LESSON #6 – 21ST OF SEPTEMBER
TOPIC #3: ZOOMING INTO INTER-ORGANIZATIONAL NETWORKS
‘If you think you can do it alone in today’s global economy, you are highly mistaken’, Jack
Welch (General Electric, CEO)
Learning outcome: be able to identify and differentiate types of relations and inter-
organizational networks
Assigned reading: walking a tightrope: creating value through interorganizational
relationships, chapter 8, ‘where do interorganizations come from?’, ‘the strength of weak
ties’, ‘selfregulation in sustainable finance’
Types of inter-organizational relations (IOR)
Consortia:
o Group of organizations that have a similar need and band together to create a
new entity to satisfy that need for all of them
o Often grouping of firms oriented towards problem solving and technology
development
Formed for R&D purposes. They come together in order to make the
research less expensive and affordable. The idea is that the firms that
belong to this network have a similar need and to solve this problem,
they form a new entity that will fulfill the needs they all have
They are very common in areas where technology is developed
(because technology has high risk of failure) and among new entrance
(because the new firms don’t have the capability, the expertise or the
funds to create new technology).
Not-for profit organization to enhance the competitiveness of the
financial services industry
Banks, financial service providers, research laboratories, universities
and governmental agencies
R&D consortium of cable television system operators in North
America, South America, and the Caribbean
It is a two-mode network, and on the bottom, it is a one-mode
network
o They are often funded by government organization or they involved the
government that sanctions them
, o In the same consortia, you get firms you can cooperate with and others you
are competing with. They have a formal government structure in order to
decrease the risk of stealing (considering competitors are working together
during the duration of the consortia).
o Ex – Airbus: its funding was heavily thanked to the European Union
o The effectiveness of consortia hasn’t been studied a lot. It isn’t clear evidence
yet
Advantages + Disadvantages -
If you can’t do it alone, you can There can be a loss of interest
lay on your peers when being part of the consortia.
You can share risks, costs, This happens when you don’t have
expertise and knowledge a very strong need to be in this
Lobbying and the dissemination consortium. Members will end up
of trade information leaving the consortium
Management problems
Difficult to agree on the type of
services to be provided
It can lead to antitrust regulations
Interlocks:
o They are very popular: “the most widely used environmental management
strategy”
o They happen when directors of organizations set the same board and
directors, so that organizations share directors
o The Clayton Act of 1912 prohibits direct interlocks between competitors
o
o There are 2 types of interlocks:
Direct interlock:
Ex - board of directors of the reserve bank of New York: 3 of
the 9 directors are bankers. If the Fed who is regulating banks
has directors that are also bankers, it is a bit strange. These
interlocks happen when you have a bank and a reserve bank
where the same person sits in both of the banks. A tie between
the two organizations happens. This helps firms alleviate their
needs for resource
When at the same time, a director sits in both companies, it
forms a direct interlock
, Indirect interlock:
We have a bank, a firm and a reserve bank. Because the bank
and the firm share director 3 and the firm and the reserve bank
share director 7, it means that the bank and the reserve bank
are indirectly connected
It is legal, but some countries try to prevent as many interlocks as
possible
Research has shown that interlocks could be both good and bad
Advantages + Disadvantages -
Information is shared: Busyness: there is a problem of
o When there is a gap in corporate governance because you
knowledge, directors that are want the director to monitor and to
sitting in both boards can do advice, which is difficult in terms
help of timetable
o The person you bring in your Collusion and anti-competitive
board has social capital behavior
You can have a highly o You can end up with preference
experienced director in your o The banks that had a connection
board so you can learn a lot from with the reserve bank received
him/her more demand for loans than
Co-optation other banks
Informational advantage o Lead to preference treatment,
which is not the fairest approach
Too much interdependence: During
the financial crisis, banks who had
directors who worked in the Fed
(government) bailed out money
more easily than other banks
Reputation loss due to questions
about legality or ethics of the
interlock
Trade associations:
o It is classified as non-profit organizations formed by firms in the same
industries. They come together in purpose of collecting and disseminating
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