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Chapter 5

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Shawn Komar

BU398 Chapter 5 – Interorganizational Relationships Week 6 Organizational Ecosystems -Interorganizational relationships – relatively enduring resource transactions, flows, and linkages that occur among two or more organizations -A company may be forced into interorganizational relationships depending on its needs and the instability and complexity of the environment -Organizational ecosystem – a system formed by the interaction of a community of organizations and their environment -A company can create its own ecosystems Is Competition Dead? -No company can go it alone under a constant onslaught of international competitors, changing technology and new regulations -Organizations around the world are embedded in complex networks of confusing relationships – collaborating in some markets, competing fiercely in others -Traditional competition, which assumes a distinct company competing for survival and supremacy with other stand-alone businesses, no longer exists because each organization both supports and depends on the others for success and perhaps for survival -Organizations now need to coevolve with others in the ecosystem so that everyone gets stronger -With coevolution, the whole system becomes stronger -In an organizational ecosystem, conflict and cooperation frequently exist at the same time -Companies today may use their strength to win conflicts and negotiations, but ultimately cooperation carries the day The Changing Role of Management -Managers learn to move beyond traditional responsibilities of corporate strategy and designing hierarchical structures and control systems -In this new world, managers think about horizontal processes rather than vertical structures -Horizontal relationships now include linkages with suppliers and customers who become part of the team -Business leaders can learn to lead economic coevolution -Managers learn to see and appreciate the rich environment of opportunities that grows from cooperative relationships with other contributors to the ecosystem Interorganizational Framework -Resource-dependence theory describes rational ways organizations deal with each other to reduce dependence on the environment -Collaborative network theory is wherein organizations allow themselves to become dependent on other organizations to increase value and productivity for both -Population ecology theory examines how new organizational forms benefits society -Institutionalism theory explains why and how organizations legitimate themselves in the larger environment and design structures by borrowing ideas from each other Resource Dependence -Argues that organizations try to minimize their dependence on other organizations for the supply of important resources and try to influence the environment to make resources available -Organizations succeed by striving for independence and autonomy -Argues that organizations do not want to become vulnerable to other organizations because of negative effects on performance -The amount of dependence on a resource is based on two factors: -The importance of the resource to the organization -How much discretion or monopoly power those who control a resource have over its allocation and use -Organizations aware of resource dependence tend to develop strategies to reduce their BU398 Chapter 5 – Interorganizational Relationships Week 6 dependence on the environment and learn how to use their power differences Resource Strategies -Adapt to or alter the interdependent relationships – Ex. Purchasing ownership in suppliers, joint ventures, etc. -Use interlocking directorships – BOD include members of the boards or supplier companies -Political action – Ex. Lobbying for new regulations, favourable taxation, etc. Power Strategies -In resource-dependence theory, large, independent companies have power over small suppliers -When one company has power over another, it can ask suppliers to absorb more costs, ship more efficiently, and provide more services than ever before, often without a price increase -Power is also shifting in various industries Collaborative Networks -An emerging alternative to resource-dependence theory -Companies join together to become more competitive and to share scarce resources -As companies move into their own uncharted territory, they are also racing into alliances Why Collaboration? -Sharing risks when entering new markets -Mounting expensive new programs and reducing costs, and enhancing organizational profile in selected industries or technologies -Cooperation is a prerequisite for a greater innovation, problem solving, and performance -Competition among companies can be fierce in some areas even as they collaborate in others -Interorganizational linkages provide a kind of safety net that encourages long-term investment and risk taking -Companies can achieve higher levels of innovation and performance as they learn to shift from an adversarial to a partnership mindset From Adversaries to Partners Traditional Orientation: Adversarial New Orientation: Partnership -Low dependence -High dependence -Suspicion, competition, arm’s length -Trust, addition of value to both sides, high -Detailed performance measures, closely commitment 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, -Involvement in partner’s product design and separate resources production, shared resources -Short-term contracts -Long-term contracts -Contract limiting the relationship -Business assistance beyond the contract Population Ecology -Focuses on organizational diversity and adaptation within a population of organizations -Population – a set of organizations engaged in similar activities with similar patterns of resource utilization and outcomes -Organizations within a population compete for similar resources or similar customers -Individual organizational adaptation is severely limited compared to the changes demanded by the environment BU398 Chapter 5 – Interorganizational Relationships Week 6 -Innovation and change in a population of organizations take place through the birth of new forms and kinds of organizations more so than by the reform and change of existing organizations -New organizations meet the new needs of society more than established organizations that are slow to change -There are many limitations on the ability of organizations to change due to heavy investment in plants, equipment, specialized personnel, etc. -When looking at an organizational population as a
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