Interorganisation Theory

2.3 Interorganisation Theory

In the 1970’s a group of researchers with interests in understanding how networks worked within a wide spectrum of organisations ranging from public administration and not for profit organisations to commercial entities, developed what is now recognised as the network approach to interorganisational relations in networks, subsequently termed Interorganisation Theory (Negandhi 1980).

To understand Interorganisation Theory, it is important to appreciate its origins in organisation theory (Aiken and Hage 1968). In the field of organisational behaviour, the

concept of interorganisation theory describing and emphasising the nature and importance of informal networks of relations in organisations is attributed to Roethlisberger and Dickson (1939). Roethlisberger and Dickenson believed that organisations and the behaviours exhibited in them were such ‘elusive phenomena’ that one could never hope for a definitive theory in the field. All one could expect from studying organizational behaviour was the benefit of a perspective or a framework that could be used like a

‘walking-stick’ to support and navigate one’s inquiry through the treacherous terrain of organizations, cited in Nohria & Eccles (1992, p.5). Nohria and Eccles suggest that a network perspective is likely to hold up well in the intellectual enquiry of organisations, adding; ‘the concept of networks and organisations has occupied a prominent place in such diverse fields as anthropology, psychology and sociology’.

Nohria and Eccles (1992) believe there are three reasons behind the increased interest in the concept of networks. Firstly, the emergence of what Best (1990) labelled the ‘new competition’ of small entrepreneurial firms seeking a competitive advantage by intra-firm collaboration. This new competition has been contrasted with the old in one important way. If the old model of organisation was the large hierarchical firm, the model of organisation that is considered characteristic of the new competition is a network of lateral and horizontal inter-linkages within and among firms. A second reason for the increased interest in networks and organisations has to do with technological developments. New information technologies have made possible an entirely new set of more disaggregated, distributed and flexible marketing, production and distribution

arrangements, as well as new ways for firms to organise their internal operations and their ties to firms with which they conduct transactions. The maturing of network analysis as an academic discipline is a third reason offered by Nohria and Eccles (1992) for the increased trend toward viewing organisations as networks. The development of interorganisational theory was championed by Harrison White (1972) and associates at Harvard, who developed a formal apparatus for thinking about and analysing social structure as networks and acting as ambassadors for the field, supported by a large number of researchers and the ensuing body of literature (Nohria and Eccles1992).

The concept of the network organisation may be placed in the context of emerging debates in organisational theory (Baker 1992). A number of organisational theories can be used to explain the emergence of the network organisation. Traditional theories of organisational management advocated that scientific principles could be applied to develop techniques to maximize the efficiency of the organisation. It was partly attempts to extend the insights of early organisation theory that led to the subsequent emergence of 'interorganisational relations'. An example of an early attempt to conceptualise the interorganisational nature of relationships is described by Van de Ven (1976). This suggests that interorganisational networks of organisations could be formed to deal with a range of short or medium term issues, such as public health matters in a civil administration.

Networks emerge as a purposeful social system aimed at coordinating a range of disparate resources to deliver essential services, such as local authority and health services. The

lessons learned from the interorganisational approach have been analysed and applied by subsequent researchers to a wide spectrum of organisational and management issues.

Measures of network effectiveness and efficiency were developed as a means to assess the derived benefit from this interorganisational cooperation. Concern with network effectiveness and comparative studies on network efficiency became increasingly popular among the network theorists. Interorganisation theory adopted social network concepts such as network centrality and resource dependency to develop its own theoretical vocabulary (Galaskiewicz 1985; Wellman and Berkowitz 1988).

Widening the scope of interorganisational theory, Aldrich and Zimmer (1986) identified dimensions for interorganisational relations (organisation sets, action sets and networks) described as leaving a lasting imprint on all branches of network inspired theory (Araujo and Easton 1996). The concern with resource flows and interdependencies between organisations, are said by a number of researchers to place organisational theory in close proximity to resource dependency theory (Pfeffer and Salancik 1974). Aldrich (1979) is concerned with resource dependency and interorganisational relations, producing strategies for coping with interorganisational interdependencies and networks of economic power. Together, these studies have left a lasting legacy for the future development of networking theory, interdependence and interorganisational relations (Uzzi 1996).

It would be easy to bypass interorganisation theory on the journey to understanding network theory development but this would be a pity. The principal researchers cited in

this section identify many of the softer networking characteristics such as interdependence and relations, which while lacking in pure social networking theory, are important to organisation theory. It is this view of ‘interdependence’ which has extended the application of the networking perspective found in organisational theory, even though they are based on nonprofit organisations and government agencies, it is relevant to different types of organisations, including commercial firms. Organisation theory is arguably influential in the development of subsequent network approaches, as it placed importance on the relationships between organisations. It is this focus on relationships in networks which is considered important to the subsequent development of the interaction or markets as networks approach, to be considered later.