The Negotiated Environment: Structures of Interorganizational Action

The most direct method for controlling dependence is to control the source of that dependence. One is not always in a position to achieve control over dependence through acquisition and ownership, however. Mergers require resources and may be proscribed in various circumstances. Courts can not merge with police, nor can district attorneys directly merge with either. Yet, from the point of view of each organization, being able to control the others would facilitate its own activities. If police could control prosecution and conviction, it would certainly ease their task of arrest; if prosecutors could control police, it would ease their function. Just because organizations can not merge with each other does not mean that mutual interdependence can not be coordinated. There are many informal mechanisms and semiformal interorganizational linkages that can be employed to coordinate the respective interests of various social actors.

Social coordination of interdependent actors is possible as a means for managing mutual interdependence. Behavior, in this instance, is not determined by hierarchical mandate hut by agreements to behave in certain ways. Some of these agreements may be tacit, taking on the characteristics of social norms. Others may be more or less explicit. The bases for coordinating interorganizational behavior are so numerous and varied that they appear to be a natural part of organizational activity. It is expected that prior to negotiating a large contract, a salesman might take a customer to lunch, during which they might discuss the order and exchange information about the industry in general. It might be less expected that the two individuals would agree to purchase each other’s products and not to sell or buy from each other’s competitors. Each interaction, though varying in legality, represents an attempt to stabilize the transactions of organizations through some , form of interfirm linkage. We call this the negotiated environment ( Cyert and March, 1963) of organizations. We argue that the development of coordination among organizations derives from the same requirements for controlling interdependence that leads to merger and growthTwhen situations of exchange and competition are uncertain and problematic, organizations attempt to establish linkages with elements in their environment and use these linkages to access resources, to stabilize outcomes, and to avert environmental control. This chapter will present evidence indicating that coordination between organizations, like mergers, follows patterns of interdependence.

Organizations coordinate in many ways—cooptation, trade associations, cartels, reciprocal trade agreements, coordinating councils,, advisory boards, boards of directors, joint ventures, and social norms. Each represents a way of sharing power and a social agreement which stabilizes and coordinates mutual interdependence. Such strategies are i much more common than total absorption, as in merger, and are particularly useful when coordination is needed only occasionally. Organizations that need occasional access to the capital markets do not need to own or control financial institutions. Rather, what they need are assurances of support and capital when it is required. In other circumstances, coordination is achieved more readily when accomplished through a central coordinating organization. If there are manÿ-, small competitors, merger, or acquisition, to substantially concentrate the industry is not feasible. Under such conditions, the development of strong business associations, such as the various farmer organizations or professional associations, is more likely.

Coordination has the advantage of being more flexible than managing dependence through ownership. Relationships established through communication and consensus can be established, renegotiated, and reestablished with more ease than the integration of organizations by merger can be altered. The disadvantage of these less complete absorptions of interdependence is the less than absolute control it provides over the other organizations. Interdependence is a situation in which another has the discretion to take actions which affect the focal organizations interests. For the organizations seeking greater autonomy, the critical task is how to reduce the other’s duscretion and simultaneously align it with the focal organization’s own interests. The problem is how to coordinate the other’s actions so that they are compatible with what the focal organization wants. Ownership solves the problem directly compliance comes through the authority established by owning the other organization. Coordination through inter- firm linkages depends on voluntary behavior; significant discretion remains with external organizations who may withdraw from the coordinated interaction.

Linkages to other organizations provide four primary benefits to organizations in their activity of managing environmental interdependence. First, a linkage to another organization provides information about the activities of that organization which may impinge on or affect the focal organization. Thus, interlocking directors among competitors may provide each with information about the other’s costs and pricing and market strategy plans. Second, a linkage provides a channel for communicating information to another’ organization on which the focal organizationjiepends. A banker sitting on the board of the local hospital is easilyinformed about the hospital’s need for funds. Third, a linkage and the exposure it provides is an important first step in obtaining commitments of support from important elements of the environment. The board member, exposed to the problems and Viewpoints of the focal organization, identified with the organization because of his visible board membership, naturally becomes committed to the perspective and needs of the focal organization. The fourth result of interorganizational linkage is that it has a certain value for legitimating the focal organization. Prestigious or legitimate persons or organizations represented on the focal organization’s board provide confirmation to the rest of the world of the value and worth of the organization.

Linkages help stabilize the organization’s exchanges with its environment and reduce uncertainty. Through negotiation and the arrangement of agreements -with others, uncertainty is reduced directly. It is frequently in the interests of all parties to a relationship to have some degree of assurance and predictability regarding what they can expect from one another. Part of the interaction between individuals serves the purpose of maintaining the relationships and exchanging information about each other and their activities. Thus, the polite banter between a salesperson and a customer is not, strictly speaking, part of the business relationship, but it is important for maintaining the social bond between them, so that each knows he or she can rely on the other. The more each becomes enmeshed in the social networks of the other, such that there are overlaps in friendship networks and been argued that one of the reasons for the high rate of divorce in industrial societies is that individuals are so mobile they are no longer enmeshed in the social networks of their families and friends. No longer bound together by the linkages among families and friends, a married couple are committed only by their own interpersonal linkage. At one time, marriage represented political alliances between families. The bond that linked the two individuals was not left to the chance of attributed affection and compatibility, but was the result of a public commitment enforced by the network of friends and families with a stake in the relationship and the alliance it created.

Interpersonal linkages play a psychological role in reducing uncertainty. People tend to prefer conducting their business with people familiar to them. Granovetter (1974) has illustrated this effect in his study of the process of getting a job. He found that a higher proportion of the higher paying jobs were obtained through personal contacts. He argued that the use of relatively short networks for recruitment provided advantages to the recruiting organization. The reliance on personal recommendations would give the person doing the hiring more confidence in the veracity of the recommendations and more knowledge about the person being recommended, since he would at least be somewhat familiar with the person doing the recommending. Festinger (1954) was one of the first social psychologists to systematically pursue the idea that the very process of attempting to make the right decision leads people naturally to seek out other individuals to determine what is the best thing to do. Under conditions of uncertainty, particularly, the use of social networks in decision making will be more pronounced. In Granovetter s study, it appeared that there was less tendency for technical jobs to be found through contacts than for managerial jobs. One might presume that technical skills are more readily assessable and that management talent is a more uncertain quantity to evaluate.

The tendency for organizations to develop and establish linkages with the environment, to associate with interdependent others, and to negotiate and standardize relationships, itself stems from the conditions of the environment and the situation of interdependence Confronting the organization. When interdependence is problematic because it can lead to uncertain or unfavorable outcomes, the need to coordinate through social mechanisms is greatest, and this is particularly true when alternative ways of coping with the interdependence are not available. Linkages to the environment are channels of com-munication, and linkages arise when communication is most necessary between interdependent others. Linkages also serve as channels for v persuasion and negotiation, and in these ways also stabilize interde-pendent relationships. By exchanging information about each other’s activities, the organizations are in a position to plan more predictably. By obtaining commitments from each other, each organization develops certainty about the future course of the exchange.

Source: Pfeffer Jeffrey, Salancik Gerald (2003), The External Control of Organizations: A Resource Dependence Perspective, Stanford Business Books; 1st edition

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