Strategy in industrial networks: Experiences from IKEA

California Management Review

Volumn 50, Issue 4, 2008, Pages 99-126

  Baraldi, Enrico ^a  

^a UPPSALA UNIVERSITY   (Sweden)

Author keywords

[No Author keywords available]

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EID: 51749095327     PISSN: 00081256     EISSN: None     Source Type: Journal    
DOI: 10.2307/41166458     Document Type: Review

References (63)

1. Next to 70 in-depth interviews, the empirical material was collected via a dozen visits and site observations made at IKEA and its suppliers' facilities in Sweden, Poland, and Italy. These sources were completed by first-hand written sources such as documents, catalogues, brochures, and company presentations, and by secondary sources such as newspaper clips and other publications related to IKEA.
2. For examples in the software sector, see B. Iyer, C.H. Lee, and N. Venkatraman, "Managing in a 'Small World Ecosystem': Lessons from the Software Sector," California Management Review, 48/3 (Spring 2006): 28-47.
3. For examples in the biotech sector, see W. W. Powell, K.W. Koput, and L. Smith-Doerr, "Interorganizational Collaboration and the Locus of Innovation: Networks of Learning in Biotechnology," Administrative Science Quarterly, 41/1 (March 1996): 116-145;
4. WW. Powell, "Learning From Collaboration: Knowledge and Networks in the Biotechnology and Pharmaceutical Industries," California Management Review, 40/3 (Spring 1998): 228-240.
5. See the Sassuolo area in Italy as featured in M. Russo, "Technical Change and the Industrial District: The Role of Interfirm Relations in the Growth and Transformation of Ceramic Tile Production in Italy," Research Policy, 14/6 (December 1985): 329-343;
6. M. Russo, "Complementary Innovations and Generative Relationships: An Ethnographic Study," Economics of Innovation & New Technology, 9/6 (December 2000): pp. 517-557.
7. See the study on the garment industry in New York City by B. Uzzi, "Social Structure and Competition in Interfirm Networks: The Paradox of Embeddedness," Administrative Science Quarterly, 42/1 (March 1997): 35-67.
8. See M.H. Lazerson and G. Lorenzoni, "The Firms that Feed Industrial Districts: A Return to the Italian Source," Industrial and Corporate Change, 8/2 (1999): 235-265.
9. See B.R. Koka and J.E. Prescott, "Strategic Alliances as Social Capital: A Multidimensional View," Strategic Management Journal, 23/9 (September 2002): 795-806;
10. E.H.M. Moors and P.J. Vergragt, "Technology Choices for Sustainable Industrial Production: Transitions in Metal Making," International Journal of Innovation Management, 6/3 (September 2002): 277-299.
11. T. Wedin, Networks and Demand: The Use of Electricity in an Industrial Process (Uppsala, Sweden: Department of Business Studies, Uppsala University, 2001).
12. See I. Stuart, P. Deckert, D. McCutcheon, and R. Kunst, "A Leveraged Learning Network," Sloan Management Review, 39/4 (Summer 1998): 81-93;
13. C. Carr and J. Ng "Total Cost Control: Nissan and Its U.K. Supplier Partnerships," Management Accounting Research, 6/4 (December 1995): 347-365.
14. The list is presented on page 148 of G. Lorenzoni and C. Baden-Fuller, "Creating a Strategic Center to Manage a Web of Partners," California Management Review, 37/3 (Spring 1995): 146-163.
15. See W.W. Powell, "Hybrid Organizational Arrangements: New Form or Transitional Development?" California Management Review, 30/1 (Fall 1987): 67-87.
16. Networks have probably always been there, since the early days of the modern corporations, even if periodic increases in vertical integration tend to hide inter-firm networks. Even the Fordistic model emerged in the early 1900s from a highly networked structure in the car industry. See pages 365-368 in R.N. Langlois and P.L. Robertson, "Explaining Vertical Integration: Lessons from the American Automobile Industry," Journal of Economic History, 49/2 (June 1989): 361-75.
17. These types of adversarial postures were for instance typical in the car industry until the early 1980s, as discussed by L.-E. Gadde and H. Håkansson, Professional Purchasing (London: Routledge, 1993).
18. Dominating paradigms within strategic management have been for decades the microeconomics-inspired Industrial Organization [see J.S. Bain, "The Theory of Monopolistic Competition After Thirty Years: The Impact on Industrial Organization," American Economic Review, 54/3 (May 1964): 28-32;
19. M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York, NY: Free Press, 1980)]
20. and Transaction Cost Economics [see O.E. Williamson, "The Economics of Organizing: The Transaction Costs Approach," American Journal of Sociology, 87/3 (November 1981): 548-577;
21. "Strategizing, Economizing, and Economic Organization," Strategic Management Journal, 12/8 (Winter 1991): 75-94]. Whereas Industrial Organization could not consider networks because it used as key unit of analysis whole sectors. Transaction Costs Economics views inter-firm relationships and networks as exceptions in economic organizing.
22. G.B. Richardson, "The Organization of Industry," Economic Journal, 82/327 (September 1972): 883-896.
23. M.S. Granovetter, "Economic Action and Social Structure: The Problem of Embeddedness," American Journal of Sociology, 91/3 (November 1985): 481-510.
24. W.W. Powell, "Neither Market Nor Hierarchy: Network Forms of Organization," in B.M. Staw and L.L. Cummings, eds., Research in Organizational Behavior, Vol. 12 (Greenwich CT: JAI Press, 1990), pp. 295-336.
25. R. Swedberg, "Markets as Social Structures," in N.J. Smelser and R. Swedberg, eds., The Handbook of Economic Sociology (Princeton, NJ: Princeton University Press, 1994), pp. 255-282.
26. Even scholars studying strategic alliances are dissatisfied with the research bias towards applying atomistic views to interactive phenomena such as alliances. For instance, Ranjay Gulati called for a paradigm shift, from an atomistic to a social network-embedded view of alliances. See page 295 in R. Gulati, "Alliances and Networks," Strategic Management Journal, 19/4 (April 1998): 293-317.
27. This view is presented for instance by H. Håkansson, "Organization Networks," in A. Sorge and M. Warner, eds., The IEBM Handbook of Organizational Behaviour (London: Thomson Business Press, 1997), pp. 232-239;
28. M.J. Piore, "Fragments of a Cognitive Theory of Technological Change and Organizational Structure," in N. Nohria and R.G. Eccles, eds., Networks and Organizations: Structure, Form and Action (Boston, MA: Harvard Business School Press, 1992), pp. 430-444.
29. Markets and hierarchies, the norms in many established theories (e.g., marketing, strategy), would then become just extreme cases whereby the informal network interactions are constrained either inside a strict hierarchy (based on command and bureaucratization) or by a perfect market (composed of autonomous firms that coordinate solely via price signals).
30. See H. Håkansson, "Product Development in Networks," in H. Håkansson, ed., Industrial Technological Development - A Network Approach (London: Croom Helm, 1987). pp. 84-115.
31. See Wedin, op. cit.
32. See E. Baraldi, When Information Technology Faces Resource Interaction: Using IT Took to Handle Products at IKEA and Edsbyn (Uppsala, Sweden: Department of Business Studies, Uppsala University, 2003).
33. A comprehensive literature overview over the IMP tradition is presented on pages 25-30 of H. Håkansson and A. Waluzsewski, Managing Technological Development: IKEA, the Environment and Technology (London: Routledge, 2002).
34. These studies included both a large-scale questionnaire studying hundreds of business relationships in Europe in the late 1970s and numerous extensive, deep case studies. The latter research approach still characterizes current IMP research: since the 1970s, hundreds of case studies have traced the industrial network around a focal firm or a technical solution by means of snowballing data collection techniques reaching up to 100 interviews.
35. See G.C. Homans, Social Behavior: Its Elementary Forms (New York, NY: Harcourt, Brace & World, 1961);
36. S. Macaulay, "Non-Contractual Relations in Business: A Preliminary Study," American Sociological Review, 28/1 (February 1963): 55-67;
37. P.M. Blau, "The Hierarchy of Authority in Organizations," American Journal of Sociology, 73/4 (January 1968): 453-467.
38. See, for instance, the model on page 24 of H. Håkansson, ed.. International Marketing and Purchasing of Industrial Goods: An Interactive Approach (Chichester: Wiley, 1982).
39. An example of these network-level models is the so-called "ARA" model, which decomposes the substance of industrial networks into three layers: inter-firm Activity patterns. Resource constellations, and webs of Actors. This Activity-Resource-Actor model is elaborated in H. Håkansson and I. Snehota, eds., Developing Relationships in Business Networks (London: Routledge, 1995).
40. See J.C. Anderson, H. Håkansson and J. Johanson, "Dyadic Business Relationships Within a Business Network Context," Journal of Marketing, 58/4 (October 1994): 1-15;
41. L. Hallén, J. Johanson, and N. Seyed-Mohamed, "Interfirm Adaptation in Business Relationships," Journal of Marketing, 55/2 (April 1991): 29-37.
42. See U. Andersson and M. Forsgren, "Subsidiary Embeddedness and Control in the Multinational Corporation," International Business Review, 5/5 (October 1996): 487-508;
43. and U. Andersson, M. Forsgren and U. Holm, "The Strategic Impact of External Networks: Subsidiary Performance and Competence Development in the Multinational Corporation," Strategic Management Journal, 23/11 (November 2002): 979-996.
44. For a Markets-as-Networks view of business strategy, see H. Håkansson and I. Snehota, "No Business is an Island: The Network Concept of Business Strategy," Scandinavian Journal of Management, 5/3 (1989): 187-200.
45. The concept of "strategic center" is used by Lorenzoni and Baden-Fuller, op. cit.
46. There is, in fact, also a "dark side" of networks, stressed for instance by H. Håkansson and I. Snehota, "The Burden of Relationships or Who's Next?" in D. Ford, ed.. Understanding Business Markets (London: Thompson Learning, 2002), pp. 88-94. Networks do not only produce positive effects for development and efficiency, but they are also ridden with conservative forces that embed (in the sense of " constraining") the firm. Too close business relationships can be harmful for novelty, a problem defined as "over-embeddness" by Uzzi [op. cit., pp. 60-63]. However, the dark side of networks derives not only from social aspects: networks can in fact generate technical lock-ins and economic overdependence for the involved firms.
47. In fact, business relationships require time to be established, but then display a strong continuity and can stretch over decades (as is the case for several of IKEA's relationships). This continuity includes institutionalization and dependencies that make relationships hard to change or terminate. These combined effects create stability in a network, where the involved actors, their goals, and their resources change only slowly. For the structural characteristics of business relationships and networks, see H. Håkansson and I. Snehota, eds., Developing Relationships in Business Networks (London: Routledge, 1995).
48. For a description of Wal-Mart's supplier relationships, see M. Petrovic and G.G. Hamilton, "Making Global Markets: Wal-Mart and Its Suppliers," in N. Lichtenstein, ed., Wal-Mart: The Face of Twenty-First-Century Capitalism (New York, NY: The New Press, 2006), pp. 122-138.
49. IKEA's approach can be contrasted with Charles Fishman's rendering of Wal-Mart: "Wal-Mart has the power to squeeze profit-killing concessions from suppliers...Wal-Mart price pressure can leave so little profit that there is little left for innovation." The quote is found in C. Fishman, The Wal-Mart Effect (New York, NY: Penguin, 2006), p. 89.
50. For the basic features of Keiretsu, see K. Miyashita and D. Russell, Keiretsu: Inside the Hidden Japanese Conglomerates (New York, NY: McGraw-Hill, 1994);
51. H. Kim, R.E. Hoskisson and W.P. Wan, "Power Dependence, Diversification Strategy, and Performance in Keiretsu Member Firms," Strategic Management Journal, 25/7 (July 2004): 613-636.
52. See Fishman, op. cit.; C Fishman, "The Wal-Mart Effect and a Decent Society: Who Knew Shopping Was So Important?" Academy of Management Perspectives, 20/3 (August 2006): 6-25, at pp. 13-14.
53. For a comprehensive analysis of how IKEA utilizes geographical factors across several places, see E. Baraldi, "The Places of IKEA: Using Space in Handling Resource Networks," in E. Baraldi, H. Fors, and A. Houltz, eds., Taking Place: The Spatial Contexts of Science, Technology, and Business (Sagamore Beach, MA: Science History Publications, 2006), pp. 297-320.
54. Development projects, regarded here as dynamic interactions, entail also strong structuring elements: even in informal projects, a specific organization - "a network in the network" - is typically built. This can alter the content of existing relationships between IKEA and its partners, as it partly did in the Billy episode among IKEA and Becker-Acroma (see Appendix A). Moreover, IKEA's technical projects are often an occasion for new actors to be included in the structure of IKEA's network: the "printed veneer" project, for instance, involved for the first time an Italian firm that is now a stable supplier of engraved cylinders.
55. Meeting with Anders Brorström, Deputy Procurement Director, IKEA Russia, Moscow, February 28, 2007.
56. See H. Håkansson and D. Ford, "How Should Companies Interact in Business Networks?" Journal of Business Research, 55/2 (February 2002): 133-139. On page 138, the authors stress that achieving total control over a network, however unlikely it is, is undesirable because it would transfer all burden and source of innovation and wisdom to the controlling company itself.
57. On the concept of "activity links," one of the key dimensions in the IMP network "ARA-model," see H. Håkansson and I. Snehota, eds., Developing Relationships in Business Networks (London: Routledge, 1995), pp. 28-30.
58. See M. Zollo, J.J. Reuer, and H. Singh, "Interorganizational Routines and Performance in Strategic Alliances," Organization Science, 13/6 (November/December 2002): 701-713.
59. These advantages of both intra- and inter-organizational projects as coordination mechanisms are recognized, for instance, by J. Sydow, L. Lindkvist, and R. DeFilippi, "Project-Based Organizations, Embeddedness, and Repositories of Knowledge: Editorial," Organization Studies, 25/9 (November 2004): 1475-1489.
60. H.K. Bowen, K.B. Clark, C.A. Holloway, and S.C. Wheelwright, "Development Projects: The Engine of Renewal," Harvard Business Review, 72/5 (September/October 1994): 110-120.
61. See T. Brady and A. Davies, "Building Project Capabilities: From Explorative to Exploitative Learning," Organization Studies, 25/9 (November 2004): 1601-1621, at 1605-1607.
62. A routine such as OPDC strongly depends on IKEA's competences and organization and is impossible to perform without adequate external interfaces. The effect of IKEA's internal structure is present, although less evident, on development projects, whose success certainly depends on IKEA's competence and organizational structure, but where much responsibility and control is typically delegated to actors farther away from IKEA.
63. See Lorenzoni and Baden-Fuller, op. cit.