Interorganizational Relationships Chapter # 5 Interorganizational Relationships Reference Books: Organization Theory and Design (Richard L. Daft) Resource person: Furqan-ul-haq Siddiqui

Interorganizational Relationships Companies have always been dependent on other organizations for supplies, materials, and information. Interorganizational relationships – resource transactions, flows, and linkages that occur among two organizations. A company may be forced into interorganizational relationships depending on its needs and the instability and complexity of the environment.

Organizational Ecosystems A complex network or interconnected system. A system formed by the interaction of a community of organizations and their environment. In an organizational ecosystem, conflict and cooperation exist at the same time. An ecosystem includes all of the living things (plants, animals and organisms) in a given area, interacting with each other, and also with their non-living environments (weather, earth, sun, soil, climate, atmosphere).

Organizational Ecosystem

Is Competition Dead? Traditional competition no longer exists The number of corporate alliances has been increasing at a rate of 25 percent a year, and many of those have been between competitors. In today’s world, a new form of competition is in fact intensifying. For one thing, companies now need to coevolve with others in the ecosystem so that everyone gets stronger. “The caribou feeds the wolf, but it is the wolf that keeps the caribou strong.” Traditional competition no longer exists

Competitive Collaboration Collaboration between competitors is in fashion. General Motors and Toyota assemble automobiles, Siemens and Philips develop semiconductors, Canon supplies photocopiers to Kodak, France’s Thomson and Japan’s JVC manufacture videocassette recorders. GM, Daimler and BMW have come together to develop hybrids. Mutual dependencies and partnerships have become a fact of life. Is competition dead? Companies today may use their strength to achieve victory over competitors, but ultimately cooperation carries the day.

The Open Handset Alliance (OHA) is a consortium of 84 firms to develop open standards for mobile devices. The OHA was established on 5 November 2007, led by Google with 34 members.

The Changing Role of Management In ecosystems, managers move beyond traditional responsibilities Managers must think about horizontal processes The old role of management relied on operation roles and boundaries Collaborative roles are becoming more important for success

A Framework for Interorganizational Relationships

Resource Dependence Organizations minimize their dependence on other organizations for the supply of resources Organizations succeed by striving for autonomy Organizations alter interdependent relationships through ownership, contracts, and joint ventures

Resource Dependent Relationships A common business practice where a member of a company's board of directors also serves on another company's board or within another company's management.

Collaborative Networks Emerging alternative to resource dependency Companies join together to become more competitive and to share scarce resources Alliances require managers who are good at building networks Companies can share risk and cooperation is a prerequisite for greater innovation, problem solving, and performance Sprint, Clearwire, Comcast, Google, Time Warner, Intel, and Bright House formed an alliance to develop new technology for ultrafast wireless Internet access for cell phones and laptops, called WiMax.

Population Ecology Organizational diversity and adaptation within a population of organizations. Population is a set of organizations engaged in similar activities The theory notes that large, established organizations often become dinosaurs They have difficulty adapting The changing environment determines survival or failure Heavy investments can limit organizational adaptation Consider that among the companies that appeared on the first Fortune 500 list in 1955, only 57 are still on the list today. the branch of biology that deals with the relations of organisms to one another and to their physical surroundings. the political movement concerned with protection of the environment.

The population-ecology model is concerned with organizational forms The population-ecology model is concerned with organizational forms. Organizational form is an organization’s specific technology, structure, products, goals, and personnel, which can be selected or rejected by the environment. Each new organization tries to find a niche (a domain of unique environmental resources and needs) sufficient to support it. When rapid change occurs, old organizations are likely to decline or fail, and new organizations emerge that are better suited to the needs of the environment.

The population–ecology model is developed from theories of natural selection in biology. Theories of biological evolution try to explain why certain life forms appear and survive whereas others perish. Some theories suggest the forms that survive are typically best fitted to the immediate environment. The environment of the 1940s and 1950s was suitable to Woolworth, but new organizational forms like Wal-Mart became dominant in the 1980s. Now, the environment is shifting again, indicating that the “Wal-Mart Era” might be coming to a close.

Elements in the Population Ecology The Process of Change in the Population Population-Ecology focuses on organizational diversity and adaptation within a population of organizations.

Strategies for Survival Organizations struggle for existence (competition) Generalist strategies – wide niche or domain, broad range of products or services to a broad market Specialist strategies – narrow range of goods or services that serve a narrow market

Institutionalism Certain technologies, products, and services are highly valued by the environment. The retained organizational form may become a dominant part of the environment. Many forms of organization have been institutionalized, such as government, schools, churches, and automobile manufacturers. Institutional perspective: Manage survival through balance expectations of environment Institutional Environment Norms and values of stakeholders Adopt structures and processes to please outsiders

McDonald’s, which owns 43 percent of the fast-food market and provides the first job for many teenagers, has become institutionalized in American life. but the environment is always shifting, and if the dominant organizational forms do not adapt to external change, they will gradually diminish and be replaced by other organizations. Legitimacy is defined as the general perception that an organization’s actions are desirable, proper, and appropriate within the environment’s system of norms, values, and beliefs. Institutional theory thus is concerned with the set of intangible norms and values that shape behavior, as opposed to the tangible elements of technology and structure. Organizations and industries must fit within the cognitive and emotional expectations of their audience.

Established organizations copy techniques from one another and begin to look very similar. The emergence of common structures and approaches in the same field is called institutional similarity or institutional isomorphism.

A Framework for Interorganizational Relationships Each of the four perspectives is valid

Design Essentials There has been an evolution in inter-organizational relationships Four perspectives explain relationships among organizations. Resource dependence is the most traditional Collaboration is an emerging alternative to resource dependence The population-ecology perspective explains why organizational diversity increases, and new organizations fill niches The institutional perspective notes that interorganizational relationships are shaped by legitimacy as well as products/services Each of the four perspectives is valid

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