Lse-2003-new Org Forms And Networks

New Organisational Forms and Networks. A Literature Review Eduardo Castellano Complexity Research Programme London School of Economics March 27, 2003 Email: [email protected]

Abstract New organizational forms have appeared due to the transition from an economy based on materials to an hyper-competitive economy based on intense flows of information. Several non-hierarchical, permeable and interconnected, models are replacing classical integrated hierarchical organizations. The networked organization can be regarded as the underlying structural arrangement behind most of the new organizational alternatives. This papers presents a literature review about such new organisational models, as well as, briefly, some insights about its properties, advantages and disadvantages, enabling environments for its development, and finally, some analytical tools for its performance evaluation.

1. The Context New organizational forms have appeared due to the transition from an economy based on materials to an economy based on intense flows of information, this new organizational forms as Child and McGrath (2001) stated have to deal with four core themes: interdependence; disembodiment; velocity; and power, and more specifically with the following main issues (Hales, 2001): (1) how global competition and lower communication transaction costs compel firms to dissolve internal and external boundaries and concentrate on core processes competencies (Hagel III and Singer, 1999), (2) organize around social relations in order to create, access and integrate knowledge and leverage intellectual capital, and (3) inter-firm collaboration networks and alliances to access new sources of intellectual and social capital.

This new forms have also been suggested as the only way to manage in hyper-competitive environments (Ilinitch, D'Aveni and Lewin, 1996). In this context, Volberda (1996), places the flexible org form as a paradigm that surpass the bureaucratic vertical forms that severely hamper the ability to respond to accelerating competition, in favour of a rich typology of organizational forms for coping with hypercompetition, each of which reflects a particular way of addressing change and preservation. Furthermore, he explores different trajectories of organizational development over time, especially those relating to revitalization.

2. New Organisational Forms The organizational form of many firms therefore is changing (Daft and Lewin, 1993), integrated hierarchical organizations are being replaced by non-hierarchical entities that are permeable and interconnected (Schilling and Steensma, 2001). As Child and McGrath (2001) paper points out, different formulations have appeared as a result of case studies of firms that have pioneered various organizational innovations: the postentrepreneurial organization (Kanter, 1989) and the flexible firm (Volberda, 1998) are two broad concepts that express the paradigm of new organizational form, as opposed to others that focus on more specific aspects of the paradigm as the network organization (Nohria and Eccles, 1992; Snow, Miles and Coleman, 1992; Castells, 1996), the virtual corporation (Davidow and Malone, 1992), the knowledge-creating company (Nonaka and Takeuchi, 1995), the ambidexterous organization (Tushman and O’Reilly 1996), the sense and respond model of adaptive enterprise (Haeckel, 1995; Cap Gemini E&Y-CBI, 1999), the project-based organisation (Hobday, 2000), the high performance or high-commitment work

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system (Pfeffer, 1998), the boundaryless company (Devanna and Tichy, 1990), the hybrid organization (Borys and Jemison, 1989), the modular organization (Schilling and Steensma, 2001; Sanchez and Mahoney, 1996). Another important concept is the improvising organization (Crossan, White, Lane, and Klus, 1996) where time to plan converges with time to act, and shows how improvisation helps to synthesize even time and event time in scheduling processes, internal pacing and external pacing in synchronization processes, and linear and cyclical time in allocation processes for conditions of time pressure and uncertainty. Weick (1998) also refers to improvisation as “just-in-time strategy” and explains how these strategies are distinguished by less investment in front-end loading (try to anticipate everything that will happen or that you will need) and more investment in general knowledge, a large skill repertoire, the ability to do a quick study, trust in intuitions, and sophistication in cutting losses.

3. Network Organisation According to Schilling and Steensma (2001), despite the terms are sometimes invoked in slightly different ways, most of them describe the phenomenon whereby the role of the tightlyintegrated hierarchical organization is, in many cases, being supplanted by “loosely coupled” networks of organizational actors that allow components to be flexibly recombined into a variety of configurations to develop internal and external networks of cooperation and collaboration. Therefore the network organization can be regarded as the underlying structural arrangement behind most of the new organizational alternatives that have emerged in the last times (Alvarez and Ferreira, 1995). Continuing with Schilling and Steensma (2001) research, to better understand this phenomenon, authors have developed descriptive typologies of different types of network organizations (Achrol, 1997), have studied the nature of dyadic business relationships (Anderson, Hakansson, and Johanson, 1994), and the governance of interorganizational linkages (Candance, Hesterly and Borgatti, 1997). Some researchers have also examined the impact of such arrangements on the transfer of learning within and between organizations (Powell, 1998) and the implications of trust and social embeddedness in relational exchange (Uzzi, 1997; Jones and

Bowie, 1998; Lane and Bachmann, 1998; Newell and Swan, 2000). In the same way, in Powell (1990), the attempt is to speak about networks as a distinct form of organization for explaining many forms of collaboration, new organizational design and complex realities of economic exchange, and provides a rationale for network forms and discuss three factors that are critical components of networks: the exchange of knowhow, advantages in dealing with market's demand for speed, and the importance of an interfirm trust environment.

4. Network Organisational Practices, Benefits and Disadvantages In Candace, Hesterly and Borgatti (1997) a general theory of network governance is explained in terms of transaction cost economics and social network theories, it describes under what conditions network governance has comparative advantage seeing the network form of governance as a response to exchange conditions of asset specificity, demand uncertainty, task complexity, and frequency. Network governance is referred as interfirm coordination (Uzzi, 1997), that is characterized by organic or informal social systems in contrast to bureaucratic structures within firms and formal contractual relationships between them, and constitutes a distinct form of coordinating economic activity which contrasts and competes with markets and hierarchies (Powell, 1990; Nohria, 1992). In Grandori and Soda (1995), ten organizational co-ordination mechanisms that are employed in inter-organizational networks are identified: communication, decision and negotiation mechanisms, social coordination mechanisms, integration and linking-pin role and unit mechanisms, common staff mechanisms, hierarchy and authority relation mechanisms, planning and control system mechanisms, incentive system mechanisms, selection system mechanisms, information system mechanisms, and public support and infrastructure mechanisms… trust will emerge to the extent that the integration mechanisms actually do encourage co-ordination between the different parties involved. In Akkermans (2001), a systems approach, with system-dynamics based group model building at its core, is presented in terms of practices that facilitate the development of inter-organisational collaboration and cooperation networks, the creation of favourable conditions for spontaneous bottom-up emergence

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of successful network formation and developing – top-down – workable business processes to embed those network relations in, and the creation of an inter-organisational trusting environment in integrated project teams based in a case study of four organizations striving for collaborative supply-chain management in the high-tech electronics industry. In Newell and Swan (2000), a case study is developed in terms of the evolution of trust and different types of trust (companion, competence and commitment trust) as the essential mechanism and environment for interorganizational networks (inter-university research team working) to be effective in co-ordinating the work of a diverse range of partners. Also, Dirks and Ferrin (2001) research provides insight, this time within the organization, into the processes through which trust affects organizational outcomes, and suggests ways that organizational settings can be modified to capitalize on high levels of trust or mitigate the effects of low levels of trust. In Handy (1995), seven rules of trust are proposed in the context of virtual networked teams: Trust is not blind, it needs fairly small groupings in which people can know each other well; Trust needs boundaries, define a goal and then leave the worker to get on with it; Trust demands learning and openness to change; Trust is tough, when it turns out to be misplaced, people have to go; Trust needs bonding, the goals of small units must gel with the larger group's; Trust needs touch, workers must sometimes meet in person; Trust requires leaders. According to Hacki and Lighton (2001), networked firms and network orchestrators like Cisco, CNET, Schwab, and eBay by owning fewer assets and leveraging the resources of partner companies, require less capital, return higher revenues per employee, and spread the risks (and benefits) of a volatile market across the network. This paper also describes the characteristics of these networks, how they are built by orchestrators, and that this business networks deliver superior value to customers, partners, and investors, outperforming other top companies inside and outside their industries. However, there are also some dangers. For example, in Marchington (2000), the consequences of this new kind of network organizations in the reshaping of work and employment relationships has been studied from a number of case studies in the UK. These network org forms introduce complementarities as well as conflicts and contradictions, unclearness, and blurring in the employer-

employee relationship in the sense of legal, performance responsibilities, transparency and equity in employment conditions when the employee is working in project teams, or on site beside employees from other organizations, or involve organizations other than the employer, and therefore having incompatible missions and goal sets, no strong driving force or, mutual commitment (Skyrme, 1999). Also, in Koza and Lewin (1999), based on a single longitudinal case study of a professional service network in the public accounting industry, the authors found that although the network was initially created with the strategic intent of producing incremental income in exchange for cross-border referrals, it generates asymmetric positive returns, so individual member firms bypass the original intent of network by entering each other’s market and therefore producing tensions that may be endemic to alliance networks. In this paper a coevolutionary approach is taken in order to explore the antecedents and stimuli for the formation of the network, the network’s morphology (Oliver and Ebers, 1998), the motivation of the network members, and the ways in which the network coevolves with its environment and with the adaptation practices of its members. This paper concludes with a model of the co-evolutionary process (Lewin, Long and Carroll, 1999).

5. Social Network Analysis and Organisational Network Analysis Tools This kind of intra and inter organizational networks have been analysed by Social and Organizational Network Analysis (SNA/ONA) methods (Wasserman, Faust and Iacobucci, 1994; Scott, 2000) and software tools (Borgatti, 2003; Galloway, 2003; Krebs, 2003; Snijders, 2003; Stephenson, 2003). For example, in Hansen (1999), the relationship between the strength of ties (Granovetter, 1973; Krackhardt, 1992) in a multiunit organization network and complex knowledge inter-unit project development performance is studied in detail in a large electronics company reaching to the conclusion that having weak interunit ties speeds up projects when knowledge is not complex, but slows them down, when the knowledge to be transferred is highly complex. Benassi, Greve and Harkola (1996) present ten propositions to explore an ideal type of network organizations with emphasis on internal structure

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relating properties to organizational structure and processes (flat and flexible structures, with high reachability and high information access enabling learning), and use ONA over an empirical case study firm to identify that this organization has the properties of a network organization. Oswald, Conway and Steward (1999) use the SNA approach to provide a deeper understanding of the way in which networking contributes to innovatory activity in the management of the innovation process in business organizations. Cross, Parker and Borgatti (2000) make use of the potentials of SNA: (1) Identifying a network’s ability to leverage its collective knowledge in response to new opportunities or problems; (2) Assessing cross-boundary collaboration in networks that cross functional, hierarchical or geographic boundaries and (3) Ensuring integration following restructuring or other change initiatives, applying it to the area of promoting and improving the effectiveness of strategic collaboration in important groups such as top leadership networks, strategic business units, new product development teams, joint ventures or mergers. A similar study was done by Hutt, Stafford, Walker and Reingen (2000), analysing the social network of a strategic alliance at an operational and strategic level in a case study which follows 2 Fortune 500 firms as they developed a co-branded product. They explore the communication patterns that united the participants and the beliefs that divided them showing the intricate web of relationships that formed in the alliance and the flow of communications within and across the partnering organizations. And as another example, Michael and Massey (1997) research, illustrates the way social network analysis techniques can be used to graphically model and quantify employees’ communication networks for the case of a midsized softwood sawmill to identify the principal nodes of input/output flow of information. One of the most interesting areas to apply this kind of tools is the relationship between the formal and informal network (Kleiner, 2002). In Conway (2000), the nature of informal organisation and its relationship with the formal organisation is explored and the authors underline the importance of the informal or social structures within organizations as an important device for promoting communication, integration, flexibility, and novelty, within and between organizations and an intangible organizational resource which is difficult for competitors to replicate. In Doloff (1999), the

author states that organisational charts do not reveal the more important links, the connective tissue or personal influence, therefore, in order to illuminate this shadow organization, social network mapping over the informal organization provides a clear snapshot of the organization's human and intangible workings dynamics, what facilitates to X-ray the organization and identify quantifiable findings on who are the movers and shakers as well as emergent communities of practice (Wenger, 1998). In the same line, Krackhardt and Stern (1988), and Krackhardt and Hanson (1993), discuss how managers can harness the power in their companies by diagramming the advice network, which reveals the people to whom others turn to get work done; the trust network, which uncovers who shares delicate information; and the communication network, which shows who talks about workrelated matters and how to design a social network structure more effective in responding to conflicts and organizational crises. Nardi, Whittaker and Schwarz (2000), take this assumption a step further pointing that traditional institutional resources are being replaced by resources that workers mine from their own networks. In this context, intensional networks or "egocentric" networks that arise from individuals and their communication and workplace activity is fast becoming the only sensible alternative to the traditional Org chart as a main resource of information and labour for the firm in a quickly transforming economy (less institutional stability and fewer reliable corporate resources).

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