Linking technology management, transaction processes and governance structures

Technovation 24 (2004) 779–791 www.elsevier.com/locate/technovation

Linking technology management, transaction processes and governance structures R. Siriram ∗, D.R. Snaddon School of Mechanical, Industrial and Aeronautical Engineering, University of the Witwatersrand, Private Bag 3, Wits 2050, Johannesburg, South Africa

Abstract This paper links technology management, transaction processes and governance structures so that managers in firms may understand the various links involved in the management of technology and by understanding these links, may be able to interact in a more competitive manner in a changing economy. It does this from a wide perspective. Of all the influences in an organization’s environment, technology is the key factor that may provide competitive advantages. Technology may provide managers with opportunities to gain competitive advantage over competitors, but technology management in firms is linked to other factors. The interlinking of these other factors is what brings firms competitive advantage. Some of these factors include management styles giving rise to alternative means of technological sourcing, knowledge management, organizational learning and relationship management, etc. This is the first time this meta-model has been proposed.  2003 Elsevier Ltd. All rights reserved. Keywords: Technology management; Transaction processes; Governance structures

1. Introduction Globalization, technology and the new economy are creating waves of change and uncertainty. Old ways of doing business become obsolete and the rules of the game change at a bewildering rate. Toffler (1980) speaks of the third wave of technology that will alter the way firms function. The third wave rests upon the pillars of information, technology and knowledge. Toffler speaks of a source of power for the third wave, which arises from ideas, information and knowledge, where knowledge and application of ideas creates a pace of change. Technologies evolve and change daily. The business world is flooded with technologies. Technologies are implemented in design, operations processes, manufacturing, administration and management. Firms attempt to synchronize operations from front to back office with technology being the glue that facilitates the flow of information and knowledge through the firm. Toffler (1970, p. 37) says that if technology is to be regarded

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0166-4972/$ - see front matter  2003 Elsevier Ltd. All rights reserved. doi:10.1016/S0166-4972(03)00024-5

as a great engine then knowledge must be regarded as its fuel. Synchronization of information flow and knowledge transfer within the firm and between strategic partners may create competitive advantages. Toffler (1970, p. 136) adds that “(i)nformation surges through society so rapidly, drastic changes in society come so quickly that newer, even more instantly responsive forms of organization must characterize the future”. The availability of timely and reliable information enables firms to react quicker to market threats and opportunities. The ability to react faster provides competitive advantage over other firms. Firms adopt technologies to improve their reaction abilities and thereby improve competitiveness. Technologies provide benefits in criteria like cost, quality, speed, dependability and flexibility. These are called transactional benefits, which can be seen as either cost reducing or value adding. Product technologies alone will not provide competitive advantages. Firms have to develop competitive advantage in transactional process through either cost reduction or value added services. Managers in firms are responsible for assessing the firm’s technological needs. Managers are responsible for defining technological strategy, technological investment, technological implementations and assessing the firm’s technological

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risks. Managers are faced with many challenges that affect the way in which they determine the firm’s technological needs. This is as a result of the many technological profiles that exist. Against this background this paper proposes a model for understanding the links between technology management, transaction processes and governance structures. Understanding these links may create competitive advantages for those firms that have synchronized the activities involved in these linkages. This paper encompasses the areas of technology, transaction cost economics, strategy and operations management. (It is therefore necessary that technology, transaction processes and governance structures be defined, as these terms could be defined ambiguously by different scholars.) For clarity the following definitions will be used as a basis in this paper viz. 앫 Day and Schoemaker (2000, p. 2) describe technology in a broad sense as the process of transforming basic knowledge into useful application. Tushman and Anderson (1986, p. 439) cites Rosenberg (1972) who defines technologies as those tools, devices and knowledge that mediate between inputs and outputs (A: process technology) and/or create new products or services (B: product technology). These two complementary definitions are used. 앫 Transaction processes occur through the transformation process as firms exchange goods and services. Transaction processes may be necessary to build criteria like cost, quality, speed, dependability and flexibility. Transaction processes are either cost reducing or value adding, Williamson (1981, p. 1546) characterizes transaction processes to include attributes like transactional certainty, frequency, durability and transaction specific interests. 앫 Williamson (1981, p. 1544) defines governance structures as the explicit or implicit contractual framework within which transactions occur (markets, firms, and mixed modes e.g. franchising). We understand this to encompass the tasks of administration, direction, or management of information flow through the organization by making decisions, suggestions, orders, etc. In other words providing the necessary leadership for the business. Having defined technology we may say that the management of technology is associated with the application of technology for business purposes. In this paper we refer to the technology management, which encompasses the application of technology in business. Having defined technology management, transaction processes and governance structures, the linking processes may be discussed next. The rest of this paper starts with a discussion on links in general then a specific model is pro-

posed and discussed, thereafter the paper is concluded with relevant lessons for managers.

2. The linking processes Technologies can be seen as part of larger systems. Larger systems consist of technologies ranging from complex to simple. Tushman and Rosenkopf (1992, p. 325) propose four types of technological products/systems ranging from complex to simple viz. 앫 Open systems are the most complex form of technological systems. These systems are composed of a set of closed systems that are linked together through interface technologies. 앫 Closed systems are the set of subsystems of open systems having a clear boundary unlike open systems. These closed systems are linked to other closed systems and may form ‘islands of automation’. 앫 Simple assembled products exist through processes, materials and/or product substitution. This is the most primitive form of technological progress. These can be likened to standalone automated machines or equipment. They exist on their own or are part of a closed system or an open system. 앫 Non-assembled products exist either in process or materials. These non-assembled products form part of simple assembled products. Fig. 1 shows a hierarchy of technological systems that exist in firms today. Into this hierarchy of systems, specific technologies can be inserted. Specific systems include ERP management systems, administration, design and manufacturing systems, etc. As shown in Fig. 1 technologies exist throughout the firm. Goldhar and Jelinek (1983, p. 146) say that the pressure is to integrate marketing with design, design with manufacturing and manufacturing with strategic positioning. They say that this form of integration makes other functional organizational structures obsolete. White (1996) provides a model that links manufacturing capabilities with business performance and Snaddon (1996, p. 388) identifies these manufacturing mix capabilities to include cost, quality, speed, dependability and flexibility. White (1996) links some of these capabilities to business performance. Some propositions of the model are discussed next viz. 앫 The most direct relationships between manufacturing capabilities and business performance is through conformance quality, delivery speed, dependability and product flexibility, which leads to higher profitability as a result of lower costs. 앫 The firm’s performance on manufacturing capabilities will influence market share.

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Fig. 1. Hierarchical representation of technological systems in firms.

Shortcomings of this model are possibly how firms integrate and manage technologies to create competitive advantage. Technologies exist throughout the transactional process or value chain from design (CAD, CAE, CADD, etc.) process or manufacturing (CAM, FMS, robots, AS/RS, etc.) and management information systems (ERP, MRP, etc.). The number of technologies that exist throughout the firm further complicates the management of technology in firms. To manage technology effectively, firms should diversify technology and not make it the responsibility of one individual. Firms should:

The specific links between technology management, transaction processes and governance structures are next discussed.

앫 diversify the responsibility for technology management across the firm, and 앫 seamlessly integrate the management of technology into the current management structures and processes.

앫 Technology management, which includes technologies (3.1), technological resource skills (3.2) and firm competencies (3.3). Technologies (3.1) include technological strategy (a), technological investment (b), technological change (c) and technological implementation (d). Technologies (3.1) link to technological resource skills (3.2). Linking technologies (3.1) and technological resource skills (3.2) creates firm competencies (3.3). Technologies (3.1) also link directly to firm competencies (3.3). Firm competencies (3.3) may improve transaction processes (3.4). 앫 Transaction processes (3.4) include improvements in transactional cost reduction (i), transactional value added (j) and manufacturing mix criteria (k) like cost, quality, speed, dependability and flexibility. 앫 Through technology, management improvements in transaction processes may be obtained. To manage these improvements for competitive advantage governance structures are needed. Governance structures include knowledge management (3.5), technological sourcing (3.6), organizational learning (3.7) and relationship management (3.8).

When assessing the firms’ technological needs managers need to consider the firms’ technological resource skills and firm competencies required for management and use of technology, which may lead to improvements in transaction process (either cost reducing or value adding). Transactional improvements may be evident in manufacturing mix capabilities. When implementing technologies to create improvements in transactional processes, managers also need to consider the effects on governance structures. Governance structures include technological sourcing, knowledge management, organizational learning and relationship management. These relationships may take the form of strategic alliances, joint ventures and other partnership type agreements. The links between technologies, transaction processes and governance structures are complex. Firms have to understand and be able to leverage these links in order to stay ahead. Managers react to market threats, opportunities and other technological factors that threaten the firm’s competitive ability. Firms do not necessarily possess all the skills necessary to develop a portfolio of technologies. Firms may have to form relationships with other firms in order to stay competitive.

3. Linking technology management, transaction processes and governance structures Fig. 2 gives a graphical representation of the linkages between technology management, transaction processes and governance structures. The links incorporate the areas of:

Managers need to create an environment based on the principles of knowledge management, which support organizational learning and relationship management by implementing different technologies and integrating these technologies within and between firms. Knowledge

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Fig. 2.

Linking technology management, transaction processes and governance structures.

management includes human capital, which may be leveraged to improve a firms’ competitive advantage. Tapscott et al. (2000, p. 26) say knowledge management theory describes human capital as the sum of capabilities of individuals in the firm.1 Hamel (2000, p. 13) says organizational learning and knowledge management are linked to continuous improvement, they are more about getting better than getting different. We argue that technology management leads to improvements in transaction processes, which supported by good governance (i.e. knowledge management, technological sourcing, organizational learning and relationship management) may create competitive advantages. Having introduced Fig. 2, the next section looks at the details of the model. 3.1. Technologies In Fig. 2, technologies (3.1) include technological strategy (a), technological investment (b), technological 1

The authors use the word enterprise instead of firm.

change (c) and technological implementation (d). Burgelman et al. (1988, p. 1) agree that technological strategy (a) integrates with firm strategy. They say that technology is a resource, which, when managed for competitive advantage requires integration into firm strategy. Hayes and Pisano (1994, p. 686) argue that firms have initiated a number of technologies2 to improve competitive advantage. These technologies span many improvement programs like TQM, JIT production, design for manufacturability, lean manufacturing, reengineering, benchmarking and team approaches to management. However, not many of these technologies have met with much success. The main reason for the lack of success is that these technologies were not a strategy to improve competitive advantage. Technology management (3.1, 3.2 and 3.3) should be integrated into firm strategy. Having integrated firm strategy and technological strategy the next step is to consider technological investment (b). Technological investment (b) includes risks and limi2

The authors use the word initiatives instead of technologies.

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tations that are associated with technological investment. Rosenthal (1984, p. 213) lists risks that limit the adoption of technological investment. The main reasons are: 앫 inability to quantify strategic benefits; 앫 lack of understanding of the potential benefits from technological adoption; 앫 newness of the area of technology; and 앫 concern over the lack of skills necessary to achieve the potential benefits. Other reasons include self assessment needs of the firm to understand the requirements that are needed from the investment. Benefits to be achieved from the technology are limited because of the fear of failure by managers. These reasons can be likened to Williamson’s (1981, p. 1545) bounded rationality and opportunism. Bounded rationality could be interpreted as people who are constrained by their knowledge, experience and training and therefore will interact in a manner in relation to this. Opportunism, on the other hand, may be interpreted as when people are faced with conflicting situations they will act in a manner that best suits their interests. Alchian and Woodward (1988, p. 66) interpret bounded rationality and opportunism as: bounded rationality means people have limited information and limited ability to access it. Opportunism is guileful self-interest. This means that when conflict arises between what people want and what they have agreed to do for others, they will act in their own interest insofar as it is costly for others to know their behavior. Systems that may be used to alleviate the risks of technological investment include reward systems. The risks associated with technological investment are significant. Managers must be aware of the costs, benefits and risks before they embark on technological investment. Having noted the risks associated with technological investment (b), the effects of technological change (c) need to be considered. As firms invest in newer technologies, older technologies become obsolete. Technologies evolve over time and investment in newer technologies could either destroy or enhance existing systems and competencies. Technological implementation (d) requires that the associated technological risks be minimized. Technological implementation (d) together with technological resource skills (3.2) may open avenues for firm competencies (3.3) that are required for competitive advantage. The links between technologies (3.1), technological resource skills (3.2) and firm competencies (3.3) are discussed next. In Fig. 2 technologies (3.1) and technological resource skills (3.2) are required to create firm competencies (3.3). There are various definitions of technologies, we use the advanced manufacturing technologies (AMT) definition as discussed by Boyer et al. (1996, p. 297): they say AMT technologies exist in design, manufacturing and administration. We under-

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stand this to include technologies in design, process or manufacturing, management and administration. Technologies (3.1) affect technological resource skills (3.2) by technological discontinuities. Tushman and Rosenkopf (1992, p. 318) characterize technological discontinuities as either competence destroying or competence enhancing. The authors define competence destroying discontinuities as being based on fundamentally different technological knowledge that would be needed, competence enhancing discontinuities on the other hand build on existing know-how. In order to cope with the effects of competence destroying (e) and competence enhancing (f) technologies, managers in firms have to consider the effects of the tangible and intangible technological resources (g). Matching technological discontinuities with the tangible and intangible technological resources links technologies (3.1) and technological resource skills (3.2). Competence destroying (e) and competence enhancing (f) skills depend upon tangible and intangible technological resources (g). This view is also supported by Porter (1991, p. 106) who argues that simply having pools of skills, knowledge or other resources is not a guarantee of success, it is having the right ones that count. Therefore managers in firms have to find the right match between technologies (3.1) and technological resource skills (3.2). Understanding technologies, links technologies (3.1) to firm competencies (3.3), and understanding technological resource skills, links technological resource skills (3.2) to firm competencies (3.3). Technological resource skills are discussed next. 3.2. Technological resource skills Competence destroying (e) and competence enhancing technologies (f) affect technological resource skills. Competence destroying effects may affect employees as employee skills become redundant, further training may be necessary. Competence enhancing, on the other hand, improves upon the employees’ current skills. In order to sustain employee motivation, firms may opt for performance and reward systems for employees to improve their resource skills. This may result in competence enhancing rather than competence destroying effects. As technologies evolve the required skills are either enhanced or destroyed. To minimize the risks and increase the benefits associated with technological implementation firms must be able to match technologies (3.1) with technological resource skills (3.2). Technological resource skills (3.2) are required to manage technologies (3.1). There are many ways to create firm competencies. The following authors provide some evidence. 앫 Williamson (1981, p. 1546) refers to human asset specificity, which arises from learning by doing. 앫 Pisano (1994, p. 86) identifies two strategies for learning: learning by doing and learning before doing.

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In technological evolving environments firms must be competent in both types of learning to sustain competitive advantage. Competencies may be created through core and general competencies (h). Matching the right technologies with the right technological resource skills may create benefits in transaction processes (3.4). These benefits in transaction processes include transactional cost reduction (i), transactional value added (j) and improvements in manufacturing mix criteria (k). 3.3. Firm competencies Firm competencies consist of core competencies and general competencies (h). Hamel (2000, p. 75) says that core competencies are what a firm knows, they encompass skills and unique capabilities. Stonehouse et al. (2000, p. 126) argues that a capability may or may not be core, it depends on the extent to which a capability is in possession by competitors and the value it adds to the organization and its products. Stonehouse et al. (2000, p. 223) say that the importance of technology to an organization lies in the possession of technology giving competitive advantages. The authors argue that technology is a strategic asset and therefore the organization’s ability to manage and exploit technology can represent a core competence. Firm competencies (3.3) can be divided into core or general competencies (h). Firm competencies (3.3) may create competitive advantages like core processes, organizational knowledge and reputation. In carrying out tasks, managers and employees develop methods and routines called transaction processes that embody the benefits from technological use. Such transaction processes may create competitive advantages for the firm. Transaction processes are next discussed. 3.4. Transaction processes Transactions occur within and between firms. Managers implement newer technologies to obtain benefits in either transactional cost reduction or transactional value adding (i.e. transaction certainty, transaction frequency, transaction durability, transaction specific interests) activities. Through the integration of technologies across the value chain from product design, manufacturing or management, managers try to improve transaction processes. These improvements may lead to benefits in manufacturing mix criteria as managers try to obtain competitive advantages for their firms through newer technologies. Transaction processes (3.4) may create improvements in knowledge management (3.5) through improvements in information flow (l) and knowledge transfer (m). Better information flow (l) and knowledge transfer (m) may enable managers to react faster to the competitive environment (3.9). Firms possess competitive advantage by faster reaction times.

3.5. Knowledge management From Fig. 2, knowledge management (3.5) depends upon firm competencies (3.3). Firm competencies (3.3) depend upon core and general competencies (h) that may lead to improvements in transaction processes (3.4). Improvements in transaction process through transaction cost reduction (i), transactional value added (j) and manufacturing mix criteria (k) may further be improved through knowledge management i.e. information flow (l), knowledge transfer and integration (m) and new and emerging technologies (n). Knowledge management may also be improved through technological sourcing (3.6). Technological sourcing is discussed in Section 3.6. Knowledge management (3.5) encompasses the areas of information flow (l), knowledge transfer and integration (m) and new and emerging technologies (n). These subsets of knowledge management may lead to better communication within and between firms. Improved communication may help managers make decisions. The decisions managers make may be based on the latest available information and managers may therefore be able to react quicker to market threats and opportunities. The competitive environment (3.9) comprises many factors including market threats (v), market opportunities (w) and external factors (x). Being able to react promptly to the competitive environment (3.9) may create competitive advantages. Stonehouse et al. (2000, p. 365) argue that responsiveness and pro-activity are dependent upon individuals and organizations to learn more quickly than competitors. The quick reaction to the competitive environment (3.9) may provide opportunities for competitive advantage. Managers in firms should seek more knowledge and information about the competitive environment to stay ahead of their competitors and capitalize on market threats and opportunities. Other authors like Day and Schoemaker (2000, p. 42) also support this view when they say “(s)enior managers must wander outside their offices and comfort zones, and start having conversations with informed insiders, outside experts, and customers. They must study competitive moves, float ideas, and seek collaborations”. These initiatives may ensure that managers are abreast with the latest available information and knowledge. However, knowledge cannot merely be transferred. Knowledge sharing involves knowledge communication, i.e. passing documentation and other sources of knowledge, and knowledge transferability, i.e. understanding of the content of the knowledge. To understand information flow and knowledge transfer knowledge components are defined. The following authors provide our understanding: 앫 Stonehouse et al. (2000, p. 365) note that knowledge management includes knowledge generation, for-

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malization, storage, diffusion and co-ordination and control. 앫 Hamel et al. (1996, p. 595) say that knowledge transfer depends on how easily knowledge can be transported, interpreted and absorbed. Fig. 3 gives a graphical interpretation of the steps involved in the process of knowledge management. From Fig. 3, knowledge is first generated or absorbed from the market or technological partner. In Fig. 3 technological sourcing (3.6), through strategic alliances and technology partnering (p), may provide opportunities for knowledge absorption and technology partners. Roberts and Fusfeld (1988, p. 313) propose technological gatekeeping as a mechanism that may be utilized by firms to absorb and transfer knowledge and information between firms. Technological gate-keeping may be used to control and monitor the flow of information between partners. The absorption of information involves developing a firm’s absorptive capacity, i.e. the ability to learn. Several mechanisms exist for developing a firm’s absorptive capacity. These mechanisms are discussed under organizational learning (3.7). Having generated or absorbed knowledge, the next step is to formalize the knowledge. To formalize knowledge, tacit and explicit knowledge are considered. Tacit knowledge relates to tangible and explicit knowledge relates to intangible technologies. Explicit knowledge includes easily communicated articulable knowledge where tacit knowledge is not. Lane and Lubatkin (1998, p. 462) point out tacit knowledge is difficult to define due to other interconnecting aspects like processes and social context. Other authors like Simonin (1999, p. 599) use the terms tacit knowledge and explicit knowledge or experimental knowledge. At least the following authors define tacit knowledge. 앫 Reed and DeFillipini (1990, p. 89) define tacit knowledge as the implicit and non-codifiable accumulation of skills that results from learning by doing. 앫 Simonin (1999, p. 598) cites Nonaka (1994) who defines tacit knowledge as knowledge, which can easily be communicated and shared, is highly personal, deeply rooted in action and in an individual’s involvement within a specific context. In support of these views Lane and Lubatkin (1998, p. 462) cite Barney (1991, 1995) and Spender (1996): they say that a firm’s capability builds on tacit knowledge, which is rare, imperfectly tradable and costly to

Fig. 3.

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imitate, and is therefore the basis for competitiveness or superior performance. Explicit knowledge is knowledge that exists in systems, procedures, methods and routines, which can easily be transferable. Tacit knowledge is not easily transferable and depends upon the firm’s prior experience with a particular technology. This view is also supported by Wolff (1997, p. 6) who says that accumulation of specialized knowledge is acquired only by being in an industry. We view specialized knowledge as tacit knowledge and argue that tacit knowledge may improve firm capabilities. This specialized knowledge may include detailed steps of production, as well as specialized skills that are mainly acquired through learning by doing. However, as technology develops, a firm’s competitive capability may be threatened by competitors. Competitors use various mechanisms to improve their competitive capabilities. Firms form networks with other firms. By positioning themselves within a network firms develop competitive advantages. Madhavan et al. (1998, p. 442) say that being well connected and a significant player in a network can be a crucial strategic advantage as each contact is a potential conduit for relevant information, resources or influence. Given this position Madhavan et al. (1998, p. 444) speak of structural reinforcing or structural loosening events. Firms central to the network will induce structural reinforcing events which will enable them to become even more powerful, on the other hand firms peripheral to the network will induce structural loosening events which will loosen the network structure thereby giving them the opportunity to reposition themselves more centrally within the network and thereby obtaining more power. In Fig. 2 it can be seen that the competitive environment (3.9) includes market threats (v), market opportunities (w) and external factors (x), which may affect firm competencies (3.3), knowledge management (3.5) and technological sourcing (3.6). Firms can look for other partners to improve their capabilities or build on existing knowledge to reinforce the links through technological sourcing (3.6) and knowledge management (3.5). Having looked at knowledge transferability, the next step is to consider the storage and diffusion of knowledge. Knowledge acquired from a competitor or partner is only valuable after it is diffused through the organization. This involves the co-ordination and co-operation of individuals within firms. Hoopes and Postrel (1999, p. 839) define co-ordination as the synchronization of activities within firms, and co-operation, as employees balance personal and firm interests. For knowledge and

Knowledge management processes.

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information to be diffused it must be shared, individuals in firms should firstly co-operate and share knowledge where necessary. Secondly, knowledge should be coordinated so that information overload does not occur. Several mechanisms exist for the dispersion of knowledge. Some firms use software systems for knowledge management while other firms use more routine mechanisms like holding meetings to collect and disseminate information. New technologies in information technology, communication and e-business may help manage information better. This may occur as firms interact in a more collaborative manner. Collaboration is possible as managers find lower costs for transactional interaction. Aldrich (1999, p. 137) says that firms3 that handle information better than others are in a position to re-deploy the money they save in transaction costs to create more value for customers and shareholders. Real value of knowledge management is not transactional cost savings but the ability of the firm to be able to react quicker as a result of more timely and accurate information. Therefore, the ability to integrate and transfer knowledge within and between firms quickly is a source for firm competitiveness. Knowledge management (3.5) may therefore also improve technological resource skills (3.2). We may therefore say that knowledge management (3.5) links to technological resource skills (3.2). Knowledge management may also be improved by technological sourcing (3.6) through strategic alliances (o) and technology partnering (p). Technological sourcing is discussed next. 3.6. Technological sourcing To improve transactional processes either through transactional cost reduction, transactional value added or improvements in manufacturing mix criteria firms are faced with two options; either build in-house competence or acquire certain competencies. This may involve forming networks with other firms through strategic alliances (o) or other forms of technological partnering (p). Strategic alliances may have benefits for firm competitive advantages and some of these benefits are shown in Table 1. Benefits include product market combinations, which may be achieved through the exchange, sharing or co-development of products, technologies or services. Further benefits for global strategies also exist. Porter (1998, p. 66) says that for global strategies firms3 enter strategic alliances to gain a number of benefits. Benefits include: 앫 Economies of scale or learning. These can be achieved by joining forces in marketing, component production or assembly of particular models.

3

The author uses the word companies instead of firms.

앫 Access to local markets, needed technologies, or to meet government requirements for local ownership. Firms have to be cautious with the partnerships and alliances they form, the following authors add further benefits that favor alliance formations. 앫 Hagedoorn (1993, p. 372) adds economies of scope, he says that even large diversified firms still lack some competence in a number of scientific and technological fields, this competence may be complemented through co-operative joint efforts. Managers in firms can opt for different tactics to sustain or improve competitiveness, one such tactic is to use network structures as managers in firms form alliances or relationships with other firms. 앫 Gulati (1998, p. 297) adds accumulated strategic alliances, which can become social networks. Embedded ties may result from social networks. Gulati (1998, p. 298) argues that embedded ties promote greater frequency of information exchange between partners, which affects the success of the alliance as well as the performance of firms entering them. Embedded ties may also assist firms in forming strategic networks with other firms. Strong embedded ties may pose barriers to firms that initiate structural loosening events, which are typical in network structures. Hence strong network ties may reinforce structural reinforcing events as firms act to protect their own interests. 앫 Khanna et al. (1998, p. 195) identify that alliances have private and common benefits viz. 앫 Private benefits are those that a firm can earn by picking up skills from its alliance partner and applying them to its own operations in areas that are unrelated to the alliance activities. 앫 Common benefits are those that are incurred by partners through the alliance. Common benefits are therefore related to what each partner would learn from each other. The life of an alliance can be hampered by common benefits as soon as one partner has absorbed the knowledge from the other partner, the incentives to remain in the alliance is reduced. 앫 Therefore it may occur that partners are in a race to learn from each other. In business, alliances are based on a combination of private and common goals. Co-operative relationships arise from private benefits and competitive aspects arise from common benefits. 앫 Kogut (1988) provides the following motives for alliance formation viz. 앫 Transaction costs resulting from small numbers bargaining. 앫 Strategic behavior that leads firms to enhance their competitive position or market.

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Table 1 SWOT analysis of strategic technology alliances Strategic technology alliances Strengths

Weakness

1. Technology transfer from one partner to another can also be a motive for inter-firm co-operation. This technology transfer can equip one partner or both partners to leap-frog their competitors (Hagedoorn, 1993, p. 373). 2. There is evidence that alliances with embedded ties perform better or last longer than others, such embedded ties include non-recoverable investments, which can enhance the performance of the alliance (Gulati, 1998, p. 308). 3. A strategic alliance can strengthen both firms against outsiders even as it weakens one partner against the other (Hamel et al., 1989, p. 133).

1. For firms in learning alliances to absorb skills from their partners requires continual allocation of resources to the learning process (Khanna et al., 1998, p. 201). 2. A partner may either free-ride by limiting its contributions or simply behave opportunistically (Gulati, 1998, p. 300).

Opportunities

Threats

1. Partners in competitive alliances may sometimes be more likely to view collaboration as a race to the future first, rather than a truly cooperative effort to create the future together (Hamel, 1991, p. 89). 2. Large and diversified firms might still lack some competence in certain areas of scientific and technological fields, therefore cooperation creates the necessary complementary technology inputs enabling these companies to capitalize on economies of scope through joint efforts (Hagedoorn, 1993, p. 372). 3. Each partner’s awareness that the other has much to lose from behaving opportunistically enhances its confidence in the other partner. Potential hazards could include loss of repeated business with the same partner, loss of other intangible benefits, loss of reputation (Gulati, 1998, p. 303).

1. Partners in strategic alliances regarded their alliances as transitional devices where the primary objective was the internalization of partner skills (Hamel, 1991, p. 86). 2. Joint activities are merely a cover-up to quickly absorb some capabilities from others. This could also include market access through the joint agreement (Hagedoorn, 1993, p. 373).

앫 The quest for organizational knowledge or learning that results, when firms want to acquire critical knowledge from the other partner, or one partner wants to maintain its capability while seeking another firms knowledge. Technology is a strategic asset and firms do not always possess all technologies needed for competitive advantage. Firms therefore may form alliances with other firms in order to source technological advantages especially for intangible technologies. Therefore technological sourcing (3.6) is linked to technologies (3.1). In such cases firms form networks with other firms. Networks provide firms with the ability to obtain additional resources to sustain or improve competitive advantage. Firms must therefore be cautious with the firms they select to form strategic alliances. Firms strive to form networks with other firms which will aid them to jointly benefit from the knowledge from one firm, i.e. the firm which possesses the needed resources, and thereby they can create a competitive advantage. Technological sourcing (3.6) through strategic alliances (o) and technology partnering (p) coupled with knowledge management (3.5) may lead to improvements in organizational learning (3.7).

3.7. Organizational learning From Fig. 2 it can be seen that organizational learning (3.7) is dependent upon knowledge management (3.5). The subsections of knowledge management are prerequisite for organizational learning. Organizational learning looks at the absorption of knowledge from outside the firm and diffusing that knowledge within the firm. Information flow (l), knowledge transfer (m) and new and emerging technologies (n) may assist the firm to learn and develop capabilities faster than their competitors. This may provide firms with better competitive advantages than their competitors. This, however, is dependent on a firm’s absorptive capacity, i.e. the firm’s ability to learn. Before discussing absorptive capacity it is necessary that the different ways of learning first be understood. Pisano (1994, p. 86) categorizes two ways of learning viz. learning by doing and learning before doing. To do this, firms may be able to improve knowledge absorption. Cohen and Levinthal (1990, 1996, p. 128) propose a theory of absorptive capacity in which they define absorptive capacity as a firm’s ability to recognize the value of new external knowledge, assimilate it and apply this knowledge to commercial ends. Lane and Lubatkin (1998, p. 462) say that a firm’s ability

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to value, assimilate and apply new knowledge from a learning strategic partner depends upon the following three activities: 앫 The specific type of new knowledge offered by the teacher firm (resource owner). 앫 The similarity between the teacher firm and student firm’s organizational structure and compensation practices. 앫 The host firm’s familiarity with the teacher firm’s set of organizational problems. Lane and Lubatkin (1998, p. 465) argue that the ability to learn from another firm is determined by the relative characteristics of the student and teacher firm, i.e. the student firm’s ability to internalize knowledge is greater when its knowledge-processing systems are similar. The student firm must have some prior knowledge and similar knowledge to the teacher firm in order that learning is successful. In addition, the rewards for learning in both firms should be similar. Hamel et al. (1989, p. 138) argue that “to learn one must want to learn”. Lane and Lubatkin (1998, p. 462) categorize three different types of learning viz. 앫 Passive learning occurs when firms acquire observable knowledge about technical and managerial processes through journals, seminars and consultants, this can be likened to technological gate-keeping. 앫 Active learning includes benchmarking and competitor analysis, which provide a broader view of other firm’s capabilities. 앫 Interactive learning is a means of face-to-face interaction between the student firm and the teacher firm. In firms, individuals interact and communicate with other individuals, they perform different roles and functions. The firm’s organizational structure regarding the standardization and centralization of tasks affects the way individuals interact with each other. These views are also shared by Hoopes and Postrel (1999, p. 1) who say organizational integration across functional and disciplinary specialties drives superior capabilities. This may be achieved through flatter hierarchies, cross-functional teams, electronic groupware, and similar current management preoccupations all aimed at improving communication among different individuals and departments. Therefore the firm’s organizational structure may affect knowledge transfer and organizational learning. In conclusion, we refer to Pisano (1994, p. 86) who says that one of the chief challenges facing innovation lies not in designing the process, but also implementing and replicating it within the firm’s operating environment. The ability of firms to recognize knowledge and diffuse it within the firm may create competitive advantages, of which organizational learning is the key. Hence

organizational learning (3.7) is linked to the competitive environment (3.9). From Fig. 2, it can be seen that organizational learning (3.7) is also supported by relationship management (3.8). Relationship management is discussed next. 3.8. Relationship management Relationship management encompasses all aspects of managing business relationships with suppliers, alliance partners, sales channels, employees, customers, investors and other stakeholders. Gulati (1998, p. 297) says that firms can be interconnected with other firms through a wide variety of social and economic relationships. These relationships include supplier relationships, resource flows, trade association members, interlocking directorates, relationships among individual employees and prior strategic alliances. Hanson (1997, p. 62) says that in Japan it is argued that the true meaning of the word Kaizen is not actually continuous improvement but shared improvement. He says that manufacturers see their role as making their nation successful, rather than concentrating solely on their individual firms. He further argues that to share experience with competitors such that both firms improve relative to the global market makes excellent sense. In terms of Fig. 2, we may say that firms should form relationships with other firms to improve knowledge management (3.5), and organizational learning (3.7). In addition, relationship management (3.8) may increase awareness to the competitive environment (3.9). Such relationships may be formed through social networks and embedded ties (q). These social networks and embedded ties may be further enhanced through technological sourcing (3.6). Through technological sourcing (3.6) firms form networks with other firms. Through these networks buyer and seller relationships develop. Therefore, relationship management (3.8) can be supported by it subsets, which include social networks and embedded ties (q), supplier closeness, communications trust and goodwill (r) and risks (s). Hamel (1991, p. 84) refers to a research project on ‘competition for competence’. In the project, managers voiced the concern that when collaborating with a potential competitor, failure to out-learn one’s partner could render a firm dependent and then redundant within the partnership and competitively vulnerable outside it. We may therefore argue that this would lead to competitive vulnerability. The partnership may then be exhausted and the firms concerned may dissolve such partnerships. In such cases supplier closeness, communications, trust and goodwill (r) may provide opportunities to extend the relationship. The role of trust as a function of transactions or business exchanges has been emphasized in supplier relationships. Several authors, including Dyer (1997), Barney and Hansen (1994), Choi and Hartley

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(1996), Jarillo (1988) and others mention that supplier closeness, communications, trust and goodwill are important for long term supplier relationships. Gulati (1998, p. 300) says that embeddedness of firms in social networks can both restrict and enable the alliance a firm enters. The author further postulates that, when faced with uncertainty about a potential partner, firms resort to existing networks to discover information and this lowers transaction costs, more specifically search costs, and this can reduce the risks associated with opportunism. In dealing with trust, firms have to weigh the benefits, costs and risks associated with each transaction. The risks associated with each relationship must also be considered. Ring and Van de Ven (1992, p. 488) say in dealing with risk, parties to a transaction will select a governance structure that will provide appropriate safeguards against risk, in addition safeguards will become more complex as the level of risk increases. They, however, say that risk and trustworthiness are related and the need to work over long sustained periods, managers must concern themselves with trustworthiness of other parties. Ring and Van de Ven (1992, p. 489) say that risk and trust are related as follows: 앫 A history of successful transactions between parties reduces risk. 앫 Repeated transactions and adherence to norms of equity and reciprocity will reduce opportunistic behavior when given access to proprietary information. 앫 Transaction frequency occurs for different reasons; it will, however, increase the likelihood that parties will be able to exercise greater autonomy without fearing a loss in control in subsequent transactions. 앫 More frequent transactions with different organizations may result in the accumulation of information regarding the predictability or reliability of parties. 앫 Diversity in transactions is also likely to increase the store of information regarding efficacy of contractual safeguards. 앫 Transaction history with different parties is likely to reduce the time taken to make decisions. From Fig. 2, it may be noted that social networks and embedded ties (q) are a key part of relationship management (3.8). Therefore, firms should form networks with other firms in order to leverage advantages in terms of supplier closeness, communications, trust and goodwill (r). Social networks and embedded ties (q) may reduce risk (s) associated with network structures. In addition, Madhavan et al. (1998, p. 440) say that external relationships provide access to key resources. The network structure and relationships explains the asymmetric access that competitors have to raw materials, information, technology, markets, or other performance requirements. So firms may use social networks and

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embedded ties (q) to gain competitive advantages. Furthermore, Lorenzoni and Lipparini (1999, p. 320) suggest that inter-firm networks could provide an effective way to organize knowledge transfer or access in competitive environments. It also follows from Fig. 2 that relationship management (3.8) links to knowledge management (3.5), which leads to opportunities in the competitive environment (3.9). 3.9. Integration of linkages Following from Fig. 2, the linkages between technology management, transaction processes and governance structures could include technologies (3.1), technological resource skills (3.2), firm competencies (3.3), transaction processes (3.4), knowledge management (3.5), technological sourcing (3.6), organizational learning (3.7), relationship management (3.8). The technologies firms adopt and implement may provide opportunities in terms of the competitive environment (3.9). The competitive environment (3.9) may be affected in terms of market threats (v), market opportunities (w) and external factors (x). For example: 앫 Firms introduce structural reinforcing or loosening events to cope with market threats by competitors or substitute products. These events are improved through social networks and embedded ties. These structural events protect the firms’ position in the network. Through these structural events firms create barriers to entry. 앫 Firms create improvements in manufacturing mix criteria, which provide market opportunities. These market opportunities provide competitive advantages. 앫 In terms of external factors, benefits from globalization may exist. Globalization may provide benefits in knowledge management with respect to new and emerging technologies. Benefits may be seen as firms open the avenues for knowledge absorption; in this way managers may keep abreast with the latest available knowledge and information. Such knowledge and information may enable managers to react quicker to market threats and opportunities. The quicker reaction to market threats and opportunities may provide competitive advantages. However, the impact of competitive advantages lies in linking technology management, transaction processes and governance structures.

4. Conclusion Having established the possible associations for the linkages between technology management (technologies, technological resource skills and firms competencies),

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transaction processes and governance structures (technological sourcing, knowledge management, organizational learning and relationship management) we may draw the following conclusions: 앫 Technology management links technologies, technological resource skills and firm competencies. Firm competencies may be further enhanced through technological sourcing by improving the firm’s technological resource skills. Firm competencies provide opportunities in terms of transaction processes. 앫 Improvements in transaction processes are either obtained through transaction cost reduction, transaction value added or in manufacturing mix criteria. Technology management provides opportunities in transaction processes, which have to be managed through governance structures. 앫 Governance structures support technological sourcing, knowledge management and organizational learning, through which competitive advantages may be obtained. At least the following work is necessary to validate this framework: 앫 This framework can be tested against links in an investigative framework that could include organizational determinates, competitors and other factors like social, economic and political. 앫 Aspects of this model can be categorized into either the transactional cost economic or resource based views of the firm. This categorization may then be used to find the superior view or integrate both views.

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Lundberg, l., Melchior, A. (Eds.), Technology and International Trade. Edward Elgar Publishing Limited. Raj Siriram is general manager at Siemens South Africa. He is responsible for supply chain management, quality, performance management and business engineering. His research interests are in technology and operations management. Raj has wide industrial experience ranging from industrial and production engineering to manufacturing and operations management. Raj is a registered Professional Technologist in engineering. He holds an M.Sc. in Industrial Engineering from the University of the Witwatersrand in South Africa, where he is also completing a Ph.D. in industrial engineering. Professor D.R. Snaddon is head of Industrial Engineering at the University of the Witwatersrand, South Africa. Before joining the university he worked in industry as an engineer and financial and managing director. He has published over 25 papers in this and other journals and currently teaches Operations Management and Engineering Economics.