W. W. Powell, "Neither market nor hierarchy: network forms of organization" in B. M. Staw and L. L. Cummints, eds., Research in Organizational Behavior, 12 (1990), 295-336.
Williamson argued that uncertain, frequent, and transaction-specitic investment-necessary transactions are more likely to take place in organizations. Straightforward exchanges take place in the marketplace. The inefficiences of the hierarchy are preferred to the uncertainties of the marketplace, caused by bounded rationality and opportunism.
Yet recently firms are blurring the boundary between hierarchy and market. Williamson now sees the market-hierarchy as a continium than a dichotomy. This implies that markets created organizations, which is historically untrue. Others point out that markets exist within a social structure. Many economic exchanges are now replaced with collaborations.
Market -like methods are now in firms (transfer pricing, etc.).
"Stylized models of markets, hierarchies, and networks are not perfectly descriptive of economic reality, but the enable us to make progress in understanding the extraordinary diversity of economic arrangements found in the industrial world today".
Exchanges in networks are indefinite and sequential. Sanctions are normative than legal. Firms create indebtedness and reliance over the long haul. Exchanges occur through reciprocal, preferential, mutually supportive actions. One firm is dependent on the resources of another, and it is to both's benefit to pool resources.
In networks, individual units exist only in relation to other units. Strings of reputation, friendship, interdependence, and altruism become integral parts of the relationship.l Network information is "thicker" than that gotten in hierarchies and "freer" than that obtained in the marketplace. They are useful in commodities where value is hard to measure.
Illustrative Cases of Network Forms
All involve intricate, multifaceted, durable relationships in which horizontal forms of exchange are paramount.
Craft work
Craft work is project based and often based on the "quasi-firm" . It includes the construction and publishing industries. In publishing firms they usually keep bureaucracy to a minimul and rely on the editor's network of personal relations. Film and recording industries are similar. Boundaries are ill-defined, work roles are vague and responsibilities overlapping, and where work ties both across teams and to members of other organizations.
Industrial districts often arise because there is value in the dense network of companies that one can tap.
Emilian Model
In Italy (Modena) firms are small and grouped into industrial districts with little vertical integration. There are extensive collaborative subcontracting arrangements.
Extended Trading Groups
Trust and mutual dependency result in a more rapid flow of information.
Spatially concentrated production involves cooperation of local govenment, proximity to higher education, skilled labor pool, ties to research institutes and trade associations, and cooperation among firms.
Strategic Alliances and Partnerships
Many new cooperative relationships in R&D and other areas are exploding. Cooperative arrangements allow:
* gain fast access to new technologies
* economice os scale in joint research or production
* tap into sources of know-how outside the firm
* share risks for activities beyond scope of the organization
Much technology is tacit knowledge and can't be transferred. Innovation can't be purchased.
Yet collaboration has it's risks (hidden agendas, mistrust or misattribution, inequities, opportunism
Vertical Disaggregation
Three failure plague vertical firms - inability of quick market response, resistance to process innovations, and resistance to introduce new products. Large organizations are more rule-bound and need more documentation. Job satisfaction is also lower in larger firms. The current pace of change is not advantageous to large firms.
Etiology of Network Forms
A focus on the transaction rather than the relationship is somewhat misleading. Neglecting the influence of the state in the transaction is also too narrow.
Rationale for Network Forms
Three critical componets of networks are:
1. Know-how: Networks proliferate when knowledge skills do not lend themselves to monopoly control or expropriation to the highest bidder.
2. Demand for speed: Networks are more flexible and rapid and less expensive than buying the expertise via merger.
3. Trust: With repeat trading, quality becomes more important than quantity. Networks are more prevalent when participants have a common background. Networks have skilled labor, salaries than piece-rates, external training mechanisms, equity among participants, relaxed legal system (antti-trust) and national policies that encourage collaboration.
Research Agenda