Business organizations: Flexibilization SOCI 302 Spring 2011 Instructor: Deniz Yükseker

Transformation of business organizations since the 1980s From mass production to “flexible specialization” From vertically integrated firms to “networks”

From mass production to flexible specialization Piore and Sabel (1984) The Second Industrial Divide Their arguments: New form of industrial organization emerged after the 1970s in Western countries  flexible specialization (their argument based on Central Italian industrial districts) Craft production in small batches replaces Taylorist mass production Small- and medium-sized companies are more competitive than large-scale big business Economies of scope instead of economies of scale Significance of the use of computer technology for designing craft and batch production

Just-in-time production systems: “Toyotism” instead of Fordism? Intensive use of high technology in production (robots, computers) Economies of scope Flexible utilization of machines, minimization of quality problems, minimization of production-flow buffers (low levels of stocks)  “just-in-time” production Intense manpower utilization: higher skill levels, minimal job demarcations, high job rotation, managerial skills among shop floor workers

From managerial hierarchies to network forms of organizations The vertically integrated corporation was the prevalent form of business organization for much of the 20th cc How come small- and medium-scale enterprises and industrial districts become prevalent again (as Piore and Sable argue)? Are there novel forms of business organizations?

Markets, hierarchies and networks Three types of governance of exchange (i.e., three types of business organizations) -- markets (firms in a competitive market) -- managerial hierarchies (vertically integrated firms) -- network forms of business organizations (firms networking with each other)

Markets Hierarchies Networks Norms: Contracts Employment relationship Complementarity Communication: Prices Routines Relational Conflict resolution: Haggling, Adminisrative fiat Reciprocity courts Flexibility: high low medium Commitment among parties: low medium-high medium-high Actor preferences: independent dependent interdependent Climate: precision/suspicion formal, bureaucratic open-ended, mutual benefits

Market exchange: arms’ length ties; no trust; legal sanctions; hard bargaining between two parties Network forms of exchange: trust; sequential transactions within a general pattern of interaction; normative sanctions; indebtedness and reliance on each other

Hierarchies: clear organizational boundaries; clear lines of authority; well suited for mass production and mass distribution; reliable organizational structure Networks: more flexible; exchange takes place through reciprocity; individual units operate in relation to each other; reliable and efficient information; repeated transactions nurture trust; trust lubricates exchange. By establishing patterns of repeat trading, networks also restrict access to an economic activity

Examples of network forms of business organizations Craft industries: construction, publishing, film and recording Industrial (business) districts: Central Italy’s Emilia-Romagna district (knitwear, shoes, motorcycles, etc.) In industrial districts, production is decentralized among small firms, but it is spatially concentrated. There is cooperative conflict among firms.

Examples, cont’d Extended trading groups (Japan and Sweden) Strategic Alliances: collaboration among firms for research, product development, marketing, etc. in order to combine their strengths and overcome weaknesses

Criticism against the flexible specialization thesis --The distinction between mass production systems and flexible production systems is not clearcut -- Network forms of business organization may be quite hierarchical in some cases -- Small and medium companies may not always be competitive in the face of large-scale corporations

A case study of changing business organizations: the Chinese mafia Organized crime groups in China have proliferated since the 1970s Why?

What types of OCGs are there in China? Hierarchies (vertically integrated) Hermit-crab hybrid organizations (operating in markets) networks

Hybrid organizations Corporate-like OCGs Associations Integration with local political structures

Networks Multi-polar networks Cobwebs Production and distribution chains