International Journal of Public Sector Management, Vol 9 Issue 3 Date 1996 ISSN 0951-3558

Linking external and internal relationship building in networks of public and private sector

organizations: a case study

Adrian Palmer

De Montfort University, Leicester Business School, Leicester, UK

Keywords: Local government, Marketing, Network organization, Partnering, Tourism

Type of Article: Survey

Observes that there has been considerable recent interest in evolving forms of network organizations, and notes the suggestion that organizations are developing

increasingly fuzzy external boundaries as ongoing relationships with external subcontractors are developed. Identifies a number of network models that have been

proposed which combine systems theory, resource dependency theory and strategic contingencies theory, but notes there has been little empirical analysis of the

effects of an organization’s external relationships on its internal relationships, or vice versa. Summarizes briefly recent theoretical developments in the network

literature and then reports on a case study analysis of a number of public-private sector tourism marketing collaborative organizations. Looks at the reasons why

public and private sector organizations collaborate to market a local tourism destination and the benefits that can be obtained from this process when compared to

in-house marketing. Concludes that the organizations studied had developed structures and processes which had the characteristics of an emerging network

organization.

Quality Indicators: Readability**, Practice Implications**, Originality**, Research Implications**

Introduction

It is now widely accepted that a transactional exchange framework is inappropriate for studying many buyer-seller

relationships and that a framework based on ongoing relational exchange is more appropriate[1, 2]. A considerable and

diverse body of literature has now been developed to explain the antecedents and consequences of relational exchange

between partners[3, 4], often subsumed under the title of "relationship marketing"[5].

The study of relational exchange focused initially on the behaviour of industrial buyers in relation to the suppliers of

industrial goods[6, 7], and has since been applied to: consumer markets[4]; transactions between parties at the same level of

a supply chain[8, 9]; and relationships between government bodies and private sector organizations[10, 11]. Relationship

marketing frameworks have also been turned inwardly on organizations to analyse exchanges between functional

departments[12]; between divisions, strategic business units and subsidiaries[13]; and exchanges between a firm and its

employees[14, 15].

While much of the literature reports on one dimension of an organization’s relationship development, there is increasing

interest in seeing an organization as a focal point for a whole range of relationships[16, 17]. The resulting network can

integrate a firm with its suppliers and customers, technical and economic collaborators and a network of relationships within

the organization. There is growing interest in the "seamless" organization[18] in which external relationships become

operationally indistinguishable from internal relationships.

The case study research reported here was motivated by the relative absence of literature which integrates

inter-organizational relationship development with intra-organizational relationship development. In particular, do the

methods by which an organization carries out transactions with other organizations influence the culture of an organization

and the pattern of relationships between employees within it? In view of the growing use of arm’s length agencies to deliver

many government services, the role of such agencies as change agents is an under-researched subject which deserves study.

This paper reports case study research of a sample of English local authorities which seek to develop inward tourism to

their areas. While some have undertaken all tourism marketing activity entirely within their organization, others have had

significant involvement with an arm’s length tourism development company. The research sought evidence of whether the

effective development of external relationships between a local authority and an arm’s length company was associated with

changes in the internal structures, processes and values of the local authority. The research sought evidence of the emergence

of the "seamless" network organization.

Public-private sector partnerships

The benefits to public and private sector organizations of developing ongoing relationships between themselves are

numerous. They include reduced uncertainty, managed dependence, exchange efficiency and social satisfactions from the

association. Foremost is the possibility of significant gains in joint - and consequently individual - pay-offs as a result of

effective collaboration to attain goals[19, 20].

Collaborative marketing alliances between public and private sector organizations are a horizontal form of relational

exchange, occurring where two or more organizations recognize that collectively they can achieve more than the sum of each

individual’s own efforts[21]. Public-private sector partnerships can develop as a result of a legal mandate[22], which may

itself result from social pressure. In some instances, a perceived crisis may facilitate the process of coalition formation[23,

24]. While there has now been considerable research into the external outcomes of public-private sector relationships, there

has been little empirical research to study their effects on internal relationships within constituent members’ organizations.

This paper uses concepts from the emerging theory on network organizations and seeks to adapt these to the circumstances of

public-private sector collaboration.

Extended network organizations are at an early stage of development and a number of attempts have been made to try and

develop models, based loosely on systems approaches[16, 17]. The network rationale is that a single organization is unable,

or unwilling, to handle the complexity and risks of its environment and similarly unable or unwilling to meet the skill and

resource demands essential for competing in global markets[25]. Members of the network are not completely dependent on

one another, as each remains independent along certain dimensions of the relationship. Partners exchange their core

competence for those that they do not have available internally. Core competences can include access to markets, public

infrastructure and skilled personnel. Trust is crucial to the success of relationships, as each partner is giving the other access

to its core competences. Very often, two or more organizations may co-operate in some subsystems of a network, but find

themselves competing in other subsystems.

The increasingly multifunctional collaborative relationships between organizations have resulted in organizations having

"fuzzy" boundaries in which organizations can have "seamless" inter-organizational collaboration[18]. Gummesson uses the

term "imaginary organization" to refer to the fact that networks are not tangible objects, but social constructs comprising

people, activities and thoughts that are not limited to one specific location. Similar conceptualizations of this type of

organization have been made by: Davidow and Malone[26] who talk about the "virtual corporation" with an emphasis on the

role played by information technology; Handy[27] who talks about the "shamrock organization" comprising full-time,

part-time and temporary employees, suppliers and customers, brought together in a federation of groups based on

intelligence, information and ideas; and Mills[28] who talks about the "cluster organization" which is shaped by clusters of

teams.

An important element of inter-organizational exchange is the development of norms of behaviour[29]. Norms can be defined

as expectations about behaviour that are shared by a group of decision makers[30, 31] and are important in governing

exchange relationships between firms[32, 33]. It has been pointed out that inter-organizational relationships may fail where

the differing cultural backgrounds of the partners prevent the development of agreed social norms. Much attention has been

given to the differences in cultural values which can occur in alliances which draw membership from both the public and

private sectors[34, 35]. Preconceived stereotypes of the other party can inhibit the development of joint problem-solving

activity, for example in the way private sector partners may perceive public sector partners as being overpaid and

underworked. It has also been shown that social bonds are most likely to be developed effectively where organizations

assign to an alliance staff who are of similar status and where commitment to the alliance from senior management of

collaborators has been seen as crucial[36, 37].

Reasons for public-private sector tourism marketing collaboration

In the UK, as in most western countries, local tourism collaborative marketing alliances between public and private sector

organizations have become increasingly popular. Attracting more tourists can benefit not only the narrow financial

objectives of tourism operators, but also the more diverse social objectives of the public sector. There has been an

increasing recognition of their value in tourism marketing[38, 39, 40]. From the perspective of local government, four main

reasons can be identified for seeking involvement in local tourism development:

1.The development of tourism adds directly to the ratable base of an area, thereby bringing additional revenue to a local

authority[41, 42]. More indirectly, tourism development can help local government to achieve wider social objectives,

including reduced unemployment and the alleviation of social deprivation. Expenditure on tourism may improve the

image of an area and encourage further non-tourism-related inward investment.

2.The promotion of an area by the private sector alone will not work where non-contributors to a promotional effort can

receive all the benefits of area marketing without paying any of the costs. The existence of a level of external benefits

can justify local authority intervention in tourism marketing.

3.In some cases, such as that of large national hotel chains, the chain may not be interested in promoting a local area -

with national coverage, it will be shifting its demand rather than creating new demand. By intervening, a local authority

can seek to redirect consumer spending to its area.

4.The local authority is responsible for providing vital elements of the tourism destination product that is being marketed.

Local government assumes responsibility for significant elements of the tourism destination that visitors experience. A

typical English district council will have direct responsibility for the following services, in descending order of their

tradability:

1.operation of leisure centres;

2.provision of car parks;

3.parks and gardens;

4.provision of public conveniences;

5.street cleaning;

6.land use planning and conversion policies; and

7.local signing.

The lack of a marketing culture in many local authority departments, existing alongside control over key strategic tourism

inputs, has motivated alliances with private sector organizations in order to exchange core competences. The private sector

generally has a much greater commitment to a marketing orientation, which it can exchange for access to local authority

political and economic resources which cannot be obtained on the open market[11].

A form of co-marketing alliance that has been created in a number of areas of the UK is the Tourism Development Company

(TDC). TDCs have often arisen out of local tourism development action programmes (TDAPs), which involve a partnership

between private and public sector organizations (as an example, the TDAP created in Leeds in 1991 involved funding from

Leeds City Council, Leeds Development Corporation, British Waterways, the English Tourist Board and a number of hotel

and visitor attraction operators). TDAPs are created for an initial three-year period and are charged with taking a

comprehensive and integrated approach to the development and marketing of tourism in an area. Strategic plans for the

development of tourism benefit by the active involvement of the main public and private sector partners, giving advantages

over the production of a series of isolated plans by the partners.

Research objectives

This research set out to explore the notion that the ability of public sector organizations to develop ongoing external

relationships with key groups is correlated with an ability to develop effective internal relationships, contributing to the

development of a "seamless" network type of organization.

The study examined a sample of English district councils that were seeking to develop inward tourism in their areas. Some

of these organizations have sought to undertake the task of tourism marketing entirely from within their own resources,

whereas others have acted to a significant extent through collaborative public-private sector agencies.

The research used a case study analysis to explore the notion that effectiveness in the development of external relationships

is positively associated with effectiveness in the development of internal inter-functional relationships. Any attempt to

assess the effectiveness of a collaborative marketing organization must begin by considering what goal performance should

be assessed against. The simplest method of assessing its effectiveness is to judge the extent to which achieved outcomes

meet the formal objectives of the organization. However, there are conceptual difficulties with this approach. The "problem"

which the collaborative organization is designed to tackle may be perceived differently by each of the parties, and the formal

goals may represent a poor compromise for certain partners. The most important criterion for measuring performance should

therefore be seen as partners’ own goals rather than the collaborative organization’s formally stated goals. A second

problem is that it can be difficult to isolate the effects of collaborative action from other environmental factors which might

have contributed to success or failure, as well as the actions of the collaborators which were undertaken outside the context

of the partnership. In this research, effectiveness was assessed in terms of the extent to which the local government

organizations were able to improve their market orientation, and thereby achieve their desire to attract more inward tourism.

Methodology

A sample of 24 English district councils, all of which were seeking to develop inward tourism in their area, was selected.

Out of this sample, 14 members undertook nearly all tourism marketing activity within their organizational structure (in a few

cases, members of this sample made small contributions for tourism promotion to local trade associations). The remaining

ten authorities acted to promote tourism through a collaborative tourism development company, based on a TDAP. The latter

represented 38 per cent of all TDAPs that had been created in the UK[43]. To qualify for the sample frame, all local

authorities had to be "aspiring" tourism destinations, rather than ones where excessive demand caused the management of

demand to be the major concern. From these, a random sample of local authorities collaborating with tourism development

companies was selected. For local government organizations without involvement in a collaborative organization, the

random sample was chosen from district councils having a tourism officer listed in the Municipal Yearbook.

Survey research was carried out by a combination of personal visits and questionnaires directed at the officer who appeared

to have principal responsibility for promoting tourism within the local authority. The questionnaire sought to identify three

factors:

1.methods used by the local authority to identify tourists’ needs;

2.the management framework within which the local authority marketed the tourism destination; and

3.the extent to which inter-functional co-ordination within the local authority has been achieved, for example in the

provision of car parking, toilets, street cleaning, conservation policies and signposting.

Analysis

Much interest focused on the local government organization structures within which tourism marketing decisions were made.

The very nature of a collaborative tourism development company - which requires it to be integrative - may have been

expected to lessen the need for integrative structures within the sponsoring local government unit itself. In fact, when

assessed in terms of interdepartmental committees at officer and member level, the lack of a tourism development company

was associated with an absence of such formal and informal decision-making structures.

Of the 14 local government organizations that carried out all tourism marketing in-house, only five (or 36 per cent) had

tourism committees at either officer or member level which met on a regular basis. Where a tourism development company

had been created, seven of the ten (or 70 per cent) had such a committee. It was interesting to observe that, of the four local

government organizations undertaking their marketing in-house where the tourism marketing responsibility rested with the

chief executive’s department, three had set up such committees.

A much more interesting comparison can be made of the extent to which the local government organizations had adopted

some of the basic practices of marketing. Some of these are illustrated in Table I Adoption of marketing practices within

sample of local authorities - indicators from case study .

The existence of a relationship with a tourism development company appears to have modified the behaviour of the local

government organizations surveyed. The most important finding of these simple indicators is that a greater degree of

interfunctional co-ordination within local authorities is associated with the existence of a tourism development company.

This was notable in the level of staff training given to local government employees who are not engaged directly in meeting

tourists’ needs - for example street cleaners and car park attendants. This was more likely to be undertaken where a TDC

existed - while only two of the 14 local government organizations undertaking all marketing within the organization had

developed such staff training programmes, this had actually been implemented in six of the ten local authorities which had

involvement in a TDC. In fact, much of the training was undertaken by private sector employees seconded through the TDC.

Increasingly, services provided by local government are being outsourced from contractors, rather than provided directly by

its own employees. In the case of street cleaning services, half of the sample of local authorities which operated through a

TDC had subcontracted their street cleaning to private sector organizations. There was a slight tendency for tourism training

to be given greater emphasis to street cleaning personnel where this activity had been subcontracted, as compared to local

authorities which had no involvement in a TDC and which provided street cleaning services directly. It might have been

expected at first that tourism training for subcontracted staff would be more difficult, but it appeared to have been achievable

within the ongoing relationship between authority and contractor.

Further evidence of the effects of TDCs in improving internal relationships was observed in the regular communication

channels used by tourism officers. Land use planning and conservation are two activities which can have significant impacts

on the quality of an area as a tourist destination. However, communication between the respective departments was twice as

likely to occur on a regular basis where a TDC existed. In one authority, the tourism officer was consulted routinely on all

planning applications that might affect land use in tourism areas. At the other extreme, one authority claimed that there was

neither regular consultation on planning applications, nor routine meetings between planning and tourism officers to discuss

tourism marketing. A similar difference was found when communication between tourism departments and other technical

departments was considered. While half of all authorities collaborating with a TDC claimed to consult regularly with their

tourism officers on matters concerning car parking, street cleaning and signposting, etc., this proportion was only one-fifth

where no TDC existed.

Conclusions

This study has used emerging frameworks of network organizations to show how public sector organizations can form

horizontal relationships to exchange core competences with private sector organizations. The creation of collaborative

tourism development companies allows a bridge to be developed between the bureaucratic production culture of local

government and the marketing culture adopted by the private tourism sector. More importantly, this research has suggested

that the values of the quasi-private tourism development companies had filtered back to the core of the local authority itself,

affecting relationships within the authority. Relationship building activities that had been effective in spanning boundaries

between organizations appeared to be effective in penetrating boundaries within the local authorities surveyed. This was

evidenced by the improved structures which were capable of focusing on the specific needs of visitors.

While this study has suggested that the marketing culture of tourism development companies is associated with a high level

of market orientation within the local government collaborator, the causal relationship is uncertain. It is not clear whether the

marketing orientation found within the local government organizations was gained through the multi-faceted external

relationship with the tourism development company, or whether it resulted from a more fundamental attempt to develop

internal relationships from within the organization. It is possible that a local government organization’s decision to

collaborate with a tourism development company is a consequence of the development of increasingly matrix-type structures

within the organization. The tourism development company can be seen as an extension of this matrix structure, leading to the

development of a "seamless" organization.

Internal and external relationship building should not be viewed as isolated activities. This research has suggested that the

greatest success in achieving organizations’ objectives occurred where relationships had been developed in both

dimensions. While the emerging literature on network organizations has proposed a number of models of network

development, there has been little empirical study of the processes by which these are created and sustained. This research

has suggested that an appropriate framework for studying networks is to build on and integrate models of internal and

external relationship development and future research should seek to develop frameworks for assessing empirically the

nature of these linkages.

Table I Adoption of marketing practices within sample of local authorities - indicators from case study

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