Interorganizational Relationship

Interorganizational Relationship

by: Yudo Anggoro, University of North Carolina at Charlotte

It is almost impossible to discuss interorganizational relationship without discussing the network principle. Network consists of “nodes” and “ties”, or relationships among the nodes (Scott & Davis, 2007). Nodes may represent persons, groups, organizations, or even abstract ideas; while ties may vary from physical linkages to personal relationship. In this sense, networks in organizations have similarity with open system theory, where organizations are viewed as living system and interdependent to each other in a network.

In order to understand the interorganizational relationship, we also need to understand the ties between an organization and other organizations, such as its partners, competitors, suppliers, customers, and regulators. Interlock network is one of the types of organization ties where organizations use board membership as a form of cooptation-inviting a source of vita resources to serve as an insider on the board I order to gain their favor (Scott & Davis, 2007). Another type of interorganizational relationship is the alliances. Organizations form alliances because in some cases alliances are better than vertical integration. Research suggests that organizations that form alliances grow faster, form more alliances, and are more likely to go public.

In network forms of organization, individual units exist not only by themselves, but they exist in relation to other units in order to sustain and establish. The basic assumption of network relationship is that one party is dependent on resources controlled by another, and that there are gains to be had by the pooling of resources (Powell, 1990). The parties to a network agree to forego the right to pursue their own interests at the expense of others.

Networks are adaptive arrangements and well-suited to coping with change. A key advantage of networks is their ability to disseminate and interpret new information (Powell, 1990). It is because networks are based on complex communication channel. As information passes through a network, new connections and new meanings are generated, debated, and evaluated. Having this advantage, network is a suitable form if we need to innovate and generate ideas quickly.

Uzzi (1997) conducts a study to explain the links between social structure, microbehavioral decision-making processes, and economic outcomes within the context of organizational networks. His findings suggest that in organization networks, trust acts as the primary governance structure and calculative risk and monitoring play a secondary role. Information transfer is more fine-grained, tacit, and holistic than the typical price data of pure market exchanges, and joint problem-solving arrangements promote voice rather than exit. On the behavior of actors within networks, they follow heuristic and qualitative decision making, and cultivate long-term cooperative ties rather than narrowly pursue self-interest.

As a conclusion, understanding network is necessary for us to be able to analyze the dynamics of organizations, such as: who plays a central position in the network, who has the most networks, or how far the distance in the network is. Resource dependency also plays a crucial role in the networks.  Those who have the resource, or have proximity access to the resource, will be more central in the networks. Information is also vital in the network; those who hold the information, or close to information owner, are most likely to have more central position in the network. In term of interorganizational network, the ties and the flow of information are integrated across the formal boundaries of organization. Therefore, mutual trust is an important element in the network so that every party can get the benefit from the network.

Since networks affect the behavior of actors, it is important for individuals or organizations within the network to create learning environment so that each actor can learn each other. The resource dependency problem in the network can also create better strategies for organizations to manage their resource dependency properly.

References:

Powell, W.W. (1990). Neither Market nor Hierarchy: Network Forms of Organization. Research in Organizational Behavior, Vol. 12: 295-336.

Scott, W.R. and Davis, G.F. (2007). Organizations and Organizing: Rational, Natural, and Open System Perspectives. Pearson, Upper Saddle River: NJ.

Uzzi, B. (1997). Social Structure and Competition in Interfirm Networks: The Paradox of Embeddedness. Administrative Science Quarterly, Vol. 42: 35-67.