Technological convergence and the impact
on Organizational Forms in the Multimedia
Industry – A case study analysis.
Master Thesis Strategy & Innovation 23 August 2012
University of Groningen MSc Strategy & Innovation
Abstract
Content
1. Introduction to topic and research questions p. 4-7
2. Context p. 7-13
2.1 Time Warner Company p. 7-9
2.2 NBC Universal p. 9-10
2.3 Walt Disney p. 10-11
2.3 ABC Entertainment p. 10-11
2.4 News Corporation p. 11-12
2.5 Viacom International Media Networks p. 12-13
3. Theory p. 13-27
3.1 The Multimedia Industry p. 13-15
3.2 Technological convergence p. 15-17
3.3 Network organizational form:
Creativity vs. Autonomy and Control p. 17-22
3.4 Knowledge building through the network: Internal vs. External p. 22-24
3.5 Costs reduction vs. Customer focus p. 24-25
3.6 Innovation vs. Complementary Resources p. 25-26
3.7 Time-to-market vs. Quality p. 26-27 4. Methodology p. 27-37 5. Results p. 37-49 6. Discussion p. 49-50 7. Conclusion p. 50-54 8. Future Research p. 54-55 9. References p. 55-70 Appendix p. 70-84
Figure 1: Strategic mapping of emerging multimedia arenas (Lei, 2000) p. 70 Figure 2: Ownership structure NBC Universal as of May, 2004 (Levy, 2004) p. 70
Figure 3: Viacom/CSB split (Wikipedia.org, 2006) p. 71
Figure 4: Gains from ambidexterity and focus (Gulati & Puranam, 2009) p. 71 Figure 5:
a. Inter-organizational Network: network capital and social
capital (Huggins, 2012) p. 72
b. Organizational forms: Network, hierarchy, market
(Powell, 1990) p. 73
Figure 6:
a. Interview with Viacom IMN p. 73-79
1. Introduction
‘Today, we are surrounded by a multi-level convergent media world where all modes of communication and information are continually reforming to adapt to the enduring demands of technologies, changing the way we create, consume, learn and interact with each other.’
‘Convergence in this instance is defined as the interlinking of computing and other information technologies, media content, and communication networks that have arisen as the result of the evolution and popularization of the Internet as well as the activities, products and services that have emerged in the digital media space.’
‘Many experts view this as simply being the tip of the iceberg, as all facets of institutional activity and social life such as business, government, art, journalism, health, and education are increasingly being carried out in these digital media spaces across a growing network of information and communication technology devices....’
Source: Equity Groups in ‘An Investors Social Network’, 2011
However, the tip of the iceberg does not define what is beneath the surface. It is underneath the water where the complex web of relationships is driving the force forward, as Lei (2000) states: managing technological convergence requires continuous scanning of the firm’s immediate and neighboring industries’ environment. Technological developments that occur in a seemingly distant or unrelated industry can eventually generate ripples of creative destruction that could threaten the value and durability of the firm’s existing core competences and capabilities. On the contrary, it is also discussed that when firms invest sufficient resources to learn and cultivate multiple dynamic routines and skill sets, they can actually exploit forces of convergence to formulate new strategies that enact upon the environment. Furthermore, inter-firm relationships, such as strategic alliances and equity stakes, can significantly facilitate the sharing and learning of new technologies and product development approaches.
The type of industries that deal with technological convergences are content, communication, computer and semi-conductors in the multimedia and entertainment field. As this concerns a broad scope of different companies, this paper is especially focused on firms in the content sector, of which most have crossed with the communication field. One should think of Television, the Internet and Telecommunications convergence.
The eight media giants are Disney-ABC, Time Warner, Viacom, General Electric (GE), News Corporation, Yahoo!, Microsoft and Google.1 Lei (2000) also provides relevant examples of convergence-driven strategies in these multimedia industries by categorizing them in a diamond shaped figure (Appendix, figure 1). From the communications and content industry perspective, companies such as Disney and Warner are collaborating to expand their broadcasting and entertainment assets into new Internet areas. For example, Disney in conjunction with Comcast. Corp. purchased E! Entertainment Television from Time Warner in 1997. This arrangement allows both Disney and Comcast to leverage their programming-based competences and skills into the cable television industry without the costs of building a new franchise.
According to Sydow (1998) the blurring of boundaries of the media and entertainment industry and the final convergence with the telecommunications and information technology business into a more unified, but functionally complex industry has become a popular proposition, not only in the trade press but also in scholarly discourse (e.g., Collis et al, 1997; Greenstein, et al, 1997; Mueller-Stewens & Hoffman-Burchardi, 1996). The convergence of these industries seems to be driven by technological change. While Sydow takes the point of view that it is in essence the outcome of corporate strategy – a fact acknowledged by most scholars and reflected in the growing number of related collaborations, and in the extensive building of strategic alliances between firms in this emerging arena, this paper emphasizes the perspective that most of these inter-organizational ventures are actually driven by technological convergence, which in turn affects the result in organizational forms. It raises several questions regarding the conceptual relationships involved: given the prominence of these inter-organizational strategies in the multimedia industry, which organizational form is likely to evolve under the described circumstances? Furthermore, how does this evolving organizational form relate to technological convergence in this industry? In examining these questions, a selected number of across-industry collaborations are used to illustrate and examine;
(1) technological convergence in the multimedia industry and
(2) the possible contribution to the growth and development of network organizations (N-form).
To be precise, it is in my interest to research the underlying dimensions of technological convergence by examining the collaborations between the firms in the multimedia industry. In this respect, the complexity of the relationship web becomes essential, as well as internal and external sources indicating the trigger for collaborations to take form. What is it that drives these collaborations and to what extent is it a dependent variable of technological convergence? Furthermore, is the network type of organization always the outcome of these cross-industry collaborations? As should be clear by now: when I say ‘cross’ in the context of ‘industry’, I specifically imply the technological convergence of Television, the Internet and/or Communication. The focus is on those across-industry collaborations in the Northern part of the United States of America, which may be related to the emergence of
1NBC Universal is not mentioned in the list, but has become an important player in the meantime through GE. In
digital television. A case on Viacom and the network of corporations led by this media conglomerate is used to further illustrate these changes.
The additional analysis of the network form is in turn connected to the degree of dependence on internal or external sources from cross-industry firms, and explains the main causes for collaborations to exist in networks (Bahrami, 1992; Lei, 2000; Zollo et al, 2002; Collis, 2005; Huggins et al., 2012). The characteristics of three types of organizational forms are used as leading examples for comparison; hierarchy, market and network forms (Powell, 1990). As will become clear throughout the paper, network characteristics can be seen as indicators of inter-firm relationships and will be emphasized in case study analysis. Concepts such as internationalization and digitalization become topic words, among inter-organizational strategy, technological convergence, innovation and knowledge building. In other words, the analysis in this paper takes a strategic management perspective, which acknowledges the importance of context in general and the relevance of organizational form and organizational resources in particular, and the technological convergence that has driven the process. Within this context, organizational forms are not only conceptualized in terms of resources, but also in terms of strategy and structure. The research question is formulated as follows:
- How does technological convergence affect organizational forms in the multimedia industry?
The sub questions indicate the importance of the underlying dimensions to be analyzed and the impact of technological convergence on organizational forms. All question below relate to the multimedia industry and mainly the across-industry collaborations between firms in TV, Internet and/or Communication areas.
- What is the impact of (high degrees of) technological convergence on inter-firm relationships in the multimedia industry?
- What role does the network organizational form play in (high degrees of) technological convergence in across-industry relations?
- What are the underlying concepts of influence on the formation of the network organization in (high degrees of) technological convergence?
- To what extent is an internal or external firm focus in (high degrees of) technological convergence of influence on the network organizational form?
2.
Context
As follows from the introduction, the multimedia industry is big. No question about it. To break things down for the main problem to be visible, it is relevant to first paint a picture of the context in which the action takes place. This includes a description of the important relationships within the industry, between the most significant players of this era. In the introduction it became clear which ones especially. To be precise Time Warner, NBC Universal, Walt Disney, ABC, News Corporation and Viacom are taken as case examples for the past five to ten years. No attempts have been made to analyze recent happenings, it mainly serves to draw what needs to be seen first. Nevertheless, parts will be used for references in the theoretical and concluding sections. Not to confuse, this is also partly what determined the length of text for each company.
2.1 Time Warner
Time Warner is one of the world’s leading media and entertainment companies. The company has become successful through operating huge entertainment networks, which are mainly established by acquisition and expansion (Grainge, 2008). Technological convergence in turn has strongly affected the digitalization of media entertainment at Time Warner, in which many partners are involved. It is through these relationships and related local and international divisions where the company has found it strength to survive, and maintain one of the leading companies in business (Rubinfeld, 2001; Bruck, 1994).
On local markets, that is, the United States of America, Time Warner’s’ Turner entertainment network has a wide extensive reach (Time Warner Inc. Data monitor, 2011). Part of Turner domestic entertainment networks are TBS, TNT, truTV and the well-known Cartoon Network. Turner’s can be further divided in CNN and HLN, its 24/7 cable television networks, which reaches approximately 100.1 million and 99.8 million US television households, respectively. In international markets, Turner distributes about 110 region specific versions and local language feeds of Cartoon Network, Boomerang, Turner Classic Movies, TNT and other entertainment networks in approximately 190 countries across the world.
The company’s premium pay television programming business includes the prominent Home Box Office Services (HBO), which is the US’ most widely distributed premium pay television service. Besides television, the company has a significant filmed entertainment business, operating under the well-recognized brand, Warner Brothers Entertainment (Warner Bros.). Warner Bros. includes huge operations, managing the theatrical film entertainment, television programming, home entertainment, interactive videogames, and digital media, through various divisions. It distributes feature films acquired or produced for theatrical exhibition in more than 125 international territories.
Comcast, Time Warner Cable, DirecTV, DISH Network and Verizon, as well as broadband customers including Apple’s2 iTunes Store, Amazon’s Video on Demand, Microsoft’s Xbox 360 and Sony’s Playstation 3. In addition, Warner Bros. has a long-term alliance with ALDAR Properties, an Abu Dhabi real estate development company, and Abu Dhabi Media, a media company owned by the Abu Dhabi government, to develop certain entertainment related projects in Abu Dhabi.
Furthermore, digital initiatives provide increased subscriber base and Time Warner has been introducing many digital initiatives in recent years in line with the digital evolution of the industry. For instance, Turner ended the year of 2010 with TV Everywhere (TVE) versions of its networks, available to four of its largest affiliates. In October 2010, HBO collaborated with Google3 TV to offer HBO GO, its online video service for HBO subscribers, featuring over 600 hours of HBO programming, on Google’s newest platform.
Though Time Warner has global presence, spanning across North and South America, Europe, Asia Pacific and Middle East, it is highly dependent on the US market for majority of its revenues (Time Warner Data monitor, 2011). It demonstrates geographic concentration, which increases its business risk by making it vulnerable to economic and political uncertainties in the particular market. Further, the company’s global competitors, such as News Corporation, have generated significant amount of revenues from their international operations. News Corporation recorded 45.7% of its total revenues from international regions including Europe, Australasia and other. Concentrating on matured markets as the US, coupled with little presence in emerging markets, may weaken its market position in the international market.
This, however, is mostly conquered through acquisitions. To strengthen the company’s position in the entertainment industry the company has bought several firms in the recent past to further expand its position in the entertainment market. One example was in April 2010, when Warner Bros. Home Entertainment acquired Turbine, the largest privately held online gaming studio in North America, strengthening its position as full-scale game publisher. Furthermore, Warner Bros. Home Entertainment Group acquired Flixster, a movie discovery application company with over 25 million worldwide users per month. The acquisition includes Rotten Tomatoes, a website devoted to film reviews, information and news. Flixster services further include destination websites at
2
Apple Inc. is an American multinational corporation that designs and sells consumer Electronics, computer software, and personal computers. The company’s best-known hardware products are the iPod, the iPhone and the iPad. Its software includes the Mac Os X Operating system; the iTunes media browser; the iLife suite of multimedia and creativity software; the iWork suite of productivity software; Aperture, a professional photography package; Final Cut Studio, a suite of professional audio and film-industry software products; Logic Studio, a suite of music production tools; the Safari web browser; and iOS, a mobile operating system. Source: Wikipedia.org (2012)
3
Flixster.com and RottenTomatoes.com, as well as leading apps on Facebook4, MySpace, iGoogle, iPhone, BlackBerry and Android-powered devices. As per the terms of the agreement, Flixster will continue to operate independently and will expand its services beyond movie discovery to enable digital content ownership and delivery across any connected digital device. These acquisitions are to enhance the company’s global presence and operational capabilities.
In addition, online advertising is seen as vital. The company operates various entertainment sites and other websites, providing the content online and generating revenues primarily from the sale of advertising. Turner manages various websites that offers commercial advertising. This network also publishes several applications in Apple’s iTunes app store and Google’s Android market app store, including CNN Mobile, which became available internationally in 2010, and the CNN App for iPad and truTV Mobile, which were simultaneously launched in 2010. Rising tablet PCs and Smart Phone markets will most likely enable Turner to increase its advertising revenues. 2.2 NBC Universal - or Hulo.com?
NBC Universal has proved to be the first major broadcast network in the United States. Traditional televising and radio is therefore highly present in the company, but due to technological forces in the new media age, the firm has too started collaborating and acquiring the necessary expansions (Appendix, figure 2).
NBC Universal was formed in May 2004 by the merger of GE’s NBC with Vivendi’s Universal Entertainment (Levy, 2004). GE and US cable TV operator Comcast announced a buyout agreement for the company by the end of 2009. Following regulatory approvals, the transaction completed in 2011. Comcast now owns 51% of NBC Universal, while GE owns 49%.
The company currently engages in the production and marketing of entertainment, news, and information products and services to a global customer base (that is, America, Europe and Asia). Significant collaborations have happened up to recently, integrating multimedia even further. For example, in 2009 A&E Television Networks (A&E) merged with Lifetime Entertainment Services (Lifetime),giving NBC Universal an equal share of both Lifetime and A&E with The Walt Disney and Hearst Corporation (Broadcasting & Cable, 2009).
A lot of the organizational restructuring at NBC can also be found around Hulu (Logan, 2011). Hulu is an online video service that offers a selection of hit shows, clips, movies, and more at Hulu.com and 35 destination
4
sites online, including AOL, IMDb, MSN, MySpace and Yahoo!. Hulu’s selection of premium programming is provided by nearly 150 leading content companies, including FOX, NBC Universal, Comedy Central, Lionsgate, MGM, MTV Networks, National Geographic, Paramount, PBS, Sony Pictures Television, and Warner Bros. Television Group. Founded in March 2007, Hulu is currently co-owned by NBC Universal, News Corporation, and Providence Equity Partners. In 2009, Walt Disney joined NBC in collaboration with News Corporation to become partners of Hulu. It indicates NBC’s move into new media, and the reason why the Internet is playing such a huge role in the reorganizations.
2.3 Walt Disney and ABC Entertainment
Recently, there have been many alliances around The Walt Disney Company. Disney, together with its subsidiaries and affiliates, is a leading diversified international family entertainment and media enterprise with five business segments5; media networks, parks and resorts, studio entertainment, interactive media and consumer products.
Responding to the changing realities of the entertainment landscape, and addressing an opportunity to streamline the creative process, ABC Entertainment and ABC Studios operate as a coordinated business unit entitled ABC Entertainment Group (Walt Disney Company Data monitor, 2011). This newly formed unit is managed by President Stephen McPherson, who had previously served as president, ABC Entertainment. The ABC Entertainment Group combines ABC Studios and ABC Entertainment, with all operations of the two separate units reporting to Mr. McPherson. The new division’s primary mandate is to develop and produce compelling programming for broadcast on ABC. However, when appropriate, the studio looks for outside opportunities. The partnership between ABC Studios and ABC Entertainment prior to this announcement has delivered some of the most successful, talked-about and evolutionary series on television today.
As mentioned, Disney collaborated through its ABC partnerships with NBC Universal and Hearst Corporation, in an agreement for A&E Television Networks, to acquire Lifetime Entertainment Services. The parent company retained the name A&E Television Networks, LLC (AETN), and its subsidiary retained Lifetime Entertainment Services, LLC. The new agreement consolidated three of the nation’s top cable networks under single management, while preserving the distinct brand identities of each network. In addition, the combined company is now a global media content company, reaching over 250 million homes worldwide in more than 140 countries around the globe. Combining the resources, libraries and multiple platforms of 10 brands, including more than 20 websites, the new company is well positioned to create new opportunities for expansion and cross-promotion, as well as build upon the record of success and strengths across a broad variety of audiences, platforms and programming.
By the end of August 2009 Disney had announced that, again through ABC Enterprises Inc., it has agreed to join NBC, News Corporation and Providence Equity Partners as a joint venture partner and equity owner of Hulu. Upon closing, the agreement was to enhance Hulu’s programming line-up through the expanded online distribution of Disney’s most popular current and library primetime series and library feature films.
A month later Disney Interactive Studios acquired Wideload Games Inc., a Chicago-based producer and developer of original interactive entertainment. As part of the agreement, industry veteran and creative visionary
Alexander Seropian, Wideload Games founder and CEO, joined Disney Interactive Studios in the newly created role of vice president of creative, leading the company’s global creative efforts. Seropian is tasked with overseeing creative development across Disney Interactive Studios’ portfolio of video games.
Back in 2003, Seropian founded Wideload Games which focus continues to be developing original video game properties using an innovative development approach that requires developing prototypes with small core creative teams and ramping up for product development with globally outsourced talent. To complement its console team and expand its portfolio of original intellectual properties, Wideload Games established Wideload Shorts in 2007 for the emerging online and handheld platforms. As part of Disney Interactive Studios, Wideload Shorts will continue to create original properties for casual, downloadable and mobile games.
Several transcending events are similarly examined in Disney Movie Studio’s (Woodruff, 2011.) One of the most significant ones took place in the year of 2010: a sale by Disney to Filmyard Holdings LLC of Miramax Films for $663 million. The sale of Miramax Films includes rights in over 700 film titles, including Academy Award winners Chicago, Shakespeare in Love and No Country for Old Men. Also included are non-film assets, such as certain books, development projects and the ‘Miramax’ name.
2.4 News Corporation
News Corporation is another diversified international media and entertainment company. It operates through several businesses including filmed entertainment, television, cable network programming, direct broadcast satellite television, integrated marketing services, newspapers and information services and book publishing (News Corporation Data monitor, 2012). The company is considered one of the eight media giants especially due to its international presence, in which its multidivisional form has been a great factor of success. A lot has come to play in this structural operation, both in terms of partnerships as well as resources, where the balance between autonomy and control have been the focus.
First, the company’s publishing segment is engaged in newspapers and information services, book publishing and integrated marketing services businesses. This segment encompasses English-language newspapers and their digital brands, including three national news brands in the UK; approximately 150 capital city and suburban news brands in Australia; the New York Post and Community Newspaper Group in the US; the Wall Street Journal; Dow Jones and its information services business; HarperCollins; and News America Marketing, which publishes free-standing inserts and in-store marketing products and services in North America.
Finally, News Corporation’s other segments operate in digital media. Through IGN Entertainment, News Corporation provides Internet media and services focused on the videogame and entertainment markets. Despite all this, the company is highly dependent on third party owned television stations. Specifically, upon the maintenance of affiliation agreements with third party owned TV stations. The loss of a significant number of these affiliation arrangements could reduce the distribution of FOX and MyNetworkTV, and adversely impact News Corporation’s ability to sell national and local advertising time. Simultaneously, the company’s cable networks maintain affiliation and carriage arrangements that enable them to reach a large percentage of cable and direct broadcast satellite households across the US. The loss of a significant number of these arrangements or the loss of carriage on basic programming tiers could reduce the distribution of News Corporation’s cable networks, which may adversely impact those networks’ revenues from subscriber fees and their ability to sell national and local advertising time.
News Corporation has however been expanding its geographic reach through acquisitions and increasing its equity stake across different companies. For instance, in January 2012, News Corporation’s subsidiary Fox International Channels acquired Finnish FTA TV Channel, Suomi TV. The acquisition establishes Fox International Channels as a leading player in the Nordic media entertainment market. In the same month, the company signed an agreement to acquire a minority stake in Dubai-based media company MOBY. News Corporation will contribute its 50% shareholding in Broadcast Middle East, its Farsi-language TV joint venture with MOBY, for a minority shareholding in MOBY. The transaction can increase the company’s activities in the emerging markets.
2.5 Viacom International Media Networks
Viacom is an American media and entertainment company, located around the world while promoting about 14 entertainment brands.6 Among others, one should think of MTV, Comedy Central, VIVA and Nickelodeon. These entertainment brands mainly evolve around music and TV shows. Besides mentioned, the company also specializes in film (Paramount Pictures, Dream Works), online media and gaming. Currently, it also operates a large part of Northern Europe, broadcasting 37 stations and reaching 62 million households simultaneously. MTV mobile is Viacom’s own telecommunication brand with which it promotes and exploits itself in the region. Furthermore, worldwide about 600 million households are entertained in both digital media as well as mobile television.
Viacom was, among others, owner of CBS. From 2006 onwards, this corporate entity changed its name to CBS Corporation. The present firm known as Viacom was also established at that date and is a new spin-off company created during the CBS-Viacom split (Appendix, figure 3). More recent reorganizations happened in Northern Europe, where former MTV networks also changed its name to Viacom, currently engaging through international networks such as found in Sweden, Germany and Holland. Specifically, Viacom company divisions Nickelodeon, Comedy Central and MTV are located in Northern Europe. The divisions work closely together and from time to time report back to the US for research and other data. Within the Netherlands Viacom is located in Amsterdam. From here, the main focus evolves around Comedy Central’s advertising and affiliate sales. Through KPN, Ziggo, UPC and Tele2 affiliate relations are held in tact. These affiliate relations are examples of mobile telecommunication companies and providers of digital television, cable and broadband services. Advertising at
Viacom is increasingly done on the Internet, but also via the commercial broadcast stations on TV. The Amsterdam division further specializes in youth oriented content, that is, children and young adults.
In terms of organizational structure previous literature describes Viacom to have a hybrid form, though its ownership structure seems to be characterized by a combination of the multi- and network forms: for its direct holdings a multidivisional structure and a series of partnerships within the multimedia industry (Sydow, 1998). The question is whether this still holds and to what extent digitalization has been a factor of influence on these partnerships, and whether any changes can be measured internally and externally. A possible example on international level is examined in early 2005, when Paramount and Dream Works bought up the independent film studio’s for $1,6 billion. Previously, there were rumours that Universal Studios (via its mother holding NBC) would take over the studio. Dream Works chose for the Paramount acquisition, since the company culture of GE (mother of NBC) seemed too complicated, and was ‘far from home’.
After the CBS split a year later, Viacom focused heavily on ‘new media’: iFilm en Xfire were taken over then. This way Viacom followed its huge competitor News Corporation, which similarly took over MySpace in 2006. Viacom New Media was placed under MTV Networks guidance immediately after the takeover, which gave this division an even more interactive structure than before.
The type of sharing that these relations bring along are for example on content and advertisement (Wikipedia.org, 2012). Microsoft contracted for $500 million with Viacom in 2007, to license shows from Viacom owned cable television and film studios for use on Xbox Live and MSN. The deal also made Viacom a preferred publisher partner for casual game development and distribution through MSN and Windows. On the advertisement side of the deal, Microsoft’s Atlas ad-serving division became the exclusive provider of previously unsold advertising inventory on Viacom owned web sites. Microsoft purchased a large amount of advertising on Viacom owned broadcasts and online networks. Finally, Microsoft promotions and sponsorships for MTV award shows, a Viacom owned cable network, are additional examples of cross-collaborating initiatives in the media industry.
3. Theory
For this part and to visualize the precise problem to be triggered, I will start with defining the core problem after technological convergence has occurred. Afterwards, the other important theoretical concepts will be explained and put together in a framework. In this whole process, first the concepts part of the bigger picture will be examined, after which the more specific determinants and underlying concepts will be exposed.
3.1 The Multimedia Industry
Figure 1. Drivers of Industry Convergence (Wirtz, 2001)
As mentioned, three technological developments play a role in multimedia convergence. Namely digitalization, the development of intelligent network structures and the technical convergence of media platforms. Furthermore, the effect on the converging area is directly related to the deregulation of markets and changes in consumer preferences. However, in this research the focus is especially on the former; technological convergence and the impact it has on the arena within the round shape (Figure 1). Here you can find the firms from different industry backgrounds, converging technology through partnerships and that way altering their initial organizational forms into the network structures mentioned. For simplicity, these collaborations between the converging giants will be referred to as cooperative relationships, as whether the form of merging– a merger, acquisition or alliance (Blois, 1980; Olie, 1994) –is irrelevant here and outside the scope of this paper. Ergo, a firm relationship in this paper is equal to the term collaboration between two or more firms.
3.2 Technological convergence
A study by Bröring and Leker (2007) explains the meaning and definition of convergence. First off, one needs to recognize that convergence can be on both industry as well as organizational level. The tendency for different technological systems to evolve toward performing similar tasks, is stated by Bröring (2007) and others as a current phenomenon of many industries such as telecommunications, computing and consumer electronics or cosmetics and pharmaceuticals (e.g. Katz, 1996; Duysters & Hagedoorn, 1997; Prahalad, 1998). It can furthermore be defined as the blurring of boundaries between industries by converging value propositions, technologies and markets (Choi & Valikangas, 2001).
On the one hand, convergence seems to be technology-driven since a new technological development is applied across conventional industry boundaries. This sharing of technologies creates not only new technology-intense industry segments, but it also increases environmental dynamics and new interfaces of formerly distinct industries and organizations within the industry (Bierly & Chakrabarti, 1999). As this research is on technological convergence between organizations, the industry level is contextual and therefore has a background function to the main storyline.
For the purpose of defining, however, industry can simply be replaced by the term organization, as it still entails the relevant aspects of analysis – creating similarities, blurring of boundaries, technological development and cooperation. Important is that on organizational level convergence can also be induced by the fusion of demand structures and the combination of previously distinct product features into a hybrid product (Pennings & Puranam, 2001; Sääksjärvi, 2004). Convergence between organizations furthermore can lead to a fusion of standards and regulation, which opposes additional uncertainty for innovating firms (Paap & Katz, 2004). Firms that find themselves in converging industries face new competitors producing substitute products for the same market. As follows, firms require many critical knowledge areas for engaging in innovation. Those necessary areas of knowledge and capabilities are traditionally owned in different industries and therefore organizations (Bierly & Chakrabarti, 1999).
It seems that no organization – regardless of its industry affiliation – possesses all the necessary competencies for successful innovation in times of convergence. In this light it is relevant to recognize how technological developments critical for potential innovations for collaborating firms cannot be identified since a certain firm may not possess the relevant knowledge to recognize, assimilate and integrate it. A firm’s innovative capability for innovations in convergence may be hindered by a lack of absorptive capacity (Cohen & Levinthal, 1990; Volberda & Foss, 2010) to respond to trends outside its industry, which may become crucial in a context of technological convergence. Consumers also play a vital role in this part (Wirtz, 2001), but the exact preferences consumers have are found outside of the scope of this paper and will therefore not be mentioned specifically. It will merely be issued as one of the underlying concepts, as consumers are a necessary component to complete the overall picture.
As can be seen in figure 1 (Appendix), the media companies are mainly content types that crossed their businesses with communication or computer services. Furthermore, the growing interface between computers and content is shown in the lower left of the diamond. The convergence presented here is the widespread application and use of new computer-generated techniques and software programs to create digital life-like images, video games, interactive content, and special effects that are becoming a hallmark of new forms of entertainment (Lei, 2000). Digital technologies are transforming production in a way that redefines value creation in entertainment and media firms. The linkage between communications and content is depicted in the lower right leg of the convergence diamond. Many of the firms here include leaders of publishing, broadcasting, entertainment, film production, cable television and telecommunications industries. It is clear that companies as Disney, Viacom, Time Warner and others have undertaken massive investments to learn and capture new forms of internet-based technologies that allow them to have significant market presence to provide new forms of content as they evolve (Lei, 2000; Roder, 2007). Here, the need to converge technology seems to alter the way companies design their organization, either by ‘crossing businesses or alternatively accessing others’ technological knowledge (Karim et al, 2012; Zollo, 2004).
Several authors conclude that the blurring of organizational boundaries due to technological convergence subsequently means an increase in firm connections (Eisenhardt, 2009; Olie, 1994; Canina et al, 2010). I find this however to be more of a short-cut conclusion, as it is subject to the degree of technological convergence present. With degree of convergence I imply whether highly complex, difficult to attain, costly, knowledge intensive and subject to a dynamic environment or not. As the industry in which these firms are positioned is complex, dynamic, knowledge intensive and contains high cost products and services, the degree of technological convergence is hardly ever low. The distinction between moderate to high, is in the type of product and services that converge. For example, Viacom’s move into new media includes services from both TV configurations as well as Internet, Computer and Communications. The knowledge required to successfully converge technologies is high, because content-wise services are complex, money-wise many relations are at stake if the merge fails, and time-wise the stress of delivering to customers on time plays its part as well. All in all, even though the amount of relationships cooperating increases with the convergence of TV, Internet, Computer and Communications, other factors of influence need to be taken into consideration. For example, the fact that technology itself eases firm connections and external contacts to build on knowledge. However, bluntly stated, technological convergence indicates at least two types of technologies to blur and in turn, at least two types of firms engaging where they have not before. In addition, technological convergence is directly related to firm knowledge and knowledge transfers, internally or externally. The latter assumption emphasizes the high-tech environment in which multimedia firms are positioned, and in this way, the high degrees of technological convergence taking place when collaborating.
used to deal with patterns of technological convergence (see van Tulder and Junne, 1988; Leban et al., 1989; Raphael, 1989; Charles et al., 1989). It is however crystal clear that the convergence process of technologies causes the blurring of traditional technological and organizational boundaries, and so increases the need for companies to keep up with many different technologies (van Tulder and Junne, 1988). The following proposition therefore holds: P1: High degrees of technological convergence increase the amount of relationships a firm has.
3.3 Network organizational form
The term organizational form can mean anything without references to back up, and up until now, no clear description of what it entails has been provided. Though many attempts have been made to define it (e.g. Podolny et al, 1998; Jones et al, 1997; Cravens et al, 1996; Larson, 1992; Grandori, 1995), in this paper network organizational form refers to the inter-organizational network, indicating the relationships inside and outside of the company. As will become clear throughout this part, the emphasis in this story is put on the type of network relationships and its dimensions.
First of all, a network is something every human being has (van Berkum, 2009). When a person is born he immediately is surrounded by his own network, consisting of his parents, family, friends and so on – ‘We all network, even the ones who have never used the word, or do not even know the meaning of it’ (Van Dijk, 2001). Networking is therefore a natural urge and something that is done either consciously or unconscious. Having a network, regardless of what it consists of, is seen as normal – ‘Networking is a normal human task, without it we cannot live’ (Eden, 2008).
It is however an illusion to think that we are increasingly living in a network economy, simply because networking has always been there. It is true though that the value of networking nowadays is more recognized, in other words, there are different forms of networks that have been noticed. When we take the point of view that there has always been a network economy, we have to acknowledge that change is a constant factor of influence on the phenomenon. To name a few changes (van Berkum, 2009):
- The increasing amount of complex collaborations (globalisation) and the weakening of stability - Blurring of boundaries, convergence and dependability on other organisations
- Technology and ease of making external contact and knowledge building outside own group
- Digitalisation and the rise of new ICT applications (van Dijk, 2001) and the blurring of network relationships in media as telecommunications, computer, audiovisual media and the impact on infrastructure.
Organisations are surrounded by this network economy. When an organisation wants to function well in a network economy, it has to make use of its full network potential.
―We define a network as a set of nodes and the set of ties representing some relationship, or lack of relationship, between the nodes…. The particular content of the relationships represented by the ties is limited only by a researcher’s imagination.
An important term in this definition is nodes. With nodes the authors refer to actors such as individuals, work units or organisations. Borgatti & Foster (2003) describe some important characteristics actors have and the connections in the network. New actors can be added to the network and so the network can expand. From this perspective, inserting a knowledge worker implies that this network can always change and be influenced within and outside of the network by leading other actors. Looking at another important aspect, namely dichotomy, a relationship can have a certain value. Such as the definition that implies there are different types of sets of nodes that everyone has with its own relations and the value of these relationships is only limited to the researcher’s imagination. I will however drop the term of actor/node and only use ‘relationships’, simply to prevent confusion. With the term I not only refer to an actor/node, but directly to the fact that there is value related to the bond between them and the knowledge worker. To be as precise as possible, this is my definition of the term network in this research:
A network is the total amount of relationships that a firm has inside and outside its company.
Probably the most essential concepts when discussing the network in this manner is network- and social capital. A network is the ground for social capital and can be created through networking, but internally and externally firms can have different type of relationships. A distinction must be made between social relationships and business relationships. Huggins (2010) takes on the perspective that this is where the individual vs. firm level specifically becomes clear. According to Huggins (2012), several characteristics can be measured for inter-organizational networks (Appendix, figure 5a). The dimensions that divide the inter-organizational network in two relationship types are based on source differences, mechanisms, object and impact differences. The first type is of economic rationality, where investments are made by firms; the network capital. The second type is of social rationale; here relationships investments are done by individuals. For social capital interaction is based on logic of sociability and expectations, whereas in the network capital business and professional expectations are most relevant. Large firms are usually network capital, whereas small and new firms are social. Summing up the findings the key aspect lies in that network capital mainly concerns firm level, and social capital the individual level.
process and the blurring of technological boundaries from my research perspective. Internally, concepts as integration and togetherness become priority. A firm that builds its network highly on social capital is not covered by the definition of an inter-organizational network; the more emphasis is put on internal network management, the less external relationships a firm has. Concepts as internal management, the vehicle that builds the organization, human resource management, strategic accents and success criteria of the firm indicate the extent to which a firm is internally or externally focused (van Berkum, 2009). Furthermore, the position of knowledge workers and their information usage, as well as network capacity and structure are typical indicators of social or network capital.
However, having made the distinction between the external network dimensions such as found in an inter-organizational network, and the internal dimensions social capital holds specifically on individual level, one more important aspect is left for discussion. There is a middle section not yet discussed thoroughly, which indicates an in-between perspective on networking as mentioned in my definition. Namely, inside an organization networking is not only done through individual relationships. Internal networking involves the company units too, that is, transfer of knowledge among different organizational units. Such knowledge transfer occurs in a shared social context in which different units embedded in a network coordinated through processes of knowledge transfer and resource sharing (Tsai, 2001; Galbraith, 1977; Gresov & Stephens, 1993). What this implies for my research regarding the network is the following; as inter-organizational network is the type of network referred to in this part, a firm can have internal and external sources of expertise. In some cases emphasis is put on internal sources, that is, social capital, informal relations and knowledge transfer within own company.
Inter-organizational network
Intra-organizational <--- Internal sources External sources
network ++ +-
This highly internal focus, whether on individual level or between units, can mean that the network form is actually intra-organizational rather than inter-organizational. However, for my research purpose it does not matter. If the situation occurs that the company of analysis in fact is strongly managing on internal basis, this possibly provides the knowledge that the firm is less dependent on external relationships and complex collaborations outside its own group of people. Whether you label it as an intra- or inter-organizational network is relevant but not crucial, as became clear in the context part. All of the companies mentioned in my analysis are to some extent dependent on firms outside their own network, the extent to which indicates the difference in intra- en inter-organizational network. Keeping my definition in mind however, it is still suitable to refer to inter-organizational network for this analysis.
from alliances by accessing the knowledge of their alliance partners. This means that the competitive advantage firms are potentially able to gain is dependent upon the resource profiles of their partners (Stuart, 2000; Ireland et al., 2002; Grant and Baden-Fuller, 2004). A key feature of most of the extant network literature concerning alliances is the focus on ‘repeated’ and ‘enduring’ (Podolny and Page, 1998) or ‘sustained’ (Huggins, 2001) interactions or relationships. Yli-Renko et al. (2001) find that knowledge exploitation for knowledge-based firms depends on repeated and intense interaction, as well as the willingness of firms to share information. As Gulati (1999) argues ‘most alliances involve prolonged contact between partners, and firms actively rely on such networks as conduits of valuable information’. Converse to alliances, contact networks consist of informal interactions and relationships between firms and other actors (Von Hippel, 1987). The structure of these networks is often more dynamic, as firms continuously update and change their contacts (Burt, 1992; Huggins, 2001; Grabher and Ibert, 2006). Though the rest of this paper does not emphasize between nor use the specific terms ‘alliances’ or ‘contact networks’, it does indicate the differences of the external and internal focus in inter-firm collaborations. To prevent confusion, I think the integrated contribution of internal and external sources of competitive advantages to network formation deserves more attention than what type of firm alliances exist in literature. Therefore, internal and external networks are the only terms used in this paper to define network relationships and the underlying factors of influence regarding technological convergence and knowledge building between partners.
In this respect, the network term also relates to the degree of flexibility in which a firm operates, whether highly centralized or loosely build in divisions. Powell (1990), for example, provides literature that closely states the definition of networks this way. Powell (1990) distinguishes between three types of organizational forms; network, hierarchy and market (Appendix, figure 5b). He mentions that the network form (or N-form) has different structural characteristics that distinguish it from market and hierarchies. In addition, in the network type of organization individual units do not exist by themselves according to the author, but by their relation to others. These relationships in turn take a considerable amount of time and effort to maintain and strengthen. Compared to hierarchical structures such as the simple hierarchy (H-form) or the multidivisional form (M), the N-form is distinct by greater organizational autonomy, a looser coupling of the organizations, and more cooperative relations, even if they do not exclude moments of competition and control. The N-form offers a sort of balance of autonomy and dependence, creativity and control, cooperation and competition and of stability and change. H- and M-forms are less based on trust, less flexible in structure and more about centralization and control (Adler, 2001).
As will follow from theoretical research, this paper suggests that more cooperative approaches, that is the approaches of the N-form, seem in order for at least three reasons: the abundant need for creativity, autonomy and control, the dependence of innovative products and pooling of complementary resources of different industries, and the importance of time-to-market in an industry where the winner is likely to take it all (Kretschmer, 1997).
are frequently defined as if they were commodities. In hierarchies, communication occurs in the context of the employment contract. Relationships do matter and previous interactions shape current ones, but the patterns and context of organizational exchange are most strongly shaped by one’s position within the formal hierarchical structure of authority.
In market forms, the standard strategy is to drive the hardest possible bargain in the immediate exchange. In networks however, the preferred option regarding exchange is often one of creating indebtedness and reliance over the long haul. Each approach thus devalues the other: prosperous market trades would be viewed as petty and untrustworthy in networks, while successful participants in networks who carried those practices into competitive markets would be viewed as foolish and naïve. Within hierarchies, communication and exchange is shaped by concerns with career mobility – in this sense, exchange is bound up with considerations of personal advancement.
Furthermore, markets are a spontaneous coordination that imparts rationality and consistency to the self-interested actions of individuals and firms (Powell, 1990). They offer choice, flexibility, and opportunity and are remarkable devices for fast, simple communication. No one need rely on someone else for direction; prices alone determine production and exchange. Since prices are simplifying mechanism, they are consequently unsuccessful at capturing the intricacies of idiosyncratic, complex, and dynamic exchange. As a result, markets are a poor device for learning and the transfer of technological expertise, and become less applicable for high-tech multimedia exchanges.
Hierarchy arises when boundaries of a firm expand to internalize transactions and resource flows that were previously conducted in the marketplace. Within a hierarchy, individual employees operate under a regime of administrative procedures and work roles defined by higher-level supervisors. The strength of hierarchical organizations then is its reliability – its capacity for producing large numbers of goods and services of a given quality repeatedly – and its accountability – its ability to document how resources have been used (DiMaggio and Powell, 1983; Hannan and Freeman, 1984). Nevertheless, when hierarchical forms are confronted by sharp fluctuations in demand and unanticipated changes, their liabilities are exposed. Networks are much ‘lighter at feet’ then hierarchies (Powell, 1990). In a network modes of resource allocation and transactions occur neither through discrete exchanges nor by administrative fiat, but through networks of individuals engaged in reciprocal, preferential, mutually supportive actions. They can however be complex: networks involve neither the explicit criteria of the market, nor the familiar paternalism of the hierarchy. The basic assumption of network relations is that one party is dependant on resources controlled by another, and that there are gains to be had by the pooling of resources. Networks are thus particularly apt for environmental turbulent circumstances in which there is a need for efficient, reliable information transferring (Kaneko and Imai, 1987).
move between ordered and disordered states, causing an unpredictable environment. As the economy moves from a stable state, a different set of organizing rules is needed. When this new set of organizing rules are overlaid with the conditions and processes facilitated by the use of advanced communication and computing technology, it is found that virtual or network organizations are an emerging logical form for organizing. Furthermore, Gulati and Puranam (2009) describe the instances of dualities that arise due this creativity vs. control dilemma and the consequent need for restructuring; exploration-exploitation, cost reduction-product differentiation, organizational differentiation-integration, and static–dynamic efficiency (Ghemawat and Costa, 1993; Lawrence and Lorsch, 1967; March, 1991), to name a few. Regardless of the internal difficulty of organizing to pursue dualities, there are external circumstances largely out of the control of the individual firm, when doing both improves outcome—when there are ‘gains from ambidexterity’ (Birkinshaw and Gibson, 2004; Smith and Tushman, 2005; Tushman et al., 2004), and others in which it is better to focus on one of the poles of the duality—when there are ‘gains from focus’ (Appendix Figure 4; Porter 1985; Rust et al., 2002). As the N-form suggests a balance between control and creativity, it seems to be the most appropriate form when firms are converging complex technologies with external sources. It therefore follows that as the degrees of convergence increase, firms tend to rely more on an organizational form that allows both creativity and autonomy.
P2: In high degrees of technological convergence the abundant need for creativity and simultaneously autonomy and control leads to firms adopting the network organizational form.
3.4 Internal vs. external knowledge building in a network
As indicated, the media firms operate in a knowledge intensive industry where technological convergence is a complex part of (Lei, 2000). For the discussion on which type of organizational form is likely to evolve from convergence, it is therefore essential to include a part on knowledge building and firm competence. A firm’s knowledge base cannot be separated from how it is organized (Grant, 1996; Volberda and Foss, 2010). An organization form can be viewed as a structure that carries out multiple knowledge-related tasks, such as evaluating, assimilating, integrating, utilizing, and building knowledge (Loasby, 1976). Issues of internal networks are important for this identification and assimilation of new knowledge. In this context Dhanaraj et al. (2004) identify the social embeddings in transferring knowledge. In other words, networks of individuals influence what knowledge is shared or assimilated.
Just as relevant towards technological convergence on organizational level are the issues of external network formation. Namely, in the development of an effective knowledge-based theory of network formation, it has been inhibited by a rather simplistic view of collaborating organizations as vehicles for learning, in which partnerships have presumed to be motivated by firms’ desire to acquire knowledge from one another. Interesting is the emerging knowledge-based view proposed by Grant (2004) on whether the firm offers new insight into the causes and management of these collaborations.
efficiency with which knowledge is integrated into the production of complex goods and services, and second, by increasing the efficiency with which knowledge is utilized. These static efficiency advantages of collaborations are enhanced where there is uncertainty over future knowledge requirements, subsequently where degrees of technological convergence are high. Organizational learning thus promotes the creation of new core competences and it requires firms to implement organization designs that encourage the assimilation and application of knowledge from both internal and external resources (Lei, 2000; Grant, 2004).
To cultivate multiple dynamic resource routines and knowledge pools, a firm needs to implement an organization design that provides for a high degree of flexibility in learning from multiple sources, including internal resources and development as well as firm collaborations (Bahrami, 1992; Lei, 2000; Zollo et al, 2002; Collis, 2005). The network type of organization is seen as number one facilitator of knowledge flow across network actors, especially as a means through which firms are able to access knowledge to innovate (Huggins et al, 2012). Research shows how inter-organizational networks stress that innovation, be it undertaken internally or externally, is a complex process, which may require knowledge flow between firms and other actors (Meagher and Rogers, 2004; Lichtenthaler, 2005; Sammarra and Biggiero, 2008; Tomlinson, 2010; Bergenholtz and Waldstrøm, 2011). Increasingly, this process is viewed as a systemic undertaking, that is, firms no longer innovate in isolation but do so through collaborations.
Although my underlying premise relates to the potential benefits of inter-organizational networks, it is also important to highlight the possibility of negative impacts. For instance, without effective network management, knowledge may flow more freely out of a firm than productively into it (Teece, 1998; Fleming et al., 2007). Also, as firms become increasingly familiar with each other’s knowledge, negative network effects may emerge, locking firms into low value and unproductive networks, stifling the creation of new knowledge and competences (Arthur, 1989; Adler and Kwon, 2002; Labianca and Brass, 2006; Broekel and Boschma, 2011). In order to continue to play a role in the competence development process, knowledge networks are often required to evolve to include new members and configurations to meet changing needs (Hite and Hesterly, 2001; Lechner and Dowling, 2003).
case that knowledge becomes increasingly homogeneous and less useful across network actors (Maurer and Ebers, 2006). The preponderance of static strong firm collaborations may result in firms operating inefficient networks (Lechner and Dowling, 2003). Increasingly, more fluid and temporary networks have grown in importance as sources of competitive advantage (McEvily and Zaheer, 1999; Bell, 2005; Salman and Saives, 2005; Zaheer and Bell, 2005). In other words, it seems that in order for knowledge and competence building to fully prosper, networks aught to be more ‘loose’ than was considered before (Zaheer and Bell, 2005).
As follows, I expect that achieving the balance to manage technological convergence requires a ‘loosely-coupled’ approach to organization design, whereby a high degree of divisional or business unit autonomy coexists alongside corporate-focused efforts to promote cross-unit knowledge sharing and competence building. This way networking is seen as a fast, effective, and efficient way of learning and of short-circuiting the process of acquiring and appropriating skills (Ebers, 1997).
P3: In high degrees of technological convergence the need for both internal and external knowledge building leads to firms adopting the network organizational form.
3.5 Cost reduction vs. Customer focus
Inter-organizational co-operation such as found in the network form can also be motivated by cost reduction. Cost savings may be the result of economies of scale and scope that can be achieved, for example, through joint research, marketing, or production (Contractor and Lorange, 1988; Snehota, 1989). Moreover, in specific circumstances organizations may establish network relationships in order to economize on the governance costs of co-ordinating their activities (Hennart, 1991; Thorelli, 1986). For example, inter-organizational networking represents a cost-efficient way of gaining access to crucial know-how that can neither be made available internally nor be easily transferred by licensing (Badaracco, 1991; Dyer, 1996; Kreiner and Schultz, 1993; Teece, 1986).
On the other hand, saving costs can also form a constraint on customer responsiveness (Ebers, 1997). As they say, time is money, and having to respond in a fast manner has its price. For an efficient way of balancing costs and responsiveness, firms need to adapt their organizational form to it. Literature suggest the network form to be most appropriate, specifically where technological convergence is seen as a cause of the ‘costs vs. customers’ dilemma (Lei, 2000; Kalakota & Robinson, 2003).
exposing the limits of the formal structure. In sum, it seems that the most important factor that comes to play is whether to focus on client preferences or cost saving (Appendix, figure 4). I therefore expect that as technological convergence becomes high, the need to both focus on customer demand and cost saving simultaneously asks for a flexible organizational form.
P4: In high degrees of technological convergence the pursuit of both cost reduction and fast customer responsiveness leads to firms adopting the network organizational form.
3.6 Innovation vs. Complementary Resources
Taking the point of view from Volberda and Foss (2010), the dependence on innovation and complementarities plays a big part, if not the biggest. Faems et al. (2005) emphasized the meaning of innovation in the context of inter-organizational collaboration. Their results showed significant prove that the more firms engage in a variety of different inter-organizational collaborations, the more likely they are to create new or improved products that are commercially successful. The conclusions furthermore highlight the relevance for management of adopting a portfolio approach to inter-organizational collaborations, in order to achieve results both in terms of developing existing technologies and creating new ones.
However, voting against, there may still be ‘overlap’ or ‘waste’ as a result of collaboration (Mowery and Silverman, 1996). More specifically, the changes in the extent to which partners ‘technological resources’ overlap. Mowery and Silverman’s (1996) measurement allows to test hypotheses from the literature on inter-firm knowledge transfer in alliances, with interesting results: support is found for some elements of this ‘received wisdom’-equity arrangements which promote greater knowledge transfer, and absorptive capacity helps explain the extent of technological capability transfer, at least in some collaborations. But the results also suggest limits to the capabilities acquisition’ view of cooperative relationships. Consistent with the argument that network activity can promote increased specialization, they conclude that the capabilities of partner firms become more divergent in a substantial subset of collaborations. Thus, for firms in the media industry the combining of resources can actually work against competence development.
On the contrary, Ireland et al. (2002) state how inter-firm relationship are an important source of resources, learning, and thereby competitive advantage. Few firms have all of the resources needed to compete effectively in the current dynamic landscape. Firms then seek access to the necessary resources through partnerships. In accordance with latter mentioned authors, firm collaborations must be effectively managed for their benefits to be realized. Most of the literature suggests the same and leaves Mowery’s and Silverman’s work in dark shadows (e.g. Walker and Kogut, 1997; Dyer and Singh, 1998).
furthermore, are mainly found in network organizational types (Ghoshal, 1990; Lorenzoni, 1999). Why specifically the network type of organization is essential to innovation and complementary resources is well explained by Grandori (1997), Pfeffer & Salancik (2003) and Ebers (1997). Grandori (1997) mentions how inter-firm relationships are to a large extent coordinated by non-market mechanisms. Network forms can govern different type of relationships, and therefore allow for different resources to be available. Complementing in what the firm is missing, innovation is stimulated this way. Pfeffer (2003) similarly indicates the reasoning behind inter-firm relationships being in complementary resources, and how this in turn affects the organizational form. Pfeffer’s study showed that the network type enhances partnerships and increases innovation through resource interdependence. Ebers (1997) emphasized that specifically through networking, organizations can access complementary resources and/or capabilities, or can closely co-ordinate their use of resources; and in this way, hope to enhance their competitiveness in terms of improved products.
Finally, Walker and Kogut (1997) suggest the formation of a network is determined by the opposition of two forces. The first is the reproduction of network structure as a general social resource for network members. The second is the alteration of network structure by entrepreneurs for their own benefit. Again notifying the need for creative space and complementing in resources. Innovativeness is then found through the dependence on innovation and complementarities from other companies, which asks for a more flexible form. A case example illustrating this point is Disney in conjunction with ABC and NBC Universal, which created a better position for A&E television networks. Each brand continued to focus on the word-class storytelling and maintained the quality of the original programs. It however put a powerful portfolio of distinct brands under the strategic vision of one industry leader. The new company formed is much greater than the sum of the parts (Walt Disney Company Data monitor, 2011).
P5: In high degrees of technological convergence a firm’s dependence on innovation and pooling of complementary resources with different firms leads to adopting the network organizational form.
So far, what is made clear from the propositions is that networks are not only relationships that govern the diffusion of innovations and norms, or explain the variability of access to information across competing entities. Due to the fact that they are the outcome of generative rules of coordination, network organizations constitute capabilities that augment the value of firms. These capabilities generate rents that are subject to private appropriation (Kogut, 2000). It is through an understanding of networks as knowledge encoding coordination within and between specialized firms in specific cooperative and competitive structures that the ‘missing’ sources of value can be found.
3.7 Time-to-market vs. Quality
competitors start selling the product and entering the market, emphasis must be put on being the best provider. Consequently, quality issues are of essence. As more customers switch to the dominant provider, its network effects increase, leading to even more customers leaving competitors to join its system. An example is Time Warner and AOL Instant Messaging (Faulhaber, 2001).
According to Schilling (1998), new product development is now the single most important factor driving firm success or failure for many industries. The emphasis on new products has spurred researchers from all type of fields such as strategic management, engineering, marketing, and other disciplines to study the new product development process. Most researchers conclude that in order to be successful at new product development, a firm must simultaneously meet two critical objectives: maximizing the fit with customer needs, and minimizing time to market (Schilling, 1998). While these objectives often pose conflicting demands on the firm, there is a growing body of evidence that the firm may employ strategies to successfully meet these objectives. Successful firms are those that articulate their strategic intent and map their R&D portfolio to find a fit between their new product development goals and their current resources and competencies. Their success also rests on how well the technology areas they enter contribute to the long term direction of the firm by helping them build new core capabilities critical to the firm’s long term goals. Thus, partners must be chosen and monitored carefully. When firms are choosing technologies to acquire externally, they must assess the importance of learning that would be accrued through internal development of the project, and its impact on the firm’s future success.
All in all, it is the pressure of selling high quality to the market within the boundaries that time brings that eventually demands a firm to expand its relationship-web. As the market for the leading firms is a global one, the pressure to expand the network across boarders becomes crucial. Thus, the following propositions holds next: P6: In high degrees of technological convergence the relevance of time-to-market in the industry leads to firms adopting the network organizational form.
To sum up (and repeat), I expect that more cooperative approaches seem in order for at least three reasons. Among others: the abundant need for creativity, autonomy and control, the dependence of innovative products and pooling of complementary resources of different companies, customer responsiveness and cost savings, and the importance of time-to-market in an industry where the winner is likely to take it all. However, theory alone is not substantial evidence without having discussed practical outcomes too. The methodology part introduces where results will be based on to complete the analysis.
