Interorganizational Relationships Research Paper

Studies of interorganizational relations and networks have their roots in three distinct research traditions. A tradition of business research, mainly in the fields of strategic management and organization science, predominantly in the form of studies of interorganizational relationships. Emerging since the 1980s, this research tends to focus on the reasons for collaboration between organizations, on the particular forms of collaboration, and the impact on participating organizations.

In research on interorganizational networks, there exist two broad perspectives. The tradition of social network analysis is mainly founded in socialpsychology and sociology. In particular, it stems from sociostructural analysis, namely sociometry, developed from the 1930s. This research concentrates on how the structural patterns formed by the relations that exist among multiple actors (be they organizations or individual organization members), and an actor’s position within a network, influence the actor’s behavior and performance. Implications of networking for individual actors thus constitute the focal point of these studies. The research tradition highlighting clusters of organizations, mainly based in economics, economic geography, and sociology. This literature focuses on the emergence, functioning, and effects of local agglomerations of co-specialized firms, including supporting institutions such as educational or financial organizations.

Viewing recent developments in the field of research on interorganizational relations and networks, it seems that the disciplinary boundaries separating these three research traditions have become more permeable. Scholars from all three research traditions have begun mutually to recognize their research and to adopt concepts and methods from one another. Specifically, organization and strategy researchers have begun to acknowledge that the way in which organizations are embedded in wider networks of relationships and in specific institutional contexts enables and constrains organizational behavior. Researchers exploring local clusters of firms have likewise investigated how social networks impact on the functioning of such clusters. Finally, social network analysis has begun to complement its traditional focus on network analytical methods by theoretical insights often derived from strategy and organizational research. Nevertheless, the following sections will discuss the three noted research traditions separately, as sufficient differences remain between them.

2. Interorganizational Relationships

The phenomenon of interorganizational collaboration is not new. Since the 1980s, however, one could witness in many industries a fast proliferation of joint ventures, alliances, consortia, and other forms of collaboration that has triggered a burgeoning literature. Among the prominent research questions addressed by this research are the following: Why do firms engage in interorganizational cooperation, and when? With whom are firms likely to ally, and why? How do firms organize and manage their cooperative relationships? What are the outcomes and implications of particular forms of interorganizational relationships for the participating firms and for third parties?

2.1 Motives

Actors’ motives for engaging in interorganizational relationships can be quite varied (see Glaister and Buckley 1996). Some firms cooperate in order to collude against common rivals or reduce competition by binding competitors as allies. Others use cooperation in an attempt to access needed resources and/or capabilities in order to enhance their competitiveness, e.g., in terms of improved products, better or wider market access, or faster market entry. Moreover, the formation of interorganizational relationships is seen as a means of fast, effective, and efficient learning, thus short-circuiting the process of acquiring and appropriating knowledge. In addition, cost savings in various ways can motivate the formation of interorganizational relationships. Through joint research, procurement, production or marketing, firms strive to realize economies of scale and/or scope. Furthermore, firms can also cooperate in order to achieve specialization benefits, when they decide not to engage in the full spectrum of a particular product’s value chain but to specialize in particular stages of production, and then to cooperate in the provision of the final product. A better information flow and improved coordination of resource flows among cooperating firms can also lead to cost and time savings. Finally, reduction of risk and uncertainty represent motives for forming interorganizational relationships when organizations seek to spread financial or other risks, for example when shouldering (mostly large) innovations or other projects (Nohria and Eccles 1992).

2.2 Forms Of Interorganizational Relationships

There exists considerable variation in the formal and informal structure of interorganizational relationships. Research has suggested numerous and diverging conceptualizations and measurements in order to capture this variety. Perhaps the most widely used conceptualization refers to the contractual and organizational arrangements by which collaborating firms govern their relationship. Specifically, different forms of collaboration are distinguished on the basis of the distribution of ownershipand decision-rights between the parties, and the coordination mechanisms employed in the relationship. In this vein, research distinguishes more hierarchical, hybrid and more market-like forms of governance (Ebers 1997, Powell 1990). Other conceptualizations focus on the collaborators’ motives, the types of resource interdependencies that exist between the collaborating organizations, or on the norms, rules and processes that characterize the collaboration.

2.3 Consequences Of Interorganizational Relationships

Compared to the numerous studies on the antecedents and forms of interorganizational relationships, the consequences of interorganizational relationships for the collaborating firms, let alone for third parties such as consumers, have received considerably less scholarly attention. Depending on the specific rationale and design of a relationship, interorganizational collaboration may enhance firms’ innovativeness through mutual learning, augment their resource base and capabilities through privileged access to their partners’ knowledge and resources, enhance their reputation through association with reputed partners, or improve their cost position through better coordination of interdependencies and production cost savings. However, as a consequence of collaborating, firms may also experience an erosion of their competitive position by imitating or faster-learning partners. Moreover, lockin effects of collaboration may impede necessary adjustments due to partner-specific investments and limited access to new information. In addition, a number of studies have addressed indirectly some consequences of interorganizational relationships by studying the stability and termination of interorganizational relationships (Doz and Hamel 1998).

2.4 Theoretical Approaches And Methods

As in the field of organization studies as a whole, research examining when, why, how, and to what effects organizations engage in interorganizational relationships has employed a number of different approaches and theories. Most prominently, these include resource dependence theory, organizational economics, industrial marketing and purchasing, strategic management, and institutional theory (see Oliver and Ebers 1998). Resource dependence theory views interorganizational relations as a means for securing needed resources and of enhancing control over resource supply. Power relations and the effective management of resource dependencies are at the center of researchers’ interest. Organizational economics approaches, mostly informed by agency or transaction cost theory, offer comparative assessments of various forms of interorganizational relationships. These stress the economizing effects of particular arrangements that result from an alignment of particular transaction and actor attributes with contractual and organizational features of the relationship. Industrial marketing and purchasing approaches, often with regard to technological collaboration, study how the resource, informational and social interdependencies that exist between the collaborating organizations impact on their behavior (Hakansson and Snehota 1995). Scholars from the field of strategic management focus on the exchange and allocation of resources and information within interorganizational relationships, and on how interorganizational relationships can be utilized for improving a firm’s conduct and profitability (Jarillo 1993). Neo-institutional theory, by contrast, emphasizes ideological and cultural factors. This school of thought views interorganizational relationships in the context of organizations seeking support and legitimacy. It studies how legitimacy pressures, social institutions and institutionalized behaviors shape the forms and functioning of interorganizational relationships. With regard to methods employed, case study and survey research dominate the study of interorganizational relationships. Longitudinal studies are still rather rare, as are experiments and simulations.

3. Interorganizational Networks: Social Network Analysis

Social network analysis views interorganizational networks as a set of linkages (e.g., resource, friendship, informational ties) among a set of actors (individuals, groups, or organizations). Social network analysis offers various algorithms designed to describe and analyze positions of nodes within, and structural properties of, interorganizational networks. The basic aim of this research tradition is to understand how the overall structure of an interorganizational network, and an actor’s position within that network, provides opportunities and constraints for actors’ behavior (see Scott 1991). Compared to research on interorganizational relationships, this strand of research thus pays more attention to the overall embeddedness of organizational and individual actors in networks of relationships than to individual attributes of the actors and of their individual relations.

Social network analysis suggests two broad ways in which overall structural features of social networks influence actors’ behavior. First, particular network structures and positions have implications for the information that is available to actors and thus shape their decision-making and behavior. Second, particular network structures and positions in various ways invest actors with, or deprive them of, power to exert control over other actors. Such power may stem, for example, from utilizing informational advantages, privileged access to other actors, invoking obligations associated with particular relations, or from being able to mobilize sanctions by third parties (see Burt 1992).

3.1 Principal Methods Of Network Analysis

Simulation and experiment represent important methods within social network analysis. However, more and more social network analysts have begun to complement these traditional methods with survey research and sometimes ethnographic analysis. Important concepts that have been explored include network and actor centrality (i.e., measures of the connectedness of actors within a network); measures concerning structural properties of networks such as the density of a network (indicating the number of established ties in relation to the possible ties among the actors in a network); and the concept of clique (denoting a subset of actors within a network all, or most, of whom are directly tied to one another); or similarity measures: for instance, structural equivalence (two actors occupy structurally equivalent positions if they entertain identical linkages with the same third parties in the network) (see Wasserman and Faust 1994).

3.2 Major Research Subjects

Prior to the 1980s, the bulk of research in social network analysis concentrated on developing and analyzing mathematical models of social structures and ensuing behaviors. Since then, however, there has been a proliferation of studies that apply these models to empirical phenomena (see Mizruchi and Galaskiewicz 1993). Two issues in particular have received considerable attention: interlocking directorates and social capital.

3.2.1 Interlocking Directorates. This research studies how the composition of firms’ boards of directors influences firm behavior. If firms’ directors sit on the boards of other firms, the directors of which in turn sit on the boards of other firms, this creates interlocking directorates. There exist several competing views as to the role that such interlocks play. However, many scholars suggest that interlocks represent an indicator of social relations among organizations, and of the extent to which firms are integrated into particular networks. Research has shown that interlocking directorates influence, for example, the use of ‘greenmail’ and of ‘golden parachutes’ policies for top management, the prevalence of structural defenses against takeover attempts, participation in mergers and acquisitions, and other elements of firm strategy such as the extent of research and development and the form of firm financing (see Mizruchi 1996).

3.2.2 Social Capital. The notion of social capital originates from community studies that highlighted the role of strong, intense personal relationships among the members of a local community that invested them with mutual trust and the power for collective action. Social capital endows actors with a credential that entitles them to credit, and with a resource that can be utilized in action. At least two competing conceptualizations of social capital can be distinguished. A structural view sees social capital as a function of the information and control advantages that an actor enjoys who is in a broker position between otherwise unconnected actors; this position exploits a ‘structural hole’ in a network (Burt 1997). A relational view sees social capital as a function of the intensity and extensiveness of personal bonds among actors. In this perspective, strong ties among actors, intense relationships characterized by mutual trust, a sense of obligation, common norms and expectations, create social capital on which the respective actors can draw (Coleman 1990).

In examining the consequences of social capital, research has identified two main effects. First, social capital can be utilized for increasing the efficiency of action through increasing the efficacy of information diffusion. Strong ties and intense relationships among actors that share many characteristics make information exchange easier and less ambiguous; likewise, exploiting the position of a structural hole enables a more efficient diffusion of information, because redundant contacts are minimized. Second, social capital can be utilized as a productive resource that enhances actors’ goal achievement. This can be realized, for instance, by exploiting the position of a structural hole for learning about, and exercising control over, more rewarding opportunities; for instance, with regard to career advancement or firm profit. Likewise, in densely connected networks characterized by strong ties among actors, information about actors’ behavior is disseminated quickly and evaluated on the basis of similar norms; thus, behavior can readily be socially sanctioned, cooperation is enabled and opportunism constrained. Interorganizational networks whose members command significant relational social capital were thus found to thrive and prosper.

4. Interorganizational Networks: Clusters Of Organizations

It has long been a well-known phenomenon that firms are not evenly distributed in geographic space but to a greater or lesser extent cluster locally. From the streets and quarters occupied by specialized trades in medieval towns, to the diamond-cutting industry of Antwerp and Tel Aviv; the coal and steel industry in the Ruhr, Lothringia and Silesia regions; the cutlery industry in Sheffield and Solingen; the financial services industry in London and New York City; to the software industry in California’s Silicon Valley, firms during different periods of time have formed regional or local clusters. While regional interorganizational networks thus by no means are a novel phenomenon, research interest in regional interorganizational networks since its inception in the late 1800s (Marshall 1920) has experienced a revival beginning in the 1980s.

4.1 The Formation Of Clusters

The literature identifies two broad reasons why firms, together with some supporting organizations, cluster regionally or locally. First, through clustering firms can realize agglomeration economies. These result from both urbanization advantages and localization advantages. Urbanization advantages include economies of scale with regard to a shared infrastructure (e.g., for communication or transport), economies of scope (e.g., technological spillovers and informational externalities), specialization benefits (leading to technological or skill advantages), and transaction cost savings (e.g., reduced search costs for buyers and suppliers) (Krugman 1995). Localization benefits comprise most importantly easy access to locally concentrated resource inputs (e.g., raw materials, specialized skills, specific attitudes of a local workforce, or co-located suppliers). A related line of reasoning stresses that clustering among firms is enabled and supported by regionally embedded institutions such as chambers of commerce, employers’ unions, banks, science parks, universities, and training centers. These institutions often provide important resources, e.g., capital or access to distribution channels and potential customers. Moreover, they often act as informational brokers that support the exchange of information among firms, encourage and facilitate mutual learning, and can thus foster the responsiveness, adaptability and innovativeness of networked firms.

Second, relational advantages emanating from the business and social relationships among geographically concentrated firms and individuals can also foster clustering. Vigorous competition from nearby competitors and face-to-face contact with demanding local customers can put pressure on the competitiveness and innovativeness of firms. Frequent contact with employees from rival firms and their products can further mutual learning. Family and friendship ties among local business people, common membership in local trade associations, sports clubs and political institutions can be a source of knowledge and learning and provide better access to resources, e.g., capital and political influence, that are required for successful business development. Moreover, intense social ties, behavioral norms and routines may smooth cooperation, enable the exchange of tacit knowledge, encourage a ready and more trustworthy exchange of information among network members, and may thus support mutual learning and innovation (Porter 1990, Lane and Bachmann 1998).

4.2 Outcomes Of Local Clusters

In line with these driving forces, research has identified a number of consequences associated with regional clusters of firms. Perhaps the most widely debated outcome concerns the increased competitiveness of regional cluster firms. Two major driving forces can be identified. On the one hand, clusters enhance competition through intense competitive pressure from nearby rivals and customers; this puts high pressure on firms and their employees to compete. On the other hand, localization and relational benefits provide competitive advantage over nonclustered rivals.

A second theme widely discussed in the literature concerns learning and innovation advantages. Local proximity and shared norms and traditions are said to allow for better cooperation even among rival firms, and to promote technology and informational spillovers. Together with competitive pressure, this can contribute to enhanced incentives as well as opportunities for learning and innovation. In addition, it is noted that clusters of small co-specialized firms that can flexibly recombine their resources and capabilities can be lighter on their feet than larger, more integrated competitors. Collectively, these firms are therefore said to be able to adapt more quickly to changes in demand, both quantitatively and qualitatively (Piore and Sabel 1984, Nooteboom 2000).

Both postulated effects make regional clusters a favored theme in discourses on regional economic development. Endogenous growth and development of regions as well as sustained regional competitiveness are among the promises that have been associated with regional clusters (Staber et al. 1996).

However, there is evidence from research that the above-noted effects of regional clusters can, but need not necessarily, arise. There exist numerous examples of clusters that thrived at one point in time, only to fail later. Many coal and steel regions in the USA and Western Europe have shared this fate, as has the once admired mini-computer cluster along Route 128 in Massachusetts, USA. Several factors may contribute to the decline of regional clusters. Some of these are inherent to the functioning of regional clusters, some associated with external developments. They include: failing demand for a cluster’s product, obsolescence of particular modes of production, competition from similar clusters in other regions, loss of the ability to coordinate co-specialized activities, and inertia due to a loss of developmental abilities. As this debate about the consequences of regional clusters for the participating firms and their respective regions shows, performance evaluations of business networks and regional districts are extremely difficult and problematic.

4.3 Methods And Approaches

Most research to date builds on case study evidence. A large number of conceptual studies engage in transferring more general insights from particular disciplines, for instance, economics or sociology, to the field of regional clusters.

At the end of the nineteenth century, economics was among the first disciplines to analyze the phenomenon of regional clusters. Paradoxically, the increasing globalization in the 1980s revived interest in internationally competitive, regional clusters, both in economics and economic geography (Porter 1990, Krugman 1995). Evolutionary economics developed a particular interest for the learning and innovation characteristics of regional clusters (Nooteboom 2000) that is also shared by the innovative milieu approach (Maillat 1991). Pioneered by the work of Piore and Sabel (1984), sociology too took note of regional clusters, particularly of so-called industrial districts. The new industrial spaces approach to interorganizational networks (Storper 1997) builds on this tradition. Piore and Sabel’s work was further complemented by institutional theory sociologists, who emphasized the social and institutional structures underlying regional clusters (Herrigel 1996). One important branch of this work concentrates on national and regional systems of innovation (Lundvall 1992). Despite a network approach within cluster research that emphasizes the importance of social bonding and social networks (Fisher et al. 1999), however, compared to the research on interorganizational relationships and social network analysis, in research on regional clusters cross-disciplinary dialogue seems to be far more uncommon.

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