relational credulousness* Failure to maintain fiduciary artefacts

14. Findings • Network-ness creates objective and subjective risk • Apparent consensus on failure of ‘controls’ leading to physical hazard • Consistent criticisms of ‘recreancy’ (Freudenberg 2003) in managing relations • ‘Fragmentation’ and ‘globalisation’ lend cases iconic status • Nuances of responsibility in networks contribute to unease • X admitted to responsibility but not guilt, as local actors were ‘guilty’ • others argued he was ‘guilty’ of running the organization that allowed it • extent of Y’s ‘responsibility’ for its supply chain hard to pin down • Attribution often to network ‘architects’ • Especially Hatfield • Including architects’ behaviour within their networks eg of consultants

15. Findings • Network-ness not just a threat • Organisational boundaries allow diversity and inter-monitoring • Thus conceptual slack/requisite diversity (Schulman 1993; Weick 1987) • But undermined by eg collusion to ‘derogate’ standards at Hatfield • So a positive capability needed to retain/exploit this diversity • Relation between risk and network-ness not a contingency • Not clear that outsourcing/globalisation better/worse in certain situations • Instead network-ness generally requires important indirect capabilities • ‘Signal’ risks made indirect capability more important than direct • Hatfield ‘demonstrated’ how one accident could impede a whole railway • Sudan 1 ‘demonstrated’ how terrorism could exploit network-ness