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Influence Activities and Strategic Coordination: Two Distinctions of Internal and External Markets

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  • Laura Poppo

    (Washington University, Campus Box 1133, St Louis, Missouri 63130)

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    Abstract

    This paper examines empirically two distinctions of internal and external markets: influence activities and strategic coordination. Influence activities that arise from decentralization, imperfect monitoring, and a relative performance system are a potential liability of internal markets, coordination may be worse in internal markets than in external markets. However, strategic coordination is an advantage of internal markets, a hierarchy can more effectively implement strategic policies in internal markets than external markets. The results of this study show that profit center managers engage in influence activities by haggling over price adjustments, causing greater renegotiation costs in internal markets than in comparable external markets. However, implementation of cost reduction, which is a strategic policy, appears to be more effective in internal markets the results show that supplying profit centers disclose more private cost information than external market suppliers. Thus cooperation and competition appear to operate simultaneously in internal markets. In addition, the results suggest that internal markets appear to undermine one advantage of a vertical integration strategy the creation of unique assets, as organizational resource that can generate rents. These results, which are based on data gathered from the internal and external markets of one Fortune 100 company, are exploratory and further work is needed to generalize the findings.

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    File URL: http://dx.doi.org/10.1287/mnsc.41.12.1845
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 41 (1995)
    Issue (Month): 12 (December)
    Pages: 1845-1859

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    Handle: RePEc:inm:ormnsc:v:41:y:1995:i:12:p:1845-1859

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    Related research

    Keywords: comparative institutional performance; transaction costs; multidivisional corporation; hybrid organizations; influence activities;

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    Cited by:
    1. Milorad M. Novicevic & M. Ronald Buckley & Michael G. Harvey, 2000. "The Changing Role of Managers within the Supply Chain Networks: Theory and Practical Implications," American Journal of Business, Emerald Group Publishing, vol. 15(2), pages 33-42.
    2. Lazzarini, Sergio G. & Mesquita, Luiz F. & Claro, Danny P., 2007. "Buyer-Supplier and Supplier-Supplier Alliances: Do They Reinforce or Undermine One Another?," Insper Working Papers wpe_84, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    3. Anderson, Shannon W. & Glenn, David & Sedatole, Karen L., 2000. "Sourcing parts of complex products: evidence on transactions costs, high-powered incentives and ex-post opportunism," Accounting, Organizations and Society, Elsevier, vol. 25(8), pages 723-749, November.
    4. Argyres, Nicholas S. & Liebeskind, Julia Porter, 2002. "Governance inseparability and the evolution of US biotechnology industry," Journal of Economic Behavior & Organization, Elsevier, vol. 47(2), pages 197-219, February.
    5. Gamal Atallah, 2002. "Production Technology, Information Technology, and Vertical Integration Under Asymmetric Information," Working Papers 0203EClassification-JEL: , University of Ottawa, Department of Economics.
    6. Mahoney, Joseph T. & McNally, Regina C., 2004. "Explaining and Predicting the Choice of Organizational Form: Integrating Performance Ambiguity and Asset Specificity Effects," Working Papers 04-0109, University of Illinois at Urbana-Champaign, College of Business.

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