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Journal of Management
Volume 23, 1994

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Inter-Organisational Alliance and Networking:
A Novel Trend in Managing Businesses in the Nineties
Rachid Zeffane,
Dept. of Management, University of New Castle, Australia

In recent years, both large and small organisations are increasingly required to engage in networking and inter-organtsational alliances. This paper provides an overview of some of the salient benefits of networking, and outlines recent examples/cases of organtsations experiencing various networking strategies and means of achieving inter organisational alliances.  It concludes with remarks on salient trends and on some of the requisites, and constraints associated with success in networking.

In the 90s, both large and small organisations are increasingly required to network or enter into strategic alliances with other firms, in order to achieve success.  Strategic inter-organisational alliances and networking (through technology) are becoming the keys in managing organisations in the 90s.  Many firms (both small and large) have now realised the need for business alliances.

Inter-organisational networking may be defined as clusters of business units held together, in network fashion, by market mechanisms.  It could be used as a way for traditionally bureaucratic organisations to become more innovative (Yarnell, Peterson, 1993).  In that sense, the concept of networking as a new organisational form is an unique combination of strategy, structure, and management.  It is a dynamic process.  The process may be further sub-divided into the internal network which applies to a single Organisation and the stable network which involves partial outsourcing for fleidbility's sake and some shared assets but is still dedicated to a particular core business.  In this perspective, firms used a variety of strategies to create an alliance with other firms, through people who can help their business grow.  This process involves a variety of means and instruments which include networking with friends and colleagues, joining professional organisations, hiring skilled professionals for special needs, client referral development, and the use of sophisticated information systems networks.  Networks are transforming the roles of employees in organisations.  The back office has moved to the front and the new technology has changed many career paths.

In the long-term, the enterprise network may extend beyond the frontiers of the Organisation to include business partners.  This extension often requires the use of more sophisticated communications technology, such as electronic data interchange.  Through such an extension, some companies are rapidly moving towards situations where the customer is also a user of the system and gets the opportunity of some involvement in enterprise critical projects.  The extended alliance tends to be banks, travel companies, airlines, or large government organisations.

Salient Benefits
Networking is appropriate for a variety of organisations and may be modified to meet the individual needs.  It can serve as a transitional stage to help organisations to become leaner, more innovative, and responsive in order to meet today's organisational challenge to change.  Small organisations are able to accomplish the work of much larger, diversified companies without taking on their costs by contracting out the non-essential functions and forming strategic alliances with more richly endowed organisations.

Through networking, small business owners are also able to target and focus marketing approaches that build a satisfied base, one customer or client at a time.  One-on-one marketing strategies, through networking (including direct mail communication, and telemarketing follow-up) are custom-tailored, high quality interactions between the company and the client.  They help seek out potential clients, reveal what they are like, satisfy their needs, and demonstrate how important they are to one's Organisation.  For instance, small industrial firms tend to have centralised manufacturing and administration and remote sales offices.  They support their operations with lean, flexible networks that, while centralised, offer much front-end processing power (Suri, Kleiner, 1991).

Enterprise networking also offers more timely, cost-effective, and integrated ways to make information available throughout an entire enterprise.  Enterprise networking techniques are also being used to eliminate routine tasks.  The move towards networking also aims at structuring the system's environment away from a strategy of acquiring and using power to one whose relevant goal is that of optimal location.  Combined with down sizing, networking is changing the way organisations use computers and sophisticated communication technology.  Underlying the growth in the global economy is the need to move information around within and across national boundaries.  Successful corporate strategies depend upon data communication networks and the value-added services they provide.  Networking is, therefore, seen as an response to some of the communication requisites imposed by the move towards a global economy.

Lending-Hand of Information Technology
Networking has made a strong impact on the use of information (communication) technology in organisations, enabling information systems and peripherals to be accessible by everyone in a cost-effective way.  Some firms have deployed major investments towards the upgradation of the firm's computer capabilities.  Advances in software and networking are making it easier and more practical for many companies to forge strategic marketing and information technology alliances for mutual benefit.  Alliance partners can leverage each other's technology for mutual advantage.

In support of networking needs, sophisticated integrated services digital networks (ISDN) have become more popular and are seen as a superior data, voice, and image communications technology to enhance an organisation's communications capabilities (Gantz, 1989).  Many of the uncertainties surrounding the integrated services digital network (ISDN) are now being addressed, more effectively than ever.  The market place is beginning to shape its destiny.  A number of trends have brought ISDN to where it is today.  These include divestiture and equal access which reinforce the growing importance of networks (Gantz, 1989).  Some industries, such as the financial industry with enormous transaction volume requirements, are already driving the development of high speed networks.  Eventually, the banking and financial services sector may be able to transmit images of financial paper electronically rather than physically and reap the savings.

Managers can no longer ignore the availability of the sophisticated networking tools, such as ISDN with the argument that the equipment, service, and development tools are not available.  They need to understand ISDN, determine whether their companies have a sound communication strategy consistent with the advent of ISDN, and determine whether they are prepared to deal with the changes ISDN will bring to their organisations.

Recent Networking Cases and Experiences
The recently reported experience of IBM is probably the most exemplary of success in networking methods add strategies (Cooney, 1993).  IBM's Client/Server (C/S) Unit has been assigned the task of maintaining a corporate identity, while shaping IBM's corporate client-server strategy and giving users a voice in the technology's development.  Functionally, the C/S Unit is a horizontal Organisation that cuts across the, IBM lines of business.  Because it is not unusual for a customer to have to deal with IBM's networking systems, personal systems, and application business systems groups for one client-server environment, the C/S Unit will work with all the three to ensure smooth integration.  The C/S Unit recently demonstrated one of the ways it intends to help client-server.  In February 1993, IBM announced the AS/400 Client Series, a group of pre-tested, multi-vendor client-server applications designed to plugand-play on the mid-range box and the OS/2 System.  Also, IBM's recent announcement of the Advanced Peer-to-Peer Networking (APPN) protocol promises major benefits to banks ( Radding, 1992).

IBM's transparent inter-networking promises to allow banks to take full advantage of resources scattered throughout the Organisation.  It also allows them to pursue advanced information systems strategies, such as distributed client-server computing.  In addition to the APPN announcements, IBM unveiled its networking blueprint, which is designed to allow systems managers to identify strategic directions in connectivity.  Numerous institutions have expressed their satisfaction and comfort with IBM's System Network Architecture, a concept now over 15 years old.  However, some users may be foreclosing on their futures as competitors in the global financial market.  More than ever, network planners and managers are realising this and are working on strategies that can put their organisations on an equal footing with international firms.  As a result, many companies (large and small) are going in for the developed global networking strategies.

Some European companies, for instance, have embraced the Open Systems Interconnection (OSI) model, which addressed the importance of inter-operability and conformity with standards.  Organisations using OSI can more easily communicate with commercial clients that also have implemented an OSI strategy.  Companies in Europe and the Far East have found that they can implement OSI while preserving their capital investments in hardware and applications software development.  Organisations like Madge Networks have also been able to develop true multi-vendor environments through networking (Parker, 1992).  Madge Networks' 1992 sales in the US are three times that of 1991.  The market has become more open as more industry players in other topologies are now trying to provide connections to Token Ring so they can offer a general enterprise solution.  Madge Networks' customers look for more credibility in their suppliers, and they make their decisions on a project basis rather than on an individual basis.  The company shares a customer base with IBM, so it will parallel IBM's strategy for some time but not be constrained by it.

The Dixons Stores Group,. one of the UK's largest retailer of consumer electronics, photographic products, domestic appliances, and related services, has been using the standard electronic point of sale (EPOS) technology for most of the past decade ( Warren, 1992).  The Group undertook a review of its branch system strategy and realised that customer service could be improved through the linking of its shops with its other systems and those of the outside agencies, such as the finance houses the Group employs.  It also wanted to upgrade the existing EPOS system.  Local warehouses, mainframe, and credit organisations are now successfully inter networked via public networks.

Chrysler is also a case in point.  Since 1986, Chrysler, General Motors, Volkswagen, Nissan, and Toyota have all switched from land-based communication networks to satellite networks to tie together their respective dealer organisations.  In 1990, new systems (called V-Crest Systems), a wholly owned subsidiary of Volkswagen of America, formed an alliance with Scientific-Atlanta to provide satellite communications service throughout the US.  V-Crest has since established a trans American VSAT network, linking 1,200 dealer locations in the US.  Canada, and Mexico to its corporate locations.  Volkswagen's VSAT network provides dealers with Information on vehicle and part sales, and location, as well as many other applications, including on-line technical bulletins, sales training and certification, and on-line cheque approval.  Each of Volkswagen's headquarters in equipped with an IBM mainframe, such as the 3090.  The average dealer location utilises an IBM AS/400 and 12 remote terminals and printers.  The network offers numerous backup systems including backup earth stations, backup satellites, and other fail-safe systems that reroute communications in case of failures (Anonymous, 1992a).

Another success story is that of the American Airlines (Kolodziej, 1989).  The American Airlines uses data from credit purchases made by Citibank Visa customers to grant them extra frequent flier miles.  Citibank Visa uses data from American's Sabre network to help it expand its customer base.  The integration of separate corporate computer systems has been made more practical by the increasing speed and use of computer networks, the speed with which data can be managed by such tools as relational databases, and the move to interchangeable network standards.  Many of the organisations joining forces may actually be competitors who have decided that the possible exposure of business secrets is outweighed by the potential benefits of co-operation.

The case of the Alberta Cancer Board (in Canada) is also worth mentioning.  In May 1989, the Alberta Cancer Board in Edmonton, Alberta, faced a monumental task - phase out an array of different vendors' hardware and software, and implement a cohesive, corporate wide information system strategy, without completely disrupting the Organisation.  The Cancer Board decided on UNIX and a single-vendor strategy.  It chose Sun Microsystems' Sparc-Station as the hardware platform and opted for a client-server approach to networking.  The main application software platform is Sybase, a relational database management system (Anonymous, 1992b).

In Australia, information systems leaders at the Australian and Overseas Telecommunications Corp. (AOTC) have given a PC-based electronic mail package Microsoft Mail - a key role in the organisations' latest inter-networking revision (Karon, 1992).  The company has been strongly committed to PCs since the late 80s, when it began deploying them in increasing numbers to replace the terminals on desktops.  With the PCs came the desire for networking capabilities, and LANs came into widespread use.  The company decided that it would be cheaper to move entirely to LAN-based e-mail.  However, the PC-based packages with which they were familiar did not seem powerful enough for AOTC 's demands.  AOTC had adopted Microsoft Windows in late 1990 as the standard environment for its desktop computers, and it wanted a suite of applications that would run under Windows.  Because neither Microsoft Mail nor Lotus Development Corporation's cc:Mail met all the criteria of AOTC, the company based its decision on the future product strategies of the e-mail makers.

Prominent thoughts on the successful enterprise of the 2 1 st Century suggest that organisations should endeavor to network
with organisations and that they should function through outsourcing, strategic alliances, and interactions with customers and suppliers (Yarnell, Peterson, 1993: Sonnenberg, 1990, Zeffane, 1992).  Furthermore, the suggestions are that organisations should seek to build information technology-based businesses that use advanced networks and information systems to integrate their business products with those of their partners with a view to speeding up the development and deployment of new products, and facilitating the decision making.  In this way, networking firms will be able to effectively bring both economies of scale and customer responsiveness to the marketplace.

Progress in networking tends to take long periods of time.  This is not necessarily counter-productive nor dysfunctional.  The time element gives organisations the time needed to chart better courses through the network puzzle.  In this context, managers may need to think more in the long-term.  Such thinking about networks tends to accompany long-term thinking about the needs of the business (Frank, 1988; 1989).  Also, one of the keys to networking is spending significant time developing new contacts and managing old ones (Sonnenberg, 1990).  In this process, decentralisation is a fundamental element in network building, since one of the rationales of networking is to place facility and system responsibility on individual departments or operating divisions.  However, in the last resort, it is the level of networking and the sophistication of end-users that determine whether a company needs a key system.  Also, networking capabilities will not be realised unless the networks fit the existing orgnanisational culture (DeLisi, 1990).

There are, of course, some pitfalls, in networking.  One of the major difficulties in achieving strategic alliances (through networking) is that small and large companies typically do not work well together.  The various large and small units in a network might have to be kept separate and maintain enough autonomy to do what each does best.  Each unit needs the freedom to choose what services it can use from the other network members and must be able to communicate and deal directly with other units in an environment of trust.  The network must provide evaluation and funding systems that are flexible enough to measure and reward each unit independently.  In addition, each unit must have a designated person in charge of communicating.  For organisations that have a large number of small branches, the choice of lower layer networking components has to be weighed well in order to be cost effective.  Such organisations would ideally want to link their remote sites' terminals and PCs to the central site over the same wide area link.  However, this, might prove costly in the end.

Finding solutions to the organisational and networking problems require a concerted effort over a substantial period of time.  While technological innovations appear to replace the existing approaches on a daily basis, the progression from intervention to development to application to pervasive use generally can be measured in decades.  Even though technology develops quickly, extensive applications to end user problems can take years to mature.

Anonymous (1992a): Networking: Volkswagen of America Inc.  Networking Managgen-tent 10 (11), 79-80.

--(1992b): Alberta Board moves to client-server architecture.  Information Canada 17(6), 26, 42.

Cooney M (1993): IBM's C/S unit offers blanket coverage.  Network World 10(15). 37-42.

Delisi P S (1990): Lessons from the Steel Axe: Culture, technology, and organisational change.  Sloan MancLgement Review 32(l), 83-93.

Frank H (1988): Timing is everything in network strategy TP7'lNetworkirig Mancigement 6(12), 36-47.

_ (1989): Power to network managers Networking Managenient 7(11). 30-4.

Gantz J (1989): ISDN takes shape.7FT/Networking Management 7(l), 16-32.

Karon P (1992): Australian and overseas teleconnnunications corp: Telecom giant relies on switching product to standardise corporate E-mail.  InfoWorld 14(29). 52-8.

Kolodziej S (1989): Strategic partnerships: Allied forces, Computenvorld (June 5), 54-8.

Parker R (1992): Madge Networks ready for networking challenges.  InfoWorld 14(44) (Nov) 2, 106-12.

Radding A (1992): Too late for big blue's new networking strategy?  Bank MancLgement 68(7), 46-55.

Sonnenberg F K (1990): The professional (and personal) profits of Networking.  Training and Development,Joumal 44(9), 55-60.

Suri M A,lGeiner B H (1991): New developments in microprocessors and Microsystems.  Industrial Management and L)ata Systems 11(5), 21-5.

Warren S (1992): X.25 networking solutions in the retail sector.  Telecomrnunications 26(l 1), 46-8.

Yarnell D A, Peterson M F (1993): Networking in the n-iid-90s.  Joumal of Managenient
Development 12(4), 37-48.

Zeffane R (1992): Organisational structures: Design in the Nineties.  Leadership and Organisation Development Joumal 13(6), 18-23.