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Introduction: The Changing Organization of Industry

Published online by Cambridge University Press:  13 December 2011

Paul Duguid
Paul Duguid
Affiliation:
PAUL DUGUID is adjunct professor at the School of Information & Management Systems at the University of California, Berkeley, and professorial research fellow at the School of Management and Business, Queen Mary, University of London.
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Extract

In his seminal 1972 essay on the “organization of industry,”G. B. Richardson argued that economists had generally viewed firms as “islands of planned co-ordination in a sea of market relations.” Business historians, too, had focused predominantly on the firm (or entrepreneur) and the market. In drawing attention when he did to the “dense networks of co-operation and affiliation by which firms are inter-related,” Richardson was on the forefront of what would become a noticeable shift in the analysis of business organization. There were many reasons for this transition. In particular, the comparative success of the “Japanese model,” with its “intermarket” keiretsu disturbed standard assumptions. (Richardson himself pointed to Japanese firms as thriving examples of interfirm relations.) Furthermore, it was becoming clear that in many emerging industries networked relations of industrial clusters were increasingly important. Comparative research suggested that new-technology firms with tightly drawn boundaries were at a competitive disadvantage compared to firms that had developed cooperative links not only to suppliers but even to competitors. To explain such developments, economists, organizational theorists, and business historians alike looked beyond not only the conventional boundaries of the firm but also the conventional boundaries of their disciplines. In particular, they turned to theories of networks, the topic of this special issue.

Type
Special Section: Networks in the Trade of Alcohol
Information
Business History Review , Volume 79 , Issue 3 , Autumn 2005 , pp. 453 - 466
Copyright
Copyright © The President and Fellows of Harvard College 2005

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References

1 Richardson, G. B., “The Organisation of Industry,” Economic Journal 82 (1972): 883–96CrossRefGoogle Scholar, quotations at 883. A crude but illuminating search of the electronic archives of Business History and Business History Review reveals that the word network in the sense discussed here is not found in article titles or abstracts before 1985 and rarely before 1995. The focus of business historians was particularly shaped by the towering influence of Chandler. See Chandler, Alfred D. Jr., Strategy and Structure: Chapters in the History of the Industrial Enterprise (Cambridge, Mass., 1962)Google Scholar; and The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977)Google Scholar. For a useful overview of the strengths as well as the limitations of Chandler's view, see John, Richard R., “Elaborations, Revisions, Dissents: Alfred D. Chandler Jr.'s The Visible Hand after Twenty Years,” Business History Review 71 (1997): 151–200CrossRefGoogle Scholar. This was published at about the time that networks were becoming salient in business history analysis. See the exchange between Chandler and Thomas P. Hughes in this issue.

2 One of the earliest articles in Business History to discuss networks is indicative: Suzuki, Yoshitaka, “The Formation of Management Structure in Japanese Industry,” Business History 27 (1985): 259–82CrossRefGoogle Scholar. See also McCraw, Thomas K., America versus Japan (Boston, Mass., 1986)Google Scholar. The very title of The Machine that Changed the World reflects the shocks felt to Western economies and the pressure for theoretical explanations. Womack, James P., Jones, Daniel T., and Roos, Daniel, The Machine that Changed the World: How Japan's Secret Weapon in the Global Auto Wars Will Revolutionize Western Industry (New York, 1991)Google Scholar.

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6 The term is notoriously hard to define. See Samuel Johnson's famous dictionary entry for “network,” which spoke of “anything reticulated or decussated, at equal distances, with interstices between the intersections.” McAdam, E. L. and Milne, George, Johnson's Dictionary: A Modern Selection (New York, 1963)Google Scholar. While many failed to say what a network is, even more failed to say what it is not—what alternative arrangements might exist that could not equally be described as a network. The concept thus became a catchall. Unfortunately nets that catch everything are little more use than nets that catch nothing. Champions of actor network theory, who worked hard to polemicize the term, have abandoned it. See Latour, Bruno, “On Recalling ANT,” in Actor Network Theory and After, eds. Law, John and Hassard, John (Oxford, 1999), 15–25Google Scholar.

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9 Though Tennyson missed the wheels on which they ran—when he traveled on the first train to run from Liverpool to Manchester, the station was so crowded that he couldn't see the undercarriage and thought the train ran in grooves—he was confident of the train's ability to symbolize change. See Tennyson, Alfred Lord, “Locksley Hall,” The Works of Alfred Lord Tennyson, Poet Laureate (London, 1888), 98–103Google Scholar.

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12 See Smith, Merritt Roe and Marx, Leo, eds., Does Technology Drive History? The Dilemma of Technological Determinism (Cambridge, Mass., 1994)Google Scholar, and in particular, for the difficulties of business history, the following essays: Thomas P. Hughes, “Technological Momentum,” 101–14; Thomas J. Misa, “Retrieving Sociotechnical Change from Technological Determinism,” 115–42; and Philip Scranton, “Determinism and Indeterminacy in the History of Technology,” 143–68.

13 Castells fuses technology and organizational form in the example of Cisco, which appears both as the producer of network routers and the ideal of the networked firm. See Castells, Manuel, The Internet Galaxy: Reflections on Internet, Business, and Society (New York, 2001)CrossRefGoogle Scholar. One curious outcome of this way of thinking was that the standard appeals for technology that could better match social and organizational forms were, in the hands of “business process reengineering,” transformed into demands that we “forget all we know” and develop organizational forms to match our technology. See Hammer, Michael and Champy, James, Reengineering the Corporation: A Manifesto for Business Revolution (New York, 1993Google Scholar).

14 Grabher, Gernot and Powell, Walter W., “Introduction,” in Networks, eds. Grabher, Gernot and Powell, Walter W., 2 vols. (Cheltenham, 2005), xi–xxxiGoogle Scholar, quotation at xxii; Podolny, Joel M. and Page, Karen L. “Network Forms of Organization,” Annual Reviews of Sociology 24 (1998): 57–76CrossRefGoogle Scholar, quotation at 57.

15 In the light of what has been said above about the enthusiasm of the information age for networks, it is worth noting that Brook's law, which might well outlast Moore's law, is in fact a law of network dysfunction. Brooks, Frederick P., The Mythical Man-Month: Essays on Software Engineering (Reading, Mass., 1982)Google Scholar.

16 For literature that is particularly relevant for business history, see the discussion in Hancock's and, more briefly, my article in this issue.

17 For the emergence of network theory from the confines of sociology, contrast Burt's two influential books, a decade apart: Burt, Ronald, Toward a Structural Theory of Action: Network Models of Social Structure (New York, 1982)CrossRefGoogle Scholar, and Structural Holes (Cambridge, Mass., 1992)Google Scholar. For an early example of network theory crossing boundaries, see Evans, William M., “Toward a Theory of Inter-Organizational Relations,” Management Science 10 (1965): B217–B230CrossRefGoogle Scholar. As Evans argues, Max Weber, Frederick Taylor, Chester Barnard, and Herbert Simon—major influences on organizational theory—were all principally interested in the “internal relations” of firms. Tichy, Tushman, and Fombrun give a useful indicator of the relations between organizational theory and social network theory in 1979: Tichy, Noel M., Tushman, Michael L., and Fombrun, Charles, “Social Network Analysis for Organizations,” Academy of Management Review 4 (1979): 507–19CrossRefGoogle Scholar. For particularly influential crossovers, see Aldrich, Howard, “Organizational Boundaries and Inter-Organizational Conflict,” Human Relations 24 (1971): 279–93CrossRefGoogle Scholar; Granovetter, Mark, “The Strength of Weak Ties,” American Journal of Sociology 78 (1973): 1360–80CrossRefGoogle Scholar, and “Economic Action and Social Structure: The Problem of Embeddedness,” American Journal of Sociology 91 (1985): 481–510CrossRefGoogle Scholar. An account of the vast literature on networks is beyond the scale or scope of this introduction. For a good overview, see Grabher and Powell, “Introduction.”

18 Smith, Adam, An Inquiry into the Nature and Causes of the Wealth of Nations (New York, 1937)Google Scholar, quotation at 66. Smith even opposed the existence of public registers of merchants lest, as Granovetter notes, these allow each to find one another and conspire. See Granovetter, “Economic Action and Social Structure: The Problem of Embeddedness.” In contrast to Smith, Jean Jacques Rousseau saw individuation from networks as a process of alienation. See Coleman, Patrick, “Property, Politics, and Personality in Rousseau,” in Early Modern Conceptions of Property, eds. Brewer, John and Staves, Susan (London, 1996), 254–74Google Scholar.

19 Smith, Adam, The Theory of Moral Sentiments (Indianapolis, 1976)Google Scholar. For mechanical and organic solidarity, see Durkheim, Emile, The Division of Labor in Society (Glencoe, Ill., 1960)Google Scholar.

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21 See Coase, Ronald H., “The Nature of the Firm: Origin,” in The Nature of the Firm: Origins, Evolution, and Development, eds. Williamson, Oliver and Winter, Sidney (New York, 1993), 34–47Google Scholar.

22 Although he claims his approach “is not inconsistent,” Richardson in fact challenges the Coase tradition by questioning the market and hierarchy dualism that is developed from Coase's theory of the firm. See Richardson, “The Organisation of Industry,” 896n.

23 Granovetter, Mark, “Coase Revisited: Business Groups in the Modern Economy,” Industrial and Corporate Change 4 (1995): 93–131CrossRefGoogle Scholar, and “Coase Encounters and Formal Models,” Administrative Science Quarterly 44 (1999): 158–62CrossRefGoogle Scholar. DiMaggio and Louch suggest, however, that the sociology literature has often missed the opportunity to contribute usefully to the sociology of markets by focusing less “on how people uses their social relations to manage the market,” and more on “how markets restrict or enervate social relations.” DiMaggio, Paul and Louch, Hugh, “Socially Embedded Consumer Transactions: For What Kind of Purchases Do People Most Often Use Networks?” American Sociological Review 63 (Oct. 1998): 619–39CrossRefGoogle Scholar.

24 Alfred Marshall's view of clusters with ideas “in the air” hints at the importance of network relations for industrial development. Polanyi, Karl, The Great Transformation: The Political and Economic Origins of Our Time (New York, 1957)Google Scholar; Veblen, Thorstein, The Theory of Business Enterprise (New York, 1904)Google Scholar; Marshall, Principles.

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26 Casson, Mark, “An Economic Approach to Regional Business Networks,” in Industrial Clusters and Regional Business Networks in England, 1750–1970, eds. Wilson, John and Popp, Andrew (Cheltenham, 2003), 19–43Google Scholar, quotation at 19.

27 Swedberg, Richard and Granovetter, Mark, “Introduction to the Second Edition,” in The Sociology of Economic Life, eds. Granovetter, Mark and Swedberg, Richard (Cambridge, Mass., 2001), 1–30Google Scholar, quotation at 11.

28 Marshall, Principles, 237.

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30 See, for example, Putnam, Robert D., Making Democracy Work: Civic Tradition in Modern Italy (Princeton, 1993)Google Scholar; Fukuyama, Francis, Trust: The Social Virtues and the Creation of Prosperity (New York, 1995)Google Scholar.

31 See DiMaggio and Louch, “Socially Embedded Consumer Transactions.”

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33 Arrow, Kenneth J., “Information and Economic Behavior,” in Collected Papers, ed. Arrow, Kenneth J. (Cambridge, Mass., 1984), 136–52Google Scholar. This argument has antecedents in Plato's Meno.

34 The case of white Burgundy wines from 1996 exemplifies the problem. These were sold as exceptional wines with a great future. Now, when they should be ideal, they are turning out to be less than mediocre. See Mike Steinberger, “The Murder in the Wine Cellar: The 1996 White Burgundies Are Dying Young. Why?” Slate, 6 July 2003. On line: http://slate.com/id/2121743/, visited 12 July 2005.

35 Wellman, Barry, “Network Analysis: Some Basic Principles,” in Sociological Theory, ed. Collins, Randall (San Francisco, 1983)Google Scholar, quoted in Grabher and Powell, “Introduction,” xii.

36 For the range of what quality might mean for food and drink, see Stanziani, Alessandro, “Introduction,” in La Qualité des Produits en France (XVIIe–XXe Siécles), ed. Stanziani, Alessandro (Paris, 2004), 5–22Google Scholar.

37 Stigler, George J., “The Economics of Information,” Journal of Political Economy 69 (1961): 213–25CrossRefGoogle Scholar, quotation at 224; Smith, Wealth of Nations, 244, and Moral Sentiments, 226. Akerlof, George A., “The Market for Lemons: Quality, Uncertainty, and the Market Mechanism,” Quarterly Journal of Economics 84 (1970): 488–500CrossRefGoogle Scholar. Of course, it would not be true to say that economic discussions of quality remain in the state Stigler described. Several have taken up his challenge, in particular Shapiro. See Shapiro, Carl, “Consumer Information, Product Quality, and Seller Reputation,” Bell Journal of Economics 13 (1982): 20–35CrossRefGoogle Scholar, and “Premiums for High Quality Products as Returns to Reputation,” Quarterly Journal of Economics 98 (1983): 659–80CrossRefGoogle Scholar.

38 Podolny and Page define a network as “any collection of actors (N2) that pursue repeated, enduring exchange relations with one another and, at the same time, lack a legitimate organizational authority to arbitrate and resolve disputes that may arise during the exchange.” Podolny and Page, “Network Forms of Organization,” 52. Richardson, “The Organisation of Industry,” points out that, rather than a simple binary distinction between markets and hierarchies, industrial relations are typified by degrees of “co-operation” and “direction” and that such relations may be open to “infinite variation” (p. 896). It may be this claim that makes Richardson's work less appealing than Coase's to those who wish to make economic models.

39 Grabher and Powell, “Introduction” Smith, Wealth of Nations, 129.

40 Rauch, James E., “Networks versus Markets in International Trade,” Journal of International Economics 48 (1999): 7–35CrossRefGoogle Scholar.

41 Arrow, “Information and Economic Behavior”; Ziman, John M., Public Knowledge: An Essay Concerning the Social Dimension of Science (Cambridge, 1967)Google Scholar.

42 These questions are perennial in the wine trade. They are still being fought today; see, for example, James Laube, “Napa's Name Down the Drain,” Wine Spectator, 15 May 1999.

43 Dicken, Peter et al. , “Chains and Networks, Territories and Scales: Towards a Relational Framework for Analysing the Global Economy,” Global Networks 1 (2001): 89–112CrossRefGoogle Scholar; the authors are developing an argument from Whitley. See Whitley, Richard, “Business Systems and Global Commodity Chains: Competing or Complementary Forms of Economic Organization,” Competition and Change l (1996): 411–25CrossRefGoogle Scholar. As Teresa da Silva Lopes's argument makes clear, the successful firms were not free from government regulation; they were merely subject to a different kind of regulation, one that ultimately favored internationalization. For a similar argument on the beneficial (but often invisible) effects of regulation, see Barker, J., Lewis, N., and Moran, W., “Reregulation and the Development of the New Zealand Wine Industry,” Journal of Wine Research 12 (2001): 199–221CrossRefGoogle Scholar.