Electronic Business: Concepts, Methodologies, Tools, and Applications (4-Volumes) P207 pps

1994 A Typology of Interorganizational Relationships DVLJQL¿FDQWH[WHQWWKHUHE\DOORZLQJWKHXQFRX- pling of IS integration and relational integration. It is now possible for organizations to have IS integration without developing strong non-IS linkages. We propose a framework to account for this recent shift and present a typology for classifying interorganizational systems based on the segregation of IS and relational integration. We also verify the typology in case studies of IRXUODUJH¿UPV INTRODUCTION Developments in information technology (IT) KDYHPDGHDVLJQL¿FDQWLPSDFWRQWKHZD\FRP- panies compete and cooperate with each other. As the costs of IT, especially those pertaining to hard- ware purchases, continue to decline, companies are discovering newer ways of cooperating with their supply chain members and other strategic partners in order to gain and to retain competi- tive advantage in the marketplace. This increased use of IT also seems to be making an impact on the nature of interorganizational relationships (Clemons & Row, 1992; Giaglis, Klein, & O’Keefe, 2002). Although the role of IT in interorganiza- tional cooperation has evolved tremendously in the last decade, the use of IT for such purposes has been around for several decades. For example, companies have long used dedicated EDI systems IRUHI¿FLHQWLQYHQWRU\PDQDJHPHQWDQGPDWHULDOV RUGHULQJ$VLJQL¿FDQWGHYHORSPHQWLQWKHXVHRI interorganizational IT in the last decade has been the increasingly widespread usage of Internet- based IT applications for better coordination and collaboration among organizations. Compared to a traditional EDI system, the Internet provides a lower cost communications medium. The lower costs accrue from a shared global network and standardized information ex- change protocols and platforms. This lowering of cost has created new opportunities for companies to cooperate with each other. Given that Internet- based information systems (IS) require a minimal dedicated infrastructure, a unique opportunity for companies is created whereby they can integrate their IS without necessarily having any close relationships with each other (Angeles, 2000; Chan & Swatman, 2000). For example, Johnston and Mak (2000) report about a retail company in Australia that uses two types of B2B e-commerce models. In one model, the company uses IS to transact with a small number of big suppliers. In this case, the retail company integrates not only its IS with its supply chain members by investing VLJQL¿FDQWO\LQGHYHORSLQJWKHLQIUDVWUXFWXUHEXW also invests in building relationships with them through long-term contracts. In the other model, however, the retailer uses IS to transact with a large number of small-sized suppliers. In this case, the company transacts with these small suppliers using the low-cost, Internet-based EDI. Also, there is an apparent absence of any other form of relationship development between the company and its small suppliers. Thus, it appears that the lower cost of IT now is allowing companies to integrate their infor- mation systems without having to develop any close relationships in the non-IS domain. This is a major shift from just a decade ago, when relational integration went hand-in-hand with IS integration. The two could not be separated because of the capital intensive nature of the dedicated IS cooperation, where relational inte- gration, like strategic alliances, was required to integrate interorganizational systems like EDI systems (Clemons & Row, 1992). However, as illustrated by the previous Australian retailer e x a m p l e , it i s n o w b e c o m i n g i n c r e a s i n g l y p o s s i b l e for companies to separate the two and adopt one without adopting the other. It is this dichotomization of interorganizational integration that forms the basis of our article. In this article, we examine the phenomenon of interorganizational cooperation and integration. We propose that reduced-cost, Internet-based IS systems add a new layer to the market-hierarchy 1995 A Typology of Interorganizational Relationships dichotomy. Prior studies that traditionally have applied transaction cost theory to this dichotomy have assumed that relational and IS integration go hand in hand (Clemons & Row, 1992; Kambil et al., 1999; Malone et al., 1987). We propose that this does not always have to be the case and propose a new framework to understand this phenomenon. The rest of the article is organized DVIROORZV:H¿UVWSUHVHQWDEULHIRYHUYLHZRI the distinction made by previous researchers between markets and hierarchies and how this distinction has evolved in the electronic domain. Next, we argue that the Internet has allowed for the emergence of a variety of hierarchies, primarily EHFDXVH¿UPVQRZFDQIRUPFORVH,6FROODERUD- tions without having to integrate into non-IS domains. Following this, we present an explana- tion of relational integration and IS integration. Using this distinction, we develop a typology of hierarchies. Next, we discuss four case studies to examine the existence of these hierarchies. Finally, we conclude with a discussion of the hierarchies and the purchase situations in which they frequently manifest. EXCHANGE MECHANISMS AND INTERORGANIZATIONAL SYSTEMS 7KHÀRZRIPDWHULDOVDQGVHUYLFHVEHWZHHQDG- jacent members of a supply chain can be coordi- nated through one of two mechanisms: markets or hierarchies (Williamson, 1985). Markets co- RUGLQDWHÀRZWKURXJKWKHEDVLFHFRQRPLFIRUFHV of demand and supply. For any given product or service, there are a number of suppliers who can IXO¿OOWKHGHPDQG7KHEX\HUSLFNVDQGFKRRVHV from among these suppliers based on several factors, including price, quantity, and delivery terms. Products and services sourced through PDUNHWVDUHOLNHO\WREHQH¿WIURPHFRQRPLHVRI scale and would, therefore, be lower priced. Hi- HUDUFKLHVRQWKHRWKHUKDQGFRRUGLQDWHÀRZE\ linking various levels of the supply chain either through corporate ownership (vertical integration) or through implicit or explicit contracts. Thus, for example, instead of choosing from a number of available suppliers, a company may decide to use exclusively one supplier who has been pre- TXDOL¿HGIRUTXDOLW\DQGVHUYLFHFRPPLWPHQWV Sourcing through hierarchies involves fewer coordination problems. To accommodate the emergence of electronic LQWHUFRQQHFWLRQVDQGWKHLULQÀXHQFHRQLQWHU- organizational structures, Malone et al. (1987) discuss the evolution of electronic markets and electronic hierarchies. They extend the concepts of traditional markets and hierarchies to electronic markets and hierarchies, where transactions and information exchange are facilitated by electronic means of communications. They argue that elec- tronic communications will reduce the cost of co- ordination, thereby favoring market mechanisms over hierarchical structures. Given that this body of literature was developed primarily in the pre- Internet era, it is not surprising that the examples of electronic communications that are cited often showed heavy investments by one or more companies in order to develop the infrastructure to facilitate the information exchange. In an oft- cited example, it was American Hospital Supply Company (now Baxter) that was responsible for establishing the network for the ASAP system linking several thousand hospitals. Similarly, it was United Airlines that made investments to establish a reservation system allowing travel DJHQWV WR ¿QG DQG ERRN ÀLJKWV 3HWUH  Thus, even when hierarchies became electronic hierarchies (in the pre-Internet era), two key features of interorganizational integration did not change substantively: (a) the establishment of such hierarchies continued to be expensive, ULVN\DQGDVVHWVSHFL¿FDQGEEHFDXVHRIWKH expenses involved, there was a close cooperative relationship among the participants that went beyond mere IS integration. In other words, IS integration still went hand in hand with relational integration (Bakos & Brynjolfsson, 1993). 1996 A Typology of Interorganizational Relationships THE IMPACT OF THE INTERNET ON INTERORGANIZATIONAL RELATIONSHIPS With the advent of the Internet, the infrastruc- tural investments needed for IS cooperation have declined considerably. The low cost and interac- tive communication capability of the Internet have made IS integration among organizations a relatively less expensive proposition. This re- duced cost has increased the accessibility of IS integration, thereby allowing many more small- sized trading partners to participate in integration initiatives such as the Internet-based EDI (Chan & Swatman, 2000). The most interesting feature of this develop- me nt i s t hat IS i nt eg r at ion i s now p os sible w it hout having to commit to interorganizational relational integration. Some initial evidence of this new integration type, with high IS integration and low relational integration, already has been reported in recent studies (Angeles, 2000; Chan & Swat- man, 2000; Johnston & Mak, 2000). As argued E\%HQVDRX³LQIRUPDWLRQWHFKQRORJ\ may provide a customer with the coordination and cooperation capabilities traditionally associ- ated with vertical integration without the cost of ownership” (p. 113). Clemons, Reddi, and Row (1993) described this emerging phenomenon in terms of coordination costs and transaction risk. 7KH\DUJXHWKDWPDUNHWVFDQSURYLGHWKHEHQH¿WV of specialization and economies of scale in the form of lower prices or better value. However, market exchanges also generally entail higher WUDQVDFWLRQFRVWVEHFDXVHWKHEX\HU¿UPQRZQRW only has to locate the seller in a market but also has to monitor its performance and coordinate the exchange. In order to lower these costs and ULVNVD¿UPFDQHQWHULQWRFRQWUDFWVRURWKHU forms of corporate relationships. Such exclusive or explicit coordination also entails higher risks (opportunistic behavior by a party). Traditionally, ¿UPVKDYHFRXQWHUHGVXFKULVNVWKURXJKYHUWLFDO integration. Clemons, Reddi, and Row (1993) argue that information technology can lower the cost of coordination without increasing the risk of coordination. Thus, they argue, we shall see more and more outsourcing and increased coor- dination simultaneously (a move-to-the-middle K\SRWKHVLV,QRWKHUZRUGV¿UPVZLOOQRWKDYH to integrate vertically to enjoy the fruits of IS cooperation. The introduction of Internet-enabled technologies coupled with the acceptance and proliferation of open standards has increased the number of options available to the members of a value chain to link up electronically, irrespective of whether they have a tight strategic relation- ship or not. Furthermore, the accessibility and ease-of-use of extranet connections via virtual private networks (VPNs) make IS partnerships so effortless and low-risk that they can go with varying degrees of relational commitment. Relational Integration and IS Integration We propose that interorganizational integration, in the context of lower-cost IT, can be segregated into two components: relational integration and IS integration. Relational integration may be understood as an alliance among two or more organizations that promotes collaboration and pooling of resources to achieve common economic goals. Generally speaking, such integration has a long-term orientation to it, and the participating ¿UPVZRUNRQDUHODWLRQVKLSEXLOWRQWUXVWFRPPLW- ment, and mutual adaptation. They share strategic resources in the co-creation of value (Lavie, 2002). An example would be the European Industrial Marketing and Purchasing (IMP) group, where a large number of organizations has demonstrated stable, long-term, cooperative relationships. A dyadic example of relational integration would be an exclusive distribution arrangement between a manufacturer and a distributor, where both parties make long-term commitments to work together strategically in order to create value. Similarly, 1997 A Typology of Interorganizational Relationships ZKHQDPDQXIDFWXULQJ¿UPVKDUHVSURSULHWDU\ information with a vendor who would use that information to make parts and components for WKH¿UPRQHFDQVD\WKDWWKHWZR¿UPVDUHUHOD- WLRQDOO\LQWHJUDWHG$WWLPHVWZR¿UPVPD\FRP- pete in the same marketplace but still cooperate with each other in order to solve some common problems. For example, Ford and GM compete aggressively for market share; they may agree to cooperate for joint R&D in order to develop superior fuel/battery technology. Such coopera- tion and integration also has been referred to as co-opetition (Brandenburger & Nalebuff, 1996), as participants may act competitively and coop- eratively simultaneously. In the more traditional case of a manufacturer and a supplier, indicators of strong relational integration include incidents of boundary-spanning tasks and activities; exchange of personnel for collaborative decision making; and formal, long-standing contracts designed around cooperative functions. IS integration, on the other hand, is the creation of an interorganizational system that facilitates electronic exchanges and interactions among participating organizations. As noted by Venkatraman and Zaheer (2001), such integration LQYROYHVLQWHJUDWLQJWKH³EXVLQHVVSURFHVVHVRI two or more independent organizations through the exploitation of the capabilities of computers and communication technologies” (pp. 378-379). Organizations generally use such IS systems for coordination, facilitation, and/or monitoring purposes. In order for such a system to work HIIHFWLYHO\DQGHI¿FLHQWO\SDUWLFLSDQWVQHHGQRW only access to each other’s information systems but also interface integration (Truman, 2000) for LQWHUDFWLYLW\DQGVHDPOHVVÀRZRILQIRUPDWLRQ While the management of strategic integration is primarily the responsibility of general manage- ment, managing IS integration is generally the responsibility of IT and IS managers. It should be noted here that strategic integration may have IS integration as one of its components. In other words, it is possible to come across situations ZKHUH D ¿UP KDV ,6 LQWHJUDWLRQ JRDOV WKDW DUH subservient to the organization’s overall strategic vision of integration and cooperation. Clemons, Reddi, and Row (1993) provide ex- amples of organizations that exhibit IS integration. Philadelphia’s MAC ATM network is an example of IS cooperation among competing banks in order to provide a seamless ATM customer experi- ence. Philadelphia’s National Bank/Core States Financial owns the MAC network. Conforming to the MAC system hardware and interface re- quirements, all participating banks provide the network with access to their customers’ account information. Thus, even though the banks compete with each other at the corporate level, there is a certain level of cooperation and integration at the IS level in order to enhance value creation. A n o t h e r e x a m p l e p r o v i d e d b y C l e m o n s , R e d d i , and Row (1993) is that of Rosenbluth Travel Agency. Rosenbluth has created an alliance of independent but cooperating travel agents (Rosen- bluth International Alliance, RIA). Rosenbluth provides its alliance members with the software necessary for IS collaboration. Using this soft- ware, the agents can access travel information on any customer originating anywhere and can provide a seamless, high-quality service to cus- tomers across 40 countries. An interesting aspect of this IS integration is that the agents continue to be independent operators who are neither owned by Rosenbluth nor franchised by it. In Table 1, we present a brief summary of concepts and illustrative references that highlight key forms of interorganizational models proposed in the literature. A TYPOLOGY OF INTERORGANIZATIONAL SYSTEMS Malone, Yates, and Benjamin (1987) examined the L P SD F WRI , 7R QL Q WH U ¿ U PL QW H U D FW L R Q 7 K H\ D UJ X H G that with an increasing adoption of technology, we will see an emergence of electronic markets and electronic hierarchies. In order to leverage the 1998 A Typology of Interorganizational Relationships ORZVHDUFKFRVWIHDWXUHRI,7¿UPVLQFUHDVLQJO\ will seek new vendors, thereby leading to the emergence of electronic markets. This proposition generally is referred to as the move-to-the-market hypothesis. On the other hand, Malone et al. (1987) also encountered a competing phenomenon, which they termed electronic hierarchiesZKHUH¿UPV used IT to develop tightly coupled partnerships ZLWKDVHOHFWIHZ¿UPV*HQHUDOO\VXFKSDUWQHU- ships incorporated cooperation in both IS and non-IS areas. Lately, researchers have argued that network structures can be seen as falling on a continuum with markets and with hierarchies being the two anchor points of that continuum. Holland and Lockett (1997) call the network struc- tures that fall somewhere in the middle of such a continuum mixed mode networks. Consistent with Holland and Locket (1997), we would like to expand on the dichotomy of electronic markets and electronic hierarchies by proposing that hi- erarchies can take several different forms in the Internet-enabled world. We use the distinction between relational and IS integration to create a 2x2 matrix of IOS networks. In the base condition of low relational integration coupled with low IS integration, we have the classic electronic market scenario (quadrant IV in Figure 1). In the remain- ing three scenarios, where either the relational integration or the IS integration is high, we get a hierarchy. Our proposed hierarchy schema is summarized in Figure 1. Brick-n-Mortar Hierarchies Before the development of EDI systems, most LQWHU¿UPFRRSHUDWLRQIHOOLQWRWKHFDWHJRU\RI brick-n-mortar hierarchies. There was relational cooperation for strategic and competitive ad- Table 1. Relational and IS integration — Some illustrative examples Types of Integration Key Concepts Illustrative References Systems Studied Hess and Kemerer (1994) Loan Origination System Electronic Markets Choudhury et al. (1998) Inventory Locator Service in the aircraft parts industry Relational Integration Electronic Markets and Electronic Hierarchies Malone et al. (1987) Airline reservation system, JIT, CAD/CAM Electronic Partnerships Hart and Saunders (1998) EDI Electronic Exchange Integration Truman (2000) EDI Integrated Information Links Srinivasan et al. (1994) EDI to JIT Internal and External Integration Iacovou et al. (1995) EDI IS Integration I/O Business Process Redesign Clark and Stoddard (1996) EDI Clemons and Row (1992) EDI Clemons and Row (1993) Checkout Scanner Systems Bakos and Brynjolfsson (1993) N/A Move to the Middle Clemons et al. (1993) EDI Holland and Lockett (1997) Electronic Ordering System Lee et al.(1997) SCM Relational and IS Integration Mixed Mode Kambil et al. (1999) EDI 1999 A Typology of Interorganizational Relationships vantage reasons with little or no IS integration. However, even in today’s world, such hierarchies are anything but extinct. Thus, a franchiser may have a strong contractual relationship with its franchisees, or a manufacturer may have an exclusive distribution arrangement with an in- termediary; in either case, there may be no IS LQWHJUDWLRQ$VLJQL¿FDQWSRUWLRQRIUHODWLRQVKLS marketing literature in the business-to-business context refers to such collaborations. Click-n-Mortar Hierarchies Click-n-mortar hierarchies are fully integrated hierarchies that exhibit a high level of relational integration coupled with a high level of IS inte- gration. In the pre-Internet era, IS integration a l m o s t i n v a r i a b l y r e q u i r e d s o m e l e v e l o f r e l a t i o n a l integration, as well. Researchers (Clemons et al., 1993) have presented a number of reasons that can help us to understand why the two were so tightly coupled in the past. First, in the absence of any universal connectivity medium such as the Internet, dedicated IOSs were expensive. Second, as some of this investment was non-contractible DQGWUDQVDFWLRQVSHFL¿FWKHFRVWRIZLWKGUDZDO or switching was very high. Third, these high switching costs had the potential of shifting the bargaining power of the players involved. For example, if a supplier of a complex product made a heavy investment in an IS system in order to coordinate information exchange with its buyer, this created an opportunity for the buyer to engage in opportunistic behavior. Thus, it was imperative to develop relational links before incurring the expenditure of IS integration in order to ensure long-term viability of such an integration. Both parties had a vested interest to go beyond coop- eration in the IS domain only in order to protect their investments in IS integration. Thus, either companies did not cooperate at all (and acted like independent parties in a market, quadrant IV of o u r m o d e l ) o r c o o p e r a t e d i n b o t h I S a n d n o n - I S d o - mains (and acted like participants in hierarchies). Figure 1. The proposed hierarchical schema for interorganizational relationships IV IS Integration Relational Integration low high low high I II III Plug-n-Play Hierarchies Brick-n-Mortar Hierarchies Click-n-Mortar Hierarchies 2000 A Typology of Interorganizational Relationships Note, however, that the extent of integration could and did vary. The click-n-mortar hierarchies dem- onstrate the electronic interdependence mentioned by Bensaou and Venkatraman (1995). There is a cooperative climate among the parties, and there DUH³ULFKDQGLPSHUVRQDOVWUXFWXUDOPHFKDQLVPV´ to promote such cooperation (p. 1483). At the same time, the two parties exchange information in a form that can be read directly by the computer of the other party, and this information exchange occurs across a wide variety of functions such as purchasing, quality control, product development, and accounting. Plug-n-Play Hierarchies In a traditional EDI system, one or both the parties KDYHWRPDNHUHODWLRQVKLSVSHFL¿FLQYHVWPHQWV in the system. Mukhopadhyay and Kekre (2002) have even differentiated between supplier-initi- ated and buyer-initiated EDI systems and have H[DPLQHGWKHUHODWLYHVWUDWHJLFEHQH¿WVRIWKHWZR approaches. However, the Internet has brought down some of the costs of IS integration dramati- cally. The need for investments in non-contract- LEOH,6DVVHWVKDVEHHQUHGXFHGVLJQL¿FDQWO\E\ the Internet (Johnston & Mak, 2000). Also, the emergence of standardized protocols and plat- forms has reduced markedly the switching and learning costs for organizations (Chan & Swat- man, 2000). Therefore, given the emergence of standardized protocols and the ready availability of IS exchange through the Internet, it is now possible to decouple IS integration from relational integration. Organizations now can have strong IS interdependence without having to support or supplement it with non-IS cooperation. Thus, a new type of hierarchical form, which we call plug-n-play hierarchies, has come into being. 3OXJQSOD\ KLHUDUFKLHV GLVSOD\ VLJQL¿FDQW ,6 integration without any comparable relational integration. The open architecture of the Internet (as opposed to the proprietary architecture of the early EDI systems) allows for compatibility and HDV\LQWHURSHUDELOLW\RI,6V\VWHPVDFURVV¿UPV 7KHLQYHVWPHQWVLQ,6DUHOHVVDVVHWVSHFL¿FZKLFK lessens the need for relational integration. Thus, such hierarchies are of the plug-n-play variety, where there is little need to establish an elaborate UHODWLRQDOQHWZRUN¿UVWLQRUGHUWRPDNHWKH,6 integration work. Electronic Markets The fourth quadrant is the base condition of our model, a non-hierarchy, where both relational inte- gration and IS integration are low. In the absence of any integration, the scenario becomes one of an electronic market (as described by Malone et al. [1987]). There are several examples in the literature where companies simply have put the low-cost search capabilities of the Internet to good use for outsourcing and purchasing without at- tempting to develop any kind of integration with their suppliers. For example, several companies have used reverse auction electronic markets to purchase raw materials and components. There is no long-term relational commitment in such transactions, nor is there any need for IS integra- tion with the vendors. EXPLORATORY EVIDENCE FOR THE PROPOSED TYPOLOGY Although there is evidence in the extant literature to support the existence of some of the hierarchies proposed in our model, we conducted an explor- atory empirical study to examine the typology VWUXFWXUH IXUWKHU 6SHFL¿FDOO\ WKH VWXG\ ZDV designed to examine, in an exploratory sense, the following: (a) if the observed interorganiza- WLRQDOV\VWHPVFDQEHFODVVL¿HGL QWRWKHSURSRVHG schema; (b) if a single organization can exhibit PRUHWKDQRQHW\SHRIKLHUDUFK\LQLWVLQWHU¿UP cooperation structure; and (c) if certain hierar- chical arrangements are observed more often for certain types of business-to-business (B2B) 2001 A Typology of Interorganizational Relationships purchases. Keeping with a strong tradition and history of case study method in IS literature, we chose to study four large corporations in order to gain insights into the proposed typology. The approach here follows the one reported by Mas- setti and Zmut (1996). The four companies included in this analysis were Samsung Electronics, Hyundai-Kia Motors, SK Telecom, and LG Mart. All four are large Korean corporations that have well-developed internal IS systems. The industries represented are electronics, automobile, telecommunications, and retail, respectively. Our purposive sample has many of the features commonly expected among samples for exploratory studies like ours: homogeneous representativeness, heterogeneity among cases, theoretical importance of cases, and comparability. Interviews were held with senior managers using semi-structured interview guides. For each organization, two researchers participated in the interview in order to ensure a shared under- standing that mitigates the effects of subjective interpretation of the interview data. To capture the transaction details from both purchase plan- ning and purchase implementation perspectives, we included managers from both domains. To the extent possible, managers whose purchase responsibilities cut across several or all product categories were selected. A set of observation criteria and coding schema was developed to help researchers to record data in a consistent manner. Observations of the two researchers (for each case) were compared and evaluated for inconsistencies. Any observed inconsistency between researchers was resolved HLWKHUE\DWKLUGUHVHDUFKHURUWKURXJKYHUL¿FDWLRQ from the subjects. To improve internal validity, the interview guide was designed using items and constructs from existing literature. For example, to assess relational integration, questions were asked regarding the degree of collaboration that explains how much companies cooperate with each other, the nature of contract (buying in the market, ongoing relationship, partnership, strate- gic alliance, backward integration), and the terms of contract (Anderson & Narus, 1990; Hibbard et al., 2001; Stock et al., 2000). In order to measure IS integration, we used internal integration that is measured by the degree of connection between LQWHUQDO,6DQGLQWHU¿UP,6DQGH[WHUQDOLQWHJUD- tion that is measured by the degree of connection to a partner’s IS (Iacovou et al., 1995; Premkumar & Ramamurthy, 1995; Truman, 2000). Samsung Electronics Samsung Electronics has 24 production subsid- iaries, 35 sales subsidiaries, and 20 branch of- ¿FHVDURXQGWKHZRUOGLQFOXGLQJWKRVHLQ1RUWK America, Europe, Southeast Asia, Central Asia, China, the CIS, and Latin America. Total sales in 2004 were US$55.2 billion. Samsung Electron- LFV¶RUJDQL]DWLRQDOVWUXFWXUHLVFRPSULVHGRI¿YH business divisions: (1) Digital Media Network Division in charge of computers and AV equip- ment and related products; (2) Digital Appliance Network Division in charge of home electronics; (3) Digital Solution Network Division in charge of semiconductor and related products; (4) Tele- communication Network Division in charge of the cellular phone business; and (5) Business and Administration Support Division, which is basically a staff organization. Purchase planning for Samsung Electronics is taken care of by the Procurement Strategy Team in the Business and Administration Support Division. The actual purchasing is done in close collaboration with the procurement divisions of respective plants. All purchases at Samsung are FODVVL¿HG LQ RQH RI WKH WKUHH PDLQ FDWHJRULHV direct materials, indirect materials, and MROs (maintenance, repair, and operating supplies). The direct materials are divided into common parts like memory that are generic in nature (in the sense that a vendor can sell those parts to buyers other than Samsung without having to alter them in any way) DQGVSHFL¿HGSDUWVOLNHYLGHRGHFNVWKDWDUHPDGH 2002 A Typology of Interorganizational Relationships VSHFL¿FDOO\IRU6DPVXQJ(OHFWURQLFV6SHFL¿HG parts are divided further into strategic materials and non-strategic materials. Strategic materials are key components that are central to a product’s performance and competitive edge. For example, Qualcomm’s IC chip and LCD used in Samsung’s cellular phones are considered strategic materials. These parts have high strategic importance, as their performance is central to the performance of the main product, and these parts also account IRUDVLJQL¿FDQWSURSRUWLRQRIWKHPDQXIDFWXULQJ cost of the cell phone. Any performance improve- ments or cost savings achieved in these parts can make a big difference in Samsung’s bottom line. Non-strategic materials, on the other hand, are RWKHUVSHFL¿HGPDWHULDOVOLNHWKHH[WHUQDOFDVH of a handset) that are not central to a product’s core function. Indirect materials are purchases that do not get integrated into the manufactured product but, instead, help in the product process. An example of indirect materials at Samsung would be infrastructural purchases, such as facilities. Finally, MRO materials are mainly of- ¿FHVXSSOLHV7RVXPPDUL]HRQHFDQUHFODVVLI\ Samsung’s purchases as procurement of strategic materials, non-strategic materials (all common SDUWVDQGVRPHVSHFL¿HGSDUWVLQGLUHFWPDWHUL- als, and MROs. We collected data on relational integration and IS integration from three Samsung sites: the 3URFXUHPHQW6WUDWHJ\7HDPLQWKH6HRXORI¿FH the Procurement Team in the Kumi Plant, and the Procurement Team in the Kiheung Complex. The data collected from these sites revealed the fol- lowing. Samsung has a well-developed IS network for both internal and external constituents. The internal IS system is based on SAP’s R/3 system. For the interorganizational systems, Samsung Electronics depends on three different IS systems: a custom-built Web Portal, a B2Bi system called GLONETS (Global Logistics Network System), and iMarketKorea’s e-Marketplace. Samsung u s e s t h e We b Po r t a l s y s t e m m a i n l y f o r p u r c h a s i n g non-strategic materials. The Web Portal system basically allows Samsung’s partners to complete a transaction online by visiting Samsung’s Web site, and some level of IS compatibility is needed between Samsung and its partners. Samsung uses its B2Bi system to purchase strategic materials. GLONETS (the B2Bi system) provides Samsung with direct system-to-system connectivity with its trading partners. Thus, there is close IS integration between Samsung and vendors who supply strate- gic materials to the company. For MRO purchases, Samsung Electronics uses iMarketKorea’s e-Mar- ketplace, which is essentially an electronic market. Fi n a l l y, g i v e n t h e i n f re q u e n t p u r c h a s e o f m a t e r i a l s FODVVL¿HGDVIDFLOLWLHV6DPVXQJGRHVQRWXVHDQ\ sophisticated information system to transact with its facilities vendors. The only IS usage in such transactions is basic e-mail exchanges. Thus, our data indicated a higher level of IS integration for strategic and non-strategic materials compared to indirect materials and MROs. In order to assess relational integration, we examined three aspects of such an integration: collaboration level, the nature of the contract, and the terms of the contract. Our data indicate that Samsung had the closest relational integration with its vendors for strategic materials. As noted E\RQHRIRXULQWHUYLHZHHV³6WUDWHJLFPDWHULDOV such as Qualcomm’s IC chip are very important to the production of our cell phones. Given the lead time needed to make the chip, we use GLO- NETS to work with our partners with whom we have strong collaborative relationships.” Also, the company had high relational integration with its suppliers for important materials like facilities. In the case of non-strategic materials, however, the company was willing to transact with any supplier that could manufacture the materials. In the case of MRO purchases, there was no direct relationship between Samsung and its suppliers, as most MROs were procured through the e-mar- ketplace. To summarize, strategic materials and indirect materials displayed a higher degree of relational integration than non-strategic materi- als and MROs. 2003 A Typology of Interorganizational Relationships The results show that Samsung operates in the electronic markets mode when it is purchas- ing MROs (quadrant IV). Both IS and relational integration are low when MROs are bought in the e-marketplace. Non-strategic materials display moderately high IS integration but low relational integration (quadrant III). Samsung’s Web Portal is a good example of a plug-n-play hierarchy, as WKH SDUWLFLSDQWV QHHG QRW KDYH DQ\ VLJQL¿FDQW UHODWLRQDOLQWHJUDWLRQDQG\HWFDQEHQH¿WIURPWKH easy IS integration that the system offers. This is in sharp contrast to the way Samsung procures strategic materials. With vendors of strategic materials, Samsung not only has a high level of IS integration but also has strong relational integration with the chosen vendors (quadrant II). Thus, Samsung’s B2Bi system is geared for those who fall within Samsung’s click-n-mortar hierarchy. Finally, Samsung is using only basic informa- tion systems like e-mail for procuring indirect materials from vendors with whom it has strong relational integration (quadrant I). This is an ex- ample of a traditional brick-n-mortar hierarchy, where interorganizational bonds do not spill into the IS domain. Samsung’s interorganizational hierarchies are summarized in Figure 2. Hyundai-Kia Motors Hyundai-Kia Motors is the leader of Korea’s auto industry. Total sales in 2004 were US$26.1 billion with more than 50% of its sales originating outside Korea. At Hyundai-Kia, purchasing is handled centrally by the Procurement Headquarters of the FRPSDQ\7KHFRPSDQ\FODVVL¿HVLWVPDWHULDOV purchasing into three categories: MROs, direct materials, and facilities. MROs, as the term in- GLFDWHVLQFOXGHEDVLFWRROVRI¿FHVXSSOLHVIRRG purchases, and so forth. Direct materials include parts and materials that go into the manufacturing of the automobile, such as car engine, chassis, and so forth. Finally, facilities include capital goods, s u c h a s m o l d p r e s s , i n f ra s t r u c t u r a l p u r c h a s e s , a n d Figure 2. Interorganizational relationships at Samsung Electronics IV MROs IS Integration Relational Integration low high low high I II III Brick-n-Mortar Hierarchies Click-n-Mortar Hierarchies Plug-n-Play Hierarchies Non-Strategic Materials Strategic Materials Facilities Electronic Markets . continuum mixed mode networks. Consistent with Holland and Locket (1997), we would like to expand on the dichotomy of electronic markets and electronic hierarchies by proposing that hi- erarchies. the concepts of traditional markets and hierarchies to electronic markets and hierarchies, where transactions and information exchange are facilitated by electronic means of communications Process Redesign Clark and Stoddard (1996) EDI Clemons and Row (1992) EDI Clemons and Row (1993) Checkout Scanner Systems Bakos and Brynjolfsson (1993) N/A Move to the Middle Clemons et al. (1993) EDI Holland