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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)

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.

Suggested Citation

  • Laura Poppo, 1995. "Influence Activities and Strategic Coordination: Two Distinctions of Internal and External Markets," Management Science, INFORMS, vol. 41(12), pages 1845-1859, December.
    • Handle: RePEc:inm:ormnsc:v:41:y:1995:i:12:p:1845-1859
    DOI: 10.1287/mnsc.41.12.1845
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    Citations

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    Cited by:

    1. Asmund Rygh & Gabriel R. G. Benito, 2018. "Capital Structure of Foreign Direct Investments: A Transaction Cost Analysis," Management International Review, Springer, vol. 58(3), pages 389-411, June.
    2. Gamal Atallah, 2002. "Production Technology, Information Technology, and Vertical Integration Under Asymmetric Information," Working Papers 0203EClassification-JEL: , University of Ottawa, Department of Economics.
    3. Laura Poppo, 2003. "The Visible Hands of Hierarchy within the M‐Form: An Empirical Test of Corporate Parenting of Internal Product Exchanges," Journal of Management Studies, Wiley Blackwell, vol. 40(2), pages 403-430, March.
    4. Asmund Rygh & Gabriel R. G. Benito, 2023. "Subsidiary Capital Structure in Multinational Enterprises: A New Internalization Theory Perspective," Management International Review, Springer, vol. 63(6), pages 979-1019, December.
    5. 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.
    6. Dongil Daniel Keum, 2023. "Managerial political power and the reallocation of resources in the internal capital market," Strategic Management Journal, Wiley Blackwell, vol. 44(2), pages 369-414, February.
    7. Wenpin Tsai, 2002. "Social Structure of “Coopetition” Within a Multiunit Organization: Coordination, Competition, and Intraorganizational Knowledge Sharing," Organization Science, INFORMS, vol. 13(2), pages 179-190, April.
    8. Jay B. Barney & Asli M. Arikan & Ilgaz Arikan, 2023. "Does IB need a strategic theory of the firm?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(6), pages 1105-1114, August.
    9. Ilgaz Arikan & Asli M. Arikan & Oded Shenkar, 2022. "Revisiting emerging market multinational enterprise views: The Goldilocks story restated," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(4), pages 781-802, June.
    10. 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.
    11. 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.
    12. Joanna Rzempala & Kinga Janecka & Mateusz Juzwik, 2023. "The Importance of Developing Soft Skills in Project Management - Students' Perspective, Based on the Example of IPMA-Student Certification," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 628-640.
    13. 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.
    14. 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.
    15. Nicolai J. Foss, 2003. "Selective Intervention and Internal Hybrids: Interpreting and Learning from the Rise and Decline of the Oticon Spaghetti Organization," Organization Science, INFORMS, vol. 14(3), pages 331-349, June.

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