The Formation Process of SME Networks: A comparative case analysis of social processes of Austria, Belgium and Turkey

Marita Haas The Formation Process of SME Networks

WIRTSCHAFTSWISSENSCHAFT

Marita Haas

The Formation Process of SME Networks A comparative case analysis of social processes in Austria, Belgium and Turkey

With a foreword by Prof. Rudolf Vetschera

Deutscher Universitäts-Verlag

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Dissertation Universität Wien, 2006 Gedruckt mit Unterstützung durch die Österreichische Forschungsgemeinschaft

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Foreword Virtual Organizations (VOs) and other forms of cooperation among firms are gaining popularity in particular among SMEs as a way to strengthen their position in an era of global competition. Consequently, public institutions at the regional, national and supranational level like the European Union are actively promoting and supporting the formation of networks and virtual organizations. But despite all the efforts spent on promoting cooperation and the numerous projects aimed at supporting the development of virtual organizations, our understanding of the success factors for the development of VOs is still rather limited. While the ultimate goal of virtual organizations is to improve economic performance, economic factors alone are not sufficient to explain success or failure in establishing a VO. In her thesis, Marita Haas has introduced a new perspective on the formation process of virtual organizations by interpreting the formation of a virtual organization as a group development process between the key actors in each participating company. This person-centered approach is particularly valid when considering SMEs, which in many cases are strongly influenced by the personality of the founder. Applying phase models from small group research enables Marita Haas to identify critical phases and transitions in the formation process and develop adequate intervention strategies to support the VO members in their efforts. The research presented in this thesis not only offers new insights into the formation of virtual organizations. It is also an excellent example of methodologically sound casebased research. By integrating data from various sources, Marita Haas offers deep insights into the VO formation processes that took place during the EU-funded research project VERITAS, which enables her to draw conclusions that reach far beyond the scope of this specific project. Her work therefore provides a solid basis for the better understanding and successful guidance of virtual organizations during their critical initial stages. Prof. Dr. Rudolf Vetschera

Preface Cooperation as a reasonable form to strengthen SME’s business was the main driver for the research project VERITAS1 that aimed to create stable SME Networks in Austria, Belgium and Turkey within a 19 months’ research period. As a scientific member of the University of Vienna, I was part of the consortium that managed the project. By establishing these networks, we followed a comprehensive time schedule in order to reach this goal within project time. Soon, we realized that establishing cooperation is far from being easy: informative workshops were characterized by high absenteeism and fluctuation; most participants and potential cooperation partners asked for the concrete benefit of their organization, or seemed to be simply not interested in working with each other. Well-known explanations of synergy effects in production, or better market force because of size only led to moderate enthusiasm. Thus, in particular the first months of the network formation process was characterized by low interest and low commitment of involved companies. We looked at other projects and networks for helpful insights in order to find a way to deal with the situation and to anticipate problems. However, the websites of former research projects that aimed at establishing networks often did not remain for longer than a few months after finishing a project and some of the previous networks disappeared or became part of large corporate groups. This means that those entrepreneurs that could report on critical success factors, problems and challenges were to a large extent not available: only successful cooperation survives, cooperation that failed and reasons for failure are not reported in any literature. Based on the above mentioned experiences during the first months of the project and the difficulties to find best-practice examples, I gained the impression that economic concepts might not be appropriate to explain the difficulties properly. Whenever I talked to members of successful networks or VOs, including the Virtuelle Fabrik Nordwestschweiz-Mittelland2 or Swiss Microtech Network3, it was mentioned that the crucial factor in the networks are people, not technology or resources, but the commitment and active involvement of all parties. Some explanations went even further and highlighted the need for friendship between partners. In every successful 1 2 3

VERITAS, IST 2004-511013, Contract for Specific Support Action, Annex 1- Description of Work. For more information cf. http://www.veritas-eu.com, accessed in October, 2006. http://www.virtuelle-fabrik.ch, accessed in October, 2006. http://www.swissmicrotech.ch, accessed on 23rd of October, 2006.

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case involved people mentioned the ”network of heads and hearts“. These informal talks led me to the conclusion that a network of companies is only able to work if a stable network of the people behind it is working as well. This insight reflected a turning point in my research process. First of all, my personal background is very much related to social structures, teams and human resource aspects, as this was my main focus during business studies and during three and a half years of professional experience. Relationships and social structures have ever been important to my work and me. I finally decided to investigate what happened on a relational level during the formation process of a network in order to i) have an explanation for the behavior of potential partners in our research project and ii) provide implications how to deal with such challenges in the future. Having explained how I happened to select the area of my research, I would like to put in words how much motivation was given to me from other people to continuously work on the topic and to finalize it. This work would not have been possible without the support of my supervisors and many other people. First of all, I want to thank the assessors and evaluators of this work. By at the same time appreciating and critically discussing my work, Univ.-Prof. Dr. Rudolf Vetschera and Ao. Univ.-Prof. Dr. Sabine Köszegi allowed me to cut my own path in research. Both of them played a decisive role for my future professional activities. Ao. Univ.-Prof. Dr. Christine Strauss, my second tutor, pushed me to work when I thought it would take me another couple of years to finalize this PhD (thank you Christine, it was the right way!), and the working atmosphere at the University of Vienna as well as at the Research Institute EC3 gave me enough freedom and time to develop my own ideas. I would also like to thank Astrid Schmidtchen, M.A., who proofread this work and delivered the new version in a very short time frame. Special thanks goes to Michel Pouly from EPFL Lausanne who was the first person who discussed the concept and problems of networking with me in a very open way. The same holds for Dr. Adrian Plüss from the University of Applied Sciences Northwestern Switzerland who introduced me to the whole community of VOresearchers at the IFIP World Computer Congress in Toulouse in summer 2004, and who gave me a lot more information than I had asked for or even expected. I additionally had a lot of interesting discussions with Charles Huber and Guido Besimo about their work at Virtual Factory Nordwestschweiz-Mittelland. I also want to thank Prof. Dr. Patrick N. Kenis and Prof. Dr. Leon A.G. Oerlemans from the University of

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Tilburg for offering me the participation in the Tilburg Summer School 2005. During this time I had the possibility to reconsider my research approach and benefited a lot from the discussions with other students and teachers. Regarding the VERITAS team, I owe thanks to my project colleagues Sonja and Nicole who showed a lot of commitment and always brought up interesting and critical aspects of cooperation. I especially would like to thank Serdar for his helpful contribution with the project – ranging from simultaneously translating a four-hoursmeeting of Turkish network participants to investigating cultural differences between Austria and Turkey in his diploma thesis. Furthermore I would like to thank Matthias who showed me that team work really produces better and more interesting results than working alone; Leyla, who became a really good friend (I will never forget the nice breakfast in your house, Leyla); Notis, who always told me that I had “too much energy” when I asked one of my critical questions or had another idea what we could do about the lethargic cooperation partners. Dirk, who brought out the best in me – especially while jogging in Athens; Yavuz, who was the best tour guide ever, and Thomas, who also supported this work with information after the project had already been finished. During the project, I have learned a lot from Sylvie’s professionalism and critical attitude. All of them supported me in my academic but also personal development during this time, but – most important – the idea to regard the network process as a group process arose during an intensive talk with Dr. Doris Weyer. Thank you, Doris! The message for my parents is simple: I would like to thank them for all their love and education that gave me the self-confidence I needed in order to reach my ambitious goal. I especially want to thank my mum for all the talks and reflections during the last years (and before). Thanks to my husband Max for being with me all the time. Last but not least I think that writing a PhD thesis is definitely not possible without having friends who encourage you during the difficult phases. I would like to thank Eva for her support during the whole PhD process; Lea, who provided me with citation guidelines and formal hints especially during the last weeks of writing; and Sandrine for her helpful comments on my work, discussed in night working sessions via Skype. Enjoy reading. Marita Haas

Index 1

Introduction ........................................................................................................... 1 1.1

Objectives and Research Contribution............................................................. 1

1.1.1 Background of the VO Concept for SMEs.................................................... 2 1.1.2 Research Approach ...................................................................................... 6 1.2 Structure of Work........................................................................................... 11 2

State of the Art..................................................................................................... 15 2.1

Literature Analysis ......................................................................................... 15

2.1.1 Definition and Main Characteristics of Virtual Organizations ................. 15 2.1.2 Origin of Virtual Organizations ................................................................. 18 2.1.3 Evolution of the Virtual Organization Concept ......................................... 23 2.2 Empirical Investigation in Virtual Organization Practice.............................. 29 3

Framework Development ................................................................................... 41 3.1 Cooperative Network Concept and Implications........................................... 41 3.2 Life Cycle Concepts and Phases of Networks ............................................... 49 3.2.1 Corporate Life Cycle Models ..................................................................... 49 3.2.2 Virtual Life Cycle Models........................................................................... 52 3.3 5-Phases Model .............................................................................................. 54 3.3.1 Background: Groups and Group Formation Process................................ 55 3.3.2 Framework for Cooperative Networks....................................................... 59

4

Design of Analysis................................................................................................ 67 4.1 4.2

Sample: Veritas Project.................................................................................. 67 Research Method: Case Study Research........................................................ 73

4.2.1 General Aspects of Case Study Research................................................... 73 4.2.2 Application of Case Research .................................................................... 76 4.2.3 Instruments of Evaluation .......................................................................... 79

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Index

Empirical Data: Network Formation Processes ............................................... 89 5.1 The Austrian Case .......................................................................................... 89 5.1.1 Initiation ..................................................................................................... 93 5.1.2 Forming .................................................................................................... 103 5.1.3 Storming ................................................................................................... 110 5.1.4 Norming.................................................................................................... 123 5.1.5 Performing................................................................................................ 128 5.2

The Belgian Case ......................................................................................... 131

5.2.1 5.2.2 5.2.3 5.2.4 5.2.5 5.3

The Turkish Case ......................................................................................... 151

5.3.1 5.3.2 5.3.3 5.3.4 5.3.5 6

Initiation ................................................................................................... 133 Forming .................................................................................................... 142 Storming ................................................................................................... 148 Norming.................................................................................................... 149 Performing................................................................................................ 149

Initiation ................................................................................................... 155 Forming .................................................................................................... 163 Storming ................................................................................................... 171 Norming.................................................................................................... 189 Performing................................................................................................ 190

Comparative Analysis ....................................................................................... 193 6.1

Result of Network Formation ...................................................................... 193

6.1.1 Network Description and Visualization ................................................... 193 6.1.2 Planned Activities..................................................................................... 197 6.2 Comparison of Phases.................................................................................. 200 6.3 Country-specific Behavior ........................................................................... 211 7

Conclusions and Outlook on Further Work ................................................... 217

References.................................................................................................................. 225 Appendix.................................................................................................................... 241

Figures Figure 1: Research Framework..................................................................................... 12 Figure 2: Working Definition of Virtual Organizations ............................................... 18 Figure 3: Case Description Puma ................................................................................. 34 Figure 4: Case Description Virtual Factory Nordwestschweiz-Mittelland .................. 35 Figure 5: Definition of Cooperative Networks ............................................................. 42 Figure 6: Tuckman's Group Model............................................................................... 57 Figure 7: Formation Model of a Cooperative Network ................................................ 60 Figure 8: Virtual Factory ............................................................................................. 69 Figure 9: Research Design ............................................................................................ 78 Figure 10: Formation Process Austria ........................................................................ 129 Figure 11: Formation Process Belgium ...................................................................... 150 Figure 12: Turkish Network Initiatives ...................................................................... 172 Figure 13: Formation Process Turkey ........................................................................ 191 Figure 14: Model of the Austrian Network ................................................................ 194 Figure 15: Model of the Turkish Network(s).............................................................. 195 Figure 16: Comparison of Length of Phases .............................................................. 200

Tables Table 1: Development of VO-characteristics ............................................................... 28 Table 2: Virtual Profiles .............................................................................................. 33 Table 3: Comparison VO and Cooperative Network.................................................... 48 Table 4: Comparison of Models ................................................................................... 59 Table 5: Attributes of 5-Phases Model ......................................................................... 62 Table 6: Relevant Situations for Different Research Strategies ................................... 75 Table 7: Data Matrix..................................................................................................... 78 Table 8: Company Description Pre-Questionnaire....................................................... 81 Table 9: Interview Sample ............................................................................................ 82 Table 10: Material for 5-Phases Model ........................................................................ 87 Table 11: Trust Issues in Austrian Interviews ............................................................ 120 Table 12: Austria: Network Project Overview ........................................................... 123 Table 13: SWOT Analysis Network Belgium ............................................................ 146 Table 14: SWOT Analysis of the Turkish Manufacturers.......................................... 163 Table 15: Skill Matrix Super Structure Network........................................................ 173 Table 16: Product-market Matrix Super Structure Cooperators................................. 174 Table 17: CompressorNet Participants' Characteristics.............................................. 176 Table 18: Interview Description Turkey..................................................................... 187 Table 19: Network Description................................................................................... 199

1 Introduction Coming together is a beginning Keeping together is a progress Working together is a success Henry Ford 1863-1947

Henry Ford revolutionized work in the automotive industry by establishing mass production through detailed assembly line planning. He motivated his workers with a concept of high wages so that every employee was able to afford a car produced by the Ford company.4 Ford's ideas – often referred to as “welfare capitalism” – were amplified to a global vision on international cooperation which he examplified through collaboration activities with Agnelli of Fiat in Italy.5 Based on the above quotation, he was aware of the difficulties of making people and companies work together, which perfectly describes the topic of this dissertation: Cooperation is challenging. The reason behind this is the fact that human beings are involved.

1.1 Objectives and Research Contribution This work is based on the concept of cooperation between small enterprises and investigates social processes that emerge when people work together in the context of network formation. The background of the work was the participation of the 19-month research project VERITAS (Virtual Enterprises6 for Integrated Industrial Solutions)7, with the goal of establishing Virtual Industry Clusters (VIC) in Austria, Belgium and Turkey. VICs 4

5 6

7

However, Henry Ford’s ideas were not restricted to supporting employees; on the contrary, he established a quite hierarchical, dictatorial corporate culture and for example never allowed unionization. More information to be found at for example http://en.wikipedia.org/wiki/Henry_ford, accessed in October, 2006. More information to be found at http://en.wikipedia.org/wiki/Henry_ford, accessed in October, 2006. In various literature sources the terms Virtual Enterprise and Virtual Organization are used as synonyms (cf. Bauer/Koeszegi, 2003). In this study, the term Virtual Enterprise will be substituted by Virtual Organizations when possible. VERITAS, IST 2004-511013, Contract for Specific Support Action, Annex 1- Description of Work. For more information cf. http://www.veritas-eu.com, accessed in October, 2006.

2

Introduction

correspond to networks of loosely-coupled companies that assure the cooperation preparedness of their members and enable them to form Virtual Organizations (VOs) whenever a joint business opportunity arises (Camarinha-Matos et al., 2004). A VO is described as a “(…) cooperative organization to explore business opportunities that one enterprise itself would not be able to work out.” (Sieber/Griese, 1998, p. 213) and regarded as „(…) a temporary network of independent companies – suppliers, customers, and even rivals – linked by information technology to share skills, costs, and access to one another’s markets“ (Byrne et al., 1993, p. 36). In the literature, it is commonly agreed that VOs are able to diminish typical problems of small enterprises. Cooperation is believed to increase flexibility and to enrich the product portfolio of specialized corporations. The author amplifies existing research on networks and VOs by investigating the network formation process from a social perspective. Small enterprises are in the author’s view supposed to be driven by risk-averse business-owners and therefore characterized by the need to establish long-term relationships among cooperation partners. Based on the model of Tuckman (1965) the group formation process is extended and applied to VOs. 1.1.1 Background of the VO Concept for SMEs Today’s economy is characterized by ongoing globalization, fast changing technologies and a turbulent business environment. These changes affect today’s enterprises’ production processes as well as their internal structures. Especially for small and medium enterprises (SMEs) this is not without problems. SMEs often lack sophisticated know-how or the financial background to respond to new market requirements and therefore need special consideration or even support to defend their market position and to survive. According to the official definition, SMEs occupy a maximum of 250 employees and their turnover does not exceed an annual amount of 50 million Euros.8 The European business landscape is a landscape of small enterprises: In the year 2003 the average European company employed seven people, and 99.8% of all companies situated within the European Union (EU) are classified as SMEs. These enterprises provide 8

http://europa.eu.int/eur-lex/pri/en/oj/dat/2003/l_124/l_12420030520en00360041.pdf, accessed on 23rd of October, 2006.

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around 70% of the employment and 57.3% of the turnover in the private sector.9 This means that the performance of SMEs is highly important for the welfare of the society on a social and economic basis. Therefore the European Commission (EC) has taken steps to improve the situation of SMEs by strengthening their competitiveness and support their survival in the market. EU policies shall ensure economic growth and facilitate job creation for the whole region. Based on the Lisbon Plan of March 2000,10 the objective of the European economy is to become the most competitive and dynamic knowledge-based economy in the word. One of the main points discussed in this development plan is the fact that a lot of disadvantages of SMEs are mainly attributed to their size. While large enterprises can easily customize their products and services according to their clients’ needs, SMEs are likely to be more vulnerable in a changing business environment. They do not dispose of enough resources to assure flexibility and to quickly adopt for example production procedures in case of new customers’ requirements. In case of strategic reorganizations or the introduction of new products, the risk is quite high: Failure of SMEs can lead to insolvency, while larger enterprises are able to compensate losses with earnings of other parts of the enterprise. A possible solution to this dilemma is to enhance cooperation between SMEs. Cooperative structures and common production, selling or marketing processes are able to strengthen the competitive position of SMEs by giving them virtual size. This means that networks of smaller companies are able to act like larger ones. Of course, cooperative structures face also problems for SMEs: the main barriers of cooperation are seen in the risk to become a dependent supplier of a large company but also the fear to be forced to reveal secret or protected specific knowledge.11 To overcome these problems, the European Commission as well as national institutions invests in Research and Development (R&D) activities that promote new ways of business.12 Business models are created to face the global challenges and to provide 9

10 11

12

More details in the Observatory Report “SMEs and cooperation”, http://www.europa.eu.int/comm/enterprise/enterprise_policy/analysis/doc/smes_observatory_2003 _report5_en.pdf, accessed on 15th of September, 2005. For more details about the Lisbon Plan cf. http://www.europarl.eu.int/summits/lis1_en.htm, accessed on 23rd of October, 2006. ESNR Enterprise Survey 2003, reported in: http://www.europa.eu.int/comm/enterprise/enterprise_policy/analysis/doc/smes_observatory_2003 _report5_en.pdf, accessed on 15th of September, 2005. For more information about European Projects, go to http://www.cordis.lu/en/home.html, accessed on 23rd of October, 2006.

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Introduction

solutions for embedded organizations. One of these business models is the above defined concept of Virtual Organizations (VOs), i.e. best-of-everything-network, where different companies or individuals combine their core competencies in order to explore business opportunities that could not be handled by one single company (e.g. Sieber/Griese, 1998; Byrne et al., 1993). Best practice examples of VOs can be found in various literature sources: Wüthrich et al. (1997) or Goeransson and Schuh (1997) describe Puma13 as a representative VO, as only brand management and administrative issues are carried out centrally, while all other services like product development or R&D are outsourced to different partners and even countries. Airbus14 or Smart Car15 represent examples of VOs in the transport manufacturing sector where different companies come together in order to produce one single product or product line (Wüthrich et al., 1997). Rosenbluth International16, situated in the sector of transport and travel, combines different subsidiaries all over the world (Mertens/Faisst, 1997) and Amazon17 manages to transfer most of its business areas to the World Wide Web. Driven by these examples and business models, VOs like Agile Web18 – a federation of different manufacturing companies in the US – or IECOS19 – a Mexican Industry Cluster – came into existence. Sieber and Griese (1998) or Bremer et al. (2001) highlight the example of VIRTEC, a cooperation platform of Brazilian SME manufacturers as best practice example (Wüthrich et al., 1997; Müller-Stewens, 1997). Although the benefits of VOs and networks – like cost sharing, access to new markets or increased flexibility –- are widely known and discussed (e.g. Davidow/Malone, 1993; Sieber/Griese, 1998; Mertens et al., 1998), the realization of the concept remains challenging (Haas et al., 2007). Looking behind the scenes, a lot of the above-named VOs disappeared over time or became more traditional organizations. Today, the general company information of Puma20 or Airbus21 reflects the structure of mutual

13 14 15 16 17 18

19 20 21

http://www.puma.com, accessed in October, 2006. http://www.airbus.com, accessed in October, 2006. http://www.smart.com, accessed in October, 2006. http://www.rosenbluth.com/home.html accessed in August, 2004. http://www.amazon.com, accessed in October, 2006. Further information on http://www.beepknowledgesystem.org/ShowCase.asp?CaseTitleID=134&CaseID=610, on 24th of October, 2006. http://www.iecos.com, accessed in October, 2006. http://www.puma.com, accessed in October, 2006. http://www.airbus.com, accessed in October, 2006.

accessed

Objectives and Research Contribution

5

shareholding.22 Other VO-project’s websites are not updated or maintained: Kiesel23, a virtual competence center in the environmental sector still provides information of the idea of bringing partners together, but obviously has no contact point to get in touch with. Agile Web, VIRTEC and VW Resende (Wüthrich et al., 1997) even no longer have a proper website. The same holds for Prolion, a best practice example described by Bultje and van Wijk (1998). Above all, the reader gets lost in general project information looking for example for the EC-funded project e-mmediate24 that aimed at establishing a handful of VOs around Europe. Reported failure of VO can be read about at the Cargo Lifter case, a former showcase of a VO in the air transport industry.25 On the other hand, the Virtual Factory Nordwestschweiz-Mittelland26 or Swiss Microtech Network27 are two representative, often-mentioned examples for wellestablished VOs (Goeransson/Schuh, 1997; Pouly et al., 2002). Both networks deal with the manufacturing sector (Swiss Microtech Network28 especially in microtechnologies), based on the main ideas of the Virtual Factory concept of Schuh et al. (1998): partners agreed on a stable platform of partners, forming project teams according to customers’ needs. Also KFS-Net29, founded on the principle of capacity sharing, represents a well-working VO that, like the two Swiss networks, seems to have adopted the concept according to its partners’ needs. While the concept obviously works in some cases, it does not fulfill participant’s expectancies in others. Although the best practices do not shed light on the relationship between size of the involved companies and the successfulness of the cooperation behind, the (perceived) risk for SMEs seems to be higher: While larger companies are able to cooperate in less important areas of their business, small corporations enter network relationships often because of economic reasons or even because of the 22

23 24 25 26 27 28 29

Although one of the main characteristics of a VO is the “one-face-to-the-customer” - philosophy that would not allow insights in internal structures, Airbus is known as one single - fully integrated - company since 2001 (http://www.airbus.com/en/corporate/people/company_evolution/, accessed in October, 2006) and Puma has become a large group with preferred partners during the late 90s (http://about.puma.com/puma.jsp?type=company&parent=13&id=13&lang=de, accessed in October, 2006). http://www.kiesel.de, accessed in October, 2006. http://www.eu-emmediate.com/main.htm, accessed in August, 2004. http://www.cargolifter.info/, accessed in October, 2006, or http://www.net-lexikon.de/Cargolifter.htm, accessed in August, 2004. http://www.virtuelle-fabrik.ch, accessed in October, 2006. http://www.swissmicrotech.ch, accessed in October, 2006. http://www.swissmicrotech.ch, accessed on 23rd of October, 2006. http://www.kfsnet.de/, accessed on 28th of February, 2006.

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Introduction

request to survive or being able to compete against larger corporations. Hence, SMEs might fear to lose their specific, specialized know-how and therefore require more stable and trustful partners, as they do not want to put themselves at high risk. The assumed risks for SMEs are on the one hand the problems associated with sharing know-how, because competitive advantage of small companies are mostly based on unique production procedures that are not shared with potential competitors. On the other hand, high flexibility is required from potential partner companies: every company should be able to quickly react and cooperate with the others and adapt internal structures as well as production procedures. This means that on the one hand, VOs are seen as helpful concept for VOs, on the other hand it might be very difficult for them to overcome SME specific challenges in the context of cooperation. Hence, the question arises, which aspects might be necessary prerequisites for success. 1.1.2 Research Approach Critical success factors often mentioned in the context of VOs highlight the necessity of trustful relationships between partners (e.g. Byrne et al., 1993; Jägers et al., 1998; Scholz, 1996) or the implementation of collaboration tools and advanced Information and Communication Technology (ICT) as the most important enabler for success (e.g. Camarinha-Matos/Afsarmanesh, 2004; Sieber, 1998). Other authors like Krystek et al. (1997) focus more on the qualification of VO’s employees. Sherer (2003) identifies the importance of “soft factors” in a study of 159 manufacturing networks and regards trust, commitment, information technology, the process of partner selection, and the intermediary support conduciveness of the external environment as the crucial factors. Despite investigation into critical success factors, there are no indications why in some cases the VO-concept works and in other cases does not. Although the factors identified via different studies overlap, they are mostly described in a qualitative way and do not reveal concrete guidelines how to establish a successful VO. On the one hand, external factors like the specific industrial or economic situation of a country may as well influence the establishment of successful cooperation as internal factors like the level of commitment or trust (e.g. Handy, 1995; Köszegi, 2001). Trust was introduced as a social amplification of neoclassical models that are based on opportunistic behavior and is seen as an instrument of coordination (Das/Teng, 1998; Jägers et al., 1998; Klaus, 2002; Scholz, 1996) next to price and hierarchy (Noteboom,

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1996; Ring/Van de Ven, 1992; Zaheer/Venkatraman, 1995). It reduces complexity and opportunistic behavior in relationships and helps to overcome conflict situations (Granovetter, 1985; Handy, 1995). The examination of trust in the context of VOs reveals two main problems. First, the formation process of trust is unclear. Trust is considered to be reciprocate (Das/Teng, 1998; Jarvenpaa et al., 1998) and it takes time and personal contacts (Jarvenpaa et al., 1998) to establish trustful relationships. Additionally, there are theories that claim trustful people on the one hand, and mistrusting people on the other hand (Rotter, 1967; Rotter, 1980; Gräff, 1998). The second problem with trust is the question whether trust is really able to eradicate problems in cooperation. If a VO or a network fails, people say that there was no trust in each other. Critically spoken, this means that whenever something goes wrong, the problem can be attributed to the lack of trust. Although the discussion of trust allows a deeper insight into human attitudes, it is only partly able to explain problems and behavior in cooperation, since the relation between trust and performance is still contentious (Zaheer et al., 1998; Smith/Holmes, 1997) and the discussion and concepts of trust – at the current state of the art – are not able to overcome the problems of cooperation. Granovetter (1985) analyzed the basis of trust and as well rejected institutional arrangements as generalized morality, but argued that all (economic) action is embedded in social structure. He contradicts the theory of rational actors and ideal conditions for business transactions, and states that whenever there was trust in the past, there will be trust in the future, because of being embedded in a certain group where the individual would like to stay a member in the future (Hosmer, 1995). This social structure and the personal embedded relationships holds for networks as well: A network of institutions, especially of small and medium-sized enterprises (SMEs), is, first of all, based on the network of owners or CEOs behind it. From a social or individual point of view the author therefore states that the underlying (social) concept of a network is a group, i.e. “(…) two or more persons who are interacting with one another in such a manner that each person influences and is influenced by each other person” (Shaw, 1976, p. 11). While the discussion on the formation of VOs widely neglects the existence of human beings and their emotions (Sieber, 1998; Katzy/Dissel, 2001), the argumentation of the group model is based on the fact that the formation of a network of institutions requires the formation of a network of people, and refers to that fact that in a first step, it is not the organizations are linked to each other but the managers working in these organizations.

8

Introduction

At first sight, friendships and stable relationships are a new aspect for VOs. No matter if competitive or institutionalized arguments are considered, or if VOs are simply regarded as a possible new organizational form, all approaches are based on rational actors that join forces whenever it is necessary. The concept of VOs is constructed on the “homo oeconomicus” – an approximation of the homo sapiens that is maximizing its utility based on given preferences. Although often criticized (e.g. Keynes, 1936; Simon, 1997), the rational model serves as a basis for diverse organizational and economic concepts. For SMEs, however, the author assumes that people want to develop a network of actors where everybody can rely on each other and which enables a stable and balanced commitment from all cooperation partners. Social aspects and relationships are therefore concluded to be crucial in the formation process of a group or a network, respectively. While establishing a network among business owners it should be thought of as establishing a group or a team.30 In respect to this specific situation for SMEs the author develops a model that i) focuses on social aspects of networks and ii) concentrates on the very first phase of network formation. i) Different to former models, the author states the hypothesis that a network of companies is fundamentally just a network of people – or a group of people – that come together and try to form a well working team. Organizations cannot be formed without human beings and these human beings and their needs in an organizational context follow emotional processes. Brewer and Kramer (1986) as well as Dawes and Thaler (1988) argued that the identification with a certain group, called “group identity”, facilitates cooperation. The group forming model is also concordant with Granovetter (1985) who rejected both institutional arrangement and generalized morality as a basis for trust and, instead, argued that (all) economic behavior is embedded in informal social relationships. Embeddednes refers to i) historical or cultural aspects, ii) structural aspects like role behavior, but also iii) individual embeddedness in a social structure. The first two dimensions are often treated as specific determinants: cultural scientists (e.g. Hall, 1990; Adler, 1997; Trompenaars, 1995) investigated 30

In the literature, the difference between group and team is described by interaction with one another and the self-perception as a group for any social group (e.g. Schein, 1980) and a special focus on working within the same institution and with each other for teams (e.g. West, 2004). The author does not distinguish between these two terms as the literature on teams is based on the group concepts.

Objectives and Research Contribution

9

in behavior and characteristics of people coming from the same region and institutionalized responsibility is able to explain certain characteristics and attitudes out of role concepts (Lenk/Maring, 1998; Sichler, 2004). Both aspects are considered in economic transactions, but Granovetter (1985, p. 487) adds that “(…) actors do not behave or decide as atoms outside a social context nor do they adhere slavishly to a script written for them by the particular intersection of social categories that they happen to occupy. Their attempts at purposive action are instead embedded in concrete ongoing systems of social relations.” ii) Except for the attempts to establish simple Virtual Life Cycle models (Sieber, 1998; Katzy/Dissel, 2001) that describe the most important phases of business transactions in VOs, the process of VO and network formation has been neglected in the literature. Based on the idea of Life Cycle models,31 every organization follows a pre-defined process of development over time. Assuming that this also holds for VOs, the investigation of the different stages of development is a basic requirement for analyzing VOs. Cooperation between companies does – additionally – require special concern of social and relational factors in the beginning of a cooperation: Different stakeholders’ opinions have to be considered and high risk and dependencies might prevent actors from joint business activities. Furthermore, the owners of the different organizations generally do not know each other or have not worked with each other before. Risk-averse cooperation partners have to get to know each other and establish trustful relationships before they start working. Although there exist suggestions for Life Cycle models of VOs, including detailed descriptions about the activities to be carried out in every phase, the implementations often last longer than anticipated or a planned cooperation fails before it really can start. The starting phase seems to be crucial for any organization: Turnover and the number of involved people are still low and sales channels or customers have to be established (Shahidi, 1997). Comparable to new industries, in the emergent phase of an organization, the market potential is still unclear and growth rates cannot yet be predicted. Thus, the stability of market shares is very low at this stage and customer loyalty has not developed. Greiner (1972) and later Scott and Bruce (1987) agree that the specific disadvantages of an early stage of an organization can only be overcome by creativity, depending mostly on the entrepreneur him or her. The author claims that this also holds for network organizations and VOs. Although in the beginning, the organization is 31

For a detailed overview cf. Höft, 1992.

10

Introduction

rather unstructured and cash generation is clearly negative, commitment of the involved people and creative solution finding will lead to joint growth. Nevertheless, because of different interests of all parties, this phase is the one to decide future cooperation activities. Based on the two presented aspects, the author extends the (Virtual) Life Cycle model to classic social theories on group development (e.g. Tuckman, 1965; Bion, 1961; Bradford, 1964; Francis/Young, 1989) and creates a phase concept that includes five different phases describing how people get to know each other and become a team. Fundamentally, four of the five phases resemble Tuckman’s group formation model (Tuckman, 1965), but are applied for a network of companies. Therefore, the model includes a first phase, called Initiation where potential group members are contacted and selected. During the Forming phase, the need for leadership and the establishment of a Network Manager are considered and orientation and testing requirements of network partners are included. During the Storming phase, when conflicts and struggles about the power in the Network may arise, the effort of independence of partners has to be recognized. The establishment of rules and roles is essential during Norming, which should lead to the agreement of partners. Finally, after all four phases have been passed; the group starts to work as a team (Performing). The aim of this work is to gain deeper insights into the social structures of networks in order to derive hypotheses how to support the establishment of relationships between cooperation partners. This means that the deductive approach to establish a phase model is extended to an inductive verification and adoption. The initially descriptive approach that analyzes how the group and the characteristics of the network developed over time allows a diagnosis which – in a further step – lead to valuable insights how to systematically encourage and support the formation of VOs. The idea of the available research is based on the implication that if one is able to identify those factors that are responsible for being successful, suggestions for how to systematically encourage and support the formation of a VO can be derived. This could, in turn, prevent or at least advise future networks from failure. The main focus of this dissertation is to give a contribution to the scientific community and to close the gap between social and economic arguments in the sector of networks and VOs. In addition, the detailed and demonstrative research report also provides helpful guidelines for practitioners and industry people while establishing cooperation.

Structure of Work

11

By reading this dissertation, the complexity of a network formation process will be better understood from economic as well as social preconditions.

1.2 Structure of Work The remainder of this work is organized as follows: Chapter 2 analyzes the theoretical background of VOs and discusses the different approaches that have been brought up by scholars. The literature review contains the accurate definitions of VOs as well as the origin and evolution of the organizational concept. The adoption of the VOconcept is related to a timeline in order to observe the evolution over time. A further part of the chapter reports on an empirical analysis of 30 VO examples (Haas et al., 2007). The analysis is based on cases that have been reported as best practices of VOs in the literature and includes documented reports but also current interviews and analysis of existing web sites. The sample includes examples that failed or adopted other strategies over time as well. Based on this study the author shows that two different types of VOs exist in today’s business environment: emerged vs. initiated VOs, clustered according to the drivers that led to network creation. Emerged VOs are driven by the business idea of one focal company that seeks its partners and organizes the network by appointing its strategy and formalization mechanisms. While most of these emerged VOs were founded during the 1990s, today’s VOs are more equalized and follow a jointly-defined strategy. These networks, initiated and/or funded by a public institution are the topic of interest during the analysis. Based on an extensive literature study about the evaluation of the concept of VOs over time, they are called Cooperative Networks. Based on definition and evolution of theory on the one hand, and the application of VOs on the other hand, a model of an ideal Cooperative Network, according to today’s business environment and the requirements of SMEs is derived in chapter three. Related to the theory of social embeddedness (Granovetter, 1985) the author shows that the formation of an initiated VO or a Cooperative Network in the context of an SME Network rather follows the concept of a group-building process (Tuckman, 1965) than the concepts of Virtual Life Cycles (e.g. Katzy/Dissel, 2001; Rabeol et al., 2004).

12

Introduction

The argumentation is based on the following two major propositions: ƒToday’s VOs adopt a certain form of a Cooperation Network that is based on a long-term oriented stable platform of cooperation partners, supported via national or international institutions. ƒFor the establishment of a Cooperative Network of SMEs a personal network of the SME-owners has to be established. Group effects and group theory (e.g. Moreno, 1996; Bion, 1961; Kauffeld, 2001) are used to define requirements of personal relationship building. The model is applied to three network formation cases that were set up in order to strengthen competitiveness of SMEs in the manufacturing sector. All three of them have been accompanied and analyzed by the author for more than one and a half years. The research framework is displayed in figure 1.

Literature Analysis (Davidow/Malone, 1992; Bremer et al, 2001; Bultje/van Wijk, 1998; Camarinha-Matos/Afsarmanesh, 2004; Erben/Gersten, 1997)

Empirical Analysis (Agile Web, Behr, Cargo Lifter, e-mmediate, Euregio Bodensee, Flexcell, IECOS, IMPRO, KFSNet, Kieel, Konkraft Manufacturen, metalnet, mobile solution group, myteq, Nintendo, Prolion, Puma)

Conceptual Framework

Cooperative Networks “Cooperative Networks are stable and long-term platforms of cooperation.Equalized partners combine their businesses according to the jointly established strategy of the network. Cooperation is supported by agreed rules and roles and by trustful relationship between partners.”

5-Phases Model Based on models of group-building (Tuckman, 1965), Integration of (virtual) Life Cycle Models Focus on small enterprises

Model Development Case 1

Case 2

Case 3

Austria

Belgium

Turkey

Figure 1: Research Framework

The study uses a case survey approach in which multiple levels of analysis, including for example individual interviews, quantitative questionnaires, or process observation are used to develop a comprehensive picture of single cases. A detailed description of the methods of analysis as well as the evaluation procedure and the general research

Structure of Work

13

design is explained in Chapter 4. Chapter 5 comprises the empirical observations and results of the network formation process in three different countries. The established phase concept is successfully applied to three cases. The attitudes of the network members can definitely be assigned to group formation behavior. A crosscase comparison, taking place in section 6, shows that, although developed diversely in the three countries, the main challenges in the phases resembled each other. Most similarities in people’s comportment were detected in the Initiation phase, characterized with a strong need for leadership. Main distinctions among the three cases were observed during the Storming phase, where particularly Turkish network participants showed activity and commitment, the Austrian network members behaved in a skeptical and resistant manner. Nevertheless, both attitudes showed a strong relationship to typical behavior during the related phase and therefore highlighted the validity of the model in unequal economic and cultural settings. The study is completed with conclusions and implications for further research in section 7. Here, the author concludes that only by jointly overcoming the challenges of every phase, a network will start to generate efficient results. The aspect of relationship building was successfully combined with current research in the field of VO and network theory. By developing a framework that is able to differentiate between developmental stages of a network formation process, the author managed to establish a prescriptive instrument for the network formation process. Limitations of the study and future research possibilities are highlighted at the end of work.

2 State of the Art In the following section, an extensive literature analysis as well as a comparison of 30 VOs and networks is reported. The discussion of current empirical and theoretical aspects serves as a basis for the study carried out in the empirical part of this work.

2.1 Literature Analysis This chapter highlights the theoretical background of VOs and describes how the concept changed over time. It points out how virtual structures developed over time and which aspects of virtuality, including for example coordination mechanism or the reaction on business opportunities changed and which remained. 2.1.1 Definition and Main Characteristics of Virtual Organizations Davidow and Malone (1992) were among the first authors to discuss the concept of Virtual Organizations. They argued that future companies would assume different organizational forms than before and developed the vision of a dynamic network of organizations, suppliers and customers that work together. Their ideas were based on, for example, Toffler (1987), who introduced a concept where the customer plays an important role in the design of a product – s/he decides how a product should look and which features it should display. This means that the supply chain was extended to the customer. In the view of Davidow and Malone (1992) work groups, departments and specialists should be combined as required by the current market demand, forming a VO. The term “virtual” is related to an artificial world, based on cyber technology. “Virtual” means “not real”, but at the same time describes something that is “apparent” or “could-be” reflecting an “as-if”-scenario.32 Therefore, no real building or office would hold the actors together but the network would consist of links in information and relationships. Davidow and Malone (1992) talk about a “virtual revolution”33, based on developments of ICT. At the same time they highlight the difficulties for companies that would have to change internal structures, and invest more in high skilled and self-organized workers. 32 33

For a definition cf. “(…)for the most part; almost wholly; just about.” in http://www.infoplease.com/ipd/A0728128.html, accessed in October, 2006. They compare the “virtual revolution” the technical revolution in 1770, pointing out the power of change on behalf of technology.

16

State of the Art

The concept does not follow a generally accepted definition. After Davidow and Malone (1992), several other authors picked up the idea and drafted definitions. Byrne et al. (1993, p.36) define a VO as ”(…) a temporary network of independent companies – suppliers, customers, and even rivals – linked by information technology to share skills, costs, and access to one another’s markets.“ Sieber and Griese (1998, p.213) similarly describe VOs as “(…) an appropriate kind of cooperative organization to explore business opportunities that one enterprise itself would not be able to work out.” Bultje and van Wijk (1998, p.9) also point out that in VOs „(…) companies quickly unite to exploit a specific opportunity and will disperse afterwards.” and Erben and Gersten (1997) add that “(…) each company contributes only what it regards as its core competencies.” It is commonly agreed that the aim of VOs is to explore business opportunities that could not be handled as a single company (e.g. Krystek et al., 1997; Bultje/van Wijk, 1998). Nevertheless, it is more common to describe a VO by a list of its specific characteristics. The main organizational features are the following: i) Focus on core competencies: Collaborating companies focus on their individual core competencies. These resources and know-how are pooled in order to form a best-of-everything network (Balint/Kourouklis, 1998). Differentiation from competitors is the main source of competitive advantage, because today’s markets require a high-competence portfolio (Erben/Gersten, 1997). If a company decides to focus on only a few products or services, the need for cooperation partners emerges immediately. Several authors argue that the focus on and the dynamic combination of core competencies enable VOs to meet the customers’ requirements in a very efficient way, and to react faster and more flexibly (e.g. Sieber, 1998; Bauer/Koeszegi, 2003). ii) One face to the customer: Services or products of a VO are offered from one contact point. This can either be a brand name of the VO or a focal company acting in the name of the whole organization. For the customer, a full-service supplier is always more attractive than several small companies that have to be coordinated. As long as the contact point ensures quality issues and liability, for the customer there is no need to know suppliers or partners of the main company. iii) Internationality: Due to the fact that VOs do not have a common shop or office where all employees are located, the network can non-restrictively expand to

Literature Analysis

17

several foreign countries. This characteristic also highlights one of the main advantages of virtual corporations: in a global environment, international presence of a company becomes more and more important. iv) Independency: Regardless of the joint activities, partners remain legally and economically independent (Bultje/van Wijk, 1998; Mertens et al., 1998). The idea of a VO is to combine resources and know-how whenever a business opportunity arises, but not to merge internal structures. This allows flexible recombining of resources. Although legally separated, companies are mutually dependent on each other. Based on the cooperation, a co-destiny relationship arises: all partners depend on the other partners’ success and performance (Davidow/Malone, 1992; Mertens/Faisst, 1997) v) Low formalization: To be able to react quickly, the companies refrain from hierarchical integration and high formalization. Instead, the cooperation between partners is based on self-organization. It is characterized by value-orientated relationships and most of the time equal rights of all partners (Wüthrich et al., 1997). This means that VOs are supposed to act with a minimum of rules or contracts and are rather coordinated on the basis of informal contracts. Additionally, mutual trust is seen as an instrument to reduce opportunistic behavior (Handy, 1995; Köszegi, 2001), informally supporting the relationship between partners. vi) Application of ICT systems: Sophisticated ICT-support facilitates coordination among partners and reduces communication costs (Sieber, 1998; Wüthrich, 1997). ICT is often seen as the “driver” of VOs that enable the organization to exploit business ideas. The main advantage of ICT support is seen in process acceleration through quick communication and collaboration facilities (CamarinhaMatos/Afsarmanesh, 2004). vii) Temporariness: VOs are temporary networks. Bultje and van Wijk (1998, p.9) point out that in VOs „(…) companies quickly unite to exploit a specific opportunity and will disperse afterwards.” The collaboration takes place to explore short-term market-opportunities. This flexibility enables companies to quickly form a corporation that is able to react to the current market requirements and dissolve after the requirement is fulfilled.

18

State of the Art

The above-mentioned features reflect the most important characteristics of a VO. Although the term VO lacks clarity, the author uses the following combination of the above mentioned characteristics. as a working definition (see figure 2): “Virtual Organizations are short-term networks of legally independent companies or individuals that come together in order to fulfill a certain market requirement. Based on low formalization, trustful relationships and ICT-linkages, partners bring in their core competencies and satisfy the clients need(s) with one solution. After the project has been fulfilled, cooperation partners dissolve.” Figure 2: Working Definition of Virtual Organizations

2.1.2 Origin of Virtual Organizations According to classical economic theory, the emergence of organizational forms is discussed in the context of efficiency: How can transactions in the market be organized efficiently? Two normative concepts – i) market coordination and ii) hierarchical organization – have long been regarded as two mutually exclusive models, each with advantages and disadvantages (Picot et al., 2003). i) Coordination in a market requires the agreement of two or more partners for a transaction. Perfect competition is assumed, so that price is the appropriate regulatory mechanism. According to the specific situation, services and instructions for all partners are agreed upon. Disadvantages of the market are high transaction costs caused by the need to select the right transaction partner and to set up coordination between actors. Additionally, single transactions may lead to opportunistic behavior that can only be coped with by contracts or control. The market is a form of decentralized coordination mechanism. ii) Coordination through a hierarchy describes the internalization of transaction partners. Organizations based on routines and directions emerge and specific forms of (working) contracts between actors arrange the activities. This leads to lower costs in coordination, motivation and control. Based on the institutional approach, communication and contracts between actors are used to coordinate activities. Scholars stated that hierarchical coordination outperforms market coordination as long as organizational costs and the probability for wrong decisions can be kept low (Coase, 1937). When transaction-cost theory was further developed, Williamson (1975; 1985)

Literature Analysis

19

included motivation and behavior of human beings in the concept and argued that the selection of market or hierarchy was based on the amount of transaction partners, the frequency of transaction as well as on uncertainty about current and future outcomes and the necessity for financial investment (Picot et al., 2003). It is argued that the higher the specificity of a product or service, the more necessary are control and incentive mechanisms and the more efficient is a vertical integration in a hierarchy. Influenced by the changing environment of today’s business, the need for a third possibility to coordinate business activities arises. The need to change internal structure can be found in the changing environment and in the required reaction of companies. The overall reason for improving internal structure is the need to stay competitive. Four reasons can be identified why organizations might need more flexible and cooperative structures (Siebert, 2003): 1) Innovation: Already Schumpeter (1964) mentioned that technical innovations or changes in the production process are more able to influence the long-term competitiveness of an organization. Innovative products generally emerge of a company’s core competencies: specialized products or processes. Nevertheless, today’s innovations need a multi-technological background and interdisciplinary development of products (Siebert, 1990). Therefore high specialization in core competencies requires highly specialized partners in adjacent fields. 2) Time: On the one hand, companies need to have the ability to quickly fulfill existing market demands by disposing over short delivery times and, on the other hand, shorter cycles of new product development are required (Siebert, 2003). While the first one requires dependent supplier structures, the latter focus on trustful relationships, where the exchange of know-how is facilitated. 3) Quality: Especially in business relationships where a commercial buyer and one or more supplier(s) are involved, quality and quality control is an important issue: The company selling in the B2C34 market is finally made responsible for the entire product. Instead of cost-intensive quality control systems, the need for reliable cooperation partners arises. Network structures are seen as a possibility to deal 34

Business to Consumer

20

State of the Art

with the problem of hidden information between the two actors.35 Fair and longterm relationships might be the aim of networks in order to enhance quality of the whole supply chain. (Siebert, 2003) 4) Costs and Prices: Regardless of the first three important points, price is still one of the driving factors for competition. Division of labor between network partners increases the possibility to react faster and to outsource for example those parts of production to countries with lower labor costs. Network organizations and – according to the definition of Sydow (2003) – also VOs can therefore be classified as a third possibility to coordinate business activities. Due to loose combination of organizations, a hybrid organization emerges. This organizational form disposes of fewer obligations and linkages between the entities than in hierarchical organizations, but at the same time has stronger ties between the actors than in markets. Therefore, the major disadvantages of the other concepts can be reduced: Costs for selecting partners and set-up costs decrease because of repeated collaboration. Control costs also diminish because of growingly trustful relationships between partners. Transaction in networks follow reciprocal trading principles: no payments are fixed or agreed to, no directions are imposed, but the coordination follows social models with interdependencies and the fulfillment of mutual expectancies (Semlinger, 2003). Stable relationships of actors as well as reliable feedback processes and the commitment to jointly take over risks make actors implicitly learn and establish rules and regulations. Networks are furthermore regarded as a stable platform of companies with fixed cooperation interests and linkages (Erben/Gersten, 1997) and are “(…) conceived as an institutional arrangement among distinct but related for-profit organizations which is characterized by (…) a special kind of (network) relationship, (…) a certain degree of reflexivity, and (…) a logic of exchange that operates differently from that of markets and hierarchies.” (Sydow/Windeler 1998, p. 266). VOs are seen as a special form of network, provided with the coordination and collaboration possibilities of the newest ICT (Sydow, 2003). The second difference 35

The buyer-supplier relationship can classically be interpreted as a Principal-Agent Relationship. The supplier disposes over more and more detailed information of his products, including error ratios or qualitative homogeneity of products. In a worst-case scenario this might lead to opportunistic behavior: The Agent (=supplier) does not tell the Principal (=buyer) about quality problems, hoping that no major errors will be detected.

Literature Analysis

21

can be seen in the market appearance of VOs. The “one-face-to-the-customer” philosophy lets the partners in the VO-network appear as if there was only one company, while instead, a project network is built up. Additionally, dynamic aspects of formation and dissolving characterize the VO (Picot et al., 2003): modular, heterogeneous and geographically dispersed entities with different core competencies can be combined at any time. In addition to the above-mentioned network characteristics, VOs enable small companies to grow and – according to this virtual size – to be present on the market. Centralization and decentralization vary according to the specific implementation of the concept. Besides the explanation of networks that is based on Transaction Cost Theory, alternative approaches try to explain the emergence of VOs (Picot et al., 2003): From a competitive point of view, VOs are an appropriate answer in markets with highly complex, fast-changing problems (Reichwald et al., 2000). Complex products require modular organizations, because single enterprises are no longer able to satisfy customers’ demands only by means of their own competencies. At the same time, markets become uncertain because of fast-changing needs. Temporary, businessdriven cooperative structures based on complementary core competencies of the partners are an appropriate answer to this situation. Every partner brings in what s/he is doing best and the exact framework of cooperation is driven by the available business (Picot et al., 2003). From an institutionalized point of view, economists point out that that efficiency in any organization depends on the motivation of the agent who fulfills a certain task. A firm is seen as a nexus of contracts between factor owners and is viewed as the outcome of a complex equilibrium process. The formative principle of this theory is the relationship between a principal, who orders a product or service, and an agent, who carries out the task. This relationship is characterized by the problem of asymmetric information (e.g. Jensen/Meckling, 1976; Ross, 1973) and the related difficulties of opportunistic behavior of the agent. The Principal-Agent relationship in VOs becomes even more complex because of weaker control mechanisms and the fact that principles of employee orientation or relationship building are difficult in geographicallydispersed organizations. Nevertheless, scholars point out the efficiency of VOs whenever a certain task is highly specific and only occurs time by time and can either not be fulfilled by the principal because of lack of know-how or can not be efficiently

22

State of the Art

handled inside an organization (Picot/Neuburger, 1998; Kreis-Engelhardt, 1999). In this context, the importance of trustful relationships and cooperative behavior of all partners is also highlighted (Heskett et al., 1997; Picot/Neuburger, 1998). Third, virtualization is motivated by communication theory: While in traditional enterprises delegation, decision making and planning processes require the presence of the management and employees, the coordination in VOs is done via ICT which enables higher flexibility and faster reaction (Reichwald et al., 2000; Picot et al., 2003). The ICT-linkage of loosely-coupled entities in virtual structures enables the partners to quickly communicate and coordinate themselves. The reasons for the emergence of VOs can be combined to two distinct metaapproaches (Bauer/Koeszegi, 2003; Krystek et al., 1997): On the one hand, the evolutionary perspective describes the necessity to adopt virtual structures in today’s business environment and emphasizes the vision of VOs as the ideal organization for the 21st century. VOs are considered to be a consequence of the development of organizations in a global, more and more technical environment. Product innovations and new technologies in the ICT sector (Venkatraman/Henderson, 1996) drive organizations to adopt virtual structures The argumentation of this approach is based on practical experience and best practice case studies. It concludes that the features of VOs should be adopted by today’s corporations and therefore stresses the VO concept as a normative approach. On the other hand, a management perspective emerged. Companies change internal structures according to a specific management decision. Such a decision can be based on i) the contingency-approach, highlighting the necessity to face environmental changes and to establish the best “fit” between external conditions and internal structure (e.g. Picot et al., 2003; Scholz, 1996; Krystek et al., 1997), ii) the resource-based view, focusing on the growing importance of specialization and the coordination of different partners’ core competencies (MüllerStewens, 1997; Peteraf, 1993; Pümpin, 1992), or iii) transaction-cost theory (for example Mertens/Faisst, 1997). This concept therefore focuses on the internal organizations’ perspective, making decisions according to the current business situation. In summary, different triggers for the emergence of VOs can be identified, mostly related to environmental and technical conditions.

Literature Analysis

23

2.1.3 Evolution of the Virtual Organization Concept When the first ideas on VOs arose, the academics themselves admitted that the realization of a VO, which combines the production of different (competitive) companies and is linked by technology would not be immediately realized by a large number of companies (Davidow/Malone 1992, p.14). Nevertheless, it can be assumed that the authors at that time would have expected an application after about 10 years. In this chapter the author shows how the concept developed over time and which theories supported the evolvement of VOs since 1990. 1990 - 1992: At the beginning of the nineties, the organizational concept of virtuality arose. The VO can be somehow seen as a western reaction to many existing Japanese practices (Kaizen, Total Quality Management (TQM), Just In Time) in order to be competitive. In this phase, Xerox36 reorganized internal structures; Ford37 and Volvo38 commonly took a stake in Hertz39 and airlines joined together for alliances. New roles for suppliers and producers arose, because “co-destiny” of producer and supplier (Davidow/Malone, 1992) became a major point of interest. Important aspects of information sharing and trust were highlighted for the first time. Supplier relationships developed into partnerships and the leading company restricted its business contacts to only a few reliable partners. Co-destiny required dependency between both actors (Davidow/Malone, 1992). Nevertheless, a VO was started from one company that selects its suppliers. The suppliers were subjected to quality controls and high time pressure, but nevertheless they become partners or even allies in the fight for customers. For the focal companies in those network structures, the advantages were numerous: Quality was enhanced, turnaround accelerated and partnerships with suppliers became stronger, more intense and more efficient. For the suppliers, the situation was different: Time pressure was high and quality controls occurred frequently. However, since internal structures were improved, the competitive advantages increased and the market position of the suppliers improved as well. Through long-term partnerships, know-how and strategies were exchanged which led to mutual understanding and trust (Sheridan, 1990).

36 37 38 39

http://www.xerox.com, accessed in October, 2006. http://www.ford.com, accessed in October, 2006. http://www.volvo.com/group, accessed in October, 2006. http://www.hertz.co.uk, accessed in October, 2006.

24

State of the Art

Two major situations can be observed in this period: One, the customer became a central point of interest in any production line and two, focal enterprises entered relationships of mutual dependence with their suppliers. Xerox40 introduced a “solesource” policy, reducing its suppliers from 5000 to 325 (Sheridan, 1990). They eliminated competitive bidding and established quality trainings for their suppliers. Dell41 followed more or less the same concept and called it “Virtual Integration – the idea of interweaving distinct business so that our partners are treated as if they’re inside our company (…)” (Dell/Fredman, 1999, p.185). The original discussion on VOs started from a practical point of view: Companies that adopted new strategies were observed. 1992 - 1995: After the concept had been recognized, a lot of fundamental research on definitions and characterizations of VOs was done. This phase was characterized by different attempts to explain the emergence of VOs. According to the trend of outsourcing and high specialization, VOs were seen as a function of reintegrating the outsourced business aspects via network structures. During these years, the modularization and reintegration of business units played a major role. The concept discussed was characterized by quick combination and dissolution of organizations, departments or experts in order to fulfill short-term market opportunities. The best-ofeverything organization remained, including even competitors in one organization. 1996 - 1998: The first ideas for the Virtual Factory were established. Upton and McAfee (1996, p.123) described a factory of “(…) dozens, if not hundreds, of factories, each focused on what it does best, all linked by an electronic network that would enable them to operate as one – flexibly and inexpensively – regardless of their location.” The Virtual Factory therefore described a manufacturing entity consisting of different manufacturing teams. Famous examples are VW Resende42 in Brazil, where companies rented one plant to work and develop cars together, or Euregio Bodensee43 in Switzerland, where various manufacturing components were manufactured in individual subsidiaries and assembled later. Role systems like the Broker were established, representing an entity that looks out for business opportunities, searches for partners and assembles the core competencies of partners (Schuh et al., 1998). Additionally, the importance of ICT as a coordination mechanism 40 41 42 43

http://www.xerox.com, accessed in October, 2006. http://www.dell.com, accessed in October, 2006. http://www.volkswagen.com, accessed in May, 2007. http://www.vfeb.ch, accessed in October, 2006.

Literature Analysis

25

rose. After outsourcing those competencies that are not relevant in a competitive sense, the company was able to concentrate on its core competencies. Nevertheless, the competencies produced by different partners had to be linked and coordinated, which was done by communication and collaboration technologies. ICT was regarded as the key enabler of VOs (e.g. Sieber, 1998; Scholz, 1996). The Internet and virtuality were coming to be focal interests to the business world. Amazon44 became a very famous example of how a bookshop was able to deal in a worldwide context. The current period was characterized by high enthusiasm because of the worldwide connection possibilities due to ICT. The integration of direct competitors was declining, since experts around the whole world could be included in a network and cost efficiency seemed to increase because of easier linkages to companies in lowlabor-cost countries. 1998 - 1999: During the next few years, attempts to classify VOs emerged. Different approaches became apparent (compare for Bultje/van Wijk 1998 who identified 27 different characteristics analyzing only six case studies) and authors tried to combine and establish typologies (e.g. Wüthrich et al., 1997; Krystek et al., 1997). At the same time, first critics (e.g. Weibler/Deeg, 1998) recognized certain disadvantages as for example the risk in sharing core competencies. In order to cope with these problems, additional models and concepts for VOs and Virtual Projects emerged. First, the Virtual Industry Cluster (VIC) was created. It can be seen as an extension of the generally known cluster concept: a homogenous, regional industry network of producers and/or suppliers that have a common business interest.45 The VIC serves as a platform for companies interested in forming short-term VOs where cooperation rules for member companies are defined.46 Second, the role of the enterprise Broker became a fixed element of the concept (e.g. Bremer et al., 2001). These attempts turned a strong focus on managerial competencies in networks and the VOs became more formalized than before. During this period, the discussion on VOs became more structural, and scholars tried to detect advantages and disadvantages of the concept in order to further develop it.

44 45 46

http://www.amazon.com, accessed in October, 2006. http://de.wikipedia.org/wiki/Cluster_%28Wirtschaft%29, accessed in October, 2006. http://www.wzl.rwth-aachen.de/de/3_forschung/ps/produktplanung/projekte/global/, accessed on 24th of October, 2004.

26

State of the Art

2000 – 2001: By way of empirical testing, experience reports, mainly based on best practice research emerged. Critics mentioned restrictions of self-organization and highlighted the need for an integrator or a coach for the network (Gerpott/Böhm, 2000). During this phase, toolkits and guidelines on how to build VOs were developed: For example Katzy and Dissel (2001) talked about how to support the different phases in a VO. Additionally, strategic management, human resource management and leadership in VOs became a major point of interest. Although Handy (1995) had already pointed out the main trust issues in 1994 by mentioning the problematic issue of trusting people one is not able to see neither to know, most of the research on trust or social aspects of VOs started not before 1999. For example Köszegi (2001) investigated trusted relationships in VOs. In this period, the discussion became more practical-oriented and less methodological. The main question addressed was: What helps companies to become VOs or to adopt virtual structures? Accordingly, attempts such as the establishment of a management structure in VOs or the stable platform behind partners that combine core competencies according to business needs seemed to have been established. An example is the small Swiss Microtech Network47 in Switzerland, founded with companies in the micro technology sector (Pouly et al., 2002). 2002 and later: Now, the systematic implementation of VOs began. Funding policies started to focus on VOs, highlighting the long-term benefits of VOs especially for SMEs. Most of the time, the concept of Schuh et al. (1998) and the model of the Virtual Factory served as basic guidelines. One of the most comprehensive European Projects - called Ecolead48 - followed the vision that ”(…) in ten years, in response to fast changing market conditions, most enterprises and specially the SMEs will be part of some sustainable collaborative networks that will act as breeding environments for the formation of dynamic virtual organizations.” Through the formation of VOs regional disadvantages or the low competitiveness of SMEs partners were tried to be overcome. Nevertheless, potential network partners assessed the model according to its cost effectiveness and have difficulties in detecting short-term advantages (Reichwald et al., 2000). During this phase, direct competitors in networks disappeared and the establishment of VOs followed the goals that business partners had formulated

47 48

http://www.swissmicrotech.ch, accessed in October, 2006. http://ecolead.vtt.fi/, accessed in October, 2006.

Literature Analysis

27

together. Power was equally distributed among partners and role concepts as well as stable platforms like VICs were seen as useful supporting structures in VOs. Due to recent research, a collaborative network was regarded as indispensable for a successful and long-term cooperation between the partners (Camarinha-Matos et al., 2004). It reflects a source network of VOs that wants to assure the preparedness of the companies to form Virtual Projects quickly whenever there is the market need for it. This source network was often called “breeding environment” and provides services like common data bases, role concepts and common rules regarding the handling of order and projects. Since 2004, new business terms like Smart Business Networks (SBN) (Vervest et al., 2005) or Collaborative Network (Camarinha-Matos/Afsarmanesh, 2004) emerged. Smart stands for “quick” and “flexible”, as the concept assumes a group of participating business-organizational entities that are linked together via a communication network. Partners build a sustainable network over time, but at the same time are able to connect and disconnect in a spontaneous way using selforganization as a coordination mechanism (Vervest et al. 2005). New expressions like Collaborative Networks (Camarinha-Matos/Afsarmanesh, 2004) or Smart Business Networks (Vervest et al., 2005) also showed the need to re-launch the expression “virtual”. Using more tangible expressions was believed to allow the successful establishment of the organizational concept as a well-known application for research as well as for the industry (Camarinha-Matos/Afsarmanesh, 2004). However, these terms described the same concepts of cooperation. At the same time, collaboration tools underwent advanced improvements and started to reach a sophisticated technical level. At the University of Munich, a Virtual Enterprise Lab49 was created in order to combine different communication media and test their ability to communicate with each other. The aim was to establish collaboration tools that integrate mobile and online communication and were “intelligent” enough to switch from one medium to another, in case the receiver is not available (Katzy et al., 2005)50. In the whole European Union, research activities related to the VO area were 49

50

In various literature sources the terms Virtual Enterprise and Virtual Organization are used as synonyms (cf. Bauer/Koeszegi, 2003). In this part of work, the term Virtual Enterprise will be substituted by Virtual Organizations when possible. Further information to be found at http://portal.cetim.org/p_1_news.php?art=77&old=1, accessed in October, 2006 or http://homes.wirelessleiden.nl/huub/presentaties/cetim/img6.html, accessed on 3rd of April, 2006.

28

State of the Art

centralized via the AMI@Work Community.51 Free software tools like Skype52 or Google Talk53 Communicator could be seen as competitors to network software like Arel Communications,54 all of them easily coordinating partners from different places all over the world. Those technical tools reflected solutions for the coordination problem in VOs. However, their application was still limited at this point of time. In many cases collaboration software in practice is limited to standard databases and/or email and intranet as the central communication media (Haas et al., 2007) The attempts from 2002 until 2006 show that there is still the need for networking, for cooperative structures and that the advantages of pooling resources and know-how have survived. On the other hand the new expressions that have come into existence seem to reveal the fact that academic research turns away from the term and concept of VOs for the purposes of establishing new and/or additional concepts.

Core competence focus One face to the customer Internationality Independency Low formalization Application of ICT Temporariness Additional aspects

19901992

19921995

19961998

19981999

20002001

20022006

High

High

High

High

High

High

High

High

High

High

Medium

Medium

Medium Medium Medium Medium High

High High High High High

Medium Medium Low High Medium

Medium

Low

Low Low Medium

Low Medium Low

Low Medium Low

Focal enterprises

High specialization

ICT as enabler

Broker, VIC

Breeding environment

Stable networks

Co-destiny

Modularity/ Integration

Virtual factory

Webcompanies

Trust, social aspects

Funding policies

Table 1: Development of VO-characteristics

The concept of VOs developed over time and adopted different shapes. Table 1 represents the predominant focus oft the VO characteristics related to the respective time slots. The overview shows the occurrence of the characteristics, but also describes the level of its values. 51 52 53 54

http://www.ami-communities.eu/wiki/AMI%40Work_on-line_Communities, accessed in October, 2006. http://www.skype.com/helloagain.html, accessed in October, 2006. http://www.google.com/talk, accessed in October, 2006. http://www.arelcom.com, accessed in October, 2006.

Empirical Investigation in Virtual Organization Practice

29

The following conclusions can be derived from the comparison: i) The greatest attention to theoretical characteristics and to the definition was paid during 1996-98. During this period, Internet and ICT were seen as the main drivers for VOs and all other characteristics were considered in the relevant literature. ii) After the general detection of the VO-model, the concept underwent a research period with controversial opinions and different attempts of typologies. Later, the academic discussion declined and VO-literature changed into management guidelines or implementation tools for organizations that want to adopt virtual structures. In the European area, this can be related to the fact that the European Commission wants to strengthen the competitiveness of the European industry55 by providing new concepts for European enterprises. iii) Concerning the characteristics, it has to be noted that the very first approaches did not focus on an international application, nor on independency of partners. On the contrary, the integration of partners was a step towards supplier dependence. Internationality became more important during the same phase when ICT was highly recommended, but over time, regional development concept took a relevant role, instead. In parallel, formalization was reduced from intensive contractual activities between Original Equipment Manufacturers (OEM) and suppliers, but obviously it was recognized that structure and regulations are necessary for any form of cooperation. Over time, managerial components and formalization in VOs became more important. iv) Today, long-term cooperation and high formalization play a major role in the concept; and ICT is applied on a medium level. The focus on core competences, and therefore the need to specialize remained the same over the last 15 years.

2.2 Empirical Investigation in Virtual Organization Practice Analyzing the results of the theoretical aspects, the concept of VO discusses different aspects at different points of time. Although characterized by factors like ICT usage,

55

For more details cf. http://www.cordis.lu/fp6/glance-print.htm, accessed in October, 2006.

30

State of the Art

low formalization or a focus on core competencies, the specification of these items has varied over the years. In comparison to the existing organizational models, virtual concepts are able to disband the boundaries of organizations in various aspects (Picot et al. 2003): First, VOs are not restricted to geographical or national boundaries, but are extended globally. Second, legal restrictions and owner-ship rights are mitigated to informal, trustful agreements. Third, VOs are dynamic and can take place anytime. Forth, there are no structured and pre-defined processes and the implementation of the concept is purely problem-oriented. The boundless and unlimited organization reflects a vision of an organizational concept that could help to deal with typical problems of today’s organizations (Picot et al. 2003), but – according to literature analysis – the concept was rebuilt several times. What we still do not know at this point is: What do VOs really look like? Is there a typical blueprint or are there structural patterns that all VOs adopt in the same way? In this chapter the most important aspects of an empirical study carried out at the beginning of this research are reported. The empirical investigation in current and previous examples of VOs was seen as a necessary starting point at the beginning of the research activities in order to complete the theoretical picture with actual applications of today’s enterprises. In the literature, we find a great many examples of successful VOs. Mertens and Faisst (1997) discussed the world group of Puma56, which consists of a small head office in Germany, but has completely outsourced its production and logistics to partners around the world. Additionally the authors mentioned Seitz, an IT-specialist that bases its relationships on long-term partners and freelancers. Prolion57, a producer of biomechatronical machines was regarded as a VO by Jeagers et al. (1998) and by Bultje and van Wijk (1998), because of its participation in development projects for new machines. Based on the concept of Schuh et al. (1998) the Virtuelle Fabrik Euregio Bodensee58 became generally known as a best practice example of a manufacturing network where enterprises of the same business sector pool their resources together. VIRTEC, investigated by Bremer et al. (2001), was seen as one of the South-American pioneers in the sector of VOs and Wüthrich and al. (1997) 56 57 58

http://www.puma.com, accessed in October, 2006. http://www.prolion.nl, accessed in August, 2004. http://www.vfeb.ch/, accessed in October, 2006.

Empirical Investigation in Virtual Organization Practice

31

analyzed among others VW Resende, where a huge plant unites the competencies of eight suppliers from different countries in order to establish trucks and buses. The differences of those best practice examples are sometimes quite extensive: While Dell59 is a huge supplier network with partner companies distributed all over the world, the Virtual Factory Nordwestschweiz-Mittelland60 is a regional network of SMEs founded to explore joint innovation and production. Nevertheless, both of them are mentioned as successful VOs. Several authors criticized that every researcher used his or her own way to define VOs and or name their own best practice examples and therefore established VO-typologies (Bultje/van Wijk, 1998; Wüthrich et. al, 1997). Typologies generally aim to classify different examples: Objects are combined to categories according to their different characteristics. The classification into groups shall help to accomplish the diffuse picture of VOs by better understanding why different forms of VOs exist, but also by systematically analyzing the differences. Furthermore, typologies follow the goal to detect those structural patterns that lead to success by comparing the application of different forms and successful development on the market. According to Wüthrich et al. (1997), VOs can be clustered according to their duration (short-term vs. long-term cooperation), but also according to the purpose of the collaboration (specific market need, project, interest platform). Alternatively, MüllerStewens (1997) differentiated VOs with regard to duration, the range of value creation, and the degree of centralization and integration. Bultje and van Wijk (1998) identified four different types, namely internal, stable and dynamic VOs or Web-companies. From an empirical point of view, Franke (2001) differentiated Virtual Teams from Virtual Projects and temporary from permanent VOs. Additionally Specht and Kahmann (2000) established a four-field matrix with one dimension of central vs. decentralized structures and second dimension of loosely coupled vs. fixed network partners. Sieber (1998) developed a model based on the frequency of substitution of the partners and defined Project Organizations, vertical and horizontal networks. Contrary to other authors, Haas et al. (2007) used a multi-dimensional model, called the Virtual Profile, in order to classify different cases of VOs mentioned and discussed in research literature. The need for a multi-dimensional model was on the one hand 59 60

http://www.dell.com, accessed in October, 2006. http://www.virtuellefabrik.ch, accessed in October, 2006.

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State of the Art

derived by the way how VOs are defined: The typical characteristics generally represent the most important factors how to organize such a network. Second, the Virtual Profile is based on the assumptions of the gradual virtualization (Bauer/Koeszegi, 2003; Scholz, 1996), which assume that an organization represents a specific degree of virtualization on a continuum between non-virtual and virtual. The Virtual Profile contradicts the idea of a VO as a normative concept for the 21st century. Haas et al. (2007) believe that companies take strategic decision and adopt those aspects of virtuality that they consider as useful for their current business. In practice, no perfect VO can be detected (Bauer/Koeszegi, 2003), but a lot of organizations for example adopt a strong application of ICT to facilitate coordination between network partners. The characteristics in the Virtual Profile therefore describe the extent of virtuality an organization has adopted. Based on the profile, Haas et al. (2007) carried out an in-depth study of 30 different best practice examples mentioned in the VO-literature (Haas et al., 2007). Two research questions were formulated: 1) How are today’s Virtual Organizations structured? Are there dominant structural patterns?, and 2) If yes, do these structural patterns determine or influence the success of Virtual Organizations? The ten items of the profile61 were selected to compare the VO examples according to i) the Set-up environment and the general cooperation preparedness of the industry, ii) the Purpose of the VO, iii) the Organizational framework and iv) the Time horizon. The second part of the profile consisted of four items to quantify the success of VOs62. This was the most critical part of the empirical study. Research on success in VOs is mainly based on case studies on best practice examples (e.g. Wüthrich et al., 1997; Sieber/Griese, 1998), which means that scholars did not adopt methodologies to measure or quantify success in VOs. Success in VOs is, however, not easily evaluated. Since VOs do not jointly organize their finance and administrative departments, traditional evaluation of financial figures is not possible. Evaluating the companies participating in a VO on behalf of their own finance systems is equally difficult because the revenues gained directly with network business and revenues resulting from relationships established through the network or even successive business are difficult to distinguish. 61

62

The 10 typical characteristics of a VO included in the profile were: Evolution, General Industry Ties, Ties between Partners, Aim / Vision, Focus on Core Competences, Standardization of Governance Structure, Dispersion of Power, Use of ICT, and Duration. Survival, Value Creation, Improved Flexibility and Improved Collaboration. Cf. Haas et al., 2006 for a detailed explanation of measurement.

Empirical Investigation in Virtual Organization Practice

33

Other measures of success could be shorter turnaround times or the ability to compete against consolidated companies or the ability to cooperate quickly. Success in the context of VOs does not only refer to revenue but also includes the enhancement of know-how, improved organizational learning, and increased competitiveness in the long run. Weibler and Deeg (1998) state that the success of VOs could be more related to restructuring or technological changes that took place at the same time than to the participation in a VO. However, these aspects are even more difficult to analyze. In the study of Haas et al. (2007) two independent expert coders rated the selected cases according to the established scheme. 63 Information about the 30 VO examples was gained from previous literature as well as from personal or telephone talks with network members and managers. Additionally, websites and academic as well as newspaper articles were included in the information collection process. Coding results were compared and discussed to establish consistency between the two analysts. Following Grounded Theory (Glaser/Strauss, 1967; Douglas, 2003) cases were clustered and grouped cases in an iterative process according to different external (e.g. country of origin, industry) and internal (e.g. coordination processes, distribution of power) dimensions to compare them to each other. This was done to derive conclusions about similarity or variety of cases. Quantitative analyses were carried out including frequency analysis;64 and statistical significance was further improved via Exploratory Factor Analysis and Cluster Analysis. Success indicators were related to items and dimensions and to the different clusters detected.

Ties

For.

Drivers

Virtual Profiles Evolution Scope Dispersion of Power (reversed) Standardization of GS (reversed) Aim / Vision (reversed) General Industry Ties Ties between Partners Focus on Core Competencies Use of ICT Duration

Emerged VOs

Initiated VOs

(emerged - initiated) (international - local) (focal - equal) (high - low) (not defined - well defined) (strong – weak) (strong - weak) (high - low) (extensive - limited) (temporary - long-term)

Table 2: Virtual Profiles (Haas et al., 2007, p.17) 63

64

30 cases were selected out of 65 according to the focus of the VERITAS project. The following criteria were decisive for being selected for the sample: a) concentration on VOs in the manufacturing sector, b) integration of examples of different countries, c) focus on SME-networks. A list of the thirty cases can be found in the appendix. Descriptive results are not explained in detail due to space restriction. An extensive analysis of the dimensions and items can be found in Haas et al. (2006).

34

State of the Art

Although the VOs looked very different in the beginning, the investigation revealed two different types of VOs: emerged vs. initiated VOs, clustered according to the drivers that led to network creation (see table 2). The discriminating dimensions of the two clusters in the study were i) the manner in which the VO was created, ii) the geographical scope of the network, and iii) the dispersion of power within the network. These three items also loaded on one factor in the factor analysis that was labeled “Drivers” since the items determine whether a network is strategically driven by a business opportunity or externally initiated by a public institution65. Beyond this, the study showed that all analyzed cases exhibit very similar patterns in some characteristics: A generally high focus on core competences was detected, ICT was averagely used and all investigated VOs were long-term orientated. The group of emerged VOs was characterized by a formalized governance structure and an unbalanced power distribution. They tended to appear in industries where a high degree of cooperation is common, but were controlled by one focal company that also dominates the strategy for the cooperation partners. This type of network was mainly applied in the 1990s with famous examples like Airbus66 or Dell67. A representative example in the investigation is Puma68 (see short description in figure 3). Puma (www.puma.com) is a German Public Limited Company that disposes of a virtual structure with subsidiaries in different countries. The organization is structured into competence centers in 25 countries. Different contract concepts like Joint Ventures, Licences, or individual supplier contracts are used for coordination between partners. The need for such a loosely – coupled organization stem from the high competition in the sports articles industry. The original vision was to be the first real virtual sport enterprise in the world A small headquarter (180 employees) concentrates its activities on marketing, design and strategic product development. All other services are outsourced to different partners and even countries. Partner companies are based on long-term oriented partnerships with mutual agreements on financial and contractual issues. Puma, as the central player prescribes strategy, vision and goals of collaborations. Common rules, principles but also believes are adopted by all partners.Coordination is done via production planning systems, via email and Intranet. Due to the virtual organization concept, Puma realized the highest benefits in the year 1993, which was at the same time the first positive result since they went public. Today, 3100 in 33 countries are working for Puma and the company has 80 partners in different regions.

Figure 3: Case Description Puma

65 66 67 68

The factor explained 35.36% of the variance. Cronbach Alpha was 0.831. For detailed information cf. Haas et al. (2006). http://www.airbus.com/en, accessed in October, 2006. http://www.dell.com, accessed in October, 2006. http://www.puma.com, accessed in October, 2006.

Empirical Investigation in Virtual Organization Practice

35

The second group of VOs was initiated or at least supported by public institutions. Most of them were founded after 2000 in various kinds of industries. Equalized power distribution and joint formulated goals differentiate the initiated from the emerged group. Hence, the model of the Virtuelle Fabrik Nordwestschweiz-Mittelland69 is representing this group of VOs (see short description in figure 4).

The Virtual Factory in Switzerland (www.virtuelle-fabrik.ch) was founded in 1997 as a result of a research project, and has grown from 7 to 21 (intermediate 40) partner companies that cover the whole value chain (design to commissioning) for complex parts, components and systems in the area of mechanical engineering, electronics and plastics. Companies participating in the network do generally not manufacture final products but produce manufacturing solutions. The Virtuelle Fabrik Nordwestschweiz-Mittelland consists of a stable network platform, where companies form smaller, temporary production networks in order to realize joint orders. The network jointly presents its solutions under one brand name at trade fairs. Strategies and goals are defined and reviewed every year. Besides a financial contribution, every partner in the network has to bring in time and know-how. Every company acts as a broker, meaning that every single company is responsible for creating business for the network and to actively acquire orders through its sales department. This is coordinated via a customized ITsystem. Members of the network have reported a significant increase of business with network partners (internal) and an increase in the size of projects carried out. An example was a light windmill that was designed, engineered and manufactured by 5 members of the network a small plant for electronic component assembly for about EUR 125.000 or garbage bins for the city of Zurich for a serial order of about EUR 750.000. Cooperation in the network enables the SMEs to focus on core competencies while at the same time to offer complete solutions, thereby being specialists and generalists at the same time. Companies also benefit from the learning arena provided by the network to improve cooperation and communication abilities and to initiate joint training initiatives.

Figure 4: Case Description Virtual Factory Nordwestschweiz-Mittelland70

While the first group is rather driven by strategic decision processes and the concrete business idea of one company, the latter are externally initiated. The two different forms of VOs are also related to time aspects: While in the 1990s the establishment of VOs was based on internal decisions of predominately large companies, today increasingly public programs intend to strengthen local and regional SMEs by funding various forms of collaborating initiatives. This new, initiated type of VOs is created in various kinds of industries, irrespective of the degree of prior cooperation. These VOs are different from the previous group as they exhibit equal power distribution and all member companies formulate a joint vision. Another difference is that the initiated VO lacks concrete business cases at the time it is built.

69 70

http://www.virtuellefabrik.ch, accessed in October, 2006. Case description has originally been written by Matthias Nöster, SFC.

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State of the Art

Regarding the success measurement, the quantitative analysis did not reveal significant correlations between success and network structure, neither were their correlations between contextual factors like size or sector and the performance.71 On the one hand, this might be due to the fact that the measurement model used was not appropriate and that the survival bias72 influenced the results. On the other hand, there may be no relationship between the structure of a VO and its success at all, highlighting the fact that any organization is to adopt that structure that is needed in the specific organizational context (cf. Kieser, 2002). This could be an explanation why mainly “best practices” are used in literature, reporting very diverse successful VOs from different industries, of different size, and of diverse structures. Alternatively, quantitative measures might not have been able to encompass those success factors that the individual companies regarded as highly relevant for their persistence. After the analysis described in Haas et al. (2007), the authors carried out personal interviews with managers and/or participants of seven selected networks. In total, eleven interviews were carried out, recorded on tape and transcribed. All of them focused on the second form of VOs, the externally initiated networks and aimed at detecting critical success factors in connection with how the network was structured, how joint projects were carried out and how member companies coordinated each other. The interview was half-structured and suggested 20 questions73 on i) structure and composition of the network, ii) the role of the Network Manager, iii) the detailed cooperation in business projects, and iv) the commercial benefits of the VO. Based on this analysis, the following five factors could be identified as being crucial for network success by the managers or involved participants: 1) Business Opportunities: All Network Managers contended that in the first place, an appealing business case is the most important prerequisite for network success. The need for a concrete business case is extremely important for initiated networks that are not built on a concrete idea of future business. Only after a successful Initiation phase, where the partners jointly formulate a vision and business areas, can the VOs start to realize joint projects. Question 18 in the questionnaire refers to the fact that every partner judges the benefit of a network on behalf of the value increase of his company. Only three out of eleven interview partners confirmed an 71 72 73

This might also be related to the small sample size and the dispersed industry sample. Due to the fact that only those Virtual Organizations that have been successful survive in the market, no bad examples or failures can be found. For the questionnaire cf. appendix.

Empirical Investigation in Virtual Organization Practice

37

increase in turnover and/or benefit related to network activities, but ten out of eleven stated that success is more related to sharing capacities or keeping the customers instead of loosing them. It was mentioned by most of the Network Managers that companies have high expectancies in a network in the beginning, but at the same time reject to put more effort in network activities, which leads to an unnecessary disappointment. This is why all interview partners confirmed the importance of the first phase of network establishment, when partners agree upon common needs and objectives. As stated before, most of the initiated networks are funded or supported by public entities. However, this funding declines or expires at some point of time so that every VO should be able to pay for it. The objectives of the interviewed networks can be either seen in the improvement of a sector or region in the international market and related market access or the possibility to compete against bigger companies by offering full-supply-chain services. The interviewed network participants argued that goals are always revenue-driven. Nevertheless, only one of the interviewed cases established yearly business plans and strategic annual goals with all partners. 2) Trust: Trust has been recognized as a major factor for success in any type of cooperation (e.g. Byrne et al., 1993; Jägers et al., 1998; Scholz, 1996). The study of Haas et al. (2007) confirmed this: previous joint business experience led to a longer duration of cooperation. In every interviewed case except one network, regular meetings with all network partners took place. As far as trust building is concerned, Network Managers suggested to start with small projects so that companies experienced joint success stories. Three interview partners mentioned that mutual company visits take place and in four cases, trade fairs and conferences have been organized jointly. It was commonly agreed that trust takes time and that it depends on the personality and individual trust-levels of the involved people. The importance of trust was also confirmed by a study of Sherer (2003), who found out that honesty and reliability of network participants were more important than technical capabilities. Nevertheless, companies do not only rely on personal trust but also focus on Service Level Agreements or Quality Assurance to institutionalize trust. 3) Commitment to Cooperation: Active involvements of all participants, the sufficient allocation of resources (in time and personnel) as well as the alignment of the network strategy with the strategic interests of the participating enterprises are basic requirements for networks. This point goes along with the two former: On the

38

State of the Art

one hand, commitment of CEO and the management of the different network partners is essential (see also Sherer, 2003), and on the other hand the linkage between every company’s strategy and the strategy of the network is necessary. 4) Exchange of Information: Open communication is a basic factor for trustful relationships. Transparency of core competencies, quality issues and production procedures belong to that information that is easily shared. Additionally, the Network Managers talked about the need to share internal prices and problematic issues as well. Interestingly, ICT tools were only mentioned in one case. This correlates with the analysis of Haas et al. (2007) that revealed that only half of the networks extensively used ICT for their coordination activities. One of the seven interviewed cases used collaboration software for network activities, two explicitly mentioned a joint database or intranet, but the rest relied on rather traditional media like telephone, fax and email. 5) Network Management: A common understanding of how to handle business as well as conflict situations is seen as crucial for success. Although the original VO concept refrained from hierarchy and formalization (Byrne et al., 1993; Mertens/Faisst, 1995; Wüthrich et al., 1997), initiated networks dispose of established rules and role concepts. General cooperation agreements in a written form, signed by every participant have been reported on by five out of seven cases, the rest possessed at least a declaration of intent. In case of joint projects and businesses, informal, trustful cooperation on a face-to-face basis were very common; only two VOs reported a bidding system for business cases they want to realize. It can be said that the better general cooperation agreements are formulated and agreed upon, the easier and faster the establishment and accomplishment of joint business projects. This confirms the theory of Camarinha-Matos et al. (2004) or Schuh et al. (1998) who insist on the importance of a stable platform as a prerequisite for VOs or Projects. All of the seven interviewed networks installed a Network Manager, who was responsible for the coordination of the partners. The manager organized, for instance, meetings on a regular basis, supports partners, distributes information, etc. Additionally, six of the seven networks installed the role of a network Broker, who seeks actively for business cases, markets the network, and acts as a boundary person. The scope of activities and invested time, however, was very diverse. In some networks of the sample, the members themselves or the Network Manager act as Brokers and only one network additionally employed a full-time network Broker. Six interviewed cases agreed

Empirical Investigation in Virtual Organization Practice

39

that for every project one partner should take over the role of the one responsible for a project and decides upon his coordination partners, the way how they are going to distribute resources, capacities and money, and representing the network to the customer. The empirical investigation of VOs reveals two important aspects: First, the way how a VO arises, the power distribution in the network, as well as the degree of internationality seem to influence the internal structure and the degree of formalization: in emerged VOs rules and roles are more common than in a initiated one, whereas in a initiated VO, the aims are more clearly defined. Haas et al. (2007) attribute this to the fact that in an initiated VO cooperation can only start after the joint discussion and development of the VOs strategy. The emerged form of VOs is more attributed to the traditional concept of VOs, while the latest VOs highly adopted the characteristics of the initiated group. This can be explained by increased research and funding policies. Second, according to the network participant’s opinion, the successfulness of a VO depends on a good mix of innovative business idea, an established set of management rules and the relationships between cooperation partners, expressed in the amount of trust, open information exchange and commitment.

3 Framework Development The intensive investigation in literature and practice shows that the concept and the application of VOs has been modified overtime. Although the reason for establishing cooperation is still the intention to form a best-of-everything network and to create business, the composition is different. Today, VOs are based on long-term relationships between mostly SME partners (see examples of analysis: Swiss Microtech Network74, IMPRO75, KFSNet76). In this chapter the specific characteristics of these networks are highlighted and a model of the ideal network formation process is developed. Based on this concept, a framework to analyze the formation process of today’s VOs is developed. After comparing (Virtual) Life Cycle models with the implications on the set-up process of the new cooperative form of networks, it becomes clear that SME Networks focus more on social aspects and that especially the first phase of network formation is of high relevance for its maintenance. The final framework for setting up networks is therefore based on group processes and extends the well-known group formation model of Tuckman (1965) with a first phase, called Initiation.

3.1 Cooperative Network Concept and Implications The temporal composition of companies, each bringing in special competences, to jointly carry out a business opportunity is seen as a successful concept for SMEs to strengthen competitiveness and growth (Katzy, 1998). Although the VO-model was derived from practical cases studies (Davidow/Malone, 1992), the realization of a virtual concept appears to be quite challenging. On the one hand, the risk associated with sharing know-how with potential competitors is considered to be problematic: Competitive advantages of SMEs are often based on tacit production procedures (Sherer, 2003) and SME-owners are therefore not willing to share know-how with partners. On the other hand, the rejection of hierarchical formalization in the VO concept may lead to difficulties. The immediate coordination of a number of actors requires some predefined rules and agreements before the advantage of flexibility can be claimed. Recent research (e.g. Loeh et al., 2003) shows that pre-existing 74 75 76

http://www.swissmicrotech.ch, accessed in October, 2006. http://www.impro-praezision.de/, accessed in October, 2006. http://www.kfsnet.de, accessed in October, 2006.

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relationships – which could be private but also related to former joint business – are a precondition for quickly establishing interorganizational teams. Formalized cooperation becomes more and more important and most current networks (cf. Virtuelle Fabrik Nordwestschweiz-Mittelland77, IMPRO78, Aufmöbler79) are characterized by established decision and cooperation rights and dispose of rules and roles that adjust cooperation between partners. In practice the advantages of highsophisticated ICT seems not as easily applicable as discussed in the literature (Hoffner et al., 2004; Guevara-Masis et al., 2004; Mejía et al., 2004). Especially for SMEs, the financial burden of ICT-investment is very high. As derived from the study and the literature analysis in chapter 2, the new cooperation model is based on long-term and stable, mostly regional partnerships between SMEs that aim to mutually support their survival and competitive position in the market. VOs today look like networks of equal partners with a jointly formulated vision and strategy as a starting point for cooperation. The economic situation for those SMEs is often qualified as risky, which leads to support via national or international institutions. This new form of organization can be defined as a Cooperative Network (Huber et al., 2005). For a definition, see figure 5:

Cooperative Networks are stable and long-term platforms of cooperation. Equalized partners combine their businesses according to the jointly established strategy of the network. Cooperation is supported by agreed rules and roles and by trustful relationship between partners. Figure 5: Definition of Cooperative Networks

The reasons why those networks came into existence can still be seen in the need to survive in a turbulent environment, to react faster and at the same time to specialize in a few products in order to become an expert. In a Cooperative Network,80 collaborative production is one of the major aspects, but equally important for stable partnerships is trust between participants and the preparedness to mutually accept risks. Compared to the original VO, these risks are more related to social and relational aspects than before. While members of a classical VO agreed to carry out certain business together and dissolve afterwards, Cooperative Networks aim at establishing stable relationships 77 78 79 80

http://www.virtuellefabrik.ch, accessed in October, 2006. http://www.impro-praezision.de/, accessed in October, 2006. http://www.aufmoebler.at/, accessed in November,, 2006 Further examples of Cooperative Networks can be found in Huber et al., 2005.

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between partners. Based on the development of the concept and the appropriate application for SMEs, the model of a Cooperative Network serves as a guideline throughout the VERITAS project and this study. In the following, the most important differences of the two concepts (economically and socially) are highlighted. Economic factors: The concept of Cooperative Networks has been established especially for the group of SMEs with a maximum of 250 employees and an annual turnover that does not exceed the amount of 50 million Euros.81 The concept of VOs was started by large enterprises like Xerox82 or Dell83 that wanted to find a solution how to deal with ever-changing customer requirements (Davidow/Malone, 1992). For a small enterprise, the need to find partners is not only based on this immediate environment of customers, but also on the current economic situation such as the increased global competition and the adoption of new production technologies by competitors. The reasons for cooperation in the case of SMEs therefore derive from the need to survive in a competitive market.84 Generally speaking, SMEs are in a difficult situation because of low financial power and suffer much more from insolvencies than larger enterprises that are able to balance financial problems along different departments.85 The desire to form a network with other companies is therefore a strategic decision how to stay in the market and not being replaced by national or international competitors. To overcome the challenges for SMEs, various funding policies on an international and national level support their business and enhance cooperation between smaller corporations. Based on the Lisbon Plan86, the reasons for funding cooperation between SMEs can be seen in a general attempt to strengthen the European countries in their competitiveness, which is both an issue in the 6th framework program as well as in the 7th framework program of the European Commission.87 These programs do not only aim to strengthen competencies of European enterprises but also want to enhance

81 82 83 84 85 86 87

http://europa.eu.int/eur-lex/pri/en/oj/dat/2003/l_124/l_12420030520en00360041.pdf, accessed in October, 2006. http://www.xerox.com, accessed in October, 2006. http://www.dell.com, accessed in October, 2006. “Survival guides” for SMEs are to be found for example at http://www.gdspublishing.com/ic_pdf/bme/gds7.pdf, accessed in October, 2006. Compare for the Report on Insolvencies in Europe (2002/03) by the Creditreform Economic Research Unit, http://www.gdspublishing.com/ic_pdf/bme/gds7.pdf, accessed in October, 2006. For more details about the Lisbon Plan cf. http://www.europarl.eu.int/summits/lis1_en.htm, accessed in October, 2006. More information at http://www.cordis.lu/en/sitemap.htm, accessed in October, 2006.

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collaboration and cooperation between companies and even countries.88 SMEs often lack research facilities and resources on their own, therefore approximately 15% of research funding through the European Commission is especially allocated to the smaller enterprises in the European economy.89 EC commissioner Guenther Verheugen even suggests generally improving financing policies for the underprivileged group of small enterprises.90 Additionally, national funding policies are often set up to strengthen low-income regions and promote mutual support of companies and institutions. This especially holds for cluster policies strengthening innovation activities through cooperation,91 but also for the INTERREG programs that aimed at transnational and cross-border regional development92 or EUREKA, a European program for market-oriented R&D activities.93 While in classic VOs, dispersed structures and internationality play a major role; regional concepts have gained in importance recently. Wiendahl et al. (2005) describe several regional examples, awarded as best cooperation examples in Germany, and Huber et al. (2005) highlight various cooperations of the D-A-CH94 region, always exhibiting a regional focus. Regional production networks are seen as a major impetus for regional development at the research institute Non-hierarchical regional production Networks at the University of Chemnitz.95 Going back to local competitive advantages and Porter (1998), a favorable competitive position is not only dependent on the industry but also on local conditions. Proximity of cooperation partners in this context is seen as an advantage that facilitates flexible coordination among partners. Scholars on the one hand argue that proximity might not be necessary because of highsophisticated ICT applications (Browne et al., 1995), but on the other hand, ICT usage

88 89 90

91 92 93 94

95

Further information can be found at http://www.cordis.lu/en/home.html, accessed in October, 2006. http://sme.cordis.lu/research/fp6_support.cfm, accessed in October, 2006. Compare for article on http://icadc.cordis.lu/fepcgi/srchidadb?CALLER=NEWS_INNO_DE&SESSION=&ACTION=D&RCN=24226, accessed in October, 2006. http://www.clusterland.at/index_eng.php, accessed in October, 2006. Further information at http://ec.europa.eu/regional_policy/interreg3/index_en.htm or http://www.interreg.at/interreg.html, both accessed in October, 2006. http://www.eureka.be/contacts/home.do, accessed in October, 2006. D-A-CH describes the German-speaking region of Europe, based on the capital letters D for “Deutschland” (German word for Germany), A for “Austria” (Latin word for Austria), and CH for “Confoederatio Helvetica” (Latin word for Switzerland). http://www.tu-chemnitz.de/sfb457/, accessed in October, 2006.

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in the sector of SMEs is still very low.96 Proximity might therefore be necessary in the case of cooperating SMEs in order to facilitate coordination and communication activities among partners. SMEs have to carry out a balancing act in their daily work – on the one hand restricted resources in time, finance and personnel work force them to concentrate on accurate, daily business. On the other hand, the changing markets require long-term plans and strategic considerations of how to survive in the future. The balance between tactical and strategic approaches forces the CEOs of small companies to concentrate on daily issues and to plan future activities at the same time.97 Cooperation helps surviving in the market by carrying out projects that one small enterprise would not be able to carry out alone, but on the other hand; internal structures are compensated in order to avoid the risk of complete structural change. However, in any business relationship, a certain degree of dependence is unavoidable (Sydow, 2003). For SMEs, this means that a severe mistake in cooperation activities could jeopardize their existence. The required stability of the Cooperative Network – in terms of stable partnerships but also in terms of time – therefore prevents from losing core competencies or know-how, and the aligned risk to loose autonomy (Sydow, 2003). According to Grandori and Soda (1995) every network requires linkage of communication and decision-making. Sydow and Windeler (1994) suggest i) the selection of network partners, ii) the allocation of tasks and resources, iii) the regulation of how to work together and iv) the evaluation of relationships in the network as the main central management functions in a network. The argument of Grandori and Soda (1995) who relate the intensity of coordination mechanism to the intensity of cooperation can be amplified to the specific cooperation of SMEs: Any cooperation activity affects a bigger part of the small business and therefore requires a maximum of attention. The higher associated risk causes a higher need for regulation between partners. This goes back to classical hierarchical coordination principles: While in classic organizations, internal contracts or the dependence of employee from the employer ensure accurate comportment of organizational members, the participants of a Cooperative Network have to ensure that no partner acts opportunistically (Siebert, 2003). 96

97

Cf. Pennoni et al. (2005): The 2005 European e-Business Readiness Index, EUROPEAN COMMISSION, DG Joint Research Centre, http://ec.europa.eu/enterprise/ict/policy/ebi/ebi-200511-07.pdf,, in October, 2006. Compare for “The Small Business Survival Guide”, http://www.gdspublishing.com/ic_pdf/bme/gds7.pdf, accessed in October, 2006.

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A certain code of conduct in SME Networks is promoted by Freitag and Winkler (2000). Wiendahl et al. (2005) investigated best practice examples of German cooperation and found ideal collaborations to be organized as heterarchic, stable organizations that base their decisions on a cooperation agreement. Within predefined rules and an organizational framework, flexibility in the system is ensured through better coordination (Picot et al., 1998): Only with a concrete agreement on the allocation of orders and resources, quick decisions are possible and disadvantages because of specialization can be coped with by elaborate know-how bundling. Based on these arguments it becomes clear that Cooperative Networks are economically characterized by i) a strategic decision of the several institutions in order to ensure survival in a global market, ii) the support of national or international institutions and the funding policies behind, which lead to iii) long-term and sustainable programs, which is iv) based on a stable, formalized structure (see table 3). Social factors: In Cooperative Networks the main actors are the owners of the SMEs. Mintzberg (1999) highlights that the owner’s personality is to be differentiated from the company itself and Wincent (2006) showed that among important factors of network effectiveness, CEO personality is essential for success in SME Networks. The general idea of a strong influence of personal traits of CEOs on a firm’s behavior and practices goes back to House et al., (1996), Shane (2003) or Gartner (1985) and is to be influenced with i) the characteristics of the person and ii) the situation or context in which the person operates (Gartner, 1989). In the context of SMEs, this might often correlate, especially if the CEO is the owner and founder of a company. In this case, business and self-actualization go along with each other. Related to the CEO’s attributes, Wincent and Westerberg (2005) found CEO selfefficacy and his or her tolerance for ambiguity most crucial for SME Networks. Katzy and Horodyskiy (2002) highlight entrepreneurship instead of project management issues as the criterion most relevant for the industry. This confirms the findings of the author’s pre-study where commitment was mentioned as one of the most important factors in cooperation (see section 2.2) On the other hand, the involvement of owners of small businesses reveals difficult situations: CEOs are used to take their own, personal decisions without the need to cooperate with anyone or to take part in a compromise (Mintzberg, 1999). Power is

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concentrated in the person of the CEO who intuitively decides what to do. Such a behavior is hardly appreciated in Cooperative Networks. Owners of SMEs are used to quick decisions and uncomplicated (because self-driven) management structures and might be afraid of difficult hierarchical concepts and delegation. A heterarchical concept that equally involves all partners in decision taking is very uncommon for SME-owners. This means that CEO personality is not only crucial for network success but also complicates coordination. In this context, the relevance of trust as an additional coordination mechanism becomes apparent. In theory as well as in practice, trustful relationships between actors are considered as highly relevant for the success of cooperation (Klaus, 2002; Köszegi, 2001; Wiendahl et al., 2005). Working together often leads to high interdependence of different actors – organizations and people – that raises the need for confident relationships to overcome risk (Mayer et al., 1995). The lack of trust between partners is often cited as the reason for the high rate of failure of cooperation (Das/Teng, 1998). Although trust had been recognized as important aspect of coordination in the classic VO concept (Handy, 1995), the solutions to overcome related problems were more based on institutionalized coordination mechanism like contracts and/or ICT systems. People in a Cooperative Network therefore have to be regarded as more “socialized” actors than in the classic VO concept, that bases its argumentation on ideal actors. A further aspect of Cooperative Networks based on social actors in small enterprises might be the lack of cooperation know-how. Schwinger and Wäscher (2006) found a significant correlation between the size of an enterprise and its preparedness to implement new systems98. In SME Networks these implementation problems are not restricted to high set up costs of new IT-systems in terms of money. Instead, the lack of flexibility to change internal structures might also come from low preparedness to adopt new systems because of the lack of skills of the personnel. On the whole, social factors that influence Cooperative Networks are related to i) low cooperation know-how of employees, ii) the influence of the CEO’s personality, and iii) bounded rationality of all (social) actors involved (see table 3).

98

Spearman-Rho = 0,254; p = 0,014, cf. Schwinger/Wäscher, 2006, p.11.

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Virtual Organization (original concept)

Target Group

Impetus

Initiator Time Aspect Formalization

Cooperation Experience

ƒ Large enterprises

ƒ SMEs ƒ Micro enterprises

ƒ Fast-changing

ƒ Economic situation of SMEs

ƒ Focal enterprise ƒ International orientation

ƒ Regional institutions ƒ European Commission

ƒ Short term

ƒ Long term

ƒ Low formalization

ƒ Rules, Code of Conduct ƒ Role concepts

ƒ High cooperation know-

ƒ Low cooperation know-how ƒ Based on personal

(OEMs,1st tier supplier) ƒ Specialized people or institutions (virtual team members) customers’ needs ƒ Turbulent environment ƒ Efficiency considerations (improvement of business)

how ƒ Based on traditional transaction cost argumentation

ƒ Institutional owners ƒ Homo oeconomicus, ƒ Rational Actors Actors Characteristics

Cooperative Network (present application concept)

(personal relationships are negligible)

(disadvantages attributed to their size; need for strong specialization) ƒ Competitiveness considerations ƒ Survival

competencies of employees

ƒ Personal, often charismatic owners

ƒ Human beings, socially embedded

ƒ Bounded rationality ƒ High importance of personal relationships

Table 3: Comparison VO and Cooperative Network

After having highlighted the main differences of a Cooperative Network to a classical VO, it becomes clear that that a network of companies can only work if a stable network of the people behind is working well. This especially holds for SMEs. On the one hand, SMEs might fear to lose specific know-how and therefore might require more stable and trustful partners, as they do not want to put themselves in high risk. On the other hand, owners of small businesses are used to taking their own, personal decisions without the need to cooperate with anyone or to take part in a compromise. Therefore, a well-developed relationship between actors plays a major role for SMEowners. While larger companies are able to cooperate in less-important areas of their business, small corporations enter network relationships often because of economic reasons or even because of the request to survive or being able to compete against

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larger corporations. Therefore, they might commit themselves much more to cooperation partners and expect the same level of commitment from the other side. As the cooperative concept is often introduced from an external institution, potential cooperation partners might not know each other or even have not seen each other before. The need to become friends and establish a long-term, trustful relationship is on the one hand derived from economic factors, on the other hand from social factors. Based on higher social and economic risk, people want to develop a network of actors that is stable and where everybody can rely on each other.

3.2 Life Cycle Concepts and Phases of Networks As the concept has developed over time, the formation of a Cooperative Network might require a different process than the formation of a classic VO. Every organization follows a certain formation and evolution process that is also called Life Cycle. In this chapter, Life Cycle models of organizations and Virtual Life Cycle models are discussed and a corresponding Life Cycle model for Cooperative Networks is established. 3.2.1 Corporate Life Cycle Models Like any other organization, a VO evolves over time and follows a certain life cycle. Life Cycle models are described in correspondence to biology or human ageing: The basic assumption behind Corporate Life Cycles is the idea that – like human beings or plants – every company only exits for a finite time (Shahidi, 1997). Organizational theory claims that companies develop from an entrepreneur-driven small business to a bureaucratic system (Höft, 1992) because whilst growing, the need of delegation and dividing of functions arises and is followed by the need to coordinate internal divisions as the organizations becomes more diverse and complex. The breakdown of an organization’s existence into several phases mainly serves as a planning instrument. For diagnosing the phase, growth rate and growth potential as well as the competitive situation, the loyalty of customers and the stability of the market are analyzed. The determined phase, in turn, influences i) the strategy to be followed by the company or by certain departments, ii) the expected financial outcome in the near future, and iii) the required management system to implement certain

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products (Laukam/Steinthal, 1986). There is a need for different organizational structures, management systems and leadership in the individual phases (Becker, 1988; Höft, 1992). For example new corporations need more entrepreneur-orientated management, flexibility and informal systems while later phases need formal systems for controlling costs, production and sales. By understanding and interpreting internal and environmental signals, organizations are able to apply different management systems and internal structures in order to effectively handle the current life cycle phase. Therefore Life Cycles are seen as a helpful instrument for planning and organizing (Schreyögg, 1996). According to the classical Product Life Cycle (Kotler/Bliemel, 1995), the majority of authors consider the four phases Emergence, Growth, Maturity, Regeneration or Declining (cf. Höft, 1992). The Corporate Life Cycle (CLC) concepts include not only financial figures but also the number of employees or the annual turnover but also qualitative aspects like innovation or flexibility. 1) The Emergent Phase of the CLC is characterized by using new technologies based on innovative concepts. The turnover of such young organizations generally is very low in the beginning; customers and sales channels have to be established. On the other hand, the owner of this organization involves ambitiously and personally in all activities. There is high flexibility but also high improvisation as far as the internal structures are concerned, which Becker (1988) refers to as the “Childhood” of organizations. Low formalization leads to daily communication between all the actors. During this phase, the organization is highly dependent on the leading people and on the innovation of its products. James (1973) adds that organizations in the Emergent Phase concentrate on market innovative and improved products as well in existing as in new markets. 2) During the Growth Phase, turnover and business activities increase. New target markets and customers are accessed and affiliates are established. According to James (1973), restructuring internal processes (as well on a strategic as on an operative level) characterize the Growth Phase. The whole development of the organization depends on the requirements of the market and on product technology but also on the specific news of know-how and commitment of the people working there. Most organizations are organized functionally during this phase, but establish first staff divisions. Increased complexity leads to decentralization. As far

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as the market is concerned, the first imitators enter the market, competitors and sales quantity increase. The proportion between marketing effort and turnover improves and higher total revenues go along with decreased costs per item produced. This phase is referred to “Youth” by Becker (1988), or “Adolescence” by Adizes (1979). 3) In the Maturity Phase, the growth rates of turnover start to decline (James, 1973). Internal formalization is high and processes are carried out in an experienced manner. The markets are accessed and the best product technology as well as the best production process prevailed. Market demand and costs are calculable and the organization offers diverse products based on a distributed risk situation and job security (see also “Grown-up” – phase by Becker (1988). Nevertheless, bureaucratic structures can lead to a decline of innovation processes and high competition may result in declining sales figures. Price is the most important factor for controlling products and markets during this phase and expenses for marketing and R&D even rise. 4) The last phase is called Declining Phase. Turnover significantly declines and due to a lack of capital appropriations product innovations go back. Intensive competition may even lead to the necessity for restructuring, which deteriorates the internal situation of an organization. Fluctuation is high and finally, the company retires from the market (Shahidi, 1997). This phase can result in Regeneration, Shrinkage or Liquidation (Höft, 1992). James (1973) diversifies between external (subventional) and internal (restructural) Regeneration in order to enhance another phase of growth. The organization declines, when no improvement can be gained. A number of authors used the four principles as a basis for their life-cycle models and further adapted and amplified it: While Kimberly and Miles (1980) distinguish between three phases of organizational development over time, Adizes (1979) develops a model with ten phases, characterized by specific traits of the leading people that have to be adopted in the corresponding life-cycle situation. An additional wellknown model in the organization literature is the concept of Greiner (1972) who He describes five phases and presumes linear growth of organizations. He explicitly mentions difficult phases or conflict situations that have to be overcome and postulates that the critical phases are followed by an evolutionary stage.

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To summarize, organizations have to apply different management systems and internal structures in order to respond to the current life cycle phase. Therefore phase models are seen as helpful instruments for planning and organizing. Nevertheless, critics point out the low empirical validity as well as the lack of clearly defined variables to restrict one phase from another (Höft, 1992). On the other hand, Quinn and Cameron (1983) who investigated in the relationship between Corporate Life Cycles and a firm’s effectiveness were able to classify the phases from each other and finally state that “(…) a consistent pattern of development seems to occur in organizations over time, and organizational activities and structures in one stage are not the same as the activities and structures present in another stage.” (Quinn/Cameron, 1983, p.40) Another critical point mentioned in the literature is neglecting the phase before an organization is established; this is neglected by most authors. Preparation activities like idea finding, market observation, or the selection of market and partners are not included in the majority of the concepts.99 3.2.2 Virtual Life Cycle Models The general disregard of preparation phases differentiates CLCs from Virtual Life Cycles (VLCs). VOs also follow different cycles but in addition to Corporate Life Cycles they explicitly mention the phase when the companies come together and when the network is established. Principally, most authors refer to four or five phases, including Set-up, Formation, Operation and Dissolution (e.g. Sieber, 1998; Gerpott/Böhm, 2000). 1) The Set-up phase concentrates on the establishment of contacts and on identifying and selecting partners. This phase is for example further divided by Katzy and Dissel (2001) who distinguish between Pre-Phase and Design. During the PrePhase the business concept of the future network is defined, whereas Design refers to the selection of the right partners and the creation of cooperation. Mertens and Faisst (1997) speak of Identification for the idea and partner finding process and introduce an Initiation phase that describes the concrete selection of partners and 99

Baaken (1989), however, explicitly introduces an observation phase, including the unsystematic analysis of markets and technologies, unstructured contacts and first ideas, and the preparation phase which actually starts with the decision to start a corporation.

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the establishment of first personal contacts. Plüss (2005) highlights the formation of a core team and the formulation on a joint vision and joint goals as the most important aspects of the Starting phase. Rabelo et al. (2004) who concentrate more on the technical aspects of VOs’ Life Cycles nevertheless refer to a Creation phase, where preparation activities are carried out (VO Environment Setup), partners are identified, selected and the organization is created (VO Formation). 2) During Formation partners come together and form the type of organization they need. Agreements or eventually contracts are established and different rules and roles are applied. Mertens and Faisst (1997) call the establishment of the organization and its underlying agreements Declaration. At that point of time, roles and rules are distributed and organizational tools (if necessary) are introduced (Rabelo et al., 2004). Plüss (2005) additionally mentions the agreement of partners how to integrate new companies. Gerpott and Böhm (2000) divide the Formation into Configuration and Declaration, separating the collocation of partners from the establishment of formal agreements. 3) Both phases, Set-up and Formation are necessary requirements for the Operation phase when the VO start to act on the market (Mertens/Faisst, 1997; Gerpott/Böhm, 2000; Sieber, 1998). Joint products are created and joint services are carried out. 4) Dissolution marks the end of a cooperation project. By definition all VOs are generally regarded as temporary networks (e.g. Davidow/Malone, 1993; Bultje/van Wijk, 1998) so that the last phase treats the dissolution and de-briefing of the companies that formed the network (Sieber, 1998; Gerpott/Böhm, 2000; Katzy/Dissel, 2001). Plüss (2005) further developed these concepts by introducing a model of long-term cooperation and Stahl-Rolf (2004), who investigated in competence networks, integrates potential support activities from public entities and external partners that continuously reduce their work until the point where the network is able to work without support is reached. Although Life Cycle models of VOs do include a preparation phase and recent research even includes long-term aspects (Plüss, 2005; Stahl-Rolf, 2004), the concept

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is strongly based on rational actors. With the exception of Greiner (1972), who presumes phases of crisis that trigger evolutionary steps of an organization and who describes different attitudes and conflicts from actors involved, neither CLCs nor VLCs highlight difficult phases of the formation phases. From an interpersonal point of view, these conflicts exist whenever a new group forms: The set-up of rules or the establishment of a team goes along with some difficulties: Struggling for power, assuring one’s benefits or taking care of decision processes are just a few examples for the importance of individuals in order to take over a position in an organization.

3.3 5-Phases Model Considering the dominant model of Cooperative Networks in today’s business environment, the VLC models give a basic overview of how organizations may evolve, but neglect two specific aspects of that are relevant for Cooperative Networks. First, Cooperative Networks are often initiated by an external institution and therefore require a set-up phase that is different from those phases described in the Virtual Life Cycles, as external actors are involved and push the participants to start their business. Second, the conceptual model of Cooperative Networks presents the idea to establish long-term, stable partnerships, which is only partly reconsidered in the VLCs (Plüss, 2005). In the following, the process of network formation is regarded from a different point of view. As discussed in section 3.1, the suboptimal situation of SMEs and the fear of losing competitive advantage combined with the prerequisites of cooperation mentioned above lead to the need for establishing trustful partnerships. This means that before a network of companies can be built, a network of people has to be formed. This is easily explained: Not the organizations are linked to each other in the first step but the people working there, the managers and their ideas of cooperation. In order to carry out business together, the participants in a network must form a strong and stable group. The author states the hypothesis that a network of companies is fundamentally a network of people or a group of people that come together and try to form a well working team. Therefore, the author claims that the formation process of a Cooperative Network rather follows a teambuilding process than an organizational

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55

constitution. Organizations cannot be formed without human beings and these human beings and their needs in an organizational context follow emotional processes. The network formation process is therefore a process of people coming together and getting to know each other. Based on Group Theory (e.g. Bion, 1961; Hofstaetter; 1957; Kuhn, 1973) a group-building model is developed. This model serves as the basis for analyzing the network formation process. 3.3.1 Background: Groups and Group Formation Process If people start acting together and follow the same goal – as should be the case in a Cooperative Network, they become a team, a group. What does it mean to be a group? A group is defined as “(…) two or more individuals who share a common social identification of themselves or (…) perceive themselves to be members of the same social category.” (Taifel/Turner, 1986, p.15). Shaw (1976, p.11) adds that the group members “(…) are interacting with one another in such a manner that each person influences and is influenced by each other person.” Concerning the number of actors, researchers agree that at least two members are necessary to be perceived as a group (Froschauer/Titscher, 1984; Olmsted, 1974). Generally, the number of group members is not restricted to a certain amount of individuals, but goes up to thirty people. Dyads reflect two people, micro-groups two to six individuals and the term “large” is attributed to groups with more than 25 people. Small group research (Olmsted, 1974; Schneider, 1975) highlights that not more than eight to ten members form a coherent group. More important than size is that the members of a group perceive themselves as one entity and explicitly define themselves as belonging together (Sader, 1998). Related to Cooperative Networks this means that cooperation partners would talk of the network as one entity but would also present themselves as a group. Famous examples would be the Austrian carpenter network Aufmöbler100, who established a joint design and joint rules for their market appearance on http://www.aufmoebler.at, or the Virtuelle Fabrik Nordwestschweiz-Mittelland101, where every company member of the network

100 101

http://www.aufmoebler.at/, accessed in November, 2006 http://www.virtuelle-fabrik.ch, accessed in October, 2006.

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puts an additional slogan on his business card, saying “partner (of the) virtuellefabrik.ch”. Sader (1998 who refers to Lindgren, 1973) further highlights that the mutual interaction in the group is stronger than the interaction to the outside, which goes in parallel with the local and temporal discrimination from the environment. Interaction means on the one hand established and continuing contacts between individuals, on the other hand mutual reaction and influence (Olmsted, 1974; Hofstaetter, 1957). To render more precisely, Lewin (1953) explains that the nature of a group is not attributed to similarity or differences of group members, but to their dependence on each other. The interaction process leads to the development of a certain (social) group structure (Taifel/Turner, 1986). This can be ascribed to the group belongingness and the group members’ attraction to each other, which is the identification with a certain group. Only after establishing joint norms and rules, a joint goal of the group can be reached. While in several types of groups, these norms might arise implicitly; in Cooperative Networks one of the most critical success factors discussed is the establishment of rules and roles (section 2.2). A considerable basis for a group is the fact that the group members have something in common that they think is important (Olmsted, 1974). A group’s orientation on a joint goal in case of the Cooperative Network is the joint business idea. In order to become a well-performing group, several social researchers established group-forming models, trying to explain which relational interactions have to be carried out before a group of people is able to work well (Tuckman, 1965; Mills, 1967; Mills, 1970; Tucker, 1973). Tuckman’s (1965) group development model can be seen as a starting point for formation processes in non-directive groups. He states that every group follows a typical process, starting from Forming (people come together) via Storming (fighting for the best place) and Norming (finding rules how to coordinate and communicate with each other) to Performing, which describes a finally well-established group.102 Figure 6 shows the main stages of the group formation process.

102

Cf. http://www.businessballs.com/tuckmanformingstormingnormingperforming.htm, accessed in October, 2006.

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Performing

Forming

Norming

Storming

Figure 6: Tuckman's Group Model

1) Forming refers to the first phase in a new established team. During this stage, there is a high need for leadership and direction, but also for structure. Roles and responsibilities have not been distributed yet and there is little agreement on any topics and activities by the participants. A completely new situation has been established which leads to the need for orientation and interpersonal testing (Tuckman, 1965). Relationships and boundaries of the group have to be tested and work is mainly task-orientated, although not very effective, at this stage. 2) Storming starts right after the first questions have been answered. Although the clarity of purposes increases, uncertainty increases as well. The individuals are struggling for their positions, aiming at improving their own position and benefiting from as much advantages as possible. This phase is characterized by competition and high emotionality, sometimes even hostility. In contrary to the dependence in the first stage, independence and resistance to group influence play an important role at this point of time. 3) During the Norming phase, agreement is formed among the team. Roles and responsibilities are distributed and become clearer and more accepted for all parts. The group is now able to discuss and develop its processes, its working styles, and its general rules. Information exchange is open, personal opinions are expressed and an in-group feeling develops. Group members are open to each other and new standards, common goals and a common group spirit are able to evolve. This means that the stage of conflict (Storming) is followed by mutual acceptance and trust. 4) Performing is the starting point for common activities: The team is now able to work in an autonomous way according to the previously established rules. It has developed its own culture and its own way to deal with conflict situations. Roles

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Framework Development

become flexible and functional. Solutions can be found in a democratic manner and processes are driven constructively. The structure that had been established is now able to support the task performance. The stages of group development over time were concluded for this model in 1965 by Tuckman who carried out a meta-analysis on 50 articles in the area of small group research including therapy-group studies, T-group studies, “natural” and laboratory group studies103. The study (which included among others studies of. Bach (1954), Bion (1961), Abrahams (1949) in the sector of therapy groups; Bradford (1964), Miles (1953) who wrote about training groups; and Modlin and Faris (1956), Bales and Strodtbeck (1951) with the investigation of natural and laboratory groups) aimed at investigating the relational and task behavior in small groups (Tuckman, 1965). In the sample therapy groups were over-represented, which led to Tuckman expressing doubts on the possibility of generalizing on his findings in the discussion section of his paper. As the model was discussed and tested several times (e.g. Runkel et al., 1971), Tuckman continuously reviewed and reconfirmed his findings. He published a new article together with Jensen (1977), where the two authors introduced a fifth stage for the dissolution of a group, which they called “Adjournment”. Although (management) research often relied on the model or further developed it, for example Schneider (1975) – referring to Shaw and Constanzo (1970) or Tucker (1973) – criticized the non-consideration of external factors like the personal experience and development status of group members that might influence the efficiency of the development progress. Ardelt-Gattinger and Gattinger (1998) published an empirical analysis where they state that insecurity, role behavior or mutual acceptance cannot be attributed to a certain stage or point of time. In their view, the mature group is nothing more than an academic artifact (Ardelt-Gattinger/Gattinger, 1998, p.9). It was agreed among different researchers that group development phases are restarted whenever a new member enters a group and that – on the long run – every group is changing continuously (e.g. Kauffeld, 2001). The dependence of the duration of the phases related to group type, composition and leadership is also widely recognized. This

103

Therapy groups are groups in which individuals learn how to better deal with their personal problems. T-groups are established to understand and analyze group dynamics with the goal to establish interpersonal sensitivity. While laboratory-task groups are brought together to study group phenomena, natural groups refer to individuals that are brought together in order to do a job (Explanation from Tuckman (1965)).

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59

means that the process can sometimes be carried out more quickly; sometimes the one or other phase lasts a considerably long time. On the other hand, the proponents of sequential group models (e.g. Bennis/Shepard, 1956; Mills, 1967; Mills, 1970; Schein, 1980; Francis/Young, 1989; West, 2004) highlight the benefits of such a classification in terms of intervention and leadership policies. It is commonly accepted that in a group, different stages of development are passed through and – although optimal conditions of performing groups might remain an illusion – the foundations for joint working have to be constituted before. Thus, the author states that the different stages also hold for the process of bringing together possible network partners. Tuckman’s model is the one that penetrates discussions about groups and therefore serves as a well-investigated, valid basis for this research. 3.3.2 Framework for Cooperative Networks Comparing the models of Corporate Life Cycles, Virtual Life Cycles and the group development process, the related time periods can be associated (see table 4). Although the focus of the models is different, the same proceedings are assumed. While for example in a typical CLC an organization comes into existence through innovative ideas or technologies (Emergence), VLCs highlight the idea-finding process among potential identified partners (Set-up). Tuckman (1965) speaks of a Forming phase, where people come together and meet for the first time. While Storming is only reconsidered in the model of Tuckman (1965), all three processes include a development phase, called Growth, Formation or Norming, a phase of salience (Maturity, Operation, Performing) and the dissolution of the organization via Declining, Dissolution or Adjourning.

1 2 3 4 5

Corporate Life Cycle

Virtual Life Cycle

Group Development

Emergence

Set-up

Growth Maturity Declining

Formation Operation Dissolution

Forming Storming Norming Performing Adjourning

Table 4: Comparison of Models

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Framework Development

The author combines the models by taking the group process as the leading concept. While in classic VOs the main actors are considered to be economically rational agents, the members of a Cooperative Network are seen as social characters that do not only base their decisions on efficiency criteria. Additionally, the author includes a first phase, called Initiation, where potential group members are contacted and selected (Mertens/Faisst, 1997; Sieber, 1998). As Cooperative Networks aim to survive on the long run, the declining or dissolution phase is neglected in this study. The resulting 5-phases model (see figure 7) serves as an ideal phase concept for the establishment of Cooperative Networks and is thought to give helpful insights in the formation process.

Initiation

Performing

Forming

Norming

Storming

Figure 7: Formation Model of a Cooperative Network

Based on this model, the aim of the empirical part of this dissertation is to apply the model to three practice cases in order to identify the implications group processes have on the business concept of cooperation. Although it is not easy to determine the different phases and decide on the point of time when the next phase is entered (Alleman, 2004), several indicators can determine and separate the phases from each other. Applying the 5-phases model to existing networks, several factors in every phase should be regarded. Based on the main aspects discussed in this chapter, table 5 presents the final framework on which the empirical analysis is based.

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Phase

Important aspects

Related questions

Initiation

Attitude towards cooperation (of industry) and cooperation history

Is it common to cooperate in the industry? Are there examples to be investigated? How is the first reaction of the potential target group?

Identification of target group

Why and how is the target group selected?

Way of contacting target group

How is the target group addressed and invited to the cooperation?

Informative workshops

Are there any informative workshops organized? How, when and where do these workshops take place?

Specific situation of target group of the project (Learning)

How is the specific’s target (or interest) group’s situation at the end of the Initiation phase? How is their current position and know-how with cooperation activities?

Getting to know each other

How do cooperation partners get to know each other?

Cooperation atmosphere

How do cooperation partners behave during the first phase? Are there any leaders or critical people? Who takes over which roles?

Reach commitment (agreement to stay) / Strategy formulation (agreement where to go)

How do cooperation partners agree to the task of collaboration? Is commitment reached among them? How is the general strategy of the network being agreed?

Identification of the market

Which – if any – target market is agreed? How can the decision finding process be described?

Working together

Are there first projects carried out? Do project groups form? How does the general process of network formation proceed?

Discussion of rules and roles

How do the regulations of working together arise? Are there any roles or formally established agreements? How is the information process among participants?

Handling conflicts

Which difficult situations arise? What about hierarchies, power distribution? How is the general atmosphere among partners? How do network participants deal with the situation?

Forming

Storming

62

Framework Development

Norming

Performing

Establishing rules or regulations how to work together

How is the agreement among partners? Does communication style change (including discussion, feedback, democratic decisions)? Are decisions taken in a certain manner?

Establishing roles

Do partners take over responsibility about their actions? Which roles are in place and accepted?

Finalizing first projects

Do cooperation partners work with each other? Are joint results observable?

Strategy alliance between network and companies

Is the group acting as one entity? Are they able to represent each other? Does a joint web site exist? How does the network look like? How are duties and rights distributed among partners? Are internal processes adjusted to partners’ processes?

Systems (ICT, Controlling) Results of joint cooperation

Is there market recognition of joint results (prototype, service…)? Is the platform stable and do partners trust each other?

Table 5: Attributes of 5-Phases Model

In the following, the five phases are highlighted and most important challenges in every phase are discussed in detail. The illustration does not only include propositions for typical behavior in the phases of Cooperative Network formation, but also proposes course of action how to successfully complete each phase. ƒ Initiation: At the end of the Initiation phase, potential companies for networking

should be identified. The phase therefore concentrates on i) the selection of potential partner companies as the target group of the Cooperative Network and ii) the information of the target group. Selection criteria may be based on the general experience and cooperation history of companies and industry, and the related attitude towards cooperation, but also on the industry’s characteristics and possible pre-defined aspects of the Cooperative Network (industry sector, maximal or minimal size of SMEs, cooperation area, etc,). The identification of the target group, however, is not only based on evaluation criteria, but also on the interest of potential partners. Thinking of how to attract people to become a member, guidance can be derived from group theory and the reasons for individuals to enter a group or a team. Schein (1980) describes the

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63

most important functions why people want to be a member of a group. Generally, affiliation needs, like the need for friendship or support, is a necessary condition for entering a group. Second, the need to maintain self-esteem highlights the group as a source of confirming the individual status and development. Third, through discussions with others, uncertainties and anxieties are reduced and fourth, participants feel stronger in the context of a group by jointly facing threats. Finally, group benefits are related to mutual support and help with tasks that would have to be carried out alone.104 Except the second reason, those aspects that are responsible for a group member to take part in any form of group (for example a sports group or a leisure club) can also be applied to Cooperative Networks. Besides the personal interest of becoming a member of a certain association, CEOs are supposed to have allied reasons that are more business-related. The need to participate in cooperation is then more based on the actual business situation or the need to look for partners. The similarity with a group, that should give identity to the participants, in this case shall also serve as an identity for the business related topics. Of course personal uncertainties and weaknesses are overcome by groups as Cooperative Networks provide a platform to gain a better position in the market. Benefits of supporting each other do not only count on a personal, but also on an institutional level. Having the reasons for entering a group in mind, the way of contacting the potential target group at the starting phase of a Cooperative Network might be crucial for future success or failure. After having garnered the interest of the target group, informative workshops are organized in order to inform potential partners about possible cooperation concepts, as well as the potential for success and challenges of networking. At the end of Initiation, potential member companies should have an idea what Cooperative Networks are about and they should have a feeling whether it fits their company or not. ƒ Forming: During the formation process of Cooperative Network, the Forming

phase describes the network establishment: After informative meetings took place, corporations that expressed their interest in a network are cobbled together.

104

For a more detailed description, compare for Schein, 1980, p. 150ff.

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Framework Development

The emphasis is laid on a joint starting point of the network initiative. Partners are going to get to know each other, and companies have to agree on a (first) joint goal of the network and formulate a joint vision. Ideally, principal customers and markets are identified. This means that the participants reach commitment or express their agreement to stay in the cooperation in a first step and then agree on where to go in a second step. Only after this formation process can tasks be distributed. During the Forming phase, the need for leadership and the establishment of a Network Manager is expected to arise. West (2004) states that the Forming phase is mostly characterized by anxiety and a lot of questions that should be answered by “somebody”. Team members ask testing questions about roles and resources. Participants of newly established groups tend to ask about the backgrounds and experience of others to which possible cooperation partners may try to orientate themselves. The cooperation atmosphere is illuminated with politeness and low sympathy among actors (Tuckman, 1965). Interaction is only carried out tensely and cautiously (Francis/Young, 1989). The lack of structure (Braaten, 1974) has to be overcome by an agreement on joint goals (West, 2004). ƒ Storming: After the general development has been initiated, a period of mistrust

may arise (Tuckman, 1965). As the first steps of joint work are carried out, partner companies realize that from now on they have to give more detailed information of their companies’ processes and might feel danger about revealing information. Therefore, the individuals start to resist the attempts to control the team processes by the leader (West, 2004), and even question the value and feasibility of the team task, that is the cooperation itself. This phase is generally characterized by low performance of group members. Additionally, this period is characterized by the attempts of positioning. High rivalry and changing lead members of the group (Tuckman, 1965) can even lead to the establishment of sub-groups (Braaten, 1974) or the dissolution of the network. Francis and Young (1989) describe conflicts and confrontations between group members that are often the basis for a slow-going, troublesome progress in activities. Cliques are formed and the atmosphere is characterized with hopelessness. Conflicts might be subliminal but coordination and communication takes place in an environment of hostility (Braaten, 1974).

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65

According to Tuckman (1965), the Storming phase has to be overcome before next steps can be taken. At the end of this period, companies should know each other better and should trust in the jointly formulated goals (West, 2004). Regular meetings and working groups might enhance the cooperation preparedness or speed up the process as people get to know each other. ƒ Norming: After the difficult phase of Storming had been accomplished, the

necessity for establishing role concepts, power distributions and structural settings rises. Norming corresponds to the phase when group members start to take the responsibility for certain tasks and agree rules and roles among them. For Cooperative Networks this means that the main organizational procedures have to be settled. Managers start to establish stronger links between the original company and the network. Tuckman (1965) attributes this to the increasing mutual acceptance and Francis and Young (1989) speak of new attitudes and manners among group members. One important point is enhanced communication concepts: group members are able to discuss different positions and give each other feedback (Francis/Young, 1989). The need to establish agreement among each other might also be related to higher (perceived) interdependence (Braaten, 1974) as plans and working standards are established (West, 2004). From this moment, joint project ideas and business opportunities for the Cooperative Network are to arise from the members themselves. The establishment of rules and roles is essential during Norming, as it leads to the final agreement of partners that – while overcoming the Storming phase – committed to work with each other. This might therefore be the optimal point in time for appointing a person or institution for taking over the responsibility for all further action, if necessary. ICT interventions are to be performed at the end of the Norming phase, as information technology is not easily established within a diffuse group of companies, which means that roles and power distribution, as well as the procedures of work have to be clarified before ICT will be used properly. At the end of this phase, rules and roles are introduced and mutual acceptance and trust is established. Common activities start and develop and daily cooperation progresses. ƒ Performing: There is a point during the formation process phase, where the

network itself takes over the responsibility for its activities. This corresponds to the

66

Framework Development

Performing phase: Finally, after all four phases have been passed; the group starts to work as a team. The Performing phase is characterized by jointly produced results of a stable technical level (Tuckman, 1965). Collaboration activities are carried out by a stable, cohesive team and mutual appreciation is recognized (Tuckman, 1965). Mutual feedback and communication has grown and the former established structure proves to be effective, so that successful outcomes are possible (West, 2004). People start to act in an open and flexible way and their behavior shows solidarity and helpfulness (Francis/Young, 1989). All cooperation activities work smoothly and the participating companies can identify first financial results. The need for better cooperation support emerges and new business ideas and markets are continuously developed. The group becomes an instrument for dealing with the task (Tuckman, 1965). The dependence on an outside institution like the initiators declines so that the network can be run on its own. Support activities continuously diminish and might only be necessary in situations where conflicts arise or whenever change management is required. Performing is also characterized by inventiveness and creativity (Francis/Young, 1989). In Cooperative Networks, the alliance of the companies’ strategies or the assembly of IT-systems might be recognized. Clear results of joint cooperation are revealed at this point of time. Summing up, the author introduced the Cooperative Network formation model, consisting on five phases. The model follows the Group Formation Process of Tuckman (1965) but has been combined with elements on cooperation research and research on VOs.

4 Design of Analysis The basic objective of empirical research is to find out how the establishment of social relationships influences the formation of a network. The framework, developed in section 3 was tested in three life cases to find out whether it fits to the establishment of Cooperative Networks and whether the 5-phases model can explain the behavior in the different phases. The empirical research of this dissertation is based on three case studies, focusing on the VERITAS project and the three involved countries Austria, Belgium, and Turkey. Based on the active involvement and the evaluation of the 19 months of research between July 2004 and January 2006, the author carries out a comparative case analysis between the processes of network formation in the three countries. The author integrates both, quantitative and qualitative methods in the analysis in order to get a broad general idea of the development of the networks over time. Case study method is then combined with Qualitative Comparative Analysis (Ragin, 1987) to detect crosscase patterns between the three different examples. In the following the research sample (i.e. the network formation processes in the VERITAS project) as well as methods and instruments are explained.

4.1 Sample: Veritas Project As highlighted in the introduction of this study, the establishment of three networks in the research project VERITAS (Virtual Enterprises for Integrated Industrial Solutions) serves as the basis for the empirical part of this dissertation.105 Over a period of 19 months, VERITAS was funded in the EU 6th framework program106 and was based on the objective to overcome the problems of especially the machine industry in the manufacturing sector. The European machine industry accounts for about a third of the manufacturing value in the whole Union,107 but at the same time faces challenges in the innovation area and 105 106 107

VERITAS, IST 2004-511013, Contract for Specific Support Action, Annex 1- Description of Work. For more information cf. http://www.veritas-eu.com, accessed in November, 2006. http://www.cordis.lu/fp6/whatisfp6.htm, accessed in November, 2006. http://europa.eu.int/comm/enterprise/enterprise_policy/industry/com_2005/com_2005_474.pdf, accessed in November, 2006.

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Design of Analysis

in the development of highly skilled personnel. European manufacturing companies find themselves among a landscape of traditional manufacturing industries such as mechanical engineering where the industry is characterized by employees with low to intermediate labor skills.108 In the European Union 58% of the manufacturing companies are SMEs. The industry’s current situation is not without problems: Firstly, new products and increased flexibility of production processes push manufacturing companies towards new and faster organizational forms. Secondly, competition arises from cooperative groups in India and China and from global US-companies. High-tech manufacturing and ICT-related sectors are underrepresented compared to, for example, the US economy and companies that show significant underinvestment in services and R&D.109 In contrary to these problems, the whole manufacturing industry provides around a fifth of EU output, accounts for three quarters of the EU exports, and employs 34 million people.110 Based on these figures, the role of the manufacturing industry is regarded as essential for Europe. Not only financial issues on the short run, but increased collaboration between research institutes and companies can improve the economic conditions in the EU. This leads to an increase of labor and upgrade working conditions for all member countries. The “Report on R&D and Innovation 2006”, outlines the major problems of the European society,111 that is decreased labor and factor productivity (O’Mahony/van Ark, 2003) as well as falling behind in the whole R&D sector, especially as far as the exploitation of ICT is concerned. This means that the whole economic landscape of SMEs can be strengthened via selective funding, including R&D activities and new (IC-) technologies.112 Based on the Lisbon Plan,113 the reasons

108 109 110 111 112

113

http://europa.eu.int/comm/enterprise/enterprise_policy/industry/com_2005/com_2005_474.pdf, accessed in November, 2006. Cf. the report “Creating an Innovative Europe”, January, 2006 ftp://ftp.cordis.lu/pub/era/docs/ieg_rtd_inno_0106.pdf, accessed in November, 2006. http://europa.eu.int/comm/enterprise/enterprise_policy/industry/com_2005/com_2005_474.pdf, accessed in November, 2006. Cf. the report “Creating an Innovative Europe”, January, 2006, ftp://ftp.cordis.lu/pub/era/docs/ieg_rtd_inno_0106.pdf, accessed in November, 2006. More information about research programs can be derived from the descriptions of FP 6 and FP7: http://www.cordis.lu/fp6/sme.htm, http://www.cordis.lu/fp7/faq.htm, both accessed in November, 2006. For more details about the Lisbon Plan cf. http://www.europarl.eu.int/summits/lis1_en.htm accessed in November, 2006.

69

Sample: Veritas Project

for funding cooperation between SMEs can be seen in a general attempt to strengthen the European Countries in their competitiveness. The research project VERITAS, carried out from July 2004 to January 2006, aimed “(…) to increase the dynamics of European Industrial Enterprises by transforming them, where appropriate and possible, to more flexible and re-active companies that use the Virtual Enterprise concept in a manageable and effective way.”114 The ambitious goal was to help manufacturing companies with high production-related costs to understand and implement the concept of VOs. The model that was used for the project is based on Schuh et al. (1998) and the Virtual Factory, described as a stable and fixed network of cooperation partners that is able to react to customer’s needs by quickly forming intra-organizational teams that dissolve after a project has been fulfilled. Figure 8 shows how a customer’s request is dealt with in the Virtual Factory: Whenever a customer requests a certain product or service, s/he addresses the contact point of the platform that is represented by either a web-interface115 or a contact person of the network. This leads to the combination of the optimal factory for the order, based on the competencies of the network partners. This means that a stable platform with fixed cooperation partners serves as a basis for temporary joint businesses in the form of VOs. Virtual Factory Customer

Stable platform of partners

Figure 8:Virtual Factory (adopted from Schuh et al., 1998) 114 115

VERITAS, IST 2004-511013, Contract for Specific Support Action, Annex 1- Description of Work. For more information cf. http://www.veritas-eu.com, accessed in November, 2006. One example would be the platform “webcorp” used by the Virtuelle Fabrik NordwestschweizMittelland: http://www.virtuelle-fabrik.ch/VFPage/html/Anf.htm#, accessed on 28th of February, 2006.

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Design of Analysis

The required stable platform of partners is called a Virtual Industry Cluster (VIC). VICs are seen as source networks that assure the cooperation preparedness of network partners and that enable loosely-coupled companies to form VOs whenever a joint business opportunity arises (Camarinha-Matos/Afsarmanesh, 2004). As these networks are characterized by general cooperation agreements and a well-defined set of rules,116 the underlying concept is related to the formerly established Cooperative Network. In order to ensure the optimization of the customer-driven process, the following roles are established in a VIC (Schuh et al., 1998): The Broker is responsible for the acquisition of orders, for merchandising and the representation of the network, while the Network or Project Manager is responsible for the efficient execution of all orders, bringing together the core competencies of the partners. Each partner company disposes of one responsible person that represents the own firm and its conditions, often referred to as the In- and Outsourcing Manager. Another role is taken over the Network Coach, who acts as a consultant, taking care of the rules and roles in the network and being responsible for the selection of new partners. In the original concept, the Virtual Factory also implemented the role of an Auditor, a controlling and revising position (Schuh et al., 1998; Wüthrich et al., 1997). Based on this model, one VIC/Cooperative Network in each country (Austria, Belgium and Turkey) should be established during VERITAS.117 An international team of six partners formed the consortium of the research project: Three industry associations, representing the national federation of metal and machine manufacturers, the University of Vienna (UNIVIE)118, Sylvie Feindt Consulting (SFC)119 and Archimedia (ARMD)120. ƒFMMI: The Association of Austrian Machinery and Steel Construction Industries (FMS121) and the Association of the Austrian Metalware Industry

116 117 118 119 120 121

http://www.wzl.rwth-aachen.de/de/3_forschung/ps/produktplanung/projekte/global, accessed on 24th of October, 2004. VERITAS, IST 2004-511013, Contract for Specific Support Action, Annex 1- Description of Work. For more information cf. http://www.veritas-eu.com, accessed in November, 2006. http://www.univie.ac.at, accessed in November, 2006. http://www.sfconsulting.net/, accessed in November, 2006. http://www.archimedia.gr/archimedia_website/archimedia/index_en.html, accessed in November, 2006. Original name: Fachverband für Maschinen und Stahlbauindustrie. Cf. http://www.fmmi.at/, accessed in November, 2006.

Sample: Veritas Project

71

(FMMI122) are combined to an autonomous professional organization within the framework of the Austrian Federal Economic Chamber,123 organized into 19 sub-branches and providing service for around 1300 members.124 ƒAGORIA is the largest employers' organization and trade association in Belgium125 taking care of 1300 member companies.126 ƒMIB: In Turkey, the Association of Machine Manufacturers (MIB)127 is one of the two existing industry associations and encompasses 183 national manufacturing organizations. The main task of the three associations was the presentation of the concept to their member companies and the guidance of the whole formation process. The activities listed in the project plan highlighted among others event organization, coaching and support for the association’s member – in short the process should be supported from an industry point of view.128 Thus, the trade associations served as the initiators of the VICs/Cooperative Networks by informing their member companies and by encouraging them to participate in the project. This means that the three regional networks were established out of existing industry federations who sought to support their member companies by setting up partnerships between them. The involved department of UNIVIE – the chair of Organization and Planning of the department of business129 – was responsible for providing concepts and academic input as well as analysis and evaluation, SFC took over the role of a consultant. Here, the main activities were based on supporting the VICs/Cooperative Networks with the concept of individualized solutions and collaboration tools for every country, according to the specific industry and cultural needs. ARMD was responsible for the technological support of cooperation, providing a platform and collaboration tools to fasten cooperation procedures. 122 123

124 125 126 127 128 129

Original name: Fachverband für Maschinen und Metallwaren Industrie, cf. http://www.fmmi.at/, accessed in November, 2006. Comment of the author: FMS and FMMI hold one joint office and representative platform. The expressions are therefore used as synonyms. Further details: http://www.feei.at/db/open/show_article.php?id=1153, accessed in November, 2006. Member information at http://www.mohrkeg.at/wko/wko_search/step1.php, accessed in November, 2006. http://www.AGORIA.be/s/p.exe/WService=WWW/webextra/prg/izContentWeb?vWebSessionID =5550&vUser ID=999999&MyOrDaily=daily&EnewsID=33449, accessed in November, 2006. Cf. AGORIA presentation at the Kick off meeting, 1st of July, 2006. http://www.mib.org.tr/english.html, accessed in November, 2006. VERITAS, IST 2004-511013, Contract for Specific Support Action, Annex 1- Description of Work. For more information cf. http://www.veritas-eu.com, accessed in November, 2006. http://www.univie.ac.at/orgplan, accessed in November, 2006.

72

Design of Analysis

To support the establishment of the three countries, each of the non-industry institutions was additionally assigned to one of the federations particularly: UNIVIE worked closely with the Austrian Industry Association FMMI, the Belgian Consultant supported the Belgian Industry Association AGORIA, and the Greek Project Manager and Software Provider assisted most to the formation of the Turkish initiator MIB. Different authors mentioned the necessary financial or organizational support from a neutral institution in establishing networks for different reasons: First, it helps the firms to develop trust between each other. Second, a promotive institution can concentrate exclusively on network activities, whereas especially smaller firms often lack time to build up relationships, search for business contacts etc. (Sherer, 2003). Generally, a promoter is defined from a macro organizational perspective and serves as a facilitator or catalyst (Franke, 2001; Pümpin, 1992), identifying market chances, establishing trust and assuring information exchange between the partners. Sherer (2003) highlights that this task can be fulfilled by economic development agencies, universities, trade associations or individuals. In the VERITAS case, the whole consortium supported the establishment of the networks from different points of view, including industry experts, business experts (consultants) and academic experts. The project plan130 included a pre-phase of four months of research on the concept of VOs in order to develop a guideline for the target companies. After organizing information workshops, those partners that want to come together and form a VIC/Cooperative Network are identified and trained how to establish cooperation between them. The implementation of the cooperative concept was thought to be accompanied by smart organization and process restructuring, establishing several rules and roles for working together. Coordination and communication between partners is supported by the use of Information Technology, and cross-organization Work Management solutions in particular. At the end of the project, three stable VICs/Cooperative Networks – one in each country – were aimed to be established. In order to assure the project progress, the consortium of partners met in July and September 2004, January, February, April, June, October and November 2005 as well as in January 2006. Intermediate meetings were held via telephone conferences and extensive exchange took place via email. Although the three countries advanced in a rather different way, all consortium partners were continuously involved in changes and progresses. 130

Cf. appendix for details.

Research Method: Case Study Research

73

As mentioned, UNIVIE’s role was the academic support of the project. The role of the author was closely linked to SFC’s work in order to assure scientific and sustainable procedures, and the main tasks were based on providing concepts for the structure or roles in a network. Most important, the author took over the role of an evaluator. Work therefore contained consulting aspects but was mainly based on observing and evaluating the formation process. The final research sample was based on three cases, each designed with a supporting team of the VERITAS consortium. The target mass of the study was participants of the initiated networks in Austria, Belgium and the Netherlands. As a “participant” the representatives of every company, i.e. mainly CEOs and general managers were considered, as i) these people continuously participated at project meetings, and ii) the research objective of the 5-phases model is a human being and not an institution. The three cases were observed by a mix of qualitative and quantitative methods over the period of 19 months.

4.2 Research Method: Case Study Research In this chapter, the case study method is explained and instruments used for analysis are shown. 4.2.1 General Aspects of Case Study Research A case study is “(…) an empirical inquiry that investigates a contemporary phenomenon within its real life context, when the boundaries between phenomenon and context are not clearly evident, and in which multiple sources of evidence are used” (Yin, 2003). Case studies are based on a mix of quantitative and qualitative approaches, using multiple data sources like observations, interviews and documents (Rowley, 2002). The method is an empirical method of analysis that results in a research report, a so-called “story”. As it allows flexibility as well as combination of methods, case research is seen as useful when a phenomenon is broad and complex (Dubé/Paré, 2003). It is used in several disciplines, like psychology, sociology or political science, but increasingly is attributed to problems of business and organizations. The reason behind this is that in business, social phenomena also have to be studied (Yin, 2003). Lee (1989, p.117) defines an organizational case study as

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Design of Analysis

“(…) an intensive study of a single case where the case consists of the individuals, groups, and social structure in the setting of an organization”. The general argumentation of case study research shows the fit to the research approach of investigating social phenomena in the network formation process. The main aspects of case research are reflected by i) a specific set of research questions, ii) small amount of cases that allows carrying out in-depth studies, iii) the application of triangulation method and iv) a strong emphasis on the interpretation of material. i) Case studies are seen as a useful instrument for the preliminary, exploratory stage of research (Rowley, 2002), that is, whenever new theories are developed in an inductive way. Yin (2003) further amplifies this application field: he argues that the research questions should be How? or Why? questions, i.e. open research questions to investigate a broad field, and not detailed questions like How much? Or What exactly? This is particularly the case when a new research field is entered or when the researcher wants to investigate in a real life context in order to learn about a situation or a phenomenon (Eisenhardt, 1989a; Yin, 1994). ii) Case studies are seen as an adequate form to evaluate the effectiveness of action whenever quantitative studies do not allow deep insights or explanations for coherences (Wittmann, 1990; Bortz/Döring, 2000). Therefore, case studies are carried out with a small number of cases. The idea of case research is not to provide statistical representative results, but to offer deep insights and comprehensiveness for understanding a specific (mostly social) context. Although on behalf of a higher number of cases more robust results could be (Rowley, 2002), the small number of cases allows closeness and richness of material that would not be possible with quantitative studies (Halinen/Toernroos, 2005). iii) Triangulation method means that the evidence for a case study is drawn from different, multiple sources, including qualitative and quantitative material (Rowley, 2002; Yin, 1994; 2003). Regarded as one of the main advantages of the method, triangulation method on the other hand increases the complexity of case research. iv) Thus, most important is the interpretation of the material (Stake, 1995). Besides direct interpretation of individual instances, the material is aggregated and grouped

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in order to detect patterns or to derive conclusions from the overall situation. Interpretation does not follow a pre-structured, linear process and often lasts much longer than interpretation with quantitative material. In this study, it is analyzed how the three different countries managed to establish Cooperative Networks in order to derive conclusions of how to support such networks. The objective of research therefore is exploratory (Voss et al. 2002), and aims to build new theories. The study is a longitudinal, real-life comparative case study where three extensive and detailed cases are carried out and compared. The method fits to the research design, as the aim of this work is to gain deeper insights into the social structures of networks. Related questions like How do social relationships develop over time? or Why does it take such a long time to establish cooperation? can be classified as How?- and Why? questions. Furthermore, the time period of analysis, 19 months, reflects the longitudinality of the study. Additionally, the small number of cases – criteria is fulfilled. Interpretation conducts the major part of the study. According to Yin (2003) all the important requirements for using Case Research have been met (see table 6).

Strategy

Research Question

Control on Behavioral Events

Focus on Contemporary Events

Experiment

How?, Why?

Yes

Yes

Survey

Who?, What? Where?, How many?, How much?

No

Yes

Archival analysis

Who?, What?, Where?, How many?, How much?

No

Yes / No

History

How?, Why?

No

No

Case Study

How?, Why?

No

Yes

Table 6: Relevant Situations for Different Research Strategies131

131

Table was adopted from COSMOS Corporation (Yin, 2003).

76

4.2.2

Design of Analysis

Application of Case Research

The author followed the proposed framework of Eisenhardt (1989a, p. 533ff): Selection of cases: First, the selection of the cases has to take place. On the one hand, the fewer the case studies the greater the opportunity for in-depth insights, on the other hand few cases of course have limitations and include the risks of misjudging data (Voss et al., 2002; Rowley, 2002). However, the selection of cases has to be related to the object of research (Yin, 1994), which is the network formation process. Although generalization declines with lower case numbers, the deductive/inductive approach of the phase model allows a high reliability of the qualitative application. The three cases of the project VERITAS are regarded as three typical cases for a network formation process and therefore investigate the internal structure of the network formation in Austria, in Belgium and in Turkey. Furthermore, the analysis is based on the whole cases, which reflects a holistic approach (Yin, 2003). The selection of cases was also restricted by the research project. A comparison of the situation with existing, recently or Cooperative Networks established a few years ago would at a first glance have given the opportunity to compare internal structures and relationship between companies that already built a network on those that just started. On the other hand, these examples could only have been analyzed reciprocally, and would have been based on reports of participants or Network Managers. Comparability thus would have been difficult, and one of the main advantages of the VERITAS cases was the possibility of real-time observation. Although the network formation developed in different directions, according to companies’ preferences and attitudes, all three networks had exactly the same starting point and the same basis, which makes them perfectly fit for a comparative analysis. Selection of instruments: In the next step, the tools and instruments were selected. Although case research is often related to qualitative research only, multiple data collection methods allow combining both, quantitative as well as qualitative aspects. While qualitative data is useful for understanding, quantitative surveys can strengthen its relationship to existing theory (Eisenhardt, 1989a).

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In the research project the following instruments were used: ƒ A questionnaire testing expectations of participants, their preparedness to cooperate (Bauer/Koeszegi, 2003) as well as their general trust attitude (Yamagishi/Yamagishi, 1994) at the beginning of the project ƒ Narrative Interviews (Bortz/Döring, 2000; Froschauer/Lueger, 1998) with participants of the network, evaluating individual experiences of the establishment of the networks during the last months of the formation process ƒ A questionnaire based on Social Network Analysis (Brass et al.; 2004) in order to determine information and communication exchange as well as trust at the end of the project ƒ Participant observation for evaluating meetings that took place with the involved companies Additionally, documents, emails, correspondence among partners and to the outside, formal and informal talks, the strategy or vision of the network were collected and included in the interpretation process. The selection of methods was based on the importance of having a qualitativequantitative mix of methods but, moreover, instruments were adapted to the preparedness and temporal availability of the participants. Field access: As UNIVIE was an official partner in the VERITAS project there were no major difficulties to enter the field of research. Nevertheless, the role of every partner had to be clarified in the beginning. The addressees of evaluation were the (potential) partner companies. As all adjustment took place with specific members of the industry association, the contact to network participants was not always direct and evaluation was to a large extend based on i) the opportunity to participate in as many internal meetings as possible, and ii), the goodwill of the industry people who acted as an intermediary. Delegation of, for example, the distribution of questionnaires could not always be handled successfully. Nevertheless, the active involvement and participation in the research project assured data collection to a large extent, which holds for qualitative data. Data analysis: Based on figure 9, data is available in a matrix structure: On the one hand, data from questionnaires and interviews are quantitatively comparable. This

78

Design of Analysis

reflects internal data completed by network participants. On the other hand, there are three different independent cases that reveal country-specific results.

Austria: Network Formation Process

Case A

Belgium: Network Formation Process

Case B

Turkey: Network Formation Process

Case T

Process observation & Documents Pre-Study

Preparedness Test

Interviews

Results

Network Analysis 31/01/06

01/07/04

Figure 9: Research Design

Database: After collecting data, Yin (2003) recommends to structure it and put it into a certain database. While during the collection process, all data points (emails from partners, internal protocols about information meetings, industry information etc.) were stored, in this step the material was structured into those data sets that were i) relevant and likely to reveal results and ii) have a certain probability to be comparable to each other. The following table gives an overview of the data used in the analysis.

Type of evidence

Austria

Belgium

Turkey

Industry information (Internet, brochures)

26

14

11

Information about the three countries (Books, Internet, …

12

7

16

Questionnaire about cooperation preparedness

11

4

9

Narrative Interviews

5

-

-

Network questionnaire

8

-

3

Official project documtens (deliverables, reports)

3

6

4

Official meeting minutes

14

12

24

eMails

16

15

6

Internal documents (presentations, list of participants,..)

42

18

32

Personal documentation (meeting notes, diary)

11

6

16

148

82

26

Overall documents used for the study

Table 7: Data Matrix

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Theory building: In a final step, hypotheses are derived and related to existing theory. The comparison of the gained results and derived hypotheses with existing literature is seen as crucial for case study research, because it is able to gain stronger internal validity or higher generalization (Eisenhardt, 1989a). For the comparison the author proceeded as follows: First the single cases were embedded in single study write-ups. These “stories“ included a) a description of the network’s background (economy, culture, industry, network attitude, reasons for entering the network), b) the specific evaluation results for this network, and c) the plotting of the 5-phases model over the time-line. In a second step, cross-comparison and interpretation of results took place. 4.2.3 Instruments of Evaluation The generally qualitative method case research capitalizes on ordinary ways of getting data, which means that raw data is gained through various sources including observations, interviews, surveys, illustrations etc. (Stake, 1995). The following main instruments were used for the VERITAS cases. 4.2.3.1 Questionnaire on Cooperation Preparedness At the beginning of the project, potential network partners in every country were asked to fill a questionnaire to quantify their personal attitude towards cooperation.132 The questionnaire contained a) a section on know-how about cooperation and reasons why they decided to become part of a network, b) a section on trust, and c) a section on the general preparedness to cooperate. The different parts are explained in the following: i) The first part of the analysis contained general questions about the companies’ perception to networks. Gulati et al. (2000) as well as Sieber (1998) stated that previous joint business or cooperation activities result in better future network relationship than without. This was also confirmed by the pre-study of Haas et al. (2007). Including aspects like the decisive factors to participate in a network or those factors that would immediately lead to a phase-out of the company, the questionnaire determined to analyze the expectancies of the companies and make them think of both ideal and worst-case scenarios. The answers to these questions 132

For a detailed description of the questionnaire cf. appendix.

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Design of Analysis

also served as a basic feedback for the current group in order to learn how their potential partners view cooperation. ii) A trust index based on the score of Yamagishi and Yamagishi (1994) was used in order to differentiate “high trustors” from “low trustors”133. The index was developed based on the “Interpersonal Trust Scale” of Rotter (1967) and was reused in several studies where it proved to be a reliable instrument for measuring the affinity to trust of human beings (e.g. Yamagishi et al., 1998; Köszegi, 2001). Rotter (1980) stated that individuals base their current decisions on former experiences and develop a stable personality with different aspects, including trust. He claims that those people that are trustful in others are more likely to be seen as trustworthy partners than cautious people. His classification into “high trustors” and “low trustors” was further developed by Yamagishi and Yamagishi (1994). The authors have demonstrated that not all individuals are equally prepared to take social risks, but have a certain tendency to openly address new people and situations or not (Köszegi, 2001). The integration of the trust index in the questionnaire was therefore sought to reveal a general picture of possible problems and challenges concerning the establishment of trust between the partners. iii) In the last part of the questionnaire, the cooperation preparedness of business partners was investigated. Internal structures and similarities to the concept of VOs (low formalization, high linkage through ICT) and the experiences with previous partnerships were investigated. The questionnaire was based on the Virtual Degree, developed by Bauer and Koeszegi (2003). Based on the concept or gradual virtualization, the authors argue that different types of VOs exist and that the application of the concept of virtuality can be measured by analyzing the level of specific characteristics of every collaborator (differentiation, configuration, integration, technology, compare for Bauer/Koeszegi, 2003). The Virtual Degree is based on seven factors that can be combined into one index. This index reflects the amount of virtual characteristics a company possesses and therefore the preparedness for being a member in a VO or a network. The questionnaire was translated into English, German and Turkish and was distributed during the first network meetings in every country. Except for Belgium, where network members were asked to fill the evaluation form at home, they were 133

The original version of Yamagishi/Yamagishi (1994) is provided in the appendix.

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81

distributed and given back during the meeting. On the whole four completed questionnaires were retrieved from the Belgian meeting in October 2005, nine from Turkey in May 2005 and eleven from the Austrian Meeting in June 2005. Descriptive statistics to the companies that participated can be found in the following table: Turnover < 2 million 2-9 million 10-49 million > 49 million no reply

Employees A 3 2 3 1 2

B 0 0 4 0 0

T 2 6 1 0 0

<10 10-49 50-249 >249 no reply

A 3 2 4 2 0

Countries B 0 0 4 0 0

T 0 4 5 0 0

1 2-5 6-19 >19 no reply

A 3 6 1 1 0

Partners B 2 1 1 0 0

T 2 2 2 3 0

none 1-2 3-19 >19 no reply

A 0 3 5 3 0

B 1 1 2 0 0

T 1 1 6 1 0

Table 8: Company Description Pre-Questionnaire

Besides preparedness testing, the questionnaire intended to focus on the important issues of the three target groups and to improve the interventions in the first phase. Results are integrated in the empirical part. 4.2.3.2 Qualitative Interviews Personal interview should reveal the individual perception of the network participants. While comparative and objective answers were expected from the questionnaires, the author believed that talking to the participants and asking them how they experienced the establishment of the network could gain the most interesting evaluation on cooperation and the effects of VERITAS. The interviews should give insights in individual experience and opinions on cooperation and partnerships i) on a general level, and ii) related to the project VERITAS. Main aspects were the climate in the cooperation, trust and the future plans and visions of every network partner and the usefulness of events and support activities. Due to the progress of the three networks134 Turkey and Austria were chosen as the target group and five interviews with each network were carried out (details are displayed in table 9). 134

Compare for section 5.

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Design of Analysis

A B C D E F G H I J

Country

Industry

Turnover

Employees

Function

Austria Austria

Surface treatment Surface treatment

500,000 € n.s.

3 220

Austria

Machinery (cluster)

200.000 €

3

Austria Austria Turkey Turkey

Surface treatment Consulting Pump manufacturer Manufacturer of ground equipment Manufacturer of screw compressors Industrial cleaning machines Consulting

n.s. n.s. 5.,6 million € 2.5 million €

5 90 30

Director Authorized Managing Director Cluster Management Director Network Manager Director Director

10 Mio €

92

Director

3.4 million €

50

Director

n.s.

2

Network Manager

Turkey Turkey Turkey

Table 9: Interview Sample

As a method, the Narrative Interview (Bortz/Döring, 2000) based on the principles of free story telling was chosen. This is an open form of interviewing, where the interviewer explains topic and focus in the beginning, but then let the interviewee talk without interrupting or posing additional questions (cf. Bortz/Döring, 2000; Froschauer/Lueger, 1998). Only at the end of the interview, additional questions are legitimate. This form of interview allows deep insights into every single person’s attitudes towards the topic and makes him or her tell about those events that s/he regarded as the most important ones. It is commonly believed that Narrative Interviews reveal more meaningful and deeper results than standardized interviews.135 During the process of data collection it was preceded as follows. Firstly, five participants of every network were selected. The selection of the interview partners was based on assembling a heterogeneous sample: Critical as well as optimistic candidates were selected, those people who participated continuously in meetings and discussions and others who participated less were included, and representatives from large and small enterprises were considered. Secondly, the interviews were carried out in October 2005, lasted about one hour and were carried out by a bilingual expert, who was born in Germany but lived with his Turkish family until the age of 20. Every interviewee was asked about his or her experiences in cooperation, including former experiences as well as impressions about the current research project. It was left open to the interviewee what s/he wanted to report. All interviews were recorded on tape 135

Details and practical guidelines about the method can be found at http://www.stangltaller.at/ARBEITSBLAETTER/FORSCHUNGSMETHODEN/NarrativesInterviews.html, accessed in November, 2006.

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and transcribed by the interviewer. In a third step, the Turkish interviews were translated into German in order to make them accessible for the Austrian research team. In order to transform the qualitative material that finally encompassed 130 written pages into quantitative, categorical data the research team chose Content Analysis (Bortz/Döring, 2000; Holsti, 1969). Content Analysis is a method for investigating problems in which the content of communication serves as the basis of inference (Holsti 1969). Although five interviews had been carried out in every country, it was decided to only include network participants in the evaluation procedure and neglect the Network Managers’ interviews because of a possible bias problem. For data preparation, the suggestions of Srnka and Koeszegi (2007) were followed: 1) In a first step the material was divided into coding units (Unitization). The authors followed the suggestions of Buber et al. (2004) to use units conveying one thought communicated by the interviewed network member. Two coders independently structured the material, based on basic predefined rules like the disregard of punctuation marks. The Gutzkow’s U (Guetzkow, 1950; Folger et al., 1984), a reliability measure used in this context, did not reveal satisfactory results after the first round of unitization. Problems were mainly attributed to the complex material: while in many other Content Analysis studies, written data is used, the research team first had to transfer spoken language into transcripts. In a second run, based on more concrete unitization rules, the U equaled 0.0193. Combined with the intercoder reliability of 84.58% (Simons, 1993) the result was judged to be satisfactory. Finally, both coders agreed on one scheme, based on 1534 units. 2) Following this, the research team developed a category scheme according to the conversation categories (Categorization). The category scheme was established in a deductive/inductive approach and included 12 main categories, 38 subcategories and two additional levels related to cultural implications (Kutucu, 2006). 3) The third step, Coding, consisted of the systematic allocation of those categories to the units developed in the first stage. Again, the two coders individually run the process and reached a Cohen’s (1960) kappa136 of 0.7323, which shows 136

For a detailed description of the reliability measure compare for Srnka and Koeszegi, 2007.

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Design of Analysis

discrepancies, but again reveals the problems of the complex material. The intercoder consistency matrix showed interfaces of categories that were unequally interpreted by the two coders but could easily be dealt with in the final adjustment. The method proved to be quite complex but revealed interesting aspects about culture. The aspects are included in the empirical part of section 5. For more detailed insights in method and procedure of analysis compare for Kutucu (2006). 4.2.3.3 Social Network Analysis Social Network Analysis was used to investigate the current state of the three networks at the end of the project. It should be determined whether the companies succeeded in building relationships and if those relationships were regarded as a good basis for future work. It should be shown how much information people share and how far they trust each other in business but also private matters. The used questionnaire was developed based on Social Network Analysis and was built on a validated questionnaire of Cross and Parker (2004).137 The reason for choosing Social Network Analysis was to unveil invisible patterns of information flow and collaboration in the group. Social Network Analysis is a methodological approach to describe, understand and explain social structure. The basis for network analysis can be found in graph theory (Brandes/Wagner, 2003). While this form of analysis has been used in psychology and sociology since decades (Moreno, 1996), it is quite new in organizations or policy groups. The central argument for applying this method in network research is that actors are embedded in social relationships in every organization or institution (e.g. Brass et al., 2004). Networks are accordingly defined as “(…) a set of nodes and the set of ties representing some relationship (…)” (Brass et al., 2004, p.795). Social ties are supposed to shape the behavior of actors. By investigating in the information exchange preferred relationships and central roles in the network should be made visible. The questionnaire finally contained 17 questions about the relationship of the interviewed people towards the other network participants. The respondents were asked to choose those three network partners the answer would fit most. The target 137

Details about the method can be found at http://www.robcross.org/sna.htm, 30th of December, 2005.

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85

group for the questionnaire was defined by the industry associations that created a list of participants in every country. In total, the questionnaire was prepared for 32 Austrian and 19 Turkish companies and for 21 Belgium network participants. While in Austria and Turkey the questionnaires were distributed via email, in Belgium the evaluation form was supposed to be completed at a meeting. Results of this research process are also integrated in section 5. One main challenge with network analysis is that it cannot be done anonymous. People are not easily convinced to give detailed descriptions about their opinions and perceptions. All questionnaires contained a clear statement that results would only be explored and used in a cumulative way and that all statements would be kept within the research team of UNIVIE. The interpretation and further application can be done without names and companies. 4.2.3.4 Participant Observation It is commonly agreed to use participant observation as an additional method to others or during preliminary stages of research, in order to explore and describe a research field (Lazarsfeld, 1972; Babbie 1986). The qualitative description of observed situations or dialogues later serves as a basis for formulating concepts for measurement or for formulating or testing hypotheses. For the method of participant observation, no pre-defined procedures or techniques exist (Jorgensen, 1989; Aster et al. 1989). Like in field research, observation follows the principles of learning from experience (Wax, 1971; Kaplan 1964). The advantage of the method is its easy application in every research field: The logic of the method is nonlinear and creative and can be applied as well for studying processes as relationships among people. Participant observation is considered to be most appropriate when i) the research problem is concerned with human meanings and interactions, ii) the phenomenon is observable in an everyday setting, iii) the researcher has access to this everyday setting and iv) study questions are appropriate for case study (Jorgensen, 1989). In the context of VERITAS, these conditions were found in project meetings, training sessions and conferences of the network participants.

86

Design of Analysis

The observation approach can be divided into three phases: The first phase of observing is seen as an unfocused phase where the researcher “learns” from the impressions of the field. During the VERITAS meetings the researchers looked firstly at the space: Where does the meeting take place?, How does the seating arrangement look like?, How is the conference table organized?. Additionally, the focus was put on the setting: How many people are there?, Which people are there (age, gender, specific characteristics)?, Are there any groups at the first sight?, What are people doing?, What are they talking about?. Aster et al. (1989) suggest to additionally note the researcher’s emotions. Once the general field was familiar, the focus of observation was related towards cooperation and networking. The author wanted to know how the potential companies viewed the current situation of the process and wanted to learn about their concerns, their personal attitudes and the challenges they thought to face. Therefore the researchers looked particularly at the way how people communicated with each other and how role allocation took place. Furthermore, processes such as decision-making processes, strategy finding and conflict situations were observed. In a third step, documentation took place. Notes were taken during and right after the setting, including i) routine factors like time and place of the meeting, ii) central topics of discussion, and iii) special points of interest like the communication mode or the interaction among participants. Observation results were continuously recorded in a journal and were stored together with meeting minutes and other documents of the respective day. To conclude, the above-mentioned methods were combined into the single case study write-ups. Results of all instruments were evaluated separately, but in a second step combined with the other tools for the case study approach. Table 10 gives an overview about when the different instruments were used strongest in the context of thee 5-phases model. Besides the 5 phases, an additional section on the background of the industries was included.

Forming

Initiation

How is the manufacturing industry situation of the country? What about the structure of the companies (size, owner-structure, …)? How are employers organized?

Manufacturing industry situation

How do cooperation partners agree to the task of collaboration? Is commitment reached among them? How is the general strategy of the network being agreed? Which – if any – target market is agreed? How can the decision finding process be described?

Reach commitment (agreement to stay) / Strategy formulation (agreement where to go)

Identification of the market

How is the specific’s target (or interest) group’s situation at the end of the Initiation phase? How is their current position and know-how with cooperation activities?

Specific situation of target group of the project (Learning)

How do cooperation partners behave during the first phase? Are there any leaders or critical people? Who takes over which roles?

Are there any informative workshops organized? How, when and where do these workshops take place?

Informative workshops

Cooperation atmosphere

How is the target group addressed and invited to the cooperation?

Way of contacting target group

How do cooperation partners get to know each other?

Why and how is the target group selected?

Identification of target group

Getting to know each other

Is it common to cooperate in the industry? Are there examples to be investigated? How is the first reaction of the (potential) target group?

Attitude towards cooperation (of industry) and cooperation history

5-Phases Model

How is the general economic situation of the country?

Economic Situation

Background

Related questions

To be analyzed

Phase

Used Material

Meeting minutes, reports

Meeting organization, meeting minutes, reports

Meeting minutes and reports, (questionnaires on cooperation preparedness)

Meeting minutes, telephone protocols

Meeting minutes, discussion and reports

Meeting minutes, discussion and reports

Information folder, correspondence with target group

Meeting minutes, discussion and reports

Industry reports and success stories. (additionally: meeting minutes, discussion and reports)

Industry reports, current statistics of the industry, association reports

Economic reports, official country information

Research Method: Case Study Research 87

Is the group acting as one entity? Are they able to represent each other? Does a joint website exist? How does the network look like? How are duties and rights distributed among partners? Are internal processes adjusted to partners’ processes? Is there market recognition of joint results (prototype, service…)? Is the platform stable and do partners trust each other?

Systems (ICT, Controlling)

Results of joint cooperation

Do cooperation partners work with each other? Are joint results observable?

Finalizing first projects

Strategy alliance between network and companies

Do partners take over responsibility about their actions? Which roles are in place and accepted?

Establishing roles

Which difficult situations arise? What about hierarchies, power distribution? How is the general atmosphere among partners? How do network participants deal with the situation?

Handling conflicts

How is the agreement among partners? Does communication style change (including discussion, feedback, democratic decisions)? Are decisions taken in a certain manner?

How do the regulations of working together arise? Are there any roles or formally established agreements? How is the information process among participants?

Discussion of rules and roles

Establishing rules or regulations how to work together

Are there first projects carried out? Do project groups form? How does the general process of network formation proceed?

Working together

Table 10: Material for 5-Phases Model

Performing

Norming

Storming

Project reports, awareness of projects in the market. Social Network Analysis, testing trust level.

System investigation

Reports, observation of behavior, awareness of cooperation on company’s official documents and events. Cooperation agreements, strategy papers, Marketing plans.

Project reports, Observation, Meeting minutes and reports, discussions

Observation, Meeting minutes and reports, discussions

Observation, Meeting minutes and reports, discussions, cooperation agreements

Interviews and talks with network participants, Fluctuation lists

Observation, Meeting minutes and reports, discussions

Observation, Meeting participation lists and meeting minutes and reports, discussions

88 Design of Analysis

5 Empirical Data: Network Formation Processes This chapter documents the different stages of the project, embedded in the 5-phases model based on the group model of Tuckman (1965). The formation of each network is documented and analyzed over time and at the end of each group formation stage, the main events and results, but also the main challenges for the formation process are summarized and interpreted. Although the general structure was the same for all three countries, they developed in different manners, according to their cultural, economic and individual preferences. The three cases differ from each other, but due to the real-life observation they give deep insights in the network formation process. It is be analyzed how the three different countries managed to establish business networks. The target of this research therefore is not only descriptive, but more exploratory (Voss et al., 2002). After analyzing and comparing the three cases, recommendations how to start networks, how to keep companies in a network together and which factors to consider in a formation process, can be derived. Economic and cultural influences are considered and the result of the network formation process is highlighted at the end of every case.

5.1 The Austrian Case Economic Situation Austria, an 83,870 km² country in the middle of Europe with a population of 8,192,880 people (est. July 2006)138 is described as a well-developed market economy with a high standard of living.139 GDP per capita is estimated to reach 31,400€ in 2007140 and therefore ranked at 10 spot worldwide.141 Economic growth rate is estimated between 1.8 % (2005 est.)142 and 2.2%143 per year (1995 – 2005).

138

http://www.indexmundi.com/austria/, 29th of May, 2006. http://www.indexmundi.com/austria/, accessed on 29th of May, 2006. 140 http://wko.at/statistik/eu/wp-oesterreich.pdf, https://www.cia.gov/cia/publications/factbook/geos/au.html, both accessed on 24th of April, 2007. 141 http://de.wikipedia.org/wiki/%C3%96sterreichische_Wirtschaft, accessed on 29th of May, 2006. 142 http://www.indexmundi.com/austria/, accessed on 29th of May, 2006. 143 http://wko.at/statistik/eu/wp18-österreich.pdf, accessed on 29th of May, 2006. 139

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Empirical Data: Network Formation Processes

The current inflation rate was at 2.2% in 2005,144 and unemployment rate has increased to 5.9% in January 2006.145 The main industries (construction, machinery, vehicles and parts, food, metals, chemicals, lumber and wood processing, paper and paperboard, communications equipment, tourism) are largely organized as SMEs.146 99.6% of Austrian enterprises are SMEs,147 employing 65% of Austrian labor force. The majority of them – 218,042 of 252,399 (which equal 86.39%) – employs only between one and nine people, called micro-enterprises.148 Equity capital in Austrian SMEs is lower than 20%, and 39.7% of Austrian SMEs are financed completely without own funds.149 The promotion of SMEs becomes increasingly important: in April 2006, the Council of Ministers150 decided a package of additional measures to improve income and corporation tax conditions for small enterprises as well as financial contribution for innovations and high-tech applications.151 Austria also involves in improving conditions for SMEs and is member of the European network SME UNION (Small and Medium Entrepreneurs Union).152 Nevertheless, in parallel with the disadvantages of size, Austria’s SMEs indicate a shortage of skilled labor force: training and development of people is restricted by barriers like the lack of time to plan and participate in such activities, including the lack of human resource management in small enterprises (Mandl/Dorr, 2004). On an international level, Austria is increasingly compared to Eastern European countries and despite low corporate tax loses competitive advantages to other small EU-countries.153

144

http://wko.at/statistik/eu/wp18-österreich.pdf, accessed on 29th of May, 2006. January, 2006: 326,747 unemployed people equal an unemployment rate of 5.9% based on EUcalculationmode, 7.7% based on national calculation mode. If people that are allocated to training and development measures are added, the number of unemployed people increases to 395,000. Information based on http://de.wikipedia.org/wiki/%C3%96sterreich, accessed on 29th of May, 2006. 146 http://wko.at/statistik/KMU/kmu.htm, accessed on 29th of May, 2006. 147 http://www.kmuforschung.ac.at/, accessed on 29th of May, 2006. 148 http://www.kmuforschung.ac.at/de/Forschungsberichte/Vorträge/KMU in Österreich 24-022005.pdf, accessed on 29th of May, 2006. 149 http://www.kmuforschung.ac.at/de/Forschungsberichte/Vorträge/WU%2013-01-2005.pdf, accessed on 29th of May, 2006. 150 orig: “Ministerrat”, translated by the author. 151 http://portal.wko.at/portal.wk?CtxID=33&AngID=1&DstID=0&subcontentparam=KMU, accessed on 29th of May, 2006. 152 http://www.sme-union.org/, accessed on 29th of May, 2006. 153 Compare for http://www.atkearney.de/content/atkearney/offices_pressemitteilungen_detail.php/land/oesterreich/ id/49455, accessed on 29th of May, 2006. 145

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Manufacturing Industry Situation The manufacturing industry includes manufacturing of basic metals, manufacturing of fabricated metal products, except machinery and equipment and manufacture of machinery and equipment n.e.c.154 The three categories comprise the fabrication of tools, tractors, and containers but also the treatment of these products. In Austria, general purpose machinery is the largest sub-sector of machinery.155 In total, 1,692 companies with a yearly turnover of 31 billion Euros156 are operating in the manufacturing sector. The Austrian Industry Representative for Machinery and Metalware (FMMI157) reports the following industry specific picture:158 Although Europe-wide production volume in the metal sector decreases continuously159 (the investment activity is low and high raw material prices lead to a strong import activity from China and Southeast Asia), the Austrian sector shows growing production figures in 2003 and 2004. Like other European countries, the metal industry players focus on higher quality levels and consistency,160 including a stronger focus on R&D and innovation. In 2004, 43% of production order came from the US or Asian economy161 and most important international trading partners were Germany, increasingly Czech Republic and Russia.162 The high focus on export activities explains partly why a sector that is characterized by scarcity of raw materials and therewith continuous staff reduction163 nevertheless is able to survive. Higher financial stability and even increasing employability have been reported.164 165 154 155

156 157 158 159 160 161 162

163 164

http://ec.europa.eu/comm/competition/mergers/cases/index/nace_all.html accessed on 29th of May, 2006. eBusiness Watch Machinery and Equipment: http://www.ebusiness-watch.org/resources/machinery/machinery.htm, accessed on 31st of May, 2006. http://www.fmmi.at/page/start.mv?NOFRAMES+447accdd000c2cae00007f86+1+48+39, accessed on 29th of May, 2006. Original name: Fachverband für Maschinen und Metallwaren Industrie, cf. http://www.fmmi.at/, accessed on November 2006. http://www.fmmi.at/content/file/branchenbericht_fmmi_20122004_kurz.pdf, report was conducted by IWI (http://www.iwi.ac.at/), both accessed on 29th of May, 2006. Compare for http://www.orgalime.org/about/facts.htm, accessed on 29th of May, 2006. “The future of European manufacturing”, KPMG-report (http://www.kpmg.se/pages/102719.html), accessed on 29th of May, 2006. http://www.fmmi.at/page/start.mv?NOFRAMES+447accdd000c2cae00007f86+1+56+49, accessed on 29th of May, 2006. Compare for the following article: Rapid changes, great challenges in: Machinery and Metal ware 2, May, 2004, p. 6-8, http://www.fmmi.at/page/start.mv?NOFRAMES+456d8de000092bbd0000399f+1+127+58, accessed December, 2004. http://www.ots.at/meldung.php?schluessel=OTS_20040503_OTS0050&typ=, accessed on 30th of May, 2006. http://www.politikportal.at/?goto=%2Fmeldung.php?schluessel=OTS_20040210_OTS0076, accessed on 30th of May, 2006.

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Empirical Data: Network Formation Processes

The whole industry is characterized by efficiency considerations because of increased raw material prices: Metal prices show a yearly increase of 29% between 2003 and 2005166 and therefore force the related organizations to higher economisation. Specific problems related to the size of Austrian enterprises also effect the organizations in the machinery and metalware sector: According to reports of Statistics Austria (an independent federal institution under public law providing statistics on Austrian topics),167 88% of the companies in the Austrian metal industry are small or medium enterprises.168 To have a better bargaining position, Austrian enterprises are organized and represented by the Austrian Federal Economic Chamber and its sections. Financial contribution to the Economic Chamber and the related industry section are regulated via law169 and guarantee independent and joint representation in Austria’s economic and political landscape. The Association of Austrian Machinery and Steel Construction Industries (FMS170) and the Association of the Austrian Metalware Industry (FMMI) are autonomous professional organizations within the framework of the Austrian Federal Economic Chamber.171 The membership in the FMMI therefore is binding and is liable to pay costs. In return, members of the association receive information, are represented in collective contract negotiations, have a strong industry organization with bundled resources and are able to state their position in different forums. The manufacturing agency is organized into 19 sub-branches172 and comprises 1,300 members.173

165 166 167 168 169 170 171

172

173

Cf. http://www.fmmi.at/content/file/pressetext_lang.pdf, accessed on 30th of May,2006. http://derstandard.at/?url=/?id=2513304, accessed on 18th of July, 2006 http://www.statistik.at/index_englisch.shtml, accessed in November, 2006. http://www.fmmi.at/content/file/iwi_strukturstudie_kurzfassung.pdf, report was conducted by IWI (http://www.iwi.ac.at/), accessed on 18th of July, 2006 http://portal.wko.at/portal.wk?AngID=1&CtxID=16&DstID=0&subcontentparam=AngID%3d1, accessed on 30th of May, 2006. Original name: “Fachverband für Maschinen und Stahlbauindustrie“ (FMS). Cf. http://www.fmmi.at/, accessed in November, 2006. Please note that FMS and FMMI hold one joint office and representative platform. The expressions are therefore used as synonyms. Further details http://www.feei.at/db/open/show_article.php?id=1153, accessed in November, 2006. Elevators, energy and air conditioning, wood working machines, industrial furnace, boiler, plastics machinery, farm machines, metal fabrication, surface treatment, pumping and compressors, cable car, steel construction, steel pipes, doors, door automation, combustion engines and gas turbines, water technical machinery, tool machinery, central heating and air conditioning construction. Member information at http://www.mohrkeg.at/wko/wko_search/step1.php, accessed on 30th of May, 2006.

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5.1.1 Initiation Attitude towards Cooperation and Cooperation History The concept of establishing networks is one possible countermeasure to negative developments of the Austrian, SME-shaped economy (Mandl, 2005). Generally speaking, the importance of networking is rather common and increasingly is becoming an issue. Around 30 clusters174 can be identified in the country (Payer, 2002), including those with technical, research oriented or comprehensive topics like human resources or ecological issues.175 Most importance and impact is attributed to the Automotive Cluster, a branch network with 260 partners, generating an 18.3 billion € turnover a year.176 Additionally, the term “networking” becomes continuously important in the Austrian industry. The Chamber of Commerce177 actively supports different network initiatives like for example “netzwerken,”178 a platform that provides information exchange possibilities; or “pool”179, a portal to look for partners in cooperation projects and for know-how exchange in the course of technical problems, similar to the cooperation platform “Kooperationsboerse”.180 As far as the attitude towards cooperation is concerned, experience with networks is rather low. The FMMI was asked to participate in the project during the year 2003, when the project consortium formed. Before the institution became an official partner, they had to be convinced in a two-loop process that the project was helpful for their members. After a first refusal of the board of FMMI in September 2003,181 the management board finally agreed to participate in the project in July 2004,182 only

174

175 176 177 178 179 180 181 182

A cluster is defined as a regional form of network, incorporating actors, customers, suppliers and research institutions in order to jointly represent the whole supply chain of a product. Advantages are seen in for example the stronger representation in the national economic and political landscape. Cf. http://de.wikipedia.org/wiki/Cluster_%28Wirtschaft%29, 1st of June, 2006. Examples of Austrian Clusters: http://www.clusterland.at/, 1st of June, 2006. Cf. http://www.automobil-cluster.at/index_eng.php 1st of June, 2006 Also referred to as the Austrian Federal Economic Chamber, cf. http://wko.at/awo/chamberinfo.htm, accessed in November, 2006. Cf. http://portal.wko.at/portal.wk?CtxID=33&AngID=1&DstID=0&subcontentparam=netzwerken, 6th of June, 2006. Cf. http://wko.at/wien/pool/, 6th of June, 2006. Cf. http://www.kooperationsboerse.at/, 6th of June, 2006. Cf. FMMI letter of 22nd of July, 2004, referring to a meeting in September, 2003, where the project was rejected because of too little information on financial and personal requirements. Cf. FMMI fax of 29th of July, 2004.

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Empirical Data: Network Formation Processes

after having ensured that no costs would arise for the organization.183 A close national cooperation in favour of the FMMI was agreed, highlighting UNIVIE’s task to “(…)work closely together with the FMS in order to motivate Austrian companies to participate in the project”.184 At the kick-off meeting on 1st of July, 2004, the organization FMMI did not send any delegate and did not provide the other partners with information about their organization. The reservation of FMMI to enter the project can also be learned from the internal meeting protocol stating that “(…) All the partners apart from FMS have signed the CA.”185 After an operating time of five months, consortium management issues led to a delay in the advanced payment for project partners,186 which led to a complete reduction of activities by the FMMI. Organization and moderation of workshops was rejected until the payment was received.187 During the year 2004, three Consortium Meetings took place. The FMMI did not participate at two meetings and left the Austrian one (which took place in their office) earlier and had their work presented by the two student trainees188 which were provided by UNIVIE in order to reduce the work load of the association.189 Identification of Target Group The idea of the Austrian responsible was to communicate the project to all members of the association, so that those that are interested could participate, independently of their specific sector or current and earlier cooperation activity.190 The non-selection was also attributed to the fact that neither business preferences nor cooperation preparedness, in most cases not even detailed business data of the member companies, was available at the association. FMMI stated that they were not able to identify those people that could support the process or be interested in establishing a network among 183 184 185 186

187 188 189 190

Cf. FMMI, letter of 16th of July, 2004. Cf. UNIVIE presentation, kick-off meeting, 1st of July, 2004. Cf. VERITAS kick-off meeting minutes, 7th of July, 2004. Comment of the author: Projects carried out in the 6th Framework Programme often contain advanced payment in order to support SMEs that normally have to pre-finance the whole project on their own funds. However, this is obligingness but not an obligation of the Commission. Cf. email of trainee students (FMMI) to UNIVIE, November, 2004. Cf. VERITAS meeting protocols kick-off meeting on 1st of July, 2004, consortium meeting on 13th and 14th of September, 2004, meeting on 3rd of November, 2004. Cf. FMMI - UNIVIE cooperation agreement (“Kooperationsvereinbarung”), 9th of September, 2004. Cf. VERITAS meeting minutes consortium meeting 13th and 14th September, 2004.

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each other. The idea to include the VERITAS initiative in other meetings or conferences of the industry and promote it in magazines was rejected, instead, those companies that already participated in a cluster initiative, were excluded from the target group in order not to overwhelm them with initiatives.191 For informing members of the VERITAS project and related events, finally all 68 sub-sectors of FMMI were addressed. The information and communication to the members of FMMI was planned as follows. First, a letter and an email should be sent to all members to inform them about the project, its main ideas, benefits and risks as well as about an informative workshop. The mailing should be combined with ongoing telephone calls. Additionally, a communication plan was developed: It included articles in the journal “Machinery and Metalware”,192 announcements of workshops and conferences in the monthly newsletter193 and ongoing result reporting via both communication media194 so that on the one hand, information could be spread around all FMMI-members, on the other hand, further potential partners could be addressed at a later stage in the project. Way of Contacting Target Group For promoting the project to its members the FMMI had already asked UNIVIE for a short project description195 three months before the project started, that included the idea and target of the project, opportunities and risks, a short description of VO Concept, and a timeline. However, the usage of those documents could not be observed or confirmed later. After a first research phase in the project, it was agreed among the partners of the VERITAS consortium to organize an informative “SMEday” in every country.196 In Austria, the process was accompanied by the following communication media:197 On the 21st of September, 2004, first information about the project and the information meeting on 3rd of November, 2004 was published on the FMMI-website. One week later, the FMMI-newsletter which is sent approximately every three weeks to the complete member list included further information.198 On 13th 191

Cf. meeting minutes UNIVIE, FMMI, 22nd of September, 2004. http://www.fmmi.at/content/file/ausgabe_3_juli05.pdf, accessed in June, 2006. 193 Cf. http://www.fmmi.at/page/start.mv?NOFRAMES+447ed309000cc7b300004e5c+1+43+57, 1st of June, 2006. 194 Cf. UNIVIE - FMMI communication concept (translated by the author), 4th of June, 2004. 195 Cf. VERITAS management summary („Kurzbeschreibung“), April, 2004. 196 Cf. VERITAS meeting minutes, consortium meeting 13th and 14th of September, 2004. 197 Cf. FMMI presentation, consortium meeting, 3rd of November, 2004. 198 Cf. FMMI-News 14/04, October, 2004. 192

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Empirical Data: Network Formation Processes

of October, 2004, invitations via email were delivered, followed by a postal letter one week later.199 Written documents were directly addressed to the CEOs of the companies and contained information about benefits and target of the project, agenda of the meeting and the information that a best practice example was going to be presented.200 During the last week of October 2004, telephone calls were carried out in order to convince members to participate in the meeting. The associations acted as sponsors of the meetings. Informative Workshops The informative workshop took place on the 3rd of November 2004 at the Chamber of Commerce and was organized as an event, including an information booth and a reception after the official part. Although marketing activities had been conducted, 201 only 13 companies registered for the workshop and finally eight companies (ten people) attended the meeting.202 The introductory talk including a project presentation was not carried out by the management of the FMMI, but by a representative. In the first part of the workshop, the best practice example Virtuelle Fabrik Nordwestschweiz-Mittelland203 was presented, including the business perception of one of the member companies.204 It contained information about history, benefits and successful cooperation projects, as well as insights into the structure and organization of the network. The internal IT database and Brokering system as well as the importance of thematic working circles was presented.205 The main message of the Network Manager was that trust is only possible if people are really personally linked to each other.206 In a last speech, the current state of research of the project and potential lessons for future cooperation were presented by the VERITAS project team. Most important discussion points during the meeting were the funding of a network – mainly in the first set-up phase – but also failure in cooperation of those that tried it

199 200 201 202 203 204 205 206

Cf. FMMI invitation letter and email, October, 2004. Cf. FMMI invitation letter, October, 2004, FMMI information leaflet 2004. Cf. FMMI invitation folder, October, 2004. Cf. FMMI presentation review meeting, February, 2005. http://www.virtuellefabrik.ch/VFPage/index.html, accessed in November, 2006. http://www.kopp-metallveredlung.ch/, accessed in November, 2006. Cf. Virtuelle Fabrik presentation, 3rd of November, 2004. Cf. personal meeting notes, 3rd of November, 2004.

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before. Some potential partners even questioned the benefits of networking and wanted to know whether they receive financial compensation for participation in the project.207 During the afternoon it became clear that all parties that attended the workshop were generally interested in business cooperation,208 although the group was very heterogeneous so that an immediate joint business opportunity was implausible. Three out of eight participants operated in the sector of Plant Construction (one in the special field of Tank and Petrol Pump Construction, one in Steel Production Services, one in Automotive Engineering), one in the Construction of Cleaning Machines, another one in the surface treatment industry and another one acted as a Consultant for Plastics Industry.209 While two companies were situated in Vienna, four were from upper Austria, one from the western part of Austria, one from lower Austria and one from Styria. Besides, they differed widely in their corporate structure concerning number of employees (5 to 270) and therefore financial possibilities were distinct. 210 The next step was to carry out a short questionnaire and establish a company profile for each interested party in order to find “fitting partners”. The developed questionnaire contained questions about companies’ core competencies, expectancies about networks in general and in relation to cooperation partners, as well as former cooperation experience.211 Furthermore, companies were asked to suggest enterprises that they would like to invite to further events. Only five questionnaires were returned, demonstrating that not only the meeting participants but also their expectancies were rather heterogeneous: While one partner was mainly interested in a joint marketing platform, others focused on joint R&D activities or production. Additionally a branch analysis in order to identify similar companies or companies with geographical closeness to other network interested businesses was carried out.212 Both ideas aimed at identifying potential network partners and started from a more central view than in the beginning. However, the identification of interested sub-sectors and related business calls did not lead to a satisfactory result. A meeting for the 10th of December, 2004, later for the 3rd 207 208 209 210 211 212

Cf. personal meeting notes, 3rd of November, 2004. Cf. FMMI documentation “Vienna Workshop”, November, 2004. Cf. FMMI status report, 1st project period (07/04 – 12/04); FMMI presentation at the 1st review meeting, February, 2005. Cf. FMMI document “workshop registration”, 2nd of November, 2004; returned questionnaires on cooperation areas in December, 2004. Cf. FMMI evaluation forms, November, 2004. Cf. FMMI documentation “Vienna Workshop”, November, 2004.

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Empirical Data: Network Formation Processes

of February, 2005 was planned and organized, including another best practice example of a German Manufacturing Network213 and based on the idea that the new potential network members get to know the former interested parties. The workshop was similarly planned like the November workshop 2004214, but finally had to be cancelled because of low participation rate.215 End of January 2005, an Austrian Management Meeting between UNIVIE and FMMI took place in order to clarify how to continue. At the same time the management board of FMMI remembered the conceptive suggestions of a consultant of the surface industry216 who had suggested a joint database and stronger connection of business topics approximately a year before. Positive response to the ideas had at that time been the only answer to the concept, whereas now, a solution how to convert the suggestions into a concrete project could be seen. Therefore, the need for cooperation that was not detected in the informative workshop was finally brought up by the surface treatment industry as the consultant of this branch had suggested establishing a network for the members before.217 The main points contained the establishment of a joint database, better information exchange and mutual support in training and development. The Austrian project partners and the Surface Industry Representative agreed on a meeting in March 2005 that should preliminarily be supported by direct calls of the mentioned consultant and the responsible from FMMI. The idea was to strengthen the already existing network of the surface industry that included around 200 members218 and therefore establish the network on a rather stable basis or at least on existing ties between potential cooperation partners.219 The consultant of the surface treatment industry was asked to take over the role of the Network Manager from the beginning so that responsibility was carried by him and the cooperation agreement between UNIVIE and FMMI was reset.220 Former interested companies were informed about the change of the project focus by UNIVIE.

213 214 215 216 217 218 219 220

http://www.impro-praezision.de/, accessed in November, 2006. Cf. FMMI Agenda Information Workshop, 3rd of February, 2005. Cf. VERITAS status report 26th of January, 2005. Comment of the author: The sector is represented by the Consortium Surface Treatment: http://www.arge-ot.at/, accessed in November, 2006. Cf. personal meeting notes, 26th of January, 2005. Further information at http://www.arge-ot.at/, accessed in November, 2006. Cf. personal meeting notes, 26th of January, 2005. Cf. personal meeting notes, 19th of February, 2005; official letter UNIVIE to FMMI, 5th of March, 2005.

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Specific Situation of Target Group The surface engineering sector is a sector attributed to metalware and machinery because of the treatments especially developed for metal production and manufacturing. Surface technology includes the polishing and protection of metal ware, including surface refinement and corrosion protection. On the other hand, surface treatment increasingly becomes a creative job, called metal design.221 In 2004, 68 Austrian enterprises operated in the sector, employing 3,675 people. The volume of orders reached 468,054 million Euros in 2004.222 On the whole it can be said that the industry managed to reach good results in spite of increasing ecological obligations and difficult steel situation. Employee rate increased in 4.6% and orders could be improved about 7.4% in real figures.223 In addition to the above-mentioned enterprises, other production factories include surface treatment departments in their production.224 Additionally, networks and clusters, competence centers and training institutes as well as technical consultants in the field of Surface Engineering are added.225 The whole sector therefore consists of around 350-400 companies operating with surface treatment. Surface technology has been developed as a key technology in production as it is able to improve characteristics of tools, machines and other goods (Hoch et al., 1999) independent of their original material. The treatment goes back to the physicist Luigi Galvani who detected the effect of static electricity on muscle sells.226 Electro-chemic reactions on metals lead to protection and refinement of the materials. Major customers of surface services can be found in the automotive sector, as every car contains around 3,000 electro-plated components.227 It became more and more a hightech field, forced to steadily improve surface treatment and to ensure transfer between research institutes and companies.228

221

222 223 224 225 226 227 228

Cf. job-advertisement http://vid01.wkstmk.at:8088/ramgen/wkstmk/wko/metall.rm?usehostname&URL=/ramgen/wkstmk /wko/metall.rm&, accessed on 30th of May, 2006 Cf. http://www.fmmi.at/content/file/pa_arge_ot_010905.pfd, accessed on 30th of May, 2006. Cf. http://www.fmmi.at/content/file/ausgabe_3_juli05.pdf, accessed on 30th of May, 2006. Comment of the author: so-called ”In-House” – Refining. Cf. Network Manager’s report: “Description and actual state of Networking projects in Austria”, 10th of December, 2005. Cf. Financial Times Deutschland: „Roh eintauche, veredelt auftauchen“. Article from 5th of April, 2005. http://www.wirtschaftsverlag.at/ireds-8170-printurl-6189.html, accessed on 30th of May, 2006. http://www.wirtschaftsverlag.at/ireds-8170-printurl-6189.html, accessed on 30th of May, 2006.

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Empirical Data: Network Formation Processes

Today’s most important challenges for the industry sector can be found in the structure of SMEs but also in increasing ecological and quality requirements, often attributed to national or international recycling laws like the current EU-regulation on chemicals, called REACH.229 Additionally, the SME-based industry situation often leads to low transfer of know-how and information and to (time) gaps in realizing external requirements. Networking and cooperation between companies is a possible solution to overcome some of the problems. The following statement why the surface industry was selected as target group of establishing a Cooperative Network was given by the industry: “FMMI has identified several branches among its members as core-branches that have to be supported intensively. One of these branches is the companies dealing with the treatment of metal surfaces. FMMI decided to join the project to intensify the support for this specific branch, as the main goal of VERITAS (creating a network) fits into FMMI’s strategy towards the surface treatment industry. The expected benefits include the assistance in creating a network”.230 On the other hand, networking did not enjoy high popularity in the surface treatment industry. Potential network partners had different expectancies and associations with networks, their objectives and the coordination activities. While some saw a network as a possibility to jointly work together, others thought more of lobbying as one of the main functions.231 At one of the meetings of potential cooperation partners it became clear that in the target group of the project, only some CEOs were definitely interested in working together, but most of them were more interested in a kind of information platform.232 Although in general cooperation became increasingly important for the industry,233 only cooperation on a rather general level (training, communication etc.) could be observed. In June 2005, the consortium of surface engineers relaunched the industry platform and incorporated research and development activities as well as new quality

229

230 231 232 233

Further information: http://www.fmmi.at/content/file/eu_folder.pdf, critical statements on REACH: http://www.umweltbundesamt.at/umweltschutz/chemikalien/reach/ubameinungreach/kompromissv orschlag/, http://www.iv-net.at/open/all/beitrag.php?id=482, all accessed on 30th of May, 2006. Cf. email of surface industry representative (FMMI), 10th of January, 2005. Cf. interview number 3, unit 01030468 – 01030473, October, 2005. Cf. FMMI meeting minutes, 15th of June, 2005; interview number 2, unit 01020338, October, 2005. http://www.zvo.org/index.php?id=73 , accessed on 30th of May, 2006.

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guidelines.234 Reinforced topics were professional training of employees, communication and information exchange, the organization and arrangement of joint trade fares and conferences, as well as technical and ecological issues.235 Current cooperation activity in the surface industry is rather low as the Network Manager reported in the personal interviews.236 The reasons behind this can be mainly found in the exchangeability of products, and in the small and therefore highly competitive market. The Network Manager reports that “(…) there are only a few enterprises that dispose of real market niches, where they can operate exclusively or with only a few competitors.”237 Competition between the main players is quite high and customersupplier relationships are transparent and stable so that the only way to increase market shares is crowding-out of other corporations. Furthermore, there were strong concerns about losing specific know-how.238 First, surface treatment companies have a high liability on their products and the sector therefore is highly quality-driven. Second, R&D activities in the surface treatment industry are often carried out in an experimental way. It might take a very long time and also continuous improvement that brings companies to a final solution for a problem239. This does not encourage cooperation or information exchange of successful procedures. Additionally, SMEs do not strategically foster cooperation activities240, and suffer from a lack of know-how241 and low information exchange242. The Network Manager expressed the reasons against networking in “no time, no interest, and no resources”243. This means that the companies only make use of networks “(…) if they have a quick and close benefit for their enterprise.”244

234 235 236

237

238 239 240 241 242 243 244

http://www.fmmi.at/content/file/pa_arge_ot_010805.pdf, accessed on 30th of May, 2006. http://www.arge-ot.at/arge-ot/index.php?site=haupt&detail=ueberuns&id=6, 30th of May, 2006. Cf. interview Network Manager, October, 2005. Interview Network Manager, October, 2005. Translated by the author. Original text in German: „“Es gibt wenige Betriebe in diesem Bereichen, die in wirklichen Nischen sind, wo sie ganz allein sind, oder wenige Mitbewerber haben,(…)“. Cf. interview Network Manager, October, 2005. Cf. interview Network Manager, October, 2005. Cf. interview Network Manager, October, 2005. Cf. interview Network Manager, October, 2005. Cf. interview Network Manager, October, 2005. Cf. interview Network Manager, October, 2005. Cf. interview Network Manager, October, 2005. Translated by the author. Original text in German: “(…)werden nur soweit genutzt, soweit sie im engen und raschen Nutzen der Firmen sind. Ansonsten nicht, ja.“

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Empirical Data: Network Formation Processes

Summary and interpretation: To recapitulate, the Initiation phase that consists of the identification and information of the target group was carried out in a time span of seven months (July 2004 to January 2005). The process can be described in three steps: First, an open approach that aimed at inviting as many interested parties as possible was chosen. Second, – according to low participation rates – the strategy had to be revised and the heterogeneous sample was restricted to pre-defined sub-sectors. Finally, in a third step, it became clear that the enthusiasm for being part of a network cannot be inflicted by an outside institution, following a top-down approach but had to be derived from internal business and cooperation needs. The original idea to follow an open approach had to be reconsidered and was changed to a more concrete idea of with what to link and which roles have to be taken over by supporting institutions.245 In the Initiation phase only one meeting with potential network members took place, another meeting was cancelled because of low participation rate. On the whole 32 different companies showed their interest in the topic either by participating in meetings or expressing their interest on the phone.246 Based on the limited number of registration and little feedback from SMEs an explanation might be that the Austrian companies lack interest in the topic of networking or at least could not detect the derived benefit for their own business.247 On a closer look, it becomes clear that most important during the Initiation phase are the concrete identification of potential partners and the contacting distribution (Freitag/Winkler, 2000; Eggers/Engelbrecht, 2005). In summarizing the order of events during the seven months, two major challenges can be identified: First, the identification of potential interested parties did not follow a concrete strategy and related measures. The so-called “open approach” was the easiest, but at the same time the most fault-prone way to initiate cooperation between partners embedded in the FMMI organization. There was no analysis of needs, nor an examination of earlier activities or initiatives that could have led to cooperation requirements. The reason for this can be partly found in the second challenge: The top-down or “external” approach of course needs a very strong driver, a person (or an institution) that pushes the project personally and knows how to establish marketing plans for the network. The project partner FMMI had to be persuaded to participate in the initiative, had even rejected a participation in a first stage, and did not show commitment during the Initiation phase.

245 246 247

For role allocation cf. correspondence between UNIVIE and FMMI during March, 2005. Cf. FMMI list of participants and interested parties, November 2004. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise, January, 2006.

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The indicators for low involvement can, for example, be found in the immediate cancellation of all activities at the point of time where an (advanced) payment was delayed, in the non-participation in project meetings as well as in poor support of the process to contact potential cooperation partners. The selection of the surface industry finally showed the need for a defined target group, but still, the required high level of involvement (Stahl-Rolf, 2004) was being shifted to a consultant.

5.1.2 Forming Getting to Know Each Other After the identification of the target group, all members of the surface treatment industry were invited via letter to participate in a fist informal meeting.248 In parallel to the written invitations, the surface industry consultant phoned the CEOs and personally highlighted benefits of the network formation process. The first network meeting took place on 12th of April, 2005 in Vienna, and was attended by representatives of three companies. Although the invitation contained evidence that further meetings will not be restricted to Vienna, other key players of the industry did not show up. In total, seven companies had expressed their interest in the meeting before.249 Given the new business focus of the surface treatment industry, only one enterprise from the first informative workshops had been included in the new strategy. The agenda for the meeting included a short project description, the introduction of the partners to each other, a cooperation preparedness test250 and the presentation of the planned core competence database.251 A core competence database can be seen as a joint database of all services and products, a network is able to provide. During the project VERITAS, the three networks should consider a joint database for supporting their collaboration and the coordination with potential customers.252 The database was seen as a major “product to be delivered” to the network members, representing a

248 249 250 251 252

Cf. FMMI invitation letter, April, 2005. Cf. FMMI attendance list, 12th of April, 2005. Description of the cooperation preparedness questionnaire to be found in chapter 4. Cf. FMMI meeting minutes, 12th of April, 2005; personal meeting notes 12th of April, 2005. VERITAS, IST 2004-511013, Contract for Specific Support Action, Annex 1- Description of Work. For more information cf. http://www.veritas-eu.com, accessed in November 2006.

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Empirical Data: Network Formation Processes

benefit for joining the project253 and formed a major focus of the Austrian network in this phase.254 The idea to have a competence database was accepted by all participants, but led to a discussion on whom to include, how to present the competencies (in form of production procedures, different treatments, linked to the customers) and which legal problems could occur including suggestions on registering in the data base. In this part, official meeting notes of FMMI and personal documentation differ from each other. While the meeting minutes contains the information that “(…)after a great deal of discussion it was decided(…)” to present best practices in the next meeting255, the author’s notes do not provide any hints on discussion on networks but only on the combination of companies via a competence data base256. Only during the last part of the meeting, the topic of discussion changed to the next steps which the major discussion point of how to present the network idea – basically the linkage of companies via the competence data base to other potential network members.257 Due to the very low participant rate, the planned test of cooperation preparedness was rescheduled to the next meeting. The second meeting took place on the 15th of June 2005 and was organized in an industry region of Styria, approximately a two hour drive from Vienna in order to approach participants who did not have an office or company in the capital. This led to a participant rate of eight companies, two research institutes, one Competence Center and an Austrian Cluster258 so that the meeting participants were again heterogeneous. As agreed during the first network meeting, every representative should bring additional interested companies.259 260 The meeting lasted four hours and aimed at discussing expectations, former experience and the next steps for networking.261

253 254 255 256 257 258 259 260

261

Cf. VERITAS telephone conference, meeting minutes, 11th of May, 2005. Cf. VERITAS consortium meeting minutes, 27th of April, 2005. FMMI meeting minutes, 12th of April, 2005. Translated by the author. Original version in German: “Nach einer Reihe von Diskussionsbeiträgen wird festgestellt(...)“. Cf. personal meeting notes, 12th of April, 2005. Cf. personal meeting notes, 12th of April, 2005. Cf. FMMI attendance list, 15th of June, 2005. Cf. FMMI meeting minutes, 12th of April, 2005 As the surface treatment industry comprises around 180-200 members, including research institutes or competence partners, some other institutions also became interested and participated. However, the second meeting was officially only announced to those that had expressed their interest before. For further information cf. FMMI email, 13th of May, 2005 and invitation, 11th of May, 2005. Cf. FMMI meeting agenda, 15th of June, 2005, and FMMI invitation letter, 13th of May, 2005.

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After an introduction, different best practices of networks like the manufacturing network Virtuelle Fabrik Nordwestschweiz-Mittelland262 or the Austrian cabinetmakers’ network Aufmöbler263 and critical success factors were presented.264 One of the FMMI’s student trainees presented a suggestion how to structure and cluster the services of the industry. Although it was explained that the user interface of the database had not been included in the first structure and can be easily adapted to the industry’s preferences,265 the suggestion of how the competence database should look like266 led to a discussion about its complexity and the need for a simple front-end. In this case, the interpretation of the observing party and the official meeting protocol again differ, because the official protocol only contains very positive remarks on the database.267 The meeting did not contain joint work on strategy or goals. Discussion level was rather low; around 85% of speaking time can be attributed to the Network Manager himself.268 While the meeting agenda highlighted group work and no central moderation, in the real meeting companies to a large extend leaned back and waited for information and instructions. Based on the initiative of two research institutions, a brainstorming session on the objectives of the network was done. While it became clear that different expectations existed in the group,269 one of the members suggested informing each other about core competencies and strengths. It was agreed to send a short questionnaire to all members, including a section on core competencies and on the own idea what to contribute to the project.270 Additionally, at the end of the meeting, a written investigation on the expectancies and on the cooperation preparedness was carried out. Before the meeting was closed, evaluation forms were distributed. Eleven questionnaires were filled. The prequestionnaire271 revealed that the main factors of cooperation were the establishment of a long-term cooperation basis (which was confirmed by all companies) aiming to

262 263 264 265 266 267 268 269 270 271

http://www.virtuelle-fabrik.ch, accessed in November 2006. http://www.aufmoebler.at/, accessed in November 2006 Cf. UNIVIE presentation, 15th of June, 2005; meeting minutes, 15th of June, 2005. Cf. personal meeting notes, 15th of June, 2005. Cf. personal meeting notes, 15th of June, 2005. Cf. FMMI meeting minutes, 15th of June, 2005. Cf. personal meeting notes, 15th of June, 2005. Cf. FMMI meeting minutes, 15th of June, 2005. Cf. FMMI “Competence Presentation”, June, 2005; FMMI meeting minutes, 15th of June, 2005. For structure and aim of the pre-questionnaire, compare for chaper 4 and the appendix.

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Empirical Data: Network Formation Processes

increase the companies’ efficiency.272 Further important aspects were the representation of one face to the customer and capacity sharing. Both aspects can be partly explained by the high dependence of the automotive industry273 which activates a strong desire to have more industry power. As decisive prerequisites to enter cooperation, the existence of clearly defined rules and roles as well as open communication played the most important role for Austrian network participants, followed by a clearly defined vision, the trustworthiness of partners and that everyone takes over responsibility and shows commitment.274 On the other hand, unprofessional behavior, fraud, but also the lack of legal cooperation agreements would lead to immediate exit of the better part of potential network partners. Trust was also identified as being critical for cooperation: at least four out of eleven people were only “medium trustors”.275 No “low trustor” could be identified, however, one index was returned without answers. Partners had the opportunity to give recommendations for trust building in an open questions–section. For the Austrians, getting to know each other was the most important factor. The suggestions included as well the organization of meetings as the establishment of a competence database. Mutual visits of each other’s production plants, the establishment of joint rules as well as open discussions were also mentioned. Cooperation Atmosphere Both meetings were organized within a short time frame from about two hours and included an informal part with open discussion in the end. Nevertheless, informality and getting to know each other was quite low at this stage. On the other hand people tended to talk to each other during the coffee breaks but treated each other with reservation during the meetings.276 At this point of time, no core competence description or company presentations took place and mutual visits had not been discussed yet. Still, the number of participants that committed to the joint activities was rather low and the heterogeneity of the group remained.

272 273 274 275 276

Cf. UNIVIE presentation “Fragebogenauswertung – ein Überblick”, 6th of September, 2005. Cf. personal meeting notes, 12th of April, 2005. Cf. analysis of critical success factors in UNIVIE presentation “Fragebogenauswertung - ein Überblick”, 6th of September, 2005. Cf. trust index results in UNIVIE presentation “Fragebogenauswertung - ein Überblick”, 6th of September, 2005. Cf. personal meeting notes 12th of April, 2005;15th of June, 2005.

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At the second meeting, one of the most dedicated representatives extended an invitation to its subsidiary in upper Austria, including a tour in the production plant and a visit of the research laboratory. Besides the invitation, this company was present at every meeting and showed the first initiatives for joint projects.277 The arguments of the representative were characterized by the need to exchange ideas and know-how by saying for example “There are a number of people who are experienced in this or that, what do they think about our ideas?”278 Other partners seemed to be more sceptical and still did not know if they should join the Cooperative Network or not. Statements like “(...) I think, that the project VERITAS is one of those EU-projects, where some institution – whoever it may be, I don’t know, maybe the University or another institution – gets money in order to spend it.“279 underlined a negative or undetermined attitude, while others are still in a wait-and-see attitude.280 Reach Commitment and Strategy Formulation The meeting in Styria was trend-setting as the main discussion points were i) the definition of a network and ii) the various ideas where to go.281 282 Expectancies were discussed and it became clear that different foci according to the organizations’ backgrounds arose. While research institutions would have liked to focus a network more on lobbying and positioning of the surface technologies, technical offices were looking for customers and others for concrete projects to work on.283 At the end of the meeting it was agreed that the three sub-groups in the areas lobbying, customeroriented solutions and knowledge-exchange should be formed according to everyone’s preferences, meet before the next meeting and present their concrete objectives at the next meeting.284

277 278

279

280 281 282 283 284

Cf. interview number 1, units 01010058, 01010085, 01010093, October, 2005. Cf. interview number 1, unit 01010085, October, 2005. Translated by the author. Original text in German: “Da gibt’s jede Menge Leute, die haben Erfahrung in dem und den Bereich, was sagen die überhaupt dazu?.“ Cf. interview number 2, unit 01020171, October, 2005. Translated by the author. Original text in German: „(...) ich glaube halt, dass das Projekt VERITAS ein EU-Projekt ist, wo irgendeine Institution, wer auch immer das sei, ich weiß es wirklich nicht, ob das Uni oder wer anderes, Geld bekommen, um es auszugeben“. Cf. interview Network Manager, October, 2005. Cf. interview number 3, unit 01030469 ff, October, 2005. Cf. UNIVIE presentation consortium meeting, 15th of June, 2005. Cf. FMMI meeting minutes, 15th of June, 2005. Cf. FMMI meeting minutes, 15th of June, 2005; Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006.

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Empirical Data: Network Formation Processes

On the other hand, the project consortium’s suggestions and ideas of methods and workshops in order to establish a joint strategy285 were rejected by the Network Manager and the representative person of the surface treatment industry.286 This also holds for ideas on trust building activities.287 Instead of formalizing the looselycoupled network, the idea to reach commitment was supported via informal, but personal contacts of the Network Manager to potential network members’ quick wins in order to attract more people for the network.288 His main idea for presenting a benefit to potential network members was the establishment of the competence database. All other points, like structural aspects or the decision who really participated in the network, were postponed. The next planned steps were to enhance knowledge and experience exchange between partners and identify topics and areas of mutual interest to at least initiate joint work on a bilateral level. Nevertheless, the ideas formulated by the FMMI and the surface industry were to increase the competitiveness and the positioning of the industry as qualified subsuppliers. The main tasks derived from this strategy can be seen in the areas qualification and training, R&D and, innovation, technology and environment and in the sector of public relations.289

Identification of the Market Instead of a concrete target market, a “pool of projects” was initiated by the Network Manager. Companies could address him with project ideas or specific challenges they had to face so that he could look for the right partners or experts. Basically, the Network Manager started Brokering activities as he selected and contacted potential partners for different ideas. First suggestions and working projects arose in July 2005290 and contained i) a request for knowledge in how to galvanize gas-nitrated parts,291 ii) a request for selling a used waste-water-treated machinery and iii) a suggestion for an R&D project, that is the

285 286 287 288 289 290 291

Cf. UNIVIE/SFC: Recommended Structure for Workshop 2, April, 2005. Cf. personal meeting notes,15th of June, 2005. UNIVIE/SFC. Suggestions on how to build trust in networks, 16th of February, 2005. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006. Cf. FMMI presentation, review meeting, 10th of February, 2005 Cf. VERITAS telephone conference, personal meeting notes, 6th of July, 2005. Cf. email of surface industry responsible to network members, 22nd of July, 2005

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construction of a prototype of a new method to galvanize motor-parts.292 Concerning the last business idea, the Network Manager supported the members with finding the right partners, writing proposals. The “owner” of the ideas and the contributors were not communicated officially until the end of the VERITAS initiative.

Summary and interpretation: To sum up, the Forming phase can be interpreted as a phase that took place from February to August 2005, which is seven months. During this time frame, two official network meetings took place where target companies came together and a group of potential participants vaguely formed. People got to know each other from a business and private perspective – at least to some extent. However, the process of getting to know each other was a little bit difficult, as not every company participated in every meeting. After the second meeting, 14 different institutions had expressed interest, three of them had not participated at any of the meeting and only three had taken part in both meetings. The network at this stage was characterized by mutual partner selection and the nomination of new partners. The companies decided on their own whether they would form part of the network or not and therefore decide with whom they would like to cooperate. The role of the Network Manager was assigned. Although no official application and selection phase took place, he was accepted immediately because of his consulting activities in the business sector. He took over a central rule in bringing companies together, and introducing them. His behavior and attitude how to organize the partners was crucial at this stage of formation. According to Tuckman (1965) people do not know where to go, what to do, whom to follow and ask a lot of questions in the Forming phase. This could be clearly observed in the considered time frame: Representatives behaved insecurely, did not talk a lot and seemed to expect a strategy or an impetus from outside. Abstract discussion determined the conversation. The discussion and questioning of the competence database can be seen as an indicator for the predominance of uncertainty.

292

Cf. FMMI presentation, review meeting, 26thth of January, 2006; personal meeting notes, 6th of October, 2005; interview number 1, unit 01010084, October, 2005.

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Empirical Data: Network Formation Processes

West (2004) even mentions the high anxiety in this phase where concerns about the strategy and about the role of the management may arise. In this case, the atmosphere was very calm and observant. It seemed that the potential members were still in the decisive phase and wanted to get more information before they finally commit to the cooperation. This can for example be confirmed with expressions like “I decided to participate to the first VERITAS meeting without commitment”. 293 Another expression was “It was nice, friendly, open; but I had the impression, that a lot of (participants) – and I think it were two-thirds – were in an observing position.”294 The low participation in discussions can either be attributed to the strong need for guidance and leadership, but also to the need for protection: Typically, the information given to partners or group members is quite low in the beginning. Courteousness and reservation could be observed during the meetings, and no criticisms were openly expressed. These aspects reflect typical characteristics of politeness in the Forming phase (Tuckman, 1965). The need for formalization and structure was present in several parts of the study295, although not observable during meetings. During the Forming phase, partners are introduced to each other, get to know each other and are supposed to decide on at least a joint strategy or direction where to go. Most important therefore would be the formalization of joint goals (West, 2004) and the establishment of trust based on joint meetings and numerous contact points (Handy, 1995). Unfortunately, none of these two points were fulfilled during this phase.

5.1.3 Storming Working Together As agreed in the meeting on the 15th of June, 2005, core competencies should be reported and companies were expected to meet in the working groups. However, the

293 294

295

Cf. interview number 1, unit 01010104, October, 2005. Translated by the author. Original text in German: “Veritas, das ist auch wieder so etwas, das horche ich mir auch an.(... )“ Cf. interview number 2, unit 01020214, October, 2005. Translated by the author. Original text in German: “Es war nett, freundlich, offen, aber ich habe schon den Eindruck gehabt, dass sehr sehr viele und damit meine ich 2/3 in einer Abwarteposition waren.“ Cf. results of the Virtual Degree in UNIVIE presentation “Fragebogenauswertung – ein Überblick”, 6th of September, 2005.

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next joint activity was not before the 6th of September 2005, where another network meeting took place. The meeting was hosted by the innovative company that had invited the other companies to their plant and offered a guided tour through the manufacturing site. The preparedness to share inside information with other companies was answered by a participation rate of 12 companies, three of them completely new to the project.296 The agenda contained i) the project status of Austria, Belgium and Turkey, ii) the reporting of existing project initiatives and iii) the competence database and its process status database.297 After a short overview on the current projects including the current situation that the competence database was nearly ready and would be sent to the partners as soon as the technical part by ARMD was ensured, the Network Manager moved on to an overview of the current projects during the first part of the meeting.298 The three projects that have been initiated during summer were explained: ƒThe nitration of galvanized parts: Knowledge exchange in order to support a specific customer request in hardening. Several anonymous answers were received by the Network Manager at that point of time. ƒThe development of a motor part: The development of a new technology led to a call for partners which means that interested parties could apply for participation. The project idea should ideally be based on public funding. ƒThe sales and retro-fitting of second hand machinery: One company was looking for clients to buy the machine. All the information on the projects was given on a rather superficial level,299 without mentioning the concrete solutions or even the names of the project initiators. Besides the second project, the ideas were bilateral cooperative projects where information or contacts were shared by means of the Network Manger as the connecting part between actors.300 However, the idea of jointly developing a prototype was inserted by the same company that invited the others to visit its plant, which underlines the high preparedness of this institution to cooperate with others on a business level.

296 297 298 299 300

Cf. participant list, 3rd network meeting, 6th of September, 2005. Cf. agenda 3rd network meeting, 6th of September, 2005. Cf. personal meeting notes, 6th of September, 2005 Cf. VERITAS Diary, 7th of September, 2005. Cf. VERITAS D41: Report on the Experiences with Setting up a Virtual Enterprise, January, 2006.

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Empirical Data: Network Formation Processes

The Network Manager did not mention the companies involved in the concrete projects, neither did he provide any details, but offered interested parties or people who would like to initiate another project, to address him trustfully. Joint working was shifted to the single projects, and no information was given to those not involved. Furthermore, no detailed documentation took place and even the final report of the Network Manager only included rough project descriptions, protecting companies’ names or detailed information on potential and current solutions.301 Nevertheless, the meeting protocols included very positive statements about development and status of joint work.302 In a second phase of the meeting, participants were provided with current information on funding policies: The Network Manager discussed difficult subventions of the Austrian government and new issues in the sector like a new regulation of chemical substances.303 After two hours and right at the end of the official agenda, the results of the questionnaires distributed during the first phase were asked to be presented briefly.304 As this part was not mentioned on the agenda, nor was there equipment or time provided for the explanations, the presentation was rather short and detailed documentation was forwarded to all members afterwards305. The presentation therefore was restricted to the highlights and most outstanding results like the need for rules and cooperation agreements on the one hand and the negligibility of geographical closeness and technical trainings on the other hand; advocacy for long-term cooperation; the importance of trust and professionalism and the diversity of suggestions how to establish joint strategies and trustful relationships.306 Although some companies seemed to be interested, others were skeptical concerning the results307: One of the representatives, who attended the meeting for the first time, said that he was not surprised that the proximity and knowing his partners before starting cooperation is ranked far behind the other issues. He thought that companies did not trust each other and therefore would be glad if their competitors were far away. Furthermore, the results were partly questioned by the companies and the Network 301 302 303 304 305 306 307

Cf. Network Manager’s intermediate report, 3rd project period, December, 2005. Cf. meeting minutes, 3rd network meeting, 6th of September, 2005. Cf. meeting minutes, 3rd network meeting, 6th of September, 2005. Cf. email of surface industry representative (FMMI) to UNIVIE, 22nd of August, 2005. Cf. VERITAS Diary, 7th of September, 2005. Cf. UNIVIE presentation “Fragebogenauswertung – ein Überblick”, 6th of September, 2005. Cf. VERITAS D41: Report on the Experiences with Setting up a Virtual Enterprise, January, 2006.

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Manager as not being representative because of the small sample. On the whole, reactions during and after the meeting reactions were quite low.308 The official meeting lasted around one and a half hour; afterwards, the tour through the manufacturing site took place. During this tour, most of the parties were very interested and listened carefully. As the leading company was seen as one of the most sophisticated and high-technically equipped plants in this sector, people asked a lot of questions as well.309 After the meeting, an additional project idea was distributed to the interested parties.310 The topic of interest was a special challenge in galvanization and the initiator was looking for companies that had had the same problem before and could help with their expertise. The invitation was formulated as follows: ”We are looking for partners that are prepared to share their technical know-how (…)” and contained the question “Who has experience with the electro galvanization (on zinc) of gaseous parts? (…)”.311 The project could be classified as pure knowledge and information exchange.312 Although it was agreed to work in the sub-groups, there had not been any meeting during the summer. Only after this meeting, the FMMI invited the three subgroups to meet at their office and participated both, the Surface treatment Representative, as well as the Network Manager.313 In total, eight people participated in the subgroups. ƒThe Knowledge Exchange workshop incorporated four project partners, where one had not been at a meeting before. The objective of the meeting was formulated as “(…) designing suggestions how to enhance knowledge exchange between members of the Austrian Surface Industry, but also international and inside the companies.”314 The result of the meeting were four topics that should be improved in the future: i) Knowledge exchange between international 308 309 310 311 312 313 314

Cf. VERITAS Diary, 7th of September, 2005. Cf. personal meeting notes, 6th of September, 2005. Cf. email of FMMI / Network Manager to the project partners, 20th of September, 2005. Cf. email of FMMI / Network Manager to the project partners, July, 2005. Cf. email of FMMI / Network Manager to the project partners, 20th of September, 2005. Cf. FMMI invitation to VERITAS working groups, 10th of October, 2005. Cf. meeting minutes group “Knowledge Exchange”, 20th of October, 2005. Translated by the author. Original text in German: ”Erarbeitung von Vorschlägen um den Erfahrungsaustausch innerhalb der österreichischen OT Branche, international, aber auch innerhalb von Betrieben zu fördern.“

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Empirical Data: Network Formation Processes

VERITAS-project partners, ii) the improvement of internal communication processes in the companies themselves, iii) the concentration of information for non-German native speakers and iv) the idea of establishing an anonymous forum to discuss current challenges of the Surface companies.315 No concrete steps or suggestions were reported. ƒThe last point was also an issue in the group for Customer-Oriented Solutions,316 where the clearly formulated objective of the seven participants (three of them new) was to establish a knowledge platform like http://www.technologiepartner.at with a search function that enables potential customers to look for different application areas, different forms of galvanizations, and also technical requirements like protection against corrosion.317 It was agreed to jointly develop a questionnaire for potential customers. All project partners were invited to prepare topics of interest that should be addressed in the questionnaire.318 ƒIn the workshop of the Lobbying working group with four participants, three of them new, it was agreed to organize events and seminars for the members of the Surface treatment and to develop proposals for projects in technical colleges.319 The ideas incorporated for example the preparation of relevant information from the Surface treatment industry to FMMI companies, the development of concepts how to incorporate concrete business projects in the formation of mechanical engineers.320 Although the suggestions were rather concrete, no action plans were established. No agreements on further meetings were made by any of the groups. A meeting planned for the 6th of December, 2005, where a cluster expert from Upper Austria was invited to give a talk on his experience,321 was cancelled because of no registrations322 although the date had been announced one month earlier.323 Based on the communicated need to learn more about networks, the manager of the Plastics

315 316 317 318 319 320 321 322 323

Cf. meeting minute group “Knowledge Exchange”, 20th of October, 2005. Cf. meeting minute group “Customer oriented Solutions”, 20th of October, 2005. Cf. Network Manager’s presentation at the final VERITAS meeting, 18th of January, 2006. Cf. email of surface treatment representative to project partners, 21st of October, 2005. Cf. meeting minutes group ”Lobbying”, 20th of October, 2005. Cf. Network Manager’s presentation at the final meeting, 18th of January, 2006. Cf. agenda of the 4th network meeting, 6th of December, 2005. Cf. email of surface industry representative to project partners, 5th of December, 2005. Cf. email of surface industry representative to project partners, 8th of November, 2005.

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Cluster in Upper Austria would have given a talk on his experiences.324 In this cluster initiative as well knowledge exchange, lobbying, formation and training of existing and future employees and trainees as well as joint research and business project are provided. In December 2005, an article about the current status of the competence database was published in the industry journal of the “Working Committee Surface Treatment”.325 It was reported that the former “Supply and Service Catalogue” could be restructured and was intended to be sent to all the members of the industry for self-actualizing. Again, an invitation to join the working groups was expressed. Discussion of Rules and Roles No rules were established during these months, although the results of the questionnaire clearly reveal the need for structure.326 Although the atmosphere in the meeting was described to be “(…)good and constructive” by the surface treatment representative,327 it was at the same time recognized that the low discussion level could be attributed to the moderating style of the Network Manager.328 First attempts for establishing at least a joint overview of core competencies had been made during the meeting in June 2005 and led to another discussion on the 6th of September, 2005: The idea to define the own core competencies led to a big discussion on the general definition of a core competence: Some of the companies argued that they of course would be able to produce everything a customer wants, because they would always find a solution with external partners.329 The partner that had continuously developed to be an important member of the group finally suggested drawing the line between those activities that a company definitely is producing on its own and those that it would be able to produce. Implicitly, however, some rules seem to have been appointed. First, the regular organization of short and compressed meetings that ostensibly lead to an information exchange between partners. Second, the main business process in the network is 324 325 326 327 328 329

http://www.kunststoff-cluster.at, accessed in November 2006. For further information cf.: “Kompetenz Oberfläche: Die Mitgliederinformation der ARGE OT“, 01/2005, p. 4. Cf. UNIVIE presentation “Fragebogenauswertung – ein Überblick”, 6th of September, 2005. Cf. FMMI presentation at the 3nd review meeting, 26th of January, 2006. Cf. FMMI presentation at the 3nd review meeting, 26th of January, 2006. Cf. VERITAS Diary, 7th of September, 2005.

116

Empirical Data: Network Formation Processes

coordinated by the Network Manager who gets information, neutralizes it and distributes it again. It seems that all partners have agreed on this procedure and the related anonymity in the network. In the second suggested project, there was the need for more concrete rules and distribution of work, which was definitely followed by establishing a written concept and a formal agreement between potential partners.330 Two main roles developed over time. The Network Manager represented an indispensable intermediary between the companies. He brought the companies together, identified the most important topics, and took the main decisions for the network. During that time his role also became official, as he received a contract for his work. The Network Manager carried out his work according to the following scheme:331 A first conversation at any company’s initiative helped to clarify the topic and the general conditions. In a second step, the business idea or request was formulated as an anonymous tender. The Network Manager then organized a meeting with all interested parties, including those who were part of the surface treatment and the project VERITAS, but also other companies that might be helpful.332 Based on the decisions and directions of this meeting, he either accompanied further steps or distributed results to other interested parties. In the network meetings, he talked for nearly all the available meeting time and provided information to the participants, which also led to the fact that the companies themselves did not have any discussion on the rules or roles, not even on common needs and objectives.333 Besides the Network Manager, the company that invited the others to its production site played a major role as a multiplier and as the one who brought in ideas on how to work together. The open-minded management of this company led to the guided tour in the own production plant. Concerning the rest of the network, no joint identity can be identified. At this stage, there were no clear boundaries how to define, who is “in” and who is “out of” the network. 334 Different approaches how to count members led to the following result. In December 2005, 32 people from different firms were nominated to be members of

330 331 332 333 334

Cf. interview number one, unit 01010059, October, 2005. Cf. Network Manager’s presentation at the final meeting, 18th of January, 2005. Cf. the description of the open approach in the meeting minutes of the Network Managers’ meeting, 17th of November, 2005. Cf. VERITAS D41: Report on the Experiences with Setting up a Virtual Enterprise, January, 2006. Cf. personal meeting notes, 6th of October, 2005.

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the VERITAS network by the Surface Industry Representative;335 a few of them had never participated in one of the network meetings before. A core group of six to seven (rather heterogeneous) companies which were involved in most of the communication and working groups can be identified. According to the Surface Industry Representative, around ten companies had been constantly involved in the network creation.336 After the meeting on the 6th of September, 2005, participants still thought of bringing other people to the network by asking for joint communication strategy and a project folder.337 Additionally, there was high need for information about the project, its objectives and its embedding in the European Subvention policy, which reflects a low information status of the interested parties. Handling Conflicts One main conflict that affected the members of the Austrian Network was based on trouble with the VERITAS project partner ARMD because of database. Since the joint database had being communicated as a central benefit of the project, its success was crucial for the surface industry and for the Network Manager. Nevertheless, the software to be provided was based on suggestions of ARMD, customized according to the associations’ needs, but based on an interactive process between the VERITAS partners.338 According to the FMMI, ARMD was seen as the software delivery service that had to adopt the wishes of its “clients”, i.e. the project partners.339 The discussion about the database mainly contained clarification of responsibility and the possibilities to adapt the database according to the own wishes. During the meeting on the 6th of September, the fault and delay were shifted to the Greek partners.340 341 In this meeting, the Network Manager also mentioned that Austria had only become a member of the project because of the possibility to improve the competence database of the surface industry by getting a free software package from ARMD.342 335

Cf. email of surface industry representative to VERITAS partners, 5th of December, 2005 highlighting business contacts of 37 VERITAS members. 336 Cf. FMMI presentation at the final VERITAS meeting, 18th of January, 2006. 337 Cf. VERITAS Diary, 7th of September, 2005; email of surface industry representative to project partners, 8th of September, 2005. 338 VERITAS, IST 2004-511013, Contract for Specific Support Action, Annex 1- Description of Work. For more information cf. http://www.veritas-eu.com, accessed in November, 2006. 339 Cf. meeting minutes, 3rd network meeting, 6th of September, 2005. 340 Cf. VERTIAS Diary, 7th of September, 2005. 341 Comment of the author: According to the Greek partner, most of the troubles could have been avoided by having participated in the planning meetings during the first phase of the project. 342 Cf. VERITAS Diary, 7th of September, 2005.

118

Empirical Data: Network Formation Processes

Another concern was that two members of the surface treatment representative board, who normally acted as strong competitors, were both interested in the project. Whenever one of them was participated in a meeting, the other one did not. On the whole, there seemed to be more conflict avoidance than conflict itself. During the official meetings, participants did not talk to each other or involve in the discussion. The interviews reveal high conflict potential based on the fear to lose know-how to competitors.343 Furthermore, the idea to invite companies to their own plant was not followed up by companies other than the leading partner.344 The strong mistrust was also reflected by the search procedure of interview partners where it was quite difficult to convince the members of the network to give an official statement to the project status and to report on former experiences and current expectancies345. Based on the challenge to establish trustful relationships to each other, the results, concerning trust aspects are of special interest. As table 11 shows, the Austrian entrepreneurs talked about trust in 19 sections and only used the term “trust” 37 times. Only one interviewee focused specifically on the concept of trust.346 Interestingly, mistrust was only discussed by the Network Manager.347 All interviewees had personal preferences as to what experiences to mention. While Interviewee 1 focused on the rules and roles and the necessity of concrete business ideas, Interviewee 2 revealed partly negative experiences of the interviewee that led to a rather critical evaluation of the networking concept. Based on the results of the Content Analysis,348 10.9% of the units focused on trust, whereas 16.2% referred to the necessity of commitment and one third of all units analyzed explicitly focused on Network Management issues.349 From the 87 units that focused on the topic of trust, most important was the imperative to get to know each other which can be related to Handy’s (1995) rule of “trust needs touch” where he recommends that people have to meet in person formally, as well informally.350

343 344 345 346 347 348 349 350

Cf. interview number 1, unit 01010159; interview number 3, unit 01030454 ff., as well as unit 01031462; interview number 4, unit 01040643, October, 2005. Cf. meeting minutes of Network Manager Meeting, 17th of November, 2005. Cf. email of FMMI student trainee to UNIVIE, 31sth of August, 2005. Cf. interview number 2, October, 2005. Cf. VERITAS D51: The importance of trust in the phase of network formation, January, 2006. First results are displayed in Kutucu (2006). Author’s comment: Please note that the interview of the Network Manager is not included in this calculation. For further information cf. VERITAS D51: The importance of trust in the phase of network formation, January, 2006.

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Taking a closer look at the network management issues, most important to discuss were the coordination of partners and activities (65 of 263), leadership issues (53 of 263) and contracts and legal agreements (41 of 263). Other highly relevant factors were the reasons for and against networking, with a portion of 12.6%, which reflects higher concern than trust issues. Interestingly, 22 of 100 units were reasons against networking. To conclude, trust was recognized as an important factor in cooperation but was not a predominant issue in all interviews. While the Network Manager focused on trust aspects, other interlocutors only mentioned it selectively.

46:16 Trade association Austria

50:24 Company office

3

4

Atmosphere

30 minutes late. Friendly atmosphere, detailed and extensive explanations. Very confident and convinced of own ideas.

Relaxed, calm, and comfortable. Interviewee was more prepared to answer questions than to report own experiences Very friendly, interviewee made efforts to give a good contribution.

Friendly and professional but didn’t want to spend too much time. Narrative telling worked in the beginning, later the interviewee seemed to wait for questions. Comfortable. Interviewee started with a very positive statement about cooperation but later more and more questioned the concept of networking.

Table 11: Trust Issues in Austrian Interviews

M 54:17 Trade association Austria

55:09 Trade association Austria

2

Time/Place

51:50 Company office

1

Main topics

Problem of information exchange, networking concept in Austria, importance of informal events Problems of SMEs, high competition, crucial role of Network Manager, participants have to know each other

Gives examples, technical cooperation, need for networking exists

VERITAS project, Competition and profit maximization, former experiences (partly negative)

Importance of rules and roles, necessity of concrete business ideas. Examples of cooperation

Trust related issues

Trust takes time. Trust in the institution of the Network Manager, Mistrust is related to the fear of losing competitive advantages.

Trust depends on getting to know each other, trust cannot be enforced, trustful relationships should be protected to the outside, trust grows after successful projects

Trust as non-disclosure of information. Trust as prerequisite for networking, based on personal aspects. Trust is more important than liking each other, but cannot be enforced. Describes himself as “overtrustful”. People must be trustworthy for networks, Trustful relationships as basis of cooperation Trust related to fair comportment (one must be able to trust his partners)

Trust related to fair comportment, trusting each other depends on personal emotions (first sight or “gut instinct”)

Frequency

Topic is discussed five times (two times the Network Manager, two times mistrust), term “trust” used seven times, “mistrust” once.

Topic is discussed four times, “trust” is used five times

Topic is discussed one time; “trust” is used twice.

Topic is discussed seven times (two times personal trust), “trust” is used 21 times throughout speaking

Topic is discussed two times, “trust” is used twice

Two times in the beginning, one in the middle, one in the end (answering a specific question on trust) Mainly first third of interview.

Middle of interview

Starts in the middle of interview, topic is discussed in a longer dialogue between interviewer and interviewee

End of interview

Point of time

120 Empirical Data: Network Formation Processes

The Austrian Case

121

Summary and interpretation: The Storming Phase was entered as soon as the first project started and people began work with each other. This is the point where independent activities were changed into more or less joint ideas. The phase took place from around September 2005 to January 2006, that is, five months. First projects and at least bilateral information exchange started. The Storming phase is seen as the most crucial phase in group development and is often decisive for the participant’s decisions to stay or leave a team which could result in a team’s failure (Tuckman, 1965). Norming and Performing seem to be easy once the Storming phase has been completed (West, 2004). Generally, Storming reflects the phase when relations and authorities are established, subgroups are built and everyone looks for his space in the collaboration setting. As can be learned from the meeting in September 2005, the different actors had different expectancies and ideas where to go, but also how to proceed. The network had not become a joint group during this time – the expressed need for structure, guidance and formalization that can be derived from questionnaires and interviews was without response at this stage. No discussions or consensus finding on a joint strategy had taken place and project-wise suggestions for strategy and rule-finding workshops had been refused by the Network Manager. The authority of the Network Manager was crucial at this point of time: On the one hand, it seems that he recognized the need for information exchange and wanted to support the network members by bringing the people and institutions together and provide them with current and relevant information. On the other hand, by restricting the information to a rather superficial level, where none of the auditors was able to find out what was going on in the different projects, he actively supported the establishment of anonymity and secrecy. He continuously took over control of the network, including the fact that he openly spoke about his personal impressions and doubts about networking and the VERITAS project, including negative remarks about the project consortium, like for example about ARMD. Interestingly, he offended his employer – which was the VERITAS consortium – and therefore behaved more like a member of the team who would like to resist by dominantly moderating network meetings, for example. Although no obvious conflicts could be observed, resistance was one of the most noticeable emotions. Meetings were cancelled or were subjected to low participation rates are accepted, and people did not reveal any additional company information.

122

Empirical Data: Network Formation Processes

The fact that the sub-groups Knowledge Exchange, Customer-oriented Solutions and Lobbying did not organize themselves for a meeting shows that structural and administrative tasks were shifted to the role of the network management. The distribution of requests and answers was characterized by strong anonymity and non-disclosure of information, which maybe describes a subliminal conflict: In the interviews 22% of the formulated reasons for or against networking reflected negative attitudes or skepticism.351 This relates to a phenomenon in the Storming phase where the concept itself is questioned by the participants: On the one hand, people feared losing their know-how and were not willing to exchange ideas because of possible misuse for own purposes. On the other hand, some of the participants even questioned whether networking works by critically analyzing results of the questionnaires or by mentioning that perceived personal benefits that every single actor could get out of the network were always the most relevant questions in the beginning.352 This was also supported by the arguments of the Network Manager himself who continuously underlined than an open-minded network in the surface industry was not possible.353 These considerations are described as “(…) questioning the wisdom of those who selected this project and appointed the other members of the team” (Alleman, 2004). Another factor was the establishment of sub-groups. The working groups established their own identity, their own way to exchange information and seemed to be much more coherent than the larger loose network. The Network Management obviously supported the establishment of those sub-groups.354 All in all, the Storming phase was characterized by skepticism and reservation and it was thought to be crucial for the Austrian network to cope with these emotions in order to form a joint network. The Network Manager as the representative of the network became increasingly important and trend-setting.

351 352

353 354

Cf. interviews 1-4, October, 2005. Cf. interview number 4, unit 01040567, October, 2005. Original text in German: “Die ersten Fragen, wenn man mit einem Netzwerk kommt, sind immer die, was habe ich von euch? Was bringt mir das, wenn ich dabei bin? Was bringt mir das, wenn ich mitfahre, mitarbeite? Der fragt sich immer nach dem Nutzen,(...)“ Cf. interview Network Manager, October, 2005; Network Manager’s presentation at the final meeting, 18th of January, 2006. Cf. interview 1, unit 01010063 ff, October, 2005.

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5.1.4 Norming Establishing Rules or Regulations How to Work Together A final meeting on 18th of January 2005 took place in a seminar hotel near Vienna including a formal dinner and a wine–tasting event.355 14 project partners joined, three of them had never been at one of the meetings before.356 Companies had to be invited several times,357 including a keen email of the Network Manager who mentioned the importance of establishing contacts between companies and people and demanded the participation of everyone.358 The idea of the meeting was to have a formalized completion of the VERITAS project, and to decide on future steps. The agenda of the final meeting further contained final presentations of the three VERITAS networks, results of the joint work in Austria and a section called “lessons learned”.359 At the meeting, the results of the joint projects were presented. Eight “projects” including the competence database, the establishment of expert groups, and the establishment of international contacts were reported to be carried out during VERITAS so far.360 Table 12 represents the five business projects that were mentioned to have been successfully integrated into the VERITAS project.361

Project A B C D E

Start of project

End of project

Nitration of galvanized parts Sales and Installation of 2nd hand machinery Chrome-plating and galvanizing line Development of motor part

10/07/2005

09/08/2005

15/07/2005

Open

15/09/2005

Open

15/09/2005

To be finished in August 2006

Powder coating line

22/11/2005

To be finished in 2006

Initiator Sector Surface treatment

Employees Not specified

Technical Consultant Surface treatment

0

Hardening; Machinery for hardening Surface treatment

70

Table 12: Austria: Network Project Overview

355 356 357 358 359 360 361

Cf. FMMI presentation at the 3nd review meeting, 26th of January, 2006. Cf. participant list, 18th of January, 2006. Cf. email of surface industry responsible to project partners, 4th of January, 2005. Cf. email of Network Manager to project partners, 9th of January, 2005. Cf. agenda final meeting, 18th of January, 2005. Cf. Network Manger’s presentation at the final meeting, 18th of January, 2005. Cf. FMMI presentation at the 3nd review meeting, 26th of January, 2006.

50

14

124

Empirical Data: Network Formation Processes

Project A) contained knowledge-exchange via the Network Manager who anonymously collected and distributed information and experience, projects C) and E) included the installation of working groups and mutual visits in order to gain ideas for the restructuring process of a manufacturing plant. This project was enriched with the involvement of external consultancies.362 363 Project B) was brought to the network in order to find potential customers. A complete funding strategy was developed for project D) where the treatment of a certain motor part required substantiated research activities in a team of three companies.364 For this project, finally a national funding institution was contacted and further partners like a university and potential customers were involved in a project proposal.365 Additional information about the project could also be found in the branch specific journal or website of the surface treatment industry.366 Besides the report on the projects, there was a short report on the ideas of the three established working groups Knowledge Exchange, Customer-oriented Solutions and Lobbying. In the meantime and with help from one of the institutions involved in VERITAS,367 a questionnaire for all members of the FMMI had been designed in order to find out about the needs of potential customers of the network.368 Crucial factors like time, trust, the concrete benefit for all the partners as well as the establishment of Network Manager were highlighted as “lessons learned”.369 Additionally, the concept of anonymity was highlighted by the Network Manger and the Surface Industry Representative as being crucial for bringing together companies from the surface industry.370 From the participants themselves, new business contacts as well as concrete business opportunities were mentioned as the most important

362 363 364 365 366

367 368 369 370

Cf. Network Manager’s report: Description and Current State of Networking Projects in Austria, 10th of December, 2005. Cf. Network Manager’s presentation at the final VERITAS meeting, 18th of January, 2006. Cf. Network Manager’s report: Description and Current State of Networking Projects in Austria, 10th of December, 2005. Cf. Network Manager’s presentation at the final VERITAS meeting, 18th of January, 2006 Cf.http://www.arge-ot.at/argeot/index.php?site=ak_kommunikation_detail&id=4&detail=arbeitskreise&name=Kommunikation , accessed in June, 2006. Cf. interview number 4, October, 2005. Cf. personal meeting notes, 18th of January, 2006. Cf. “lessons learned” in Network Manager’s presentation, 18th of January, 2006 as well as in FMMI presentation at the 3nd review meeting, 26th of January, 2006. Cf. “lessons learned” in Network Manager’s presentation, 18th of January, 2006 as well as in FMMI presentation at the 3nd review meeting, 26th of January, 2006.

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125

highlights.371 On the other hand, the head of FMMI expressed his unhappiness with the development of the VERITAS initiative, stressing the fact that he could not detect any added value for the members of the association.372 At the end of the meeting, the surface treatment representative expressed that the “(…) future of (…) network (is) up to its members (…)373” but that there existed “(…) different possibilities of development.”374 Several possibilities were presented, including i) continuing like before through the self-organizing of small projects, ii) establishing a loose organization without a Network Manager, but based on a formal contract or iii) establishing a fixed network with a rewarded Network Manager.375 Companies were advised to express their interest in future cooperation by sending a short email, and then they would be invited to a meeting during February 2006.376 With the meeting minutes, an official request for continuing the network was sent out to all members, asking them to decide their interest in joint activities, and in the possible structural and financial solutions.377 Establishing Roles In order to benefit from mutual exchange, a meeting of the Austrian Network Manager with the Network Manager in Belgium and in Turkey was organized for the 17th of November 2005.378 The meeting agenda included a sequence of presentations as well as discussion and exchange forums.379 In contrary to the two other representatives, the Austrian Network Manager did not prepare a presentation but presented the development and status in an oral talk.380 Main elements in his description of the situation contained troubles between organizations of the surface industry and the representative partners at the Chamber of Commerce, as well as the problem of an industry with very small companies. His main ideas of the project were i) to create a competence catalogue, ii) to create knowledge for the companies via “learning by

371 372 373 374 375 376 377 378 379 380

Cf. FMMI meeting minutes, 18th of January, 2006. Cf. personal meeting notes, 18th of January, 2006. Cf. FMMI presentation at the 3nd review meeting, 26th of January, 2006. Cf. FMMI presentation at the 3nd review meeting, 26th of January, 2006. Cf. FMMI presentation at the 3nd review meeting, 26th of January, 2006. Cf. personal meeting notes, 18th of January, 2006. Cf. FMMI Meeting Minutes, 18th of January, 2006. Cf. invitation SFC to Network Managers, 3rd of November, 2005. Cf. agenda Network Manager meeting, 17th of November, 2005. Cf. personal meeting notes and meeting minutes, Network Manager meeting, 17th of November, 2005.

126

Empirical Data: Network Formation Processes

doing” and iii) to provide the interested companies with information on best practices and funding policies. The overall idea of the meeting was to develop an action plan, with respect to the current situation in the country. For Austria, the identified challenges were mainly in the technical area, and the solution proposed by the Network Manager was to look for cooperative concepts or collaboration with international networks.381 He expressed that together with the Surface Industry Representative collection of general information was possible, but thought that more active involvement was not necessary at the moment.382 In order to find out about roles and important actors in the network, a network analysis evaluation did take place. The questionnaire was sent to the network members on the 19th of December 2005 and distributed during the final meeting on the 18th of January 2006.383 On the whole, only seven questionnaires out of the list of 37 VERITAS members384 had been returned, others were provided with remarks like “Because of the fact that I could only participate at one single meeting, it is not possible for me to make such decisions.”385 Nevertheless, the detailed results revealed that most of the questionnaires had been returned with a lot of variations – instead of selecting the three people, a statement can be most related with, respondents arbitrarily voted for one, two, four or even five opponents and left a lot of questions behind. Only one interviewee selected three partners for answering “This person I would like to have a fixed partnership with:”386 and only one person selected another one to describe that he “(…) would be more effective in my work if I were able to communicate more with this person:”387

381 382 383 384 385

386 387

Cf. meeting minute of Network Manager meeting, 17th of November 2005. Cf. meeting minute of Network Manager meeting, 17th of November 2005. Cf. VERITAS D51: The importance of trust in the phase of network formation, January, 2006. Cf. email of surface industry representative to VERITAS partners, 5th of December, 2005 including business contacts of 37 VERITAS members. Cf. forwarded email of network member, sent via FMMI to UNIVE, 19th of December, 2005. Translated by the author. Original text in German: “Nachdem ich aus Zeitgründen gerade ein einziges Mal an einem Meeting teilnehmen konnte, ist es mir leider nicht möglich, hier die entsprechende Auswahl zu treffen.” Cf. network analysis questionnaire, December, 2005. Cf. network analysis questionnaire, December, 2005.

The Austrian Case

127

Summary and interpretation: First attempts to develop norms for the network could be recognized during November 2005 based on the Network Manager meeting, but further efforts have not been carried till the end of project time. At the meeting on 18th of January 2006, a turning point was reached: With the official end of the research project, former and ongoing activities were analyzed in retrospect and future possibilities were identified. Feedback from the participants showed that they generally enjoyed the good atmosphere and the business contacts and although most of them had been skeptical in the beginning, they thought that the project should be continued.388 Nevertheless, at this point of time, no network identity was present. Although those companies that participated in the final meeting might have felt as being part of a project, there had been difficulties to make them join the meeting. Additionally, the failure of the network analysis and the selective response to the questions clearly showed that the participants were not able to feel and act like one joint network, since they had not gotten to know each other until this point of time. On the other hand, they were interested in the results and did not want to miss important presentations, which was maybe the reason why they finally joined the meeting. The boundaries of the network were still open so that even the Network Manager describes it as an “open consortium” where all members were invited to join without restriction to surface treatment. In his opinion 5-40 companies were involved in the VERITAS initiative.389 Based on his official report, however, 20 institutions were “actively involved”.390 The responsibility of all actions was still within the limits of the Network Manager, which should be substituted by active involvement of other participants during the Norming phase. The Norming phase represents a phase where positive cooperation between partners begins, working standards are established and the communication level between partners increases (Tuckman, 1965; West, 2004). Normally, new behavior patterns can be observed and mutual acceptance and trust are established. Based on the experiences with the Austrian Network, it can be summarized that only little progress in the Norming phase had been taken.

388 389 390

Cf. FMMI presentation at the 3nd review meeting, 26th of January, 2006, personal meeting notes, 18th of January, 2006 Cf. meeting minutes of Network Manager Meeting, 17th of November, 2005. Cf. Network Manager’s report “Description and Current State of Networking Projects in Austria”, 10th of December, 2005.

128

Empirical Data: Network Formation Processes

5.1.5 Performing Strategy Alliance between Network and Companies No alliance of partner companies’ strategies could be observed, nor was there any establishment of a joint strategy or discussions. According to the Network Manager, the development of a joint marketing strategy for all involved companies was not possible. Main challenges were the fact that every company wanted to see immediate benefit of the network and that exactly those benefits were hard to show since the activities in the sector are very diverse.391 The heterogeneity was also represented by the different project ideas. Nevertheless, he mentioned that a joint marketing plan could be possible in a future phase, provided that in a first step joint objectives and strategies would have been developed.392 Systems (ICT, Controlling) The original idea for the network contained a joint competence database that should serve on the one hand for internal project coordination, and that can on the other hand be accessed via a network website in order to directly contact potential customers.393 Although not realized in the project, the surface treatment representative presented a first result in the final meeting:394 The industry platform http://www.oego.at included an Internet forum where members and guests can initiate discussions about technical issues, services and jobs, but also about potential cooperation topics.395 Anonymous inquiries can be sent via email.396 Results of Joint Cooperation Besides the positive statements of the project participants397 that included perceived benefits on joint projects and the established business contacts, 398 results can only be reported on a project-based level. On a bilateral level, companies established contacts and could benefit from mutual expertise. Concerning the development of galvanized motor parts, the leading company described it as a success during the meeting on the 391 392 393 394 395 396 397 398

Cf. Network Manager’s arguments for the marketing plan, January, 2006. Cf. Network Manager’s arguments for the marketing plan, January, 2006. VERITAS, IST 2004-511013, Contract for Specific Support Action, Annex 1- Description of Work. For more information cf. http://www.veritas-eu.com, accessed in November, 2006. Cf. FMMI presentation, 18th of January, 2006. http://www.arge-ot.at/arge-ot/phpBB2/index.php, accessed on 30th of May, 2006. http://www.arge-ot.at/arge-ot/index.php?site=kontakt&zusatztext=ja, accessed on 30th of May, 2006. Cf. FMMI presentation at the 3nd review meeting, 26th of January, 2006, personal meeting notes, 18th of January, 2006. Cf. FMMI presentation at the final meeting, 18th of January, 2006.

The Austrian Case

129

18th of January 2006 as it was submitted to a national research programme and got funded.399 The project team was able to extend the research activities to an interested customer who tested the motor parts.400 Summary and interpretation: The Performing phase was not entered during project time. No effective structure was established and the network was still dependent on the involvement of the Network Manager (West, 2004). Normally, during Performing the team becomes highly effective, powerful and innovative and relationships are embedded in an atmosphere of mutual appreciation (Francis/Young, 1989; Kauffeld, 2001). In the Austrian case, selective, positive results can be detected, but even from the Surface Industry Representative, the project outcomes are not regarded as “network” result, but as results of having successfully established bilateral assistance.401 Neither trust nor self-organization could be observed. The discussion and activity level had not changed in comparison to earlier phases.

Figure 10 gives an overview of the timeline of the network in respect to the group formation model:

Initiation 1

2

3

4

5

Forming 6

7

8

9

10

11

Storming 12

13

14

15

16

17

18

01/07/04

… 19

20

21

22

23

24

31/01/06

Figure 10: Formation Process Austria

During the Initiation phase, an open and unfocussed approach to select and contact potential network members had to be reviewed and exchanged by a concrete target group. In parallel, the early installation of the Network Manager took place, in order to have a “driver” for the network initiative. Forming was characterized by heterogeneity in the group and different levels of interest that was observed via changing participation rates and fluctuation in meetings. Companies treated each other with 399 400 401

Cf. personal meeting notes, 18th of January, 2006. Cf. personal meeting notes, 18th of January, 2006. Cf. FMMI presentation at the 3nd review meeting, 26th of January, 2006.

130

Empirical Data: Network Formation Processes

respect, but waited for the next steps and only partly participated in discussions. While Forming showed typical characteristics and behavior (Tuckman, 1965), Storming went a little different: Instead of high rivalry and struggle for power, people expressed their different expectations but did not demand a decision. On the other hand, resistance and indifference was observed, as network members for example did not show high meeting discipline. Another typical Storming behavior was the questioning of the benefits of networking and the strong focus on anonymity. During Norming, mutual acceptance, rules and roles should arise (Francis/Young, 1989). However, only little attempts on joint plans and work standards were noticed, none of them in the network meetings, but only during the meetings of project teams. Behavior did not change instead of slightly more discussion in meetings. Boundaries of the network were not defined and no roles except the Network Manager had been developed. By entering the Performing phase, one should be able to observe joint solutions and a compact team where members appreciate each other. Neither closeness, nor successful outcomes (West, 2004) or critical, innovative discussion culture could be observed.

The Belgian Case

131

5.2 The Belgian Case Economic Situation In the Kingdom of Belgium 10,419 (2005 estimate) million people live on 10,296km².402 The country is reflected by a tripartition of language communities, that is Flanders with Flemish-speaking inhabitants in the North, Wallonia with Frenchspeaking people in the South, and a German-speaking minority in the East of the country.403 Economy-wise, Belgium is one of the few EU-member-states with a balanced budget that produces a national product of 325 billion Euros.404 Most relevant sectors are based on the industry (25%) as well as on service (75%), both with a strong-expert-oriented trade of high value-added goods.405 Belgian expert goods encompass automobiles, food and food products, iron and steel, as well as textiles, plastics, and nonferrous metals. The whole export accounts for 269.6 billion Euros.406 The GDP per capita is estimated to reach an amount of 30,100 Euros in 2007,407 whereof 19.9% of the GDP is used for investment.408 With these figures, Belgium is ranked among the Nordic European States, Canada, Switzerland and Hongkong of the International Monetary Fund.409 Between 1985 and 1995, the country undertook a period of fast economic growth.410 Today, the annual growth rate is at 2.7%.411 In 2005, the inflation rate reached 2.8% in consumer prices.412 In Belgium, 8.5% of the population is unemployed, which shows an average European unemployment rate, but is much higher than for example in Denmark, Austria or the Netherlands.413 The industry in Belgium is characterized by strong labor associations and collective action, but also by many employers’ organizations and institutions. SMEs form a significant 402 403 404 405

406 407 408 409 410 411 412 413

Cf. http://en.wikipdia.org/wiki/Belgium, accessed on 17th of August, 2006. Cf.http://134.184.131.111/BELGCUL2.html, accessed on 17th of August, 2006. Cf. https://www.cia.gov/cia/publications/factbook/geos/be.html, accessed on 18th of August, 2006. Cf.http://www.belgium.be/eportal/application?origin=navigationBanner.jsp&event=bea.portal. framework.internal.refresh&pageid=indexPage&navId=2477, accessed on 18th of September, 2006; http://en.wikipdia.org/wiki/Belgium, accessed on 17th of August, 2006. Cf. https://www.cia.gov/cia/publications/factbook/geos/be.html, accessed on 18th of August, 2006. Cf. http://wko.at/statistik/eu/wp-belgien.pdf or https://www.cia.gov/cia/publications/factbook/geos/be.html, both accessed on 24th of April, 2007. Cf. https://www.cia.gov/cia/publications/factbook/geos/be.html, accessed on 18th of August, 2006. http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita, accessed on 21st of September, 2006 Cf. for example http://134.184.131.111/BELGCUL2.html, accessed on 17th of August, 2006. Cf.http://www.belgium.be/eportal/application?origin=navigationBanner.jsp&event=bea.portal. framework.internal.refresh&pageid=indexPage&navId=2421, accessed on 18th of September, 2006. https://www.cia.gov/cia/publications/factbook/geos/be.html, accessed on 21st of September, 2006. http://www.bmwa.gv.at/EN/Topics/Labormarket/comparison/default.htm, accessed on 21st of September, 2006.

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part of Belgian companies, which are for example supported by the Federation of Enterprises in Belgium414, a multi-sector employers’ association, also called “the voice of business” that encompasses 33 federations.415 Manufacturing Industry Situation With an export rate of 71%, the manufacturing industry generates an annual turnover of 46.6 billion Euros.416 The Belgian mechanics and mechatronics sector operates worldwide. In this area, 84% of the companies have fewer than 100 employees,417 which means that a better part of the industry consists of SMEs. AGORIA is the largest employers' organization and trade association in Belgium.418 It is financed by member contributions and represents companies in the technology industry, with a special focus on business relations and establishing national and international partnerships.419 The organization is run with 250 people that take care of 1300 member companies.420 The association supports its members with activities in research and development, but also held training sessions and takes care of ecological issues. Collective bargaining and trade policies in the country are influenced by the organization. AGORIA’s mission is “(...)to serve its members and to exert its full influence in order to improve the economic and social environment in which they operate.”421 One of the main fields is the support of companies related to partnerships and innovation. In this context, AGORIA is involved in research activities and in the organization of related conferences. 422 Mechanical and mechatronic engineering is one of eleven departments at the association, encompassing 355 member companies with a total delivery amount of 7.8 billion Euros.423 The major market trends in the area show increasing demand for allin-one solutions, with one interface to the customer, but also on increasing customization and user-friendliness of products quality issues on the customer side, 414 415 416 417 418

419 420 421 422 423

Cf. http://www.vbo-feb.be, accessed on 19th of September, 2005. Cf. http://www.vbo-feb.be, accessed on 19th of September, 2005. Cf. AGORIA presentation at the kick-off meeting, 1st of July, 2004. http://www.AGORIA.be/pdf/En/RoadmapEnglishversion.pdf, accessed on 19th of September, 2005. http://www.AGORIA.be/s/p.exe/WService=WWW/webextra/prg/izContentWeb?vWebSessionID= 5550&vUserID=999999&MyOrDaily=daily&EnewsID=33449, accessed on 21st of September, 2006. Cf. AGORIA document “voorstelling-kort”, December, 2005. Cf. AGORIA presentation at the kick-off meeting, 1st of July, 2004. Cf. AGORIA presentation at the kick-off meeting, 1st of July, 2004, p.5. Cf. http://www.AGORIA.be/MITachievinggrowth, accessed on 19th of September, 2006. Cf. AGORIA presentation at the kick-off meeting, 1st of July, 2004.

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globalization and concentration on the other side. AGORIA cites that the number of manufacturers of weaving machines has dropped by half over the last decade.424 One of the major trends reported by the industry is the need to turn products into services, including maintenance or leasing possibilities.425 These trends result in a strong need to change structures, look for new partners and establish innovative, high-quality products in order to be able to survive. 5.2.1 Initiation Attitude towards Cooperation and Cooperation History Generally, Belgium is reflected by skepticism towards government and authority, which might be related to the imposture of many foreign rules in the past.426 The VERITAS Network Coordinator of Belgium reported a low cooperation preparedness of Belgian companies, related to the High Uncertainty Avoidance Index of Hofstede and Hofstede (2005) and to the internal difficulties of the French, the Walloon and the German groups.427 Nevertheless, AGORIA has been trying to push the concept of networking since the 1990s and initiated several networks including the Flanders' Drive (automotive sector), Flanders' Mechatronics (mechanical engineering), and Flanders’ Materials Cluster (materials), Grappe méchatronique (mechanical engineering).428 AGORIA expressed its interest in the VERITAS project because it wanted to learn more about Virtual Enterprises and cluster formation, since this is one of the core tasks of AGORIA. Benefits for the members were listed as follows: “(…)- better assistance in the network creation process, - tools and methods for the network creation process (trust building), - tools and methods for the network exploitation (ICT tools).”429 The VERITAS Network Coordinator was a manager of AGORIA who had participated in similar projects before. Due to his experience, he always stated that “Nobody is interested in a project. People are interested in business.”430

424 425 426 427 428 429 430

http://www.AGORIA.be/pdf/En/RoadmapEnglishversion.pdf, accessed on 19th of September, 2006. http://www.AGORIA.be/pdf/En/RoadmapEnglishversion.pdf, accessed on 19th of September, 2006. Cf. http://134.184.131.111/BELGCUL2.html, accessed on 17th of August, 2006. Cf. AGORIA 6 months presentation at the 2nd review meeting in June, 2005. Cf. http://www.AGORIA.be/pdf/En/RoadmapEnglishversion.pdf, accessed on 19th of September, 2006. Cf. email AGORIA to UNIVIE, 5th of January, 2006. Cf. personal meeting notes, VERITAS meeting, 14th of September, 2004.

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The association AGORIA established the “Flanders' MECHATRONICS Network” in October 2003 with an Innovation, an Engineering and a Technology Center, as well as a Joint Purchasing Platform and a Joint Maintenance Center431. The network is based on the principles of the Virtual Factory concept (Schuh et al., 1998): It consists of 15 companies and was based on a three year’s development plan with the phases of design, professionalization and benefit for the members.432 The group of companies is heterogeneous, ranging from power transmission applications to food processing systems and textile machines.433 The idea of the network was to have a platform that focuses on joint research on the one hand and joint business on the other hand. Current and past research projects contain for example the development of new positioning systems or motion controls.434 However, the Network Coordinator of VERITAS always reported the difficulties of setting up and maintaining this initiative.435 It took more than two years, only based on meetings and discussions, before the technology platform has been made public and still, research activities are positive, while joint business projects are still very rare.436 At the initial workshop, some of the present companies therefore were already well aware of the concept as they were members of the cluster Flanders' Mechatronics. The audience, hence, had a quite diverging knowledge of the subject in the beginning of the project.437 Identification of Target Group Based on the efficiency approach of creating business for the network members, the Belgian companies should be attracted with the advantage of cost-cutting models. A network of sub-contractors should be formed in order to reduce the number of suppliers and to have one contact points to the Original Equipment Manufacturers.438 This approach was closely related to former experiences with the network “Flanders MECHATRONICS” which wanted to learn and benefit from the VERITAS initiative.439 The finally addressed sub-group contained 350 companies in the sector of 431 432 433 434 435 436 437 438 439

Cf. http://www.fmtc.be/ , accessed on 19th of September, 2006. Cf. AGORIA document “Voorstelling FM”, January, 2005. Cf. AGORIA document “Voorstelling FM”, January, 2005. Cf. http://www.fmtc.be/frameset.php?location=research_dynam, accessed on 19th of September, 2006. Cf. personal meeting notes, VERITAS kick-off meeting, 1st of July, 2004. Cf. http://www.fmtc.be/, accessed on 19th of September, 2006. Cf. AGORIA introductory workshop report, March, 2005. Cf. personal meeting notes, VERITAS meeting 3rd of November, 2004. Cf. email AGORIA to UNIVIE and SFC, 12th of October, 2004.

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metal cutting, sheet metal, plastics manufacturing, composite manufacturing, heat treatment, surface treatment, assembly, maintenance and repair. 300 out of the 350 were SMEs, 130 French-speaking, and 170 Dutch-speaking. The Network Coordinator decided to concentrate on the Dutch-speaking group in the VERITAS initiative, as it would have been difficult to include both language groups in one project.440 In order to follow a strategy that fits to business and to involve the partners from the beginning on, the idea was to talk to the potential enterprises and ask them about their expectations. Way of Contacting Target Group The first workshop was announced for the 3rd of November, 2004. The invitation was started with questions like “Does your company suffer from severe capacity fluctuations? Do you want to upscale your projects without investing in production equipment?” and explained that the concept of Virtual Enterprise might be a solution to these shortcomings.441 Assuming that people are more interested in business than in a project, the registration fee was set with 40€ for AGORIA members, 80€ for nonmembers. VERITAS was considered to be the framework for business networks, so that the project was only mentioned in a footnote.442 The workshop was rescheduled to the 24th of November 2004, with an even stronger focus to establish a cluster for subcontracting companies.443 150 member companies were identified and addressed via direct mailing444 and the meeting was additionally announced in the electronic members’ newsletter and in several magazines.445 However, the author has no information about which and how many magazines had been chosen, nor about the exact point of time of the proclamation. AGORIA’s follow-up approach was planned with calling and visiting each company that participated and discuss their final participation to the Belgian network.446 Although planned for the 24th of November 2004, the workshop had to be postponed. The information to the consortium partners only contained the following message: 440 441 442 443 444 445 446

Cf. email AGORIA to UNIVIE and SFC, 12th of October, 2004. Cf. AGORIA leaflet “Virtual Enterprises are a promising solution”, October, 2004. Cf. VERITAS meeting minutes, 3rd of November, 2004. Cf. VERITAS meeting minutes, 3rd of November, 2004. Cf. AGORIA document “VERITASFolder_NL”, 18th of October, 2004, referred to in the email AGORIA to VERITAS, 27th of October, 2004. Cf. AGORIA 6 months report, December, 2004. Cf. VERITAS meting minutes, 3rd of November, 2004.

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Empirical Data: Network Formation Processes

”Due to some problems we have to postpone the workshop in Belgium to next year.”447 One obvious problem was the low participation rate. The Network Coordinator listed the following reasons for the low attendance:448 ƒ“November 2004 was a very heavy loaded seminar period with several workshops and seminars per day aiming at our target audience. ƒAs the economy recovered slightly and the companies had reduced their workforce to the very minimum level, all hands were needed inside the companies. ƒThe idea was to focus on metalworking SMEs, mainly subcontractors. As a less dynamic director has led this section with AGORIA, this concept must have been surprisingly new to them, launched by unknown persons. Thus it was not able to profit from an existing personal relationship that made it especially difficult.” Several workshops were planned and cancelled again, as the number of inscriptions (for example for January 2005) was below ten, and additionally the audience could not be classified as the target group identified before.449 At this point of time, the Network Coordinator started to personally contact and invite companies for a new workshop end of February 2005 and thought of eventually having two groups with diverging interests.450 Informative Workshops Finally, the introductory workshop was set for the 22nd of February 2005 and included an entrance fee of 25€ for AGORIA members, 50€ for non-members.451 The workshop was additionally announced in the VOOR E-NEWS on 31st of January 2005 and on 10th of February 2005 with a short article and contact persons452 and can also be found on the web site of the association on the 15th of February 2005.453 Press releases were sent to: Vraag & Aanbod454, CXO magazine455, De Vlaamse ondernemer456.457 In addition, AGORIA listed other preparatory activities such as the preparation of posters 447 448 449 450 451 452 453 454 455 456 457

Cf. for example email AGORIA to VERITAS,17th of November, 2004. Cf. AGORIA 6 months report, December, 2004, p.2. Cf. email AGORIA to VERITAS,17th of December, 2004. Cf. personal meeting notes, 10th of January, 2005. Cf. AGORIA document “EU Veritas2_inschrijf”, February, 2005. Cf. AGORIA document “EU Veritas2”, February, 2005. http://www.AGORIA.be/ict-tic-flash/fr/92/tic92.htm, accessed on 22nd of September, 2006. http://www.vraagenaanbod.nl/, accessed on 22nd of September, 2006. http://www.cxo.com/, accessed on 22nd of September, 2006. http://www.dvo.be, accessed on 22nd of September, 2006. Cf. AGORIA introductory workshop report, March, 2005.

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and badges as well as the organization of guest speakers from KFSNet458, a subcontracting network of six enterprises in the German machinery industry.459 The introductory material that contained a section on general aspects of networking, cooperative structures and the best practice example IMPRO460 as translated into Dutch and distributed among participants461 via the AGORIA online daily electronic newsletter to 6300 persons. The workshop was organized as follows. The introductory session about the advantages of networks and Virtual Enterprises462 was followed by a conceptual presentation with best practice examples and critical success factors for cooperation.463 Based on the Belgian approach to highlight business advantages as the most important factors, the presentation contained argumentation on competitive advantages via networking and cost-cutting possibilities. A real life case was presented with KFSnet, which groups six small mechanical engineering manufacturers bundling forces to retrofit the massive installed basis of GDR manufactured machines installed in Russia.464 Based on their former experiences, they highlighted the most important factors and the lessons learned. Besides a general matching of partners, commitment of involved people, – the socalled “network of heads” – the preparedness to invest money and time as well as clear structures and legal agreements were stressed.465 AGORIA closed the workshop by explaining the network creation process with the next steps to define a common strategy, define the structure and the roles, define the rules of the game, and define the business processes, and explained the related role of AGORIA. In this part, the Network Coordinator highlighted the need for a group of dedicated enterprises, a joint vision as well as a high service level related to the

458

http://www.icm-chemnitz.de/cms/front_content.php?idcat=40&idart=57, accessed on 22nd of September, 2006. 459 Cf. AGORIA introductory workshop report, March, 2005. 460 http://www.impro-praezision.de, accessed in November 2006. 461 Cf. AGORIA document “EU Veritas2_bijlage”, February, 2005. 462 Cf. AGORIA document “Genetwerkte bedrijven groeien sneller“, 22nd of February, 2005. 463 CF. SFC workshop presentation “United we stand - Approaches & critical success factors of network cooperation”, 22nd of February, 2005. 464 Cf. AGORIA introductory workshop report, March, 2005. 465 Cf. ICM Chemnitz workshop presentation “Best Practice of Networking in the Mechanical Engineering in Saxony“, 22nd of February, 2005.

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Empirical Data: Network Formation Processes

readiness to cooperate.466 Afterwards, a reception took place in order to start informal networking between companies. On the whole, 23 persons participated to the workshop, incorporating mostly large enterprises, but also four SMEs and two technology centers.467 The discussion about networks revealed a set of detailed questions to be answered, starting from the ideal amount of competition within the network or the necessity of funding. Interest and interaction was high during the meeting and the coordinator was satisfied. On the other hand, the audience was too heterogeneous to start one cluster with the person that attended the workshop and some of them also mentioned skepticism with the concept because of bad experiences.468 Additionally, the smaller subcontracting companies were thought to be addressed separately.469 After the introductory workshop, AGORIA found that a clear network strategy has to be chosen in a top-down approach and that companies should be selected with care.470 The first idea was to bring together heterogeneous parties that might have complementary competencies but quickly the alternative to contact some engineering companies and helping them improve their own supplier relationships arose. In April 2005, the Network Coordinator reported a slight delay because of being involved in other initiatives that he wanted to combine with the VERITAS project with at ARGORIA. The action plan for the summer period contained the detailed selection of 15 subcontractors in the metalworking industry and to personally visit them in order to establish a core group of companies.471 At a review meeting in June 2005, the Network Coordinator reported nine company visits. Three out of nine companies already took part in some kind of network and therefore did not want to enter additional obligations. Two out of the nine enterprises did not think that networking on the whole would be beneficial for them. The other four companies were interested in cooperation partners only. However, these four

466 467 468 469 470 471

Cf. AGORIA document “Genetwerkte bedrijven groeien sneller“, 22nd of February, 2005. Cf. AGORIA introductory workshop report, March, 2005. Cf. AGORIA 6 months presentation at the 2nd review meeting in June, 2005. Cf. AGORIA introductory workshop report, March, 2005. Cf. VERITAS D4.4: Marketing Plans of the four Cooperative Networks, January, 2006. Cf. VERITAS meeting minutes, 27th of April, 2005.

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companies were project-based subcontractors that were looking for business partners – no matter if in or out of a network’s scope.472 Another workshop was planned for 14th and 15th of September 2005 but had to be cancelled because of a time conflict with the EMO fair473 on the one hand, and low registration rates on the other hand.474 Finally, the target group of the small companies was invited for the 28th of September 2005, but only one company showed interest.475 On the 5th of October, 2005, five midsized companies – referred to as a ”group of winners” by the Network Coordinator476 – participated in the workshop for larger enterprises. On average, they employed 50-100 workers, a well-balanced turnover477 and held long-term contracts with large companies.478 For this meeting, the participants were asked to prepare the expected objectives and actions. The focus of the meeting was planned to be joint purchasing as a first step of working together. Although the participating companies were not operating in the same sector, and therefore were rather heterogeneous, they disposed of the same customers.479 In this meeting, a pragmatic approach was agreed on the network and as “homework” participating companies should analyze their value chain and think about possible combinations of their offers. As this was another important task during discussion, the question on how to gain competent personnel should be reconceived.480 However, only five companies participated. The low participation rate was partly interpreted by having a non-attractive agenda; additional companies expressed their interest to act in a network, but not to talk about a network.481 The evaluation forms on cooperation preparedness of the partners were distributed at this meeting and via email.482 Till the 18th of November 2005, they were only 472 473 474 475 476 477 478 479 480 481 482

Cf. AGORIA 6 months presentation at the 2nd review meeting, June, 2005. http://www.emo-hannover.de/, accessed on 22nd of September 2006; email AGORIA to VERITAS, 7th of September, 2005. Cf. email AGORIA to VERITAS, 29th of August, 2005. Cf. VERITAS meeting minutes, 6th of October, 2005. Cf. personal meeting notes, 6th of October, 2005. Cf. personal meeting notes, VERITAS meeting 6th of October, 2005. Cf. VERITAS meeting minutes, 6th of October, 2005. Cf. AGORIA verbal presentation about current state, VERITAS meeting 6th of October, 2005. Cf. VERITAS D41: Report on the Experiences with Setting up a Virtual Enterprise, January, 2006. Cf. VERITAS Network Manager meeting minutes, 17th of November, 2005. Cf. email AGORIA to potential companies, 18th of October, 2005.

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completed by four companies. This small and non-representative sample found it most important that companies act in a professional way and that they were trustworthy.483 Interestingly, cooperation preparedness of the four respondents was medium for 75%, 25% – which is one participant – even showed rather low cooperation preparedness figures.484 The Network Coordinator reported 20 companies being “part of the Belgian network”485 at this stage. This was inconsistent with a second list in the same month that highlighted nine companies that had participated in one of the meetings or had expressed interest in participating.486 On the whole, only three companies took part in the meeting in February 2005 and showed interest in the meeting in autumn. Learning From the beginning on, the Network Coordinator wanted to learn about the concept of Virtual Enterprises and related topics. He suggested inviting somebody from WZL Aachen, a department of the University of Aachen487 involved in the set-up process of the Virtual Enterprise ProTECA488 in order to avoid mistakes.489 Given his former experience and his close work with Prof. Schuh (the founder of the Virtual Factory concept) the speaker was referred to as “the real expert” by the Network Coordinator.490 The Belgian Network Coordinator was interested in the business approach of ProTECA491 as he noticed that one of the mission sentences of the competence center was “What are successful positions for manufacturing enterprises in particular market environments?”492 ProTECA493 sees itself as a business processor, and underlines the argument that motivation for companies to participate in any kind of network was earning money and making business.494

483 484 485 486 487 488 489 490 491 492 493 494

Cf. UNIVIE presentation: Evaluation of questionnaires, December, 2005. Comment of the author: However, the four companies that answered the questionnaire cannot be taken as an indicator for a possible network of subcontractors. Cf. VERITAS document “Kompetenzdarstellung International”, October, 2005. Cf. VERITAS document “in-out_netowrk_Bel”, October, 2005. http://www.wzl.rwth-aachen.de/en/index.htm , accessed on 22 nd of September, 2006. http://www.proteca.rwth-aachen.de/de/default.html, accessed on 22nd of September, 2006. Cf. email AGORIA to VERITAS, 28th of July, 2004. Cf. email AGORIA to UNIVIE, 27th of August, 2004. http://www.proteca.rwth-aachen.de/de/default.html, accessed on 22nd of September, 2006. Cf. personal meeting notes, VERITAS meeting 13th of September, 2004. http://www.proteca.rwth-aachen.de/de/default.html, accessed on 22nd of September, 2006. Cf. personal meeting notes, VERITAS meeting 13th of September, 2004.

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In total, a critical attitude towards the network approach was noticeable. The Belgian Network Coordinator was sure of the fact that the former Virtual Enterprise would not work, since one previous initiative (Virtuelle Fabrik Rhein-Rhur) had failed495 although it was only one of the four virtual factories that were initiated.496 In the project meeting on the 13th and 14th of September 2004, an internal research part was presented by UNIVIE and SFC.497 The presentation included not only an analysis of best practices and success factors but also highlighted first suggestions for the follow-up workshops. The Belgian Network Coordinator was interested in the business background of the companies and asked which business was carried out in the network – whether it was generated via a Brokering entity or if just bilateral synergies between partners were used.498 For the continuation of the analysis he proposed to add the size and membership status of the networks, business characteristics like turnover or employee figures in order to be able to give a statement on the homogeneity or heterogeneity between companies in size and power.499 He put a strong focus on not only the structure of VOs, but also on the process of value-creation which could have been measured in the number of transaction or the transaction volume. He asked for more elaborated descriptions of the cases on the whole, but also in the early formation phases since they were considered to be crucial for the VERITAS initiatives.500 He definitely wanted to know more concrete results and guidelines for the set-up process of the network. Research activities during the project should in his view, lead to more detailed and elaborate outcomes like guidelines for the VERITAS networks.501

495 496

497 498 499 500 501

http://www.dienstleistungsmanager.de/downloads/pdfversion.pdf#search=%22Virtuelle%20 Fabrik%20Rhein%20Rhur%22, p.8, accessed on 22nd of September, 2006. i.e. Virtuelle Fabrik Nordwestschweiz-Mittelland (http://www.virtuelle-fabrik.ch/), Virtuelle Fabrik Baden-Württemberg (http://www.virtuelle-fabrik-bw.com/) and Virtuelle Fabrik Euregio Bodensee (http://www.vfeb.ch/html/news.htm), all accessed in September 2006. Cf. UNIVIE/SFC presentation about work package one, VERITAS meeting 13th of September, 2004. Cf. VERITAS meeting minutes, 13th of September, 2004. Cf. email AGORIA to UNIVIE, 2nd of August, 2004. Cf. email AGORIA to UNIVIE, 2nd of August, 2004. Cf. email AGORIA to VERITAS, 8th of November, 2004.

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Empirical Data: Network Formation Processes

Summary and interpretation: The whole Initiation phase took from July 2004 until September/beginning of October 2005, which is a time period of 15 months. During this phase, most importantly the identification and information of the target group took place. This process proved to be rather difficult in Belgium. Although the potential cooperation partners in the sub-sectors had been identified in the beginning, the process of addressing and inviting these people was quite difficult. The Belgian Network Coordinator decided to follow a top-down strategy, but could not realize his plans. Additionally, the activity level of the association was only high during the very first phase, as a lot of emails were distributed among the VERITAS project partners, a lot of discussions took place and the Network Coordinator for example organized documents of the competence database of Flanders’ MECHATRONICS and even translated them.502 From his behavior it became clear that the Network Coordinator was really interested in creating business for its members. The details he thought of as being most important for the potential network members were related to business opportunities and the structure of such a network. When it came to activity and commitment required by the Network Coordinator himself, the involvement and initiative declined. It was noticeable that the coordinator expected more structure, guidelines from the project team, but on the other hand, the skepticism was present over the course of the whole project . At the same time the VERITAS project was obviously not seen as a project with high priority – maybe due to a lack of time of the Network Coordinator himself.

5.2.2 Forming Getting to Know Each Other On the 7th of December 2005, a meeting took place at one company’s office. This company was a leading first-tier supplier of sheet metal components and preassembled units for industries, such as trucks and off-road vehicles. They produced series between 2,000 and 20,000 units per year and cooperate strongly with a limited number of customers, putting a strong focus on quality and innovation.503 A very positive report indicated that the eight participants of the meeting were highly interested in talking to each other.504 In order to get to know each other better, the host company first offered a tour through its manufacturing site and then reported on the 502 503 504

Cf. email AGORIA to VERITAS, 27th of January, 2005. Cf. VERITAS D41: Report on the Experiences with Setting up a Virtual Enterprise, January, 2006. Cf. AGORIA document “Ag_ToeLever_GS_Verslag 051207_E”, January, 2006.

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history of the company, including former and current challenges and successes as well as failures. The discussion was continued with more general concerns of the industry like rising steel prices or the need to find competent partners for business.505 The discussion level was rather detailed and participants were interested in getting to know each other. On the other hand they refused to fill the network analysis questionnaire because of being too early: The Network Coordinator reported that the participants looked at the questionnaire but then said that they would have to return two empty pages, since they did not have any contacts between them. At the same time the coordinator noticed that some private appointments were started at the reception after the meeting.506 Although the agenda would have contained an explicit point on the economical environment and “feelings & outlook about business in 2006” as well as the finalization of objectives and an action plan of the networking group. Due to time restrictions these parts were shifted to the next meeting due to the restricted timeframe. Follow-up meetings were agreed for May, September and November 2006. Cooperation Atmosphere Generally, the atmosphere between potential cooperation partners was friendly and positive. It was reported that they wanted to know each other more, and therefore would like to start mutual company visits.507 On the other hand, there was not much personal or business related contact at this point of time, which makes it difficult to describe the cooperation atmosphere. As far as the cooperation atmosphere of the Network Coordinator was concerned, there were time shortages throughout this network phase. For the different meetings scheduled in June and September 2005, for example, the evaluation questionnaires were prepared by the research team of UNIVIE. Feedback or replies to these evaluation forms were restrained by the Network Coordinator. After a copied email to the VERITAS project manager on the 26th of September 2005, the coordinator replied one day before the planned meeting of small companies: “I received the files. At the moment, I do not need any further support. We have enough forms. And I hope to use them tomorrow.”508 505 506 507 508

Cf. AGORIA document “Ag_ToeLever_GS_Verslag 051207_E”, January, 2006. Cf. email AGORIA to UNIVIE, 19th of December, 2005. Cf. personal meeting notes, 6th of October, 2005. Cf. email AGORIA to UNIVIE, 27th of September, 2005.

144

Empirical Data: Network Formation Processes

During summer 2005, most of the telephone conferences were held without the Network Coordinator of Belgium. He apologized because of technical problems.509 During summer months, not much activity was observed with the Belgian network.510 During the whole VERITAS project time, activities were often questioned by the Belgian Network Coordinator. He asked detailed questions, such as the reason for a financial limit for paying the Network Manager, or requested detailed information about why the consortium met at a certain conference and not in another place.511 Reach Commitment and Strategy Formulation In March 2005, shortly after the introductory workshop in Belgium was carried out AGORIA formulated a short strategy statement.512 The Network Coordinator found it rather troublesome to just bring companies together without concentrating on possible synergies in advance and suggested to focus more on the selection of potential cooperation partners. To avoid a long and iterative process of joint strategy finding, AGORIA planned to bring together companies with complementary competences such as engineering, machining or sheet metal work and let them jointly realize projects they would not be able to realize on their own. An explicit selection and visitation of those companies was started in March 2005 and aimed at inviting the “right” companies to a second workshop in April.513 Should this approach prove to be unsuccessful, the second best alternative was thought to contact large engineering companies and try to set up a network with their current subcontractors. However, a second approach was to restructure part of the existing Flander’s MECHATRONICS network into a VIC in order to have the most efficient subcontractors available.514 The first ideas had to be reconsidered several times. After the first round of company visits it became clear that those companies that work on a project basis should not be mixed up with those that carry out life-time contracts.515 The selection of the Network Manager was carried out at the same time like for the other networks. This meant that the Belgian network started to look for a Network 509 510 511 512 513 514 515

Cf. email AGORIA to VERITAS, 7th of July, 2005. Cf. VERITAS telephone conference meeting minutes, June-September 2005. As an example compare for email AGORIA to VERITAS, 20th of May, 2005. Cf. AGORIA document “Strategy Belgium”, March, 2005. Cf. AGORIA document “Strategy Belgium”, March, 2005. Cf. AGORIA 6 months presentation at the 2nd review meeting in June, 2005. Cf. AGORIA 6 months presentation at the 2nd review meeting in June, 2005.

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Manager right after the first workshop attempts. This was considered to be an advantage in identifying companies and a joint strategy for the network.516 After having interviews with two different candidates, the final Network Manager was a person who had worked as a general manager for 15 years before he opened his own consulting company and therefore had lots of experience in B2B517 consulting.518 In his function as an AGORIA consultant he had already established networks previously.519 In the Network Manager’s meeting in November 2005, the Network Manager clearly stated that the small and large series groups would be addressed separately, although the same approach was followed: The main objective of the networks should be the development of more business in-between the affiliates in order to reinforce mutual cooperation and to openly share results and exchange know-how.520 Only in a second step the influence on the whole industry could be thought of. The vision for the network(s) was a long-term one: The Network Manager wanted the cluster to become an “(…) operational, interactive, healthy profitable (means productive) and funny platform of the companies.”521 Every year only two smart objectives should be formulated and reviewed if necessary. To overcome the challenge of how to get started and how to get good reputation, the Network Manager thought it most important to personally engage in contacting people and coaching the managers.522 However, the final analysis of the sector and the resulting validation of the network was not planned to be completed before September 2006.523 In January 2006 a detailed concept called “Metalworking Subcontracting Industry” was designed by the Network Manager and the Network Coordinator. It contained a project approach as well as important steps for the future. The conceptual paper reflected the need to increase the ROI (Return of investment) for the participants and

516

Cf. VERITAS D41: Report on the Experiences with Setting up a Virtual Enterprise, January, 2006. Business to Business Cf. VERITAS D4.4: Marketing Plans of the four Cooperative Networks, January, 2006. 519 Cf. VERITAS Network Manager meeting minutes, 17th of November, 2005. 520 Cf. VERITAS Network Manager meeting minutes, 17th of November, 2005. 521 Cf. VERITAS Network Manager meeting minutes, 17th of November, 2005. 522 Cf. VERITAS Network Manager meeting minutes, 17th of November, 2005. 523 Cf. VERITAS D4.4: Marketing Plans of the four Cooperative Networks, January, 2006. 523 Cf. VERITAS Network Manager meeting minutes, 17th of November, 2005. 517 518

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Empirical Data: Network Formation Processes

the need for a clear strategy of the network.524 It included a project plan and the following vision for the Belgian Cluster: “Reducing costs, raising revenues and exploit network opportunities for manufacturing companies active in the Metalworking Subcontracting Industry, through the use of Virtual Industrial Network, allowing them to improve their competitiveness and agility.” The next steps were formulated as 1) conduct personal interviews, 2) develop a draft network action plan, and 3) implement the action plan. For the year 2007, the consolidation of the network structure, a marketing plan and the establishment of stable rules and roles was planned. 525 In the marketing plan for the future, the main strengths and weaknesses (see table 13) as well as possible competitors have been discussed and finally, an interim marketing plan was agreed. Objectives of this interim marketing plan were to rise “(…) awareness of the initiative in-between the members, in-between the sector and building reserve’s bench (if sufficient candidates starting a second group of maximum 15 network members).”526

Strengths

Weakness

ƒ AGORIA has 13 sub sectors in the metallurgical industry, more than 1300 members and network experience. ƒ AGORIA is full partner to technological research centers, universities and innovation associations ƒ Highly motivated members were ‘gathered’, who confirmed their enthusiasm ƒ Several highly important needs formulated

ƒ A small mixture of life time order oriented companies & project base companies might contain the progress ƒ So far limited to 15 participants ƒ Only in the Flemish part ƒ ICT infrastructure ƒ AGORIA has limited resources to maintain the network

Opportunities

Threats

ƒ Nothing similar exists for this sector ƒ Big customers are also demanding participation ƒ New companies will probably want to join ƒ Maintain the international interaction with the other associations in Austria & Turkey

ƒ Too high expectations on the “Virtual” content ƒ Long term costs to maintain the network ƒ Abused trust (see trust building & trust evaluation) ƒ Departure (delocalizing) of big customers

Table 13: SWOT Analysis Network Belgium

524 525 526

Cf. SFC document “Metalworking Subcontracting Industry. Growing from a “Collaborative Network” to a “Manufacturing Oriented VE”.” January, 2006. Compare for AGORIA document “Vision & Strategy Belgian VE network for Metalworking Subcontracting Industry”, January, 2006. Cf. VERITAS D4.4: Marketing Plans of the four Cooperative Networks, January, 2006.

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The marketing plan, written on four pages, contained a lot of general information like: “The final Strategic Marketing Plan must consist of following eight components: Mission statement, objectives & strategies, - Summary of performance, (…).527 Listed with bullet points, the eight points nearly composed one half page. Additionally, the documentation was more based on the project VERITAS and not on the network and its members, highlighting difficulties of the approach of the project but not on the specific situation of the participants. Identification of the Market No sales market had been defined during project time.

Summary and interpretation: The Forming phase started around October 2005 and was not finished when the project VERITAS ended. During this phase, only one meeting took place in December 2005, where it became clear that the initiative was back to square one. The network at this stage was characterized by first contact points and reserved interest in each other and it became questionable whether some sort of network would come up during project time. On the one hand, a lot of delays and a lot of cancellations had taken place. On the other hand, there were long intervals between meetings and although the Network Manager had been installed, he was reported to have “a full agenda”.528 The impression was that the project was not been taken very seriously at AGORIA as for example the cancellation of one meeting according to the interference with the EMO fair529 as one of the major events of the industry should have been familiar to AGORIA as an industry expert. Another example was the very short timeframe estimated for the meeting in December 2005 that should initially give the possible partner companies the change to get to know each other. No project ideas were mentioned, no concrete network activities were discussed. According to Tuckman (1965) the phase would be characterized by a lot of questions and insecurity. As this was not the case yet, the non-binding status of the cooperation becomes clear.

527 528 529

Cf. VERITAS D4.4: Marketing Plans of the four Cooperative Networks, January, 2006, p.22. Cf. personal meeting notes, VERITAS meeting, 6th of October, 2005. http://www.emo-hannover.de/homepage_e?x=1, accessed on 22nd of September, 2006.

148

Empirical Data: Network Formation Processes

No anxiety or concerns (West, 2004) came up from the network participants and no reservations were noticed. On the other hand, the whole phase was characterized by strong skepticism of the Network Coordinator himself. Belgians are considered to first ask before they are supposed to do something and will not start acting unless they have an acceptable reason (Heylighen, 1998). Instead of getting the network started, the Network Coordinator and his personal opinion and concerns came to the fore. Especially during summer time, the impression was that during these months there was no progress in terms of network formation. The Network Coordinator spoke in this context of a “slight delay”.530 His behavior, however, was characterized by typical aspects of the Forming phase, that is insecurity (Francis/Young, 1989) and a strong need for structure and formalization, which was expressed in a lot of questions on rules, roles and background of the concept (West, 2004). Although the Network Manager was assigned at this time, there was no change in behavior or involvement. Interestingly, the engagement of the Network Manager that he himself thought to be most important was not observed during the project time. Only very little time was invested in introducing partners. The “Metalworking Subcontracting Industry”-document531 sounded like a start over of the whole VERITAS initiative as the Network Manager and coordinator wanted to conduct personal interviews, then develop an action plan and than implement the action plan. The Forming phase was at the very beginning, when the project was closed.

5.2.3 Storming Working Together No joint work was realized during project time. Discussion of Rules and Roles There were no discussions on rules and roles during the first meetings.

530 531

Cf. VERITAS telephone conference, personal meeting notes, 25th of May, 2005. Cf. SFC document “Metalworking Subcontracting Industry. Growing from a “Collaborative Network” to a “Manufacturing Oriented VE”.” January, 2006.

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149

Handling Conflicts No conflicts arose within project time. One could interpret the behavior of the Network Coordinator, refusing to work with the concept and to invite potential network partners as a typical resistance to leadership (in this case the VERITAS team or the project institution), but as there was no group being formed at this stage, the author does not interpret his behavior as group-driven. Summary and interpretation: The whole Storming phase was not entered during the project time. Working together and discussion of rules and roles were planned for the year 2006.532

5.2.4 Norming Establishing Rules or Regulations how to Work Together Establishing Roles Finalizing First Projects Summary and interpretation: The whole Norming phase was not entered during the project time. Carrying out joint projects and the establishment of rules and roles were planned for the year 2006.533

5.2.5 Performing Strategy Alliance between Network and Companies Systems (ICT, Controlling) Results of Joint Cooperation

Summary and interpretation: The Performance phase was not entered during the project time.

532 533

Cf. VERITAS D4.4: Marketing Plans of the four Cooperative Networks, January, 2006. Cf. VERITAS D4.4: Marketing Plans of the four Cooperative Networks, January, 2006.

150

Empirical Data: Network Formation Processes

Figure 11 displays the formation of the Belgian network over time. During the Initiation phase, although having identified the need for a clear structure and a predefined selection of partner companies, there was a lot of cancelling and rescheduling of meetings. When people finally met, Forming was characterized by first steps towards a network, paper work and low active involvement of the Network Manager.

Initiation 1

2

3

4

5

Forming … 6

7

8

9

10

01/07/04

Figure 11: Formation Process Belgium

11

12

13

14

15

16

17

18

19

20

31/01/06

21

22

23

24

The Turkish Case

151

5.3 The Turkish Case Economic Situation Turkey – a democratic, secular republic since 1923534 – encompasses a population of 70,413,958 million people (July 2006 estimate) on 780,580 km².535 In the capital, Ankara, around 5 million people are settled, whereas Istanbul – the biggest city – has around 12 million inhabitants (Seufert/Kubaseck, 2004). In total, GDP was 299.48 billion in 2004, and 366.88 billion in 2005,536 which reflects an annual growth rate of 7.6%.537 GDP per capita (PPP) is estimated to reach 7.400€ in 2007.538 Inflation rate has improved significantly during the last years: 2005 inflation was around 7.7% whereas in the year 2003, it was around 20%.539 The country became an associate member of the European Community in 1964540 and since then has been interested in becoming a member of European organizations. However, negotiations on accession to the EU are not to be entered before the socalled “Copenhagen Criteria”541 are fulfilled and experts do not count on a date before 2014.542 Most important criteria are the financial situation, i.e. the stabilization of economy, the guarantee of freedom of religion and opinion, but also advocacy for minority groups. Furthermore, a clear commitment to sound relationships to neighbor countries, including the ambition to solve disagreements around the Republic of

534

Cf. http://en.wikipedia.org/wiki/Turkey, accessed on 25th of July, 2006. https://www.cia.gov/cia/publications/factbook/geos/tu.html, accessed on 25th of July, 2006. 536 http://portal.wko.at/wk/pub_detail_file.wk?AngID=1&DocID=101174, accessed on 24th of July, 2006. 537 Other statistics and prognostics even calculate higher figures: Cf. figures at http://en.wikipedia.org/wiki/Economy_of_Turkey, (8,9%) accessed on 25th of July, 2006. 538 http://wko.at/statistik/eu/wp-tuerkei.pdf or https://www.cia.gov/cia/publications/factbook/geos/tu.html, both accessed on 24th of April, 2007. 539 http://wko.at/awo/publikation/laenderprofil/lp_TR.pdf, accessed on 26th of July, 2006. 540 https://www.cia.gov/cia/publications/factbook/geos/tu.html, accessed on 25th of July, 2006. 541 The criteria to enter the European Union are also indicated as the “Copenhagen Criteria” because of their adoption in Copenhagen on the 22nd of June, 1993 (http://de.wikipedia.org/wiki/Kopenhagener_Kriterien, accessed on 25th of July, 2006). The criteria encompass a) the institutional stability (democracy, state constitution, protection of human rights), b) an executable market-economy, c) the adoption of legal rights of the Union, and d) the preparedness to integrate new states (http://portal.wko.at/wk/dok_detail_file.wk?AngID=1&DocID=256888&StID=174616&DstID=0, accessed on 25th of July, 2006.) 542 http://portal.wko.at/wk/pub_detail_file.wk?AngID=1&DocID=101174, accessed on 24th of July, 2006. 535

152

Empirical Data: Network Formation Processes

Cyprus is required.543 Although privatization moves forward in an efficient way, reforms are only carried out slowly. The unemployment rate was 10.2% in 2005 and the population below the poverty line even reached around 20% in 2002.544 Experts therefore have conflicting opinions on the EU-entry of Turkey:545 On the one hand, there is fear of the increase of a culture with a strong Islamic influence, 546 neglecting the fact that Turkey has anchored its secularity in the constitution and – especially around Istanbul – modern Islam is in existence (Seufert/Kubaseck, 2004). On the other hand, advantages are seen in the political bridging function between Europe and Asia. Concerning industry, the Turkish economy is predominantly shaped with “Small and Medium Industrial Enterprises”.547 Most common forms of ownership are individual or single proprietorships employing up to ten workers. A typical career path in the industry contains a start as apprentice, the development to a master in the same enterprise and the immediate starting of an own business afterwards.548 Therefore, micro-enterprises account for 95% of Turkish businesses and 34% of Turkey’s jobs, but do not obtain more than 7.8% of production output.549 Turkish SMEs typically suffer from lack of information and technology, but also from low know-how of management systems or even innovative technologies. Although the critical factors are comparable to those in other countries, the situation in Turkey is worse as the companies are even smaller and geographically more dispersed. Increasing globalization makes it therefore extremely difficult for SMEs to survive: While most of the small industrial firms already have to fight for their position on the domestic market, the global market brings up even more challenges550 so that support

543

http://portal.wko.at/wk/pub_detail_file.wk?AngID=1&DocID=101174, accessed on 24th of July, 2006. 544 https://www.cia.gov/cia/publications/factbook/geos/tu.html, accessed on 25th of July, 2006. For detailed economic figures, compare for http://ekutup.dpt.gov.tr/teg/2006/05/mei.html, accessed on 27th of July, 2006. 545 Compare for example the conference “Turkey and Europe: Is There a Common Future?" in Ankara, February, 2006, Information. on http://www.gmfus.org/event/detail.cfm?id=219&parent_type=E or different newspaper entries (http://www.foreignaffairs.org/20041101faresponse83613/wolfgangschauble-david-l-phillips/talking-turkey.html), both accessed on 26th of July, 2006. 546 http://www.rbi-aktuell.de/cms/front_content.php?client=1&lang=1&idcat=5&idart=8221, accessed on 3rd of August, 2006. 547 Cf. http://www.unece.org/indust/sme/tr-study.htm, accessed on 26th of July, 2006. 548 http://www.unece.org/indust/sme/tr-study.htm, accessed on 26th of July, 2006. 549 http://www.oecd.org/dataoecd/5/11/31932173.pdf, accessed on 26th of July, 2006, p.29: Explanation shows that countries like Italy or Portugal that dispose of less SME companies and less involved workers contribute to the economy on an 11-15% level. 550 http://www.oecd.org/dataoecd/5/11/31932173.pdf, accessed on 26th of July, 2006.

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153

and training would be necessary. On the other hand – based on financial difficulties – the accessibility of external consultants is reserved to a small number of companies.551 To overcome these problems, several initiatives have been initiated: KOSGEB – a non-profit semi-autonomous organization established by the Turkishgovernment in 1990 – combines and supports the concerns of small enterprises as “Small and Medium Industry Development Organization”.552 In addition – and in line with the European Charter for Small Enterprises – Turkey established an “SME Strategy and Action Plan” in 2003, which aims at creating a (legal) framework for SMEs and enhance their position in the Turkish economy.553 These plans and strategies aim at affecting SMEs either directly (via subventions, research projects and new business concepts etc.), or indirectly by strengthening the whole economy, which of course also affects the small companies because of their prominent position. One of the first measures is to develop a definition of SMEs that is congruent with definitions used in the European Union and based on standards developed by EUROSTAT.554 Initiatives for training and vocational training are included in the document and financial burdens for SMEs are to be reduced.555 Further initiatives are for example the 8th 5-year development plan that includes the clear statement to improve the productivity of SMEs by increasing their share within total value added. Included is the enhancement of their international competitiveness and improvement of credit systems, but also the establishment of e-commerce facilities.556 Manufacturing Industry Situation Based on huge natural resources like coal, iron ore, copper, chromium and others,557 the industrial sector plays an important role in the country. The largest industrial sector, however, is textiles and clothing. Other economic sectors encompass 551 552 553 554 555 556 557

http://www.oecd.org/dataoecd/5/11/31932173.pdf, 26th of July, 2006 http://www.kosgeb.gov.tr/Index.asp, 27th of July, 2006 http://europa.eu/scadplus/leg/en/lvb/e06113.htm, accessed on 27th of July, 2006. http://www.oecd.org/dataoecd/5/11/31932173.pdf, accessed on 26th of July, 2006. http://europa.eu/scadplus/leg/en/lvb/e06113.htm, accessed on 27th of July, 2006. http://ekutup.dpt.gov.tr/plan/viii/plan8i.pdf, accessed on 27th of July, 2006. https://www.cia.gov/cia/publications/factbook/geos/tu.html, accessed on 25th of July, 2006.

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Empirical Data: Network Formation Processes

automotive, iron and steel, but also tourism and construction.558 Still, traditional agriculture accounts for more than 30% of employment.559 Machine manufacturing is one of the most traditional, but also most expanding production sectors in Turkey. The export rates of this industry are above the average export rates of all other sectors560 and an association of Turkish Machine Manufacturers founded in 1990 was accepted as an exclusive member of CECIMO (European Committee for Cooperation of Machine Tool Industries). Exports in the manufacturing sector account for 4.5% of the manufacturing industry and the volume of exports has reached 4.5 billion US dollars. The industry comprised 247,000 companies in 2002, employing 32.31% of Turkish labor force.561 Like in other industry sectors, the average number of employees is one to nine (89% in 2002). 99.6% of the total number of manufacturing firms are SMEs.562 The manufacturing industry is organized in the two associations “Association of machine manufacturers (MIB)”563 and “The central Anatolia machinery and accessories exporters’ union (OAIB)”564. The participation in one of these organizations is voluntarily. In return for their membership fees, companies receive industry support, know-how via R&D-projects and consultants, or organization of joint events. While the OAIB concentrates on topics that deal with export,565 MIB is the major national manufacturing organization with 183 members in 2005 including “(…) companies manufacturing wide range of general machineries, machine parts, accessories and cutting tools. In its portfolio, manufacturers of construction, earth moving, mining and agricultural machineries, machine tools; both metal cutting and forming, woodworking, packing machines and machineries for process industries, food processing and packing machines, ovens, balancing machines(…)are present.”566 Main activity areas are the legal protection of members’ rights, the harmonization between Turkish and EU-related regulations and the information and organization of 558 559 560 561

562 563 564 565 566

http://wko.at/awo/publikation/laenderprofil/lp_TR.pdf, accessed on 26th of July, 2006. http://en.wikipedia.org/wiki/Turkey, accessed on 25th of July, 2006. http://www.ien-online.com/SpecialReportTurkeyInFocus/article5.htm, accessed on 18th of October, 2005. TURKSTAT, 2003, taken from http://www.abgs.gov.tr/tarama/screening_files/20/SC20DET_SME.pdf, accessed on 27th of July, 2006. http://www.oecd.org/dataoecd/5/11/31932173.pdf, accessed on 26th of July, 2006. http://www.mib.org.tr/english.html, accessed in November, 2006. http://www.oaib.gov.tr, accessed on 27th of July, 2006 http://www.oaib.gov.tr, accessed on 27th of July, 2006. http://www.mib.org.tr/english.html, accessed in November, 2006.

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155

international trade fairs.567 According to MIB information, manufacturing industry grew more than 10% in the year 2004. The members of MIB are referred to as the lead members of the industry.568 In 2003, an investigation among the members revealed that 67 out of 78 companies reported an increase in production; seven indicated a decrease and four reported stagnation.569 The association is structured into 36 sub-groups570 and is guided by a management committee of nine people, all of them owning a manufacturing business and elected by the 183 members.571 Every year, a short industry report and a list of involved companies, including their main competencies and contact dates is published. As well, the MIB website provides a detailed database with a search function including the complete address and Internet site of a company, a contact person, and the most important competencies.572 5.3.1 Initiation Attitude towards Cooperation and Cooperation History Clusters are quite common in the Turkish textile industry (e.g. Bulu et al., 2004),573 but also in manufacturing industry (Sedef, 2006). However, these clusters aim at strengthening the industry and establishing a regional value chain of interdependent firms. Turkish manufacturers are therefore not prepared to design a joint network; even the term “iúbirli÷i a÷ı” (network) is completely new for Turkish Manufacturers.574 There is no culture of information exchange or idea exchange because of high competition in the industry.575 On the other hand, the Turkish industry still suffers from high import rates and from growing competition from the Asian market. Therefore Turkish manufacturers, especially smaller enterprises, realized that they need to engage in more aggressive 567 568 569 570 571 572 573 574 575

Cf. MIB introductory presentation, kick-off meeting 1st of July, 2004. Cf. document “MIB - Makina Imaltatcilari Birligi. Üyeleri. Members of Association of Machine Manufacturers 2003. Brochure printed by Önder Matbaacilik Tic.Ltd. Sti. Cf. document “MIB - Makina Imaltatcilari Birligi. Üyeleri. Members of Association of Machine Manufacturers 2003. Brochure printed by Önder Matbaacilik Tic.Ltd. Sti. http://talepler.mib.org.tr/companies/, accessed on 27th of July, 2006. http://www.mib.org.tr/english.html, accessed in November, 2006. http://talepler.mib.org.tr/companies/, accessed on 27th of July, 2006. An example is to be found on http://www.textilecluster.com/en/es.html, accessed on 27th of July, 2006. Cf. interview Network Manager, October, 2005. Cf. interview Network Manager, October, 2005.

156

Empirical Data: Network Formation Processes

strategies and build up partnerships with internal and external companies in order to compete on the worldwide market.576 The above-mentioned “SME Strategy and Action Plan”, for example, contains a section about the importance of regional clusters in order to strengthen the SMEs of Turkey.577 Another indicator for the importance of investigating in new concepts related to ICT is given by the preparedness ranking of the World Economic Forum's Global Information Technology Report (2002-2003), in which Turkey is rated on place 50 among 84 countries which reflects a low eReadiness where the ICT indicators show quite a low ICT usage. 578 Networking, cooperation and partnerships are therefore seen as a possible solution to overcome the major SME and globalization related problems. However, the question arises whether these innovative and new concepts fit to the Turkish manufacturing culture. Although MIB579 and OAIB580 try to support the small and medium enterprises of the sector by organizing trade fairs and exhibitions or by establishing contacts to foreign countries, the industry itself has not yet established a cooperative culture or a way to exchange know-how between companies and/or entrepreneurs. Turkish manufacturers have difficulties in trusting each other and fear losing their competitive advantage if they cooperate or enter a network initiative.581 To overcome these problems, MIB entered the FP6-project VERITAS. The professional approach of a research project aimed to create attention and awareness of the network concept in the whole sector and motivate at least a group of machine manufacturers to establish a network initiative on their own.582 Additionally, VERITAS was seen as a change to bring new members to the industry association, as MIB was one of the first organizations participating in an FP6 project.583 In contrast to the normal cluster concept, the establishment of a Virtual Industry Cluster contains both the integration of ICT and the extension to the whole country and therefore fits to the enterprises of MIB, with an average employment number of 88 people, including 54 workers and seven engineers.584

576 577 578 579 580 581 582 583 584

http://www.ien-online.com/SpecialReportTurkeyInFocus/article5.htm, accessed on 18th of October, 2005. http://www.oecd.org/dataoecd/5/11/31932173.pdf, accessed on 26th of July, 2006. http://www.bilgitoplumu.gov.tr/eng/default.asp, accessed on 27th of July, 2006. http://www.mib.org.tr/english.html, accessed in November, 2006. http://www.oaib.gov.tr/english/sectors/ms.asp, accessed on 27th of July, 2006. Cf. interview Network Manager, October, 2005. Cf. VERITAS D41: Report on the Experiences with Setting up a Virtual Enterprise, January, 2006. Cf. personal meeting notes of the kick-off meeting, 1st of July, 2004. http://www.mib.org.tr/english.html, accessed in November, 2006.

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157

The project was coordinated and carried out by an external consultant of the industry who had worked with the members of the executive committee in projects before.585 She is an expert in ICT and e-Business and has her own consulting company in the sector of consulting for SMEs in order to enhance competitive knowledge. The second person involved in the project was an industry expert who had worked for the defence ministry before and was a former member of the MIB management board and therefore had a good standing among the MIB management board. Identification of Target Group 90% of the MIB companies were classified as being SMEs, predominantly machine manufacturers. Most of the MIB members are export-oriented so that all of them were supposed to be interested in gaining know-how and establishing contacts via an international project.586 While on an association level the advantages in participating in the project were seen in being the leader on providing innovative concepts and stimulating the machinery industry on getting together (and affiliating to MIB),587 for the member companies the main advantage was to be one step ahead because of the ability to learn about new concepts, and new technologies and to increase collaboration between other European countries and Turkey.588 The board of MIB discussed models of networking long before, trying to establish a strong industry that is able to survive at the international market.589 The main problem of the industry seems to be the low capacities590 and the unpreparedness for large orders, as every Turkish entrepreneur owns his own single business. Based on the attractiveness of an international project for the Turkish industry and the mission of MIB, it was decided to integrate all members of the association in the project. Way of Contacting Target Group Originally, the first introductory workshop where a general presentation of the Network concept, different best practice examples and benefits for the potential members should be presented,591 was planned for the first week of December 2004592

585 586 587 588 589

590 591

Cf. MIB CD-presentation, 2004. Cf. personal meeting notes, VERITAS meeting 3rd of November, 2004. Cf. MIB introductory presentation, kick-off meeting 1st of July, 2004. Cf. MIB introductory presentation, kick-off meeting 1st of July, 2004. Cf. personal meeting notes, Turkish network meeting 27th of May, 2005: One of the board members of MIB mentioned that such concepts were discussed years before but now was the right point of time to start. Cf. VERITAS meeting minutes, 3rd of November, 2004. Cf. VERITAS meeting minutes, 13th of September, 2004.

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Empirical Data: Network Formation Processes

Later this was switched to the week around the 15th of December 2004.593 Information about the workshop was planned to be sent via mail, but people also were to be contacted personally.594 Other companies in Turkey that are part of the manufacturing industry, but do not have a MIB membership were planned to be invited for exchanging ideas, as they already started some network of collaboration.595 For the distribution of information, a short overview on how to set up a Cooperative Network596 including the best practice example of the German network IMPRO597, the benefits of networking was translated into Turkish and included in the invitations. In the leaflet, suggestions were presented on how to find out whether companies and their competencies match to other’s as well as first hints on how to manage a network.598 It was decided to use the traditional form of a letter and address the invitations strictly to the CEOs of the companies. Nevertheless, a lot of lobbying and informal talks were carried out during the first phase. The Industry Representative mentioned that 30 companies answered the mail invitation immediately.599 In a second step, personal phone calls and distribution of folders to SMEs, research centers and chambers took place.600 A secretary carried out the phone calls, but it was offered that one person from MIB management called back in case more information was needed. However, MIB and the representative consultant mentioned that most companies were simply attracted by the topic and the agenda and did not have to be convinced.601 In sum, the invitation was sent to around 200 organizations including the members of MIB, TUBITAK Office, KOSGEB, the Turkish SME Development Organization and TTGV, the Turkish Technology Development Foundation, the TBV (Turkish Informatics Foundation, TOBB (Turkish Chambers Association) and to technical universities.602

592 593 594 595

597 598 599 600 601 602

Cf. personal meeting notes, VERITAS meeting 13th of September, 2004; VERITAS meeting minutes, 13th of September, 2004. Cf. VERITAS meeting minutes, 3rd of November, 2004. Cf. personal meeting notes, VERITAS meeting 3rd of November, 2004. Cf. VERITAS meeting minutes, 3rd of November, 2004. Note from the author: In Turkey, the term Cooperative Network was used from the beginning on as especially the term “virtual” proved to be difficult to understand. http://www.impro-praezision.de, accessed in November, 2006. Cf. VERITAS D1.2: First Contact Material, November, 2004. Cf. personal meeting notes, VERITAS meeting, 10th of January, 2005. Cf. MIB workshop leaflet Turkey; document “basvuru formu” (workshop registry), 10th of January, 2005. Cf. personal meeting notes, VERITAS meeting, 10th of January, 2005. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006.

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159

Informative Workshops Finally, the workshop took place on the 10th of January 2005 at a conference center in Istanbul and lasted from 16:00 – 18:30. Around 50 people registered for the workshop603, in the end 36 people from 28 different companies participated.604 Most of the participants were from Istanbul, but participants also came from Konya, Gebze, Bursa and Adana. The workshop was organized like a conference event, including a registration desk where participants received a conference map with the presentations and first contact material,605 as well as badges and headphones for the simultaneous translator.606 Representatives of press were also present.607 The agenda608 contained i) an introduction by the Network Coordinator,609 ii) a presentation on the need for the establishment of VOs, presented by the head of MIB,610 and iii) the Cooperative Network Approach presented by SFC who highlighted the theoretical background of networks and the advantages for SMEs.611 This presentation also included a systematic approach how to design the formation process. iv) As well, the workshop contained a best practice example of the Swiss Network Swiss Microtech Network.612 The example shows a network in the screw machinery industry that was founded in 1996 and is a specialist in sharing orders, but also raw material, tools and commodities. The presentators suggested to first define the strategy, second, to decide on structure and roles, then in a next step on rules and business processes, before finally establishing a real business plan for the network.613 The network, its structure and main successes like cost reductions and joint trade fairs were presented by one participant company from the plastics industry who

603 604 605 606 607

608 609 610 611 612 613

Cf. personal meeting notes and official VERITAS meeting minutes, 10th of January, 2005. Cf. MIB participation list (“takipsheet”), January, 2005. Cf. VERITAS D21: First contact Material, November, 2004. Cf. MIB workshop report, January, 2005. Press releases had been sent to: Makine Magazin, Machinery Industry Magazine, Turkey, Mühendis ve Makine, Machinery Engineering Magazine, Turkey, Kobi Efor, SMEs Magazine, Turkey, Ofis øletiúim, Industrial Communications, Turkey, BT Haber, BT Net, IST Industry, Turkey, Dünya, Referans, Gözlem, all daily newspapers, Expo Channel (Business Newspapers and TV Channels), Kanalturk, EU Communication Project. Cf. MIB workshop report, January, 2005. Cf. MIB workshop leaflet, 10th of January, 2005. Cf. MIB introductory presentation, 10th of January, 2005. Cf. MIB presentation, 10th of January, 2005. Cf. SFC presentation “United we stand – approaches & critical success factors of network cooperation”, 10th of January, 2005. Cf. Swiss Microtech presentation “Competitor based Collaborative Network of SME”, 10th of January, 2005. Cf. Swiss Microtech presentation “Competitor based Collaborative Network of SME”, 10th of January, 2005.

160

Empirical Data: Network Formation Processes

successfully participated in two networks and reported his own experience.614 The meeting was concluded with an interactive, lively discussion, where the main concerns was discussed, for example how to build up trust between participants. The question arose how to change the mentality of the industry to create a collaborative network.615 Companies also required feedback from outside: One of the entrepreneurs asked how the Turkish Machinery was viewed from external countries.616 At the end of the day, a short questionnaire was distributed.617 15 companies completed the evaluation forms. The analysis revealed that more than 80% of the participants appreciated the presentations. 60% of the sample thought that training and joint work could make them implement the model, and would like to receive more information about the network concept.618 The official part of the meeting ended around 19:00, but was concluded with a reception in the conference center. As the Virtual Enterprise concept was relatively unknown in the Turkish industry, the introductory workshops aimed at introducing the concept and creating awareness, but also to identify the interest of potential partners. All in all, the workshop was judged as being a success for the industry: ”Before, bosses and managers were not in agreement with the concept or understood what it means and now besides understanding, they started to believe it as a solution for their problems.”619 Concerning the next steps, MIB suggested establishing a group of leaders in order to attract additional interested companies. Further follow-up meetings should take place.620 Learning After the first workshop, the presentations were judged according to their ability to explain the concept. Statements like “Even though trust is mentioned as highly important, information on how to provide trust was not mentioned”, or, “Presentations were not satisfactory by means of its objectives, e.g., it is not understood well how a virtual enterprise works” were found at the evaluation forms.621 The request for information and detailed information and support was an important aspect during the 614 615 616 617 618 619 620 621

Cf. Swiss Microtech presentation ”SMT – a success story”, 10th of January, 2005; http://www.dynatec.ch, accessed in November, 2006. Cf. VERITAS D41: Report on the Experiences with Setting up a Virtual Enterprise, January, 2006. MIB workshop report, January, 2005. Cf. personal meeting notes, VERITAS meeting 10th of January, 2005. Cf. MIB questionnaire ”Degerlendirle formu“, 10th of January, 2005. Cf. MIB workshop report, January, 2005. Cf. MIB workshop report, January, 2005, p.9. Cf. VERITAS meeting minutes, 10th of January, 2005. Cf. MIB workshop report, January, 2005.

The Turkish Case

161

first months for the Turkish representative persons as well. The representatives found it important to learn about the concept and get more information from the beginning on. They were in favor of the idea to invite a representative of the Virtual Factory Rhein Ruhr – which had failed – to a meeting of the VERITAS consortium622 in order to get meaningful insights and help to avoid mistakes. Another indicator of the high preparedness to learn about how to set up a network was recognized in the project meeting on the 13th of September 2004. At this meeting an internal research part was presented by UNIVIE and SFC that including best practices, success factors and highlighted first suggestions for workshops. The ideas to invite experts and present success stories was very quickly agreed and adopted by the Turkish representatives.623 Due to the fact that the first Austrian meeting took place before the Turkish information workshop, the Turkish representatives were present at the Austrian meeting. At the end of the day they asked for a translation of the best practice example Virtuelle Fabrik Nordwestschweiz-Mittelland624 that had been presented at the meeting.625 The impression of not having any experience with networking was maintained during the whole project. Expressions like “Well I have to add, that I do not have any experience with setting up a network”.626 , or, “But I don’t have any experience with such networks.”,627 were often noted during interviews with Turkish network members. Insecurity was related to the low experience with networks (“In other respects, I don’t have ample experience in collaboration.”628, “To be honest, I don’t

622

623 624 625 626

627 628

The decision to invite those experts was taken during the kick-off meeting on the 1st of July, 2004 (Cf. VERITAS meeting minutes, 1st of July, 2004). On 13th of September, 2004, a member of WZL RWTH Aachen (http://www.wzl.rwth-aachen.de/de/index.htm, accessed in November, 2006) presented the actual business concept of Virtual Factories and Virtual Organizations (cf. VERITAS meeting minutes, 13th of September, 2004.) Cf. UNIVIE/SFC presentation about workpackage one, 13th of September, 2004 http://www.virtuelle-fabrik.ch, accessed in November, 2006. Cf. personal meeting notes, 3rd of November, 2004. Cf. interview number 5, unit 02050797, October, 2005. Translated by the author. German text (translated by a bilingual expert): “Also, ich muss dazu sagen ich habe keine besonderen Erfahrungen mit Kooperationen“. Cf. interview number 5, unit 02050823, October, 2005. Translated by the author. German text (translated by a bilingual expert): “Aber ich habe keine Erfahrung mit solchen Netzwerken.“ Cf. interview number 6, unit 02060995, October, 2005. Translated by the author. German text (translated by a bilingual expert): “Ansonsten habe ich aber in dieser Richtung, etwas gemeinsam zu machen, keine großen Erfahrungen.

162

Empirical Data: Network Formation Processes

have ample experiences in that, because we haven’t had many cooperations so far.”629) and was tried to be overcome with a lot of questions. Summary and interpretation: The Initiation phase lasted from July 2004 until January 2005 that is seven months. During these months, the process was mainly characterized by learning and understanding the concept, and at the same time creating awareness at the Turkish manufacturing industry. The Turkish representatives showed strong interest in motivating their members to enter cooperation and defined a clear approach whom to address as potential partners. The VERITAS project was also seen as a “service” to their members, a possible solution to adopt European Union concepts. In fact, MIB and the workshop initiatives were seen as “pioneers” because such projects had not been addressed from the industry before. Thus, the identification of the potential partner companies followed a clear approach. The information of the manufacturers, however, took quite a long time and only one meeting took place in a time frame of four months.630 The meeting was planned like an event, including press representatives and translators, and an informal reception. Although the Network Manager had expected around double the amount of people during the first meeting, the workshop can be judged as rather successful as the companies attended the meeting with interest and asked a lot of questions. 60% of the participants thought that they would be able to implement the virtual enterprise model with some work and training.631 Some of the participants, however, also stated that it would be difficult to find partners. On the other hand, the potential network partners came at least from the same industry, had the same background and some of them even knew each other before. During the Initiation phase, the representatives showed strong commitment and personal involvement with the network idea and even tried to convince the manufacturers via personal talks. The long timeframe can be mainly attributed to the insecurity with the concept. This is also reflected by the decision to now look for a leading team of the network in order to attract more people for the cooperation.

629

630 631

Cf. interview number 7, unit 02071261, October, 2005. Translated by the author. German text (translated by a bilingual expert): “Um ehrlich zu sein habe ich keine großen Erfahrungen darin, denn wir haben noch nicht viele Kooperationen gehabt.“ According to the VERITAS consortium meeting in September, an informative workshop could not have held before. Cf. MIB introductory workshop report, 17th of January, 2005.

The Turkish Case

163

5.3.2 Forming Getting to Know Each Other The next meeting took place on the 17th of March 2005, where nine people from seven companies took part. The aim of the meeting was to discuss the preparedness of the machine-manufacturing sector to establish a network, to identify relevant sub-sectors and competencies to be included.632 Additionally, it should be discussed on a general level which strengths and weaknesses are demonstrated by the industry. In addition, the first workshop was reviewed and the status of the VERITAS project including the development in Austria and Belgium was reported.633 In order to get to know each other on a technical level, a SWOT analysis was carried out and the results summarized in Table 14.634 The analysis showed that strengths could be attributed to well-experienced workers and the cheap labor force. Most critical for the establishment of a network was the lack of knowledge on how to start such a cooperation.635

Strengths

ƒ Well experienced employees ƒ Excess of machinery ƒ Cheap labor force relative to international markets

Weaknesses

ƒ Lack of knowledge on how to establish a network ƒ Lack of training ƒ Lack of international marketing capability and resource utilization

Opportunities

ƒ ƒ ƒ ƒ

The geographical area Communication possibilities Closeness to Middle East and Russia Virtual technological platforms for marketing

Threats

ƒ ƒ ƒ ƒ

The decrease in national funding supports Price competition with Asian countries Competition between companies Volatile economical status

Table 14: SWOT Analysis of the Turkish Manufacturers

632 633 634 635

Cf. MIB workshop report, 17th of March, 2005. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006. Cf. MIB workshop report, 17th of March, 2005. Cf. MIB presentation at the 2nd review meeting, June, 2005.

164

Empirical Data: Network Formation Processes

Identified cooperation areas were seen in joint procurement of compressors, pumps, generators, spare parts and moulding. Moreover, cooperation in cross-servicing, capacity sharing and sharing of R&D engineers was mentioned.636 The final idea was to set up a customer-oriented cooperation network like Swiss Microtech Network637 in the long run, but before this to establish a B2B-market for mutual services. In a very first step, cooperation with either AGORIA or Swiss Microtech Network638, was also addressed. If the Belgian partner association AGORIA could be involved in network considerations, the major benefit for Turkish companies would be seen in contacts to Belgian business partners. The same holds for Swiss Microtech Network639, but here the aspect of learning from the experts would also be included in a joint cooperation.640 In both directions first contacts had already been made. It was agreed on the following points to be considered seriously for the establishing of Cooperative Networks: -

“MIB should make a research on the sectors and capacities in order to create a cooperation infrastructure by collecting data, so requirements and supplies will be better seen. - Idle machine capacities should be identified. - We should take part in the existing Cooperative Networks. - It could be useful to start with joint procurement networks as a start point of mentality change and awareness creation. - MøB members need to know each other more.”641 From this meeting, it was learned that the set-up process would be a learning process for the member companies. 642 Cooperation Atmosphere Generally speaking, the atmosphere during the meetings was calm, relaxed and open. A lot of discussions took place. The most critical factors discussed were trust and fear of competitors.643 In terms of the Network Coordinator’s opinion, “(…) manufacturers are friends.” 644 Nevertheless this does not mean that they do not compete with each 636 637 638 639 640 641 642 643 644

Cf. MIB workshop report, 17th of March, 2005. http://www.swissmicrotech.ch, accessed on 23rd of October, 2006. http://www.swissmicrotech.ch, accessed on 23rd of October, 2006. http://www.swissmicrotech.ch, accessed on 23rd of October, 2006. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006. Cf. MIB workshop report, 17th of March, 2005. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006, p. 56. Cf. UNIVIE meeting minutes, network meeting, 27th of May, 2005. Cf. MIB presentation at the 2nd review meting, June, 2005, p.4.

The Turkish Case

165

other. She expressed it with: “(…) when there is business they compete toughly”.645 Therefore, the positive discussion atmosphere was helpful, but on the other hand, the points agreed on the task list were only agreed on an abstract level. Delegation to outstanding potential partners took place as meeting participants discussed how to convince “the others” of networking and thought less about cooperation among themselves.646 The preparedness questionnaire – translated into the Turkish language647 – was completed by nine companies (eight potential network partners and one external consultant). Before the evaluation, the Turkish industry association was aware of the fact that entrepreneurs would not like to fill in the questionnaires.648 As an incentive, UNIVIE brought Austrian chocolate for the ones who did the evaluation,649 which was on the one hand accepted as a present, but on the other hand increased cooperation preparedness. The entrepreneurs were pleased by the present and the atmosphere was good although it took 30 minutes until everyone was finished. Eight questionnaires were given back at the day of the meeting, the 27th of May 2005; one was handed in later because the company had left the meeting early. The objectives of cooperation were mainly access to new markets and the improvement of flexibility. Interestingly, cooperation was based on short-term use of market chances.650 Trustworthiness of partners was the most important aspect for all partners to participate in cooperation. The impression of negative trustworthiness that would lead to ending the cooperation was also ranked on the first position (µ=4.78).651 Turkish participants additionally highlighted the need for transparency and openness in discussion, and well-established contracts between partners so that everyone is aware of the profits s/he can get out of the network.652

645 646 647 648 649 650 651

652

Cf. MIB presentation at the 2nd review meting, June, 2005, p.4. Cf. personal meeting notes, network meeting, 27th of May, 2005. Cf. questionnaire “Günümüzde Iúbirlikleri”, May, 2005. Cf. VERITAS D51: The importance of trust in the phase of network formation, January, 2006. Cf. VERITAS D51: The importance of trust in the phase of network formation, January, 2006. Cf. UNIVIE presentation “Evaluation of questionnaires”, 6th of October, 2005. Cf. UNIVIE presentation “Evaluation of questionnaires”, 6th of October, 2005. (µ=5 would reveal a 100% agreement of all parties). For further information compare for VERITAS D51: The importance of trust in the phase of network formation, January, 2006. Cf. UNIVIE presentation “Evaluation of questionnaires”, 6th of October, 2005.

166

Empirical Data: Network Formation Processes

The participation rates at the meetings were quite low. The coordinators had to talk with companies one by one to assure attendance.653 Additionally to being responsible for their own companies, managers suffered from a lack of time. This led to severe problems with establishing ideas/commitment because many aspects had to be discussed again and again.654 Reach Commitment and Strategy Formulation Most important considerations of the Industry Representative and the Network Manager were that the companies did not understand that they had to become active themselves. Most of the participants thought that the main business model resembled either a joint venture or an Internet platform.655 It was recognized that companies would need an expert to tell them what to do and follow his guidance. Additionally, the Network Coordinator often mentioned the lack of experience of companies with networks. Contrary to the consortium’s suggestions on how to structure the follow-up workshops,656 she expressed it as follows: “Brainstorming on the following questions is not relevant in our case: What is expected from a network? Which experiences on networking do companies have so far? (…)”657 and argued that it was more important to think of concrete business and business opportunities since there were no experiences with networking. To identify a market and to promote the idea of networking, a lot of press releases were written. The industry consultant for example presented the current project status at a conference in September 2005, highlighting the process from no experience to first steps in networking.658 On the 27th of May 2005, a third meeting took place. The agenda659 contained the presentation of two successful Turkish successful networks, the presentation of SWOT analysis results with the discussion on joint objectives and first steps towards a joint marketing plan as well as the decision on requirements for the Network Manager. The 653 654 655 656 657 658 659

Cf. VERITAS telephone conference meeting minutes, 4th of May, 2005. Cf. interview with Network Manager, October, 2005. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006, p. 56. Cf. VERITAS recommendations on workshop structure, April, 2005. Cf. email network coordinator to SFC, 6th of April, 2005. Cf. MIB presentation at the International Conference on Strategic Partnerships in Istanbul, September 2005. Cf. agenda Machine Manufactures Association, VERITAS Project – Cooperative Networks Establishing Platform, 27th of May, 2005.

The Turkish Case

167

meeting took place in the morning and was concluded with a joint lunch.660 Although 12 people were expected,661 only eight managers participated, and one left before lunch. Again, during the meeting, the atmosphere was relaxed and people spoke in a very open manner to each other.662 The first best practice presentation was about HMS Makina663, a network based on 90 people and 30 machines, that is lead by one central company.664 It is a hierarchical model where the leading company brings different competencies together. It was established based on different outsourcing projects. The idea is to use the existing capacity and the existing machinery park, but jointly produce different component parts and. The model requires strong quality control support665 and open information exchange between partners666. During his presentation, the manager of HMS Makina667 even mentioned that exchange of human resources had taken place. Most important in his opinion was a strong leader with a trustful and proper personality and the establishment of a core group first.668 This presentation led to an intensive discussion about how to start a network – different ideas that ranged from joint marketing to the establishment of a completely new organization were mentioned.669 One of the members stated that clear strategies must be identified before starting.670 The Network Coordinator presented different network concepts that could suit the manufacturers. The meeting participants wanted to further discuss the models with the members of the sub-branches.671 First experiences with a Cooperative Network were presented by Platform 360672, a network that has the same cooperative concept and theoretical background as HMS Makina673 but was embedded in the IT sector. A strong company that enabled cooperation partners to establish a wider marketing network capacity, different competencies and financial power again took the umbrella role. The ideas of Platform 660 661 662 663 664 665 666 667 668 669 670 671 672 673

Cf. VERITAS telephone conference meeting minutes, 18th of May, 2005. Cf. VERITAS telephone conference meeting minutes, 25th of May, 2005. Cf. personal meeting notes, MIB network meeting, 27th of May, 2005. http://www.hmsmakina.com/tr/index.html, accessed in May, 2005. http://www.hmsmakina.com/tr/index.html, accessed in May, 2005. Cf. MIB network meeting minutes, 27th of May, 2005. Cf. personal meeting notes, MIB network meeting 27th of May, 2005. http://www.hmsmakina.com/tr/index.html, accessed in May, 2005. Cf. personal meeting notes, MIB network meeting 27th of May, 2005. Cf. MIB workshop report, 27th of May, 2005. Cf. personal meeting notes, MIB network meeting 27th of May, 2005. Cf. UNIVIE meeting minutes, MIB network meeting 27th of May, 2005. http://www.platform360.com.tr/en/, accessed on 1st of August, 2006. http://www.hmsmakina.com/tr/index.html, accessed in May, 2005.

168

Empirical Data: Network Formation Processes

360674 were mainly based on joint marketing and R&D.675 The manager highlighted the importance of trustful relationships and open information exchange. Six months after the cooperation had started, the partners were able to present higher turnover for partner companies and strong name recognition of the network.676 677 Several other models were discussed, including examples like the Virtuelle Fabrik Nordwestschweiz-Mittelland678, but also more general cooperation concepts like the idea of joint marketing or capacity sharing models.679 Further ideas how to cooperate were thought of:680 ƒ Sector-based capacity sharing (either on the same subject, but with different competencies or on the same subject and on the same competencies or even contractor based. ƒJoint Marketing (either under the umbrella of MIB or under another brand name), ƒR& D with either national or international partners. An action plan was agreed at the end of the meeting: For the sub-sectors of pumpers, compressors, textile machinery and machine tools it was agreed to carry out prestudies on feasibility. In the sector of “on the vehicle machinery and equipments” 681 a first Cooperative Networks would start.682 Despite the numerous ideas, it became clear that training activities would be needed for the Turkish participants. The Industry Representative believed that only short-term business could lead to better involvement. The same aspects were revealed with the analysis of the questionnaire as short-term business was much more important than establishing long-term contacts.683

674 675 676 677

678 679 680 681

682 683

http://www.platform360.com.tr/en/, accessed on 1st of August, 2006. Cf. MIB network meeting minutes, 27th of May, 2005 Cf. personal meeting notes, MIB network meeting 27th of May, 2005 Comment of the author: Despite the successfulness it must be stated, that the umbrella company KocSistem is one of the most powerful enterprises in Turkey, and disposes of a well-known reputation. This might be one of the reasons why the network is that successful. http://www.virtuelle-fabrik.ch, accessed in October, 2006. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006. Cf. MIB network meeting minutes, 27th of May, 2005. “On-the-vehicle”-machinery refers to machines on for example trucks like airport stairs, tree cutting machines and so on. Later, the cooperation based on “on the vehicle –machinery” was renamed to Super Structure Network. Cf. MIB network meeting minutes, 27th of May, 2005. p.3. Cf. UNIVIE presentation “Evaluation of questionnaires”, 6th of October, 2005.

The Turkish Case

169

At the end of the meeting, characteristics for a Network Manager were discussed. It was agreed that such a Network Manager should have i) industrial know-how, ii) professionalism, iii) reliability and communication abilities, but should iv) also have knowledge about Cooperative Networks.684 The participants agreed to come back with ideas and suggestions. The impression arose that the direction of the network would depend on the selection of the Network Manager and his background685: Based on the idea of cooperating with the manager of Swiss Microtech Network686, a strong connection between the Turkish and the Swiss clusters was thought to be fruitful for the advancement of the progress. However, it was decided to look for potential partners and other companies to cooperate with and come back to the consortium. Identification of the Market No real market was identified during this time but a lot of ideas were derived on where the network could go and what could be done, mostly based on other examples. Summary and interpretation: The Forming phase lasted from February until June 2005 – five months. During this phase, two meetings with interested parties took place in order to develop ideas about joint work and in order to find cooperation possibilities. Four CEOs participated at both meetings, but the others expressed their explicit interest to be invited to further meetings. Nevertheless, it became clear that the non-experience with networking would be crucial throughout the whole network setup and that – although a lot of ideas and positive contributions came up – a lot of questions on how to start arose. These aspects reflect the typical need for dependence in the Forming phase (Tuckman, 1965). People asked a lot of questions and the purpose of the group was questioned. According to their roles, participants were to a large extent members of the MIB management board or had at least held such a function during the last years. Questions were not only characterized by interest and need for help, but also by skepticism. At least one person seemed very skeptical at the meeting on 27th of May 2005; another manager had some doubts, too.687 684 685 686 687

Cf. MIB network meeting minutes, 27th of May, 2005. Cf. VERITAS telephone conference, meeting minutes 25th of May, 2005. http://www.swissmicrotech.ch, accessed on 23rd of October, 2006. Cf. personal meeting notes, MIB network meeting 27th of May, 2005.

170

Empirical Data: Network Formation Processes

Generally, the Forming phase is seen as a phase of orientation, but also “testing” the leaders (West, 2004). This could be identified during the meeting in March 2005, where the Network Coordinator was overwhelmed with questions about concept, idea, direction and guidelines for the network initiative. Questioning the meaningfulness of the cooperation could also be derived from non-commitment or late commitment to meetings. On the other hand, the typical problems of politeness and antipathy (Kauffeld, 2001) were not observed, as most of the participants knew each other before. Therefore, the discussion level was quite lively – and the questionnaire revealed that the participants recognized trust as the most crucial issue.688 No anxiety was recognized. The concept of networking was accepted and discussed by the companies. A lot of project ideas arose and everyone participated in discussions. They could not agree on more concrete points like the sectors to be involved, but wanted to discuss it with companies outside of the meeting. The internal meeting report showed that on the one hand commitment and preparation for collaboration was high, but on the other hand, commitment to actively be involved in creating business was still very low.689 On the one hand, this could be interpreted as lack of knowledge, but on the other hand, this could also be low commitment because of skepticism. One of the participants questioned that examples like Swiss Microtech Network690 were successful since they had not expanded to other countries and still depended on only ten companies.691 On the whole, it seemed to be unclear for the potential partners that the establishment of a joint cluster takes time and commitment.692 Among other factors, this was the reason for the initiation of training. To summarize, commitment was observed on a talking level but not on an activity level.693 For example, a lot of action suggested contained the carrying out further studies or the involvement of other people. Important aspects that should be ensured during this phase is (…) that team goals are clearly stated and agreed” (West, 2004, p. 29). However, a concrete direction could not be finalized but decided to further discuss it with others.

688 689 690 691 692 693

Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006, p. 60. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006. http://www.swissmicrotech.ch, accessed on 23rd of October, 2006. Cf. personal meeting notes, MIB network meeting 27th of May, 2005. Cf. VERITAS meeting minutes, 27th of April, 2005. Compare also for meeting notes of UNIVIE during a meeting with cultural expert, 1st of June, 2005.

The Turkish Case

171

5.3.3 Storming Working Together During the Storming phase that took place during summer, network participants started to work with each other. The author was not able to observe the selection of partners as most of these issues were carried out in informal meetings and bilateral ideafinding. In June 2005, one of the leaders in MIB who was involved in “on-the-vehicle”machinery”694 defined four companies that would like to cooperate with each other and tried to ask them about their competencies via personal talks. The questions included figures and facts on revenue, export share, exporting countries, number of employees, exporting expectations, existing certificates, and products. The list was established by one central member of the Turkish interests and more questions were asked from the consortium team.695 However, no reports on further meetings or events of this group have been submitted. Finally, two Cooperative Networks were initiated, a) the so-called Super Structure Network, consisting of three companies and b) the Compressor Network with eleven companies, and c) the Precise Mechanics Network with four companies.696 All three initiatives were based on one joint collaborative network that is the VERITAS network (see figure 12). The precise mechanic network was not pursued afterwards. a) The Super Structure Network (called “on-the-vehicle”-machinery before) was based on three companies that wanted to carry out joint marketing together and help each other with various topics. Company 1 was involved in manufacturing airport equipment; company 2 in manufacturing mounting systems and lifts for trucks and platforms etc. and company 3 manufactured military equipment and trucks. All three of them were well-established companies in the Turkish market with export-oriented production and had between 20 and 30 years of business experience.697 The smallest of the three partners had 30 employees, whereas

694

695 696 697

“On-the-vehicle”-machinery refers to machines on for example trucks like airport stairs, tree cutting machines and so on. Later, the cooperation based on “on the vehicle –machinery” was renamed to Super Structure Network. Cf. email MIB to UNIVIE and SFC on 12th and 13th of June, 2005. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006. Details about the companies can be found at http://talepler.mib.org.tr/companies/, 10th of August, 2006.

172

Empirical Data: Network Formation Processes

company 3 worked with over 180 employees. Company 1, with a representative in the MIB management board, was the one who initiated the network.698

Precise Mechanics Super Structure

Compressors

Figure 12: Turkish Network Initiatives1

During a first meeting in July 2005 the objectives of the network were discussed.699 It was decided to reduce production costs via collaboration, produce higher quality products and increase production/sales for both players as well as enhance access to new markets.700 Furthermore, strengths and weaknesses of the potential partners were analyzed and determined by the Network Coordinator (see table 15). For October 2005, it was planned that companies visit each other.701 The organization and its target sectors should be agreed upon in further meetings. Nevertheless, the main objectives for the second half of 2005 were to create a new market out of Turkey via joint marketing. In a second step joint production should be thought about.702

698 699 700 701 702

Cf. email MIB to UNIVIE and SFC on 12th and 13th of June, 2005. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006. Cf. MIB presentation at the final review meeting, 26th of January, 2006. Cf. VERITAS meeting notes, 6th of October, 2005. Cf. MIB presentation at the final review meeting, 26th of January, 2006.

The Turkish Case

Skills

173

Company 1

Client Necessities Very good

Company 2

Company 3

Very good

Very good

Communication Skills

External relation balance partly

External relation balance partly

Very good

Future

R&D partly

R&D partly

Very good

Cohesion

Different product variations Flexibility partly

Very good

Very good

Stability

Weak incitement systems in the capability level measurement, strong relations among shareholder, no guarantee of profitability or liquidity

Weak incitement systems in the capability level measurement

Very good

Reliability

Product service standard and Very good production processes stability partly, reaching sales point satisfaction partly

Product service standard and production processes, Stability partly

Cooperation

Supplier, partner, rival, R&D, sales, production, service Marketing distribution cooperation partly

Very good

Very good

Table 15: Skill Matrix Super Structure Network703

In November 2005, one potential partner left the initiative so that only company 1 and 2, including one member of the MIB management board, remained for the network.704 As these two players had got to know each other,705 a further meeting took place during November 2005, where the two partners exchanged ideas about expectations and long-term objectives. The following points for a strategy were agreed:706 - Continuation of cooperation, new partners to be acquired after successful joint work - Technical knowledge sharing - Joint purchasing of hydraulic cylinders - Joint production of specific products with specific competencies and experiences internationally competitive - Prototype production 703 704 705 706

Table was established by MIB Network Manager, October, 2005. Cf. VERITAS meeting notes, 28th of November, 2005. Cf. VERITAS meeting notes, 28th of November, 2005. Cf. MIB presentation at the final review meeting, 26th of January, 2006.

174

Empirical Data: Network Formation Processes

-

Joint marketing: new brand name, joint fair participation, use each other’s sales/marketing networks

In order to reach their objective i.e., to go to bigger and different markets, both stated that they were ready to invest.707 As well, a marketing plan was decided.708 For the Super Structure Network, the sales area was defined as being national and international with a target sales number of 10 joint items in the first year, 50 in the second one. The total sales volume should be around $300,000 in year one, $1,500,000 in year two. As marketing methods, face to face shows709 and factory demonstrations as well as a joint website and joint participation in tradefairs. However, the two companies at this stage did not decide, which products to focus on, which fairs to participate in (they even stated that the list of exhibitions shall be determined by MIB)710, but rather drafted a rough plan about important items in cooperation. On 20th of December 2005, the two Super Structure Network partners met again to define cooperation subjects and actions. In this meeting it was decided to sustain the cooperation on joint marketing, joint purchasing, joint R&D, and joint production, even though the third company did not commit to participate in the network.711 712 Products

Markets

Company 1

Airport Equipments (catering car, water and waste water cars, maintenance platform, luggage and cargo cars, stairs, conveyor, deicing machines), Mobile Scissors Platforms

Airports, Airport authorities, airport land services

Company 2

High Altitude Working Platforms, Lamp Maintenance Cars, Tree Pruning Tools and Cars, Mobile Scissors Platforms

Electricity Service Companies, Municipalities, Factories, Industrial Institutions, Fire Brigade Organizations, Construction Fitting Companies, Marine Organizations.

Table 16: Product-market Matrix Super Structure Cooperators

707 708 709 710 711 712

Cf. Network Manager meeting minutes, 17th of November, 2005. Cf. MIB presentation at the final review meeting, 26th of January, 2006. Comment of the author: Originally the manufacturers referred to ““Yüz yüze Gösterim”. Cf. MIB presentation at the final review meeting, 26th of January, 2006. Cf. MIB meeting minutes, Super Structure network meeting, 20th of December, 2005. Cf. email MIB to UNIVIE and SFC, 22nd of December, 2005.

The Turkish Case

175

Based on a product-market matrix (see table 16) it was shown that only a small intersection in one product was met, but that for example sales of mutual products could be beneficiary for both.713 It was decided that i) the two partners will support each other by providing technical knowledge, ii) to define requirements and costs for hydraulic cylinders in order to thing about possible joint purchasing, and iii) to study each other’s Articulated Telescopic Lift to find out about competence sharing.714 On January, 18th, 2006, another meeting took place with the two possible cooperation partners in order to decide on a very detailed product. It was decided to jointly construct a man lift, where the main system will be manufactured by company 2 and the sub-system with the walking parts by company 1.715 Finally, the two manufacturers decided to jointly produce the man lift by dividing it into a) the boom and b) walking parts.716 It was agreed to establish prototype machinery within a maximum of 75 days. In a second step a detailed product construction analysis and a production plan would be made. b) The CompressorNet was aimed to support the industry by establishing a small subindustry. The compressor manufacturers were somehow “forced” to cooperate as their production units were on the way to be replaced by national or international competitors. As well, due to the general industry structure, most of the entrepreneurs only produced one component and did not obtain high revenues. According to the industry consultant, cooperation was a necessity for compressors while the Super Structure Network was easily initiated with a platform on joint marketing.717 The CompressorNet was carried by six core group members that decided to start the initiative and to try to expand to ten large compressor manufacturers in the network.718 However, one of these members obviously was not interested after some time, as only five core members remained in the network (see table 17). All of the industry members were competitors. Most important for the network

713 714 715 716 717 718

Cf. MIB meeting minutes, Super Structure network meeting, 20th of December, 2005. Cf. MIB Super Structure meeting minutes, 20th of December, 2005. Cf. MIB Super Structure meeting minutes, 18th of January, 2006. Cf. email MIB to UNIVIE and SFC, 22nd of December, 2005. Cf. personal meeting notes, VERITAS meeting, 6th of October, 2005. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006.

176

Empirical Data: Network Formation Processes

members therefore was the need to exchange information, which was thought to take some time.719 Company description

Role in the project

90 employees, turnover around 12 million $ Compressors form the main part of production, manufacturing of screw processors, oil-free processors, …

Project management, coordination, audit

Company 2

Company exists since 1960, 40% export, Compressors, water cleaning machines and high vacuum machines.

Contribution’s to the coordination and management works, manufacturing

Company 3

Founded in 1975, partner of the German group “Mannesmann DEMAG” Different kinds of compressors, pumps

Manufacturing, participation, support

Company 4

Compressors as core competence

Information sharing, participation, work support

Company 5

Founded in 1968, compressors as core competence. Additional offices in Russia, Ukraine, Khasakstan.

Participation, work support

Company 1

,

Table 17: CompressorNet Participants' Characteristics720

In a first meeting of the core group in July 2005 the different objectives of each partner were discussed. Different ideas on how to work together ranged from joint R&D activities tol the creation of a sub-industry.721 Additionally, joint production, know-how transfer and capacity sharing were discussed. Finally, it was decided to create a compressor sub-industry – that is to start producing those parts that were often bought from external (mostly international) suppliers at this point in time. Compressor parts should therefore not be purchased from non-Turkish companies but the Turkish component manufacturers should start to produce one component jointly.722 723 In the experience report724 it was stated that the development of subindustries would enable the large compressors to purchase the components in Turkey, so that they would not depend on import regulations or bottlenecks from foreign manufacturers.

719 720 721 722 723 724

Cf. MIB presentation at the final review meeting, 26th of January, 2006. Cf. MIB presentation at the final review meeting, 26th of January, 2006. Cf. MIB presentation at the final review meeting, 26th of January, 2006. Cf. MIB presentation “Machinery Manufacturers Cooperative Networks in Turkey”, July, 2005. Cf. personal meeting notes, 29th of September 2005. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006, p.61.

The Turkish Case

177

Components to be addressed could be security valves, absorption regulators, air tanks, separator tanks or minimum press valves. During autumn 2005, it was decided to carry out an analysis on which component would best suit a pilot project.725 In a second step, those production companies that were already involved in compressor part fabrication would be offered to participate in the CompressorNet and asked to specialize on this product. Another meeting took place on the 27th of December 2005, with three companies participating.726 During the meeting, it became clear that the study on the subindustry products had not been documented yet. On the other hand it was decided the focus of the study and the future product should be on those components that are either imported and/or produced by compressor manufacturers (no new products). It was also discussed to hold a price 10% below the price of competition. Those component manufacturers who should produce the components should be invited to the next meeting. This means that the idea of establishing a sub-industry developed to be an idea that had to be imposed on people outside of the network.727 During the meeting, several alternatives were discussed:728 If the creation of the sub-industry should fail, joint production and/or exporting to different countries could be increased in order to compete with global corporations like for example Atlas729. Marketing activities like joint tradefairs, a joint website and a Yahoogroup were discussed. The final task list included talks with component manufacturers, and the procurement of lists for fair trades. On the whole, the compressor manufacturers held two sector meetings and two meetings with the Network Manager in June, October, November and December 2005. The aim of the network was defined with providing “(…) the best and highest quality compressors with lower production costs for the international markets.”

725 726 727 728 729

Cf. MIB presentation at the final review meeting, 26th of January, 2006. Cf. MIB meeting minutes “Compressor Manufacturers Meeting”, 27th of December, 2005. Cf. discussion during meeting 28th and 29th of November, 2005 (meeting minutes VERITAS meeting). Cf. MIB meeting minutes “Compressor Manufacturers Meeting”, 27th of December, 2005. http://www.atlascopco.com/, accessed in November, 2006.

178

Empirical Data: Network Formation Processes

Although questioned by the VERITAS consortium members,730 the need to compete with international – above all Chinese companies – led to these suggestions and was the most important part for the industry. In the interview with the Network Manager, she said that compressors “(…) have a serious necessity”731 to cooperate as they are on the verge of bankruptcy. “The small ones, the big ones aren’t. They say ‘If we don’t act now, we will be suppressed from the market (…)’ ”.732 Specialization therefore is a possible solution, but requires the involvement of one big company that can guarantee the amount of purchase. The other reason for joint work with larger enterprises lies in the possible knowledge transfer from bigger to smaller companies.733 To summarize the development of these months, two network initiatives were activated, and provided with a leader.734 The Network Manager describes the progress as satisfactory.735 Detailed task lists were established and discussed in every meeting.736 Discussion of Rules and Roles i) Leading the networks: The role of the Network Manager was the central role to be confirmed. Since the Network Coordinator had been responsible for the Turkish initiatives from the beginning on, the representatives of MIB wanted her to lead the network.737 She already enjoyed trustful relationships with members of the network and people did not have to fear her competition, but rely on her loyalty for all members of the network. She said, “I am not somebody they have to be afraid of. I am young, I am not involved in the same business, and my business is completely different. Therefore they trust in me.”738

730 731 732

733 734 735 736 737 738

Cf. VERITAS meeting notes, 28th of November, 2005. Cf. interview Network Manager, October, 2005. Cf. interview Network Manager, October, 2005. Translated by the author. German text (translated by a bilingual expert): „die Kleinen, die Großen nicht. Die sagen „Wenn wir nicht jetzt etwas unternehmen, wird man uns vom Markt verdrängen’(...).“ Cf. VERITAS meeting notes, 6th of October, 2005. Cf. Network Manager meeting minutes 17th of November, 2005. Cf. VERITAS meeting minutes, 28th of November, 2005. Cf. VERITAS meeting minutes, 28th of November, 2006; MIB CompressorNet meeting report and document ”Toplanty Notu”, 27th of December, 2006. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006. Cf. interview Network Manager, October, 2005. Translated by the author. German text (translated by a bilingual expert): “Ich bin ja auch niemand, vor dem sie Angst haben brauchen. Ich bin jung, ich mache nicht dasselbe wie die, ich mache etwas ganz anderes. Deshalb vertrauen sie mir.“

The Turkish Case

179

Before the Network Manager issue had been discussed in the meeting in May 2005, two other suggestions came up. One was to select a Turkish Network Manager and train him or her by sending him or her to other (international) networks and workshops in Europe.739 The Network Coordinator, instead, previously suggested hiring an international expert who would be able to present personal experiences and success stories.740 During a telephone conference in May 2005 it became clear that the manager of Swiss Microtech Network741 would be a good option. Nevertheless, the representative of MIB also thought of having a charismatic, strong leader that regards the network as its own success story and completely identifies with the network, so that the integration of existing Turkish networks would be an option.742 On the other hand, they also thought of an internal leader who was a well-established representative of the MIB management board. However, during the meeting on 27th of May 2005, just ideal characteristics of a Network Manager, but no potential persons were mentioned.743 Finally, the Network Coordinator herself was chosen as the Network Manager by recommendation of both network leaders and by MIB on October 6th, 2005.744 The network leaders for the Super Structure Network and for CompressorNet had not been elected or appointed officially, but they were both advanced members of the MIB management board, and in a leading function of their own companies. The leader of the Super Structure Network, however, did not take over the position of a leader on purpose, but the role was attributed to him because of his position. In an interview he explained that he thought it would be better to have one leader in the network that takes over responsibility and guides the others towards a solution.745 In the CompressorNet, the member of the MIB management board took over responsibility and sees his main tasks in creating the awareness of the need to find good partners by highlighting industry problems in personal talks and by bringing people together.746 Both reflect reliable, sophisticated businessmen that are trusted by other people.747

739 740 741 742 743 744 745 746 747

Cf. email UNIVIE to MIB, 23rd of May, 2005. Cf. VERITAS meeting minutes, 27th of April, 2005. http://www.swissmicrotech.ch, accessed on 23rd of October, 2006. Cf. VERITAS telephone conference meeting minutes, 25th of May, 2005. Cf. personal meeting notes, MIB network meeting 27th of May, 2005. Cf. MIB presentation at the final review meeting, 26th of January, 2006. Cf. interview number 5, October, 2005. Cf. interview number 7, units 02071300ff, October, 2005. Cf. interview Network Manager, October, 2005.

180

Empirical Data: Network Formation Processes

ii) The Network training At this point of time, training in new concepts and learning became increasingly important in Turkey and was nationally funded. Special activities for SMEs were highlighted in the SME strategy document of KOSGEB.748 As decided in April 2005, training activities on the network topic were seen as essential for the Turkish participants. An official tender749 was distributed to six institutions, asking for an informal offer for a two-day training seminar in Istanbul in September 2005. The addressed companies were either involved in similar research projects or had long experience with accompanying networks or cooperative enterprises. The final selection took place on the criteria of price, understanding of soft factors, industry (manufacturing) knowledge, training skills and availability on the suggested dates.750 While the Turkish Industry Representative voted for the best practice example Swiss Microtech Network751 752 because of having already met involved people and because of their knowledge about the industry. UNIVIE and SFC put the focus more on the training capabilities and on the experience with setting up a different types of networks. Finally, ISA Chemnitz,753 a spin-off of the Chemnitz University of Technology, was chosen. The training took place from 29th till 30th September 2005.754 The meeting agenda was quite comprehensive755 containing a section on business motivation, another section on the start of a Cooperative Network, a third on rules and roles and a final part on errors and pitfalls.756 Interactive, moderated sessions were planned to be alternated with theory sections. The manual included checklists, explanations and was structured like a workbook.757 The Network Manager reported the process as follows: “The first day the participants had been informed about the concept of networking, the advantages of Cooperative Networks and about the roles and rules in networks. Trainers also gave concrete examples of Cooperative Networks coming from their previous experiences to trainees. The second day, trainees were informed on the roles in the network and on 748 749 750 751 752 753 754 755 756 757

Cf. http://www.kosgeb.gov.tr/BilgiBankasi/Index.asp?Action=...&ID=7, accessed on 16th of August, 2006. Cf. ARMD document “Official Invitation to Tender Training”, 18th of July, 2005. Cf. VERITAS training evaluation table, August 2005. http://www.swissmicrotech.ch, accessed on 23rd of October, 2006. Cf. personal meeting notes, telephone call with MIB representative, 17th of August, 2005. Cf. http://www.isa-chemnitz.de, accessed in November, 2006. Short description on: http://www.tages.biz/index.php?module=news&page=readmore&news_id=235, 28th of July, 2006. Cf. personal meeting notes, network training 29th of September, 2005. Cf. training manual, 29th and 30th of September, 2005. Cf. training manual, 29th and 30th of September, 2005.

The Turkish Case

181

the coordination of the network. The participants had also discussed what kind of Network Manager can be appropriate for their sector and the trainers transmitted their experiences on the subject.” 758 The participation rate for the training was quite low. Although at least 10 companies had been expected,759 only seven people from six companies attended the meeting on the first day, five people on the second day.760 One of the participants was a representative of the Super Structure Network, while all the others were from the to compressors industry.761 Only one of the companies producing compressors was part of the core group that had participated in meetings before. During the introduction, participants partly reported their background in English, partly in Turkish. Starting with around one hour delay (because of the traffic situation in Istanbul), the Network Manager began with a general welcome session762 and then the trainers talked about the agenda and what they planned for the day. Participants immediately said that they did not know a lot about networks. Only during the introductory session in the training, it became clear that the companies had difficulties to adapt to the interactive moderation style763 and that they needed much more information on the concept. Hence, the introduction was a little bit too quick and some explanations and graphics were not completely understood.764 Around 12:00 o’clock a chapter on the business motivation for cooperation was started. As the discussion switched to Turkish language, the trainers were not able to learn about the companies’ concerns. The Network Manager started translating that the companies needed more best practices and more examples in order to understand the training content.

758 759 760 761 762 763 764

http://www.tages.biz/index.php?module=news&page=readmore&news_id=235, accessed on 28th of July, 2006. Cf. email MIB to VERITAS partners, 9th of September, 2005. Although the official documentation reports 13 participants, the author only counts those people the training was designed for, excluding participants of the VERITAS consortium. Cf. MIB presentation at the final review meeting, 26th of January, 2006. Cf. VERITAS Diary, 30th of September, 2005. Cf. personal meeting notes, network training 29th of September, 2005. Cf. personal meeting notes, network training 29th of September, 2005.

182

Empirical Data: Network Formation Processes

The two following examples illustrate the atmosphere and process of the training in a better way:765 On the first day after lunch, the trainer explained the “Walt Disney Idea”. In three steps, the participating companies were to think about i) ideas how to precede, ii) next steps and iii) current challenges. The three steps correspond to i) an ideal, ii) a realistic and iii) a critical point of view. The trainers wanted to put them into groups but they refused and stayed in the plenum. The discussions were not only about the content but also on the question itself. It took some time to get ready, as the specifications were unclear to the participants. Finally a lot of good ideas arose, starting from producing parts of compressors instead of importing them, to innovation tasks and global networking. In the “realistic” setting, participants thought of the selection of one coordinator, of visits and organizing meetings. The final result revealed that the most problematic challenge was the growing import figures from China that could possibly lead to vanishing of the small companies. The answer to these challenges was clearly seen in cooperating with each other.766 On the second day, the participating companies were asked to think of the cooperation preparedness in the training group and the cooperation preparedness outside the training group. Answers were given to a rather extreme level: The group believed to be 100% prepared for networking, whereas other companies – although not present at the meeting – were rated to have zero considerations of entering a cooperation. Three things were of special interest during the training. First, companies were waiting for more information, asked a lot of questions to the experts (which were in their view, the trainers). Even the representative of MIB asked a lot of questions although he could be seen as an expert as having been involved in the project from the beginning on.767 The training style that did not match to the companies’ expectancies. One of the participants expressed it as follows: “(…) but those people (…) they more catechised us. Maybe they thought they could use us to expand their own experiences.”768 Therefore, it was very uncommon for the participants to be trained interactively. In contrary to the original idea of having a “network meeting” with knowledge exchange

765 766 767 768

Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006; personal meeting notes, network training 29th and 30th of September, 2005. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006. Cf. VERITAS Diary, 30th of September, 2005. Cf. interview number 5, unit 02050924, October, 2005. Translated by the author. German text (translated by a bilingual expert): “(...)aber diese Personen, (...) Die haben mehr uns durchlöchert. Vielleicht haben die sich gedacht, dass sie durch uns auch ihre eigenen Erfahrungen erweitern.“

The Turkish Case

183

and best practices,769 the training increasingly developed into a school classroom lesson. Second, the small companies waited for the bigger ones to talk first and then committed to the main arguments. On the other hand, the participants had very high expectancies for the two days, learning “how to establish a cooperation, how to manage a network, how to be a network“.770 The final evaluation at the end of the training revealed an ambivalent picture.” On the one hand companies were quite satisfied with the content, material and skills of the trainer, On the other hand they stated that they had few new ideas about how to cooperate.771 Companies also expressed their continued will and interest to cooperate. 772 The objective of the training session was to allow participants to learn about how to start a network. Unfortunately all sessions that dealt with “get ready to operate” were left out because of time restrictions.773 iii) The Network Manager Meeting In November 2005, the Network Manager meeting took place. Again, the Turkish Network Manager provided comprehensive material on all activities and showed her positive adjustment about recent developments.774 She mentioned that the turning point was a meeting on the 27th of August 2005, where the involved companies recognized that “we can do as well”.775 She reported about both the Super Structure Network and the CompressorNet and explained that the cooperation between compressors was more difficult because of the fact that the big companies just want to include more small ones and bring the small companies to cooperate with each other.776 The target for the Super Structure Network was defined with joint marketing as a starting point that helps the companies to learn how to cooperate. In a second phase projects from foreign customers that lead to joint production should be started. Joint 769 770 771 772 773 774 775 776

Cf. VERITAS telephone conference meeting minutes, 6th of July, 2005. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006. Cf. Network Managers meeting minutes, 17th of November, 2005. Cf. email UNIVIE to MIB, 3rd of October, 2005. Cf. personal meeting notes, 17th of November, 2005. Cf. Network Manager meeting minutes, 17th of November, 2005. Cf. Network Manager meeting minutes, 17th of November, 2005.

184

Empirical Data: Network Formation Processes

production should finally aim at becoming an innovative network with sophisticated R&D activities.777 For the CompressorNet, the creation of a sub industry was seen as the most important objective, followed by the creation of different groups that create new products after a timeframe of two or three years.778 The main challenges, were seen in i) keeping the cooperation core group consistent, ii) acquiring national funding mechanism for cooperation, iii) the increasing power of the Chinese manufacturers and iv) the rising number of foreign investment. At the same time, the following ideas to deal with the challenges were presented:779 i) Motivate and help leaders, organize training; ii) stimulate association and networks and governments, iii) organize EC project (helps also for i) and ii)). iv) Exchange ideas, knowledge, conduct some projects together. The Network Manager provided good knowledge about the situation and showed possible solutions to overcome the problems or at least to find ways how to continue the steps towards cooperation.780 Handling Conflicts Although no obvious conflicts had been reported during the project time, the following aspects were observable for the project team: i) Different perspectives of how to establish a network by the Network Manager and one of the MIB representatives: The brother of the Network Manager was part of the potential network members during the first meetings in January, March and May 2005, but finally decided to refrain from the VERITAS network initiatives. His ideas were based on cooperative purchasing781 and the joint organization of trade fairs.782 The majority of the other companies wanted to focus on joint production, so that this manager started his own cooperation. In the interview he mentioned that weekly meetings took place and that a joint vision was developed.783

777 778 779 780 781 782 783

Cf. Network Manager meeting minutes, 17th of November, 2005. Cf. Network Manager meeting minutes, 17th of November, 2005. Cf. Network Manager meeting minutes, 17th of November, 2005. Cf. personal meeting notes, Network Manager meeting 17th of November, 2005. Cf. interview number 6, 02060997ff., October, 2005. Cf. personal meeting notes, MIB network meeting 27th of May, 2005. Cf. interview number 6, 02060997ff., October, 2005.

The Turkish Case

185

ii) One of the critical and most-discussed points was the selection of the Network Manager. Like in any other country, the discussion focused on whether the responsible person should be an industry expert or not,784 but in Turkey, the participants did not agree on one solution. The competencies they though a Network Manager should have included industrial know-how, professionalism, reliability, communication abilities, knowledge on Cooperative Networks and on consulting as well as the preparedness to work on a full-time basis.785 Obviously – and referring to the non-cooperative history of manufacturers – such a person was difficult to find. Based on that, the Network Coordinator thought of an external, foreign expert786 so that this person could train the Turkish participants a few days per month, and guide them but also invite them for visiting other networks.787 Nevertheless the participants’ requirements for a strong leader788 did not match the selection of a foreign person. Finally, the leading roles were somehow separated: The Network Manager was more seen as the coordinator or moderator of the network and the leading person in the network was the one to talk with others and convince them about the ideas. Nevertheless, task sharing was not very clear. The Network Manager finally reported a situation of more being a secretary,789 but also had to push the companies to come together again, whereas the leading companies acted in a rather passive way. The role attribution of a Network Manager that acts like a Broker (Schuh et al., 1998) was therefore not assigned to anybody. iii) Lack of knowledge in English: The project VERITAS and the related activities were carried out in the English language. This for example led to a problem during the training where simultaneous translation throughout the whole day would have been too expensive.790 In the whole European Union791, the portion of those people that are able to hold a conversation in English is 31%. For Turkey, the percentage is 10%. The language problem might therefore have been a special disadvantage for the very small manufacturers and might explain the VERITAS participation of mainly bigger or medium-sized enterprises. 784 785 786 787 788 789 790 791

Cf. personal meeting notes, MIB network meeting 27th of May, 2005. Cf. Turkish network meeting minutes, 27th of May, 2005. Cf. personal meeting notes, 22nd of April, 2005. Cf. VERITAS telephone conference, personal meeting notes, 25th of May, 2005. Cf. interview 5, unit 02050831 or 0205913, October, 2005. Cf. interview Network Manager, October, 2005. Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006. Cf. Study on the knowledge of foreign languages in the European Union (April 2006) at http://ec.europa.eu/education/policies/lang/languages/index_en.html, accessed on 17th of August, 2006.

186

Empirical Data: Network Formation Processes

iv) During the Network training, the questions that arose were not only attributed to the current steps of setting up a network, but also to the meaningfulness of the concept. The companies questioned that such a cooperation would work, and expressed that they did not understand. They said that they knew that the concept was beneficial, but wanted to have more successful examples. An example of the compressor industry could have served them as a blueprint for their own network. They were looking for a detailed guideline and a step-by-step plan how to set up this network. On the one hand, this can be attributed to a need for structure or hierarchy (cf. Hofstede and Hofstede (2005), that still attributes medium power distance to the Turkish culture) but on the other hand this could also be interpreted as a typical resistant behavior during the Storming phase. v) Trust: The importance of trust was present during all phases and revealed to be an important issue during the Storming phase. The interviews (see table 18) that were carried out during October 2005 were full of the topic of trust, also revealing that the Turkish participants knew that trust was important, but did not know how to establish it – especially between competitors. Trust was the first-mentioned topic in two Turkish interviews and the topic appeared during the first part of the conversation in two other interviews. Network participants also discussed negative effects, but never stated that there was mistrust between companies.792 In all interviews there was only one person that mentioned that it was better to rely on contracts than on personal trust between people (Kutucu, 2006). Trust was often related to friendship and main additional problems were the exaggerated selfpresentations on the one hand and reservation of detailed information on the other hand.

792

Cf. VERITAS D51: The importance of trust in the phase of network formation, January, 2006.

42:50 Company office

52:28 Privat house of interviewee

3

4

Atmosphere

Kept working for a few minutes after interviewer arrived. Glanced at the screen of his computer time to time. Short answers to the questions. Very comfortable. Interviewee showed interest in the conversations, answered openly. Very friendly and open. Talked a lot about cooperation. Private conversation at end of the interview

Interviewer 15 minutes late. Friendly, but stressful due to 45 minutes of time. Short answers to the questions

10 minutes late. Friendly and relaxed, did a lot of effort to answer the questions, was interested himself in the interview. Private conversation at end of the interview.

Table 18: Interview Description Turkey

M 1:02:39 Company office

46:23 Company office

2

Time/Place

48:02 Company office

1

Main topics

Benefits of networking, friends can easily cooperate, former experiences VO, current state of project, cultural issues, leadership

Cooperation is a new concept. Business related need for cooperation: high interchangeability, globalization Business. Professionalism in Business, joint collaboration is necessary.

Need for leaders in a network, need for trust. Need for relationships. Later more businessoriented arguments

Trust related issues

Personal trust between key people, Institutional trust in a leader, trust can be passed on, trust is reciprocate, trust in Turkey, trust and experience trust yourself, trust and information exchange, trust and fear

Personal trust as prerequisite for cooperation. If everyone benefits, no trust is needed. Trust cannot be enforced or trained. Trust can be enhanced by joint collaboration. Trust cannot be measured. Lack of trust led to failure of a cooperation. Trust depends on personal friendship. Trust takes time, Trust does not allow mistakes, Trust depends on companies’ reputation.

Trust as prerequisite for solving problems, reciprocity of trust, institutionalized trust of a leader, trust as personal attitude, trust as prerequisite for fairness, trust based on rules cannot work, but does not eradicate the need for rules. Personal trust leads to cooperation with competitors, trust and open information exchange, trust can be passed on to third people, trust is tough. Mistrust. Mistrust is based on bad examples where big companies absorb small ones, Trust comes from joint experiences, trust and contracts disagree.

Frequency

Topic is discussed .12. times (three times trust and leaders, two times information exchange), term “trust” is used 29 times, “mistrust” once.

Topic is discussed six times (two times friendship), term “trust” is used five times

Topic is discussed six times, but twice as an answer to a question. Term “trust” in is used 15 times.

Topic is discussed four times, one time interviewer posed the question term “trust” is used six times, “mistrust” four times.

Topic is discussed eleven times (two times trust as general attitude), once out of eleven the interviewee responds to a question related to trust. term “trust” used 33 times.

Point of time

Trust plays a role in the whole interview, at the beginning less than in the end.

First trust issue on first page. Mentions it time by time

Starts with trust in the first sentence. Does not really focus on the topic

Last third of interview.

First sentence deals with trust. Keeps on talking about it during the whole conversation

The Turkish Case 187

188

Empirical Data: Network Formation Processes

Summary and interpretation: The Storming phase lasted from July 2005 until January 2006 (the end of the project time) – seven months. Generally, this phase is characterized by conflicts, resistance and disagreement between partners (Tuckman, 1965). The two groups of networks (Super Structure Network and CompressorNet) evolved during that time and established first roles and ideas how to work together. However, the plans differed widely from the concrete action that was carried out: First, quite ambitious objectives were set – on the one hand to enter new markets within a very short time frame, but also strong sales increases in the next two years (300,000$ for the Super Structure Network). Secondly, the plans were vague and did not include which concrete businesses and products to focus on, but at the same time referred to a “marketing plan” and a joint website. The project of the two Super Structure Network sounded quite difficult for a non-expert as it was agreed to divide a machine into an upper and a lower part which could – to the author’s opinion – lead to severe difficulties in the joint production and assembling process. In the VERITAS project consortium, the three associations were asked to set up mission statements and marketing plans for their networks.793 The Turkish partners did, but maybe because of the same reasons as mentioned during several interviews: People tried to present themselves and their business background better or more strongly than they actually were. Discussion intensively took place through all meetings. Alleman (2004) mentioned that a characteristic of the Storming phase is the fact that participants are arguing even when they agree. This matches to observations during the meeting: People always discussed a lot, which could also be a demonstration of power. Real disagreement or splitting of the group (Kauffmann, 2000) was not observed, although at least two companies left the VERITAS initiative because of having diverging objectives. However, during several meetings, discussion level was rather superficial (in terms of detailedness) and decisions were often delayed to later points of time. Another problem with strategy or plans could be detected from the CompressorNet: The strategy affected “external” people. In the meeting of 27th of December 2005, it was decided that the component manufacturers should produce new products to a price 10% below the market price – this decision was definitely taken without the ones that will bear the costs.

793

Cf. personal meeting notes, 22nd of April, 2005.

The Turkish Case

189

High uncertainty was still present during the Storming phase – an expert was needed whom the involved parties could learn from. Therefore, the training in September 2005 was crucial for the network formation. The need for guidance is not a typical aspect of the Storming phase, but a lot of emotional issues came up during the meeting. At the training session, discipline was quite low and although the training took place in English (it was agreed from the beginning on that only English-speaking managers could participate in the meeting because of extraordinary high translation costs794) discussion always switched to the Turkish language. The participants had to be interrupted several times because of the fact that the trainers missed important parts of the participant’s concerns.795 At this point of time it became also clear that the companies involved in the project did not see themselves as being part of a network but as being the leaders of an industry which was quite comprehensive as all of them were associated with the management board of MIB. The author nevertheless attributes the training activities to the Storming phase as companies started to work with each other – in terms of starting to form a network – during this phase. Kauffeld (2001) also mentions that during Storming it is agreed how work will be carried out in the team, although performance is low. Although agreement on tasks was underrepresented at the meeting, this “rebellion” against the concept could be interpreted as resistance to establish a network on their own, and the need to ensure reasonability from outside. The meeting furthermore was characterized by the refusal to talk English, but also by a task resistance: During the second day, people were asked about their “wish for cooperation”. No discussion was allowed, but all participants started to discuss. Furthermore, the Storming phase was characterized with, not obviously between each other, but also against the trainers – some people even thought that the trainers wanted to take advantage of them for expanding their own knowledge. 5.3.4 Norming Establishing Rules or Regulations how to Work Together No rules on how to work together were agreed. Most of the organization, including moderation and external communication depended only on the Network Manager. 794 795

Cf. VERITAS telephone conference meeting minutes, 14th of September, 2005. Cf. personal meeting notes, network training 29th of September, 2005.

190

Empirical Data: Network Formation Processes

Establishing Roles During the project time, only a few roles were initiated. Most of the organization, including moderation and external communication depended only on the Network Manager. Finalizing First Projects No joint working had been initiated during the VERITAS project time. Summary and interpretation: The Norming phase represents the point of time where positive cooperation between partners begins, including working standards and the increasing mutual acceptance (Tuckman, 1965; West, 2004). In the Turkish networks, there had not been any problems with mutual acceptance in the earlier phases, though. Therefore, no changes in behavior were recognized. On the other hand, joint projects or joint business had not started yet. Tuckman (1965) also mentions the establishment of clear and accepted leaders, but also in this case, the situation had not changed in comparison to earlier phases. A clear reason why the Turkish participants had not yet entered Norming can be seen in the high dependence of the leader. According to Alleman (2004), groups in the Norming phase do still need direction from a leader, but start to organize themselves on their own. At the moment, the companies largely depended on the Network Manager’s activities.

5.3.5 Performing Strategy Alliance between Network and Companies For the two networks, plans were formulated several times, including the marketing plan at the end of the project.796 As well as in other documents, the vision for the Super Structure Network was formulated as creating “(…) new markets worldwide by producing special internationally competitive products together”.797 Although no products were decided it was agreed to manufacture them within a maximum of 75 days in a quantity of five pieces in order to carry out a detailed product cost analysis. Concerning the CompressorNet, the idea was to establish a platform of compressor manufacturers that are able to develop a sub-industry in Turkey.

796 797

Cf. VERITAS D4.4: Marketing plans of the four Cooperative Networks, January, 2006. Cf. VERITAS D4.4: Marketing plans of the four Cooperative Networks, January, 2006, p.9.

The Turkish Case

191

Nevertheless, there was no alliance between strategies recognized, nor did the companies talk with each other about their business strategies. Systems (ICT, Controlling) Although ICT support was planned for the different network groups, the discussions did not reach that far during project time. Besides the website of MIB with its members, Yahoo information groups had been established for the two network initiatives.798 However, the use of those groups was not observable by the research team. Results of Joint Cooperation No joint cooperation activities had been carried out at the end of the VERITAS project. Summary and interpretation: Performing describes the stage where clear joint projects are carried out at a continuous level and successful outcomes are observed (West, 2004). Flexibility and interactive help in issues external to project tasks characterize this phase (Francis/Young, 1989). Normally, performing teams become highly effective and innovative (Kauffeld, 2001). In the Turkish networks, none of these aspects were noticeable.

Figure 13 displays the network formation process on the time line.

Initiation 1

2

3

4

Forming 5

6

7

8

9

01/07/04

10

11

Storming… 12

13

14

15

16

17

18

19

20

21

22

23

24

31/01/06

Figure 13: Formation Process Turkey

During the Initiation phase, the focus was based on the selection and information of potential partners but also on creating awareness on the topic of networks and VOs. The industry consultant expressed it as follows: ”Even though the Turkish culture has 798

Cf. MIB meeting minutes Super Structure meeting, 27th of December, 2005; MIB meeting minutes CompressorNet Meeting, 18th of January, 2006.

192

Empirical Data: Network Formation Processes

been based on cooperation for more than 100 years, business is based on individual successes and competition.”799 Therefore, extensive information had taken place, including interviews of the Network Manager in industry magazines and broadcasting the first meeting in television. The companies were interested in the concept and participated lively at discussions. Especially the first meeting was recognized and showed a good attendance. Forming lasted five months, and went easily because of the same industrial background of potential network partners. Typical problems of the Forming phase like strong politeness and antipathy (Kauffeld, 2001) could not be observed, but – referring to Alleman (2004) – excitement and optimism marked the first meetings. No special cautiousness (Francis/Young, 1989) was recognized. On the other hand, the questions posed at the beginning can also be attributed to a subtle form of anxiety (West, 2004): People wanted somebody to answer their questions. Abstract discussion took place, but on the other hand, nearly at the same time, a lot of ideas and plans came up. The regular meetings were continued during the Storming phase and included informal parts, even if it was just a business lunch. Storming was characterized by increased discussions, ambitions plans of partners and self-confident presentations of everyone’s own business. According to Tuckman (1965) this can be attributed to high rivalry and positioning of the own company in a group. Concerning the network approach, high uncertainty was present at this phase and the concept was very much questioned, especially during the network training. Storming normally starts when people start to work with each other. Although the Turkish Manufacturers did not start joint business, the goal and the vision of the network were developed and the Network Manager as other leaders have been established. One of the major differences to the other networks was the open discussion culture of Turkish participants that has even been included in training on networks. What was missing up to this point was the implementation of working groups as well as the set-up of joint projects. Although mutual acceptance was noticeable, the Norming phase with aspects like joint working standards and established rules has not been entered, nor has the Performing phase.

799

Cf. MIB presentation at the International Conference on Strategic Partnerships: Managing Technology in Networks, Istanbul, September, 2005, p.19.

6 Comparative Analysis In this chapter, the formation processes of the three countries are compared to each other. The aim of the qualitative, historical comparison is to highlight the patterns of formation over time. The specific development of the three cases is interpreted i) in the specific formation phase, and ii) in a macro-perspective over the whole VERITAS project phase.

6.1 Result of Network Formation In the following, the resulting networks are described and highlighted including characteristics of ties and nodes and the planned activities for the future. 6.1.1 Network Description and Visualization For Austria, at the end of the project time a loose network of small project groups from the surface treatment industry is viewed. The project groups attempted to build up business together little by little, allowing external institutions to participate in the projects if necessary.800 The Network Manager acted as a Broker and intermediary, identifying business needs and bringing those companies together that could be able to jointly solve a problem or enter a project. The network’s boundaries could not be clearly defined and no vision had been identified yet.801 No joint (brand) name or websites existed at this stage. The Austrian network was thus not based on a stable basis or breeding environment, but on a 40-institution interest group.802 Figure 14 represents a model of the established network: The dark node in the middle represents the Network Manager who disposes of contacts and relationships to nearly all partners, on the one hand the official members of the group, represented in gray and on the other hand to the external interested parties, represented in white. Bilateral relationships are represented by an arrow with two laces.

800 801 802

For a detailed description compare for VERITAS D4.1: Report on the Experiences with Setting up a Virtual Enterprise, January, 2006. Cf. VERITAS D4.1: Report on the Experiences with Setting up a Virtual Enterprise, January, 2006. Cf. email of surface industry responsible to VERITAS partners, 5th of December, 2005, including business contacts of 37 VERITAS members.

194

Comparative Analysis

Figure 14: Model of the Austrian Network

In Belgium, at the end of the project, the sector was defined as the metalworking subcontractors, but no clear member base had yet been identified, nor has there been agreement on a vision and on future objectives. Visualization was impossible at this stage of development. Neither the cooperation partners, nor the boundaries of the network were clear, as they never got so far as talking about structure or roles. Even the Network Manager could not be referred to as a central actor. As far as the Turkish network is concerned, two small networks – each disposing of a joint name and several core group members – had been established at the end of the project time. The Super Structure Network contained two companies and CompressorNet five core members. In total, 16 companies were classified as being part of the VERITAS project team and the network activities in October 2005.803 The official reporting at the final review mentioned eleven enterprises that are part of the CompressorNet804 while former reports had also shown higher figures. In total, the whole MIB platform was somehow involved in the project and all companies were continuously informed. The questionnaire on Social Network Analysis had been distributed to 19 people involved. The blurring boundaries became clear as only three questionnaires were returned, most of them without concrete answers and a lot of questions omitted so that no results could be derived.805 806 Both Turkish networks at this stage brought forward a leader or at least someone who took over responsibility for the network, but on the other hand, both initiatives still 803 804 805 806

Cf. MIB document competence description, October, 2005. Cf. MIB presentation at the final review meeting, 26th of January, 2006. Cf. VERITAS D51: The importance of trust in the phase of network formation, January, 2006. Comment of the author: The alternative interpretation would be more linked to a general refusal to answer questionnaires by the Turkish network participants.

Result of Network Formation

195

depended on the Network Manager’s activities. The two networks had a name and both groups already developed a joint vision and a marketing concept at this time. Figure 15 represents the model of the established networks: The gray circle at the bottom represents MIB, the industry association. Based on MIB members, two small networks had been established, both depending on the function of the Network Manager, represented in dark. Like for the Austrian network, the size of the dark node is attributed to its importance. The small gray circles describe the two networks and indicate mutual relationships between involved actors.

Figure 15: Model of the Turkish Network(s)

The finally-resulting structures reflect a loose network around a single coordinating entity in Austria, two industry-driven smaller networks on a stable collaboration platform (which already existed before) in Turkey and no network in Belgium. In comparison to the original strategy, none of the three networks established a Virtual Industry Cluster (VIC) as it was planned in the beginning. All three countries had difficulties to define the target group of the Cooperative Networks. While there had been low action and low creativity as well as only a few (business) ideas in Austria, the Turkish participants had a lot of ideas and showed more activity with setting up a structure. Nevertheless, the activity level seemed not to have influenced the final outcome of the networks. In Austria the development followed an iterative process, while in Belgium the attempts were extended several times in order to include other business concepts and ideas of innovation. In Turkey the process was driven by a hierarchical top-down strategy, involving the most important people of the industry to convince the others.

196

Comparative Analysis

Taking a closer look at the characteristics of and relationships between the involved actors (Wassermann/Faust, 1994), in Austria, the network involves 23 companies embedded in the surface industry, one industry association, one cluster expert, four technical consultants, one business consultant (the Network Manager), and four research institutes.807 The nodes can to a large extent be described as individualized actors that enter joint projects – or meetings – if they perceive a certain benefit. In Turkey, the current network is formed of a basic collaborative platform with 171 companies,808 and established two different smaller cooperations with a) three actors and b) six actors. According to Wassermann and Faust (1994), in a) there are two companies and one business consultant (the Network Manager); in b) there are five companies and one business consultant involved. The two cooperation initiatives can roughly be seen as groups, who meet continuously and communicate with each other. Formal roles were externally established in all countries. In Austria, the star-structure of the network reflects the high dependence on the central node, which is the Network Manager. His rule was crucial for the project as people tended to rely on him and attributed the responsibility of the network to him. For the same reason the leading companies in Turkey have not been highlighted in the graph, as the interaction between partners to a large extend depended on the role of the Network Manager and not on the role of the designed leaders. As far as the relationships between the involved people (Knoke/Kulinski, 1982) are concerned in Turkey, interactions between potential network partners were on the one hand close to friendships or at least to long established business contacts. In Austria, it was difficult to observe individual evaluations in terms of friendship, liking or sympathy, but the companies always treated one another with respect and reservation. In Belgium attitudes, roles and transactions (Wassermann/Faust, 1994) or individual evaluations based on friendship or sympathy (Knoke/Kulinski, 1982) could not be determined at this stage of the network. In the Austrian network, the transaction of resources was based on non-material resources, i.e. information and knowledge exchange. No transfer of material resources

807 808

Cf. FMMI business contacts, December, 2006. Cf. actual members at the beginning of the VERITAS project, MIB presentation at the kick-off meeting, July, 2004

Result of Network Formation

197

– for example lending, borrowing, buying or selling809 or exchange of human resources – took place. This was different in Turkey, where transaction between partners (Wassermann/Faust, 1994) was non-material at this stage, but information exchange based on products, current markets took place during a lot of meetings. In Belgium, no resources had been changed. 6.1.2 Planned Activities In Austria, a positive response to future cooperation activity was recognized during the final meeting in January 2006. Based on the question if and how to continue the network,810 a meeting took place in March 2006, but only a few companies showed interest in joining.811 The ideas to continue the network initiative ended in talk as no company was willing to take over responsibility for the network as a leader or manager. The Network Manager expressed it as follows. ”There are no further activities in terms of a network, nobody showed interest in coordinating the network.“812, but at the same time mentioned that bilateral activities had been continued and mutual contacts were still beneficiary for the involved companies seven months after the end of the project. In November 2006 – that is nine months after finalizing the project – the FMMI website still provided the same information on the VERITAS project as 18 months previous, including a short project description and an information sheet.813 At the same time, the website of the interest platform surface treatment contained 20 contributions on the forum, none of them attributed to cooperation topics.814 Like reported in the marketing plan, the network initiative was planned as a long-term project for Belgium.815 On the one hand, the meetings that were agreed in December 2005 were continued as scheduled.816 In September 2006, the Belgian Network Coordinator reported that people were still “interested” but that joint projects were 809 810 811 812

813 814 815 816

Comment of the author: The Austrian project B aimed at selling a certain machine to network partners but remained without success till the end of the VERITAS timeframe. Cf. FMMI meeting minutes, final network meeting 18th of January, 2006. Cf. FMMI email to UNIVIE, 16th of March, 2006. Cf. email Network Manager, 19th of July, 2006. Translated by the author. Original text in German: “Es gibt keine Nachfolgeaktivitäten im Sinne eines Netzwerkes, niemand hatte Interesse die Netzwerkkoordination zu übernehmen.“ http://www.fmmi.at/page/start.mv?NOFRAMES+447accdd000c2cae00007f86+1+91+95, accessed November, 2006. http://www.arge-ot.at/arge-ot/phpBB2/index.php, accessed November, 2006. Cf. email AGORIA to UNIVIE, 13th of September, 2006. Cf. email AGORIA to UNIVIE, 13th of September, 2006.

198

Comparative Analysis

hard to find. Partly, the slow-going progress was attributed to the Network Manager’s performance. On the other hand, ideas like the joint purchasing of electricity or insurance were not followed because of the fact that nobody wanted to take the lead.817 Nevertheless, AGORIA kept supporting its members with benefit programs and with establishing initiatives in research and the website still included invitations for networks and partnerships. 818 No information about the VERITAS initiative and the potential network could be found on the AGORIA website or at other Belgian forums fora. For Turkey, the two initiatives have to be looked at separately: For the CompressorNet, the final decision on the first component to be produced should have been taken immediately at the end of the VERITAS project.819 Super Structure Network partners also committed to establish and test the prototype during spring 2006.820 The network marketing plan revealed that further activities would be carried out during the time after the VERITAS project finished.821 CompressorNet decided on the screw compressors, piston compressors and high pressure compressors822 as the main products to jointly perform production and Super Structure Network was looking for new partners.823 The awareness-creating approach was extended to other sub-sectors of the manufacturers, as a presentation was held at the pumpers' conference on the 26th of May 2006.824 In the online-report of this “EUROPUMP & CEIR Joint Annual Meeting 2006” it was highlighted that some “(…) small compressor manufacturers started to give up producing compressor, but concentrated to produce compressor parts.”825 Six months after the end of the project, the former Network Manager stated that companies kept working together, and that especially the Super Structure Network was still in progress. However, she did not specify which activities were carried out and on

817

Cf. email AGORIA to UNIVIE, 13th of September, 2006. http://www.AGORIA.be, accessed November, 2006. 819 Cf. VERITAS D41: Report on the experiences with setting up a Virtual Enterprise. January, 2006. 820 Cf. MIB Super Structure meeting minutes, 18th of January, 2006. 821 Cf. VERITAS D4.4: Marketing plans of the four Cooperative Networks, January, 2006. 822 Cf. http://www.tages.biz/index.php?module=news&page=readmore&news_id=239, accessed on 21st of August, 2006 823 Cf. http://www.tages.biz/index.php?module=news&page=readmore&news_id=239, accessed on 21st of August, 2006: There was a call to take part of the network via [email protected]. 824 Cf. http://www.tages.biz/index.php?module=news&page=readmore&news_id=244, accessed on 22nd of August, 2006. 825 Cf. http://www.tages.biz/index.php?module=news&page=readmore&news_id=244, accessed on 22nd of August, 2006. 818

Result of Network Formation

199

which level.826 The CompressorNet was reported to have had difficulties, but the Network Manager stated that the participants were waiting for national funds to keep working on joint cooperation. Problems and concrete activities were not further detailed.827 Dissemination about the project continued828 and the Network Manager confirmed that “(…) "Cooperative Networks" is proposed as a future business model for the Turkish manufacturing industry in the official report of 9th Development Plan of Turkey.”829 Seven months after the end of the project, the leader of the CompressorNet expressed the progress as follows: “Regarding the project, manufacturing of some components locally going very good. One company already manufactured safety valve the other one inlet regulator (sic!)”. 830 He also mentioned that both products were to be tested at this point of time and that tests work out successfully. The leader of the Super Structure Network also mentioned a joint working project with the other company, which involves the establishment of the prototype that should be finished within August 2006.831 He admitted that the progress was slow, but mentioned the strong daily business of both companies involved.

Belgium

Turkey

Network Description Loose network of 30-40 institutions, one central Network Manager

Austria

No network, one coordinator, one “Network Manager”

Two small sector specific networks of 2-5 core members, each with a leader, additional Network Manager

Actor Description

Small and medium enterprises, heterogeneous group including research institutions

Rather heterogeneous group of suppliers

Medium enterprises, mostly export-oriented

(Future) Activities

ƒ Bilateral know-how exchange ƒ No future activities planned

ƒ Ongoing meetings ƒ Ongoing meetings in the ƒ No future networks activities planned ƒ First projects in progress ƒ Looking for national/international funding

Table 19: Network Description

826 827 828 829 830 831

Cf. email MIB to UNIVIE, 3rd of August, 2006. Cf. email MIB to UNIVIE, 3rd of August, 2006. Cf. for example http://www.tages.biz/index.php?module=news&page=readmore&news_id=247, 16th of August, 2006. Cf. skype conversation protocol between UNIVIE and MIB, 11th of August, 2006. Cf. email leader of CompressorNet to UNIVIE, 15th of August, 2006. Cf. email leader of Super Structure Network to UNIVIE, 16th of August, 2006.

200

Comparative Analysis

To summarize (see table 19), the formation process of the networks in Turkey was still in progress in autumn 2006 and was planned to be continued – as least as long as the Network Manager kept her effort high. For Belgium, the result of the formation process was not a network but an initiative or a project. The network failed as it did not accomplish the Forming phase and was still in a set-up process half a year after completing the VERITAS initiative. The formation process in Austria failed as well, but at least helpful mutual contacts between companies had been established.

6.2 Comparison of Phases Having introduced the development of three cases in chapter 5 and highlighting the final results of the networks in the above section, the author now compares the phases of network formation in the three countries.

Austria

Belgium

Turkey

Initiation

Forming

Initiation

Forming

Initiation 1

2

3

4

Storming

Forming 5

6

7

8

01/07/04

9

Storming

10 11 12 13 14 15 16 17 18 19 31/01/06

Figure 16: Comparison of Length of Phases

Initiation phase While the starting phase of the network took seven months in Austria and Turkey, it took double the time in Belgium to select and invite the potential partner companies. In relation to the total project time of 19 months, the preparation phase in all three countries, but especially in Belgium, was rather long. The extended preparation phase can be related to the fact that associations saw themselves as service units for their member companies. Before they started inviting the companies to a certain event or cooperation, they thought in detail about the inherent added value and how to address the requirements of their members. Evidence was given in Belgium, where the preparation of the invitation letter was carried out in a very sophisticated manner,

Comparison of Phases

201

referring to current statistics and inquiring current business challenges of the manufacturers. In Turkey, information was prepared and explained in a very detailed way, too, reflecting the learning preparedness of Turkish companies. In Austria, the idea was more to present the concept to companies and let them decide about the potential and impact of cooperation, which means that the potential project partners were more seen as experts of their own business who should decide on their own whether such a concept would be helpful for them or not. The three countries followed different strategies, which networks to build, and which companies and people to involve. In Austria, the future type of the network was based on concrete (financial) benefits for the participating companies, while Belgium aimed at establishing long-term cooperation for their member companies. In Turkey, however, one of the main motivations was to learn about the network concept and to get to know European business partners. Therefore, the Austrian network structure was planned to be determined by the members based on the provision of the discussion platform, while the Turkish Network Coordinator thought of a more centralized model. In Belgium, the approach to establish cooperation between suppliers was favored. The selection of partners was related to the motivation of the network initiative: While for the Turkish association the network itself had high priority and was seen as a service to be provided for all members of MIB,832 for example the Austrian considerations about networking were mainly driven by potential business opportunities and concrete projects. In respect to the motivation, a different attitude towards networking could be observed: While the Turkish people obviously wanted to gain know-how, and wanted to learn about new concepts, the Austrian attitude towards cooperation was more characterized with skepticism. In Belgium the long preparation phase also showed a need for detailed consideration and reflection of the concept and the requirement to only provide the association’s members with an elaborate concept. The attitude had to do with knowledge about the concept: While networking and cooperation was quite common in Austria and Belgium – which means that people were aware not only about successful partnerships, but also of the related risks – the Turkish always thought they were one step behind and showed preparedness to learn.

832

Comment of the author: Of course the approach to include all members was only possible for Turkey, as there were only around 130 companies registered in MIB, while the other associations include much more members.

202

Comparative Analysis

During the Initiation phase, it became clear for all three countries that the companies should have at least a joint background or industry. The awareness of this necessity was clear to the Turkish people from the beginning on, but needed a lot of discussions for example in the Austrian case, where the strategy had to be revised two times. For Belgium, it seemed to be clear from the beginning which companies should be included; nevertheless the process went in circles till the “right people” should come together. This can be partly explained by the Belgian coordinator waiting for a strategy to be prepared by the VERITAS project team. The main difference in the Initiation phase was the commitment and involvement of the associations in the three countries. While in Austria, the work in the first phase was mainly seen as administrative work and therefore delegated to non-experts, the Belgian Network Coordinator’s was the only person in AGORIA who was involved in the project. His involvement declined over time. In Turkey, there was strong involvement of the industry people, to the point of personal talks with companies CEOs and the integration of the head of the association as the first speaker of the presentators. Whereas the associations had to face a very low participation rate in Austria and Belgium, the high involvement of the Turkish association obviously led to higher participation rates in the informative meetings. This was crucial for the network set-up, as the next phase could only be carried out with interested partners. It means, that the Turkish network had a more promising starting position than the other two countries. Forming Phase With the first encounter of the potential network members, the Forming phase was started. People were brought together and started to interact with each other. In Austria, the phase lasted seven months, while in Turkey; five months were needed until next steps were taken. In Belgium, the phase started in October 2005 and was still in progress at the end of the project, i.e. after four months. The meetings that were held during the Forming phase (two in Austria and Turkey, one in Belgium) were characterized with high fluctuation and people that registered for the meetings, but in the end did not show up. The boundaries of the networks were indistinct in a way that the participants nominated new potential cooperation partners. This, however, followed a different approach in Turkey, where the core group of the Forming meetings were mainly members of the MIB management board, who were responsible for a certain sub-industry and therefore nominated companies of the

Comparison of Phases

203

related sector; while the Austrian and Belgian companies discussed the integration of companies they had had contacts before. During the Forming phase, Network Managers were assigned. The commitment of the Network Coordinators in this stage mainly stayed the same as in the first phase: The activity level of the Belgian association did not change with the nomination of the Network Manager who also had restricted capacities. In Austria, commitment reached a low, but at least stable level with the installation of the Surface Industry Representative and the Network Manager. For the Turkish network the situation was different as the former coordinator took over the rule of the Network Manager, whereas in the other two countries two external consultants were nominated. The Network Managers were assigned with the task to set up and develop the networks in the respective countries and were therefore seen as the coordinators and leaders. Additionally, leading companies and leading people emerged in Austria and Turkey in form of “opinion leaders”. In Austria, the most successful and innovative company attracted most of the attention as a technology leader while in Turkey the leaders were clearly identified as the managers of the association. This means that the Austrians oriented their selection on whom to follow more on the most advanced company of the sector while in Turkey, the already established hierarchies were proceeded. The dependence on the leading roles was noticed in a way that people did not take the initiative but waited for instructions in all three countries. This is a typical comportment in the Forming phase (Alleman, 2004). During the project, the VERITAS emphasis of this phase was put on finding a joint strategy in every country. From a business perspective, the idea was to let them decide on their own strategy, which was seen as the most beneficiary solution for companies that would like to stay in a network. From a group perspective this is definitely not possible in this very first phase because of high dependence on guidance (Tuckman, 1965). It therefore even resulted in more insecurity among the networks, as they were not able to develop sophisticated ideas at this early stage of formation. However, participants behaved in different manners during Forming: While the Austrian network members were calm and observant, people in Turkey were discussing a lot, defined different positions and talked with each other – although without getting to a concrete point. The behavior of not to give too much information to outside and either stay calm or discuss general issues reflects protective behavior which is typical in this phase (e.g.

204

Comparative Analysis

West, 2004; Tuckman, 1965). In Turkey, the questioning was much stronger than in the other two countries, which is probably related to low the experience with the networking concept. They wanted the association and Network Manager to give answers and lead them, while in Austria and Belgium the reservation was mostly driven by general doubts on the networking process. In all three countries, skepticism was either noticed with the network members, the Network Manager or both. While in Belgium, the Network Manager had increasing doubts about the initiative; the Turkish companies also posed a lot of questions and did not believe that such cooperation could work. In Austria, both – members and management – behaved in a distrustful way. Skepticism of members in this phase is quite common and reported in the literature as a typical aspect in group theory (e.g. Kauffeld, 2001). What is astonishing is the fact that the Austrian as well as the Belgian Network Manager and the Belgian Network Coordinator behaved in the same manner. On the one hand, they might have felt like being a member of the group and therefore had being subjected to a phenomenon similar the “going-native” problem of researchers.833 On the other hand, they might have been skeptical from the beginning on. While the first attitude is a human reaction in order to deal with problems of an outsider, the second alternative could be an indicator that the people that have been consigned to carry out the work as network facilitators might not have been strong enough to oppose negative or problematic questioning. However, testing the leader during this phase is quite common (e.g. Tuckman, 1965; West, 2004). On the whole, skepticism and questions were much more detailed discussed in Turkey than in the other countries. The author for example observed a talk between two manufacturers where they rated the initiative as a welcomed idea, but asked themselves how to establish trust among each other in business issues. In Belgium, the early emotions of the Forming phase (like politeness or respect) were noticed, but anxiety or insecurity could not be observed during the short timeframe and the single meeting. Interestingly, the Austrian network members even asked for more structure in the anonymous preparedness-questionnaire, but did not articulate this need during the meetings. Information among each other was withdrawn in Austria and Belgium, where the discussions were held on a very general level. In Turkey, the general 833

“Going native” refers to the fact that a researcher has to become a member of his research field if he wants to get inside insights, but on the other hand must not become a member of the research field, as he might than adopt typical characteristics and oversee problems because being part of the problem (cf. Lueger, 2000)

Comparison of Phases

205

discussion preparedness was high, which can be attributed to the fact that the bigger part of the manufactures of the core group knew each other before. On the whole, the emotions in Austria can be described as skepticism and reservation in form of observation, whereas the Belgians were interested and polite and the Turkish participants skeptical and insecure. The Forming phase was characterized by a need of orientation and testing, before participating companies could start to work with each other. Turkey, however, managed to accomplish this phase faster than the other countries,834 which is an indicator that the relationships were more stable than in the other countries. Besides the already established contacts between participating companies (and the Network Manager as the former coordinator), this might also be attributed to the fact that the more centralized and hierarchical concept seemed to work. In contrary to the other two countries, first ideas for cooperation were developed at this stage in Turkey. Storming Phase The Storming phase was entered when partners started to work with each other either on the joint goals of the network or on concrete joint projects. In Austria, it started with the organization of a network meeting at the leading company’s manufacturing site. In Turkey, the phase was entered when the two networks Super Structure Network and CompressorNet were defined. While in Belgium, this phase was not started during the project time, both other networks spent several months with trying to overcome conflicts and clarify roles positions. After seven months for Turkey and five months for Austria, the end of the VERITAS project was reached. As far as the tasks are concerned, in Turkey a lot of planning took place. It was even decided that there should be training before joint projects could be started. The need for the training reflected the preparedness to ask other people for support, but also the wish to get concrete and detailed concepts in order to overcome insecurity and knowledge deficits. The companies discussed how they could proceed and which profit they would like to gain of the cooperation. In contrary to the Austrian partners, who moved to concrete projects in a “trial and error”-manner, in Turkey planning was never accomplished during Storming.

834

Although the Belgian Formation phase lasted only 4 months until the end of the VERITAS project, it can be concluded that they are still in an early phase. In section 6.1, the development after the end of the project shows that companies did not enter the Storming phase 8 months later.

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The outcome of the joint work was low, which is quite normal in the Storming phase as the group members are self-absorbed in this phase (Tuckman, 1965; Francis/Young, 1989). This holds for Turkey as well as for Austria: although Austrian “projects” were established, the majority of them were based on simple know-how exchange between either network members or external people. Task refusal was therefore noticed in both countries. While Austrian project partners showed no ideas or initiatives during the network sessions, the Turkish people had a lot of ideas of what to do. On the other hand, projects in Austria were organized “offline” – but at least happened – while in Turkey activity was restricted to planning. According to the structure of the network, in both countries no progress was noticeable during Storming. Joint behavior or joint decisions was not observed and the networks were still a conglomerate of individual companies with no cohesion: In Turkey, the structure and boundaries were mainly driven by the Network Manager, in Austria structural settings were completely neglected. No exchange of core competencies was carried out in any of the countries, and the suggestions to have self-presentations during the meetings were not followed. Documents that should investigate core competences of the companies were answered with a very low return rate. It is quite common that the leaders and their authority are questioned in the Storming phase (West, 2004), which did not happen in the two countries. Interestingly, the Network Manager in Austria developed more and more into a member of the group and obviously represented the group in revolting against the VERITAS project and the consortium. This can be explained by the fact that – although his role was designed as an external role from a business perspective – from a social point of view he simply became a group member. This means that he had to establish himself in the group (Forming) and take over his position (Storming). In Turkey, such integration was not necessary as the Network Manager was the former Network Coordinator who already established her contacts and position. The Storming phase is generally characterized by strong emotions (e.g. Tuckman, 1965; Kauffeld, 2001). Hidden conflicts or politeness are generally redeemed by action and confrontation characterized with emotional resistance. The two countries that reached this phase, however, behaved in a completely different way: While the Austrians largely behaved very individualistically, without giving any information to the whole network, the resistance to group influence was in Turkey much more

Comparison of Phases

207

characterized by the demonstration of power. This can, for example, be deduced by the marketing plans that included very optimistic business ratios. By accepting such forecasts, Turkish companies were expressing their financial power and showed that they were ready to invest and did not fear to lose because they have strong market power. This means that mutual relationships of the participants were in Austria characterized by defensiveness and retention of information, in Turkey by strong competition: Enterprises wanted to present themselves at their best. While in Austria the Storming phase was characterized by small group-building and anonymity towards the bigger network group, the Turkish people preferred to sit together at one place jointly and discuss ideas. Therefore the sitting positions during the meeting can be described as leaning backwards with crossed arms for the Austrians and leaning forward, and gesticulating for the Turkish people. Meetings in general were rather quiet in Austria and quite lively in Turkey. While the Network Manager talked all the time in the Austrian network meetings, the Turkish Network Manager had to interrupt discussions several time in order to go on with the agenda. On the whole, the behavior has to do with the attitude of the two countries. While the Austrians think that the concept of networking does not work, Turkish people wanted to know how it works, but on the other hand could not come to a conclusion how to start. The attitude of the Turkish participants could be expressed in via the following dialogue: A: “We should do something.” B: “Yes. It is important.” C: “Why don’t we do it like this?” B: “Oh, and why don’t we do it like that?” A: “But how to establish a network? How to you build up trust?” B: “We have to ask some expert. We don’t know where to start.” C: “We have to carry out analysis where to start.” A: “Who could carry out such an analysis?” B: “We have to have a meeting in order to decide who will carry out the study.835 835

As a reference for such discussions, compare for personal meeting notes of different meetings, but also the meeting notes of discussion UNIVIE and bicultural expert, 1st of June, 2006.

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The “fight for positions” (Tuckman, 1965) was underlined with a lot of arguments in Turkey, whereas in Austria it seemed to be most important to stand by one’s own position. This is to be explained with the different level of individualization behavior in the two countries: Hofstede (2001), Trompenaars (1995) and Adler (1997) describe individualism as one of the most discriminative attitudes of national cultures. From the behavior in the network it can be derived that the Austrians put the individual before the group, whereas Turkish people come together in order to discuss the issues between the whole group and are therefore more collectivist than the Austrian partners. Good relationships between the actors were important for Turkish network participants836 while the Austrian members put all their argumentation on their own business benefits. Norming Phase Norming is to be entered when the establishment of rules and roles starts. By overcoming conflicts of the Storming phase, openness and honesty increase (West, 2004), and new forms and attitudes how to deal with each other emerge (Francis/Young, 1989). Nevertheless, none of the countries started interaction in this phase. The problems with entering the Norming phase were most of all observable in Austria. Although several times, including November 2005, the VERITAS consortium had suggested to change the structure and to take a concrete decision where to go with the network,837 the status remained the same as in the beginning. No formal network was established. As the surface treatment representative and the Network Manager argued that this might be due to not having a need for a formal network,838 the typical resistant behavior of group members in the Storming phase also affected these two people. Both resisted implementing suggested workshops or events that had been suggested by the project team. Although norms could also develop implicitly (Kauffeld, 2001), because of the short time frame and few contact points, the most important tasks to accomplish the Storming phase would have been to establish commitment between partners, to build up trustful relationships and to start establishing roles. The questions of structure and finance were not brought up before the last meeting.

836 837 838

Cf. interview Turkish network members, October, 2005. Cf. VERITAS meeting minutes, 28th and 29th of November, 2005. Cf. personal meeting notes, FMMI network meeting 15th of June, 2005.

Comparison of Phases

209

In Turkey, the Norming phase was not entered, either. The representatives of the manufacturing industry went in circles several times and would not have proceeded without the Network Managers initiative to push them. On the one hand, several steps towards the establishment of networks took place. On the other hand, no rules and joint behavior was established. Performing Phase Once the Storming phase would have been accomplished and joint working procedures had been developed in Norming, the criticalness of network success declines. After establishing joint norms, first results would have been possible. Participants should have acted openly, flexible and helpful (Francis/Young, 1989). This phase was not entered during project time by any of the countries. To summarize, it was observed that in none of the three countries a group identity had been established during the 19 months. Relationships between project and network partners seem to not have changed since the beginning of the project; the loose structure and individualization still dominated relationships between actors at the end of the VERITAS project. Even in Turkey, where basic relationships had already been established before the project start, social progress between partners was only observed to a very small extent. On the one hand, the fact, that people knew each other helped them to keep the level of mutual acceptance high during all project phases. On the other hand, they did not “grow” in a group context. On a social level, they did not get closer to each other or establish a specific level of trust during the project time. All three cases failed in establishing coherent and compact groups. A well-performing group that already has passed through the formation processes and started to perform is generally characterized by joint targets, mutual dependencies and an organizational structure or identity (Kauffeld 2001). Relationships between group members are characterized via attraction and coherence (Sader, 1998). Apart from presumed established relationships that in the project groups or at least bilaterally established contacts in Austria, the relationships were far from being stable at the end of the project. This holds for Belgium as well. In Turkey, relationships had not changed either, but remained as stable as they were in the beginning. While the boundaries of a group are often unclear (Sader, 1998) and membership with a group is not always ascertainable from outside, most important is the sense of

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Comparative Analysis

belonging by the group members themselves, as well as joint norms and objectives. Tajfel and Turner (1986) describe a group as two or more individuals, sharing a joint social identification of them or perceive themselves as members of the same social category. The following indicators show that in none of the countries such groups have been established successfully: i) First, the majority of network participants did not fill in the network analysis questionnaires or stick to the guidelines provided, which reflects that the participants either could not or did not like to judge themselves as being important or not.839 ii) Second, well performing groups are not only based on stable, positive relationships, but also on frequent interaction and mutual support and concern (West, 2004). The mutual interaction and frequent meetings combined with higher communication are thought to lead to stronger cohesion of a group (von Rosenstiel et al., 1995). The more interaction would have taken place, the stronger personal relationships or even friendships are believed to develop over time (Homans, 1950); which means that sympathy correlates with the frequency of mutuallydesired interaction. The members of the VERITAS networks did not establish frequent interaction between them, nor was mutual support and concern observable – on the contrary, especially the Austrian network was characterized by egocentric and individualistic behavior. The idea is that the group members have to interact with each other in order to reach the goals (Kauffeld, 2001). This on the other hand also requires an organizational identity or kind of specific structure (Kauffeld, 2001; Alderfer, 1987), which was not obtained in the three networks. iii) Another (although not always positively-judged) aspect of group cohesion is the dependence of group members (von Rosenstiel et al., 1995). This can completely be neglected in the VERITAS networks – no company was dependent on another one, neither were there mutual dependencies.

839

The author agrees that network analysis as a method often leads to controversial arguments and that it is indeed difficult to carry out such a study because of the lack of anonymity. People involved in joint work and joint organizations could be irritated by such procedures as they fear to lose their job or friendship of someone else. On the other hand, the questionnaire was explicitly designed for cooperation, and only included questions based on business relations (cf. appendix). Sympathy and antipathy was an implicit assumption behind the questions but was not requested to be determined from the participants.

Country-specific Behavior

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All the indicators show that the three networks have definitely not reached the status of groups and are still in the process of configuration. While Austria and Turkey would have to overcome the difficult Storming phase, the Belgian network stopped in Forming.

6.3 Country-specific Behavior Except from the final result, nevertheless the three different cases developed in a different manner. While an Austrian participant might have said, “Don’t tell me anything, it doesn’t work.”, a Turkish participant might have said: ”Tell me how to do it!”. The Belgian network members would probably just listen and say nothing, or say, “That’s interesting. I have to think about it.” In particular, quite an unequal activity level of the three countries characterized the process. In Austria, the activity level of the whole group was rather low. Neither did one of the companies take over responsibility, nor did the participants really involve in discussions or the development of joint ideas. This behavior was not restricted to the participants, but was the same for the industry association where the low preparedness and commitment to participate actively (as it was mentioned in the Initiation phase) was kept throughout the whole project. While the Belgian commitment can only be evaluated from the association’s side, – which reflects an equally or even lower level than in Austria – in Turkey high commitment of the Network Manager and the representative at MIB was recognized in every phase. Indicators can be found in the organization of big events, the presence in all media, enhanced marketing activities on the VERITAS web page.840 Individual talks with interested members took place several times, the need for training was enforced by the Network Manager and the MIB representative himself was present during all meetings and the training. There was also high commitment of responsible for example the Network Coordinator always read emails immediately and gave feedback to VERITAS questionnaires or documents.841 The aspect of commitment can be extended to the role of the leader. An essential aspect of a group is that at least one person takes over the lead of the team by taking 840 841

Cf. http://www.veritas-eu.com, accessed in November, 2006. Cf. email MIB to UNIVIE on evaluation questionnaires, 26th of April, 2005; email MIB to UNIVIE on Network Analysis, 7th of December, 2005.

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Comparative Analysis

the responsibility for decisions and by looking for consensus in case of conflicts. As far as Austria is concerned, although the Network Manager officially held the role of the leader, he never intervened in the process: Strictly speaking, it would have been his task to guide the companies out of the Storming phase by establishing a structure or at least by helping the members to jointly define a strategy or direction.842 Instead, he comprehended his role as being a moderator and established a support structure for companies that formulated a certain need.843 In Turkey, the leading companies even put pressure on the potential network members by demanding their contribution, threatening the membership in the network. The Network Manager for example reported the intervention of the leading network in the context of filling questionnaires: “He told me that he is going to warn the group to fill the questionnaires otherwise they will be out of the group since they are not contributing”844. On the other hand, the strong commitment of the Network Manager and the leading group was opposed a lower level of commitment from the companies. During the network training, for example, the companies could not agree on who should carry out next steps and called another meeting than to appoint one person responsible for a specific task.845 The preparedness to cooperate was high at an abstract level – for example, the companies’ commitment to participate in interviews was high – but the current steps were slow. For Belgium, the problems of establishing a network could also be related to managerial shortcomings as there was obviously not enough time and priority for the project VERITAS. The repeated cancellation of meetings because of low participant figures might have been overcome by earlier announcements and strong marketing or personal advertisement. Unfortunately, the Network Coordinator was involved in a lot of other activities, for example the organization of a large industry conference together with MIT,846 and also the Network Manager was reported to have a full agenda.847 The

842

843

844 845 846 847

The tasks of the Network Manager were agreed by contract and defined the role of the Network Manager as the central role of making the network run. More details in the VERITAS document “Contract for the Network Manager”, September, 2005. Comment of the author: From a group perspective, his comportment was comprehensive. Based on his official assignment, however, his role should have to push the potential members and encourage networking between them. This would have implied a more active and commitment behavior. Cf. email MIB to UNIVIE, 5th of January, 2006. Cf. interview Turkish Network Manager, October, 2005. http://www.AGORIA.be/MITachievinggrowth/presentations/default.htm, accessed in October, 2006. Cf. personal meeting notes, VERITAS meeting 6th of October, 2005.

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slow-moving network initiation could therefore also be attributed to an association that was not committed to the project. To further explain the behavior, attitudes of the network participants were examined. In Austria, the defensive and noncommittal approach was not only based on protecting everyone’s resources but was also influenced by the idea that no external entity should tell the manufacturers what they need. Especially CEOs saw themselves as the business experts and because of former difficult experiences or failures of networks they were skeptical, since they had had their own expertise. Belgian companies as well had several good – but also bad – practices in the industry and were even more cautious about entering a network. The Belgian Network Coordinator even said that the “hype of networking” was over at this point of time.848 In Turkey, the general expectation towards future cooperation was very high: Most of the business people stated that networking would be a necessary concept for them in order to survive. Their attitude therefore was much more positive, active and interested than that of the other two countries. On the one hand, the attitude might come from the experience with cooperative concepts that not only the individuals, but also the industry holds to a different level in the three countries. On the other had, the attitude might be related to the reasons why an association participated in the VERITAS project. The motivation in Austria was based on creating immediate business for the association’s companies, while the Belgian association wanted to establish strategic concepts that help the whole industry for the future and Turkey was mainly driven by the need to establish contacts to EUcompanies and learn about modern cooperation concepts. In this context, Austrian companies measured the success of the network with concrete figures and reacted in a more retentive, negative way to every meeting – which was, in their eyes, not relevant for business –, while for example the Turkish people were enthusiastic about the concept itself, without evaluating its outcomes on first sight. Different behavior might also be related to the country-specific economic and cultural background. Generally speaking, Turkey differs from the two other countries not only

848

Cf. personal meeting notes, VERITAS meeting 28th and 29th of November, 2005.

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Comparative Analysis

because of its size849 but also provides significantly lower economic figures. In Turkey, the GDP per head is estimated to reach 7,400€ in 2007, whereas for Belgium or Austria, the figures are estimated to be four times higher.850 In contrast to this, the economic growth rate in 2004 was 9.9% in Turkey, compared to 2.7% in Belgium and 2.0% in Austria851. From this point of view, the preconditions for the Turkish network were different than in the other two countries, reflecting a weaker position for the Turkish industry. Regarding the network concept, involved Turkish people and organizations did not feel like being experts. Terms like “network”, or “virtual organization” were completely new,852 but also the term “SME” had to be explained during the network training.853 Although, for example, the representative of MIB participated in the project from the beginning on, he himself did not feel like being an expert and asked a lot of questions during the Network training in September 2005. On the other hand, regarding the preconditions of the participating companies there is a slightly different picture. Although the Belgian companies cannot be judged as they were still not fixed at the end of the project, the companies in Turkey showed – in contrary to the core group in Austria – strong market power and in higher turnover and number of employees.854 Although the network members in both countries can be summarized as SMEs, at least half of the Austrian participants can be characterized as micro-enterprises while the Turkish enterprises were mainly medium-sized international (or at least export-oriented) players. Although this does not encompass all the related companies, it describes the core group that was present at the meetings and was involved in the decisions and discussions. The different starting position could have influenced the formation process in a way that the Turkish companies focused more on the concept and the structure of the network that they could also use in the future, while the smaller Austrian enterprises were more attracted by short-term benefits that help them deal with the current business situation.

849

Austria: 8.2 Mio. Inhabitants on 83.871km², Belgium: 0.4 Mio. inhabitants on 30.528km², Turkey: 72.8 Mio. inhabitants. on 779.452km² http://portal.wko.at/wk/startseite_ch.wk?AngID=1&ChID=5&DstID=0. Accessed on 18th of October, 2005. 850 Compare for https://www.cia.gov/cia/publications/factbook/. 851 Further details about all three countries at http://portal.wko.at/wk/startseite_ch.wk?AngID=1&ChID=5&DstID=0, below “profiles of countries”. Accessed on 18th of October, 2005. 852 Cf. interview Turkish Network Manager, October, 2005. 853 Cf. personal meeting notes, VERITAS meeting 29th of September, 2005. 854 Cf. table 8 and table 9 in section 4.

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Additionally, cultural implications also may have played a role in the VERITAS context. As the formation took place in three different countries and therefore in three different cultural environments, different context factors may have influenced the behavior of actors. Although the formation process followed the typical group development progression, characteristics of behavior were sometimes shaped differently. While for example the Austrian partners were looking for business partners, business relationships were closely linked to friendships in the Turkish case (Kutucu, 2006). Although in Austria as well as in Turkey, people were late for meetings or did not inform the project team if they decided not to come,855 Turkish participants did not leave meetings before they were over. One point that differentiated the Turkish formation process from the other countries in the formation process was the strong need for leaders and structure in Turkey, most important the trustful relationships between the participants in the network and the management. An external person was only accepted as somebody who brings in good concepts, who teaches the participants, but not as a member of the group.856 During the network training in Turkey, for example, instead of the open approach, it would have been better to hire somebody who provided the companies with stronger direction. Hierarchical concepts were also found in the structure of the core group that consisted in large part of the MIB management board. A factor that differentiated Belgian participants from the other two countries could be stronger reaction to uncertainty than in other countries. The “(…) Geert Hofstede analysis for the whole of Belgium shows a very high Uncertainty Avoidance Index (UAI) ”857 which is generally being related to risk-averse societies that like to stick to their traditions. This might explain the questions of the Network Coordinator and the need for a concrete strategy from the beginning on and could even lead to the conclusion that the establishment of a business and a related social network would take more time and planning than in other countries.858 To sum up the results: i) The Initiation phase was difficult for all three cases, mainly because of having to decide on a general structure and strategy of the network without network 855 856 857 858

Cf. interview Turkish Network Manager, October, 2005. Cf. interview Turkish Network Manager, October, 2005. http://www.geert-hofstede.com, accessed in November, 2006. Cf. VERITAS D51: The importance of trust in the phase of network formation, January, 2006, p.29.

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participants. Selection of partners and preparation of informative workshops went completely different in Turkey, disposing of high involvement, in Austria, where a very open approach was selected and in Belgium, where several attempts for a meeting were carried out. ii) During the Forming phase, a democratic approach on a heterogeneous group was followed in Austria and Belgium, whereas in Turkey, a homogenous group was selected in a top-down strategy. All countries were characterized with skepticism, with calm and restraint behavior in Austria opposed to an active, discussionoriented attitude in Turkey. iii) The Storming phase, only entered by Austria and Turkey, incorporated each a group of people that questioned the concept and its outcomes on the one hand and an enthusiastic group full of long-term visions on the other hand. However, taskresistance was noticed in both countries, in Austria related to the structure of the concept, in Turkey towards starting joint business activities. iv) Neither Norming nor Performing was reached by one of the cases. In the end this led to the non-establishment of groups, with unclear boundaries and without cohesion and/or dependence of members. No joint identity was established and involved people did not feel responsible for the network. While the Austrian network was a loose platform with small project groups, and Turkey showed two cooperation initiatives, and Belgium could not reveal a structure similar to a network. v) Nevertheless, phases were comparable to each other and showed significant indicators of group processes. Although the development in the three countries was unequal, all cases followed the same “social direction”, i.e. the group formation process. vi) Cultural and economic pre-conditions influenced the attitude and commitment of the involved network participants, no matter if it was people or institutions. The influence shaped the characteristics of typical processes in the formation process, but did not change the process itself.

7 Conclusions and Outlook on Further Work The aim of this work was to investigate social processes that emerge when people work together in the context of an SME Network. Although cooperation is seen as a main solution for SMEs to cope with problems attributed to their size, the adoption of the concept remains challenging. SMEs enter networks or cooperation initiatives because of the need to survive in the market and to be able to compete against larger corporations. In comparison to large enterprises that can easier test cooperation projects (and partners), SMEs have to bear higher social and economic risk, thus they want to develop stable and trustful partnerships. In the network literature (e.g. Miles/Snow, 1992; Provan/Milward, 1995; Gulati et al., 2000), there is a tendency to concentrate more strongly on structural issues and environmental conditions, and neglect relationships or social interaction among actors. West (2004) expresses that benefits of team working need both, i) improved task performance and ii) emotional well-being for the members of a group (Carter/West, 1999). Despite extensive research on critical success factors for cooperation (e.g. Jägers et al., 1998; Sherer, 2003; Sieber, 1998), the author claimed that the problem of network formation might not (only) be related to the often cited factors of ICT, business opportunities or similar, but on factors related to the group processes. The study encompassed three main parts, i.e. a literature review on VOs, an empirical analysis of VO best practices, and the observation of three real-life cases. After having investigated the theoretical background (section 2.1) and having compared the structure and success of 30 best practices (section 2.2), it became clear that two main forms of such organizations exist. On the one hand the “emerged” VOs, similar to supply chain models and on the other hand, “initiated” VOs, supported by national or international institutions. The latter were then called Cooperative Networks, i.e. stable and long-term oriented platforms of cooperation that incorporate equalized – mostly SME – partners combining their business activities. This – new – form of cooperation was characterized with a joint strategy, and agreed rules and roles. The establishment of such cooperative structures was seen as a promising future concept for SMEs (Huber et al., 2005).

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Next to the anticipated social aspects, a process-oriented view on the formation of Cooperative Networks was integrated in research. The author extended (Virtual) Life Cycle models to classic social theories on group development (e.g. Tuckman, 1965; Bion, 1961; Bradford, 1964; Francis/Young, 1989) and formulated a qualitative phase concept including five stages of network formation. Four of the five phases resemble Tuckman’s group formation model (Tuckman, 1965), as this model unifies various attempts to explain sequential stages in groups, encompassing for example studies on therapy-groups (e.g. Bach, 1954; Bion, 1961; Abrahams, 1949), or training groups (e.g. Bradford, 1964; Miles, 1953). The framework was applied to three real-life cases of network formation over a period of 19 months. The research on the three case studies revealed the following results: i) The 5-phases model was applied to the three case studies in Austria, Belgium and Turkey (see section 5). Behavioral patterns in all three countries could be classified as typical group behavior. This means that group theory is a useful tool to understand processes in networked organizations. Considering the aspects of group theory (e.g. Olmsted, 1974; Froschauer/Titscher, 1984), it is concluded that the establishment of a well-performing group is a prerequisite for establishing beneficiary networks. ii) The most similarities in people’s behavior were detected in the Initiation phase, where all three countries showed a testing of the initial situation, and dependence on the leaders or initiators. Although unequally articulated, all three networks displayed a strong need for leadership: While in Austria and Belgium, politeness and reservation led to the fact that no network participant took over responsibility for actions, in Turkey the leading roles were more requested by asking continuous questions and putting pressure on the industry association. The lack of a leader on the one hand, and the existence of a structural headman on the other hand is probably one of the main problems in the Cooperative Network setting. Schein (1980) highlights the need for a leader in a group and that no group can exist without leading people. iii) Main distinction among the three cases could be observed during the Storming phase. Whereas Turkish network participants showed power and activity, the Austrian network members’ behavior was mainly driven by skepticism and

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passivity, not to say resistance. On the other hand, Austria started first, mostly bilateral, projects whereas Turkey restricted activities to discussions and planning. Although there seemed to be cultural differences how to behave in the Storming phase, both countries showed characteristics described to be typical for this phase. In the end, Turkey managed to enter the next phase earlier than Austria, which is hypothesized to be driven by the formerly established friendships and by the wellknown Network Manager. People who already know each other are expected to accomplish the group formation processes faster than others who meet for the first time (West, 2004). iv) In order to enter the Performing phase, generally the Storming phase is seen as the critical phase to be accomplished (e.g. Tuckman, 1965; Kauffeld, 2001; West, 2004). In the network context, however, the very first phase proved to be even more relevant. The pre-analysis (section 2.2) showed that the way in which networks emerge was decisive for structure. In the Cooperative Network context it seems that the effort and commitment in the Initiation, and partly in the Forming phase are quite important as the selection and information of potential network members is crucial for the advancement. In this context, the Turkish network initiatives were more likely to survive than the others, as commitment was stronger and the focus clearer. The strong importance of the early phases is an aspect that is also discussed in cluster theory (Payer, 2002). v) In contrary to the necessity of leaders and network facilitators, the successful application of group theory on Cooperative Networks reveals new challenges for the initiators: The networks cannot be forced into a certain timeframe, but – on the contrary – develop according to specific interactive group processes. A project plan like it was designed in the VERITAS context is difficult to fulfil and the implicit linear process of VLCs (Loeh et al., 2003; Katzy/Dissel, 2001) are not able to meet SME Networks’ requirements in respect to certain timeframes, nor in respect to certain content-wise requirements. vi) From a business perspective, critics might point out that the VERITAS networks simply did not manage to identify and exchange their resources. This is, of course, true, but the group-related perspective provided a lot of additional and new insights, since the model differs widely from other formation and set-up models in the area of Cooperative Networks. While the non-preparedness to exchange

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detailed information about resources and production procedures could be related to either the general fear of losing know-how as SMEs, or to the lack of trust and openness, a much more detailed, process-related explanation is given from the group context: The problems of open information exchange can be explained by the fact that Storming was not accomplished at this point in time. This means that power struggles had not been overcome yet and the stability phase of cooperation had not been reached yet. Additionally it becomes clear that the network formation process was in an earlier stage in Belgium and that the Turkish network was most advanced although in Austria projects had been carried out. The 5-phases model based on the group development stages of Tuckman (1965) does not represent a counterpart to original life-cycle models, but can be seen as an extension with a focus on social aspects. The former “homo oeconomicus” in Virtual Organizations has now been embedded in social relationships. The model therefore extends the existing literature by the additional aspects of social and process-related factors in (Cooperative) networks. It indicates that the group formation process has to be accomplished before a network is able to create benefits. This research shows that networks can be seen as groups. Based on group theory, the phases Forming, Storming and Norming are necessary (Alleman, 2004; Kauffeld, 2001; Tuckman 1965) in order to arrive at Performing. Only by jointly overcoming the challenges of every phase, will a group develop its own strength and start to generate efficient results. The contribution of the 5-phases model is twofold as it i) develops to a prescriptive model and ii) shows that besides economic factors that ensure the attractiveness and basis of cooperation, social factors ensure that participants identify and stay with to the cooperation chosen. i) By developing a framework that is able to differentiate between developmental stages in a network formation process, the author managed to establish a prescriptive model. Based on the observation of specific behavior of network participants, the current group development phase can be identified and analyzed. Typical problems of this phase can be anticipated and a Network Manager or coordinator is able to react respectively. Conventional VLCs would, for example, require information exchange at a certain point of time. According to people’s

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reaction – let us say a very emotional response to the task – the network management is now able to notice that the group is situated in the Storming phase and that the point of time where information can be exchanged among potential partners has not been reached yet. For the management this means that typical problems of Storming have to be addressed and, for example, conflicts have to be moderated. Additionally, interventions based on Organizational Development approaches (cf. Schreyögg, 1996, p.481ff.) can be used to enhance the process. Thus, network promoters should not expect that the process of network formation could be planned and followed like described in economic or project-management driven time plans. Instead, they have to anticipate social interactions that lead to deadlocks or backstrokes. An intervention can be well-structured and elaborately designed, but the objectives will fail if it was used at a wrong point of time. This conclusion is concordant with Quinn and Cameron (1983) who state that during phases where the development of cohesiveness come to the fore, less emphasis should be put on rational goal criteria (like efficiency or productivity), while in formalization stages, those interventions can be expected to be placed successfully. Based on the last aspect, the author is able to present a framework that helps network management to support the Network Coordinator or manager to guide the team through the formation stages until s/he will no longer be needed. The detailed description of the model and the three cases in this context helps to better identify the phase the network group currently is engaged and provides insights how to proceed during the formation process. The management team has to take enough time and be aware of the fact that every group behaves differently. The process of group formation can be analyzed and observed, but can only be influenced restrictedly. There is no predefined time frame in which a group will be able to perform together as the performance of every group is hard to predict and follows its own paths (West, 2004). ii) Based on a more social argumentation of networks, and the successful match of market-oriented business units with groups of human beings, it became clear that relationship building is very important – especially in the context of SMEs or micro-enterprises, where the CEO represents the institution . On the other hand, former research (e.g. Jägers et al., 1998; Sherer, 2003), but also the pre-study of Haas et al. (2007) revealed structural and economic factors that have to be ensured

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in order to enter cooperation activities. The author therefore summarizes that two sets of success factors exist in the context of Cooperative Networks: On the one hand, it is important to be capable to cooperate with each other and assure that there is a certain match among core competencies, and that business opportunities are to be reached within a conceivable timeframe (Payer, 2002; Haas et al., 2007). Closely related to basic economic factors is a certain structure of the network like agreements on cooperation or joint quality labels. These criteria are seen as prerequisites of cooperation: without the expectation of business and an intersection with potential partners, no institution or individual would consider joint projects. On the other hand, relationships and social embeddedness of actors play a role. Based on group theory, a member of a group wants to stay a member if s/he had been a member before (Hosmer, 1995). People remain in groups as they notice that the inclusion in the group is of more value than being outside of it, so that they are prepared to invest time, skills and energy (Luft, 1984). These factors are mostly related to the aspects of group belonging and group cohesion and therefore the well-being of a group member. In this context, a final hypothesis is that of the two factor groups, the former are seen as prerequisites for SMEs to enter cooperation, while the latter describe factors that make SMEs stay with a certain cooperation. Similar to Herzberg (1966) – who investigated the motivation and satisfaction of workers – a dual-factor model consisting of “hygiene factors” and “motivators” could be used as an analogy. Hygiene factors describe those aspects that make the cooperation work, i.e. ensure the basic requirements of the business partners and therefore minimize their risk. This factor group encompasses the protection of rights or the assurance of joint markets and joint interests. The factors are believed not to motivate companies, but to lead to dissatisfaction if not provided. If, for example, there were no business opportunities, partners would quit the cooperation. The motivators on the other hand, are those that add value to the cooperation partners on a more intrinsic level, including personal advancement and recognition, which finds its expression in the establishment of mutual relationships. Although Herzberg (1966; 1968) has been criticized because of his methodical approach (House/Wigdor, 1967), his dual-factor strategy was applied to several

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research fields, among others tourism, manufacturing or education (Zhang/von Dran, 2000). The distinction between satisfaction and dissatisfaction as two dimensions seems applicable in the context of Cooperative Networks as well, above all because of the focus on human beings and as working conditions of Herzberg (1966) might allow a coherence with “working” conditions in cooperation. Having established a prescriptive model of social formation building, the author showed that when economic considerations and social aspects are integrated , deeper insights in network processes are possible. However, the study is restricted to the following limitations: i)

During this research, group theory was discussed in a rather single-sided or even normative way in order to relate social aspects with network theory. While positive aspects of groups refer to a strong cohesion of the group, interest in the same activities, and conformity of communication (Kauffeld, 2001; Froschauer/Titscher, 1984), there exist negative aspects of groups as well. Indeed, group-think, group pressure or risk-shifting (Schein, 1980; Froschauer/Titscher, 1984) might even impede successful cooperation activities. The future model should therefore not only strengthen those aspects that influence the performance of the group in a positive way, but also try to avoid those aspects that might hinder successful cooperation. Referring to different working groups, the Performing phase – reflecting that the optimal conditions for group performance are set – is rarely met (Schneider, 1975). The framework therefore represents an analysis model based on the ideal development of a certain group, i.e. Cooperative Network. Nevertheless, several circumstances or renewals might lead a group back to a starting point and make the group members launch the process again.

ii) As the analysis of the three network cases was carried out in three different

countries, it might be argued that the cultural implications led to the different formation process in the three countries. Of course, the national background influences the behavior of the inhabitants and therefore the communication pattern or the attitudes of described group members. Nevertheless, the research perspective in this study was based on the social structure of network members and disregarded

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cultural influences. Although the model proved to be applicable in all three countries, and only certain characteristics of participants’ behavior differentiated, cultural aspects are to be included in further research activities. iii) Qualitative research aims at investigating certain cases on a rather detailed level.

For the complex idea to investigate social structures of Cooperative Networks, case study research proved to be the right method of investigation. Despite the oftencited problems with qualitative research (e.g. Kelle, 1994; Diekmann, 1995), the triangulation method and the extensive inclusion of different data sources allowed a deep insight in the social complexity of network formation. However, the problem in these (real-life) cases was the fact that all three cases got stuck during their formation. Unfortunately an inclusion of other networks in this research would not have been feasible because of low comparability, and an extension of project time was either possible. Future work should therefore concentrate on further applying the model to other Cooperative Networks. The suggested 5-phases model should be further investigated and turned into a concrete diagnostic instrument. The model fit can be tested with new cooperation platforms but maybe an additional retrospective view, investigating in the point of time where networks failed or started to perform, would also lead to interesting results. In future research, the idea of having two different sets of factors could be further perpetuated to a coherent dual factor model. This would allow quantitative testing and could lead to further research activities in the field of effective networking. However, the qualitatively developed framework is seen as a starting point for further research activities in the multidisciplinary field of economics and sociology.

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Appendix Project Description and Work-Breakdown-Structure Project summary859 VERITAS overall objective is to increase the dynamics of European Industrial Enterprises by transforming them, where appropriate and possible, to more flexible and re-active companies that use the Virtual Enterprise concept in a manageable and effective way. The ambitious goal is to help manufacturing companies with high production-related costs to understand and implement the concept of virtual enterprise, enabled through smart organization and process restructuring and supported by the use of Information Technology, cross-organization Work Management solutions in particular. We refer to the combination of these elements as the VERITAS concept. The project will target the machine tool industry in particular, but will try to keep the findings and output abstract to an extent that will make a similar usage of the results possible in other industries. VERITAS’ primary activity will be the permanent creation of three stable virtual industry clusters. VERITAS will not force a VE initiative within its time horizon, but will provide all the necessary prerequisites and knowledge to form a VE in the future. This includes comprehensive training of the target companies in configuration, cooperation and competence management for VE as well as the development of tools to monitor and manage VEs. In addition, VERITAS will produce an agility evaluation method for companies to test the potential applicability of the VERITAS concept to their organizations and an implementation guide, which will provide step-by-step instructions for forming a virtual enterprise. A multilingual portal solution will be set up and implemented to reach the target industrial organizations on a large scale. The portal will enable the target companies to learn about, understand, test and implement the VERITAS concept, supported by interactive tools. Approach and Objectives860 VERITAS861 is a Specific Support Actions (SSA) project, combining elements of analysis, fact finding, monitoring and evaluation with trans-national knowledge transfer and take-up related services. Its overall objective is to increase the dynamics of European manufacturing companies by supporting their transformation towards agile enterprises. The ambitious goal is to actively help machine tool companies with high production-related costs to understand and implement the concept of virtual enterprises, enabled through business process orientation, a new business culture and supported by the use of Information Technology, in particular cross-organisation Work Management solutions. As a European research project, VERITAS will aim to close two identified gaps between industrial requirements and academic research in the area of virtual manufacturing systems research.862 These are the lack of multidisciplinary 859

taken from: VERITAS, Contract for Specific Support Action, Annex 1- Description of Work, p.4. taken from: VERITAS, Contract for Specific Support Action, Annex 1- Description of Work, p.5-6. Veritas: the truth (Latin). 862 Shi, Y. and Gregory, M. Global Manufacturing “Virtual Network (GMVN): Its dynamic Position in the Spectrum of Manufacturing Collaborations”, in Franke, U. “Managing Virtual Web Organizations in the 21st Century”, Idea Group Publishing (2002). 860 861

242

Appendix

cooperation and the lack of knowledge transfer from theory to practise. The first will be tackled by a diverse consortium, including an ICT consulting company, a strategic management consulting company and an academic partner with a research focus on trust building and negotiation mechanisms within and across organizations. The whole project approach is developed to satisfy the second shortcoming, the knowledge transfer from theory to the manufacturing industries and beyond. The three industry associations from Austria, Belgium and Turkey in the consortium will significantly facilitate reaching the target industry and disseminating the project findings to industrial organisations on a large scale. The VERITAS VE formation approach will be based on the “Global Framework for Virtual Business” model (GFVB), using the practical experience from a number of European and Worldwide projects on VE to turn this framework into a practicable approach. Among these initiatives the “Euroregio Bodensee (Virtuelle Fabrik)” and the “Agile manufacturing” projects have been particularly well documented and will serve for a valuable guideline for VERITAS. For understanding different aspects of configuring virtual networks and enterprises VERITAS builds on other applied projects like COSME, VEGA, VIRTEC and PUSH and the theoretical expertise of academic network partners. The theory on VE is diverse; however it shows a number of common elements. First of all, it is agreed that virtual enterprises (VE) require a stable network (larger pool of companies) sharing a common vision, infrastructure and trust. Only when such a network exists, sub-groups of its members will be ready and able to configure flexible temporary VEs when specific market opportunities arise. The creation of these networks (also referred to as virtual industry clusters - VIC) often is a time and resource demanding process, where goals, strategy, rules and trust are being developed. With a limited time frame and given the fact that VE initiatives – though proactively pursued – depend on external factors and demand, VERITAS’ concrete and verifiable objective will be the permanent creation of three stable networks. VERITAS will not force a VE initiative within its time horizon, but will provide all the necessary prerequisites and knowledge to form a VE in the future. This includes comprehensive training in configuration, co-operation and competence management for VE as well as the development of tools to monitor and manage VEs.

Behr

2

COVE news 5

Industrie Fachmesse 2003 http://www.messeifm.de/ifm2003/ma_programm.htm

IECOS

IMPRO (Interessenver bund Metallund Präzisionstech nik Osterzgebirge)

KFSnet

7

8

9

Internet research

Mexico

http://www.iecos.com.mx/ http://csim.mty.itesm.mx/english/def ault.htm

http://www.kfsnet.de

http://www.impro-praezision.de

USA

N/A

Goranson, H. I. (1999): The Agile Virtual Enterprise : Cases, Metrics, Tools.

Flexcell

6

Germany

Germany

Switzerland / FL

http://www.vfeb.ch

Wüthrich, Hans A.; Philipp, Andreas F.; Frentz, Martin H.(1997): Vorsprung durch Virtualisierung: Lernen von virtuellen Pionierunternehmen, Gabler, Wiesbaden.

Euregio Bodensee

Austria

Germany

5

http://www.cargolifter.info/ bzw. http://www.netlexikon.de/Cargolifter.html

Wüthrich, Hans A.; Philipp, Andreas F.; Frentz, Martin H.(1997): Vorsprung durch Virtualisierung: Lernen von virtuellen Pionierunternehmen, Gabler, Wiesbaden.

Germany

http://www.eu-emmediate.com

http://www.behr.de/

Fraunhofer IAO - Virtuelle UN in Baden Württemberg

USA

Internet research

http://www.agileweb.com/

Beep Knowledge System http://www.beepknowledgesystem.org/Sho wCase.asp?CaseTitleID=134&CaseID=61 0

Country

eMMEDIATE

Website

Reference

4

Cargo Lifter

Agile Web Inc.

1

3

Name

N°

List of investigated Best Practices

29 Manufacturing of machinery and equipment

29 Manufacturing of machinery and equipment

742 Mechanical precision engineering, machine engineering and electrical engineering

D Manufacturing

D Manufacturing

292 Manufacture of special-purpose machinery

353 Manufacture of aircraft and spacecraft

343 Manufacture of parts and accessories for motor vehicles and their engines

29 Manufacturing of Machinery and Equipment

Industry (acc. to OECD)

7 small companies that cover the whole value chain from engineering to manufacturing. Project funded by the German State.

Network in precision mechanics that started with 4 companies and grew up to 18 SMEs. Was funded during the first two years but now finances all its activities with member contributions

40 companies, structured into three entities. The network developed out of the Mexican Industry cluster.

Network of 3 small enterprises producing machine tools, Established due to a funded project 18 manufacturers. Founded in 1996 as one of the first virtual enterprises. Changed and developed management structure over time. 30 firms sharing risk and knowhow, fixed pool of partners

Formed between several companies and persons in order to establish an innovative product.

20 SMEs, supported by the Ben Franklin Technology center. Claims to be the first recognized virtual enterprise in the world. Automotive supplier group, operating with 20 production locations (licensed partners) around the world.

Main characteristics

Virtual Enterprise

Virtual Enterprise

Virtual Enterprise

Virtual Enterprise

Virtual Enterprise

Virtual Enterprise

Virtual Enterprise

Focal virtual network

Virtual Enterprise

Classification

= Interviews

Appendix 243

http://www.myteq.de/

http://www.nintendo.com/corp/index .jsp

kompetenznetze.de

Industrie Fachmesse 2003 http://www.messeifm.de/ifm2003/ma_programm.htm

Wüthrich, Hans A.; Philipp, Andreas F.; Frentz, Martin H.(1997): Vorsprung durch Virtualisierung: Lernen von virtuellen Pionierunternehmen, Gabler, Wiesbaden.

Konkraft Manufacturen

metalnet

mobile solution group

myteq (microtechnol ogy equipment)

Nintendo

Prolion

11

12

13

14

15

16

Germany, Asia, Great Britain

www.puma.com

http://www.k1010.de/welcome/index .html?

http://www.sikorski.com/

Wüthrich, Hans A.; Philipp, Andreas F.; Frentz, Martin H.(1997): Vorsprung durch Virtualisierung: Lernen von virtuellen Pionierunternehmen, Gabler, Wiesbaden.

Wüthrich, Hans A.; Philipp, Andreas F.; Frentz, Martin H.(1997): Vorsprung durch Virtualisierung: Lernen von virtuellen Pionierunternehmen, Gabler, Wiesbaden.

Internet research and Goranson, H. I. (1999): The Agile Virtual Enterprise: Cases, Metrics, Tools.

Puma

Rauser Entertainment

Sikorsky

17

18

19

USA

Germany

Netherlands

Japan, Headquarter in Washington

Germany

Germany

Germany

Germany

Germany

René Bultje, Jacoliene van Wijk: Taxonomy of Virtual Organisations, based http://www.prolion.nl/IndexUK.htm on definitions,characteristics and typology., KPN Research, The Netherlands

http://www.mobile-solutiongroup.de/

Internet research: Kompetenznetzwerke.de http://www.metalnet-stahl.de

www.Koncraft.de

BEEP

Kiesel

10

http://www.kiesel.de

Scheer, August-Wilhelm / Kocian, Claudia (1996): kiesel – Das Virtuelle Umweltkompetenzzentrum: Theorie und Praxis der Virtuellen Unternehmung in: Management & Computer, 4, 4, 221-228

921 Motion picture, radio, television and other entertainment activities 353 Manufacture of aircraft and spacecraft

51 Wholesale trade

292 Manufacture of special-purpose machinery

921 Motion picture, radio, television and other entertainment activities

29 Manufacturing of Machinery and Equipment

722 Software publishing, consultancy and supply

29 Manufacturing of Machinery and Equipment

361 Manufacture of furniture

7421 Environmental consulting services

Virtual Enterprise

Focal virtual network

Virtual enterprise

Focal virtual network

Virtual Enterprises

Virtual Enterprise

Virtual Enterprise

Virtual Enterprise

Cooperation platform

Established as a virtual team of Focal virtual experts in order to design and network manufacture advanced helicopters

Only brand management and administrative issues are done centrally. All other services like product development, R&D etc. are outsourced to different partners and even countries Team of virtual people. 150 freelancers.

One central company with an international, supplier network. Only the Software Development and Sales distribution are done centrally. Originally founded to produce an automatic milking system.

5 handicraft furniture producers combining their expertise for joint offers and share plans and drawings in real time over Internet 8 companies with a strong focus on R&D, located in the same technology park. Was funded and supported as a project of the region. 40 researchers, developers and software experts (as well firms as single persons) in telecom and multimedia 15 SMEs founded the microtechnology network in 2002.

X

244 Appendix

Wüthrich, Hans A.; Philipp, Andreas F.; Frentz, Martin H.(1997): Vorsprung durch Virtualisierung: Lernen von virtuellen Pionierunternehmen, Gabler, Wiesbaden.

4th IFIP Working conference on VE

Startek

Swiss Microtech Enterprise Network

Team22

Tectonet

V-Chain

22

23

24

25

26

http://www.zp-aargau.ch/, http://www.virtuelle-fabrik.ch/

http://www.autointell.com/european _companies/volkswagen/vw_marke/ Brazil volkswag13.htm

Wüthrich, Hans A.; Philipp, Andreas F.; Frentz, Martin H.(1997): Vorsprung durch Virtualisierung: Lernen von virtuellen Pionierunternehmen, Gabler, Wiesbaden.

Wüthrich, Hans A.; Philipp, Andreas F.; Frentz, Martin H.(1997): Vorsprung durch Virtualisierung: Lernen von virtuellen Pionierunternehmen, Gabler, Wiesbaden.

Internet research

VIRTEC

Virtuelle Fabrik Nordwestsch weiz

Volkswagen Resende

Walden Paddlers

27

28

29

30

http://www.waldensports.com/)

N/A

Sieber, Pascal Griese, Joachim (1998): Organizational Virtualness and Electronic Commerce; Proceedings of the 2nd International VoNet-Workshop, Zurich, September 23-24, Vol. 1, No. 1, Simowa Verlag Bern

USA

Switzerland

Brazil

Spain

www.dmr-consulting.es

ICE2004, 10th International Conference on Concurrent Engineering

Germany

Germany

http://tectonet.com

www.team22.de

Switzerland

Internet research

Internet research

http://www.swissmicrotech.ch

http://www.startek.com.tw/EN/index. Taiwan htm

Austria

Solarplexx

Schiefer, Peter (2002): Kooperation und Koordination in Virtuellen Unternehmen am http://www.solarplexx.cc/ Beispiel SolarpleXX, Master Thesis, University of Vienna

21

Germany

Internet research: Kompetenznetzwerke.de http://www.silicon-saxony.net

Silicon Saxony

20

D - Manufacturing

341 - Manufacture of motor vehicles

D Manufacturing

D Manufacturing

341 Manufacture of motor vehicles

45 Construction

29 Manufacturing of Machinery and Equipment

29 Manufacturing of Machinery and Equipment

29 Manufacturing of Machinery and Equipment

29 Manufacturing of Machinery and Equipment 7421 Architectural and engineering activities and related technical consultancy

Focal virtual network

Virtual Enterprise

Virtual Enterprise

Virtual Enterprise

Focal virtual network

Virtual Enterprise

Cooperation platform

Virtual Enterprise

Highly flexible network in the sports industry (Kayak). Founded in 1993

Virtual Enterprise

Automotive supplier network. 1996 Focal virtual partners formed due to a special network business need of VW

35 members form a collaborative network. 8 years of experience, further increase in sales figures and cooperation activity

Emerged out of a project aiming at Virtual Enterprise supporting management knowhow in SMEs

A Broker sets up consortia to tender for public construction works, thereby choosing from a core pool of 40 SMEs Founded to enhance collaboration in the Ford Automotive Industry

30 SMEs. Funded by the state in order to promote the region

Starting with a core team of 4 SMEs in 2000. Developed into a best-practice VE

Founded in 1989, cooperation due to the establishment of security systems

156 member companies. Network was formed to support the competitiveness of the region Founded in 2001. Collaboration initiative of 8 SMEs. Failed.

Appendix 245

246

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Interview Guideline of Pre-study Structure and composition of the network 1. Could you please tell me briefly how the network emerged and what its membership structure looks like? When was it created? Who initiated it and why (external public/private funding/support)? How many members does the network have? How did the membership develop over time (increase, decrease, stable from the outset, etc.)? What is the structure of the membership (employees and turnover)? 2. Did the members cooperate before? If yes, in what form? Did they know each other in person? Were they direct competitors? How cooperative is the industry in general? Are there other clusters, networks etc.? Is there international cooperation? 3. Does your network have a vision, a strategy and/or annual goals? If yes, who sets them and how? Can you outline the vision, strategy and goals? Were there any non-commercial principles from the outset? 4. Are there defined rules and agreements for the network? If yes, can you give an overview of the different rules and roles? 5. What common activities do the network members have (training, workshops, mutual visits, regular meetings, etc)? Do you think such activities increase the flexibility of the members and their level of interactivity? 6. How important and how strong is trust between your members? Is there a difference between the original members and those who have joined later? Or is there an inner and an outer circle? Are you undertaking trust building activities? Please describe them. 7. Do you think the network should and will be extended in the future? If yes, in what direction? Role of the Broker/Coach 8. Can you describe what exactly are your role and activities within the network? Since when are you the Broker/coach? How do you judge this role? Has your role changed over time? Do you work for other networks? 9. Could you briefly explain how you as a Broker/coach are financed? Is there a fee to be paid by each member, a bonus allocation for VO acquisition, direct participation of your organisation in commercial projects or a mix of the

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mentioned elements? What percentage of your revenues is related to the Brokering/coaching activities for this and other networks? 10. Do you select the partners for the VO project? If yes, how do you proceed and how do you avoid rivalry between partners? Do you pre-select for the network? Do you use any tools, techniques for the selection (of the core competencies)? Do you attempt to create a virtual value chain? VO project cooperation and commercial benefits 11. Could you please give an overview of how many and what type of commercial VO projects have been initiated in your network? What volume do they normally have? How many partners tend to be involved? What is the average duration of a VO and what are the factors influencing it? Who acquires the projects? Are there patterns of cooperation (companies take same position in value chain, repeating partnerships, type of work, etc.)? Do such patterns change over time? 12. Why did the network partners cooperate in these specific cases in a VO and in others not (business case, size of the contract, degree of specializations required, etc)? 13. Can you please describe the process of setting up a VO in terms of legal responsibilities, division of work, etc? What is in general the purpose of the VO (product, service)? What legal form does the co-operation take (one key partner who subcontracts, ARGE, etc.) and why? 14. Can you please describe the process of implementing a VO project? What types of problems arise and how did you deal with them? How do you deal with (avoid) tensions of competition and co-operation among your network members? Has the (competitive) relationship between them changed over time? 15. Can you describe the closing of a VO? 16. How often do you meet the partners physically in each phase? 17. Did you optimize the whole process over time? 18. How do you think the members of the network judge the added value of their membership and VO participation? Have their expectations been met? Have they gained financially? Have they improved their flexibility, time to market, innovative capabilities or increase their product range? Have they intensified cooperation with other members?

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ICT Infrastructure 19. Could you please describe the general IT infrastructure used for the network (Email, Internet, Intranet, database, etc)? Is there is a specific system common to the network? If yes, who is responsible for designing/maintaining the system? If yes, could you specify your requirements when designing and perhaps up-grading the system? Is the infrastructure adequate and used (number of active users and frequency)? 20. Do you use any collaborative tools in general or for a VO project? If yes, describe briefly what for? Trust Index Yamagishi/Yamagishi (1994) ƒ*Most people are trustworthy. ƒ*Most people will respond in kind when they are trusted by others. ƒ+One can avoid falling into trouble by assuming that all people have a vicious streak ƒ-In this society, one does not need to be constantly afraid of being cheated. ƒ+There are many hypocrites in this society. ƒ+People are always interested only in their own welfare. ƒ*Most people are trustful of others. ƒ*Most people are basically honest. ƒ+Only very few people are convinced that telling a lie is wrong. ƒ*I am trustful. ƒ*Most people are basically good and kind. ƒ+People usually do not trust others as much as they say they do. ƒ+In this society, one has to be alert or someone is likely to take advantage of you. ƒ+When someone compliments you, it is because they want something from you. ƒ+Most people inwardly dislike putting themselves out to help others ƒ- In dealing with strangers, it is better not to be suspicious of them unless there is good reason for it. * general trust items, positive responses are trustful + caution scale items, positive responses are cautious - caution scale items, negative responses are cautious

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Pre-questionnaire Experience Please comment on the following statements: What do I think about cooperation?

Fully disagree

Partly agree

Fully agree

Fully disagree

Partly agree

Fully agree

I am familiar with risks, advantages, restraints and legal possibilities of cooperation forms from previous experience and additional information. I know several examples of effective cooperation. To form an economically viable cooperation, one of the necessary conditions is that partner contributions are economically calculated I am prepared to provide financial as well as personal resources in order to set up cooperation. In the cooperation partners take it for granted to share confidential information with the other companies. Competition between partners cannot be avoided. Competition between partners has to be discussed and resolved in an open way. I would bring my own customers into the cooperation.

Expectation What do I expect from a new cooperation? Which aspects do I consider as the most critical when I think of cooperation? Forming a viable and efficient cooperation requires well-established trustful relationships between the partners. Cooperation is of no use, if no common business opportunities or joint product innovations emerge. Open and honest communication between cooperation partners must also include any recurrent problems of and challenges for the individual partner companies. The commitment of every single partner company and its management board is a basic requirement for establishing a network. No network will work without predefined rules and roles. Cooperation is a strategic decision and therefore must be an integral part of every company’s strategy.

Reasons for cooperation: Which aspects are decisive for me and Partly Highly Not relevant relevant relevant my company to participate in a cooperation network? - the professionalism of the partners in their competence field - the trustworthiness of partners - the existences of quality certificates like ISO 9001 or 14001 - that I know the other companies from previous common activities - the utter commitment of every single firm - that every partner takes over responsibility - detailed rules and roles - a Management Board of the network - a Network Manager who detects market chances for the network - a loose cooperation agreement clarifying the most important issues - a legal (general) agreement or contract - clear defined and documented processes - a clearly formulated vision and strategy - the technical sophistication of the partners (especially in the context of IT) - commonly identified and agreed business activities

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- an identified and defined market of the network - regular meetings between all the partners - stability of the network - the partners’ preparedness for innovation - the partners’ preparedness to take over risks - the geographical proximity of the partners - open discussions and direct communication between partners - common marketing - common events like e.g. trade fairs - training activities - a common database including all the competencies of the partners - common intranet and collaboration tools Reasons for leaving the network: Which factors would immediately lead me and my company to leave the cooperation? - unprofessional partners - the impression of negative trustworthiness - not knowing the other firms and partners from previous experiences - partners without quality certificates - no commitment of some firms - not all partners take over responsibility in the network - rules and roles are missing - a Management Board is missing - a Network Manager who detects market chances, is missing - no cooperation agreement - no legal (general) agreement or contract - the lack of defined and documented processes - no common vision or strategy - the technical backwardness of partners (especially IT) - no common business activities or product innovations can be identified - there is no defined market for the cooperation products - no or just a few meetings take place between the partners - the network is instable, partners continuously leave - no preparedness to innovation - no preparedness to take over risks - regional spread of partners - secrecy, no open discussions - the lack of common marketing activities - the lack of common activities and/or events like trade fairs - no professional training - no database including the core competencies of the partners - no common intranet or collaboration tools

Not relevant

According to your opinion, which action has to be taken in order to … … establish trust between the participating companies in a network? … enhance open and direct information exchange between partners? … identify common business activities? … only include firms that are committed to the network activities? … develop optimal network management structures? … combine the firms’ strategies with the strategy of the network?

Partly relevant

Highly relevant

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Attitude Please comment on the following statements according to your personal opinion. Statements

Not at all

Someti Always mes

Most people are trustworthy. Most people will respond in kind when they are trusted by others One can avoid falling into trouble by assuming that all people have a vicious streak In our society, one does not need to be constantly afraid of being cheated There are many hypocrites in our society People are always interested only in their own welfare Most people are trustful of others Most people are basically honest Only very few people are convinced that telling a lie is wrong I am trustful Most people are basically good and kind People usually do not trust others as much as they say they do In our society, one has to be alert or someone is likely to take advantage of him/her When someone compliments you, it is because he/she wants something from you Most people inwardly dislike putting themselves out to help others One should not be suspicious of strangers, unless there is a good reason

Cooperation so far The following questions focus on any kind of cooperation your company has been engaged in so far. By cooperation we mean any kind of collaboration with other companies or organizations. What are our objectives when we cooperate with others? Aims / Objectives

Not at all

Someti Always mes

Share costs Share risk Acquire know-how from outside Short-term use of a market chance through cooperation Long-term mutual support through collaboration Access to new markets Satisfying individual customers’ needs Increase of flexibility and adaptability Widening capacities Synergetic combination of core competencies Higher efficiency throughout the supply chain Reduction of „time to market" Avoidance of additional coordination effort Establishing a uniform customer interface Others: 1. HOW WOULD YOU CHARACTERIZE THE VALUE CREATION PROCESS IN YOUR COOPERATION? Someti Statements Not at all Always mes The end product is a combination of the different inputs (core competencies) of the cooperation partners The products/ services can be produced cheaper in the cooperation than without it The work is done by interorganizational teams

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We have a strong readiness for outsourcing Our employees share their office with employees from our cooperation partners The cooperation is dissolved after work is done The customers can influence the composition of the cooperation partners The value creation takes place in different locations The business processes are coordinated among the partners for the value creation 2. PLEASE GIVE YOUR COMPANY’S POSITION REGARDING THE FOLLOWING STATEMENTS Someti Statements Not at all Always mes Our strengths differentiate us from our competitors It is hard for our competitors to imitate our strengths When economically feasible, we use external competencies The value creation process (producing goods and services) is carried out time-independently by the cooperation partners Each organizational unit is only active in its field of competence Our internal units sell their strengths on the external market 3. WHICH FEATURES CHARACTERIZE YOUR COOPERATION WITH COLLABORATORS? Someti Features Not at all Always mes We cooperate frequently with other companies (persons or freelancers) A fixed pool of cooperating organizations exists, from which we select our cooperation partners The cooperation has a uniform face towards the customer The cooperation has a uniform logo The cooperation offers the customer a complete solution The success of one cooperation unit is positively related to the others We trust our partners that they keep to the agreements We try to implement trust-building measures among our cooperation partners (e.g. workshops, seminars etc.) The value creation in this high quality and short time period can only be done with the help of the cooperation partners 4. WHICH FEATURES CHARACTERIZE THE EXTENT OF FORMAL AGREEMENTS IN THE COOPERATION? Someti Features Not at all Always mes We do without contractual agreements We only finalize general agreements and verbally agree on the details We only have verbal agreements We finalize only detailed contracts Our cooperation partners are legally independent from us A central coordination unit exists, which coordinates the work within the cooperation (e.g. Network Broker) We always try to include everyone involved in the decision making process Averag Very low high e Generally the extent of contractual agreements is 5. HOW WOULD YOU DESCRIBE THE COORDINATION ACTIVITIES? Someti Statements Not at all Always mes We have a clear idea of what we are able to do It is important to concentrate on our own strengths The cooperation has its own legal form (e.g. Corporation, Joint Venture, etc.) There is only one contact person for the customer in the cooperation The selection of the cooperation partners follows strict guidelines The cessation of one partner threatens the whole cooperation

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6. PLEASE ANSWER THE FOLLOWING STATEMENTS IN THE VIEW OF YOUR COMPANY Someti Statements Not at all Always mes It is a fundamental principle of our company that colleagues support each other We trust in each other Everybody can rely on each other We have an atmosphere of honesty, openness and trust The cooperation is configured after the customer has placed his order All partners enjoy equal rights in the cooperation We always try to carry our interests through 7. HOW DO YOU HANDLE SITUATIONS IN YOUR COMPANY, WHERE YOUR OWN INTERESTS DIFFER FROM THOSE OF YOUR COOPERATION PARTNERS, CUSTOMERS OR SUPPLIERS? Someti Statements Not at all Always mes We keep to verbal agreements, even if it brings us an economic disadvantage We keep to rules of games, even if it brings us an economic disadvantage We keep to our corporate guidelines, even if it brings us an economic disadvantage We keep to written agreements, even if it brings us an economic disadvantage 8. WHICH SYSTEMS DO YOU USE IN INTER ORGANIZATIONAL COLLABORATION? Is available Usage Communication systems

Yes

No

Very low

Average

Very high

Face to face Email Shared access to knowledge databases Internet Intranet Video conferences Telephone Fax Newsgroups Groupware (e.g. Lotus Notes) Common standards for data interchange (e.g. EDI) Others:

ICT and Collaboration Please answer the following statements in the view of your company: Statements We extensively use ICT (Information and Communication Technology) in our daily work. We use ICT for the conduct of business between our organization and our permanent partners, suppliers, customers We use Collaboration Tool software in our cooperation network. Do you know which elements “Online Collaboration Tools“include? Please give a definition of your comprehensibility:

Not at all

Someti Always mes

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Please answer the following statements in the view of your company: Statements

Not at all

Someti Always mes

An “OnlineCollaboration Tool“ software is necessary for the operation of the network. An “OnlineCollaboration Tool“ software will speed up the processes of the cooperation network. We (would) allow the “OnlineCollaboration Tool“ software to automatically access to data in existing software of our organization. The usage of the “OnlineCollaboration Tool“ software would facilitate the communication and the trust-building between the members of the cooperation network. The usage of the “OnlineCollaboration Tool“ software would enhance the transparency of cooperation within the network. The usage of the “OnlineCollaboration Tool“ software would speed up the selection of partners that will form a Virtual Enterprise. Please answer the following statements in the view of your company: Statements

No

Yes

I don’t know

A Document Management System (Online Document Repository) is useful for collaboration. A common online calendar where all cooperation partners can suggest and reject meetings and create meeting agendas is useful for network collaboration. An Issue Management System (To-Do List) where all cooperation partners can enter and monitor issues is useful for network collaboration. A Meeting Management Tool is useful for collaboration. A Risk Management Tool is useful for collaboration. A Contracts Management Tool where all cooperation partners can enter and monitor contracts is useful for collaboration. An online Competencies Database where all partners can publish their core competencies, their knowledge, their products and services is useful for collaboration. A Brokering Tool is useful for collaboration. I would use the Collaboration tool software for everyday cooperation. Our company would allow such a tool for automatic access data in existing software of our organization.

Statistical information: Industry Region / Country

Austria

Annual turnover 2004 (in Euro)

2 mill,

2-9 mill.Mio

Turkey 10-49 mill.

Belgium >49 mill

Number of employees

<10

10-49

50-249

>249

Number of operating countries

1(inland)

2-5

6-19

>19

Number of current cooperation partners

0

1-2

3-19

>19