1994
A Typology of Interorganizational Relationships
DVLJQL¿FDQWH[WHQWWKHUHE\DOORZLQJWKHXQFRX-
pling of IS integration and relational integration.
It is now possible for organizations to have IS
integration without developing strong non-IS
linkages. We propose a framework to account
for this recent shift and present a typology for
classifying interorganizational systems based on
the segregation of IS and relational integration.
We also verify the typology in case studies of
IRXUODUJH¿UPV
INTRODUCTION
Developments in information technology (IT)
KDYHPDGHDVLJQL¿FDQWLPSDFWRQWKHZD\FRP-
panies compete and cooperate with each other. As
the costs of IT, especially those pertaining to hard-
ware purchases, continue to decline, companies
are discovering newer ways of cooperating with
their supply chain members and other strategic
partners in order to gain and to retain competi-
tive advantage in the marketplace. This increased
use of IT also seems to be making an impact on
the nature of interorganizational relationships
(Clemons & Row, 1992; Giaglis, Klein, & O’Keefe,
2002). Although the role of IT in interorganiza-
tional cooperation has evolved tremendously in
the last decade, the use of IT for such purposes
has been around for several decades. For example,
companies have long used dedicated EDI systems
IRUHI¿FLHQWLQYHQWRU\PDQDJHPHQWDQGPDWHULDOV

RUGHULQJ$VLJQL¿FDQWGHYHORSPHQWLQWKHXVHRI
interorganizational IT in the last decade has been
the increasingly widespread usage of Internet-
based IT applications for better coordination and
collaboration among organizations.
Compared to a traditional EDI system, the
Internet provides a lower cost communications
medium. The lower costs accrue from a shared
global network and standardized information ex-
change protocols and platforms. This lowering of
cost has created new opportunities for companies
to cooperate with each other. Given that Internet-
based information systems (IS) require a minimal
dedicated infrastructure, a unique opportunity for
companies is created whereby they can integrate
their IS without necessarily having any close
relationships with each other (Angeles, 2000;
Chan & Swatman, 2000). For example, Johnston
and Mak (2000) report about a retail company in
Australia that uses two types of B2B e-commerce
models. In one model, the company uses IS to
transact with a small number of big suppliers. In
this case, the retail company integrates not only
its IS with its supply chain members by investing
VLJQL¿FDQWO\LQGHYHORSLQJWKHLQIUDVWUXFWXUHEXW
also invests in building relationships with them
through long-term contracts. In the other model,
however, the retailer uses IS to transact with a
large number of small-sized suppliers. In this
case, the company transacts with these small

suppliers using the low-cost, Internet-based EDI.
Also, there is an apparent absence of any other
form of relationship development between the
company and its small suppliers.
Thus, it appears that the lower cost of IT now
is allowing companies to integrate their infor-
mation systems without having to develop any
close relationships in the non-IS domain. This
is a major shift from just a decade ago, when
relational integration went hand-in-hand with
IS integration. The two could not be separated
because of the capital intensive nature of the
dedicated IS cooperation, where relational inte-
gration, like strategic alliances, was required to
integrate interorganizational systems like EDI
systems (Clemons & Row, 1992). However, as
illustrated by the previous Australian retailer
e x a m p l e , it i s n o w b e c o m i n g i n c r e a s i n g l y p o s s i b l e
for companies to separate the two and adopt one
without adopting the other.
It is this dichotomization of interorganizational
integration that forms the basis of our article.
In this article, we examine the phenomenon of
interorganizational cooperation and integration.
We propose that reduced-cost, Internet-based IS
systems add a new layer to the market-hierarchy
1995
A Typology of Interorganizational Relationships
dichotomy. Prior studies that traditionally have
applied transaction cost theory to this dichotomy

have assumed that relational and IS integration
go hand in hand (Clemons & Row, 1992; Kambil
et al., 1999; Malone et al., 1987). We propose
that this does not always have to be the case and
propose a new framework to understand this
phenomenon. The rest of the article is organized
DVIROORZV:H¿UVWSUHVHQWDEULHIRYHUYLHZRI
the distinction made by previous researchers
between markets and hierarchies and how this
distinction has evolved in the electronic domain.
Next, we argue that the Internet has allowed for the
emergence of a variety of hierarchies, primarily
EHFDXVH¿UPVQRZFDQIRUPFORVH,6FROODERUD-
tions without having to integrate into non-IS
domains. Following this, we present an explana-
tion of relational integration and IS integration.
Using this distinction, we develop a typology of
hierarchies. Next, we discuss four case studies
to examine the existence of these hierarchies.
Finally, we conclude with a discussion of the
hierarchies and the purchase situations in which
they frequently manifest.
EXCHANGE MECHANISMS AND
INTERORGANIZATIONAL SYSTEMS
7KHÀRZRIPDWHULDOVDQGVHUYLFHVEHWZHHQDG-
jacent members of a supply chain can be coordi-
nated through one of two mechanisms: markets
or hierarchies (Williamson, 1985). Markets co-
RUGLQDWHÀRZWKURXJKWKHEDVLFHFRQRPLFIRUFHV
of demand and supply. For any given product or

service, there are a number of suppliers who can
IXO¿OOWKHGHPDQG7KHEX\HUSLFNVDQGFKRRVHV
from among these suppliers based on several
factors, including price, quantity, and delivery
terms. Products and services sourced through
PDUNHWVDUHOLNHO\WREHQH¿WIURPHFRQRPLHVRI
scale and would, therefore, be lower priced. Hi-
HUDUFKLHVRQWKHRWKHUKDQGFRRUGLQDWHÀRZE\
linking various levels of the supply chain either
through corporate ownership (vertical integration)
or through implicit or explicit contracts. Thus,
for example, instead of choosing from a number
of available suppliers, a company may decide to
use exclusively one supplier who has been pre-
TXDOL¿HGIRUTXDOLW\DQGVHUYLFHFRPPLWPHQWV
Sourcing through hierarchies involves fewer
coordination problems.
To accommodate the emergence of electronic
LQWHUFRQQHFWLRQVDQGWKHLULQÀXHQFHRQLQWHU-
organizational structures, Malone et al. (1987)
discuss the evolution of electronic markets and
electronic hierarchies. They extend the concepts
of traditional markets and hierarchies to electronic
markets and hierarchies, where transactions and
information exchange are facilitated by electronic
means of communications. They argue that elec-
tronic communications will reduce the cost of co-
ordination, thereby favoring market mechanisms
over hierarchical structures. Given that this body
of literature was developed primarily in the pre-

Internet era, it is not surprising that the examples
of electronic communications that are cited
often showed heavy investments by one or more
companies in order to develop the infrastructure
to facilitate the information exchange. In an oft-
cited example, it was American Hospital Supply
Company (now Baxter) that was responsible for
establishing the network for the ASAP system
linking several thousand hospitals. Similarly, it
was United Airlines that made investments to
establish a reservation system allowing travel
DJHQWV WR ¿QG DQG ERRN ÀLJKWV 3HWUH 
Thus, even when hierarchies became electronic
hierarchies (in the pre-Internet era), two key
features of interorganizational integration did
not change substantively: (a) the establishment
of such hierarchies continued to be expensive,
ULVN\DQGDVVHWVSHFL¿FDQGEEHFDXVHRIWKH
expenses involved, there was a close cooperative
relationship among the participants that went
beyond mere IS integration. In other words, IS
integration still went hand in hand with relational
integration (Bakos & Brynjolfsson, 1993).
1996
A Typology of Interorganizational Relationships
THE IMPACT OF
THE INTERNET ON
INTERORGANIZATIONAL
RELATIONSHIPS
With the advent of the Internet, the infrastruc-

tural investments needed for IS cooperation have
declined considerably. The low cost and interac-
tive communication capability of the Internet
have made IS integration among organizations
a relatively less expensive proposition. This re-
duced cost has increased the accessibility of IS
integration, thereby allowing many more small-
sized trading partners to participate in integration
initiatives such as the Internet-based EDI (Chan
& Swatman, 2000).
The most interesting feature of this develop-
me nt i s t hat IS i nt eg r at ion i s now p os sible w it hout
having to commit to interorganizational relational
integration. Some initial evidence of this new
integration type, with high IS integration and low
relational integration, already has been reported
in recent studies (Angeles, 2000; Chan & Swat-
man, 2000; Johnston & Mak, 2000). As argued
E\%HQVDRX³LQIRUPDWLRQWHFKQRORJ\
may provide a customer with the coordination
and cooperation capabilities traditionally associ-
ated with vertical integration without the cost of
ownership” (p. 113). Clemons, Reddi, and Row
(1993) described this emerging phenomenon in
terms of coordination costs and transaction risk.
7KH\DUJXHWKDWPDUNHWVFDQSURYLGHWKHEHQH¿WV
of specialization and economies of scale in the
form of lower prices or better value. However,
market exchanges also generally entail higher
WUDQVDFWLRQFRVWVEHFDXVHWKHEX\HU¿UPQRZQRW

only has to locate the seller in a market but also
has to monitor its performance and coordinate
the exchange. In order to lower these costs and
ULVNVD¿UPFDQHQWHULQWRFRQWUDFWVRURWKHU
forms of corporate relationships. Such exclusive
or explicit coordination also entails higher risks
(opportunistic behavior by a party). Traditionally,
¿UPVKDYHFRXQWHUHGVXFKULVNVWKURXJKYHUWLFDO
integration. Clemons, Reddi, and Row (1993)
argue that information technology can lower the
cost of coordination without increasing the risk
of coordination. Thus, they argue, we shall see
more and more outsourcing and increased coor-
dination simultaneously (a move-to-the-middle
K\SRWKHVLV,QRWKHUZRUGV¿UPVZLOOQRWKDYH
to integrate vertically to enjoy the fruits of IS
cooperation. The introduction of Internet-enabled
technologies coupled with the acceptance and
proliferation of open standards has increased the
number of options available to the members of a
value chain to link up electronically, irrespective
of whether they have a tight strategic relation-
ship or not. Furthermore, the accessibility and
ease-of-use of extranet connections via virtual
private networks (VPNs) make IS partnerships
so effortless and low-risk that they can go with
varying degrees of relational commitment.
Relational Integration
and IS Integration
We propose that interorganizational integration,

in the context of lower-cost IT, can be segregated
into two components: relational integration and
IS integration. Relational integration may be
understood as an alliance among two or more
organizations that promotes collaboration and
pooling of resources to achieve common economic
goals. Generally speaking, such integration has a
long-term orientation to it, and the participating
¿UPVZRUNRQDUHODWLRQVKLSEXLOWRQWUXVWFRPPLW-
ment, and mutual adaptation. They share strategic
resources in the co-creation of value (Lavie, 2002).
An example would be the European Industrial
Marketing and Purchasing (IMP) group, where a
large number of organizations has demonstrated
stable, long-term, cooperative relationships. A
dyadic example of relational integration would be
an exclusive distribution arrangement between a
manufacturer and a distributor, where both parties
make long-term commitments to work together
strategically in order to create value. Similarly,
1997
A Typology of Interorganizational Relationships
ZKHQDPDQXIDFWXULQJ¿UPVKDUHVSURSULHWDU\
information with a vendor who would use that
information to make parts and components for
WKH¿UPRQHFDQVD\WKDWWKHWZR¿UPVDUHUHOD-
WLRQDOO\LQWHJUDWHG$WWLPHVWZR¿UPVPD\FRP-
pete in the same marketplace but still cooperate
with each other in order to solve some common
problems. For example, Ford and GM compete

aggressively for market share; they may agree
to cooperate for joint R&D in order to develop
superior fuel/battery technology. Such coopera-
tion and integration also has been referred to as
co-opetition (Brandenburger & Nalebuff, 1996),
as participants may act competitively and coop-
eratively simultaneously. In the more traditional
case of a manufacturer and a supplier, indicators
of strong relational integration include incidents of
boundary-spanning tasks and activities; exchange
of personnel for collaborative decision making;
and formal, long-standing contracts designed
around cooperative functions.
IS integration, on the other hand, is the
creation of an interorganizational system that
facilitates electronic exchanges and interactions
among participating organizations. As noted by
Venkatraman and Zaheer (2001), such integration
LQYROYHVLQWHJUDWLQJWKH³EXVLQHVVSURFHVVHVRI
two or more independent organizations through
the exploitation of the capabilities of computers
and communication technologies” (pp. 378-379).
Organizations generally use such IS systems
for coordination, facilitation, and/or monitoring
purposes. In order for such a system to work
HIIHFWLYHO\DQGHI¿FLHQWO\SDUWLFLSDQWVQHHGQRW
only access to each other’s information systems
but also interface integration (Truman, 2000) for
LQWHUDFWLYLW\DQGVHDPOHVVÀRZRILQIRUPDWLRQ
While the management of strategic integration is

primarily the responsibility of general manage-
ment, managing IS integration is generally the
responsibility of IT and IS managers. It should
be noted here that strategic integration may have
IS integration as one of its components. In other
words, it is possible to come across situations
ZKHUH D ¿UP KDV ,6 LQWHJUDWLRQ JRDOV WKDW DUH
subservient to the organization’s overall strategic
vision of integration and cooperation.
Clemons, Reddi, and Row (1993) provide ex-
amples of organizations that exhibit IS integration.
Philadelphia’s MAC ATM network is an example
of IS cooperation among competing banks in order
to provide a seamless ATM customer experi-
ence. Philadelphia’s National Bank/Core States
Financial owns the MAC network. Conforming
to the MAC system hardware and interface re-
quirements, all participating banks provide the
network with access to their customers’ account
information. Thus, even though the banks compete
with each other at the corporate level, there is a
certain level of cooperation and integration at the
IS level in order to enhance value creation.
A n o t h e r e x a m p l e p r o v i d e d b y C l e m o n s , R e d d i ,
and Row (1993) is that of Rosenbluth Travel
Agency. Rosenbluth has created an alliance of
independent but cooperating travel agents (Rosen-
bluth International Alliance, RIA). Rosenbluth
provides its alliance members with the software
necessary for IS collaboration. Using this soft-

ware, the agents can access travel information
on any customer originating anywhere and can
provide a seamless, high-quality service to cus-
tomers across 40 countries. An interesting aspect
of this IS integration is that the agents continue to
be independent operators who are neither owned
by Rosenbluth nor franchised by it.
In Table 1, we present a brief summary of
concepts and illustrative references that highlight
key forms of interorganizational models proposed
in the literature.
A TYPOLOGY OF
INTERORGANIZATIONAL SYSTEMS
Malone, Yates, and Benjamin (1987) examined the
L P SD F WRI , 7R QL Q WH U ¿ U PL QW H U D FW L R Q 7 K H\ D UJ X H G
that with an increasing adoption of technology,
we will see an emergence of electronic markets
and electronic hierarchies. In order to leverage the
1998
A Typology of Interorganizational Relationships
ORZVHDUFKFRVWIHDWXUHRI,7¿UPVLQFUHDVLQJO\
will seek new vendors, thereby leading to the
emergence of electronic markets. This proposition
generally is referred to as the move-to-the-market
hypothesis. On the other hand, Malone et al. (1987)
also encountered a competing phenomenon, which
they termed electronic hierarchiesZKHUH¿UPV
used IT to develop tightly coupled partnerships
ZLWKDVHOHFWIHZ¿UPV*HQHUDOO\VXFKSDUWQHU-
ships incorporated cooperation in both IS and

non-IS areas. Lately, researchers have argued
that network structures can be seen as falling on
a continuum with markets and with hierarchies
being the two anchor points of that continuum.
Holland and Lockett (1997) call the network struc-
tures that fall somewhere in the middle of such
a continuum mixed mode networks. Consistent
with Holland and Locket (1997), we would like
to expand on the dichotomy of electronic markets
and electronic hierarchies by proposing that hi-
erarchies can take several different forms in the
Internet-enabled world. We use the distinction
between relational and IS integration to create a
2x2 matrix of IOS networks. In the base condition
of low relational integration coupled with low IS
integration, we have the classic electronic market
scenario (quadrant IV in Figure 1). In the remain-
ing three scenarios, where either the relational
integration or the IS integration is high, we get
a hierarchy. Our proposed hierarchy schema is
summarized in Figure 1.
Brick-n-Mortar Hierarchies
Before the development of EDI systems, most
LQWHU¿UPFRRSHUDWLRQIHOOLQWRWKHFDWHJRU\RI
brick-n-mortar hierarchies. There was relational
cooperation for strategic and competitive ad-
Table 1. Relational and IS integration — Some illustrative examples
Types of Integration Key Concepts Illustrative References Systems Studied
Hess and Kemerer (1994) Loan Origination
System

Electronic Markets
Choudhury et al. (1998) Inventory Locator
Service in the
aircraft parts
industry
Relational Integration
Electronic Markets
and Electronic
Hierarchies
Malone et al. (1987) Airline reservation
system, JIT,
CAD/CAM
Electronic Partnerships Hart and Saunders (1998) EDI
Electronic Exchange
Integration
Truman (2000) EDI
Integrated Information
Links
Srinivasan et al. (1994) EDI to JIT
Internal and External
Integration
Iacovou et al. (1995) EDI
IS Integration
I/O Business Process
Redesign
Clark and Stoddard
(1996)
EDI
Clemons and Row (1992) EDI
Clemons and Row (1993) Checkout Scanner

Systems
Bakos and Brynjolfsson
(1993)
N/A
Move to the Middle
Clemons et al. (1993) EDI
Holland and Lockett
(1997)
Electronic
Ordering System
Lee et al.(1997) SCM
Relational and IS
Integration
Mixed Mode
Kambil et al. (1999) EDI
1999
A Typology of Interorganizational Relationships
vantage reasons with little or no IS integration.
However, even in today’s world, such hierarchies
are anything but extinct. Thus, a franchiser may
have a strong contractual relationship with its
franchisees, or a manufacturer may have an
exclusive distribution arrangement with an in-
termediary; in either case, there may be no IS
LQWHJUDWLRQ$VLJQL¿FDQWSRUWLRQRIUHODWLRQVKLS
marketing literature in the business-to-business
context refers to such collaborations.
Click-n-Mortar Hierarchies
Click-n-mortar hierarchies are fully integrated
hierarchies that exhibit a high level of relational

integration coupled with a high level of IS inte-
gration. In the pre-Internet era, IS integration
a l m o s t i n v a r i a b l y r e q u i r e d s o m e l e v e l o f r e l a t i o n a l
integration, as well. Researchers (Clemons et al.,
1993) have presented a number of reasons that
can help us to understand why the two were so
tightly coupled in the past. First, in the absence
of any universal connectivity medium such as the
Internet, dedicated IOSs were expensive. Second,
as some of this investment was non-contractible
DQGWUDQVDFWLRQVSHFL¿FWKHFRVWRIZLWKGUDZDO
or switching was very high. Third, these high
switching costs had the potential of shifting the
bargaining power of the players involved. For
example, if a supplier of a complex product made
a heavy investment in an IS system in order to
coordinate information exchange with its buyer,
this created an opportunity for the buyer to engage
in opportunistic behavior. Thus, it was imperative
to develop relational links before incurring the
expenditure of IS integration in order to ensure
long-term viability of such an integration. Both
parties had a vested interest to go beyond coop-
eration in the IS domain only in order to protect
their investments in IS integration. Thus, either
companies did not cooperate at all (and acted like
independent parties in a market, quadrant IV of
o u r m o d e l ) o r c o o p e r a t e d i n b o t h I S a n d n o n - I S d o -
mains (and acted like participants in hierarchies).
Figure 1. The proposed hierarchical schema for interorganizational relationships

IV
IS Integration
Relational
Integration
low high
low
high
I II
III
Plug-n-Play
Hierarchies
Brick-n-Mortar
Hierarchies
Click-n-Mortar
Hierarchies
2000
A Typology of Interorganizational Relationships
Note, however, that the extent of integration could
and did vary. The click-n-mortar hierarchies dem-
onstrate the electronic interdependence mentioned
by Bensaou and Venkatraman (1995). There is a
cooperative climate among the parties, and there
DUH³ULFKDQGLPSHUVRQDOVWUXFWXUDOPHFKDQLVPV´
to promote such cooperation (p. 1483). At the same
time, the two parties exchange information in a
form that can be read directly by the computer
of the other party, and this information exchange
occurs across a wide variety of functions such as
purchasing, quality control, product development,
and accounting.

Plug-n-Play Hierarchies
In a traditional EDI system, one or both the parties
KDYHWRPDNHUHODWLRQVKLSVSHFL¿FLQYHVWPHQWV
in the system. Mukhopadhyay and Kekre (2002)
have even differentiated between supplier-initi-
ated and buyer-initiated EDI systems and have
H[DPLQHGWKHUHODWLYHVWUDWHJLFEHQH¿WVRIWKHWZR
approaches. However, the Internet has brought
down some of the costs of IS integration dramati-
cally. The need for investments in non-contract-
LEOH,6DVVHWVKDVEHHQUHGXFHGVLJQL¿FDQWO\E\
the Internet (Johnston & Mak, 2000). Also, the
emergence of standardized protocols and plat-
forms has reduced markedly the switching and
learning costs for organizations (Chan & Swat-
man, 2000). Therefore, given the emergence of
standardized protocols and the ready availability
of IS exchange through the Internet, it is now
possible to decouple IS integration from relational
integration. Organizations now can have strong
IS interdependence without having to support
or supplement it with non-IS cooperation. Thus,
a new type of hierarchical form, which we call
plug-n-play hierarchies, has come into being.
3OXJQSOD\ KLHUDUFKLHV GLVSOD\ VLJQL¿FDQW ,6
integration without any comparable relational
integration. The open architecture of the Internet
(as opposed to the proprietary architecture of the
early EDI systems) allows for compatibility and
HDV\LQWHURSHUDELOLW\RI,6V\VWHPVDFURVV¿UPV

7KHLQYHVWPHQWVLQ,6DUHOHVVDVVHWVSHFL¿FZKLFK
lessens the need for relational integration. Thus,
such hierarchies are of the plug-n-play variety,
where there is little need to establish an elaborate
UHODWLRQDOQHWZRUN¿UVWLQRUGHUWRPDNHWKH,6
integration work.
Electronic Markets
The fourth quadrant is the base condition of our
model, a non-hierarchy, where both relational inte-
gration and IS integration are low. In the absence
of any integration, the scenario becomes one of
an electronic market (as described by Malone
et al. [1987]). There are several examples in the
literature where companies simply have put the
low-cost search capabilities of the Internet to good
use for outsourcing and purchasing without at-
tempting to develop any kind of integration with
their suppliers. For example, several companies
have used reverse auction electronic markets to
purchase raw materials and components. There
is no long-term relational commitment in such
transactions, nor is there any need for IS integra-
tion with the vendors.
EXPLORATORY EVIDENCE FOR
THE PROPOSED TYPOLOGY
Although there is evidence in the extant literature
to support the existence of some of the hierarchies
proposed in our model, we conducted an explor-
atory empirical study to examine the typology
VWUXFWXUH IXUWKHU 6SHFL¿FDOO\ WKH VWXG\ ZDV

designed to examine, in an exploratory sense,
the following: (a) if the observed interorganiza-
WLRQDOV\VWHPVFDQEHFODVVL¿HGL QWRWKHSURSRVHG
schema; (b) if a single organization can exhibit
PRUHWKDQRQHW\SHRIKLHUDUFK\LQLWVLQWHU¿UP
cooperation structure; and (c) if certain hierar-
chical arrangements are observed more often
for certain types of business-to-business (B2B)
2001
A Typology of Interorganizational Relationships
purchases. Keeping with a strong tradition and
history of case study method in IS literature, we
chose to study four large corporations in order
to gain insights into the proposed typology. The
approach here follows the one reported by Mas-
setti and Zmut (1996).
The four companies included in this analysis
were Samsung Electronics, Hyundai-Kia Motors,
SK Telecom, and LG Mart. All four are large
Korean corporations that have well-developed
internal IS systems. The industries represented
are electronics, automobile, telecommunications,
and retail, respectively. Our purposive sample
has many of the features commonly expected
among samples for exploratory studies like ours:
homogeneous representativeness, heterogeneity
among cases, theoretical importance of cases,
and comparability.
Interviews were held with senior managers
using semi-structured interview guides. For each

organization, two researchers participated in
the interview in order to ensure a shared under-
standing that mitigates the effects of subjective
interpretation of the interview data. To capture
the transaction details from both purchase plan-
ning and purchase implementation perspectives,
we included managers from both domains. To
the extent possible, managers whose purchase
responsibilities cut across several or all product
categories were selected.
A set of observation criteria and coding schema
was developed to help researchers to record data
in a consistent manner. Observations of the two
researchers (for each case) were compared and
evaluated for inconsistencies. Any observed
inconsistency between researchers was resolved
HLWKHUE\DWKLUGUHVHDUFKHURUWKURXJKYHUL¿FDWLRQ
from the subjects. To improve internal validity,
the interview guide was designed using items and
constructs from existing literature. For example,
to assess relational integration, questions were
asked regarding the degree of collaboration that
explains how much companies cooperate with
each other, the nature of contract (buying in the
market, ongoing relationship, partnership, strate-
gic alliance, backward integration), and the terms
of contract (Anderson & Narus, 1990; Hibbard et
al., 2001; Stock et al., 2000). In order to measure
IS integration, we used internal integration that
is measured by the degree of connection between

LQWHUQDO,6DQGLQWHU¿UP,6DQGH[WHUQDOLQWHJUD-
tion that is measured by the degree of connection
to a partner’s IS (Iacovou et al., 1995; Premkumar
& Ramamurthy, 1995; Truman, 2000).
Samsung Electronics
Samsung Electronics has 24 production subsid-
iaries, 35 sales subsidiaries, and 20 branch of-
¿FHVDURXQGWKHZRUOGLQFOXGLQJWKRVHLQ1RUWK
America, Europe, Southeast Asia, Central Asia,
China, the CIS, and Latin America. Total sales in
2004 were US$55.2 billion. Samsung Electron-
LFV¶RUJDQL]DWLRQDOVWUXFWXUHLVFRPSULVHGRI¿YH
business divisions: (1) Digital Media Network
Division in charge of computers and AV equip-
ment and related products; (2) Digital Appliance
Network Division in charge of home electronics;
(3) Digital Solution Network Division in charge
of semiconductor and related products; (4) Tele-
communication Network Division in charge of
the cellular phone business; and (5) Business
and Administration Support Division, which is
basically a staff organization.
Purchase planning for Samsung Electronics is
taken care of by the Procurement Strategy Team
in the Business and Administration Support
Division. The actual purchasing is done in close
collaboration with the procurement divisions of
respective plants. All purchases at Samsung are
FODVVL¿HG LQ RQH RI WKH WKUHH PDLQ FDWHJRULHV
direct materials, indirect materials, and MROs

(maintenance, repair, and operating supplies). The
direct materials are divided into common parts like
memory that are generic in nature (in the sense that
a vendor can sell those parts to buyers other than
Samsung without having to alter them in any way)
DQGVSHFL¿HGSDUWVOLNHYLGHRGHFNVWKDWDUHPDGH
2002
A Typology of Interorganizational Relationships
VSHFL¿FDOO\IRU6DPVXQJ(OHFWURQLFV6SHFL¿HG
parts are divided further into strategic materials
and non-strategic materials. Strategic materials
are key components that are central to a product’s
performance and competitive edge. For example,
Qualcomm’s IC chip and LCD used in Samsung’s
cellular phones are considered strategic materials.
These parts have high strategic importance, as
their performance is central to the performance
of the main product, and these parts also account
IRUDVLJQL¿FDQWSURSRUWLRQRIWKHPDQXIDFWXULQJ
cost of the cell phone. Any performance improve-
ments or cost savings achieved in these parts can
make a big difference in Samsung’s bottom line.
Non-strategic materials, on the other hand, are
RWKHUVSHFL¿HGPDWHULDOVOLNHWKHH[WHUQDOFDVH
of a handset) that are not central to a product’s
core function. Indirect materials are purchases
that do not get integrated into the manufactured
product but, instead, help in the product process.
An example of indirect materials at Samsung
would be infrastructural purchases, such as

facilities. Finally, MRO materials are mainly of-
¿FHVXSSOLHV7RVXPPDUL]HRQHFDQUHFODVVLI\
Samsung’s purchases as procurement of strategic
materials, non-strategic materials (all common
SDUWVDQGVRPHVSHFL¿HGSDUWVLQGLUHFWPDWHUL-
als, and MROs.
We collected data on relational integration
and IS integration from three Samsung sites: the
3URFXUHPHQW6WUDWHJ\7HDPLQWKH6HRXORI¿FH
the Procurement Team in the Kumi Plant, and the
Procurement Team in the Kiheung Complex. The
data collected from these sites revealed the fol-
lowing. Samsung has a well-developed IS network
for both internal and external constituents. The
internal IS system is based on SAP’s R/3 system.
For the interorganizational systems, Samsung
Electronics depends on three different IS systems:
a custom-built Web Portal, a B2Bi system called
GLONETS (Global Logistics Network System),
and iMarketKorea’s e-Marketplace. Samsung
u s e s t h e We b Po r t a l s y s t e m m a i n l y f o r p u r c h a s i n g
non-strategic materials. The Web Portal system
basically allows Samsung’s partners to complete
a transaction online by visiting Samsung’s Web
site, and some level of IS compatibility is needed
between Samsung and its partners. Samsung uses
its B2Bi system to purchase strategic materials.
GLONETS (the B2Bi system) provides Samsung
with direct system-to-system connectivity with its
trading partners. Thus, there is close IS integration

between Samsung and vendors who supply strate-
gic materials to the company. For MRO purchases,
Samsung Electronics uses iMarketKorea’s e-Mar-
ketplace, which is essentially an electronic market.
Fi n a l l y, g i v e n t h e i n f re q u e n t p u r c h a s e o f m a t e r i a l s
FODVVL¿HGDVIDFLOLWLHV6DPVXQJGRHVQRWXVHDQ\
sophisticated information system to transact with
its facilities vendors. The only IS usage in such
transactions is basic e-mail exchanges. Thus, our
data indicated a higher level of IS integration for
strategic and non-strategic materials compared to
indirect materials and MROs.
In order to assess relational integration, we
examined three aspects of such an integration:
collaboration level, the nature of the contract, and
the terms of the contract. Our data indicate that
Samsung had the closest relational integration
with its vendors for strategic materials. As noted
E\RQHRIRXULQWHUYLHZHHV³6WUDWHJLFPDWHULDOV
such as Qualcomm’s IC chip are very important
to the production of our cell phones. Given the
lead time needed to make the chip, we use GLO-
NETS to work with our partners with whom we
have strong collaborative relationships.” Also, the
company had high relational integration with its
suppliers for important materials like facilities.
In the case of non-strategic materials, however,
the company was willing to transact with any
supplier that could manufacture the materials. In
the case of MRO purchases, there was no direct

relationship between Samsung and its suppliers,
as most MROs were procured through the e-mar-
ketplace. To summarize, strategic materials and
indirect materials displayed a higher degree of
relational integration than non-strategic materi-
als and MROs.
2003
A Typology of Interorganizational Relationships
The results show that Samsung operates in
the electronic markets mode when it is purchas-
ing MROs (quadrant IV). Both IS and relational
integration are low when MROs are bought in the
e-marketplace. Non-strategic materials display
moderately high IS integration but low relational
integration (quadrant III). Samsung’s Web Portal
is a good example of a plug-n-play hierarchy, as
WKH SDUWLFLSDQWV QHHG QRW KDYH DQ\ VLJQL¿FDQW
UHODWLRQDOLQWHJUDWLRQDQG\HWFDQEHQH¿WIURPWKH
easy IS integration that the system offers. This is
in sharp contrast to the way Samsung procures
strategic materials. With vendors of strategic
materials, Samsung not only has a high level
of IS integration but also has strong relational
integration with the chosen vendors (quadrant
II). Thus, Samsung’s B2Bi system is geared for
those who fall within Samsung’s click-n-mortar
hierarchy.
Finally, Samsung is using only basic informa-
tion systems like e-mail for procuring indirect
materials from vendors with whom it has strong

relational integration (quadrant I). This is an ex-
ample of a traditional brick-n-mortar hierarchy,
where interorganizational bonds do not spill into
the IS domain. Samsung’s interorganizational
hierarchies are summarized in Figure 2.
Hyundai-Kia Motors
Hyundai-Kia Motors is the leader of Korea’s auto
industry. Total sales in 2004 were US$26.1 billion
with more than 50% of its sales originating outside
Korea. At Hyundai-Kia, purchasing is handled
centrally by the Procurement Headquarters of the
FRPSDQ\7KHFRPSDQ\FODVVL¿HVLWVPDWHULDOV
purchasing into three categories: MROs, direct
materials, and facilities. MROs, as the term in-
GLFDWHVLQFOXGHEDVLFWRROVRI¿FHVXSSOLHVIRRG
purchases, and so forth. Direct materials include
parts and materials that go into the manufacturing
of the automobile, such as car engine, chassis, and
so forth. Finally, facilities include capital goods,
s u c h a s m o l d p r e s s , i n f ra s t r u c t u r a l p u r c h a s e s , a n d
Figure 2. Interorganizational relationships at Samsung Electronics
IV
MROs
IS Integration
Relational
Integration
low high
low
high
I II

III
Brick-n-Mortar
Hierarchies
Click-n-Mortar
Hierarchies
Plug-n-Play
Hierarchies
Non-Strategic
Materials
Strategic
Materials
Facilities
Electronic
Markets