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Powell W.W. (1990). Neither Market nor Hierarchy: Network Forms of Organization

29 important questions on Powell W.W. (1990). Neither Market nor Hierarchy: Network Forms of Organization

What is likely to take place within hierarchically organized firms? (Williamson 1985)

Transaction-specific investments - of money, time, or energy that cannot be easily transferred

Which exchanges can teake place across a market interface?

Exchanges that are straightforward, non-repetitive and require no transaction specific investments

The inefficiencies of bureaucratic organization will be preferred to the relative costs of market transactions. Two reasons:

Bounded rationality
Opportunism

How does the dichotomous view of markets and hierarchies see firms?

As separate from markets or more broadly, the larger societal context. Outside the boundaries of the firm are competitors, while inside managers exercise authority and curb opportunistic behavior.

Where are markets, hierarchies and networks pieces of?

The larger puzzle: the economy

What is the stereotypical competitive market?

The paradigm of individually self-interested, noncooperative, unconstrained social interaction.

How is communication in markets?

Communication is in terms of prices. Markets are a poor device for learning and the transfer of know-how.

What is a perfect market?

Information is freely available, alternative buyers or sellers are easy to come by, and there are no carry-over effects form one transaction to another. But as exchanges become more frequent and complex: the costs of conducting and monitoring them increase, giving rise to the need for other methods of structuring exchange.

How is communication in hierarchies?

Communication is in terms of routines/employment contract.

Do relationships matter in hierarchies?

Relationships matter and previous interactions shape current ones, but the patterns and context of intraorganizational exchange are most strongly shaped by one’s position within the formal hierarchical structure of authority.

When is this structure (hierarchy) well suited?

This structure is particularly well suited for mass production and distribution. Strengths are its reliability and accountability.

Exchange is bound up with considerations of personal advancements. At the same time, intraorganizational communication takes place among parties who generally know one another, have a history of previous interactions, and possess a good deal of firm-specific knowledge, thus there is considerable interdependence among the parties.

How do employees operate in hierarchies?

Individual employees operate under a regime of administrative procedures and work roles defined by higher level supervisors. Management divides up tasks and positions and establishes an authoritative system of order. Because tasks are often quite specialized, work activities are highly interdependent. The large vertically-integrated firm is a social institution, with its own routines, expectations, and detailed knowledge.

What about network forms of exchange?

Network forms of exchange entail indefinite, sequential transactions within the context of pattern of interaction and reciprocity. Sanctions are normative rather than legal and the value of the goods is much more important than the relationship itself. When relations do matters, they are frequently defined as if they were commodities.

How is communication in networks?

Communication is in terms of relations. Dependence on resources controlled by others and gains to be had from pooling resources. The preferred option is often one of creating indebtedness and reliance over the long haul.

Why can networks be complex?

They involve neither the explicit criteria of the market, nor the familiar paternalism of the hierarchy.
In network forms of resource allocation, individual units exist not by themselves, but in relation to other units. These relationships take considerable effort to establish and sustain, thus they constrain both partners ability to adapt to changing circumstances.
In short, complementarity and accommodation are the cornerstones of successful production networks.

What about strategic alliances and partnerships?

Firms are seeking to combine their strengths and overcome weaknesses in a collaboration that is much broader and deeper than the typical marketing joint ventures and technology licensing. Internally-generated-and-financed research is giving way to new forms of external R&D collaboration among previously unaffiliated enterprises. In some industries, these appears to be a wholesale stampede into various alliance-type combinations that link large generalist firms and specialize entrepreneurial startups.

Why are partnerships more frequent?

Because other options have serious drawbacks. E.g. equity arrangements- deals that combine direct project financing and varying degrees of ownership.

Why do large firms invest?

A larger firm invests, rather than purchases, primarily for reasons of speed and creativity. The movement in large companies away from in-house development to partial ownership reflects an awareness that small firms are much faster at, and more capable of, innovation and product development.

Why can equity arrangements be quite complex?

Equity investments are typically complemented by various agreements, such as research contracts from the larger firm to the smaller one, exclusive licensing agreements to the larger firm, and often loan and other financial agreements provided by the larger firm to the smaller one.

What can the organizational arrangement include?

Joint ventures
Strategic alliances
Equity partnerships
Collaborative research pacts of large scale research consortia
Reciprocity deals
Satellite organizations

What do network forms of organization respresent?

A fast means of gaining access to know-how that cannot be produced internally

Why preference for cooperation instead of full ownership?

Push side: technological constraints – tacit, not easily transferred, requires cumulative knowledge. Technological knowledge is tacit in character and cannot easily be transferred by licensing.
Pull side: financial concerns and advantages of risk reduction. Joining a coalition with another firm, both partners may enjoy options that otherwise would not be available to them, ranging from better access to markets, pooling or exchanging technologies and enjoying economies of scale and scope. Risk sharing is very attractive in industries where each successive generation of products is expensive to develop, and product life cycles are short.

What are the risk of cooperative arrangements?

Not always successful - management problems, misperceive another's actions
Hidden agenda
Learning races

What are three failures that plague vertically-integrated firms?

An inability to respond quickly to competitive changes in international markets;
Resistance to process innovations that alter the relationship between different stages in the production process;
Systematic resistance to introduction of new products.

When the pace of technological change quickens, product life cycles shorten and markets become more specialized. Firms are trying to cope with new pressures in a variety of ways:

By explicitly limiting the size of work units;
By contracting work out
Through more collaborative ventures with suppliers and distributors.

What are two solutions?

Back to arm’s length transactions;
New methods of collaboration - (both entail vertical disaggregation).

Non-market, non-hierarchical modes of exchange represent a particular form of collective action, on in which:

Cooperation can be sustained over the long run as an effective arrangement;
Networks create incentives for learning and the disseminations of information, allowing ideas to be translated into action quickly;
Open-ended quality of networks is most useful when resources are variable and environment uncertain
Networks offer highly feasible means of utilizing and enhancing such intangible assets as tacit knowledge and technological innovation.

What are three factors that are critical components of network?

Know-how
Demand for speed
Trust

What about demand for speed?

Fast access to information
Flexibility
Responsiveness to changing tastes: because of their ability to disseminate and interpret new information

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Artikelen Innovation & Entrepreneurship 2016

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