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Understanding the Agency of Exchange: Critical Realism, Institutionalism and

Social Action in Inter-organizational Exchange Networks .

Steven Vincent Lecturer in Industrial Relations and HRM

Leeds University Business School, University of Leeds

Leeds, LS2 9JT.

Phone: +44 (0)113 343 4516 Email: sv@lubs.leeds.ac.uk.

Fax: +44 (0)113 343 4885

Paper submitted for presentation at the 4th International Critical Management Studies

conference ‘Critique and Inclusivity: Opening the Agenda’, 4-6 July, Judge Institute of

Management, University of Cambridge, Cambridge.

Acknowledgements:

The paper is associated with a broader research project (Economic and Social Research

Council, Future of Work Programme, No. L212252038 ‘Changing organizational forms

and the reshaping of work’). The research team also included Mick Marchington, Jill

Rubery, Hugh Willmott, Jill Earnshaw, Damian Grimshaw, Irena Grugulis, John Hassard,

Marilyn Carroll, Fang Lee Cooke and Gail Hebson. Special thanks to Irena Grugulis and

Ian Kirkpatrick for discussions about draft work.

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Abstract

This paper develops a critical realist analysis of the social agency observed within inter-

organizational exchange networks. It begins by undertaking an evaluation of existing

theories that claim explanatory power in relation to these structures (transaction cost

economics, resource dependency theory and institutionalist sociology). A realist

approach to social agency is then outlined and considered for what it adds to the debate.

Case study data from two inter-organizational exchange networks is then considered in

light of this discussion. The analysis suggests that transaction cost economics, resource

dependency theory and institutionalist sociology are useful for indicating the structural

conditions that influence the behaviour of network actors. However, none of them make

an adequate of account of the significance of this behaviour, as the network also impacts

on and interacts with structural conditions in complex ways. Accordingly, it is only

when these perspectives are combined with a realist approach to social agency that an

adequate understanding of the impact of these networks develops.

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Introduction

For various reasons there has been growing interest in deploying a critical realist

philosophy of science within studies of management, organization and employment (for a

reader, see Ackroyd and Fleetwood, 2000a). As well as the multiplying effect of

academic currency, arguably, the emergence of post-modern and post-structuralist

philosophy has created a general demanded for social scientists to defend their

ontological and epistemological positions. It could also be suggested that critical

realism’s popularity stems from its heredity, as the latest incarnation of a socio-material

approach that can be traced back through Weberian and Marxian sociology. In this

regard, much of the work undertaken in studies of management, organization and

employment may be seen as implicitly realist (Ackroyd and Fleetwood, 2000b). These

accounts are unlike socially constructed, post-modern or post-structuralist accounts,

where ‘there is held to be no world existing independently of its identification by lay

agents and/or social scientists’ (Ackroyd and Fleetwood, 2000b, p.8). Instead, social

interactions and agencies are real, existing outside our conception of them and the

transactions between people (subjects) and reality (objects) have a role to play in the

development of knowledge and society (see Bhaskar, 1998).

Here, this proposition is discussed through an analysis of inter-organizational exchange

networks. Alternatively described as ‘networks’ (Miles and Snow, 1986), ‘clans’ (Ouchi,

1980) and ‘relational contracts’ (Williamson, 1975), these structures are agencies with

strong normative bonds that maintains continuous transacting between organizations .

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Three perspectives dominate mainstream analyses about how actors behave within them:

transaction cost economics (TCE or institutional economics ), resource dependency theory

and institutionalist sociology. In the following section each of these is considered and

apprised from a critical realist philosophical position. This review suggests that, whilst

each of these perspectives is useful for highlighting the structural preconditions of inter-

organizational exchange networks (Vincent, 2005), none of them adequately theorise the

social agency that these structures display. Following from this, a critical realist

approach to agency is outlined and case study data is used to assess the relative merits of

the position adopted. The analysis suggests that, due to its structurally reflexive qualities,

the realist approach facilitates a more adequate conceptualisation of social change, in this

case of facilitating a better understanding of the local significance of the inter-

organizational exchange networks observed.

Assessing and assimilating the literature on inter-organizational exchange networks:

Inter-organizational exchange networks have been associated with increased performance

and knowledge sharing (Dyer and Nobeoka, 2000), adding value in production chains

(Johnston and Lawrence, 1991), increased speed of market entry (Lei and Slocum, 1991),

and more adaptive responses to environmental circumstances (Kraatz, 1999). This

suggests that they display a good deal of agency and impact on their environments. When

accounting for these effects, transaction cost economics (TCE), institutionalist sociology

and resource dependency theories have been variously combined to explain outcomes.

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Felstead (1991) uses TCE and notions of power and dependency to consider control

within franchise networks. Gnyawali and Madhavan (2001) draw on institutionalist

sociology and resource dependency theory to consider how networks benefit dominant

actors. Lepak and Snell (1999) combine an analysis of human resources with TCE to

consider how different structures are used to control workers with different skills. Lane

and Bachman (1997) develop an institutionalist framework to consider how transactional

structures and notio ns of power effect the distribution of trust amongst network actors. It

would seem that the combination of these perspectives is widely held to be a useful way

to approach inter-organizational exchange networks. However, a deeper inspection of

these theoretical positions suggests that none of them makes adequate accounted of the

agency that these organizational forms display.

This point is obvious for TCE, which draws on the behavioural assumptions of orthodox

economics and therefore assumes that social structures emerge as autonomous

individuals rationally maximise personal rewards. This presents a weak account of

agency because socialization and broader structural constraints, such as institutional

imperatives, bureaucratic rules and power relationships, shape the choices people make.

In short, this perspective presents an undersocialised view of reality (Granovetter, 1985;

Marsden, 1986; Lane; 1998). None the less, it usefully considers the materiality of the

product exchanged, its relationship to the organizations involved, and how this

influences the social structure of the exchange (see Williamson, 1975, 1986) and, for

this reason, it has been used widely to characterise the object-subject relation.

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This perspective suggests that the economic advantages of strictly specified, discrete or

peripheral exchanges relate to market competition, as the price of exactly specified

goods can be compared to the price of the same goods elsewhere. By contrast, the

economic advantages of an open-ended, loosely specified and idiosyncratic exchange

relate to ‘uncertainty about demand and the resultant cost of defining all the relevant

information’ (Marsden, 1999, p.237). If an organization wishes to contract for

something that is complex or uncertain, then it is increasingly difficult to rely on

contractual regulations. Instead, the organization may employ more managers to

regulate what the supplier does, creating a larger network, or trust that the contractual

partner will deliver the required results at a distance (Burchell and Wilkinson, 1998).

For Williamson (1986) such an outcome would be temporary in nature, since

organizations would be compelled to abuse trust and misuse information asymmetries.

However, long-term collaborative relationships have been observed in many social

settings (Sako, 1992; Hunter et al. 1996; Lane and Bachmann, 1997; Marchington and

Vincent, 2004). Within these structures it is often assumed that one party will not take

advantage of the other, even if they are in a position to do so, because there are few

buyers and sellers in the market and social rule systems that constrain behaviours.

The notion of agency implied by the second approach, resource dependency theory, may

also be seen as inadequate in isolation from other texts. This approach emphasises the

resources organizations contain rather than the products they exchange. Here,

organizations draw on different resources when articulating their interests, and these

differences signal power relationships (Pfeffer, 1981). In reality, inter-organizational

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exchange networks are controlled by dominant actors who enact hierarchical relations

between organizations (Rainnie, 1993; Hamilton et al. 1995; Roper et al. 1997; Elg and

Johansson, 1997; Sydow et al. 1998). This presents a more adequate depiction of how

social relations actually operate within organizations. However, any account that

concentrates on organizational resources and the power relationships that these imply,

without reference to the broader context within which they are situated, will tend to

assume that social agency is a contingent reaction to specific material conditions and

resource needs (Ackroyd, 2002; Marchington and Vincent, 2004). This presents another

undersocialised view of social agency which views individuals as passive reactors to

environmental circumstances rather than active agents constituting them.

Institutionalist sociology can also be criticised for overemphasising the broader context

and neglecting the independent role of social agency. Here organizational actors are not

free to respond to their market environment, but socially embedded within a network of

relationships which influence their behaviour (Granovetter, 1985). This perspective has

been usefully deployed to demonstrated that networks are effected, inter-alia, by the

similarity of organizational cultures (Hunter et al. 1996), the structure of the industry

(Sydow et al. 1998), and the rules of professional associations (Greenwood et al. 2002),

trade associations (Lane and Bachmann, 1997) and national systems of governance

(Sako, 1992). All of these constraints impact on the emergence of trust and the

experience of competition at individual, organizational and societal levels (see Lane,

1998). Whilst these useful insights articulate a more socialised view of reality, it can

also be argued that the role of social agency is still neglected. Ackroyd (2000, 2002)

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suggests institutionalist accounts give primacy to specific phenomena within wider

social matrix, such as contracts, industry structures or organisational rule systems, and

these becomes the dominant source from which the social action of organizations should

be read. This results in a tendency to make broad characterisations of social systems and

suggest that local agencies are derivative of these. Much less time is devoted to

understanding how local actors enact and change the conditions that surround them (cf.

Marchington and Vincent, 2004).

By contrast, critical realist analyses consider structure reflexively, analysing the

dialectic of the parts within social systems. This approach assumes a relational view of

knowledge and society (Bhaskar, 1998), in which accounting for the broader context is

only a part and not the end of the analytical process. Social action and agency is

considered in terms of the sum of its relationships, how these are embedded within a

broader context and the ways that it constitutes a structure, in itself, that impacts on this

context. Thus, whilst institutional accounts have emphasised the impact of the broader

context, they have tended to neglect the causal potential of localised interactions as

social structures in themselves. This does not mean we should ignore the contributions

of institutionalist sociology, or for that matter TCE and resource dependency theory. For

realists, external forces, structures and mechanisms still intervene to place pragmatic

limits on our practices and discursive behaviour (Collier, 1994). So for the social

scientist, generating an adequate understanding the structural conditions that precede

socia l action is vital to analysing social processes. Subjective positions and agency

groups, material products, businesses and market structures, institutions and other

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national governance mechanisms all have causal powers that interact and, depending on

their combination, they simultaneously and selectively influence social action and

agency in specific organizational contexts. This suggests a ‘stratified and

transformational ontology’ (Ackroyd and Fleetwood, 2000), in which various levels and

types of force are considered for how they affect social action in particular locations.

Subsequent to this, social action and agencies may reproduce the pre-existing

conditions, resulting in morphostasis, or they may transform them, resulting in

morphogenesis and new structural conditions (Archer, 1998).

From this perspective it is important to consider how social agencies vary depending on

the ability of social groups to assert their influence and change their structural

conditions. Archer (1995) draws a useful distinction between ‘corporate’ and ‘primary’

agents which may be deployed as a heuristic for differentiating between social groups

and the causal powers they possess. Corporate agents find themselves in a structural

location where they have the material, cultural and symbolic resources needed to

represent their interests. Primary agents are identifiable groups with specific interests,

such as mortgage or insurance policy holders, migrant or temporary workers, but such

groups rarely have the requisite resources in sufficient quantities to mobilise assertive

social action and change their structural conditions. To an extent, all those involved in

productive organizations possess elements of corporate agency, whether managers,

employees, trade unionists, shareholders or governmental policy makers. In the

following analysis, the corporate agency of managers acting in inter-organizational

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exchange networks will be analysed in the effort to better understand the structural

impact of the social agencies they form.

An overview of the research:

The research presented here is taken from a wider project on Changing Organizational

Forms and Organizational Performance, funded by the ESRC as part of the Future of

Work programme. The project undertook eight extensive case studies between 1999 and

2002. These included a customer services network, the British post-office system, an

employment agency, an industrial cluster, an airport, a National Health Service trust, a

chemicals sector supply chain, and a public sector IT outsourcing arrangement. The last

two of these cases have been taken from this project to be explored here. These were

chosen because they involved large networks between organizations in a single exchange

relationship. The other cases also contained inter-organizational networks, but these

either involved small networks of just a handful of people, multiple organizations or

organizations that were not involved in commercial exchanges. As a result, it was

considered that the cases chosen were most appropriate to the type of analysis undertaken

here.

Over 47 interviews were conducted in the chemicals sector case and 45 in the IT

outsourcing case. These included interviews with the most senior managers involved in

the networks, as well as managers within the organizations and more junior actors within

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the networks that managed the exchanges. Where appropriate, interviews were also

conducted with regulatory actors, such as trade unions and industry bodies. The data was

collected over two years, with a handful of important respondents being interviewed on

several occasions in each case to track on-going changes. In addition respondents were

also asked about their working histories and experience, providing a rudimentary

longitudinal profile. The transcripts that were developed combined with access to a large

range of government reports, internal documents and observations of the way that

organizations operated. Overall, each case may be considered as an ‘embedded case

study’ (Yin, 1994) with the unit of analysis being the inter-organizational exchange

networks and the social relations that surrounded them.

Outside-in: analysing structural conditions for how these impacted on agency

forms:

The data from the case studies has been organized to reflect the critical realist approach

adopted. In the following account the surrounding structural conditions are considered,

with sections reflecting the theoretical themes outlined in the literature review. Firstly,

and in line with TCE, the nature of the products exchanged will be considered for how

these impacted on the inter-organizational networks. Secondly, in line with resource

dependency theory, the relative importance of the exchange to the organizations involved

will be outline and considered. And finally, the impact of broader institutional regulations

will be sketched-out. In each case, an attempt will be made to draw links between

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specific structural conditions and the social forms that these related to. However, due to

the comp lexity of the case studies it is impossible to be comprehensive in the space

available, so the data is intended to be more indicative than complete.

The product effect

In both cases, the nature of the products impacted on the social structure of the inter-

organizational exchange networks. The first case involved a ‘supply chain partnership’

between Scotchem and Acidchem. This managed the exchange of an acidic powder

needed in large quantities for the production of red and yellow pigment (henceforth

called ‘Beta Acid’). Scotchem employed about 750 people and produced about 24,000

tonnes of pigment a year from a 75 year old industrial plant in the suburbs of a Scottish

city. Red and yellow pigments were its biggest selling products. Acidchem, which

produced a range of industrial chemicals, was a similar age and size, and situated about

150 miles away, in the north of England. The relationship between them stretched back

over several decades.

The logistics of supply and the quality of the product were key issues in the network that

managed these exchanges. It was possible to save costs through effective product

handling systems and small variations in the qualities of the Beta Acid could result in

large variations in the quality of the pigments produced. Managers met at quarterly

meetings to negotiate price, which was contractually agreed for the period, and quantities

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were forecasted. Subsequent to this meeting, the organizations’ sales and purchasing

offices coordinated deliveries; chemists collaborated in an on-going iterative process to

alter the quality of the Beta Acid; and production and engineering managers discussed the

potential for saving costs through effective supply chain management. In this case, the

nature of the materials exchanged was a key influence on the nature and extent of the

network’s interactions.

The second case was a 10 year ‘strategic partnership’, which started in the mid 1990s

between Govco, a large and bureaucratic government department, and Futuretech, a

multinational software development specialist. Govco used the relationship to purchase

its IT requirements. This organization employed about 60,000 staff and conducted a

variety of idiosyncratic transactions for government. Futuretech had been expanding

rapidly, taking-over its clients’ IT services departments. Its UK base had grown from

just a few hundred staff in the 1980s to over 15,000, and this included at least 11

contracts with governmental bodies.

Good performance in Govco relied on effective IT systems. Indeed, ‘making better use of

Information Technology’ (source withheld) was central to Govco’s operating strategy.

Managers were encouraged to use IT to save on administrative and labour costs. It used

over 20 unique IT systems, which were comparable to those used by banks to calculate

large volumes of transactions. The situation was made more complex and uncertain by

the rapid pace of IT technology developments, unpredictable shifts in government policy

and the interrelationships between the IT systems, with each expected to communicate

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and swap information with others. In effect, the different IT systems were intended to

work as one integrated whole, despite differences in the technical sophistication and

computer languages of their construction.

The relationship with Futuretech promised to reduce the cost of computer code

development by 50% over the first five years of the contract, and this would be

accounted for through the ‘Function Point’ system, an industry standard measurement

for a quantity of computed code. Govco obtained services by issuing ‘work orders’ to

Futuretech, and these included a detailed plan of the systems to be developed; an

estimate of the Function Points needed; and a completion date. Disputes were possible

because Function Points were not equal in terms of cost, and this was acknowledged and

allowed for in the system. When Futuretech delivered IT systems cheaply they were

expected, retrospectively, to accept a lower price. Similarly, when scarce skills were

required, these had to be purchased separately at a price that reflected their ‘market’

value. So much was still determined by managers ‘horse trading’ and the two sides

could not agree on standard benchmarks for the quality and speed of the systems

developed.

As a result, this ‘delivery structure’ demanded a great deal of skill and agency. Futuretech

employed 200 people to manage the work orders and liaise with Futuretech about new

and existing work. Govco employed an equivalent number of managers to develop, award

and monitor its supplier. Overall, the quality of the IT systems developed depended on

the skills of these managers and Futuretech’s IT programmers. They needed knowledge

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of the technologies available, the nature of the existing IT systems and their

interrelatedness, Futuretech’s broader capabilities and, perhaps most importantly, how to

apply this knowledge and technology to get the best results for Govco.

The dependencies effect

At the time of the research, resource dependencies were mutually high in both of these

networks and this drew the organizations closer together, extend ing the networks’

activities. Managers in Scotchem and Acidchem characterised the relationship between

them as ‘special’. Scotchem purchased 75% of its Beta Acid needs from Acidchem,

which reflected about 75% of its total output. Few organizations made Beta Acid and

many of these were pigment producing competitors of Scotchem. As a result, the

reliability and stability of this relationship was important to both organizations. Scotchem

managers admitted that if Acidchem stopped producing Beta Acid it would find it

difficult to find a comparably favourable source of supply. Acidchem managers were

well aware of this, as one manager put it:

If we pull out of the market then [Scotchem] would feel it worst as they are not

really linked to too many of the other suppliers and none of them could fill our

gap (Acidchem, Manager 1, male).

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This dependency was mutual. Acidchem had only a handful of large customers, and if

Scotchem stopped buying Beta Acid it would have one fewer.

Both saw the relationship between them as in the ir best long term interests and sought to

help the other whenever they could. On top of the product related interactions listed

previously, employee relations managers and shop stewards met to discuss common

industrial relations issues; Scotchem advised Acidchem about road haulage contractors;

Acidchem advised Scotchem about business services outsourcing; Scotchem’s chemists

undertook experiments for Acidchem, ever where these had no cost or performance

implications locally. The relative importance of this relationship encouraged an extension

in the interactions of the network, from a narrow focus on the product to broader interest

in the social relations surrounding the product.

The same was true in Govco-Futuretech, where dependency relationships were also

mutually high. Futuretech won the business against just three other tenders and two of

these were consortiums of firms, so there were few organizations capable of delivering

the work Govco demanded. On top of this, at the start of the relationship 2,000 staff

transferred from Govco to Futuretech, which subsequently held most of the knowledge

needed to do the work. Even if Govco purchased a new IT system from a third party it

would need Futuretech to link this with the existing systems. Where Govco did demand

the development of new technologies, such as when central government demanded that

Govco delivered services via the internet, work orders were typically issued to

Futuretech extending the range of tasks that this organization undertook for Govco.

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The Govco contract was also important for Futuretech. It represented 20% of

Futuretech’s British market, 10% of its European market, and about 2% of its global

market. Losing this contract would certainly affect the value of the business, so it was

important to deliver the contractual targets. There were also few customers in the pubic

sector IT market. Indeed, there was only one client in any country, the government.

Failure on one contract was likely to have repercussions across the sector and might also

have had international implications, since governments interacted and often conducted

their affairs in similar ways.

At the time of the research, the size and relative importance of this contract made it a

‘flagship’ enterprise for both organizations. Any appearance of failure, either

substantive or otherwise, would be damaging to the organizations involved and

damaging to the careers of the managers responsible for it. Govco managers would be

seen as unable to control their contractual partner and Futuretech would be seen as

incapable of managing their core business. As a result, and following some bad press in

an industry magazine, the organizations started to manage the ir public relations jointly,

to ensure a consistent story. This extended the activities of the network to influencing

broader perceptions of performance.

The institutional effect

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In contrast to the UK economy more generally, which has been characterised by weak

forms of social regulation (see Sako, 1992: Lane and Bachmann, 1997), chemicals

production was highly regulated. Some regulations, such as those related to health and

safety in handling hazardous materials, were statutory. Others were imposed voluntarily

by the Chemical Industries Association (CIA) or through relationships with trade unions.

Membership of the CIA was mandatory within the industry, so Scotchem and Acidchem

were members. The Human Resource Manager at Acidchem suggested that the CIA was

like an ‘old boys’ network’, providing opportunities for personal contacts and pressures

for conformity. As one CIA representative also suggested:

It is possible to bring peer pressure to bear because so much in the industry

depends on reputation. It’s in everybody’s interest to help one another. There is a

common cause underlying all of this (CIA, Director, female).

The CIA obviated the need for legal regulation by imposing strong voluntary codes, and

these effected how Scotchem and Acidchem handled the Beta Acid because it was a mild

irritant.

There were also other cultural similarities that drew the organizations together, further

extending interactions within the network. As well as being of a similar age and in

similar businesses, Scotchem and Acidchem were both employers in urban areas affected

by bad experiences of declining British manufacturing. Both sites were also highly

unionised. Although industrial relations had traditionally been conflictual, managers and

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union activists had the common goal of a more consensual agenda. These organizational

similarities combined with product market pressures, mutual dependencies and a

common stock of institutional rules to create a wide variety of mutual interests amongst

the network’s actors, cementing relationships and encouraging dialogue.

The Govco-Futuretech relationship was affected by the institutions of its public sector

context. In particular, the Conservative Government (1979-1997) operated with a

‘government by contract’ (Carnarghan and Bracewell Milnes, 1993) or ‘contract state’

(Kirkpatrick and Martinez Lucio, 1996) policy, which intended to make public sector

work more accountable by exposing it to competition and contractual process. It was

this policy that initiated the relationship and, subsequently, the National Audit Office

(NAO) regularly reviewed the accounts to ensure that contractual targets were achieved.

On the other side of the relationship, the managers of Futuretech’s business with Govco

were answerable to its Board, who were, in their turn, answerable to the organization’s

shareholders. Both sides demanded that the partnership was financially accountable.

Futuretech’s shareholders demanded a profit and the NAO demanded that any profits

were justified in relation to the contracts delivered.

Due to the limited available resources there were also financial restrictions to consider.

Govco had a limited IT budget, so the network used a ‘long range plan’ control

outcomes. Through this mechanism Govco prioritised work orders by listing them in

order of their significance. Futuretech then worked through the list, but did not

guarantee that all of the work on the list will be completed. It simply did what it could

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with the budgeted resources, starting with central governmental demands and essential

maintenance work, and then undertaking less essential tasks, such as IT system

enhancements and more peripheral development work. This mechanism provided the

network’s managers with a good deal of latitude to influence outcomes by determining

how the available funds were used, because they evaluated and prioritised the vast

majority of the work undertaken.

Here, as with the previous case, the institutional context provided many of the rules to

the game, but they did not determine how the game was actually played out. This

depended, to a greater extent, on the nature of the products exchanged and the skill and

agency the networks’ actors deployed in manipulating them. Through this process they

altered the product, managed the relationship and affected its rule systems as they

conducted the business of the network. Accordingly, the following sections analyse

activities of the network’s actors for how these influenced the social structures that

surrounded them.

Inside-out: social agency reproducing and impacting on structural conditions

The analysis p resented previously suggests that the structure of networks may be

accounted for, to a reasonable degree, by considering the nature of the product

exchanged, resource dependency relationships and broader patterns of institutional

regulation (see also Lane and Bachmann, 1997; Vincent, 2005). Analysing networks in

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these terms provides a useful ‘snap shot’ of local conditions. However, a more detailed

analysis of agency is required in order to understand the likelihood of social change (see

Archer, 1998). Accordingly, the following sections consider how these networks

impacted on the product, organizational dependencies and institutional rules through the

sum of their interactions.

The networks’ impact on the product

The primary function of these networks was to negotiate alterations to the materials

exchanged. These changes depended on the skills of its actors and their willingness to

communicate. In Scotchem-Acidchem changes to the specifications of the product and its

handling were frequent, and instead of merely informing the other organization about

changes, discussions, typically involving managers whose areas of control were

implicated, would take place a number of months before implementation. In this way the

network ensured transparency through their interactions. As one director put it:

‘The key thing about this sort of relationship is that there are no surprises. As

soon as he is aware that something is on the horizon we are aware (…) and the

same thing goes for us’ (Acidchem, Director 1, male)

On-going iterative collaboration was needed to ensure the Beta Acid was handled

effectively. It had traditionally been supplied in 25kg paper sacks, but a much larger and

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more efficient ‘big-bags’ became available. Changing to the big bag system required

extensive technical consultation and effective contingency planning. In Scotchem the

system that loaded the big bags onto the plant was prone to breaking down. When this

happened, Scotchem required stocks of Beta Acid in the 25kg sacks in order to maintain

production. Holding large amounts of these to cover such contingencies would tie up the

organization’s operating capital, so Acidchem switched between the different forms of

packaging when instructed by Scotchem. This facilitated lower stock levels and

continuous production, which benefited both organizations. Managers on both sides were

clear about the importance of these and similar activities:

We don’t actually negotiate with each other. We talk about our needs five years

from now and work out how these can be supplied. (Scotchem, Director 3, male)

With some customers, it’s just a sell, the classic sell. It is only with key customers

[such as Scotchem] that we have this wider relationship, in terms of closeness and

degree of integration. (Acidchem, Director 1, male)

The managers of Govco-Futuretech represented an even larger network, which acted as a

buffer and an information conduit between the organizations, co-ordinating the definition

of work and monitoring its delivery. Both sides expected project work to be transparent,

accountable and tightly controlled. By maintaining regular flows of information Govco

could be reassured that projects were on schedule and Futuretech would be clear about

what was required. However, the capacity of the network to define and deliver accurate

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work orders was limited by the knowledge base of its managers. If the network did not

have the capabilities needed to develop a particular technology, as happened when the

government started to demanded internet based services, then Govco had to define and

schedule for these before any work could be done. Yet defining this work in advance was

often difficult because the organization did not already possess expertise and, although

consultants could be used to plan the work, the broader implications of the new systems

for the others could not easily be assessed.

At least one internet project had failed, and here Govco purchased an ‘off-the-shelf’

package. Govco has also accepted something less than the best results from other

projects, as one IT expert managing internet work orders suggested:

I couldn’t say I’m proud of the quality of the stuff that we’ve done because the

engineering discipline wasn’t in the teams. However, if you talk to the customer

[about the project], quality, they don’t care about quality (…) they are happy to

accept functional degradation, they are happy to accept performance degradation.

We don’t deliver all the functionality. It doesn’t run as fast as you might like

(Futuretech, manager 38, male).

In both cases outcomes depended on the skill and agency of the networks actors, as well

as their ability to give and take. In Scotchem plant equipment was prone to breaking

down, and this resulted Acidchem changing production techniques to accommodate new

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demands. Matters were more worrying for Govco, where demands for technological

development outstripped either organizations ability to develop the requisite expertise,

resulting in poor project delivery. That Govco’s managers accepted something less than

an excellent outcome is also interesting and somewhat anomalous, given that institutional

actors demanded rigorous accountability.

The networks’ impact on dependencies

Within both the case studies the networks’ activities also impacted on dependency

relationships. Perceptions of poor performance had previously changed Scotchem’s

relationship with Acidchem. During the 1960s and 1970s, Acidchem’s managers treated

the Beta Acid production site like a “cash cow”, with most of the profits going to expand

its international business. Partly due to this lack of investment, industrial relations were

fraught at the site, and industrial action was targeted around the placement of large

orders. As the market became more competitive in the 1970s and 1980s Acidchem found

it increas ingly difficult to satisfy its workers’ demands, leading to sustained industrial

action in 1984. This culminated in Acidchem failing to keep pace with Scotchem’s

orders. Up to this time Acidchem had been its only supplier of Beta Acid. Subsequently,

Scotchem purchased 25% of its Beta Acid from a source in South Korea. However, this

organization had strong links to a competitor, so Scotchem did not see trading with it as

in the best long-term interest of the firm.

25

Since this time, senior managers at Acidchem have been encouraged to forge closer links

with important customers, such as Scotchem, making contact with other organizations’

personnel ‘off their own bats’ (Acidchem, Director 1, male) wherever cost savings or

efficiency improvements were likely. The denser network of ties that followed was used

to improve Acidchem’s performance, resulting in the wide ranging contacts described

previously. Significantly, Scotchem also played an active role in changing Acidchem’s

industrial relations climate. Shop stewards and managers from both sides met to discuss

common issues, with an Acidchem director admitting ‘[Scotchem] were a couple of years

ahead of us in what we were trying to do in terms of union management’ (Acidchem,

Director 1, male). This suggests that Acidchem benefited most from the process. At the

time of the research, managers at Scotchem thought that Acidchem was ‘getting its act

together’, and felt that it was becoming safe to reinstate them as their only Beta Acid

supplier.

A different dynamic was observed within Govco-Futuretech, as it appeared that the

balance of power was changing from mutual resource dependencies to a situation that

favo ured Futuretech. Govco was keen to maintain the contract’s ‘high profile’, because

this would lead to Govco managers acting as referees on Futuretech tenders, increasing

their influence. With a high profile contractual failures could also damage Futuretech’s

reputation, should Govco choose to expose them. However, this source of power could

diminish as Futuretech grew. Since obtaining the Govco contract, Futuretech had won

tenders with similar departments in least two other countries and expanded its

governmental business in the UK. This rapid expansion, which was fue lled by the good

26

words of Govco, would reduce Futuretech’s dependence on any single contractor, even

one as important as Govco. Furthermore, as Futuretech developed and introduced more

IT capabilities on behalf of Govco, its dependency on Futuretech would increase as a

larger portion of the overall knowledge became concentrated therein (Grimshaw et al.

2002). In reality the network’s activities were increasing Govco’s dependence on

Futuretech and decreasing Futuretech’s dependence on Govco.

Other evidence also suggests that Futuretech was obtaining the upper-hand. Govco

argued that Futuretech’s most talented managers, including those with knowledge of

broader technological possibilities and how these might benefit of Govco, had been

transferred off the contract onto other business. Govco thought that their contract was

now run by a ‘B-team’, of less talented and experienced staff. Futuretech also repackaged

its existing technologies and ‘intellectual capital’, whether or not these were suitable,

because they were cheap and easy to implement. The result was a compromise on the

quality of the IT systems developed. One technical leader suggested:

[Futuretech] puts its own slant on the partnership, its technology set-up, its pacts

of technology, and basically tries to leverage those to the customer’s advantage,

but sometimes it might not work to the best of the customer’s advantage.

(Futuretech, manager 38, male)

27

It would seem that the shifting quality of these networks’ interactions was driving the

relationships in alternative directions. In Scotchem-Acidchem actors were being drawn

together in a situation of increased dependency. In Govco-Futuretech, whilst it was

increasingly vital to Govco that Futuretech employed workers with a broad knowledge of

its abilities, Futuretech was withdrawing these workers from the contract as it diversified

its resource base. Overall, whilst the underlying nature of Scotchem-Acidchem kept the

relationship stable, Govco-Futuretech was altering the structural conditions of the

relationship by redistributing resources.

The network’s impact on institutional rules

Institutional standards were enacted and defined within the networks and, because these

were sometimes contradictory, they were a source of tension for the managers involved.

The use of the new ‘big-bag’ in Scotchem-Acidchem was a source of stress because,

although it was introduced to reduce the cost of packaging and handling, health and

safety was also important. Initially, having discussed the matter with Acidchem,

Scotchem’s ‘approved’ packaging manufacturer designed a bag to meet its requirements.

It then sent this bag to Acidchem, so they could test it and make any necessary

adjustments. The initial product was said to be more expensive than a similar one

available to Acidchem from another supplier, and it was also not of the standard needed

to transport Beta Acid safely. This was a source of tension, as one senior production

manager stated:

28

[Scotchem] said “look at this big bag” and we had quite a lot of problems with

the bag, we would probably not have approved of that vendor. The seams leaked.

It wasn’t a quality bag to start with (Acidchem, Manager 1, male).

Acidchem’s complaints and technical input result in a cheaper and safer ‘double-

stitched’ bag. It was cheaper, in part, because savings were identified as part of the

process. For example, Acidchem’s knowledge of the product led to the removal of an

earth wire from the bag’s design. As a result of this iteration the network eventually

came to a solution that met the health and safety standards, fitted loading equipment and

satisfied the participants’ sense of fairness.

At Govco-Futuretech, if Futuretech hit its contractual targets then the network would

have delivered its institutional obligations. By the time of the research, the targeted 50%

reduction in unit costs was achieved and hailed as demonstrating the adva ntages of the

new structure, the success rate of contracts for maintaining and enhancing existing IT

systems was running close to the 100% level, and a profit share had been achieved on

every year of the contract. On top of this, an end-user satisfaction survey demonstrated

improvements in service delivery over the life of the contract. It would seem that the

relationship was a ‘success’, despite the failed internet projects.

However, there was other evidence to suggest that meeting these targets may not have

been such a great achievement. Futuretech’s managers were much more experience in

29

the software applications development market than their counterparts at Govco, so they

were in a good position to negotiate achievable contractual targets (see also Grimshaw

et al. 2001). Since the start of the contract, advancements in software applications had

made it possible to supply more with fewer inputs, and Futuretech was better positioned

to foresee such developments. After the signing of the contract, the managers of the

partnership enjoyed a great deal of influence over the success of the relationship, by

defining both the work to be delivered and ‘horse trading’ its outcomes. In this context,

as productivity and price were subject to such variety, senior managers could negotiate

away poor performances by reconciling these against any the contractual surpluses

associated with easy to deliver work orders. The vast majority of the work completed

(76%) was for the maintenance of Govco’s existing systems, and this work was

relatively easy to control contractually. Managers already had substantial knowledge

about the work and they could use this to define detailed and deliverable work orders.

Manager ial career interests may also have effected how the standards were enacted.

Managers in Govco wished to enhance their careers and extend the ir influence, and

taking over other departments’ IT systems was one way they did this. These managers

had a vested interest in demonstrating that their contract was performing well, because if

Futuretech appeared to be delivering careers would be protected. In this context,

Govco’s managers may have accepted poor quality products if this extended their

interests. And, if it was in Govco’s interest to provide cover to shoddy work, it was

certainly in Futuretech’s interest to cut corners to make profits.

30

The fact that the largest failures identified were internet technologies is also illuminating,

since these were demanded by central government rather than defined within the

confines of the network. In reality, the partnership stuck to what management knew to be

deliverable within existing capabilities. As one senior manager suggested:

The natural consequence of it all is that you tend to think of what are the

implications of everything you do. If this is scrutinised and it all goes wrong,

which it may do because there are risks associated with everything, what would

happen? And you tend to get, particularly in the user community and in

[Futuretech] to some degree, is a risk aversion driven, not by risk analysis as a

business would do it but in terms of what would be the effect of someone

blaming me for this thing if it goes wrong. (Futuretech, manager 29, male)

Despite the rigid accountancy system, it is difficult to judge the performance of Govco-

Futuretech because there were no standard benchmarks. The targets set may have been

generally easy to achieve and those in the best place to judge the relative efficiency of

the organization had a vested interest in demonstrating its successes. The ‘partnership’

had a tendency to promote those projects which could be easily managed within the

existing resource constraints – at the expense of more innovative but less certain bespoke

solutions. In this case, and in contrast to Scotchem-Acidchem, predictability and

accountability were prioritised at the expense of trust and experimentation

31

Discussion and conclusion

The exploration of the data suggests that a reasonable appreciation of inter-

organizational exchange networks can be obtained by considering their structural

contexts. In particular, developing a combined analysis of product, its relationship to the

organizations involved and patterns of institutional rules provides a useful indication of

the structural conditions that precede social action within inter-organizational exchange

networks (Vincent, 2005). Further to this, by considering the social action of these

networks in terms of the sum of their relations and how these impacted on broader

structural conditions, a more adequate appreciation of the causal potential of these

structures may be achieved.

In Scotchem-Acidchem the network served as the cement to reinforce the dependency

relationship and maintain the status-quo. Mutual support of the other organisation’s

objectives was the norm and this, in combination with a range of common transactional

and institutional issues, created an environment conducive to constant collaboration.

This was not the case at Govco-Futuretech. Although this relationship also demanded

constant collaboration in the definition of work, the dynamic of the network did not

reinforce the dependency relationship but acted as a catalyst for new structural

conditions, within which Govco might be seen as increasingly dependent on Futuretech.

In part, and as a transaction cost economist would predict, this difference may be

explained by considering the nature of the product. Beta Acid was a single,

32

technologically mature product that was physically separable from the production of

pigments. In contrast, Govco’s IT systems development work demanded a good deal of

social integration between the organisations, technologies were often new or developing

and there were many interrelated products (some 20 IT systems). TCE assumes that in

this type situations suppliers will act opportunistically, taking advantage of any gaps in

the monitoring and information sharing processes, pushing the parties towards either a

more market based relationship or a more hierarchical structure (Williamson, 1986).

There was some evidence of this, but from the perspective adopted ‘opportunism’ was

not inevitable but conditioned by dependency relationships, the rule systems that

surrounded the managers and how they chose to respond to these.

In this regard, analysing resource dependency relationships added further to

understand ing the social agency demonstrated within these networks. There was an

absence of alternatives for Scotchem and Acidchem, which almost certainly motivated

collaboratio n. The same was true for Govco, who depended on Futuretech for the vast

majority of its IT needs. However, whilst Futuretech was initially dependent on Govco to

expand its business, this appeared to change as the relationship developed. As Futuretech

grew Govco’s contract represented an increasingly less significant portion of the

business. According to dependency theory, the least dependent or most powerful partner

is likely to accrue most of the benefits of the relationship (Dore, 1996). In this case,

Govco was obliged to invest in Futuretech, even if this did not result in quality, bespoke

IT systems development, and these investments would increase Govco’s dependence on

Futuretech’s expertise (see also Grimshaw, et al. 2002)

33

In both cases, institutional rules and procedures shaped the actions and interactions of

network actors but they did not define the work undertaken. Institutional actors

demanded that Scotchem’s production facilities were both safe and increasingly

efficient, and the development of IT systems had to be accountable and predictable, but

the plant equipment and IT systems developed were not predetermined by institutional

rules or dictated by either party in the relationship. Ends were achieved by debate and

co-determination at the organizations’ boundaries, rather one organization demanding

specific outcomes. This was partly because both organizations had a vested interest in

securing similar standards, and partly because the complexity of the undertakings and

rule systems meant that input from both sides was required before standards could be

defined. In short, the networks had great deal of influence and the agency, which they

used to define how institutional rules were enacted.

In conclusion, TCE, resource dependency theory and institutional sociology have done

much to extend our understanding of both the structural conditions of inter-

organizational exchange networks and how these play a role in determining local

outcomes. However, it is possible to argue that none of these theories provide an

adequate explanation of the networks themselves, which should properly be viewed as

causal structures in their own right. To this end, has been posited that it is only after

these theories are combined with a realist view of social agency that a better appreciation

of networks, as causal structures, actually emerges.

34

In this paper, adopting a critical realist approach to social inquiry facilitated a better

appreciation of how these networks responded to their environments, reproducing pre-

existing structural relations or, as in Govco-Futuretech, altering and reshaping them. As

the strategic activity of agencies is related to their social locations (see Archer, 1995;

Jessop, 1996), this approach also facilitates a critical assessment of local policies and

practices. For example, this analysis suggests a positive role for sector level agencies in

fostering and cementing cooperative inter-organisational ties (see Best, 1991; Lane and

Bachmann, 1997) and also points to the practical limits of governmental partnerships

(see Grimshaw, et al. 2001; 2002; Vincent and Grugulis, 2004). Overall, networks are

shaped by social rule systems (see Sako, 1992; Lane and Bachmann, 1997 ) product

market structures (see Williamson, 1975, 1986), and the organizations’ dependency on

particular resources (see Dore, 1996; Rainnie, 1993), but these structural conditions will

also be a product of network interactions and, thus far, analysis which consider the

causal impact of these interactions have be few and far between (cf. Marchington et al.

2004; Marchington and Vincent, 2004). Accordingly, this paper has stressed the

importance of multidimensional and stratified research about networks, in which social

and material conditions are considered for how they affect agencies which possess

transformational potential. Indeed, it is only through undertaking such research that the

real significance of inter-organizational exchange networks can be appreciated.

35

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