ORGANIZATIONAL BOUNDARIES

 

The definition of a "boundary", when applied to any social system, is naturally quite arbitrary (Hall and Fagen, 1956) and depends on the intentions and aims of the observer. When the perspective of management is adopted, as in the strategy management doctrine, the intention is to embrace within the boundaries of the organization those resources and activities that can be controlled and influenced by 'he organization, and to leave outside those that cannot be influenced. This control is assumed to be necessary in order to adapt and relate effectively to the environment. An organization's boundaries should thus be set as coterminous with the limits to its activity control: "the organization ends where its discretion ends and another begins" (Pfeffer and Salancik, 1978, p. 32).

The conventional view is that the boundaries are given by the hierarchical (proprietary or contract) control of resources (including individual actors). This view implies what can be referred to as a "membership criterion" for the definition of the boundaries of an organization. Such a criterion gives an apparently clear dividing-line between the organization and its environment, in effect between internal and external factors. Apart from the problem of the type of contractual arrangement that permits "hierarchical" control and discretion in the exercise of deliberate choice behavior (Cheung, 1983), the issue that remains to be dealt with is whether such a view permits us to capture, within the boundaries of the organization, all the resources and activities that have a significant impact on its effectiveness. In a network perspective, this is hardly the case.

Where the network view of the organizational context holds, some of the organization's relationships with other organizations in the network constitute in themselves one of the most - if not the most - valuable resources that it possesses. Through these relationships with other parties, resources and activities are made available and can be mobilized and exploited by the organization in order to enhance its own performance. Access to the other party's resources - resources that complement those of the focal organization - constitutes an important asset (Fiocca and Snehota, 1986). According to a somewhat more extreme view of the assets of a business organization, it is claimed that the "invisible" or "intangible" assets assume a central role in organizational effectiveness, since they are the differentiating factor in performance that gives an organization its distinctive identity (Itami, 1987; Vicari, 1988). The invisible assets, consisting largely of knowledge and abilities, fame and reputation, are mainly created in external relationships. Furthermore they cannot be separated from these relationships.

Quite apart from the resource argument, another aspect emphasized in the network view of the organizational context has considerable bearing on the problem of boundary-setting, namely the interrelatedness that prevails in networks and the possible impact on the focal organization of relationships among third parties. The concept of interrelatedness is inherent in the network view. The magnitude of these effects on the behavior of the organization has been stressed, for example, in some studies of technology development processes. The importance of resources and activities "external" to the traditional boundaries of the organization, and the interrelatedness with relationships to third parties, has been documented in studies that focus on the process of technology diffusion and technology development (von Hippel, 1982; Hakansson, 1987; Waluszewski, 1988; Imai, 1987) and in some of the research on growth patterns in new-venture organizations (Aldrich et al., 1987; Lorenzoni and Ornati, 1988).

In view of the role of "external" resources and interdependencies stressed in the network view of business organizations, it becomes meaningless and conceptually impossible to disconnect the organization from its context. The organization appears without boundaries in as much as it is to a certain degree constituted by resources and activities controlled by other parties forming the network, and exists only in the perceptions of other parties. It develops its distinctive capabilities in relationships with others. The organization is constrained in the exercise of its discretion, as much as it constrains the discretion of those with whom it interacts. The organization exists and performs in a context rather than in an environment, in as much as it has a meaning and a role only in relation to a number of interrelated actors. This makes it difficult to define "where the discretion of an organization, and thus the organization itself, ends and another begins".

In comparison with the conventional view of an organization's boundaries, this approach means on the one hand that some of the resources and activities traditionally considered "internal" can hardly be controlled and influenced by the organization, while a number of what have been considered "external" resources and activities do actually constitute an integral part of the organization itself and are subject to its influence and control. The "membership" criterion, while legally clear and important in determining the outcome of exchange, does not permit a focus on the variables determining an organization's effectiveness.

The purpose of setting the boundaries of an organization in the business strategy management doctrine is to focus on the variables which determine the effectiveness of the organization and which are also subject to the influence of the organization (that can be managed). In this management perspective it is essential to make the distinction between controllable and non-controllable variables. If this is to be done with a view to identifying the determinants of the organization's performance then the boundaries of an organization should be defined more broadly so as to include the critical connected activities and the resources that can be mobilized as a result of the ongoing network relationships - in other words, the context of the organization. How much of the context constitutes the organization depends of course on the degree of interdependence within the context. To assess the interdependencies we need to look a little more closely at the question of organizational effectiveness.