Lektion 8 - Inter-organizational relationships Flashcards
Describe what is meant by inter-organizational relationships
- Coordination between independent organizations with no formal hierarchical authority in place
- Cooperation with important customers and suppliers
- Requires re-thinking of organizational architecture
- Different from traditional internal MCS
- Structural arrangement of formal cooperation
- Increased in popularity recent decades
(!) Describe the main drivers for inter-organizational relationships
Globalization:
General:
- Increased opportunities to emerge new businesses
- Larger markets with more fierce competition
- Faster transformation of existing customer structures
Advantages:
- Fast, efficient customer-access for product developing
- Close long-term inter-organizational relationships with key customers as important tool for success (lead users)
______________
Rapid technological transformation and increased technical complexity of products and services:
- Difficult maintaining of in-house expertise in every potentially relevant technical area (Outsourcing)
Advantages for outsourcing:
- Lower risks
- Lower costs
- Shortening lead times
- Acces to know-how
- Focus on core competencies
- Increase speed of market entry
Disadvantages for outsourcing:
- Require close inter-organizational relationships with supplier for them to share confidential information
- Cooperation less succesful if not smoothly functioning
(!) Describe the different forms of inter-organizational relationships
Technology licensing:
- Exploiting knowhow by paying fee or royalty on sales
Advantages:
- Rapid access to technology
- Reduces development costs
- Speeds up product development times
- Faster market entry
Disadvantages:
- Loss of control over operational issues
- Pricing
- Product quality
_____________
Strategic alliances:
- Co-developing new technology, product or service with specified goals & to predetermined timetable
- Long-term inter-organizational relationship with no ultimate individual decision making authority
- Aims to improve competitive position and performance through ressource sharing
______________
Joint ventures:
- New organisation with parent companies as owners
- Shared ownership and control
- More formal than strategic alliances
- Between buyer and supplier or even competitor
- Authority structure derived from combined ressources
(!) Describe how to adapt throughput controls to improve inter-organizational relationships
Changing throughput controls:
Traditionally:
- Powerful company squeezing smaller ones
- Working capital management from single point of view
Inter-organizational:
- Powerful company must improve internal instead of squeezing smaller customers or suppliers
(!) Describe how to adapt output controls to improve inter-organizational relationships
Overlapping responsibilities:
- Measure IOR-performance to ensure employees focus
________________
Target costing:
- Estimated sell price - Desired profit = Target cost
- Costs making enough profit to satisfy shareholders
- Should ensure unprofitable product never launch
- Based on assumptions of customers willingness to pay
Traditionally:
- Focused on internal activities
- Alternative solution if current costs is not target costs
Inter-organizational perspective:
- Involve suppliers and customers in process
- Requires both buyers and sellers design team
- Insight in trade-off between costs & expected value
- Potential tool to reduce overall costs
- Potential important inputs in future product development
Approaches:
Functionality-price-quality trade-offs:
- Used when resolving minor cost overrun problems
- Limited interaction between design engineers sufficient
- Reaches target level by relaxing functionality or quality
- 0-5% cost reduction
Inter-organizational cost investigations:
- Used when more significant product changes is required
- More intense interaction between design engineers
- Various redesigns to make product more cost-efficient
- 5-10% cost reduction
Concurrent cost management:
- Used when fundamental changes are needed
- Design teams meet frequently to discuss changes
- Supplier involved early in design process
- 10-15% cost reduction
_____________
Rank-based rewards:
- Ranking suppliers into categories: A, B C, D
- Awards better assignments to supplier with highest rank
(!) Describe how to adapt throughput and output controls to improve inter-organizational relationships
Value flow charts:
- Network picture of interconnected IOR w. TP controls
- Helps buyer understand costs for IOR (network effects)
- Potential to combine relationships with similar requirement to benefit from single investment/knowledge
- TP & output controls must account for network effects
- Focus on important interconnections due to complexity
Potential shown information:
- Name of key supplier or customer
- Location of key supplier or customer
- Connection between suppliers
- Flow of material
- Suppliers added costs
_______________
Profitability analysis of customer relationships:
- Output controls accounting for long-term investments and indirect benefits
- Customer relationship impose specific demand on organizations customer profitability evaluation
- IOR motivated in terms of revenue generated indirectly in and through other relationships
- Customer involved in joint product development can appear highly unprofitable without network effects
- Extend beyond annual time period used in accounting
- Focus on few key customers
(!) Describe how to use input controls in joint development of inter-organizational management control practices
Trust:
General:
- Trust among coworkers influence behavior in IOR
- The expectation of predictable & acceptable behavior
- Result of previous experience
- Develops gradually through learning and adapting
Advantages:
- Easier agreement on measures
- Improves sharing of information
- Easier to have common development projects
- Easier to find acceptable inter-organizational output and throughput controls
Ways to gain trust
- Regular meetings
- Joints means to resolving disputes
- Sharing of accounting information
- Selection of ‘’partner’’ (Past experience or match)
- Dedication to tasks
- Creation of shared meaning and vision
- Initiate activities with the agreed task in mind
- Developing personal relationships between key people
(!) Describe how to use throughput controls in joint development of inter-organizational management control practices
General:
- How to act
- How to evaluate whether specification was followed
- Regular meetings for development and discussion
- Possible alliance board: Formalized forum with top managers representing organizations deciding rules and routines
Common throughput controls:
- Policy documents: Acceptable behavior
- Procedures: Roles of different actors in relationship
- Formal documents: Agreement and methods
Supply chain management:
- Integration of key business processes from end user
- Continuous information, planning & control of operations critical
- Value chain analysis: Process as strategically segments
Describe the value chain analysis
General
- Inter-organizational throughput control practice
- Analyses, coordinates, and optimizes linkage between interdependent activities in value chain
- Can contribute to sustainable competitive advantage
- From raw material to end product
- Shows cost behavior and sources of differentiation
- Different chain parts is run by different organizations
- Break down proces to strategically relevant segments
Elements
- Decomposing into strategically relevant activities
- Identifying cost drivers for each activity
- Use information to control cost drivers better or reconfigure the value chain
Inter-organizational perspective:
- Analysis performed jointly in collaboration
- Need for sharing cost and performance information
- Integrates financial data from multiple organizations
- More precise since actual numbers
- Requires trust
(!) Describe how to use output controls in joint development of inter-organizational management control practices
General
- Handling appropriation concerns
- Feeling of having received a fair share of benefits
- Jointly decided goals and output controls of IOR
Inter-organizational performance measures:
- Sometimes done by third party
- Facilitate coordination & guides direction for goals
- Often mix of financial & non-financial measures
- Joint reward system: Details how rewards are divided
Open-book accounting:
- Disclosing previously financial and nonfinancial data kept within organization
- Assist efficient and effective co-operation
- Increase transparency and informationflow
- Need of trust to share sensitive data
- Risk of misuse especially for suppliers
Relate this topic to the case J-L. Apparel Limited
General
- Huge rivalry and competition
- Pressure to reduce cost: Wage cuts so working overtime
- Subcontracts to sweatshops not wanted by brands
- Higher focus on ethical sourcing
- Different auditing and ranking
- Not feeling like sharing records and wages
Potential network effects:
- Potentially only only auditing system
- Tool for finding network effects: Value chain
Control practices to improve compliance:
- Input: Training and development programs
- Throughput: Compliance policies
- Output: Performance measuring compliance
Reward-system to motivate compliance:
- Joint reward system
