Chapter Five: Interorganizational Relationships

1. Chapter Five: Interorganizational Relationships Jennifer Lee-Plevnik and Krystle Vlasman

2. Overview of the Chapter • Organizational Ecosystems • Interorganizational Framework • Resource Dependence • Collaborative Networks • Population Ecology • Institutionalism

3. 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

4. Microsoft’s Organizational Ecosystem

5. 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 1www.thefreedictionary.com

6. 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

7. 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

8. Interorganizational Framework Organization Type Dissimilar Similar Competitive Organizational Relationship Cooperative

9. 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

10. Resource Strategies • Alter the interdependent relationships • Interlocking directorships • Join trade associations • Sign trade agreements • Merge with another firm • Take political action

11. Power Strategies • Large, independent companies have power over small suppliers • Ask suppliers to absorb more costs • Ship more efficiently • Provide more services

12. 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

13. Indigo.ca • Bricks-and-mortar • Bought Coles and Chapters • Partnership with Blue Nile and iUniverse • Created a virtual ecosystem

14. 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

15. From Adversaries to Partners

16. 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

17. 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

18. 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

19. 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

20. 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

21. Elements in the Population-Ecology Model of Organizations

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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