The Global network Organization of the Future

1. The Global network Organization of the Future The Rising Governance Mechanism Between Bureaucracy and Contractual Relationships

2. Provocations • The prevailing wind of global networking organization supplanted internal hierarchical structure? • The governance structure of global e-business firm will be shaped by non-market forces as well as market forces. • The globalization will be hindered by local traditions, economies, cultures, business practices, and regulations.

3. Dees the principle of economies of scale still work in the global management? • In a dynamic global marketspace • Quickly clustering among the specialized but interdependent assts and competences toward the emerging opportunities • The network organization for new businesses as a spider’s web—constituting a value network, or a value constellation which is usually operating neither by arm’s-length market-based transaction nor internal hierarchy. • Loose coupling and cooperative competition based on the necessary level of mutual trust, respect, and shared collective outcomes expired after the task was done.

4. The death of hierarchy? • ICT pervades everywhere and deconstructs all the traditional practices? • Non-market institutions interact with the ICT assimilation • Uncertainties and complexities still exist and need managerial monitoring, coordination, and hierarchical task partition, specialization, and integration

5. Markets • Normative basis: contracting property rights • Means of communication: prices • Methods of conflict resolution: haggling—resort to courts (public orders) for enforcement • Degree of flexibility: high • Amount of commitment among parties: low • Tone or climate: precision and suspicion • Actor preferences or choices: independent • Mixing of forms: repeat transactions; contracts as hierarchical documents

6. Hierarchies • Normative basis: employment relationship • Means of communication: routines, procedures, commands • Methods of conflict resolution: administrative fiat—supervision • Degree of flexibility: law • Amount of commitment among parties: medium to high • Tone or climate: formal , bureaucratic • Actor preferences or choices: dependent • Mixing of forms: informal organization; market-like feature: profit centers, transfer pricing, tournament

7. Networking relationships • Normative basis: complementary strengths • Means of communication: relational • Methods of conflict resolution: norm of reciprocity—reputational concerns • Degree of flexibility: medium • Amount of commitment among parties: medium to high • Tone or climate: open-ended, mutual benefit • Actor preferences or choices: interdependent • Mixing of forms: status hierarchies, multiple partners; formal rules

8. Features of dynamic networking organizations • Vertical disaggregation—disaggregation for forming new aggregation/fusion among diversities • Brokers—linkage between complements • Market mechanisms—encourage inter-unit competition for partnership control • Full-disclosure information systems—instantaneous mutual verification

9. Contracting hazards of global networking business • Confronting different circumstances & atmosphere • Uncertainty • Opportunism • Bounded rationality • Information compactedness/asymmetry • Holdup problem under small number/assets specificity • Transaction cost analysis between firms/entities • Agency cost/loss arises from the responsibility delegation and accountability problem between the principal and agents

10. Non-market factors • From the perspective of institutional economics / institutionalism • Politics, culture, ideology, history, economy, regulation, social norm, IPR regime, etc. • Path dependence, lock-in effect, structural inertia, switching cost, self- or mutual-reinforcing mechanism, increasing returns (s), network effects (d) • The co-evolutionary process between technological, market and non-market influencers. • Complementarities between formal rules and informal/derivative rules • Intertwined arrangement between public- and private order

11. Social network perspective • Loose-coupling temporary co-optition relationships • Learning and participation purpose • A co-development process of social capital among peers

12. Managerial implications • Recognize the institutional differences • The firm governance for encouraging the networking collaboration and controlling the efficiency • Arrangement for taking national comparative advantages and protecting from risks • Free culture of networking entrepreneurship supplemented with prudential mechanisms

13. Extending readings • Galbraith, J. R. (1994), Competing with Flexible Lateral Organizations, Addison-Wesley, Reading, MA. • Powell, W. W., and P. J. DiMaggio (eds.) (1991), The New Institutionalism in Organizational Analysis, The University of Chicago Press, Chicago. • North, D. (1990), Institutions, Institutional Changes, and Economic Performances, Cambridge University Press. • Jensen, M. C., and W. H. Meckling (1976), “The Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,”Journal of Financial Economics, pp.305-62. • Williamson, Oliver (1975), Markets and Hierarchies: Analysis and Antitrust Implications, Free Press, NY. • Cohen, M. D., J. G. March, and J. P. Olsen (1972), “Garbage Can Model for Organizational Choice,”Administrative Science Quarterly, 17(1), pp.1-25. • Hayek, F. A. (1945), “The Use of Knowledge in Society,”American Economic Review, 35(4), pp.519-30. • Coase, R. (1937), “The Nature of the Firm,”Economica, vol.4, pp.386-405