Source: adapted from Albers &Klaas-Wissing (2012)
Both alliances provide similar products and services within the same geographical area, resulting in similar provision requirements. Furthermore, they achieve and handle virtually similar revenues and shipments per year. Although present in the same business context and revealing very similar operational characteristics, both alliances differ in the way they cooperate in order to cope with their operation scale (that is, shipping volume and geographic density): whereas Alpha pools over 100 small member firms with low shipping volumes and restricted geographical scope, Beta integrates roughly a tenth of that number, but with partner firms of comparatively larger size and scope, respectively. Since coordination costs incurred by the alliance’s activities are to a large extent affected by the number of partner companies involved, Alpha, Beta and their respective member companies consequently have to deal with different organizational challenges in terms of cost-efficient partner integration and coordination. Alpha relies on high standardization levels, as well as on its administrative processes, and serves as a highly efficient operations platform for its members, although it does not allow customization to individual members’ needs. By contrast, Beta is a much more participative and flexible organization that reflects the requirement of catering to member needs and preferences.
The analysis shows that there is no “one best way” of alliance organization in the LTL business, since Alpha and Beta’s differing organizational designs seem to match the requirements of their specific situational settings. Their differences can be widely related to the different number of partner companies within the alliance and the quest for low coordination cost. In the highly competitive LTL industry, the examined alliance networks seem to have found effective and, at least temporarily, efficient governance arrangements that allow them to compete with the large and integrated logistics corporations. The substantial number of failing business networks in the LTL industry, albeit not all and exclusively related to ineffective and inefficient structures, support the view that the variety of effective organizational arrangements is not endless, and that networks need make sure that they identify and implement such effective organizational structures in order to provide the benefits that their members expect.
Therefore, business networks can be encouraged in that organizational forms are available that can contribute to their and their members’ competitive advantage. However, they also need to be cautioned in so far as the most effective and efficient forms must be tailored to their specific situations. In addition, member political interests and potential conflicts between the network management and members more often than not prevent implementing, or even identifying, the most effective organizational solutions, and therefore risk the well-being and survival of the network and at least some of its members.
Network organization structures and processes need to take the specific, idiosyncratic conditions of the network and its members into account to devise the most effective and efficient organizational solution. Networks therefore must understand “the situation”, i.e. understand the aims and needs of the own network, the characteristics of the industry and the environment in order to be able to design the network organization accordingly. In this context, generic designs can be starting points or reference points, but most likely will not correspond to any effective network governance model for a real-work business network.
Since it is also unlikely that every innovation, major progress, and new insight willbe generated locally, the permanent assessment and monitoring of own and competing networks is important. For this purpose, different business environments and industries should also be taken into account. Telecommunications providers may well learn from alliance networks in the airline industry, and trade fairs from the automobile industry.
Research shows that firms benefit from past alliances if they manage to effectively store, retrieve, and disseminate knowledge on former management practices, for example by forming dedicated positions or functions for alliance management purposes (Kale, Dyer & Singh, 2002).Member firms and network HQs are therefore most likely to benefit from their continuous involvement in identifying, addressing and solving network-related issues. However, despite the important role of experience in forming stable cognitive schemes and reaction repertoires (Albers & Heuermann, 2013), a certain degree of flexibility among members and network HQ needs to be maintained to allow for experimenting with different organizational solutions.
3.4. Summary
The three forms of network competition portrayed here, (1) competition in network formation, (2) competition in network composition, and (3) competition in network governance, focus on different, yet critical domains of competitionin network dynamics, and thereby illustrate that competitive interactionsin each of these domains need to be taken into account in network initiation and management. These can have major performance implications not only for the network but also for every network member. Competition in network formation refers to the most foundational domain of business networks, i.e. their principal purpose and thus, the reason for their existence. This type of competition especially highlights the instrumental nature of business networks for their members. Competition in network formation focuses on the essential elements of a business network: its members, and the resources that they bring into the network. Competition in network governance reiterates that it is not sufficient to be innovative, or to have an inspiring idea and a knowledgeable and competent team, but that member organization and orchestration, that is: their interplay, are non-trivial tasks that need to be performed reasonably well and in accordance with the specificities of the actual situation. Only then the potentials of the promising idea and the competence of the team members can be leveraged.
For each of these three types of competition typical concerns that decision makers on the network and member levels frequently encounter can be formulated (see table 4 for an overview). Some of them can be addressed by the management implications outlined in the respective sections of this chapter, others are only hardly subject to general and generic implications.
Additionally, it should be noted that these forms of network competition are not independent. Various relations exist, as figure 1 indicates: a relevant and convincing network purpose requires a “good” constellation of members and an effective governance system to materialize; a constellation of members that are willing to effectively combine their resources need a legitimate purpose and a fitting governance to do so; and a highly effective governance system is of little help if members lack critical resources, or diverge in their understanding and assessment of the purpose of their joint endeavor. Thus, networks and network members are subject to all three forms of network competition simultaneously — even though in varying, probably even fluctuating strength and prominence.
TABLE 4: Overview of three types of network competition, key characteristics and resulting concerns for decision makers on the network and member levels
4. CONCLUSION AND RELATIONS TO BUSINESS AND COMPETITION LAW
Business networks are highly interesting phenomena that have emerged as highly relevant arrangementsin the explanation of firm performance. The way in which networks shape competition for the single firm has two sides: It can be positive if firms realize the potential and use the opportunities provided by network formation and membership; it can also have negative repercussions if firms ignore or are unable to find adequate responses to rivals’ cooperative strategies. The above pointed out three forms of this network competition, presented one empirical study for each domain, and explicated some consequences for network and member firm management. Suggestions included differentiating (1) competition in network formation, (2) competition in network composition, and (3) competition in network governance.
Networks play an eminent role and even engage in competitive practices in many industries, and are therefore also relevant to regulators, policy makers, and competition lawyers. Also for them, interpreting networks as either one-sidedly positive (e.g. to foster innovation and to help small and medium-sized enterprises stay competitive) or negative (e.g. as a form of collusion) is too simplistic. Scholars and practitioners from all disciplines would benefit from greater awareness of each other’s results and approaches in the analysis of business networks.