Interorganisational information systems: issues affecting interorganisational cooperation

Strategic Information systems Journal of Strategic Information Systems 6 (1997) 231-250

ELSEVIER

Interorganisational Information Systems: issues affecting interorganisational cooperation Trevor Williams* School of Management, Queensland University of Technology, 2 George Street, Brisbane, Queensland 4001, Australia

Received September 1996, received in revised form August 1997 Revised paper accepted for publication by Professor Marianne Broadbent

Abstract Advances in the use of interorganisational information systems (IOS) entail greater interdependence between, and deeper systems penetration into, organisations. The success of IOS will depend more on trust and cooperation between organisations, but these are problematic in interorganisational relations (IOR). Moreover, there are different types of IOR, and their varying characteristics are likely to have different effects on cooperation and lOS use between organisations. A framework for IOR analysis and a typology of IOR are combined to identify important differences between IOR and suggest implications for IOS. © 1997 Elsevier Science B.V. Keywords: Interorganisational information systems (lOS); Interorganisational relations (IOR); Information technology (IT)

1. Introduction Interorganisational relations (IOR) are being recognised as increasingly important to the economic performance of firms. IOR extend the possibilities for flexible production systems, provide access to markets and knowledge, enhance technical change and innovation, support superior organisation and management within firms, augment the resources and growth prospects of small and medium enterprises, and stimulate the development of regionally based industries and industry clusters (Bureau of Industry Economics (BIE), 1995, p. 1; Lazonick, 1992; Powell, 1990; Rockart and Short, 1989; Thorelli, 1986). Advances in information technology (IT) are central to the development of IOR by reducing the costs and extending the possibilities for communication and coordination, * Tel.: +61 7 3864 1298; fax: +61 7 3864 1313; e-mail: [email protected] 0963-8687/97/$17.00 © 1997 Elsevier Science B.V. All rights reserved Pll S0963-8687(97)00018-8

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linking technologies and sources of knowledge to support innovation, and providing vehicles for the operation of strategic alliances locally, nationally and internationally (Benjamin and Wigand, 1995; Borman, 1994; Galliers et al., 1995; Johnston and Vitale, 1988; Meier, 1995; Neo, 1991; Rockart and Short, 1989; Short and Venkatraman, 1992; Venkatraman, 1994; von Hippel, 1988). However, interorganisational information systems (lOS) usually require high levels of rational control and/or high levels of consensus and cooperation to be effective whereas control, consensus and cooperation are problematic in IOR (Clemens and Row, 1992; Johnston and Vitale, 1988; Korczynski, 1994; Meier, 1995). Moreover, IOR exhibit increasing variety (Butera, 1994), and their varying characteristics are likely to affect the breadth and depth of effective lOS use between organisations in different ways. This paper combines recent conceptual advances by Oliver (1990) and Butera (1994) to provide a framework for the analysis of IOR which suggests that different types of IOR face different problems of cooperation among their members. The scheme of analysis is applied to lOS cases to demonstrate how different IOR types may affect cooperation in lOS. General hypotheses concerning the effects of each IOR type on lOS cooperation are suggested as guides for the planning and assessment of lOS, and a research program is described. The potential of the program to advance knowlege in several lOS areas is outlined.

2. Background IOS are being widely adopted in diverse industries such as airlines, health care, the automotive industry, banking, retailing, transport and others (Borman, 1994; Cavaye, 1995; Cavaye and Cragg, 1995; Chicktong, 1991; Davis and Darling, 1995; Hollands, 1991; Mackay, 1992; Meier, 1995; Short and Venkatraman, 1992; Swatman, 1994; Webster, 1995). Currently, many of these lOS are ordering systems and electronic markets that link organisations to suppliers, distribution channels and customers locally, nationally and internationally (Johnston and Vitale, 1988; Meier, 1995). At this level, lOS eliminate paper and postage, reduce the need for data entry staff, reduce time delays and increase responsiveness to customers. Initially, the adoption of lOS enables participating organisations to use the information processing capabilities in each organisation to improve performance in the other organisations. In itself this may also improve and strengthen relationships among the organisations sharing the lOS (Johnston and Vitale, 1988). Moreover, where lOS are used pervasively in industries, participation in lOS becomes a necessity for doing business in those industries (Iacovou et al., 1995; Galliers et al., 1995; Meier, 1995; Webster, 1995). However, the efficiency gains from lOS do not provide sustainable competitive advantage because it is relatively easy for rival lOS to be developed and become available to any industries and organisations which require them (Cavaye and Cragg, 1995; Galliers et al., 1995; Meier, 1995; Venkatraman, 1994). lOS can support superior performance which is sustainable if they are used to extend and deepen the interdependence and coordination between organisations (Borman, 1994; Davis and Darling, 1995; Iacovou et al., 1995; Short and Venkatraman, 1992; Swatman, 1994; Venkatraman, 1994). Global competition, the effects of market uncertainty and competitive pressures on risk management, the need to maintain international standards

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of customer service, and cost factors in supplying diverse and shifting demands are among the trends requiring firms to integrate their business processes closely with those of other firms (Galliers et al., 1995; Rockart and Short, 1989; Venkatraman, 1994). Electronic communication facilitates coordination between these firms by moving critical data to all relevant decision points including information about changes in direction (Malone et al., 1988; Rockart and Short, 1989; Neo, 1991). Electronic integration can make more of the relationships between data transparent and enable decision-making value to be added to information as it is transmitted (Venkatraman and Kambil, 1991). Exploiting this greater potential of lOS entails significant change in the relationships between organisations. When lOS are used for boundary transactions, such as ordering systems, they are likely to affect the internal operations of organisations. However, when they are used to alter the division of labour and to develop new forms of coordination and control between organisations, they penetrate more deeply into the affairs of each organisation, as when one organisation requires information via an lOS about work in progress in another organisation (Davis and Darling, 1995; Iacovou et al., 1995; Short and Venkatraman, 1992; Swatman, 1994). They also intensify interactions between organisations within the IOS, for example, when organisations are allowed not only to enter and retrieve but to manipulate data (Johnston and Vitale, 1988). Recognition of this has led lOS researchers to emphasise the importance of mutual trust and relationship management to the successful use of lOS (Davis and Darling, 1995; Iacovou et al., 1995; Johnston and Vitale, 1988; Meier, 1995; Short and Venkatraman, 1992).

3. Interorganisational relations IOR are hybrid organisational forms which contain elements of both markets and hierarchies (Powell, 1990; Thorelli, 1986). Market exchanges are transactions between separate entities. Hierarchical relationships are coordinated through unitary organisational structures. IOR coordinate the activities of multiple organisations that are separate entities but cooperate with each other about matters of common concern (Butera, 1994; BIE, 1995). According to a recent survey of Australian manaufacturing organisations conducted by the BIE (1995), the two most commonly reported benefits of cooperation are increased profits and/or sales and enhanced market knowledge. Other benefits include product development, improved quality, new domestic customers or suppliers, access to technology and improved production processes BIE (1995, Ch. 6-8). Despite these advantages from cooperation, approximately 38 per cent of all respondent firms in the BIE survey indicated that they had at some stage abandoned a cooperative arrangement, the two main reasons being loss of control and lack of trust followed by the financial cost of the arrangement (BIE, 1995, Ch. 11 ). The wish to remain independent and retain control of their business operations was also the main reason given by two-thirds of Australian manufacturing firms which currently had no cooperative linkages with other firms (BIE, 1995, Ch. 12). Loss of control and lack of trust appear as the most important factors in failures of cooperation and the most important reason why firms avoid cooperative arrangements with other firms.

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3.1. Cooperation in ior

Wilkinson and Young (1994b, pp. 1, 20) define cooperativeness in IOR as the extent of each firm's concern for the interests and welfare of the trading partner, its trust and confidence in the trading partner, and the trading partner's concern for the interests and welfare of the finn. Competitiveness occurs when a firm manipulates information to the trading partner to gain advantage and believes that the trading partner gains advantage in the relationship at the firm's expense. In cooperative relations both parties can gain while in competitive relations the relevant goals of both parties cannot be satisfied simultaneously. Oliver (1990) has identified six main 'contingencies' or motives in the establishment and maintenance of IOR: 1. Necessity, or the need for organisations to meet legal-political requirements. 2. Asymmetry, where organisations are motivated to control other organisations and to preserve their autonomy from other organisations. 3. Stability, where organisations attempt to reduce uncertainty in their relations with other organisations. 4. Efficiency, where organisations seek to economise on the costs of their transactions with other organisations. 5. Legitimacy, where organisations attempt to justify their activities and outputs to institutional environments and to be seen as law-abiding and socially responsible. 6. Reciprocity, where organisations jointly pursue common or mutually beneficial goals. In reality these contingencies overlap and interact with each other, and they are affected by external factors and the history of the IOR in question, but Oliver's conceptual framework integrates partial theoretical perspectives and suggests important characteristics of particular IOR that affect cooperation among their members. 3.2. Types of lOR

The effects of the contingencies on interorganisational cooperation vary between different types of IOR. Butera (1994) identifies four basic types of IOR: 1. Hierarchical, in which large or medium size firms (e.g. Fiat) decentralise or outsource manufacturing processes and services, but the subcontractors often supply other clients as well and operate beyond the economic, legal and organisational control of the central corporation even though they are affected by it economically and organisationally. 2. Solar, where independent firms turn around one strategic agency (e.g. Nike, Benetton) which is very small in personnel and physical facilities and usually sells through a franchising system but, despite this extreme degree of externalisation of operations, marketing and manufacturing strategy as well as key resources (financial, image, brand) are fully under control of the strategic agency which runs the IOR through key levers such as trademark, advertising, product, marketing, logistics, information network, and style of store; 3. Centreless, whose members (typically small and medium size companies) create

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collective bodies such as industrial districts, regional systems and science parks, and strings and constellations of companies which are interlocked into the same business cycle; usually they have neither financial nor organisational ties and only seldom execute formal agreements, but they have powerful interconnected operating systems or operate in the same business area or in the same technology; members may be in competition with each other but also cooperate and share resources; 4. Swingle in which different organisations play key roles at different times, such as consumer cooperatives in which influence may shift between the central association and major suppliers. In Oliver's (1990) analysis, cooperation in IOR (other than that required by legalpolitical necessity) is a function of asymmetry, stability, efficiency, legitimacy and reciprocity in the relations between network members. Table 1 summarises the roles that the contingencies may play in the IOR types identified by Butera (1994). 3.2.1. Asymmetry Both the hierarchical and solar IOR contain potential tensions arising from the central control exercised by the dominant firm over the subcontractor and satellite firms (Wilkinson and Young, 1994a, b; Zanfei, 1994). The subcontractors are critically dependent on the dominant firms, the extent of their dependence depending on the availability of alternative partners. Asymmetry appears likely to be lower in centreless IOR due to shared ownership, although some members could acquire disproportionate influence, and in the swingle IOR to the extent that power shifts between alternate sources.

Table 1 Contingency characteristics of IOR types Contingency

IOR type Hierarchial

Solar

Centreless

Swingle

Asymmetry

Large finn o v e r sub-contractor

Strategicfirm over satellite frims

Shared ownership

Shifting power centres

Stability

Large firm stability is critical

Strategic firm stability

Stability of whole domain

Multiplesources of stability

Efficiency

R&D, scale economies

Marketing benefits

Resourcesharing

Flexibility

Legitimacy

Large firm's reputation

Strategic firm's reputation

Domain consensus

Competitionfor preferred status

Reciprocity

Complementary business goals, information sharing, innovation

Complementary business goals, global image

Complementary business and domain goals, innovation

Complementary business and domain goals, innovation

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3.2.2. Stability Oliver (1991) found that a compelling reason for IOR is the desire to reduce environmental uncertainty (see also Emery and Trist, 1965; Trist, 1983). In hierarchical and solar IOR, the certainty or uncertainty faced by the dominant firms, and their ability to reduce and control uncertainty, is likely to be critical for that which is faced by the subcontractors and satellite firms. Again, this will depend on the availability of alternatives to the latter. In centreless networks, certainty and uncertainty about the future of the whole domain (industry, region, city, town or science park) is more generally and diffusely shared by members. This may be true also of swingle networks, with the additional possibility that the multiplicity of temporary centres provides the network with more adaptive capability. 3.2.3. Efficiency The hierarchical network should derive efficiency advantages from the R&D capacity and scale economies of the large finn, and supplier-user relations between members may stimulate technological innovations (particularly process innovations) leading to competitive advantage externally (von Hippel, 1988). The solar network offers distinctive efficiencies in marketing and distribution. Centreless networks provide efficiencies through resource sharing. Swingle networks may derive efficiency gains from shifting sources of comparative advantage, or flexibility. 3.2.4. Legitimacy Alliance with prestigious partners increases a firm's legitimacy standing in its environment (Oliver, 1991). The legitimacy standing of the dominant firms is likely to be important to the general legal-political status and public image of hierarchical and solar networks. The legitimacy of centreless networks seems likely to depend significantly on domain consensus among their members, or the extent of their acceptance of each other's participation and approval of each other's behaviour in the network. Legitimacy in the swingle network could be a potential source of competition among the enterprises seeking to strengthen their ties with other network members. 3.2.5. Reciprocity Reciprocity in all types of IOR is likely to depend on mutual recognition of complementary business goals. Beyond this, members of hierarchical IOR may assist each other's competitive development through information sharing and innovations which benefit other members as well as the innovating firm (von Hippel, 1988), and by allocating business activity in ways which benefit individual firms and are most appropriate for the IOR as a whole (Lazonick, 1992). Members of solar IOR are dispersed and connected to each other largely via their relationships to the strategic firm, and the particular business strengths of the solar IOR suggest that the main ways in which members can contribute mutual benefit are their efforts to promote the global image of the IOR's products and services. In the centreless and swingle IOR, the future prospects of members appear to be more bound up with those of the IOR rather than the prospects of particular dominant firms. Private and collective interest are more interwoven, such that network members may perceive and pursue desirable prospects for the IOR itself rather than being exclusively concerned with enhancing their own futures within the IOR, including a willingness to forego immediate

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opportunities for self-advancement for the sake of longer term collective improvement (Trist, 1983). The members of these IOR may also share in the development and benefits of innovations within the IOR through common R&D facilities and the transfer of technological applications between enterprises. 3.2.6. Interactive effects and IOR context

The effects of the contingencies on cooperation in IOR are likely to be interactive rather than discreet. For example, Korczynski's (1994) study of the British engineering industry suggests that asymmetrical dependence of clients on suppliers resulted in efficiency losses to clients. Lazonick's (1992) analysis of collective capitalism in Japan emphasises the importance of 'enterprise groups' that are hierarchical IOR in which dominant companies plan and coordinate group activities. However, consensus decision-making may reduce the problem which asymmetry otherwise could create for cooperation between firms, and reciprocity appears to be an important factor explaining cooperation in these relations. Cooperation between organisations must also be understood in the context of established relationships developed over time through previous interactions, and may be the product of environmental pressures, the development of effective conflict resolution mechanisms, the introduction of quality management techniques, and the development of partnership-specific skills (Wilkinson and Young, 1994b, pp. 2, 6, 8-10, 13-15). Subject to these qualifications, examining IOR in terms of the contingencies and types can assist the assessment of lOS by identifying interorganisational variables which affect their success and failure.

4. IOR implications for lOS At a general level, the potential effects of lOS on the IOR contingencies are equivocal. lOS may be designed and operated in ways which increase or reduce asymmetry, stability, efficiency, legitimacy and reciprocity between organisations. It is technically feasible to design IS that distribute control differently (Clement and Gottleib, 1988, pp. 609-621; Webster, 1995) with consequences for asymmetry. The effects on stability could be in either direction because, while Rockart and Short (1989) emphasise the potential for enhancing coordination and communication, Weick (1990, pp. 1-44) argues that the processes to which IS are applied, the social context in which they are introduced, and the ways in which organisational action is structured may combine to reduce rather than increase certainty, lOS should increase efficiency (Malone et al., 1988, pp. 581-608) but, in many cases, efficiency gains have not been realised and the most successful users of IS are not necessarily the most computerised but are likely to have reorganised their social systems (Dunlop and Kling, 1990, pp. 192-196). The operations of IS are not readily visible which can cloud the legitimacy of the purposes for which they are used (Dunlop and Kling, 1990, pp. 4-5). Whether lOS increase or reduce reciprocity depends on whether the goals and interests of the organisations in question are convergent or divergent (Johnston and Vitale, 1988; Williams, 1995). Thus, Nygaard-Andersen and Bjorn-Andersen (1994) argue that the success of an electronic data interchange (EDI) system depends on whether users can be enticed to

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join the network. They propose the concept of an 'EDI arena' to refer to the paths which EDI follow in cutting across traditional market and industry divisions and the organisations which participate, or might participate, in EDI networks. They offer a classification of EDI-user organisations in terms of IT maturity and business rationale for EDI usage (gaining competitive advantage or improving bottom-line results), and show how this can predict the motives which organisations have for using EDI systems. However, they then show how the rationalistic expectations generated by such an analysis may be countered by the influence which organisations have on each other, and conclude that the ability of organisations to coerce, compensate or enter into partnership with each other make it "extremely difficult to make estimates of who will join the system and to what extent they will use it". Galliers et al. (1995, p. 153) reach a similar conclusion that "it is difficult to ask 'what if' questions and to assess accurately the potential relativity of costs/benefits in advance" (largely due to the importance of intangible factors such as trading partner relationships). The framework discussed in preceding sections could improve the insights and understanding which are required. Fig. 1 suggests a way in which the framework could be used to identify key IOR issues prior to the introduction of lOS. The first step is to identify the type of IOR as primarily hierarchical, solar, centreless or swingle. The second step is to identify the contingency(ies) which, theoretically, are likely to be most problematic for cooperation given the type of IOR. The third step is to consider the effects of the other contingencies in terms of whether they currently promote cooperation. The fourth step is to take into account the possible effects of specific external variables, such as imminent competitive changes or new government policies or regulations. The fifth step is to determine the characteristics which an lOS would need for it to promote voluntary cooperation between the members, as a basis for establishing criteria for the design and introduction of lOS. The following illustrations encompass the first four steps. 4 . 1 . 1 0 S in hierarchical IOR: two automotive industries

In hierarchical IOR, asymmetry seems likely to be problematic for cooperation in IOS. Webster (1995) examines the implementation of the Ford Motor Company's EDI system Fordnet and argues that Ford is attempting to gain competitive advantage for itself by locking its suppliers and customers into its systems and locking its competitors out of them. In doing so, "Ford does not regard its trading relationships as if they were partnerships made on an equal basis, but relationships involving its domination and their subordination. This is not really surprising, given Ford's market position and purchasing power, but it does run counter to the popular view of 'collaboration' and 'partnership' in trading relationships" (Webster, 1995, p. 34). While Webster's analysis supports the

IOR

type

..... >

Problematic contingency

..... > Other

..... >

contingencies

External variables

..... > Cooperative IOS requirements

Fig. l.A strategy ofenqui~ intolOR charactefisticsaffectinglOS cooperation.

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centrality of asymmetry in hierarchical IOR, Hollands (1991) presents a very different account of the introduction of EDI in the Australian automotive industry. Here, a combined committee of the peak automotive manufacturers and automotive parts manufacturers developed an industry-wide EDI system in response to the Australian government's plans for increasing the industry's efficiency and competitiveness. The industry is hierarchical in that it is dominated by five automotive manufacturers, but "while many component suppliers have felt coerced into adopting EDI, equally so, many have readily agreed that EDI is one of a number of measures necessary for the continued existence of their industry" (Mackay, 1992, p. 649). The effects of asymmetry may be lessened in Australia by the fact that most of the Australian component suppliers supply more than one of the local car producers (Mackay, 1992, p. 635). The industry approach appears to have created scope for reciprocity as a motive for voluntary cooperation, the economic conditions faced by manufacturers and suppliers alike placed a premium on efficiency as another incentive, and the fact that EDI was a response to government policy may have enhanced its perceived legitimacy. In terms of Fig. 1, the British and Australian automotive industries both appear to be hierarchical IOR, but the degree of asymmetry varies, and the lOS were introduced in different ways which affected the role of the other contingencies in voluntary cooperation. 4.2. lOS in solar IOR: a virtual corporation

In solar IOR, relations between strategic firms and satellite firms are primary. While the implications for lOS are somewhat similar to the implications of hierarchical IOR, the dominance of strategic firms derives largely from their unique role in the IOR, such as ownership and control of brand names. Major business functions such as selling, manufacturing and distribution are outsourced to independent contractors and brokers. Like dominant firms in hierarchical IOR, these strategic firms or 'virtual corporations' (Davis and Darling, 1995) have the problem of how to control the actions of the satellite firms, but typically they are smaller and do not gain as much leverage from asymmetry. Davis and Darling's (1995) study of Super Bakery identifies several features of the firm's relations with its contractors which may be more widely applicable to solar IOR. First, due to relatively low asymmetry in the IOR, formal control devices such as service agreements may be unenforceable and, where they are used, serve primarily to clarify expectations. Second, efficiency and reciprocity appear to be particularly important to the success of solar IOR. Davis and Darling (1995) report that "Super Bakery worked with twelve different trucking companies (common carriers) in the space of four years before awarding most of its business to three companies that were willing to work closely with the bakery's management to improve service and cut costs" (p. 72). This involved reciprocity as well as efficiency because Super Bakery took actions to help the trucking companies to reduce their costs and improve their scheduling. Third, Super Bakery maintains control of the order-filling cycle, not by direct supervision and control over the work of contractors, but by maintaining control over communication with the customer and serving as a communications and coordination centre for the contractors. Coordination thus appears to occur primarily through lateral rather than vertical relations, and to require reliable performance measurement and feedback. While Super

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Bakery has implemented an activity based costing system to track costs and control spending, successful management of the IOR depends on the willingness of the strategic finn and the satellite firm involved to share information. According to Davis and Darling (1995), "This is more likely to occur when the management and employees of both companies are supportive of one another and do not try to find blame when things go wrong. Super Baker will only work with contractors who are interested in building these types of relationships" (p. 73). In relations of relatively low asymmetry, which are expected in solar IOR, the efficiency gains which each partner extracts from the IOR for itself might be sufficient for limited forms of EDI. However, higher levels of sustained cooperation for competitive advantage appear to depend on adequate reciprocity in the IOR. 4.3. 10S in centreless IOR: international banking

Members of centreless IOR are interdependent through interconnected operating systems, being in the same business area, using the same technology, or being interlocked into the same business cycle (Butera, 1994). However, there are no particular members which dominate, as in hierarchical IOR or are central, as in solar IOR. Cooperation at the level of the IOR as a whole is usually sought through collective bodies. The following case suggests that most, if not all, of the IOR contingencies must be satisfied for collective cooperation to be achieved and maintained. Chicktong (1991) describes The Society for Worldwide Interbank Financial Telecommunications (S.W.I.F.T.) as "a cooperative global society for member banks and related institutions which provides for the interchange of electronic information in an electronic form...S.W.I.F.T, is a non-profit cooperative society...lt is owned by its members which, upon joining, purchase a number of shares in the society: the number of shares being determined according to the transactions volumes of the members" (pp. 93, 94). Several of the IOR contingencies appear to contribute to the initial and continuing cooperation on which S.W.I.F.T. depends. Efficiency gains are achieved through elimination of duplication in transaction processing and checking, increase in speed of processing and delivery, increased levels of service to customers, and more efficient interaction with third parties. Stability is increased through cost stabilisation, significant increases in levels of security and auditability, and significant reduction in errors. Reciprocity is evident in that "Banks have seized upon the opportunities to provide value added services, using their membership of S.W.I.F.T. and their unique upstream and downstream computer applications as marketing tools to provide competitive advantage so as to gain the business of overseas banks and customers" (Chicktong, 1991, p. 102). A relatively low level of asymmetry also appears to have been important, in that the success of S.W.I.F.T. "is due largely to the full involvement and input by its owners i.e. the members" (Chicktong, 1991, p. 103). 4.4. 10S in swingle IOR: the information superhighway

Swingle IOR turn on multiple succeeding centres, with different organisations playing key roles at different times (Butera, 1994). They are likely to be characterised by relatively

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low (or temporary) asymmetry, and to offer opportunities for short-term efficiency gains, but also to be unstable, low in reciprocity, and legitimacy is likely to be fragile and vulnerable to dispute. The effects of the IOR contingencies on the interorganisational cooperation required for effective lOS, thus, are likely to be complex, dynamic and uncertain. Benjamin and Wigand (1995) have examined future prospects for the United States national information infrastructure (Nil), and their conclusions suggest that it may acquire swingle IOR characteristics. The Nil is expected to provide cheap coordinative transactions, interconnected networks and easily accessible databases which will favour electronic markets over single-source sales channels. Against this, interorganisational value chains currently offer organisations competitive advantage through higher-quality products, increased customer satisfaction and business reengineering. Despite the lower costs of market transactions, profits are also likely to be lower, and firms may still choose selective long-term arrangements such as hierarchical and solar IOR in order to maintain control and coordination of their value chains. Persistent pressures towards electronic markets may eventually overwhelm single-source channels to markets but, even when full consumer access to markets becomes technologically feasible, access may be restricted if firms which control markets bias them in favour of particular suppliers or the owners of communication channels restrict access to particular market channels (Benjamin and Wigand, 1995; Short and Venkatraman, 1992). Information superhighways such as the Nil could then give rise to swingle IOR, in which firms struggle to gain advantage and subsequently are challenged by rivals who employ similar tactics. 4.5. 10S cooperation

If organisations are to cooperate willingly with each other in the introduction and development of lOS, key issues in their IOR must be recognised and resolved. This is the fifth step suggested in Fig. 1. In hierarchical IOR, asymmetry between dominant firms and subcontractor firms is potentially a major issue affecting the voluntary participation of subcontractors in lOS, as distinct from them being forced to participate, lOS could compensate for such asymmetry if they increase stability, efficiency, legitimacy or reciprocity (lacovou et al., 1995), but these contingencies are affected by the asymmetry. Stability in hierarchical IOR depends critically on the stability of the dominant firms. Efficiency gains derive primarily from the scale economies and R&D capacity of the dominant firms. Legitimacy in hierarchical IOR is disproportionately dependent on the reputation and standing of the dominant firms, and receptiveness of both other firms in the IOR and the wider institutional environment to lOS may be affected by perceptions of dominant firm motives. Reciprocity will be affected by how business activities and opportunities are distributed within the IOR, including not only information about such activities and opportunities, but also distribution of the informational means to exploit them (Ives and Jarvenpaa, 1991; Shiowattana, 1991; Neo, 1991), and these are likely to be controlled to a significant extent by the dominant firms. Promotion of cooperative lOS appears to require not only mobilisation of the other contingencies to counter the effects of asymmetry, but reduction in asymmetry itself.

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In solar IOR, some degree of asymmetry is likely due to the unique role which the strategic firm plays in the IOR, for example, as the owner of the brand or patent or as the conduit to the customer. However, asymmetry does not appear to be such an important issue in solar IOR as in hierarchical IOR. Competitive advantage is achieved through coc,peration for mutual gain (reciprocity and efficiency) rather than concentration of resources (asymmetry). In solar IOR, reciprocity and efficiency appear, not as compensations for asymmetry, but as positive levers for IOS cooperation. Whereas IOS in hierarchical IOR need to modify the status quo in order to promote cooperation, in solar IOR cooperation may be best attained by strengthening the status quo. In centreless IOR, the willingness of participating firms to remain in the overall cooperative configuration, may be more important than their interdependence with particular other firms. The structure of the IOR is, theoretically, based on shared ownership and no single organisation should be dominant. This raises issues about how information relating to the whole IOR is stored, retrieved and used as well as issues about the disclosure and sharing of information by member firms. Like solar IOR, IOS in centreless IOR appear more likely to be supported if they augment existing forces towards cooperation but, in this case, the critical cooperation is between each member organisation and the whole IOR rather than between specific members. Therefore, the IOS should increase the value of the whole IOR to each individual member. Swingle IOR may acquire similar characteristics to hierarchical and solar IOR during periods of ascendance by particular firms, but this is temporary due to shifting patterns of dependence and the more enduring relationships affecting cooperation are between participating firms and the whole IOR. Appropriate IOS support for these IOR may take the form of electronic marketplaces in which members have timely information about alternative suppliers, customers and so forth. However, the network is more than a market and its continued viability depends on relationships between self-interest and commitment to the IOR's aims by members, including mutual recognition of each others' roles in achieving IOR aims. Hence, IOS may face the dual demand that they support both market and cooperative activities and relations (Short and Venkatraman, 1992). 4.6. 10S designs to promote voluntary cooperation: hypotheses for future research Whether IOS encounter resistance or willing acceptance by the members of IOR depends, in part, on how they affect existing relationships. Since different IOR types theoretically contain different problems of cooperation, the design of lOS should address the problems of cooperation that are particular to the IOR type in question. The following hypotheses are suggested as starting points for future assessments of lOS. 1. In hierarchical IOR, lOS will be have greater support from users if they: * •

reduce asymmetry between the dominant firm and dependent firms; and/or increase stability, efficiency, legitimacy and reciprocity.In general terms, IOS may reduce asymmetry in hierarchical IOR by supporting decentralised decision-making, such that dependent firms (suppliers, contractors) can plan and organise their own operations, rather than the lOS intensifying direction and control by the dominant firm (Hollands, 1991; Mackay, 1992). lOS may increase stability if they enable

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major uncertainties in members' operations to be reduced and managed more effectively (Borman, 1994). lOS may increase efficiency if they enable IOR members to effect cost savings and/or revenue increases in their operations (Iacovou et al., 1995). lOS may strengthen legitimacy to the extent that their operation is transparent to users and to external bodies such as regulatory agencies (Hollands, 1991; Mackay, 1992). IOS may increase reciprocity if they support any common or mutual aims in the IOR and if they are designed to provide explicit benefits to each member (Galliers et al., 1995). 2. In solar IOR, lOS will have greater support from users if they: • •

do not increase asymmetry between the strategic firm and satellite firms; increase stability, efficiency, legitimacy and reciprocity.While asymmetry appears to be less of a problem for voluntary cooperation in solar IOR, IOS could be designed to strengthen the strategic firm's control over other firms, for example through improved performance monitoring. Cooperation in the IOR is more likely to be increased if the lOS provides enhanced performance monitoring as an attribute of the whole IOR such that all members can use it (Davis and Darling, 1995; Swatman, 1994). The positive effects of lOS on stability and efficiency, and legitimacy in solar IOR are likely to be similar to those in hierarchical IOR. Reciprocity appears to be an important reason why members of solar IOR choose cooperation in preference to either market transactions or hierarchical arrangements, and the appeal of lOS could be increased, in particular, by the extent to which it supports mutual goals as well as fair distribution of benefits (Davis and Darling, 1995). 3. In centreless IOR, lOS will have greater support from IOR users if they:

• •

do not increase asymmetry in favour of particular organisations; increase stability, efficiency, legitimacy and reciprocity in relations between the cooperative body and members.Centreless IOR are formed by their members for the purpose of cooperation, but it is possible for control of the IOR to gravitate to, or be usurped by, particular members (Stern, 1979). lOS could be vehicles for such an increase in asymmetry to occur, lOS in centreless IOR must be seen by members to be collectively owned and operated (Chicktong, 1991). The effects of lOS on stability, efficiency and legitimacy are similar to hierarchical and solar IOR. The critical effects of lOS on reciprocity in centreless IOR concern relations between members and the collective body. The continued development of the IOR depends on the value of the collective body to individual members and their continued willingness to maintain it (Chicktong, 1991). The main contribution of lOS to reciprocity, therefore, is to increase the value of the collective body to members. 4. In swingle IOR, lOS will have greater support from users if they:

• •

reduce asymmetry between all stakeholders; and increase stability, efficiency, legitimacy and reciprocity among all stakeholders.

Stakeholders in IOS for swingle IOR include producers of information, producers of goods and services, electronic retailers, and consumers (Benjamin and Wigand, 1995). Swingle

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IOR will be trusted by members so long as the dynamics by which organisations become central to the IOR are not manipulated to bias market access and consumer choice. For example, Benjamin and Wigand (1995, p. 64) postulate that, for the National Information Infrastructure to satisfy this requirement: 1. Everyone and every organisation will be interconnected. 2. The connections will be at a very high bandwidth, greater than a billion bits per second, and sufficient to carry out interactive multimedia transactions. 3. Cheap, high-speed computation will facilitate the implementation of low-cost coordination transactions. 4. A market choice box, the interface between the consumer and the Nil, will provide the interactive capabilities for making free market choices easily and intuitively. 5. There will be no favouritism designed into market access to the NII.IOS then would have the potential to: (1) increase the availability of information with which to reduce uncertainty; (2) reduce costs for consumers and producers (though they may also reduce profit margins for the latter); (3) increase the legitimacy of the IOR in that no particular stakeholder is gaining unfair advantage; and (4) increase the scope for reciprocity by enhancing both means and opportunity for consumers and suppliers to form alliances to gain competitive advantage (purchasing power, price-quality) under open market conditions. Hypotheses such as these direct the attention of researchers and practicioners to the basic state of IOR and the underlying conditions which affect the stable cooperative use of lOS. They also direct attention to the question of whether lOS themselves can be designed to change the existing state of IOR. For example, assessment of a hierarchical IOR may reveal asymmetry to be a potential barrier to inter-organisational cooperation. In such cases, it has been suggested that more powerful organisations can pursue several strategies to influence their less powerful partners, including persuasion, promise of rewards in return for participation in the IOS, and threats (Iacovou et al., 1995). If the issue of asymmetry is left untouched, or is even intensified, by the lOS, however, the less powerful organisations still have reason to reduce or escape from their dependence on powerful partners (Zanfei, 1994). The hypotheses invite consideration of another possibility, which is to design lOS in which control and autonomy are more widely shared among user organisations.

5. Future research and practice The steps to incorporate explicit systematic analysis of IOR in the design and evaluation of lOS are outlined in Fig. 1: (1) identify the type of IOR; (2) postulate which IOR contingencies are, theoretically most likely to be problematic for cooperation; (3) identify the role of other contingencies in the IOR and their potential for promoting cooperation between IOR members; (4) identify specific external variables which may affect cooperation in the lOS; and (5) establish the design criteria for the lOS to promote cooperation. The feasibility and utility of conducting the first four steps are illustrated in the examples

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which have been given. The hypotheses presented in the preceding section can serve as guides for the fifth step. The first step requires that descriptive data about the IOR be collected, including its purposes and primary operations, member roles, relationships within the IOR, and relationships (and potential relationships) between particular members and organisations outside the IOR. The data should be analysed to determine the type of IOR as primarily hierararchical, solar, centreless or swingle. The IOR may embody elements of more than one type, in which case it is necessary to determine which is the predominant type. Given the type of IOR, Table 1 suggests which IOR contingencies are most likely to be problematic for cooperation. This is the second step. The resultant postulate must be tested through collection and critical analysis of evidence from the IOR in question. The third step requires similar investigation and evaluation of the other contingencies. The fourth step entails a search of the IOR's environment to identify economic, legalpolitical and social trends which have implications for the IOR, and specifically any variables which have particular relevance for the adoption and cooperative use of an lOS. From the first four steps, the relevant hypothesis from the preceding section should be selected and used as a basis for developing criteria by which the IOS should be evaluated for its contribution to cooperative usage by members of the IOR. These criteria should be tested with the user organisations prior to their incorporation in any final lOS design. The program would augment, not supplant, other programs concerned with the functionality and usability of the IOS. It would incorporate a third critical dimension, namely, the collective acceptability of the IOS to users (cf. Eason, 1989). The program could be conducted by researchers using conventional methods of data collection and analysis, such as archival research, interviews, and surveys. IOS prototyping could also be used to incorporate evaluation by IOR members at the fifth step. However, the prospects for IOS user acceptance and cooperation are likely to be greater if IOR members are actively involved in all stages of the program. Cavaye (1995) suggests that user participation during the early stages of IOS enhances the potential of the system to reflect accurately users' requirements and that, when the system fulfills their needs, it is more likely to be adopted. This is consistent with IT experience within organisations (Avison and Wood-Harper, 1986; Daniellou, 1987; Hirscheim, 1986; Williams, 1994). The 'search conference' offers a proven method of securing effective participation by IOR members in planning an lOS. Briefly, the steps of a search conference to establish the cooperative criteria for the design of an IOS are: 1. Participants explore trends in the wider society and the IOR's environment and identify probable and desirable futures. 2. They trace the evolution of the IOR in its environment and reflect upon the path by which it came to its present state. 3. They share their desires for the future of the IOR. 4. They identify constraints and opportunities in the present state of the IOR with respect to pursuing the desired directions, and the issues that warrant priority attention. 5. Usually, small groups of participants develop strategies for dealing with the priority

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246 Table 2

Areas for further research Present knowledge

Further research

1.

Organisations' responses to EDI (Borman, 1994; Galliers et al., 1995; Venkatraman, 1994). IOR contexts are important to the success and failure of EDI initiatives (Galliers et al., 1995; Iacovou et al., 1995; Nygaard-Andersen and Bjorn-Andersen, 1994). Different approaches to EDI initiation have different outcomes within a given IOR (Iacovou et al., 1995; Mackay, 1992; Webster, 1995).

Determine the nature of the IOR context as hierarchial, solar, centreless or swingle; identify the IOR contingency(ies) most likely to restrict cooperation; test against the evidence; and identify design criteria to increase cooperative acceptance and use EDI. Search conference of users.

2.

The guides to selective sourcing are largely IT outsourcing to reduce fixed costs, subcontract restricted to the efficiency variable and specific to legacy systems and allow organisations to focus on their core business activities and competencies IT. Identify the type of IOR in question, and the full range of IOR contingencies and interactions (Earl, 1996; Lacity et al., 1996; Loh and between them, to identify the main problems. These Venkatraman, 1992; Huber, 1993; McFarlan and may concern assymetry, stability or reciprocity as Nolan, 1995). But there may be increased costs, well as efficiency (Earl, 1996; Lacity et al., 1996; loss of flexibility and poor service (Lacity et al., McFarlan and Nolan, 1995). 1996), and numerous risks (Earl, 1996; McFarlan and Nolan, 1995). Several schemes for selective sourcing, or decisions about which IT activities to outsource and which to retain in-house and under what conditions have been proposed (Lacity et al., 1996; Loh and Venkatraman, 1992; McFarlan and Nolan, 1995).

3.

The use of IOS in government regulation. Many governments have adopted policies of 'deregulation' and 'privatisation' intended to deemphasise compulsary aspects of regulation and promote voluntary compliance. IOS were developed to support many of these regulatory initiatives. A common assumption is that economic benefits will induce cooperative behaviour by the regulated (e.g. Venkatraman and Kambil, 1991; Williams, 1994, 1995, 1996).

Regulatory IOR remain essentially hierarchial in nature. The resultant asymmetry, together with constraints on reciprocity due to the fact that regulatory agencies impose costs on particular parties on behalf of the 'public interest', appear to set definite limits to the prospects for increased voluntary cooperation between regulators and regulated. Variances in the IOR contexts of regulatory lOS could be examined in terms of the IOR contingencies to identify the scope that is allowed for contigencies other than asymmenty to shape relations between regulators and regulated (Braithwaite et al., 1987: Zald, 1978). Search conference of regulators and regulated.

4.

IT infrastructures are leading to greater use of markets to coordinate economic activity, but organisations may bias electronic markets in their favour (Benjamin and Wigand, 1995; Malone and Rockart, 1995).

Long-term market manipulation is most feasible in hierarchial and solar IOR. Short-term opportunism is more likely in centreless and swingle IOR.

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issues, working first in parallel and then presenting recommendations to the whole conference; 6. They then consider the role of IOS in supporting the pursuit of desired future directions for the IOR, and determine the main criteria by which the acceptability of the IOS to members would be judged (Emery and Purser, 1996; Williams, 1982, 1989). Search conference outcomes can be used as inputs to IOS design in the same way as data obtained by conventional research methods, but they will have been developed by IOR members as a group. Information and views provided by members independently from each other, for example through interviews and surveys, offer less assurance of collective acceptance and cooperation. Researchers retain responsibility for interpreting the findings and proposing the final IOS design criteria, including responsibility for apportioning weightings between conflicting responses. In the search conference, participants themselves confront the issues between them, and they are far less likely to dispute the IOS design criteria that emerge from this process (Emery and Purser, 1996; Williams, 1982). From the above, it may be expected that whether an IOR is primarily hierarchical, solar, centreless or swingle will affect the relative importance of, and interactions between, the IOR contingencies. This, in turn, may provide some guide as to both the type and scope of participation which is feasible and the issues that are likely to be particularly important for lOS cooperation. Ultimately, however, such matters must be resolved not by researchers but by users themselves, although the outcomes of their participation would provide tests of the theoretical expectations. Table 2 summarises the present state of knowledge in four areas of IOS research and the contribution to further advancement which research conducted along the above lines could make. In suggesting these lines of enquiry, certain caveats are appropriate. First, while the nature of the IOR context and the operation of the IOR contingencies are considered important to IOS cooperation, other variables are also important. It may well be that, in particular cases, factors such as similarities and differences between the IT configurations of organisations may have the more decisive effect on their IOS cooperation (Sharma and Yetton, 1996). Second, the IOR types and contingencies are conceptual categories that have received little empirical use so far and, unless carefully operationalised, are likely to produce unstable or unsupportable results. Third, user participation in IOS will be confounded unless participation is genuine. Much of the research on participation is inconclusive because it is questionable as to how much effective participation users were allowed.

6. Conclusions

The successful use of 10S entails deeper and wider penetration of relations between organisations than the arms-length transactions supported by electronic ordering systems and markets. Cooperation between the organisations concerned is essential to the further development of lOS. IOR research suggests that there is more to cooperation between organisations than the efficiency gains emphasised by transactions costs theories. Loss of

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a u t o n o m y and lack of trust (asymmetry, reciprocity) are the most frequently cited reasons why organisations avoid or a b a n d o n cooperative arrangements with other organisations. Uncertainty faced by organisations in their e n v i r o n m e n t s and their need for external support may increase the attractiveness of alliances with other organisations (stability, legitimacy). I O R are not merely different from single organisations and markets in that they e m b o d y elements of both. There are different types of IOR in which the contingencies appear to operate differently (Butera, 1994). IOR vary in the extent to which present cooperation between their m e m b e r s is c o n d u c i v e to lOS, and IOS will affect cooperation through their interaction with the IOR contingencies. Building on the streams of research which have been drawn together here m a y help to incorporate knowledge of the factors affecting IOR cooperation systematically in lOS research, p l a n n i n g and implementation.

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