5. Organisational Boundaries

Question 1

What are organisational boundaries?

Answer 1

imaginary dividers meant to distinguish a unit/company from external but nearby influences

• organise and define the business
• external influences: defines the existence of the business
• internal influences: unifies stakeholders and employees by helping them understand purpose and create common goals

Question 2

Transaction Cost Analysis

Answer 2

The optimum organisational structure achieves economic efficiency by minimising the cost of exchange –> hierarchical governance

Question 3

TCA: Governance

Answer 3

Mechanism through which a firm manages an economic exchange with another entity (control over resources or capabilities)
- control vs cost vs flexibility

Market Governance

• pure market forces
• outside the firm’s boundaries

Intermediate Governance

• contracts and alliances
• outside the firm’s boundaries

Hierarchical Governance

• creation and assimilation
• bring partners into organisational structure
• within the firm’s boundaries
• greatest degree of control, but most costly and rigid form of governance

Question 4

Factors Determining Governance Structure

Answer 4

Transaction-Specific Investments

• investment that is significantly more valuable in a particular exchange than in any alternative exchange
• ASSUMES firms have only a singular relationship with another firm
• ASSUMES absences of market forces

Threat of Opportunism

• one party takes an unfair advantage of the other
• occurs when one party in the exchange has made a significant TSI
• ASSUMES firms behave opportunistically (in reality they do not due to reputational and operational risk)

Question 5

Assumptions in Transaction Cost Analyses [SMOC]

Answer 5

1. Firms only have a singular relationship with another firm (see TSI)
2. Absence of market forces (see TSI)
3. Firms always behave opportunistically (see Threat of Opportunism)
4. Ignores that firms have capabilities, and only focuses on the costs

Question 6

Enhancing a firm’s capabilities [CCA]

Answer 6

Cooperate with firms possessing desired capabilities
- market or intermediate governance

Develop Capabilities (Create Capabilities)
- hierarchical governance

Acquire Capabilities
- hierarchical governance

Question 7

Creating Capabilities - the difficulties [CHAP]

Answer 7

Social Complexity
- organisational culture, social reputation, relationship with suppliers and clients are all complex issues which cannot be easily figured out

Historical Context

• success was due to being in the right place at the right time
• the right conditions do not exist now anymore
• e.g. Caterpillar: supplier of equipment to allied forces during WWII

Causal Ambiguity

• not clear what are the necessary actions needed to reach a desired outcome
• e.g. getting brand loyalty, building goodwill

Path Dependence

• firm needs to go through a long and difficult learning curve
• e.g. pharmaceutical and life science firms

Question 8

Acquiring Capabilities - the difficulties [V-RULL]

Answer 8

Acquisitions reduce the value of desired capabilities
- e.g. IBM ThinkPad and Lenovo: selling of company, poor reputation and response from customers

Costly to reverse

Unwanted Baggage associated with the desired capabilities

Legal Constraints
- e.g. sale of Shin Corporation to Temasek Holdings

Costly to leverage acquired capabilities throughout an acquiring firm
- integration vs assimilation

Question 9

Types of Boundaries [5 types]

Answer 9

Vertical

• organisation hierarchies
• by ranks and privilege

Horizontal

• functional divisions
• by expertise/ departments

Stakeholder
- by interest in the organisation

Demographic

• ethnicity, gender, etc
• by individual physiological characteristics

Geographic
- physical locations

Question 10

The need for Boundaries

Answer 10

• to organise ourselves
• for identity: the need for uniqueness and affiliation
• to acknowledge the existence of businesses and manage them to achieve objectives and synergy

Question 11

Boundary Spanning Leadership

• Managing Boundaries (MB)
• Forging Common Grounds (CG)
• Discovering New Frontiers (NF)

Answer 11

MB

• Buffering: to shield groups and make them secure (defines roles and responsibilities); build a core identity
• Reflection: to see both sides of a divide, understand each other and see common ground and goals

CG

• Connecting: informal relationships and trust building; creation of neutral zones to build relationship, confidence and expectations
• Mobilising: greater larger identity that is shared by all

NF

• Weaving: intergroup interdependence and reliance; interlaced yet distinct boundaries; groups see how they fit into the big picture
• Transforming: reinventing groups, reworking boundaries to create new identities and possibilities