OTD Chapter 3 Flashcards
Organizational environment
Set of forces surrounding an organization that have the potential to affect the way it operates and its access to scarce resources.
Organizational domain
The particular range of goods and services that an organization produces and the customers and other stakeholders it serves.
What is one main way in which an organization can enlarge and protect its domain?
By expanding internationally. Global expansion allows an organization to seek new opportunities and take advantage of its core competencies to create value for its stakeholders.
Specific environment
The forces from outside stakeholder groups that directly affect an organization’s ability to secure resources.
The forces are: customers, distributors, unions, competitors, suppliers, government.
General environment
The forces that shape the specific environment and affect the ability of all organization in a particular environment to obtain resources.
The forces are: demographic and cultural, international, political, technological, economic, and environmental.
Environmental complexity
The strength, number, and interconnectedness of the specific and general forces that an organization has to manage.
Environmental dynamism
The degree to which forces in the specific and general environment change quickly over time and thus contribute to the uncertainty an organization faces.
Environmental richness
The amount of resources available to support an organization’s domain.
Resource dependency theory
A theory that argues that the goal of an organization is to minimise its dependency on other organizations for the supply of scarce resources in its environment, and to find ways of influencing them to make resources available.
Two basic types of interdependencies
- Symbiotic interdependencies
2. Competitive interdependencies
Symbiotic interdependencies
Interdependencies that exist between an organization and its suppliers and distributors.
Competitive interdependencies
Interdependencies that exist among organizations that compete for scarce inputs and outputs.
General advantage inter-organizational linkage
Reducing resource dependency
General disadvantage inter-organizational linkage
Loss in autonomy or freedom of choice.
Formal linkage
Both the direct coordination and the likelihood of coordination are based on explicit written agreement or one common ownership between organizations.
Informal linkage
Rather indirect or loose method of coordination with a higher likelihood that the coordination is based on implicit or unspoken agreement.
Strategies managing symbiotic resource interdependencies
Joint ventures
Long-term contracts
Minority ownership (keiretsu)
Networks
Minority ownership
Makes organizations extremely interdependent and that interdependence forges strong cooperative bonds.
Keiretsu
A group of organizations, each of which owns shares in other organisation in the group, that work together to further the group’s interests.
Network
A cluster of different organizations whose actions are coordinated by contracts and agreements rather than through af formal hierarchy of authority.
Joint venture
A strategic alliance among two or more organizations that agree to jointly establish and share ownership of a new business.
E.g., Microsoft and NBC Universal creating MSNBC.
Strategies for managing competitive resource interdependencies
Collusion and cartels
Third-party linkage mechanisms
Strategic alliances
Merger and takeover
Collusion
A secret agreement among competitors to share information for a deceitful or illegal purpose.
Cartel
An association of firms that explicitly agree to coordinate activities.
Third-party linkage mechanism
A regulation body, that allows organizations to share information and regulate the way they compete.
Strategic alliance
An agreement that commits two or more companies to share their resources to develop a new joint business opportunity.
Merger and takeover
A scenario where two firms of the same size join and become one. Both original firms cease to exist.
Transaction costs
The costs of negotiating, monitoring, and governing exchanges between people.
Transaction-cost theory
A theory that states that the goal of an organization is to minimize the costs of exchanging resources in the environment and the costs of managing exchanges within the organization.
Sources of transaction costs
- Environmental uncertainty - bounded rationality
- Opportunism - small numbers
- Risk - specific assets
Environmental uncertainty & bounded rationality
Limited ability to understand the external environment.
Opportunism & small numbers
When an organization is dependent on one supplier or a small number of trading partners, the potential for opportunism is great. The organization has no choice but to transact business with the supplier. The supplier, knowing this, might choose to supply inferior inputs reduce costs and increase profits.
Risk & specific assets
An organization’s decision to invest money to develop specific assets for a relationship with another organization involves a high level of risk.
Specific assets
Investments in skills, machinery, knowledge, and information that create value in one particular exchange relationship but have no value in any other exchange relationship.
Transactions costs (costs of negotiating, monitoring, and governing exchanges between people) are low when:
- Organizations are exchanging nonspecific goods and services.
- Uncertainty is low
- There are many possible exchange partners.
internal transaction costs
= Bureaucratic costs.
Three linkage mechanisms that help organizations avoid bureaucratic (internal transaction) costs while minimising transaction costs are:
- Keiretsu
- Franchising
- Outsourcing
Franchising
A franchise is a business authorised to sell a company’s products in a certain area.
Outsourcing
The process of moving a value creation activity that was performed inside an organization to the outside where it is done by another company.
Keiretsu
Mechanism for achieving the benefits of a formal linkage mechanism without incurring its costs.
E.g., Toyota having a minority stake in its suppliers’ companies gives them a substantial control over the exchange relationship and allows it to avoid problems of opportunism and uncertainty.
