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Paper »Organization & Network Theories«

The Design of Collaborative

Organisations
The emergence of coopeting firms and implications for
a future organisation

Author: Christian Rudolph (M.A. CME Student) matriculation number:

9200192 – Evaluated and graded by Dr. Andreas Huchler (SOFI)
Summary

Recent observations in organisation design theory show, that companies based

on a collaborative organisation design proof to be successful in today’s
business environment. The paper at hand has a closer look on two distinct
collaborative businesses, namely Star Alliance and blade.org. From an
organisational-theoretic point of view, the author applies Brandenburger &
Nalebuff’s concept of coopetition to both cases and shows how the
collaborative organisation design developed between 1996 and 2006 to
aggregate those factors that constitute successful organisation designs. He
shows that collaborative organisation designs highly depend on the business
ecology at the time they were designed. Concluding from that ecological
viewpoint, the author describes the future of organisation as an open system of
highly collaborative companies that are customer and community-shaped, see
innovation as their objective and span boundaries of their changing organisation
on a daily basis.

Content

Summary ..............................................................................................................I
Content ................................................................................................................II
1. Introduction ...................................................................................................3
2. Research Design ..........................................................................................4
3. Coopetition and the Value Net ......................................................................5
4. Coopeting Organisations ..............................................................................7
a. Star Alliance......................................................................................................... 7
b. Blade.org ........................................................................................................... 10
5. Conclusions ................................................................................................13
6. Implications: The Future Organisation ........................................................14
7. Literature.....................................................................................................17
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1. Introduction

According to Aldrich, there are three characteristics that define organisational

forms. Organisations are goal-directed, boundary maintaining and socially
constructed systems of human activity (Aldrich 1979). In times, when goal-
directed and socially constructed activities can still be found in almost every
modern organisation, recent phenomena and organisation designs show that
boundary maintaining activities go through redefinition. In the economic era of
industrialisation, organisations applied standardisation, planned and controlled
tangible assets. Globalisation utilised the era of customisation, concentrating on
the delegation of information. Since the emergence of the Internet, the speed of
information transfer made collaboration more accessible for a wider range of
people. According to Miles et al. (2009), today’s economic era is characterised
by innovation, a key asset, which is knowledge and the core capability of
organisations to collaborate.

Organisation Designs based on alliances, collaborations, networks and

communities show that the classical boundaries of organisations become
fuzzier. Combined with the understanding of the capability of the Internet and
innovations in information technology today, this leads to boundary-spanning
activities and organisations, which make it difficult to clearly differentiate
between customers, suppliers and competitors. To understand the current
developments in organisation design and imagine the future of organisation
design, new forms necessitate new instruments to analyse them, because
existing tools and concepts cannot capture the complexity and appearance of
phenomena observed in business.

One of these tools is the concept of coopetition (cooperating competitors)

introduced by Nalebuff & Brandenburger (1996), based on the paper of Hamel,
Doz, und Prahalad (1989). Based on game theory, their paper focuses on the
players in the market and the values they maintain in order to analyse modern
organisations.
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2. Research Design

The aim of this paper is to picture the future of organisation arguing why it is
beneficial for organisations to collaborate in alliances and span the boundaries
of the organisation. This is achieved by applying the concept of coopetition to
both organisations introduced in this paper. The comparison of a well-
established organisation (Star Alliance, 1997) and a recent business case
example (blade.org, 2006) shows how the collaborative organisation design has
developed in the last years. Based on the conclusion of this comparison, the
author will argue what implications must be drawn in order to design the
organisation of the future by answering the following research question:

Research Question:
Based on the emergence and development of Star Alliance and
blade.org as examples for collaborative organisations, what
implications can be drawn with regard to a future organisation
design?

To analyse the organisation design of STAR and BLADE from a more elaborate
point of view, the concept of coopetition will be introduced (chapter Coopetition
and the Value Net). Next, STAR and BLADE will be differentiated and defined
as a new form of organisation. In the process, the author will first argue why he
thinks BLADE can be considered as a (new) form of organisation (chapter
Coopeting Organisations). Finally, the conclusions (chapter: Conclusions), will
be, more normatively, pointed out as indicators for a future form of organisation
that questions Aldrich’s definition of an organisational form (chapter
Implications: The Future Organisation).
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3. Coopetition and the Value Net

In 1978, Pfeffer and Salancik already anticipated what is discussed in the

following. Based on the concept of resource dependency, they hypothesised
that “actions taken to manage interdependence may, in the long run, increase
the interdependence among environmental elements, requiring further actions
to manage the new uncertainties. Two sellers merging, thereby reducing
competitive interdependence increases the interdependence among the buyers
previously served by the two. The buyers may in turn form cooperatives, merge
themselves, or undertake a variety of other actions. Such actions, over time,
may lead to new forms of organisations, or even more likely, new forms of
managing interdependence among organisations.” (Pfeffer & Salancik 1978)

Coopetition describes the phenomenon of organisations collaborating or

cooperating with its competitor. Therefore it is a suitable research tool to
analyse collaborative organisation designs. Originated from a game-theoretic
perspective, Brandenburger and Nalebuff published the concept of coopetition
in 1996, thereby introducing the idea of complementors. A player in “the game
of business” is a complementor, if customers value a product more when they
have the other player’s product, than when they have the first product alone.
(Nalebuff & Brandenburger 1996) In other words, complementors are players
from whom customers buy complementary products or to whom suppliers sell
complementary resources. For example, hardware and software companies are
classic complementors. Faster hardware, such as a Pentium chip, increases
users’ willingness to pay for more powerful software. More powerful software,
such as the latest version of Microsoft office, increases users’ willingness to pay
for faster hardware.

To visualise their concept of coopetition and complementors, Brandenburger

and Nalebuff use a so-called “value net” that represents all players and the
interdependencies among them. Applied to the airline business till 1997, the
value net looks like on the next page.
 6

Figure 1 Value Net Airlines; adapted from Nalebuff & Brandenburger (1996)

The value net illustrates the relationships and interdependences of players in

the airline industries. Airlines can see each other as substitutors as soon as
they service the same or similar routes as another airline.1 Complementors like
credit card issuers, car rentals or hotels offer flight passengers services that are
often demanded additional to the tickets, therefore their service adds value to
the flight tickets. In the vertical dimension, airlines sell their tickets to
businesses and travel agencies (or direct sale) and are supplied by aircraft
builders or serviced by training centres. This “game setting” of airline-
organisations was valid until the 1997, when the global airline industry was
being transformed by new regulatory policies and new company strategies. The
United States deregulated the industry in 1978 and the European Union
followed in 1997. (Brandeis University 2004) From an organisational point of
view, it is important to mention that the deregulation was limited to allowing
shared services and flights (code-sharing), but still prohibited the cross-border
merger of airlines. As a consequence, airlines worldwide began to cooperate
and share services on a broad scale of organisational levels; for instance in
marketing and procurement. Legally, those organisational relationships were
legitimated through bilateral contracts.

1
From an organisational viewpoint this is precise. From a business modelling point of view, the
declaration as „substitutor“ may be problematic, because from customers perceive airlines not
only on the basis of their offered routes, but also service. (Dunbar & Starbuck 2006)
 7

4. Coopeting Organisations

Organisations that constantly stress their organisational boundaries to assess

the players of their game tend to see the opportunities in cooperating with
competition; those organisations can be called coopeting organisations. In this
chapter two coopeting are described by applying the coopetition concept
introduced in the previous chapter. The aim is to differentiate between them on
an organisational level and draw conclusions on the development of the
collaborative organisation design in general.

a. Star Alliance

From an organisation ecological viewpoint, the emergence of STAR was initially

caused by two reasons. First, the deregulation of the market made in possible
to cooperate on a larger scale. Second, due to the large number of bilateral
agreements already in place, some airlines agreed to institutionalise the
establishment and maintenance of bilateral agreements. Lufthansa, United
Airlines, Air Canada, Thai Airways and Scandinavian Airways System (SAS)
created STAR Alliance in May 1997. Varig, Air New Zealand, Ansett and All
Nippon Airways (ANA) joined in 1998.

From a managerial point of view, the founding members intended to expand

their global network of service and attain many of the synergies of a merger
while maintaining independent identities. In the framework of Brandenburger
and Nalebuff we could say, those former substitutors that were seen as
competition have become complementors when the market was deregulated.

If put into the value net, the setting (as of 1997) does not differ from the original
value net of the airline industry (till 1997) as we have seen in the previous
chapter. The reason for that is, players have not changed. STAR differs from
 8

the latter in scope.2 In reasoning whether STAR is a new form of organisation,

the value net does not give a sound answer, therefore, the case has to be
looked at from another perspective.

Figure 2 Value Net STAR; adapted from (Nalebuff & Brandenburger 1996)

Star Alliance as Organisational Form

STAR is a new form of organisation in the industry, because it is a constellation

of multiple partners. As mentioned above, airline alliances used to be bilateral.
STAR is a multi-partner alliance formed to exploit synergies and reduce costs
among multiple partners at once. STAR is goal-directed3 and maintains its
boundaries through the inclusion and exclusion of airlines by membership.

The deregulation of the market changed the rules in the game of airline carriers
and allowed players to corporate with competition (coopetition). With the
emergence of STAR, allying airlines benefited in various ways compared to
those not striving for a membership in the alliance.

The network optimisation of offered and serviced flight routes result in higher
revenues for STAR members, because airlines can offer complementary flights
by selling seats available in STAR members machines (extensive code-sharing
2
STAR is adding value to the relationship setting in the airline industry, analogous to
implementing frequent-flyer programs. „Airlines long understood the power of engineering a
relationship to add value in a competitive market“ (Brandenburger & Nalebuff 1995)
3
„The main goal has always been to make the travel experience smoother.“ Citation of the
STAR mission statement at: http://www.staralliance.com/ (2010)
 9

with former competitors). In 1999, two years after the founding of the alliance,
Lufthansa estimated the benefits gained from the membership at $230 million,
which was more than 30% of the airline’s operating profit by that time. (Kale &
Singh 2009) For United Airlines, additional revenues from cooperation with its
partners were estimated at $260 million in 1999. (Teng 2003)

In terms of buying power, STAR members benefited from combining purchases

and negotiation advantages with suppliers of airplanes, catering services, and
pilot training providers. In 2001, United Airlines CEO Greenwald stated that
about 30% of United Airlines’ costs involve people, while the other share
represent enormous opportunities for working together, buying, purchasing and
co-operating among the group (Kale & Singh 2009). As a whole, STAR
members utilised potential economies of scale through joint purchases in fuel,
maintenance and office equipment amounting to more than $15 billion annually.
(Brandeis University 2004)

In terms of coordination, STAR administration is managed by the

implementation of line managers headed by executives of the member airlines.
All executive managers are also employed at one of the airlines. All members of
the alliance share the costs for administrative staff and fixed costs of the
organisation.

As the new organisational form in the airline industry indicated a high and
sustainable level of success, it did not take long until similar alliances were
formed. Hence, by now several airline alliances have formed of which STAR,
OneWorld and Skyteam are the biggest among them, with a market share of
more than 70% worldwide.

A recent indicator, that airline alliances constitute a new form of organisation,

can be seen in investigations initiated by the European Commission in March
and April 2010. The European commission is proving whether the current
organisational design of airline alliances (in this case Oneworld and SkyTeam)
equals a merger in legal sense, which would be against Antitrust law. It
 10

becomes evident that legislation in Europe and the United States was not
prepared for the emergence of global alliances.

In conclusion, by forming an alliance that is an organisation in its own right,

STAR manages to offer its members to add value to their services and cut
costs, without merging, hereby substituting bilateral agreements and bypassing
the political restriction of merging with overseas-partners.

b. Blade.org

Executives of IBM and Intel initiated BLADE in February 2006 to increase the
number of blade server platform solutions and accelerate the process of
bringing them to the IT-market. Blade servers are part of a computer
configuration where servers (blades) are combined, cooled and serviced in
chassis or outer housing to save physical space and power. From eight
founding companies, BLADE has grown to nearly 200 members including
leading blade hardware and software providers, developers, distribution
partners and end users from around the globe.

In comparison to STAR the organisation design of BLADE seems to be

comparable. Both companies consist of constellations of organisations offering
products/services on the same market. What differ are the degree of
collaboration and the width of complementarity. STAR membership is limited to
airlines and complementary services (credit cards, car rentals, etc.) remain
outside the organisational boundaries. In contrast, BLADE also issues
membership to complementary organisations like software developers, graphic
designers, consultants or independent developers. The reason for that can be
found in the mission statement of BLADE, which says that the BLADE
community is focussing on accelerating the development and adoption of blade
server solutions to provide leadership to the blade market and foster a thriving
industry ecosystem.4 Comparing both mission statements, we can now state,

4
BLADE mission statement at: http://blade.org/aboutblade.cfm (June, 2010)
 11

that STAR is predominantly following economies of scale by coopeting with

competitors and saving costs, whereas BLADE predominantly is striving for
innovation and the establishment of an ecosystem around the organisations’
central technology of blade servers.

Blade.org as Organisational Form

From an organisations theoretic point of view, BLADE is a unique organisational

form. The inclusion of user groups and competing complementary services to
the actual organisation with the focus on developing an ecosystem that aims to
innovation is a configuration of organisation that was not predicted by (Davis &
Marquis 2005) and (Dunbar & Starbuck 2006) and their concept of network
organisations as a type of virtual organisation.
BLADE differs from other virtual organisations because it is not composed of a
population of organisations, as are most user groups and research consortia,
but of a community of organisations (Bøllingtoft, Håkonsson & Nielsen 2009).

But how does BLADE differ from other alliances in the information technology
market? In contrast to other collaborating communities in the IT-business, for
example BLADE competitor “HP blade network”, BLADE is not lead by a single
company. Although Intel and IBM initiated BLADE, both companies just have
single voting rights in board meetings. The organisational structure includes a
governing board, that appoints new members and decides on the strategic
direction of BLADE, voting members and non-voting members5.

By now it became visible that BLADE differs from STAR not only in the players
that are included into the organisation design, but also in the primary objective
of the organisation. To elaborate on the innovation aspects, it is important to
look at the activities BLADE performs. This so-called activity system is what
(Aldrich 1979) refers to as competence-extending innovation. BLADE operates
a set of collaborative innovation activity in collaboration with processes of

5
All membership and legal-related data regaring BLADE is documented in the bylaws of
BLADE, which are publicy accessable via: http://www.blade.org/
 12

cooperation and competition. This becomes evident when looking at the

coopetition value net of BLADE.

Figure 3 Value Net BLADE; adapted from Nalebuff & Brandenburger (1996)

The detail of BLADEs organisation design cannot be shown in the value net
fully, because the members of the BLADE community are actually
complementors to the organisation. To conclude, the concept of coopetition
does not suffice to capture and understand BLADE as a new form of
organisation. On the other hand, this gives a very important insight with regard
to the aim of this paper. The application of the value net proofs what Dunbar
and Starbuck (2006) describe as an organisation that pursues economic ends
through the simultaneous use of collaboration, cooperation, and competition.
BLADE as an organisation design goes beyond the concept of coopetition.
Such an activity system appears to be especially well suited to the pursuit of
continuous and radical innovation (Bøllingtoft, Håkonsson and Nielsen 2009).
 13

5. Conclusions

In the beginning, the author asked whether the emergence and development of
Star Alliance and blade.org as examples for collaborative organisations,
indicate implications with regard to a future organisation design?

After looking at both cases, the answer is yes. Although BLADE and STAR are
organisations in two distinct industries, their organisation design is comparable
to the extent that both constitute a collaborative design. The difference is in the
degree of collaboration and width of complementarity. Looking at the success of
both organisational designs, we can conclude that the current market ecology
favours collaborative organisation designs. Furthermore, both organisation
designs were highly influenced by their organisational environment in the time
of their emergence. STAR bypassed the prohibition of overseas merger, while
BLADE tried to establish an ecology that is utilising the possibilities of open
innovation in technology-driven markets. Hence, this paper shows arguments
for the ecology-perspective on organisations as represented by Hannan &
Freeman (1984) and Aldrich (1979).

Looking at the big picture, we can see that successful organisation designs are
the right solutions for their time, what leads to the implication that an
organisation design for tomorrow must be designed based on the organisation
ecology expected tomorrow.
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6. Implications: The Future Organisation

Looking at the development of STAR and BLADE and the evolution of the
collaborative organisation design, an implication can be made anticipating a
future organisational form.

What is the purpose and what are characteristics of the future organisation?
Current organisation designs are often limited in their activities, because
strategy, contracts and segmented markets often predetermine their possible
and legitimate field of action.

STAR and BLADE imply an important feature that distinguishes them from
classical organisations as defined by Aldrich (1979). Both companies are
redefining the understanding of the boundary-maintaining organisation.
Especially BLADE shows that it is possible to open the boundaries of an
organisation to the extent that possibly no player on the market cannot be seen
as a complement or collaborator to the organisation. Because of the fact that
BLADE does not limit itself to a certain product or market but rather a
technology (blade server), the organisation creates a competitive advantage
based on innovation and customer-needs. The products and services that are
created in that process are complex and unique to the extent that different
companies from various business ecologies and distinct professions
collaborated with the end-user to create solutions.

This is not the same as customisation. Customisation can also be fulfilled by

single organisations, but a collaborative community of organisations around one
leading technology is different. Looking at the value net this will question the
role of the substitutor, because it maybe impossible for a current customer of
BLADE to find the exact substitute to the current product.
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Figure 4 Value Net Future Organisation; adapted from Nalebuff & Brandenburger (1996)

For a future organisation this indicates that if organisations become even less
restrictive regarding their boundaries and open innovation will led to even more
end-customers in the actual product generation of companies, the question will
remain, who decides about the future direction of the organisation and its form.
For now, the answer has to be the customer, or in the case of collaborative
organisations the community. Observing the customer and the community will
then indicate the next organisational form.

In that line of though my prospection of the future organisation design goes

along with the concept of open systems, where the organisation has contact
with the environment, its flows, interactions, and information. Scott (2006)
defines the open system as “congeries of interdependent flows and activities
linking shifting coalitions of participants embedded in wider material-resource
and institutional environments” (Scott 2006). Consequently this mindset would
imply that external relationships are more important for an organisation than the
internal ones. Open systems claim a dependence between the organisation and
the factors that surround it. This again, goes along with the theories of
organisation-ecologists.

For the actors in such organisations, the employees, that would imply a
constant change, a constant adaption to the environment, the customer, the
community. In this context, Emirbayer describe the employee role as “the units
involved in a transaction derive their meaning, significance, and identity from
 16

the (changing) functional roles they play within that transaction” (Emirbayer
1997: in John Scott 2002, p. 123).

Further research has to be focussed on factors of co-alignment as mentioned

by Scott. Organisation design therefore depends on, first, the structural features
of each unit within and, second, differentiation and integration necessary for the
organisation to adapt to complex environments (Scott 2006).

Consequently, this means that a future organisation needs to watch its

customer needs, its employees’ needs and the needs of its community. This
understanding of organisation design is highly influenced by the organisations’
ecology, vanishes organisational boundaries and thus questions Aldrich’s
definition of an organisation.
 17

7. Literature

Aldrich, Howard E. 1979. Organizations evolving. 1. Aufl. London [u.a.]: Sage.

Bing-Sheng Teng. 2003. Collaborative Advantage of Strategic Alliances: Value

Creation in the Value Net. Journal of General Management 29, Nr. 2
(Winter2003): 1-22. doi:Article.

Bøllingtoft, Anne, Dorthe Døjbak Håkonsson, und Jørn Flohr Nielsen. 2009.
New Approaches to Organization Design: Theory and Practice of
Adaptive Enterprises. Springer, Juli 24.

Brandeis University. 2004. Star Alliance 2000. http://alliancestrategy.com.

Brandenburger, Adam M., und Barry J. Nalebuff. 1995. The Right Game: Use
Game Theory to Shape Strategy. (cover story). Harvard Business
Review 73, Nr. 4 (Juli): 57-71. doi:Article.

Davis, Gerald F., und Christopher Marquis. 2005. Prospects for Organization
Theory in the Early Twenty-First Century: Institutional Fields and
Mechanisms. Organization Science 16, Nr. 4 (Juli): 332-343.
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Dunbar, Roger L. M., und William H. Starbuck. 2006. Learning to Design

Organizations and Learning from Designing Them. Organization Science
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Hamel, Gary, Yves L. Doz, und C.K. Prahalad. 1989. Collaborate with Your
Competitors--and Win. Harvard Business Review 67, Nr. 1 (Januar): 133-
139. doi:Article.

Hannan, Michael T., und John Freeman. 1984. STRUCTURAL INERTIA AND
ORGANIZATIONAL CHANGE. American Sociological Review 49, Nr. 2
(April): 149-164. doi:Article.

Kale, Prashant, und Harbir Singh. 2009. Managing Strategic Alliances: What Do
We Know Now, and Where Do We Go From Here? Academy of
Management Perspectives 23, Nr. 3: 45-62. doi:Article.

Miles, Raymond E., Grant Miles, Charles C. Snow, Kirsimarja Blomqvist, und
Hector Rocha. 2009. The I-Form Organization. California Management
Review 51, Nr. 4 (Summer2009): 61-76. doi:Article.

Nalebuff, Barry, und Adam Brandenburger. 1996. Co-opetition. Profile Books.

 18

Pfeffer, Jeffrey, und Gerald R. Salancik. 1978. The external control of

organizations: a resource dependence perspective. Stanford University
Press.

Scott, John. 2002. Social networks: critical concepts in sociology. Taylor &
Francis.

Scott, W. Richard. 2006. Organizations and Organizing: Rational, Natural and

Open Systems. 6. Aufl. Prentice Hall, November.
Eidesstattliche Erklärung

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Friedrichshafen 11.06.2010