Organisational Cultures: Networks, Clusters, Alliances

Table of contents

Executive Summary

List of Abbreviations

List of Figures

List of Tables

1 Problem Definition

2 Objectives

3 Methodology

4 Networks
4.1. What is an Organisation Network?
4.2. Reasons for Organisation Networks
4.2.1. External Reasons
4.2.2. Internal Reasons
4.3. Types of Organisation Networks
4.3.1. Intra-Organisation Networks
4.3.2. Inter-Organisation Networks

5 Clusters
5.1. What is a Cluster?
5.1.1. Cluster – The Term
5.1.2. Dissociation from the Term Network
5.2. Strategic Business Clusters
5.2.1. Formation and Types of Business Clusters
5.2.2. More than an Accumulation of Alike Companies
5.2.3. Cluster Membership as Strategic Advantage
5.2.4. International Business Clusters?
5.3. Examples for Business Clusters
5.3.1. Cluster EnergieForschung.NRW
5.3.2. ACstyria Autocluster GmbH

6 Alliances
6.1. What is an Alliance?
6.2. Difference between Alliances
6.2.1. Primary Differentiation
6.2.2. Pyramid of Alliances
6.3. Integration of Alliances in Companies Strategies
6.4. Preparation of a Business Alliance
6.5. Examples for Strategic Alliances
6.5.1. Automobile Industry
6.5.2. Airlines
6.6. Future of Alliances

7 Results

8 Conclusion

9 Integral Total Management (ITM) Checklist
9.1. General Economics
9.2. Strategic Management
9.3. Financial Management
9.4. Human Resources Management
9.5. Business Law
9.6. Research Methods / Management Decision Making
9.7. Soft Skills / Leadership

10 Bibliography

Executive Summary

“The organisation network consists of different nodes and interconnections of the participating network partners. In relationship of their mutual interactions these interconnections, which transmit power, information, money or raw material, are loose or tight”, defines Thorelli in 1986 (Thorelli 1986, p. 37 ff).

By means of the mutual interactions of the organisation network one or several markets are covered. Thus, the network has to be strategically organised according to the common organisation network strategy and additional factors.

In general, the field of activities of the network members overlaps to a certain degree. In this respect especially three areas are important:

- the type and field of business
- the range of products or services
- the attracted field of customers

The less the overlapping of activities the higher is the chance for synergetic effects inside the organisation network and the better is the stability of the network connections.

External and internal reasons are important for the development of organisation networks:

Major external reasons are the progress of information technology as well as the distribution of the Internet, which lead to the development of social networks. Often these social networks are the basis for the development of organisation networks.

On the economical field, which is driven by the external reasons and impacts a fast change of market’s and customer’s demand. This fast change claims to flexible productions on international markets at last, which are additional external reasons for the development of organisation networks.

Major internal reasons for the development of organisation networks are the need for companies to meet the changing demand by a fast corporate introduction of innovations and optimised costs and quality. Unless this important goal could not be achieved by own corporate strength the company has to optimise its structure by building an intra-organisation network, join an inter-organisation network or build alliances with other companies.

After covering the local market, the single company has to go international. There are several strategies for an international approach. According to Sain an international organisation has to develop its own corporate strategy in the following way (Sain 2009, p. 23):

- Develop the core strategy. Base for sustainable strategic advantage.
- Internationalising the core strategy. Through international expansion of activities and adaptation of the core strategy.
- Globalising the international strategy. Global integration.

More improved forms of international business offer the transnational company, which becomes an Integrated Network in its optimised form.

By joining inter-organisation networks the single company becomes part of a regional network / cluster or a strategical network according to Sydow (Sydow 1992b, p. 252). The major importance of a strategical network lies in its strategical leadership by a large-scale enterprise. Consequently, the business area the network is engaged in is predominantly determined by this enterprise.

The Japanese Keiretsus are well-known examples for strategical networks.

The literal interpretation of the term cluster says in general that it is a mass of single components which are forming a whole. Schramm-Klein (2005, p. 535 f) noted that there is no standardised determination for the term cluster because of the great variety of interpretations. In economics literature that deals with the topic strategic management you will almost exclusively find the interpretation of Michael, E. Porter for the term cluster. This assignment will be also based on the definition of Porter.

Porter (1998, p. 4) defined cluster as “geographically proximate groups of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities”.

Business clusters are more than an accumulation of alike companies. Having a first view at a business cluster, you may associate the following with the members of the cluster (Schiele 2003, p. 27):

Members of a business cluster are companies that …

… are more profitable than others in their business

… all belong to the same business

… are all located in the same region

On the one hand this first view approves the definition which is basis of this part of the assignment, the definition of Michael E. Porter. On the other hand there is one new fact that has to be analysed, the association that members of clusters are more profitable or let us say more successful than others.

Demanding customers, rivalling companies, competitive suppliers and supporting infrastructure makes cluster members more competitive than others. Companies outside the cluster often realise the demand for innovation too late because they do not feel the force to develop their products and services at such an early stage as the cluster members do.

In times of globalisation the question arises: Is it possible to form an international business cluster? Over and over again you read and hear about local clusters. Being local, in a geographical proximity is also an important fact for the definition of the term cluster.

Schiele (2003, p. 72) did not find any really existing international clusters. He pointed out that geographical proximity has also a cultural dimension. Therefore international clusters are not formed.

Globalisation demands the internationalisation of cluster. That means that clusters should support their members in doing international business. Therefore, the cluster is often part of an international network.

Strategic alliances can take a variety of forms, ranging from an arm’s-length contact to a joint venture. But the core of a strategic alliance is an inter-firm co-operative relationship that enhances the effectiveness of the competitive strategies of the participating firms by the trading of mutually beneficial resources such as technologies, skills, etc.

Typical Alliances are:

- Sales Alliances
- Solution-Specific Alliances
- Geographic-Specific Alliances
- Investment Alliances
- Joint Venture Alliances

The ‘Pyramid of Alliances’ gives an even detailed view on this subject.

To make an alliance work, the whole alliance must be integrated in the company’s strategy of all participating firms.

But how to prepare an alliance? Business expert Larraine Segil suggests an easy to follow 15-step-plan to prepare a strategic business alliance.

In some industries, alliances have been the standard for a long time.

Carmakers mainly use alliances to:

- manufacture certain car parts
- combine their R & D activities
- concentrate their sales activities

Another industry were alliances are common is the airline industry. The airlines focussed mainly on strengthening and expanding their market presence through providing transport possibilities to ample destinations around the world.

At the moment there are three major airline alliances existing worldwide:

- Star Alliance (24 partner) (Star Alliance 2009)
- Sky Team (13 partner) (Sky Team 2009)
- oneworld Alliance (10 partner) (oneworld 2009)

In the future there will be some difficult global problems to tackle. These challenges can only be solved by cross border acting strategic company alliances or/and strategic alliances with or between governments.

But not only the ‘big problems’ are a challenge for firms, the competition in nearly all business sectors is getting tougher every year. To be even more competitive as the competitors, further cost reduction and new business solutions are in demand.

Therefore, the number of alliances will definitely grow further in the subsequent years.

List of Abbreviations

illustration not visible in this excerpt

List of Figures

Figure 1: Networks – here social networks (Source: Verst 2009)

Figure 2: The Integrated Network (Source: Bartlett, Ghoshal 1990, p. 119)

Figure 3: The Mitsui Keiretsu (Source: WTEC 2009)

Figure 4: Network strategies (Source: Sydow 1992a, p. 27)

Figure 5: Development of local business conglomerates (Source: Own interpretation)

Figure 6: The Determinants of National Advantage (Source: Porter 1998, p. 72)

Figure 7: Members of ACstyria (Source: ACstyria.com)

Figure 8: Pyramid of Alliances (Source: The Lared Group)

Figure 11: Airline Alliances in 1999 and 2009 (Source: Own Interpretation)

List of Tables

Table 1: Organisational characteristics (Source: Bartlett, Ghoshal 1990, p. 92)

Table 2: Regional and strategical networks (Source: Sydow 1992b, p. 252)

1 Problem Definition

There are big problems coming towards single companies nowadays. The progress of information technology and the distribution of the Internet as well as the changing demand of customers, especially for no standardised products force them to react immediately.

Their problems are:

- How can they reach the state of flexibility to meet the changing demand?
- How can they compete within a market with increasing innovations of products and decreasing product life-cycles?
- How can they acquire the necessary capital, technology and know-how to compete?
- How is it possible to optimise their corporate structures and achieve synergetic effects?

2 Objectives

The objectives of this assignment are to help the single companies out of their miserable situations and to present them interesting answers to the questions raised above. Of course these answers are already in use and approved by reality.

3 Methodology

- Reference book research
- Internet research

4 Networks

4.1. What is an Organisation Network?

Today networks become more and more omnipresent in daily life: In private life people join social networks to communicate, establish friendships, find partners etc., in business life they work with computer networks, the corporate intranet and the Internet. Thus, especially the information technology has coined the term “network” and defined it as a “logical alignment and type of interconnections between communication partners in a net, which transmits communications inside or outside a building.” (Sellien 1988, p. 570).

illustration not visible in this excerpt

Figure 1: Networks – here social networks (Source: Verst 2009)

This definition serves as a basis for business administration, where several approaches to the term organisation network exist.

Organisation Networks

Thorelli made a very good and well accepted approach in 1986. He defines, “the organisation network consists of different nodes and interconnections of the participating network partners. In relationship of their mutual interactions these interconnections, which transmit power, information, money or raw material, are loose or tight.” (Thorelli 1986, p. 37 ff).

By the means of the mutual interactions of the organisation network one or more markets are covered. Thus the network has to be strategically organised according to

- the common organisation network strategy.
- the positioning of the single companies inside the organisation network.
- the positioning of the different brands.
- the diversification.
- the market channels.
- the vertical integration, which means integration of up- and downstream manufacturing levels.
- internationalisation.

In general the field of activities of the network members overlaps to a certain degree. In this regard especially three areas are important:

- the type and field of business
- the range of products or services
- the attracted field of customers

The less the overlapping of activities the higher the chance for synergetic effects inside the organisation network is and the better the stability of the network connections are. So in fact there is a small competition between the network members, but no real resource competency. Consequently the network members keep their autonomy of decision.

4.2. Reasons for Organisation Networks

4.2.1. External Reasons

In the post-industrial society a lot of fundamental changes of the corporate environment happen, which lead to the development of the complex but flexible corporate structures of organisation networks. Alter and Hage identify five general effects, which are especially responsible for the increasing constitutions of networks (Alter, Hage 1993, p. 38 ff):

General Effects:

1. The progress of information technology and the distribution of the Internet and their diffusion into daily life have a major effect on the development of organisational networks.

By these means people become informed about nearly any information or news all over the world. This knowledge offer people new opportunities of creating new social fields and positioning inside. They want to exchange and discuss the new information of their fields of interest with new communication partners, who are interested in these fields, too. The meeting of partners with a common field of interest by the new means of communication constitutes social networks, which are the basis for organisation networks.

In these social networks people exchange information about personal or professional content. Consequently any field of interest is enlarged and intensified by any new participant.

Examples of social networks are the Internet communities of

- Facebook.de, Stayfriends.de for the personal type or
- Xing.de for the professional type.

2. Nevertheless the rapid technological development, which leads to the growth of knowledge and know-how causes a high increase of technological complexity, too, which is the second major effect for the increasing number of organisation networks. Thus the technological complexity in the production processes as well as the economical risk for the single company has to be distributed on additional partners.

3. The third effect for the development of organisation networks is the changing customers demand, especially for non-standardised products. This implies the necessity to change the corporate alignment from the efficiency output of large standardised quantities to more flexible and specialised productions.

Consequently the maintenance of large-scale effects on the one hand in combination with a flexible production which quickly reacts on the market demand on the other hand, is a very high challenge. This challenge could only be met by organisation networks.

[...]