Arabian Open University- Kuwait

T 205B
Systems Thinking:
Principles and Practice

Power, Control and Dependency

Organizations have to work with each other in order to be

effective and survive in the market.
A dependable relationship opens the possibilities for
constructive situations that can bring benefits for both sides.
With increasing globalization, a relationship that is based on
mutual understanding and interdependency can be more
robust and easy to mange than if it is based on minimal
contractual or competitive relationship.
Dependency of an organization on its resource supplier
derives from:
The importance of that resource.
The scarcity of the resource and alternative supply sources.
The degree of interdependency.
The relationship is an open book relationship.

Examples of inter-dependent relationship

Franchising: An entrepreneur buys a franchise and makes

regular turnover-related payments to the franchisor.
It is a straightforward example of a relationship based on a
form of interdependency.
The franchisor contracts for services, including supplying
goods, setting up premises, supplying shop fittings and
providing national advertising.
The franchisor keeps sufficient control over the franchisee to
maintain quality standards and corporate image.
Just-in-time manufacturing (JIT):
It is designed to minimize stock levels between each stage
of the process.
It is vulnerable to any disruption of the sophisticated supply
requirements.

Types of Dependency

Organizations become dependent because of the inputs and

outputs that each needs to maintain its core transformation
processes. Resources (materials, people machinery, money)
are one of the most important inputs, and must be obtained
when they are required, in sufficient quantities and at the
right cost.
Supplier dependency: If the purchaser can easily get the
supplies from other sources.
Purchaser dependency: If the supplier is the only one
available, or technically the best supplier.
Interdependency: Each depends on the other, and the
imbalance is reduced to fairly even levels of bargaining
power.

Common sources of dependency

Economic dependency: This arise where sales or purchases

are such that they distort the normal free market mechanism,
e.g. buying or selling big quantities at short notice .
Financial dependency: This happens when some other
organization like a bank has invested in, or lent money to, an
organization.
Technical dependency: The is similar to expert power and
is the reliance of one organization upon the technical
expertise of another.
Psychological dependency: Strong personal links (social
friendships as well as professional associations) may begin
to develop between the staff of two interdependent
organizations.

Interpenetration mechanisms

Interpenetration mechanisms is used to describe ways of

exerting control by fostering strong professional links across
organizational boundaries.
Interpenetration through joint ventures: JVs are devices for
securing some of the advantages of a merger(economies of
scale etc.) while at the same time preserving the identity and
autonomy of the organization.
Interpenetration through staff exchanges: Involves the formal
exchange of staff for a specified length of time.
Interpenetration through the roles of boundary people:
People who are concerned with external relations forming
close social and functional links with their counterparts.
Ideological penetration: An inter-organizational cooperation
involving sharing basic standards values and reliability.

Interpenetration mechanisms cont.

Interpenetration through co-option: It is a defensive strategy

because some other group or organization appears to threaten
your organizations stability or existence. It involves inviting an
outsider from another organization into your organization. The
motive is to transform the attitudes of the co-opted person and
reduce his organizations threat.
Interpenetration through interlocking elites: Many organizations
try to develop links between their senior people and those in
other organizations so they can get information and advice, and
sustain business confidence, e.g. AOU Board of Trustees.
Interlocking elites can be established formally and informally.
Formal mechanism includes senior people taking on part-time
directorship in another company. Informal mechanism include
social meetings between mangers, e.g. golf clubs, Rotary
Clubs.

Multiple levels of relationship management

When the relationship between two organizations is

intensive, it will be costly to manage.
Organizations tend to mange their relationships at different
levels depending on how important is the relationship to
them.
There are four levels of relationships between organizations:
Level 1: The basic sales-person/buyer relationship: It is a
classic model in which a sales-person from one company
negotiates a sale with a buyer of another company. Nobody
else in the two companies meets, an order is placed,
delivered and paid for. If anything goes wrong, the original
sales-person and buyer will be able to help. This way of
working is inexpensive to run, provided that the
sale/purchase is not critical. Most organizations buy their
office stationary like this.

Multiple levels of relationship management

Level 2: The account management relationship: It is an

upgrade of the basic model. The sales-person/buyer roles
have now evolved and there are people in one or both
organizations that keep an eye on all aspects of the
transactions with the other organization. This model is logical
where the benefits of ensuring that transactions run smoothly
are greater than the cost of allocating special staff to look
after the relationship, e.g. deliveries of a key component that
could not easily be obtained elsewhere.
Level 3: Direct department-to-department relationships
between companies: In this model there is direct links
between the departments in each company. This relationship
is needed when there is a very intimate operational link
between two companies, e.g. just-in-time supplier to the
others production process.

Multiple levels of relationship management

Level 4: Total project integration: In this relationship, the two

organizations merge completely for the purpose of a
particular project, creating an inter-organizational equivalent
of the matrix project structure. The project might have its own
joint board meetings, its own joint operations team, its own
joint R&D team. Representatives of both organizations work
together as a temporary mini-organization for the duration of
the project. Members of the joint project organization report
to the management of this joint structure, and to their own
parent organization. This type of relationship is appropriate
where it is important that people from the two organizations
work closely together, e.g. working in highly innovative
projects like R&D projects and in innovative design.

THE END
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