Introduction

Management practices meet organizational science in the study of organizational form, defined as the structural features or patterns that are shared among many organizations. It is widely acknowledged that the classic forms are markets and hierarchies. An alternative to both markets and hierarchies appears to be emerging, and tackles to be accelerated by technology—the network form (Powell, 1990). Several types of dynamic organizational forms emerged in response to the turbulent business environment, however their managerial implications still remain largely unexplored. The problem seems to be located in the fact that the corporate world is changing so fast that management practices and paradigms cannot keep up with business evolution. Thus, both the research and the corporate communities have been relying on management paradigms whose applications no longer apply in the information age, which is fairly undetermined. Contemporary organizations strive for new managerial tools that would allow them to interpret the new corporate reality and prepare them to confront the complexities of dynamic and networked value creation (Ciborra, 2000). This chapter will develop a framework for research into business organizations that are becoming increasingly prevalent in the digital era. It will describe the background to networked organizations by first looking for the drivers for network formation. Subsequently, a network definition is provided, along with the identification of some basic variables that characterize specific types of networks examined in this chapter. We then attempt to identify the specific disciplines that concern network business organizations so to result in a management framework that will capture the manifold managerial issues in the area of networked organizations.

The frame of reference in this chapter is a European Community-funded project known with the acronym of DOMINO. ^[1] This project addresses the issue of management in dynamic organizational forms in terms of strategy, structure, processes, people, and technology. In the DOMINO project an inter-firm network is defined by the relations between a defined set of independent organizations (the network structure) and their interactions in the structure (the network process). In this context, a network should be understood both as structure/relations and as a process/interaction among its participants.

The purpose of this chapter is to enlighten the emerging complexities of dynamic organizational forms by exploiting and disseminating DOMINO's research outputs in the academic and business community. In particular, the project aims at investigating current management thinking and reality of how firms participate in and manage organizational networking in the new economy, developing appropriate investigation instruments, applying these instruments to real-life cases of dynamic organizing, developing a first version of a framework for management action in dynamic organizational situations, selecting situations to apply the framework, and consolidating the findings into a final integrative piece of work.

Drivers for Network Formation

Changes in technologies and market structures have shifted competition between the organizations to a global level (Giddens, 1991). This has resulted in the need for new organizational structures. Traditional organizational structures are not appropriate for the new business trends because they evolved in response to different and older competitive eras (Powell, 1990). To this end we have identified three major drivers for network formation:

• Technological changes. New ways of communication and information processing technology, specially based on the Internet, allow new forms of organizing and value creation: the significantly lower costs of obtaining, processing, and transmitting information allow new efficient (electronic) information links between firms to emerge. In economic terms, a new information infrastructure may redefine the roles and relationships between buyer, seller, and middleman, allowing new ways of accessing and tapping information and price arrangements. On the one hand, new opportunities arise, giving enterprises the chance to enter new markets, to set up new services, or to organize their value creation in a more efficient manner, e.g., by concentration on core competencies. On the other hand enterprises need to heavily invest in new product and process-related technologies, facing the challenge of an arising technology-based competition with shorter product lifecycles and an increased need to speed up the "time-to-market." This leads companies to collaborate and share risks in order to get access to new technologies. Thus, technology creates new opportunities of an increasingly efficient way for inter-firm coordination based on ICT applications (Bensaou & Venkatraman, 1996; Powell, 1990).

• Globalization. The phenomenon of globalization—driven by technological changes like the emergence of the Internet, deregulation and opening of national markets, global reporting in mass media, and changes in people's rationale—causes eroding of market structures confronting companies with the entrances of new competitors. To this end, an increasing competition within the market is leading to a shift of the entrance boundaries to a specific market. This turbulent business environment is forcing organizations to reevaluate their business processes and structures, indicating an increasing need for networking and cooperative arrangements. On the other hand globalization opens up the opportunity to access new markets. To face competition challenges and to overcome barriers of distance to become global players, collaboration promises to be a sound solution for enterprises (Ciborra, 1992; Giddens, 1991).

• Changing customer needs and fragmented markets. The observable changes of customer needs towards individualization are resulting in increasingly fragmented markets of micro-segments. This fragmentation forces companies to likewise increase their amount of product variants, to increase the specificity of their products to better meet customer needs, and to develop new mass customization strategies. The real potential of mass customization strategies, for example, derived from inter-firm linkages within the value chain, allowing an efficient processing of customer-specific and production-related information between retailers and manufacturers. Furthermore, companies are trying to expand their service offerings to increase customer retention with partnering strategies (Ciborra, 1992; Etgar, 1976).

The aforementioned drivers for network formation imply that in a number of industry sectors' network organizational forms have emerged in response to the new complexity.

What is a Network Anyway?

It is a widely held view that the classic forms are markets and hierarchies. An alternative to both markets and hierarchies appears to be emerging—the network form (Powell, 1990; Nohria & Eccles, 1992). Miles and Snow see networks as:

• A new organizational form—a unique combination of strategy, structure, and management processes that we refer to as dynamic network.

• The new organizational form that is forcing the development of new concepts and language to explain its features and functions and, in the process, is providing new insights into the workings of existing strategies and structures.

Powell (1990) describes the following key dimensions that differentiate network forms from both markets and hierarchies:

• the basis for organizing is complementary strengths rather than the employment relationship;

• the means of communication is relational rather than routine;

• conflict is addressed through norms of fair exchange rather than administrative fiat;

• flexibility is greater than that of hierarchy but less than that of the market;

• commitment is relatively similar;

• the tone is focused on mutual benefits rather than on formality;

• relationships are governed by interdependency rather than dependence; and

• multiple hybrid forms exist for both hierarchies and networks.

Fulk and Desanctis (1999) point out that the types of connection are complex in such forms of "cooperative competition," in which organizations may relate to each other as collaborators in some activities or markets and as competitors in others (Gulati, 1998).

Before starting to develop the taxonomy for network classification, it is essential to consider networks as organizational arrangements in an inter-firm context, not computer networks or customer webs referred to as "user networks." To this end we adopt Mitchell's (1969, p. 2, cited in Sydow & Windeler, 2000, p. 3) definition of a social network:

"A specific set of linkages among a defined set of actors [(structure/relation)], with the additional property that the characteristics of these linkages as a whole may be used to interpret the social behavior of the actors involved [(process/interaction)]."

In this context a network should both be understood as a structure/relation among actors and as a process/interaction. Secondly it implies an overall understanding of what the structure/relation is that determines the process/interaction (the behavior of the actors) in the network.

Nohria and Eccles (1992, p. 288, cited from Klein, 1996, p. 37) specify Mitchell's definition regarding actors and the basis of relation:

"The most general use of the term 'network' is for the structure of ties among the actors in a social system. These actors may be roles, individual persons, organizations, industries, or even nation states. Their ties may be based on conversation, affection, friendship, kinship, authority, economic exchange, information exchange, or anything else that forms the basis of a relation."

Castells (1996) argues that networks may also act as gatekeepers:

"Inside the networks, new possibilities are relentlessly created. Outside the networks, survival is increasingly difficult. Under the conditions of fast technological change, networks, not firms, have become the actual operating unit. In other words, through the interaction between organizational crisis and change and new information technologies, a new organizational form has emerged as characteristic of the informational/global economy: the network enterprise."

In the DOMINO project we examine networks accordingly to Castells's (1996) view—as operating units made up of a variety of subjects and organizations, relentlessly modified as networks adapt to supportive environments and market structures. In the DOMINO project an inter-firm network is defined by the relations between a defined set of independent organizations (the network structure) and their interactions in the structure (the network process). The linkages are mostly based on economic, information, or knowledge exchange. The network has a perceivable border to its environment and pursuing the achievement of a common goal, while at the same time the network participants have different, local goals.

Network Variables

The plethora of networks types reported in the literature necessitates the identification of some basic variables that characterize the specific type of networks to be studied. Organizational networks are middle- or even long-term, rather than short-term arrangements. We do not want to consider short-term initiatives, such as single-project initiatives or simple market exchanges, because as Castells (1996) states, a large number of these alliances may be characterized as purely instrumental and accidental.

As already mentioned in the former sections, networks provide both prices and authority (e.g., by coordination roles) as coordination mechanisms. But additionally, trust and predictability have a major impact on coordination. Especially trust and the absence of opportunistic behavior might reduce coordination complexity. If network participation is not enforced (which is probably a supply chain cooperation), it can be assumed that all participants will act according to the network rules and goals. A trustful cooperation directly influences the "climate" within a network. The network climate usually is characterized by attaining mutual benefits in what is defined as a "win-win" situation.

A major threat to networking strategies may arise from conflicting goals among network actors. A balancing of interest is necessary in order to prevent the conflict of contrary goals between the overall goal that formed the network, and the specific goals that each individual organization may have. In some cases a common consent seems not to be achievable. If an arbitrator does not find an acceptable solution, then the network might be dissolved.

The relation among network participants is one of interdependence. The rather autonomous entities are tightly coupled so they influence each other in a definitive manner. Therefore, the freedom of decision making is restricted. Every single enterprise has to take care of its partners before a decision is drawn.

Network structures could be characterized partly as formal and informal. Therefore, the degree of formalization depends on the strategic orientation and the coordination mechanisms used within the network. For example, freelance networks are more informal, while supply chain cooperation is much more formal. In a value-chain-oriented network with an increasing use of ICT, a higher degree of formalization is necessary because of the need for an efficiency-driven process of standardization. This also results in a higher degree of integration. A common ICT platform has to take into consideration the individual ICT environment of network participants. For this reason a highly integrated ICT architecture is not actually conceivable.

^[1]DOMINO: Dynamic Organizational Management in Inter-firm Network Orchestrations (IST-2000-29545), (http://www.ist-domino.net). DOMINO addresses a wide range of management issues crucial for the running of networked businesses.