Information, Power, and Control of the Distribution Channel: Preliminary Results of a Field Study in the Consumer Packaged Goods Industry

Information technology can reduce coordination costs, leading to increased coordination and cooperation among buyers and suppliers in an industry. However, increased cooperation may be limited by other factors, particularly power dynamics and the structure of the bargaining game. This paper investigates the role of power in influencing the effects of IT on interactions between manufacturers and retailers in the consumer packaged goods industry. IT can change the balance of power by changing the value of key resources, including information, This will affect the division of benefits from improved coordination through IT, thus shaping the level and form of coordination. 1.0 INTRODUCTION that risk) of being opportunistically exploited by the other party to the transaction, in limiting coordination through IT. Recently, considerable progress has been made in applying economic theory to understanding the complex interactions This paper explores the role of power in influencing the among IT, organizational structure, and industry structure. effects of IT on inter-organizational interactions. Power At the heart of this progress is the proposition that innovadetermines how any surplus created from improved coorditions in IT fundamentally influence the economics of nation will be allocated among participants.' Firms will coordination. As Malone and Rockart (1992) succinctly seek to use their power to shape actively the form of summarize, if the cost of coordination decreases, more coordination, to maximize their share of the economic coordination will be consumed, often substituting for other surplus created through increased coordination. The mechresources. Moreover, coordination-intensive structures will anisms that evolve for coordination where power dynamics tend to evolve. This has led researchers to focus on interare present may not be the most efficient when viewed actions among economic activities, either within a firm or from the perspective of the industry as a whole. among firms. Several academic theorists (e.g., Malone and Crowston 1991; Bakos 1991) are actively pursuing an The concept of power used here is Pfeffer and Salancik' s understanding of coordination costs. (1978) resource dependency theory. The exercise of power occurs around bargaining for resources. Each player At the same time, understanding coordination costs alone is requires access to resources to accomplish his objectives. not sufficient for explaining and predicting the effects of Where these resources are controlled by another party, and information technology on economic organization, particuwhere this party may desire different usage of these relarly interorganizational interactions. Increasing coordinasources, bargaining must occur. The bargaining power of tion between firms through IT can reduce costs or increase each party is determined by the relative value of the rerevenues, creating an economic surplus. Yet it frequently source dependencies. appears that the optimum level of coordination or cooperation that is possible, based solely on coordination costs and Power dynamics can lead to inefficiencies in coordination. the expected surplus from coordination, is not approached Conflicts in basic objectives can interact with environmenin practice. Building on Williamson's (1975) tmnsactions tal factors to lead to bargaining processes that are inefficost economics, rr theorists such as Clemons and Row cient for the participants when viewed as a combined (1992) and Gurbaxani and Whang (1991) have explored the system. These processes evolve and arE held in place by role of transaction risk, the risk (or the costs of reducing power. Efforts to improve coordination, through IT or