Chapter 4 Relationships Between Organizations Members: Melody, Bonnie, Vincent, Paul

Outline The changing Interorganizational Framework Case ─ Foxconn. Resource Dependence Collaborative Network Population Ecology Institutionalism Case ─ Foxconn.

The changing Past Recent Future Focus on their own business area, and seldom make the relationships with the other companies Recent Increasingly dense web of relationships among organizations Future A web of horizontal relationships across organizations

Organizational ecosystem A system formed by the interaction of a community of organizations and their environment Retailers Business Non-profit Organizations Government

Organizational ecosystem EXHIBIT 4.1

Ford GM Is Competition Dead? The number of corporate alliances has been increasing at a rate of 25 percent annually. Ford GM

The Changing Role of Management Traditional Managers Operations Roles Have traditional vertical authority Accountable for business results Collaborative Roles Be highly flexible and proactive Achieve results through personal communication Assertively seeking out needed information and resources Modern Managers

Managers need to learn Learn to move beyond traditional responsibility of corporate strategy and designing hierarchical structures and control systems. Think about horizontal processes rather than vertical structures.

Interorganizational Framework Resource Dependence Population Ecology Collaborative Network Institutionalism Dissimilar Similar Competitive Cooperative Organization Type Organization Relationship EXHIBIT 4.2

Interorganizational Framework Resource Dependence Population Ecology Collaborative Network Institutionalism Dissimilar Similar Competitive Cooperative Organization Type Organization Relationship EXHIBIT 4.2

Resource Dependence Organizations try To minimize the dependence on other organizations for important resources To influence the environment to make resource available To adapt or alter the interdependent relationships to lock in necessary resources Purchasing ownership in suppliers Long-term contracts Joint ventures

Resource Dependence

Resource Dependence Organizations try To minimize the dependence on other organizations for important resources Ex: Nestle increases the source and can minimize the dependence on original coffee bean supplier To influence the environment to make resource available Ex: Nestle helps farmers plan good quality and quantity coffee beans

Resource Dependence Supply Chain Management Supply chain is a network of multiple business that are connected through the flow of products or services. Supply Chain Management refer to managing the sequence of supplier and purchaser Helping use resources more efficiently and improve the performance

A Basic Supply Chain Model EXHIBIT 4.3 Product Flow

Interorganizational Framework Resource Dependence Population Ecology Collaborative Network Institutionalism Dissimilar Similar Competitive Cooperative Organization Type Organization Relationship EXHIBIT 4.2

Interorganizational Framework Resource Dependence Population Ecology Collaborative Network Institutionalism Dissimilar Similar Competitive Cooperative Organization Type Organization Relationship EXHIBIT 4.2

Collaborative Network Collaborative Network is an emerging alternative to resource dependence theory Companies join together to become more competitive and to share scarce resources Why ? Sharing risk when entering new markets Cooperation is a necessary for greater innovation, problem solving, and performance

Changing Characteristics of Interorganizational Relationship EXHIBIT 4.4 Traditional Orientation: Adversarial New Orientation: Partnership Low dependence High dependence Suspicion, competition, arm’s length Trust, addition of value to both sides, high commitment Detailed performance measures, closely monitored Loose performance measures; problems discussed Price, efficacy, own profits Equity, fair dealing, both profit Limited information and feedback Electronic linkages to share key information, problem feedback, and discussion Legal resolution of conflict Mechanisms for close coordination; people on site Minimal involvement and up-front investment, separate resources Involvement in partner’s product design and production, shared resources Short-term contracts Long-term contracts Contract limiting the relationship Business assistance beyond the contract

Changing Characteristics of Interorganizational Relationship EXHIBIT 4.4 Traditional Orientation: Adversarial New Orientation: Partnership Low dependence High dependence Suspicion, competition, arm’s length Trust, addition of value to both sides, high commitment Detailed performance measures, closely monitored Loose performance measures; problems discussed Price, efficacy, own profits Equity, fair dealing, both profit Limited information and feedback Electronic linkages to share key information, problem feedback, and discussion Legal resolution of conflict Mechanisms for close coordination; people on site Minimal involvement and up-front investment, separate resources Involvement in partner’s product design and production, shared resources Short-term contracts Long-term contracts Contract limiting the relationship Business assistance beyond the contract

Interorganizational Framework Resource Dependence Population Ecology Collaborative Network Institutionalism Dissimilar Similar Competitive Cooperative Organization Type Organization Relationship EXHIBIT 4.2

Interorganizational Framework Resource Dependence Population Ecology Collaborative Network Institutionalism Dissimilar Similar Competitive Cooperative Organization Type Organization Relationship EXHIBIT 4.2

Population Ecology Because it focuses on organizational diversity and adaptation within a population of organizations. What does this theory mean in practical terms? It means that large, established organizations often become dinosaurs.

The limitations of organizations to change From heavy investment in plants, equipment, and specialized personnel; Limited information; The established viewpoints of decision makers; The organization’s own successful history that justifies current procedures; The difficulty of changing corporate culture.

Managerial Question The success or failure of a start-up is largely determined by the smarts and management ability of the entrepreneur? Disagree. Luck is often as important as smarts because larger forces in the environment, typically unseen by managers, allow some firms to succeed and others to fail. If a start-up happens to be in the right place at the right time, chances for success are much higher, regardless of management ability.

The processes of population change Variation Selection Retention Large number of variations appear in the population of organization Some organizations find a successful niche and survive A few organizations grow large and become institutionalized in the environment

Strategies for Survival Generalist 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--- are generalists. Specialist Organizations that provide a narrower range of goods or services or that serve a narrower market are specialists. Ex: Amazon

Interorganizational Framework Resource Dependence Population Ecology Collaborative Network Institutionalism Dissimilar Similar Competitive Cooperative Organization Type Organization Relationship EXHIBIT 4.2

Interorganizational Framework Resource Dependence Population Ecology Collaborative Network Institutionalism Dissimilar Similar Competitive Cooperative Organization Type Organization Relationship EXHIBIT 4.2

Institutionalism Describes how organizations survive and succeed through congruence between an organization and the expectations from its environment. The institutional environment is composed of norms and values from stakeholders. The institutional view believes that organizations adopt structures and processes to please outsiders, and these activities come to take on rule-like status in organizations.

Three Mechanisms for institutional Adaptation Mimetic Coercive Normative Reason to become similar Uncertainly Dependence Duty, obligation Events Innovation visibility Political law, rules, sanctions Professionalism─ certification, accreditation Social basis Culturally supported Legal Moral Example Reengineering, benchmarking Pollution controls, school regulations Accounting standards, consultant training

Three Mechanisms for institutional adaptation Mimetic Forces Ex: McDonald adds healthier menu items and new types of beverages.

Three Mechanisms for institutional adaptation Coercive Forces Ex: Walmart is requiring its suppliers to calculate the “full environmental costs’ of making their products (such as water use, carbon-dioxide emissions, and waste) and provide this information for the company to distill into a rating system that shoppers will see alongside the price of the item.

Three Mechanisms for institutional adaptation Normative Forces Normative forces are pressures to achieve standards of professionalism and to adopt techniques that are considered by the professional community to be up to date and effective. Changes may be in any area, such as information technology, accounting requirements, marketing techniques, or collaborative relationships with other organizations.

Managerial Question Managers should quickly copy or borrow techniques being used by other successful companies to make their own organization more effective and to keep pace with changing times.

Managerial Question Answer: Agree. Managers frequently copy techniques used by other, successful organizations as a way to appear legitimate and up to date. Copying other firms is one reason organizations may begin to look and act similar in their structures, processes, and management systems.

Case Study Foxconn The rise of Foxconn with its relationships among corporations as a flexible and notorious corporate model.

Case Study Company Name: Foxconn (Hon Hai Precision Industry Co., Ltd.) Chairman and President: Terry Guo Industry: Electronics Founded: 1974

Case Study Employees: Approximately 1.2 million (2011) Services: Electronics Manufacturing Services (OEM, ODM) Revenues: US$ 102.74 billion (2011) Net Income: US$ 2.64 billion (2011)

Case Study Related Organizations: Apple, Intel, Amazon.com, Kindle, Sony, Playstation 3, Microsoft, Xbox 360, etc …

Case Study Supply Chain Relationships of Foxconn: Supplier Distributor Manufacturer Retailer

Case Study Resource Dependence Power implication: Large and independent companies have power over small suppliers.

Case Study Evolution of Foxconn: OEM ODM CEM EMS eCMMS

Case Study Population Ecology Adaptation and Selection: In a rapidly shifting environment, organization, that fails to struggle for existence, dies.

Case Study Institutionalism Coercive Forces: All organizations are subject to pressure from other important organizations, especially those on which an organization is dependent.

Case Study Collaborative Networks Why Collaboration: Organizations join together to become more competitive and to share scarce resources.

Conclusion Frenemy & Coopetitism No friends are forever, nor enemies eternal.

The End. Thank you !