Interorganizational Relationships

Chapter 16 - Interorganizational Relationships, Strategic Alliances, and Networks: The Role of Communication Systems and Information Technologies
Managing IT in Government, Business & Communities
by Gerry Gingrich (ed)
Idea Group Publishing 2003

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What is IOR?

IOR is simply relationships between/among focal organizations - if we borrow Evan's expression ^[4] (Evan, 1966) and other single or more organizations. Generally, besides focal organization and others, there are other IOR between/ among other organizations as well.

Patterns of such relationships are one-to-one, or one-to-many relationships with focal organizations, and many-to-many relationships among all of the organizations concerned.

Van de Ven and Ferry (1980, p. 298) classified these IOR into three models: dyadic or pairwise model, interorganizational set model, and ION model (Figure 1).

Figure 1: Forms of Interorganizational Relationship

Classification of IOR

What kinds of IOR are there? I will argue about the static models and dynamic models by using the simple dyadic model.

Static Models

I will study static models of IOR between two organizations, A and B, here.

Static models indicate static relationship between objective organizations. In an analysis of static relationships one must consider firstly, relationships between objective organizations whether other organizations are friend, enemy, or neutral; and secondly, the degree of dependence - whether interdependent, or one-sided; and thirdly, symmetry whether bilateral or unilateral; and fourthly characters whether homogeneous or heterogeneous.

Relationships between organizations

General classification of relationships between A and B is made on the basis of whether there are any relationships in organizations, and then, in case there are any relationships, whether such relationships are rival, neutral, or friendly. Those relationships can be broken down into three relationships: A and B (bilateral), A to B (unilateral), and B to A (unilateral). In the case of unilateral relationships, for example, if A considers B as its enemy, there are two cases - one is that B is neutral and the other is that B considers A as a friend. On the contrary, in case that A considers B a friend, there are two cases - one is that B considers A as an enemy and the other is that B is just neutral. And it is important that actions or even strategies of each party can be different according to how they consider their counterpart.

In case there are no relationships, two cases are considerable - one is that both parties have no relation with each other, and the other is that only one party thinks its counterpart has no relation (Figure 2).

No Relationship		Enemy	Neutral	Friend
A and B		Rival or Competitive Relationship	Independent	Cooperative or Allied Relationship
A to B	B to A Enemy Neutral Friend	B to A Neutrality Friend	B to A Enemy Friend	B to A Enemy Neutral
B to A	A to B Enemy Neutral Friend	A to B Neutral Friend	A to B Enemy Friend	A to B Enemy Neutral

Figure 2: Patterns of Dyadic Relationship

Among these cases, the case that both A and B consider each other an enemy is called competitive relationships, and the case where both A and B are considered as friends is cooperative relationships. All other cases are basically not competitive or cooperative relationships. In these cases, one party unilaterally acts as a rival or friend to the others, or is completely neutral. But such actions can change their relationships and induce new competition and/or cooperation.

This chapter handles competitive relationships and cooperative relationship among them.

Dependence

Why does interorganizational competition and cooperation among organizations occur? Each organization has its own purpose (Barnard, 1968). And in order to attain its purpose or goals, one organization competes or cooperates with other organizations.

According to the open system theory, an organization has an interdependent relationship with its environments (Kast and Rosenzweig, 1972). An organization exchanges resources such as knowledge, information, energy, personnel, money, and material, etc., with its environments. And due to such exchange, an organization and the other organizations are interdependent over necessary resources for attaining their own purpose or goals. Such a relationship between organization and environment is interdependent in a macroscopic view, or thinking that the organization exists in its ecosystems, but there are two cases that the relationships with each organization a part of environment are bilaterally (or reciprocally) dependent and unilaterally dependent. Thus each IOR is different. Considering the dyadic relationships of A and B, there are the following three cases:

• A and B (reciprocal relationship or interdependence)

• A to B (one-sided relationship or parasitism)

• B to A (one-sided relationship or parasitism)

The degree of dependence is determined by importance (or necessity) and scarcity (or availability) of resources (Pfeffer and Salancik, 1978).

Symmetry

In relation to the "dependency" as described above, the "symmetry" of the relationship is whether two organizations are in an equal relationship or either organization is in a dominant position to the other one.

In other words, the symmetry of the relationship is the relationship of power between two organizations. Considering the dyadic relationship between A and B, there are the following three cases of symmetry:

• A = B (equal)

• A > B (unequal)

• A < B (unequal)

The case A = B is a symmetrical relationship, and the others are not symmetrical ones. Depending on the cases, the autonomy of each organization is greatly different, and the degree of difficulty of attaining its purpose or goals is determined. In this case, one organization is in a dominant position to another organization; one organization can compete more advantageously to the others than in the case of an equal relationship in competitive relationship, and it can make more advantageous decisions than the others in a cooperative relationship.

The degree of symmetry is determined by the relativity of an organization's resource-dependency to its environment.

Character - Homogeneous versus Heterogeneous

In the analysis of IOR, it is necessary to make clear whether the relationship is homogeneous or heterogeneous. Then the way of competition or cooperation becomes distinct.

In a homogeneous relationship, there are rivalries among existing firms in the industry, new entrants, emergence of substitutes, etc., in competition; and various kinds of cooperative (or joint) activities of business associations, and joint research and development (R & D), etc., in cooperation.

On the other hand, in a heterogeneous relationship, there are bargaining powers of suppliers (or sellers) and customers (or buyers) in competition; and outsourcing and division of labors based on strategic alliances, etc. in cooperation. ^[5]

Dynamic Models

Dynamic models of IOR are models of IOR in which relationships change dynamically.

There are two meanings in such changes. One is that the relationships themselves change situationally, and another is the outcome that IOR bears.

Change of Relations

Static models can only illustrate the structure of relationships between A and B, but in the real society the relationship between A and B may change as time goes by and the situation changes.

Brandenburger and Nalefbuff (1996) studied interactions of competition and cooperation between/among organizations, which are based on the game theory, and they stated "business is cooperation when it comes to creating a pie and competition when it comes to dividing it up" (p. 4). ^[6]

Gomez-Casseres (1996) pointed out that "business rivalries now often takes place between sets of allied firms" (p. 2) and took up the concept of "collective competition."

Thus, in dynamic models, IOR are considered to be diversely changeable in accordance with the situation. An organization has its own purpose or goals and, in order to attain such purpose or goals, it carries out its activities. And it sometime competes and sometime cooperates with other organizations as the need arises.

Outcomes of Dynamic Interorganizational Transactions

Another sphere that dynamic models possess is an outcome brought by the competition and cooperation in IOR.

Moor (1993) presented a very interesting concept of "co-evolution in a business ecosystem." He suggested, "a company be viewed not as a member of a single industry but as part of a business ecosystem that crosses a variety of industries" (p. 76). And in this business ecosystem, "companies co-evolve their capabilities around a new innovation" (p. 76). Namely, "they work cooperatively and competitively to support new products, satisfy customer need, and eventually incorporate the next round of innovation" (p. 76).

He created a concept of "life-cycle model of a business ecosystem" based on a concept of "co-evolution in a business eco-system" and developed four evolutionary stages of a business ecosystem - birth, expansion, leadership, and self-renewal.

I do not agree with his idea of the range or the unit of a business ecosystem and of the four-stage theory, but I think we have to appreciate his basic thought that each organization "co-evolves" through interorganizational competition and cooperation.

By the way, if outcome of the cooperative activities between A and B is shown as (A + B), and outcome of the independent activities of A and B is shown as A + B, then there are the following three cases:

• A + B > (A + B)

• A + B = (A + B)

• A + B < (A + B)

The first case is that the outcome of independent activities is better than that of cooperative activities of two parties, and it is better that two parties do not cooperate and act independently as a result. The second case is that the outcome of independent activities and that of cooperation are equal, and it is all the same thing whether two parties do cooperate or not. It all depends on their options. The third case is that the outcome of cooperation is better than that of independent activities, and interorganizational cooperative activities become effective.

The third case can be further divided into two cases. One is that cooperation brings an outcome, which both parties cannot attain independently by making up for necessary resources with each other. And the other is that cooperation creates new resources - including knowledge and technologies, etc., products, and markets, etc., through "interorganizational learning" with many trials and errors in the cooperative activities.

With respect to "innovation," it is much significant that cooperation in IOR should be carried out to create new resources. Especially, on the subject of "knowledge management," interorganizational cooperation should be made towards creating new knowledge.

On the other hand, what about competition between/among organizations? In an interorganizational competition, it is necessary for an organization to win against its competitors for its survival or growth. In order to do it, an organization has to know who its competitors are and how to cope with them.

The competition against its opponents stimulates the activities of the focal organization. And then by concentrating its resources for the victories, and by continuing their activities through trial and error (with interorganizational learning), an organization can innovate various kinds of revolution of technologies, develop new products, saturate existing products, and develop or create new markets. As a result, "natural selection" where only the winners can survive in the competition works and then revolution as the "species" occurs.

Thus both interorganizational competition and cooperation have dynamic aspects of creating resources (such as new technologies or new products), of saturating existing products, and of creating and developing new markets.

^[4]Evan (1966) introduced the concept of "organization sets" as the framework for IOR analysis by adopting Merton's role sets (1957) to IOR. He illustrated the relationships between organizations by using three basic elements: focal organization, input organization sets (supply resources to focal organization), and output organization sets (receive products from focal organization).

^[5]In this chapter, I use Porter's "forces driving industry competition" (1981) for an analytical framework of competition, and the concept of "strategic alliance" (Lewis 1990, 1995; Yoshino and Rangan, 1995; Gomez-Casseres, 1996; Doz and Hamel 1998) for analytical framework of cooperation. By the way, Yamada and Arakawa (1988) introduced the strategic alliance as a strategy for neutralizing competitors by using Porter's above models.

^[6]Brandenburger and Nalebuff (1997) created "Value-net" as a tool for analyzing relationships, and illustrated the relationships among the focal organization and its stakeholders. Generally these relationships consist of five parties: the focal firm, its suppliers, customers, competitors, and complementors. They regarded such competition and cooperation in the market as the "game," and listed players, added values, rules, tactics, and scope as five elements of the game (called "PARTS" by taking the capital letter of the name of each tools). And they analyzed the game of competition and cooperation in the market through various case studies.

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