Substructural Dimensions of

Interorganizational Relations in
Marketing Channels
James R. Brown, D.B.A.
State University of New York at Buffalo

and
Sherman A. Timmins, Ph.D.
University of Toledo

INTRODUCTION

The growing complexity of organizational environments

(Terreberry 1968) and the increasing interdependence of organiza-
tions (Tuite, Chisolm, and Radnor 1972) has made the study of
interorganizational relations more popular in recent years. Theoreti-
cal research by Guetzkow (1966), Marrett (1971), and Van De Ven
(1976), to name a few, has provided a rich background for the
empirical research undertaken.
Much of this research, however, has focused upon interactions
among noneconomic organizations while ignoring interactions
among economic organizations (Stem and Reve 1979). Of particular
interest to marketing scholars are the relationships among organiza-
tions comprising marketing channels. Thus, the aim of this paper is
to develop hypotheses which seek to explain how relations among
channel members vary across the different types of marketing chan-
nels. Both the research and managerial implications of these
hypotheses will be described. Prior to developing the hypotheses,
however, the dimensions of interorganizational relations as well as
the different types of marketing channels will be described.

9 Academy of Marketing Science, Journalof the Academy of Marketing Science

Summer, 1981, Vol. 9, No. 3, 163-173
0092-0703/81/0903-M)163 $2.00
163
164 SUBSTRUCTURALDIMENSIONSOF INTERORGAN|ZATIONAL
RELATIONSIN MARKETINGCHANNELS

DIMENSIONS OF INTERORGANIZATIONAL RELATIONS

Marrett (1971), Aldrich (1972, 1979) and Van de Ven, Emmett, and
Koenig (1975) have identified four types or dimensions of relational
properties pertaining to inteorganizational networks. First, the de-
gree of formalization refers to the extent to which the transactions or
interdependencies among organizations are officially sanctioned by
those organizations. Moreover, the extent to which a coordinating
agency, such as the United Way, operates between them also affects
the degree of formalization among organizations.
A second dimension of interorganizational relations is the degreeof
intensity or the degree of involvement required of the various or-
ganizations in the network. Two indicators of intensity are the size
of the resource investment and the frequency with which the or-
ganizations interact (Marrett 1971; Aldrich 1972, 1979). A third mea-
sure of this dimension is the scope of the relationship, the number of
tasks or issues about which the organizations interact (Reve 1978).
The degree of reciprocity is the third dimension of interorganiza-
tional relations. Reciprocity is the extent to which some organiza-
tions are more influential than others in matters pertaining to the
relationship. "In this discussion, resource reciprocity refers to the
extent to which elements [i.e., resources] are mutually exchanged"
(Marrett 1971:93). Definitional reciprocity is the degree of mutuality
achieved in setting the terms of the relationship. Finally, the degree
of interdependency indicates the extent to which the organizations
are mutually dependent upon each other for scarce resources.
The fourth dimension of interorganizational relations is the degree
of standardization of the units and procedures of exchange. Unit
standardization refers to " . . . t h e extent of similarity between indi-
vidual units of the resources in a transaction" (Aldrich 1979:277)
while procedural standardization is fixedness of the procedures for
exchange.
The indicants of these four dimensions of interorganizational
relations may also be categorized according to whether they are
substructural or superstructural elements of interorganizational
networks (Benson 1975). Superstructural elements are the senti-
ments and behavior of the interacting organizations while sub-
structural elements refer to the power/dependence basis (Benson
1975) or the exchange basis (Levine and White 1961) of the relation-
ship. The frequency of interaction among organizations is classified
 BROWNANDTIMMINS 165

as a superstructural element of interorganizational relations since it

obviously pertains to interactions among organizations. The
remaining facets of the four dimensions are classfied as sub-
structural elements because they refer to the power/dependence or
exchange basis of the interorganization network. Thus, the degree
of formalization, the degree of intensity as measured by the size of
the resource investment and the scope of interaction, the degree of
reciprocity, and the degree of standardization provide the sub-
structure for interorganizational relations.
Much research in the marketing channels area has examined the
superstructural elements of channel relations (Reve and Stern 1979).
Very little research, on the other hand, has been devoted to in-
vestigating the substructural dimensions of channel relations. Thus,
the scope of this paper is confined to studying only the substructural
dimensions of interorganizational relations in marketing channels.

MARKETING CHANNELS AS INTERORGANIZATIONAL

NETWORKS

Suppliers and customers are critical elements of an organization's

task environment (Dill 1958). Each of these elements depends upon
the organization to absorb the products and services produced and
to supply needed resources for that production (Pfeffer and Salancik
1978). This interdependency between an organization and its sup-
pliers and customers is well-illustrated by the relationships among
manufacturers, wholesalers, and retailers. Each institution is de-
pendent upon the other, sellers upon resellers to provide access to
customers and resellers upon sellers to provide highly-demanded
goods or services.
When manufacturers, wholesalers, and retailers are viewed as
interorganizational networks for distributing goods and services,
those networks are termed marketing channels. "A marketing
channel may be defined as an inteorganizational system made up of
a set of interdependent institutions and agencies involved with the
task of moving things of value (ideas, products, services) from
points of conception, extraction, or production to points of con-
sumption" (Stern and EI-Ansary 1977:23).
Marketing channels may be categorized in many different ways.
166 SUBSTRUCTURALDIMENSIONSOF INTERORGANIZATIONAL
RELATIONSIN MARKETINGCHANNELS

One particularly useful typology classifies channels according to the

basis of coordinating channels members' activities. A conventional
marketing channel is " . . . a piecemeal coalition of independently
o w n e d and managed institutions, each of which is prompted by the
profit motive with little concern about what goes on before of after it
in the distributive Sequence" (Stern and EI-Ansary 1977:391).
Coordination among member organizations in conventional chan-
nels is achieved through bargaining and negotiation over the terms
of sale (McCammon 1970).
In administered channel systems, channel members' marketing ac-
tivities are coordinated through the use of marketing programs
developed by one or a limited number of finns (McCammon 1970,
S t e m 1977). Effective coordination in this type of channel depends
u p o n the "channel leader's" ability to informally influence channel
members' decisions (Stem and EI-Ansary 1977).
In some marketing channels, legal agreements or contracts are
relied upon to coordinate the activities of the channel members
(Stern and E1-Ansary 1977). These contractual marketing systems,
including franchise systems, are developed " . . . to obtain systemic
economies and market impact that could not be achieved through
individual action" (McCammon 1970:46). Thus, formal agreements
officially sanction the authority of one firm over another in con-
tractual channels (Stem 1977).
Corporate marketing channels are those in which the successive
stages of production and distribution are combined under single
ownership (McCammon 1970). In these vertically integrated chan-
nels, corporate policy is the basis for coordinating the marketing
activities of the various subunits.
As the basis for coordinating channel members' activities pro-
gresses from bargaining and negotiation to marketing programs to
legal agreements, and, finally, to corporate policy, the extent to
which channel members officially sanction their interdependence
also increases. Thus, the degree of formalization in marketing chan-
nel networks ranges from conventional channels (the least form-
alized) to corporate channels (the most formalized).~

SOME HYPOTHESES

The substructural dimensions of interorganizational relations

vary across different types of marketing channels. In particular, the
 BROWNAND TIMMINS 167

degree of intensity, the degree of reciprocity, and the degree of

standardization in channel interactions expected to differ according
to the degree of formalization in these interorganizational relation-
ships. The exact nature of how the former three dimensions of
interorganizational relations vary according to the degree of for-
malization is posited in the hypotheses developed below.

Intensity
The more resources an organization invests in a channel relation-
ship, the more formalized it expects that relationship to be (Marrett
1971). In franchised channels, for example, the franchisee must
invest large sums of money to gain the right to market a particular
product or service. On the other hand, the franchisor has usually
developed a heavily demanded product or service whose favorable
market image he strives to maintain. Because both organizations
have such large investments in each other, franchise contracts are
used to formalize their interdpendencies (Stephenson and House
1971).
When channel members align in more formalized channel
arrangements, the resources required to insure proper coordination
of their activities are greater than in less formalized channel
structures. Thus, increased formalization may lead to greater re-
source investments in the interorganizational relationship (Marrett
1971). This discussion suggests the following hypothesis:
HI: Increases in the degree of formalization in marketing chan-
nel interactions are associated with increases in the size of
investment each channel member must make in that
relationship.

As the number of tasks performed or the number of issues perti-

nent to the channel relationship increases, the marketing channel
becomes more formalized (Reve 1978). Where bargaining and
negotiation form the basis for channel coordination, the primary
issues of interaction are the price to be paid and the quantity
purchased. As the number of issues or tasks increases, more
formalized methods of coordination are necessary. In some con-
tractual channels, for example, suppliers and resellers both must
perform certain promotional functions. Thus, as channel members
168 SUBSTRUCTURALDIMENSIONSOF INTERORGANIZATIONAL
RELATIONSIN MARKETINGCHANNELS

become more functionally interdependent, the basis of coordinating

their activities progresses from bargaining and negotiation to corpo-
rate policy. This relationship may be more formally stated as
follows:
H2: As the scope of channel member interaction broadens, the
channel relationship becomes increasingly more formal-
ized.

Reciprocity
For channel relationships to exist, each channel member must
perceive that resources are being mutually exchanged. If a channel
m e m b e r believes that the benefits of belonging to the channel are
not commensurate with the resources required, the channel
member either will try to alter this "inducement/contributions"
balance or will withdraw from the channel relationship. No matter
h o w the marketing channel is coordinated, a certain degree of
resource reciprocity is necessary for that channel to exist. Although
this level of reciprocity may vary according to the basis of coordina-
tion, the differences are very slight. Accordingly, the third
hypothesis is as follows:
H3: No significant differences exist in the degree of resource
reciprocity across the various degrees of formalization in
marketing channel relationships.

The degree of mutuality achieved in setting the terms of interac-

tion among channel members is the definitional reciprocity element
of interorganizational relations. In conventional channels, the terms
of interaction are determined by the norms of the marketplace. As
the degree of formalization progresses, however, the terms of in-
teraction are increasingly determined by the most powerful member
of the channel. In franchise channels, franchisors typically develop
the franchise agreements (Hunt 1972); franchisees must either abide
by the terms of the contract or withdraw from the channel. In
corporate channels, the terms of interaction may be developed
unilaterally by upper-level management or by the subunits in con-
cert with upper-level management, as in the "management by ob-
jectives" approach. Since formalized marketing channels are based
on more centralized means of coordination, the terms of interaction
 BROWN AND TIMMINS 169

are hypothesized to be set unilaterally. Thus, the following relation-

ship among these variables is expected:
H4: As the degree of formalization increases in marketing
channels, the extent of definitional reciprocity declines.

Because each channel member operates relatively autonomously

from the others in conventional channels (Davidson 1970), the
degree of interdependence is low for these less formalized
interorganizational networks. In administered channels, individual
organizations forego some of their autonomy (particularly with
respect tO their marketing activities) to reap the benefits of increased
coordination (Stem 1977). As Stern (1977) also points out, contracts
limit the degree of independence available to members of con-
tractual channels. Members of corporate channels are, by definition,
the most interdependent because each subunit has a common
owner. Thus, as the degree of formalization increases, the more
channel members become interdependent. On the other hand, the
more interdependent channel members become as a result of ex-
changing greater proportions of resources among each other, the
more likely they are to formalize their interactions (Marrett 1971).
This discussion, then, leads to the following hypothesis:
H5: Higher degrees of channel member interdependence are
associated with more formalized channel relationships.

Standardization
Standardization of the units and procedures of exchange enables
interacting organizations to operate more efficiently by reducing the
transaction costs per unit of effort (Litwak and Hylton 1962, Aldrich
1979). Marketing channels often utilize inteorganizational data
networks to increase transactional efficiency (Stern and Craig 1971,
Reve 1978). For such networks to be effective, however, central
coordination is necessary to insure that all channel members ac-
tively participate in them. Moreover, Etgar (1976) found that chan-
nel members in centrally-controlled marketing systems in the insur-
ance industry tended to have more standardized recordkeeping
practices than those in market-controlled systems. Thus, the final
hypothesis states that:
H6: More standardized relations among channel members are
found in more formalized marketing channels.
 170 SUBSTRUCTURALDIMENSIONSOF INTERORGANIZAT|ONAL
RELATIONSIN MARKETINGCHANNELS

A s u m m a r y of these six h y p o t h e s e s appears in Table 1.

TABLE i

SUBSTRUCTURAL DIMENSIONS OF INTERORGANIZATIONAL

RELATIONS IN MARKETING CHANNELS

Substructural
Dimension of Type of Marketin$ Channel
Interorganizational
Relations Conventional Administered Contractual Corporate

Degree of
Formalization Low < > High

Degree of
Intensity

Size of
Resource
Low High
Investment

Scope of
Interaction Low < > High

Degree of
Reciprocity

Resource
No Significant Differences
Reciprocity

Definitional
High -> Low
Reciprocity

Interdependence Low < > High

Degree of > High

Low <
Standardization

CONCLUSIONS

The objective of this paper was to develop hypotheses which seek

to explain how the degree of formalization is related to the other
three substructural dimensions of interorganizational relations in
marketing channels. In general, as the degree of formalization in
 BROWN AND TIMMINS 171

coordinating channel member activities increases, the degree of

reciprocity, and the degree of standardization in channel relation-
ships were hypothesized to increase. The degree of resource
reciprocity, however, was posited to be not significantly related to
the extent of formalization of channel relationships. Moreover, the
degree of definitional reciprocity is expected to be inversely as-
sociated with the degree of formalization.
These hypotheses provide a basis for examining the substructural
dimensions of interorganizational relations in marketing channels.
The testing of these hypotheses should enable interorganizational
scholars to better understand how the degree of formalization in
marketing channels is related to the other three substructural di-
mensions of channel member interaction.
These hypotheses also provide managerial guidelines to those
concerned with coordinating marketing channels. For example, if a
firm wishes to formalize its channel relationships by moving from
an administered channel to a contractual one, it should expect to
invest more resources in its distribution network, to become more
interdependent with other channel members, and to develop more
standardized procedures for interaction. On the other hand, the
more that firm invests in its distribution network, the more likely
that it will want to formalize its channel relationships. In any event,
until more is known about the behavior among organizations,
hypotheses such as these are the only available guidelines for man-
agerial action.

NOTE
1
Corporate channels are not interorganizational networks in their strictest sense.
However, because the various distributive functions are performed by distinct sub-
units, these subunits are considered to be quasi-independent and, thus, comprise the
most formalized of the four types of marketing channels.

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ABOUT THE AUTHORS

JAMES R. BROWN is Assistant of Marketing and Operations

Analysis at the State University of N e w York at Buffalo. Dr. Brown
received his B.S. in industrial m a n a g e m e n t from the University of
Cincinnati, his M.B.A. from Miami University, and his D.B.A. from
Indiana University. His primary research interests include the
behavioral and structural aspects of marketing channels.

S H E R M A N A. TIMMINS is Professor of Organizational Adminis-

tration a n d Director of the Small Business Institute at the University
of Toledo. Dr. Timmins is also President of T&R M a n a g e m e n t Con-
sultants. H e received his Ph.D. from Pennsylvania State University.
Dr. T i m m i n s has p r e s e n t e d papers to various professional organiza-
tions a n d his research has been published in such journals as the
Journal of Small Business Management.

Business Horizons,