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INTERORGANIZATIONAL NETWORKS
Interorg’l interactions involve many communication & exchangerelations, creating various types of interorganizational networks:
Spot market transactions ►
Relational contracting ►
Mergers & Acquisitions ►
Interlocking board directorates ►
Joint ventures & IJVs ►
Strategic alliances
Network analysts examine relational contents & structural forms
among interconnected organizations. They seek to explain:
(1) Which orgs decide to form interorg’l relations & what types of ties?(2) What are the patterns of interorg’l communication & resource
exchanges in those networks? What density, centralization, etc.? (3) How do networks shape org’l behaviors & performance outcomes?
Relational Contracting
A typical small interfirm production network is NYC better dress industry:
SOURCE: Brian Uzzi. 1997. “The Sources and Consequences of Embeddedness for the Economic Performanceof Organizations: The Network Effect.”
American Sociological Review
61:674698.
A Bad Deal?
Do mergers worsen an acquirer’s economic performance?Media mergers have been particularly lousy performers:^ ►^ However, Boston Consulting Group study of 705 firms 1992-2002 found:Highly acquisitive companies had annual shareholder returns of 11.5%, aboutsame as 11.3% of firms with organic growth. The mixed-strategy group faredonly a little worse, with a 10.9% annualized return (vs. S&P 500’s 9.3%).
Vivendi bought Universal: stock price fell by 80% ► AOL-Time Warner: Shares -77%, $50B written off ► Vodaphone bought Mannesman: stock collapsed ► Disney bought, then wrote off several dot-coms
- M&A requires 35-50% premium over stock market price• 50-70% of M&As fail to produce positive share returns• “Synergies” & economies of scale often don’t occur• Integration of two corporate cultures is rarely smooth
Other People’s Money^ Watch scenes from
Other People’s Money
(1991) starring
Gregory Peck, Penelope Ann Miller, and Danny DeVito.Larry “the Liquidator” Garfield tries a hostile takeover ofPeck’s money-losing New England Wire & Cable Co. Hewages a proxy fight to win control, but plans to sell-off themill. If successful, Larry and his backers will reap bigprofits but the W&C employees will all be put out of work.
What are the conflicting stockholder & stakeholder interestsdepicted in this dramatization?Do you agree with the treacherous W&C president: “Everyonelooks out for their own self-interest. What’s in it for me – isn’tthat what it’s all about?”Or should other moral principles than profit-maximizationgovern the corporation?What would happen to capitalism if jobs and community welfaretook precedence over the bottom line?
EXERCISE
Due to a sudden death, MINN-Widgets must urgently fill a vacancy onits board of directors. M-W needs to: raise $2B capital to expand intoChina; clean up toxic waste at two plants; develop a better sexualharassment policy; and fight a shareholder lawsuit over excessive CEOpay. Discuss why each candidate below is a better/worse choice:^ ¾
Anne Baker: Vice Pres. of Second Fourth Bank; former staffer at
World Bank; sits on boards of NOW and several liberal cause orgs ¾
Charlie Dane: Friend & personal lawyer of M-W’s CEO; on boards
of eight investment banks and manufacturing firms; extensive ties toU.S. Dept of Justice, Chamber of Commerce, Am Bar Assn, etc. ¾
Eva Fong: Executive Director of Friends of China; extensive links
to East Asian communities and NGOs; mostly had an academic career,with some federal government posts, but little business experience ¾
Gary Homer: President & Chief Scientist of Ecospill; on advisory
board of Environmental Protection Agency; major financial backer ofanti-conservation and right-wing orgs
A Transnational Business Community? Are transnational interlocks creating a “global capitalist class”?
The 176 largest global corps show modest interlocking:“… from 1970s to 1990s an Atlantic business systemdeveloped. However, Japanese firms were notintegrated into this network.” (Carroll & Fennema)For 1996, Figure 3 shows “…less of a concentration ofinterlocking among a few firms, and more inclusion ofFrench, Swiss, British & North American companies.”
Does a growing global concentrated of financial power viainterlocking corporate boards threaten popular control ofgovernments and economies in democratic nation-states?Could communication among interlocked directors lead tocollusion & illegal behaviors (price-fixing, stock manipulation)?
Kentor & Yang Figure 2 shows higher U.S.-European board integration:“There is indeed an emerging transnational business community.”The two replies maintain their disagreement; what side do you take?
Strategic Alliances
Strategic alliance:
An agreement among partnering firms that:
(1) remain legally independent;(2) share managerial control over performance of assigned tasks;(3) make resource contributions in strategic areas, e.g., inventing
technologies, manufacturing, or penetrating new markets; (4) agree on how to distribute any benefits resulting from their alliance.
Communication networks
can facilitate the
flow of information among potential partnersabout alliance opportunities. CEO friendships,board interlocks, professional ties can all serveas intelligence-gathering channels.Because
trust among partners
is so crucial for
success, communicating with partners-of-partners can help to verify past performance ormisconduct.
Rules of the Game
THE SIMULATION RUNS IN FIVE STAGES
1: Simulation Master randomly assigns students to 3-person color-
coded orgs. Meet to decide your org’s division of labor – choosea CEO, Accountant, and Alliance Negotiator. 2: Negotiators communicate with other orgs’ CEOs to obtain
information about what resources they hold and their interest informing a strategic alliance. (How many of their resources wouldCEO be willing to exchange for the resources your org holds?) 3: Your org’s members meet to process information gathered by
your Negotiator. Identify possible target org(s) with which yourorg could form strategic alliance(s). 4: Negotiators form alliance with target org(s) CEO, by exchanging
resources (colored papers) to complete an alliance deal(s). 5: When time’s up, Accountants count acquired resources & report
to Simulation Master, who tallies results and declares a Winner.
Shorter Writing #4:
Interorganizational networks take a variety of forms for different purposes.Drawing from the readings, lectures, videos, discussions, and/or yourparticipation in the Strategic Alliance Simulation, discuss EITHER:
(^ A) How can organizations use their communication networks toexchange information about other orgs’ resources, their interestsin forming a collaborative project, and their behavior in previousstrategic alliances? How could information acquired through suchnetworks help to improve organizational performance? OR
(B) How might interlocking directorates among large corporations,at the national and transnational levels, create a cohesivecapitalist class? In what ways could organizations belonging tosuch interlocking board networks obtain competitive advantages?
DUE in class Thursday, November 1
PAPER SPECS: Maximum word limit = 500, typed double-spacedwith one-inch margins, 12-point Times Roman font. Include yourname and student ID, Assignment #, and “Word Count = 000”
