Chapter 5 – Interorganizational Relationships

Organizational Ecosystems

Interorganizational relationships are the transactions, flows and linkages that occur between two (or more) organizations and have till lately been felt to be a necessary evil in order to survive. The view now is that the organizations form an ecosystem between themselves, some even forming their own ecosystems.

Is Competition Dead?

No one company can exist on its own so it needs to cooperate with others as suppliers and users. Traditional competition will not work in this way, but, that is not to say that there is not any competition going on. Companies have had to learn to co-evolve with each other and like wolves evolve stronger caribou and wolves, companies must learn to do the same thing. They must learn to create an ecosystem and relate with not only those that they work with but compete with as well.

The Changing Role of Management

In this type of environment, it is not advisable to use a top down only approach to things. Horizontal works much better when you are working with suppliers. Rather that force the buyer to a higher price or the supplier to a lower one, it is better to get a picture of the whole thing.

Interorganizational Framework

Basically the four types of types will study will be divided by cooperative/competitive relationships and dissimilar/similar organizational types.

	Organizational Type
Organizational Relationship		Dissimilar	Similar
	Competitive	Resource Dependant	Population Ecology
	Cooperative	Collaborative Network	Institutionalism

Resource Dependence

In this way of looking at things, organizations try to minimize any dependence on any other organization. If one business has a tremendous dependence on another organization, it can wind up being damaged. In this case they have to develop strategies to lessen this dependence.

Resource Strategies

One way that changes can be done is to adapt the relationship that a firm has with another one. Long term contracts, purchasing the firm, or intertwine the board of directors are some ways of doing this.

Power Strategies

In this theory, larger firms have control over smaller firms and can demand and receive ways of doing things. In modern times this would be Wal-Mart and its suppliers, but in years past, suppliers forced their ways on smaller retailers, so what goes around comes back later.

Collaborative Networks

In this way of doing things companies that would be competitors will join together to share scarce resources.

Why Collaboration?

The main reason for doing these things is so cost can be reduced. In cooperating to put standards in place, there is still room for individualism in the company. By combining all the little David’s, Goliath has a harder chance to win.

From Adversaries to Partners

Collaboration started among the first among non-profit organizations as a way to share the scarce resources that were available. Now many firms are moving from adversarial to cooperative ways of doing things and managing these cooperative efforts has become a skill that a manager will need. Very often people from one company will be in the business locations of another company so that the cooperative efforts can be done. Firms seem to think cooperation between firms reduces risk rather than the traditional thoughts of increasing it.

Population Ecology

The population-ecology perspective focuses on organizational diversity and adaptation between select groups of firms. A population refers to a group of organizations engaged in similar activities with similar patterns of resource utilization and outcomes. In this way of looking at things, innovation and changes take place in an industry through new forms and kind of organizations and not the reform or change of existing ones. So what does this mean, the older the organization the more of a dinosaur it is. Why does this happen? Because the more established it becomes, the harder it is for a firm to change things because of what has been invested in the organization and acts as a barrier. When there is rapid change, it is more difficult for an older organization to change and survive. The population ecology theory is based on the biological theory of evolution, survival of the fittest.

Organizational Form and Niche

Organizational form is an organization’s specific technology, structure, products, goal, and personnel, which can be selected or rejected by the environment. In other words, where there niche is in the industry. The niche usually starts small and gets larger as the firm grows. Without a niche the firm cannot exist. While many would feel that luck plays a part in success, it is often the environment that makes a difference.

Process of Ecological Change

• Variation – new firms appear in the industry to solve new problems with new technology
  

• Selection – not all variations are good. In a firm can get funding and/or find their niche, they will be selected in. If they cannot, they will be selected out and die off.
  
• Retention – those that get selected in will go on to preservation and institutionalism
  

Just because a firm can get through all these stages does not mean it will survive. If and institution does not adapt, it can find itself non-competitive (selected out) and out of business.

Strategies for Survival

In order to survive, a firm must take on a generalist or a specialist attitude. In a generalist mode, the appeal is to the widest audience like a toy manufacturing company. The specialist narrows down the field and finds the niche that works well for it, following the above example, a toy manufacturer that focuses on minority dolls only. While the specialist will make inroads into some of the specialist territory, the generalist will be able to absorb the losses with other lines of products.

Institutionalism

Institutionalism perspective describes how organizations survive and succeed through congruence between an organization and the expectations from its environment. The norms and values, the institutional environment, are the norms and values of the stakeholders. These give a firma a legitimacy, without which they cannot do there job. Legitimacy gives a company a reason to keep on doing business. When a new company starts, it may not have much legitimacy, but, once established it will need to have that legitimacy and will morph into an institution.

The Institutional View and Organizational Design

The institutional view shows the organization as having two dimensions. They are the technical and the institutional. While technical deals with the day to day work, the institutional deals with the how the organization is seen by the public and is the one most affected by the public. Some firms may institute changes that although they may not be beneficial, will offer legitimacy to the company.

Institutional Similarity

Because all institutions need to appear legitimate, some degree of institutional similarity happens. How does this occur?

• Mimetic Forces – the pressure to copy or model other organizations. Often these things are done without any real understanding that it will improve things. It happens because often the innovative thing is seen as being beneficial and that can help the organization so it is adopted without any serious thinking about it.
  
• Coercive Forces – external pressure exerted on an organization to adopt to the way that other organizations do things. Government and regulatory agencies are often the cause of this, but other organizations can force it on suppliers.
  
• Normative Forces – pressure to change to get either professional or the image that they are professional. While it is good to have professionalism, acting like you have it is not good and often coercive forces will be introduced to bring it back into line.
  

Summary and Interpretation