Interorganizational and collective strategies in small firms: environmental effects and performance

Journal of Management, Dec, 1992 by Marc J. Dollinger, Peggy A. Golden

It has been recommended that in the strategic management of a large company, the firm should think in terms of networks in addition to the more familiar product/market and corporate dimensions (Thorelli, 1986). This viewpoint can be extended to smaller firms as well. Small firms possess the capabilities (Dollinger, 1984; Lazerson, 1988; Robinson, 1982) and requirements (Astley, 1984; Bresser & Harl, 1986; Whetten & Leung, 1979) for interorganizational and collective strategy. They attempt to maintain options that can increase their power and performance in the organizational field and thereby decrease their dependence relative to larger firms (Metcalf, 1976; Skinner, Donnelly & Ivancevich, 1987). Collective strategy can be seen as a form of organizational boundary spanning (Nielsen, 1988). The key issues are the need to control critical resources versus the costs of these agreements in terms of increasing complexity and loss of autonomy (Provan, 1984). This is a particularly crucial decision issue for the smaller firm, which typically does not have the market power to control these resources. Collective action is not simply a mode of harmonizing interests, but is employed to mitigate conflicts between actors (Williamson, 1975).

The purpose of this research is to address three broad questions concerning the small firm and the use of collective strategy. The first question concerns frequency and the extensiveness of use. To what extent are collective and interorganizational strategies employed as options by small firms? What is the frequency of use? The question of frequency has not previously been addressed. Bresser (1988) for example, makes no mention of collective strategy options for small firms and devotes his discussion to large firms in oligopolistic market structures. Strategic alliances figure prominently in the strategies of larger firms (Butler & Carney, 1986; Hamel, Doz, & Prahalad, 1989), but seldom for small firms. Models of competitive rivalry, strategy and interorganizational relationships (IORs) often propose that organizational size will be positively related to collective behavior (Khandwalla, 1981). The inference is that smaller firms employ few collective strategies. Yet, there are numerous examples of linkages among small firms that indicate extensive use of collective behavior as an unarticulated strategy.

Second, do environmental conditions affect collective and interorganizational action in small firms? The relationships between various environmental dimensions (and the firm's industry--a subset of environment (Dess, Ireland, & Hitt, 1988)) and firm's competitive strategy have been causally linked (Emery & Trist, 1965; Keats & Hitt, 1988). Critical contingencies have been hypothesized as inducing and directing IORs (Oliver, 1990). However, the nature of these relationships has not been explored for smaller firms.

Last, what is the efficacy of collective strategic action for the small firm? Does it make any difference to the performance, perceived or financial? Attempts by individual organizations to manage turbulence at the domain level may be maladaptive, uncoordinated and have unanticipated effects on the firm's stakeholders (Gray, 1985). Are there certain conditions that make collective activity more effective than others? Even though collective action may increase autonomy and decrease dependence, it may be an activity that does not manifest itself in improved financial performance or increased effectiveness. Collective activity may be necessary for firm survival if the activity becomes isomorphic within a population (Oliver, 1988), but not sufficient for superior performance (Dollinger, 1990).

This study develops and tests a model of small firm interorganizational relationships (IOR's) and collective behavior. It employs a typology of collective strategies developed by Astley and Fombrun (1983) and tests its applicability to the small firm. Environmental data were developed from COMPUSTAT files; information on collective strategy, interorganizational activities and performance were collected from a mail survey of small manufacturing firms.

Theoretical Foundations

Frequency and Extensiveness of Collective Strategy

Collective strategy has been defined as "a systematic response by a set of organizations that collaborate in order to absorb the variation present in their environment" (Astley & Fombrun, 1983:580). This systematic response takes the form of overarching interorganizational behavior. A closely related definition describes collective strategy as "attempts by sets of organizations to manage their mutual interdependence and the system dynamics of their interorganizational environment (Bresser, 1988:375). Substitute the phrase 'pairs of organizations' for 'sets of organizations' and interorganizational strategy is defined. IOR's are "the relatively enduring transactions, flows, and linkages that occur between and organization and one or more organizations in its environment." (Oliver, 1990:241)