TJTS E50 Global Networked Business Models 2008TJTS E50 – Global Networked Business Models 2008 L1: Systems Thinking Jukka Heikkilä [email protected]

TJTS E50 –Global Networked Business

Models 2008L1: Systems Thinking

Jukka Heikkilä[email protected]

2

Systems

• Reductionism vs. holism• Holism of Aristoteles: "The whole is more than

the sum of its parts".• Origins in Kant: Mechanisms vs. organisms vs.

humans’ autonomous ethical choice– Duality of the freedom of choice between

systems and committing to a controlled system solution

3

Systems Thinking(my simplified view)

• Bogdanov – “Tektology: Universal Organization Science”(1912-1917)

• von Bertalanffy – GST (1937)• Churchman (1963)• Ackoff & Emery (1972, purposeful systems)• Checkland – SSM (1981)• Checkland and Scholes (1990)• M.E. Jackson – CST (2000)

4

C. West Churchman’s work

• “Churchman many writings are a lifelong struggle against the prevailing methodological and epistemological tendencies in the applied disciplines, and their ever-growing specialization and fragmentation in spite of the common lip service paid to the ideas of interdisciplinarity and comprehensiveness. Their inherent positivism, reductionism, and incrementalism is according to him merely functionalistic and instrumental understanding of rationality that leaves no room for ethical considerations. And perhaps worst, the uncritical stance of most disciplines with respect to these tendencies and their repercussions on the social practice that they claim to improve.” (Ulrich, 1999, c.f. Wikipedia)

• OR, Systems Approach, consulting, conflict resolution in various fields

5

Ackoff & Emery (1972)

• Human systems are purposeful systems whose members are also purposeful individuals who intentionally and collectively formulate objectives and are parts of larger purposeful systems. – Participation

• A purposeful, ideal-seeking system/entity: can choose another objective that more closely approximates its ideal.

• Not all purposeful systems/entities seek ideals.

• Machine Age vs. Systems Age – Machine Age = reductionism and simple cause-effect– Systems Age = ‘expansionism’ and producer-product

-systems

6

Complex and ‘Soft’ systems

• Complex systems are irreducible• Complex systems possess emergent properties• Complex systems are open systems that self-

organise to reduce entropy

• Soft Systems are in constant interplay with their environment – Perceived real problems– Divergent views about the definition of the

problem– Systemic inquiry to solve those problems

7

Seven-stage model of the Soft Systems Methodology (SSM)

(Checkland & Scholes, 1990; Reijonen, 2000)

Problem situation considered problematic

Problem situation expressed

Root definitions of relevant purposeful

activity systems

Conceptual models of the systems (holons)

named in the root definitions

Systems Thinking about Real World

Real World

Action to improve the problem

situation Changes: systemically desirable,

culturally feasible

Comparison of models and real

world

1

2

3 4

5

67

Software project planning

Domain of software development

Domain of IS use

8

SSMin

action(Checkland & Scholes, 1990)

9

Stakeholders & RootDefinitions (Churchman, 1968;

Checkland, 1985)

• CATWOE grasps the context and process actors– Consumers– Actors– Transformation process– Weltanschauung– Owners– Environment

10

SSM is

• A process for a solution, not the solution as such

• Constructivistic• Pragmatic• Intersubjective & participatory

– Process of creating models of interpretations based on different worldviews

– Making models subject to reflection and debate

• Action Research– Researcher is part of the solution (process)

11

Reasoning in Systems Theory

• Dynamics• Feed-back• Feed-forward• Association rather than causal explanation• Interaction in higher order

• Abductive reasoning– See also induction, deduction

12

Critical Systems Theory (Jackson, 2007)

• Critical and social awareness:– different paradigms of systems thinking– different social contexts

• Boundaries drawn in different ways according to different worldviews

• Pluralism• Creativity, systems based methodology,

implementation.

13

Summary (Jackson, 2007)

14

Systemic view on an organisation

Res

&

developm

Modularization

Strategy

Sourcing

Prod

plans

PDM

Production

15

Make!= DIY

Persuasion

Delivery

Commitments

Finance

Supplier

Customer

Res

&

Developm

Modularization

Strategy

Sourcing

Prod. planning

PDM

Production


Models 2008 L2: Typologies of production systems, topologoies of networkedbusiness ecosystems


17

Production typologies

• Make-to-Stock (MTS)• Make-to-Order (MTO)• Assembly-to-Order (ATO)• Engineer-to-Order (ETO)• Hybrid• Effects companies needs for

– Making material acquisitions (Scarcity)– Production schedules– Overall strategic planning for the individual company

as well as for the whole value net• As a result, the typologies influence the composition of a

network

18

Make-to-Stock(Kankaanpää, 1999)

• Standard goods produced prior to customer order

• Production amounts based on forecasts– Demand histories

• Finished goods stored in warehouses until actual demand arises

• Goods shipped to retailers or directly sold to end-consumers

• E.g. a factory producing standard goods.

19

Make-to-Order(Kankaanpää, 1999)

• Similar to MTS-typology• Produces standard goods based on forecasts

– BUT, when customer order is received the production method changes

• Instead of producing goods for the inventory (warehouse), the produced goods under the MTO-typology are (in a way) “sold” by the time they are produced

20

Assembly-to-Order(Kankaanpää, 1999)

• Goods assembled from standard assemblies and semi-finished components based on customer specifications

• Combines the different production typologies • Produces semi-finished standard components

– Based on the forecast– Stored in a warehouse

• Customer order converts the production to the final assembly of the product

• E.g. An automobile assembly plant

21

Engineer-to-Order(Kankaanpää, 1999)

• Customer order driven product design• Final product is not fully specified at the

moment an actual customer order is accepted• Order triggers the engineering tasks that define

the final specifications of the product• The customer orders mould the process all the

way until the actual production

22

Customer Order DecouplingPoint (CODP) 1/2

• Defines which part of the SC is customer orderdriven– Identifies investments made independently of

customer orders – Beyond CODP no anonymous stock exists

23

Customer Order DecouplingPoint 2/2

(c.f. Kankaanpää, 1999)

24

Production typologies and value chain vs. network

• Combining a value chain with varyingproduction typologies– Forecasts– Processes– Inventories

• Scarcity

– Changes in production• Is it a network or a value chain?

25

Interconnected business

• Exchange of information between partners, subcontractors, even competitors– Pooled resources

• Breeding environment– Outsourced services, universities, science parks,

financiers, etc.

26

Defining a value net (orvalue creating network)

c.f. Bovet & Martha, 2000

• One size fits all• Arm’s length and sequential

• Rigid, inflexible• Slow, static• Analog

• Customer-aligned• Collaborative and systematic

• Agile, scalable• Fast-flow• Digital

Value netSuppliers

Company

Customers

’Traditional’ supply chain

Demand … Manufacturing… Warehousing… Customer forecasting

27

Drivers of networked business(Kumar & Van Dissel, 1996)

• Environmental forces– Globalization– Environmental turbulence

• The support role of IT in reducing transaction costs and transaction risks

• Enabling role of IT in making the collaboration feasible• The motives of the co-operating parties dealing with

issues such as:– Resource pooling– Risk sharing– Utilizing relative advantages– Reducing supply-chain uncertainty– Increasing resource utilization.

28

e-Business shapingorganizations

29

The Game of Business (Nalebuff & Brandenburger, 1996)

Competitors

Suppliers

Complementors

Customers

Company

30


Competitors

Suppliers

Complementors

Customers

Company

A player is your competitor if customers value your product less when they have the other player’s product than when they have your product alone

31


Competitors

Suppliers

Complementors

Customers

Company

Traditionally, the other companies in your industry- those companies that make similar products to yours in a manufacturing or engineering sense

Example:Coca cola vs. Pepsi

As people think more in solving their customer’s problems, the industry perspective becomes irrelevant.

32


Competitors

Suppliers

Complementors

Customers

Company

Intel and Air France may end up as competitors as videoconferencing takes off and becomes a substitute for business trips

Paper producers and computer industry can end up as competitors as both offer tools for graphical and textual presentation

What else might my customers buy that would make my product less valuable to them?

How else might customers get their needs satisfied?

33


Competitors

Suppliers

Complementors

Customers

CompanyA player is your complementor if customers value your product more when they have the other player’s product than when they have your product alone

34


Competitors

Suppliers

Complementors

Customers

Company

Product & spare parts, maintenance

What else might my customers buy that would make my product more valuable to them?

Hot dogs & mustard

Computing power & sophisticated software

Digital cameras & SoftwarePrintersSpecialty papers

35

The Game of Business:Co-opetition (Nalebuff & Brandenburger, 1996)

Competitors

Suppliers

Complementors

Customers

Company

Players often occupy more than one role

-> try to co-operate and compete at the same time (Co-opetition)

Clothing shops are gathered together in a mall

Museums -Compete for paintings etc.-Compete for customers-Co-operate in weekend passes etc.

36

The Game of Business:Co-opetition (Nalebuff & Brandenburger, 1996)

Competitors

Suppliers

Complementors

Customers

Company

With whom should With whom should we cowe co--operate operate with?with?

37

Chain

Actor A Actor B Actor C Actor D

• Each link connects exactly to one other link

38

Tree

• Each link connects exactly to one other linkActor D

Actor CActor F

Actor GActor B

Actor E

Actor A

39

Network

• Nodes can have several parents

Actor B

Actor A

Actor C

40

Definition of business network

• The network of – connected and interdependent

organisations – mutually and cooperatively working

together – To control, manage, and improve – the flow of materials and information

from suppliers to end-users. (Christopher, 1998)

41

Why interest in Networks?

• Individual organisations are already trimmed to be ‘lean-and-mean’,

• Already efficient Supply Chains• improvements easier to achieve in network

relations– Instead of efficiency also agility, adaptiveness

and alignment of goals needed

42

What is Smart business network?(Vervest, Preiss, van Heck & Pau, 2005):

• A network of participating businesses – With compatible

goals,– Interacting in novel

ways,– Perceived by each

participant as increasing its own value,

– Sustainable over time as a network.

43

Smart Business Network?

Dynamic, chancing pool of local/case-dependentsubcontractors

Subcontractors, static

Network of partners, static

Customer

Dynamic network: Companies ready to be pulled together for a given run and then disassembled to become part of another temporary alignment (Miles & Snow, 1992, pp. 66–67).

Static network: tight relationships with a limited set of actors that also serve organizations outside the network.Business partners carefully selected and tied with contracts


Models 2008 L3: When firms, when markets? Economics of organizing


45

Division of labour

– Adam Smith (1776)• pin factory is a famous example showing

how division of labour increases output volume.

AN INQUIRY INTO THE NATURE AND CAUSES OF THEWEALTH OF NATIONS;BY ADAM SMITH,

available e.g. fromhttp://www.adamsmith.org/smith/won-intro.htm

http://www.adamsmith.org/smith/won-intro.htm

46

Coordination

“Every organized human activity gives rise to two fundamental and opposing requirements:

1. the division of labor into various tasks to be performed and

2. the coordination of these tasks to accomplish the activity”

(Mintzberg, 1983)

47

Three types of dependencies(Thompson, 1967)

• Pooled dependency– Minimal direct contact among participants

• Requires the least amount of coordination

• Sequential dependency– More direct contact among participants as working in a ’chain’

• Requires coordination

• Reciprocal dependency– Much direct contact among participants through interaction

• Requires coordination

• Complexity grows in each type of dependency

48

Pooled dependency(c.f. Kumar & Van Dissel, 1996)

• Participants share and use common resources– E.g. common transportation, mainframe

• Socio-technical risks:– Misuse of common pool (core-competencies,

knowledge robbery)– Only some participants add information to

common pool, others as ‘takers’– Infiltration of pool with incorrect information

(intentionally or unintentionally)

49

Sequential dependency(c.f. Kumar & Van Dissel, 1996)

• Participants work in series– Output of one firm as input of another firm

• Socio-technical risks:– ‘Breaking the chain’

• Participants failure affects at least the adjacent, possibly all subsequent downstream units

50

Reciprocal dependency(c.f. Kumar & Van Dissel, 1996)

• Participants feed tasks and activities back and forth among themselves– Participants receive input from and provide

output to others, often interactively• Socio-technical risks:

– Failure of one participant can have ill-effect both upstream and downstream

51

Coordination: Organisation as an information processing entity

(Galbraith J., 1977)

– Uncertainty is the difference between informationrequired and information at hand (for a task)

– Management is to provide coordinationmechanisms to handle uncertainty

• Basic mechanisms: Rules, guidelines, procedures, goals, etc.

• Growing complexity and exceptions overwhelm basicmechanisms: information must be prepared for decisionmaking

– Firms are information processing units. With the help of IT, hierarchies will be able to processinformation timely and precisely (reducinguncertainty)

52

Reduce the need forInformation processing

Hierarchy of authorityRules and ProceduresPlanning and goal setting

Creation oflateral relations

Investment ininformationsystems

Creation ofself-containedtasks

Creation of slack resources

Environmentalmanagement

Increase capacity toProcess information

Reduce the need forInformation processing

Hierarchy of authorityRules and ProceduresPlanning and goal setting

Creation oflateral relations

Investment ininformationsystems

Creation ofself-containedtasks

Creation of slack resources

Environmentalmanagement

Increase capacity toProcess information

Galbraith points out the organization must adopt at least one of the strategies when faced with greater uncertainty. If it does not consciously choose one of the five, then the first, reduced performance will happen automatically

((Galbraith J., 1977)Galbraith J., 1977)

53

”Invisible hand”

– Adam Smith (1776)

• Free market, while appearing chaotic and unrestrained, is actually guided to produce the right amount and variety of goods by a so-called "invisible hand".

54

Organisations versus Markets?

• Why are there firms? • Transaction costs

Nobel Laureate Ronald Coase: The Nature of the FirmEconomica, New Series, Vol. 4, No. 16 (Nov., 1937), pp. 386-405

55

Why Firms, Not Markets Only?

• The main differences between market and internal organization: (Williamson, p. 90)

– Markets promote high-powered incentives and restrain bureaucratic distortions more effectively than internal organization

– Markets can aggregate demands to advantage, thereby to realize economies of scale and scope

– Internal organization has access to distinctive governance instruments

♦ Firms exist, because in some situations they can economise on transaction costs better than markets!

56

Transaction Costs (Williamson, 1985; original idea in Nature of the Firm, Coase, 1937)

• Transaction costs are “costs of running the economic system” (Arrow, 1969)

• “such costs are distinguished from production costs…Transaction costs are equivalent of friction in physical systems” (Williamson, p.19)– Ex ante contracting– Ex post contract enforcement

57

Market vs. Hierarchical Coordination I/II

Hierarchical coordination

InternalAgency

Monitoring costsBonding costsResidual loss

InformationInformation processing costs- communication- documentationOpportunity costs due to poorinformation

(Gurbaxani & Whang, 1991)

58

Internal Coordination costs


59

Market vs. Hierarchical Coordination II/II

Market coordination

ExternalCoordination Costs,i.e., TransactionCosts

OperationalSearch costsTransportation costsInventory holding costsCommunications costs

Contractual Costs of writing contractsCosts of enforcing contracts


60

External coordination costs (i.e. market transaction costs)

61

Behavioral Assumptions & attributes of contracting process

(Williamson, 1985)

Boundedrationality

Opportunism Assetspecifity

Impliedcontractingprocess

0 + + Planning

+ 0 + Promise

+ + 0 Competition

+ + + Governance

62

Transaction Cost Economics (Williamson, 1985)

• Concentrates on contractual aspects of business transactions– Uncertainty– Asset Specificity (‘investment

characteristics’)1. Site specificity2. Physical asset specificity3. Human asset specificity4. Dedicated assets (a discrete investment in

generalized production capacity that would not otherwise be made)

– Frequency & Duration

63

Markets vs. Hierarchies• ∆G = ß(k)-M(k),

– i.e. cost difference between Bureaucracy and Market governance of the transaction depending on the asset specificity = k

• Assume ß(0) > M(0),ß(0) - M(0) = ß0 >0

• M’ > ß’ i.e. decreasing curve• Market more preferred

– when k is low, – because of incentive and

bureaucratic disabilities of internal organization

• Internal org more preferred– when k is high, – because market has no

effective governance mechanism to allow adaptive, sequential adjustments to disturbances

Buy Make

€

k

ß0 ∆G

kG

(Williamson, 1985)

64

Markets vs. Hierarchies• ∆C is production costs

difference between producing to one’s own requirements and buying the same item in the market

• Assume ∆C is positive throughout but will be a decreasing function of k– The production cost

penalty of using internal organization is high for standardized items, hence ∆C is large when k is low

– As good and services become close to unique, aggregation economies can no longer be realized in the market

€

k

∆G

kG

∆C

∆C

(Williamson, 1985)

65

Markets vs. Hierarchies• Aim is to optimize sum

of governance and production costs∆C + ∆G

Market has advantages in both C and G where k << k*Internal org has advantages where k >> k*

Markets realize little aggregate economy benefitsWhen k is high, markets hazardous

Only small differences for intermediate degrees of k

Mixed governance are apt rise

€

k

∆G∆C

∆C + ∆G

k*

Buy MakeMixed governance

(Williamson, 1985)

66

Efficient Governance Structures

Investment CharacteristicsNon-specific Mixed Idiosyncratic

Fre

Occasional

(e.g. std.equipment)

Marketgovernance

(e.g. custom equipment) (e.g. construction)

Trilateral governance(neoclassical contracting)

quency

Recurrent

(classicalcontracting)

(e.g. raw material)

Bilateralgovernance

(relational

(e.g. custom material)

Unifiedgovernance

contracting)(e.g. site specific transfer ofintermediate product acrosssuccessive stages)

(Williamson, 1985)

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Models 2008


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68

Move to the Market (Malone et al., 1987)

• Transaction costs, plus an additionaldimension:– Complexity of product description– ’Complexity’ in general (various sources)

• Task• Environment• Interrelatedness/Dependency/Connectedness

69

General argument favoring shift towardMarkets (Malone et al., 1987)

• Coordination unit costs reduced by IT– if nothing else is changed– markets are more favourable than before.

”the result of reducing coordination costs without changinganything else should be an increase in the proportion of economic activity coordinated by markets” p. 489

2nd argument favoring shift towardMarkets (Malone et al., 1987)

Market

HierarchyC

ompl

exity

of p

rodu

ctde

scrip

tion

rela

tive

to th

e ca

pabi

litie

sof

the

tech

nolo

gy

High

Low

Asset specificityrelative to the capabilities of the technology

Low High

71

”Move to the Middle”(Clemons, Reddi & Row, 1993)

• Earlier, presence of unwanted opportunism leadto vertical integration of companies

• From vertical integration towards cooperation– With utilization of IT

• Lower-relationship specificity• Better monitoring capabilities • Reduction in the costs of IT

• Enables companies to benefit from production economies of large specialized suppliers– The conclusion does not match with Malone et

al., (1987)– Why?

72

”Move to the Middle”(Clemons et al., 1993; Coase, 1937)

• Companies degree of outsourcing dependsupon the total cost– Total cost = sum of the production cost and the

transaction cost for producing a givencomponent

• The structure of the firm evolves to select the governance structure and degree of outsourcing that minimizes the total cost?

73

”Move to the Middle” (Clemons et al., 1993; Williamson, 1985)

• Transaction cost economies– Finding suppliers from the markets is expensive

(think of the opportunity costsopportunity costs of)• Cost of finding a reliable supplier• Contracting• Monitoring and enforcing the contract• Coordinating with the supplier

• Redefinition of Transaction costs decomposedTC = coordination cost + operations risk +

opportunism risk

74

Opportunity cost

• Trade-offs of the decisions you make • The costs of opportunity forgone, excluded

– Only the second best, xor third best, xor the fourth best…

– Important in finding hidden costs• i.e. unnoticed opportunity costs

• Also known as economic cost – It is not only money, but can be anything (e.g.

time)

• Don’t include sunk costs in calculi! – Why?

75

The Changing Characteristics of IT

• More detailed description of IT:– Decreasing average unit cost of IT

• increasing economies of scale• informational economies of scale

– Increasing information availability and processing capacity

– Increasing standardization and interconnection

76

”Move to the Middle”(Clemons et al., 1993)

• Connection of IT with transaction costs?– IT reduces coordination costs

• Reduces the unit cost of communicating and reacting to information

• OR creates excess information (e-mail)?

– IT lowers operations risk• Increased information availability and processing capacity

enable improved monitoring and incentives

– IT reduces opportunism risk• Hence, “Move to the Middle”-hypothesis:

– A greater degree of outsourcing will take place…– But the firm will rely on fewer suppliers than before…

77

IT and the Governance Structure of Outsourcing

• IT is inexpensive and scale-intensive, provides an effective monitoring capability, and is less relationship-specific→ outsourcing

• Fewer Suppliers– Organizational costs of establishing human relationships

and business processes are more significant than IT costs

– Incentives to suppliers– Increased costs and reduced benefits of search

• suppliers are evaluated on lead time, flexibility, reliability, innovation and value-added services.

• Long-Term Suppliers– Time to recoup the investment– Learning curve effects– Incentives

78

About technological determinism:

• "Technology is fully determinative of economic organization only if (1) there is a single technology that is decisively

superior to all others and (2) that technology implies a unique organization form.

Rarely, I submit, is there only a single feasible technology, and even more rarely is the choice among alternative organization forms determined by technology.", (Williamson, 1985, p. 87).

• The options for organizing increase; and there is a polarization on the market (check e.g., Gurbaxani & Whang, 1998)

79

More nuances needed• Later views on Williamson (among others)

– Criticism• on the dichotomy of market vs. hierarchy• on the dyadic, uncomplicated relationship view on

transaction, whereas in real life complex relationships– ’Firm A, … is a joint subsidiary of firms B and C,

has technical agreements with D and E, subcontracts work to F, is in marketing association with G – and so on. So complex and ramified arethese arrangements, indeed, that the skills of a genealogist rather than an economist might oftenseem appropriate for their disentaglement.” Macneil (1985, p. 496, c.f. Powell (1990) p. 329)

– Credible commitments in relation with size, focus, specialization

80

Etiology of Networks (Powell, 1990)

• Powell gave (qualitative) grounds to a number of new concepts and definitions on– ”Non-market, non-hierarchical modes of exchange

represent a particular form of collective action”(Powell, 1990, p. 322):– Co-op as a long run effective arrangement– Networks create incentives for learning and the

dissemination for learning– Open-ended quality of networks beneficial when

resources are variable and the environment uncertain– Especially feasible means of utilizing and enhancing

intangible assets– Tacit knowledge– Technological innovation

– Side-effects– Rationale: Know-how, trust, demand for speed

81

Key Features Market Hierarchy Network

Normative Basis Contracts-Property Rights

EmploymentRelationship

ComplementaryStenghts

Means of Communication

Prices Routines Relational

Methods of Conflict Resolution

Haggling-resort to courts for enforcement

Administrative fiat-Supervision

Norm of reciprocity-Reputationalconcerns

Degree of Flexibility

High Low Medium

CommitmentAmong the Parties

Low Medium to High Medium to High

Tone or Climate Precision and/orSuspicion

Formal, bureaucratic Open-ended, mutualbenefits

Actor Preferencesor Choices

Independent Dependent Interdependent

Mixing of Forms Repeat transactions(Geertz, 1978)

Contracts as hierarchicaldocuments(Stinchcombe, 1985)

Informalorganization(Dalton, 1957)

Market-like features: profit centers, transfer pricing(Eccles, 1985)

Status Hierarchies

Multiple Partners

Formal rules

82

Side-effects

• Each node/contact point can be a source of conflict– Power (remember Clemons et al.!)

• Dependency & particularism– Networks restrict access (of outsiders)

• Recurring transactions between members• Particular, compatible technologies

-> Increased dependency on the activities and decisions of the others– (remember, Kumar & van Dissel)

83

Rationale and antecedents for network forms (Powell, 1990)

• Know-how– Distinctive competencies: Intellectual capital

(=knowledge) or craft based skills in culture, science, design, programming)

• More need for metaknowledge and know-how• Fungible knowledge applicable to wide range of

activities– Object of exchange and organization

• Under what circumstances collaboration and sharedresponsibility?

– On-going, complementary activities -> sharingcritical information -> development of trust -> emergence of common values ,

– Resources & tangibles (equipment, services, patents) on the market/between organisations

84


• The demand for speed– Fast access to information, flexibility,

responsiveness• Passing information up and down within an

organisation? Acquiring information from the market? Or generating new interpretations i.e., filtered and interpreted through the reliablenetwork nodes?

– ’Thicker’ information than from the market, ’Freer’ information than within a hierarchy

– Risk & expense sharing

85


• Trust– Co-operation and solidarity, or a sense of generalized

reciprocity (vastavuoroisuus)• In this kind of long-term relationships there is little need to

formalize exchange relationships• Reputation as indications of reliability• Peer monitoring and acceptance/punishment• Quality preferred over quantity

– Northern Italy, Southern Germany, Scandinavia, Far East• Common (homogeneous) background

– Ethnic, geographic, ideological, professional• Institutional contexts

– Legal, political, economic– Skilled labor, security, salaries, external mechanisms for

job-training, relative equity, relaxed anti-trust standards, r&d policy, linkages between universities and industry…

86

Research evidence (Holland & Lockett, 1997)

Technologicaldevelopment

Economicforces

Market Complexity

Coordinationstrategy

Assetspecificity

IOS

A firm’sdecisions

Networkstructure

87

Research Evidence (Holland & Lockett, 1997)

CASE 1: Personal CommunicationsComponent suppliers

CASE 2: Fashion Stores –Fabric Suppliers

CASE 3: European Computers –IT suppliers

CASE 4: Global Money - Banks

CASE 5: Worldwide FuturesHigh

Marketcomponent %

Low

Low HighHierarchycomponent %

88

Research Evidence (based on Tsupari et al., 2001 & 2004 on manufacturing

industry in Finland)

89

Research Evidence (Holland & Lockett, 1997)

• Mixed mode hybrid structure – consisting of both markets and hierarchies– also in network form

• Case organizations in steady-state (vs. inherently transient) – conclusion is:– The hybrid structure is relatively stable– The degree will vary, the hybrid structure has

always the market element of competitionensuring change

• Economic forces• Technological development

90

Unresolved issues (Powell, 1990)

• Why cross-national variation?• How to explain the diversity of formation of

networks in industries?• Sustainability and rebuild of networks?• Can we find behavioural differences between

forms of organizing?• Simultaneous competition & collaboration?• Performance?• Complexity?• Information processing?• Future orientation?

TJTS E50 Global Networked Business Models 2008TJTS E50 – Global Networked Business Models 2008 L1: Systems Thinking Jukka Heikkilä [email protected]

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