Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 3 CONTEMPORARY NETWORK ORGANIZATIONS IN SLOVENIA Jure Kovač University of Maribor, Faculty of Organizational Sciences Kidričeva 55a, 4000 Kranj, Slovenia Jure.Kovac@fov.uni‐mb.si Brigita Gajšek University of Maribor, Faculty of Logistic Mariborska cesta 7, 3000 Celje, Slovenia Brigita.Gajsek@fl.uni‐mb.si Abstract Modern organisations are confronted with enormous challenges. The need to continuously adapt to changing envi‐ ronments represents a main challenge for modern organisations. In order to adapt to the requirements of modern environments more easily and more rapidly, organisations become connected into networks. A network organisation is fast becoming a favourite form of the modern organisation. On the basis of an analysis of members in the field of network organisations, this contribution presents the dimensions and definitions of network organisations. In the fol‐ low‐up, the starting point for a theoretical explanation of network organisations and their different existing forms is presented. The emphasis of the empirical part of the contribution focuses on presenting an analysis of forms of network organisations that are present in Slovenia from the perspective of their shape, development and actual state. Based on an analysis of relevant documentation, it may be concluded that it was the institutional environment which initiated and directed the start‐up processes that led to the establishment of contemporary network organisations within Slove‐ nia. Keywords: organisation, network organisation, types of network organisations, Slovenia 1. INTRODUCTION Our modern environment is becoming more and more complex while its dynamics are becoming more intensified. Both profit and non‐profit organ‐ isations must continuously analyse conditions in their working environments and adapt to changing circumstances. In 2011, the Boston Consulting Group carried out an extensive international re‐ search project through which it sought to identify the most important problems that managers are confronted with on a daily basis, while also identi‐ fying the greatest challenges faced by managers in future. 1,600 managers from 35 countries partici‐ pated in this research entitled Organization of the Future – Designed to Win (2011). Managers’ re‐ sponses on the survey question – ˝In your opinion, which are the most important problems today that will also be your biggest challenges tomorrow?˝ ‐ are presented below in Figure 1. One of the main reasons for increased competi‐ tiveness in the business environment is globalization. Above all, certain processes inherent to globalization require managers to analyse and reassess the strate‐ gic orientations of their companies as well as to de‐ velop appropriate and effective methods of action (Daft, 2010: 202; Kovač, 2011: 211). Vol. 3, No. 2, 3‐20 Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 Jure Kovač, Brigita Gajšek: Contemporary Network Organisations in Slovenia 4 As indicated in the table above, the next two largest issues of concern in the modern business en‐ vironment have been identified as unpredictability and complexity. As a result of increasing complexity, the stable organisational structure of a company can also become a major obstacle when adjusting to changing demands in its operational environment. This is the reason companies seek more flexible forms of organisation that are better suited to rapidly adjust to changing demands in their respective envi‐ ronments (Williams, 2009: 80; Bleicher, 2011: 41). It is often the case that in the process of build‐ ing a company’s competitive ability, its existent knowledge, capacities and other elements are found to be insufficient. In the modern business en‐ vironment, companies and other organisations will establish and preserve their competitive advantage not only by optimising their own capacities, but also by being able to use the elements of other compa‐ nies and introduce these into an integral business system. The need to interlink companies and bring together their abilities arises from the requirement of the global market to achieve price, time and qual‐ ity competitiveness. It is more difficult for an indi‐ vidual company to cope with the above mentioned requirements alone. This is why companies are be‐ coming increasingly specialized and develop only those key areas with which they can (effectively) compete on the global market (Milberg & Schuh, 2002: 21; Josserand, 2004: 3; Kieser & Walgenbach, 2010: 2; Bleicher, 2011: 56). The reason for interconnectedness among in‐ dividual companies lies not only in the purpose of achieving competitive advantage on the basis of op‐ timising the process of creating added value. At the forefront, there are also requirements to integrate the client and the user in the process of creating new value itself. This is why the linear sequence of the single stages of the process directed to create added value increasingly change into vertically and horizontally branched networks of interconnected links among different companies, as well as among other organisations and individuals that take part in the entire added value chain. (Prahalad & Ra‐ maswamy, 2004: 96; Everett, 2011: 1). As a result, competitors come together in fields of common in‐ terest and along a narrow segment of the process that is directed towards creating added value and Figure 1. In your managers’ opinions, what are the most important problems that managers face today which also represent their greatest challenges for tomorrow? Source: Organization of the Future – Designed to Win, 2011: 6 Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 5 bringing about network connections (Gibbert & Du‐ rand, 2007: 3). It has been known for some time that different forms of links set up among companies and other organisations have features that are inherent to net‐ working. Yet, over the last decade, network forms have gained new momentum (Gulati et al., 2000: 204; Kovač, 2011: 214). The above mentioned envi‐ ronmental factors as well as development of infor‐ mation and communications technology have contributed to a vast expansion of different forms of network links among companies. In addition, there also exist mutual connections with environ‐ mental requirements and particularly with those re‐ quirements of the market (market pull) that, under the pressure of global tendencies and structural changes, as well as due to new possibilities that are offered by new information and communication technology (technology push) require and allow companies and other organisations to develop a new and more adjustable network form of the or‐ ganisation (Rohde et al., 2001: 1; Steinmann, H. & Schreyögg, 2005: 145; Schermerhorn, 2010: 246; Rozman & Kovač, 2012: 264). Gomez, a renowned author from the field of business sciences, had in 1992 already stated that network organisations represent a new stage in the evolution of company organisation and bring about a renaissance in the field of organisational theory (Gomez, 1992). Kelly (1998) also defined network organisations as the prevailing organisational forms of today and tomorrow. Since then until today, his prophetic predictions have been confirmed. In the environment – meaning also our environment – we are increasingly confronted with different forms of network organisations and network links that are prevalent among companies and organisations and which have the tendency to continuously expand. On the other hand, we come across authors who argue that network companies belong to an organ‐ isational form that has already been in existence for a long period of time and does not conse‐ quently represent a novelty. Regardless of different opinions, it is reasonable to acknowledge that net‐ work organisations ‐ which distinguish themselves by having very diverse forms of existence – are an organisational concept of both the present and future. 2. THEORETICAL FRAMEWORK 2.1 Defining Network Organisations In academic literature, the network organisa‐ tion has been a central point of interest since the beginning of the nineties of the previous century. Already at the end of the eighties, Jarillo had de‐ fined the network organisation as a long term tar‐ get‐oriented linkage among individual companies for the purpose of achieving competitive advantage over competitors that do not take part in the net‐ work (Jarillo, 1988: 32). A similar statement was made by Sydow (1992: 23), who defined networking among companies as “target‐oriented organisational forms that pursue the realisation of certain competitive advantages. They mutually link independent companies that are economically integrated and have relatively stable mutual links.” Other authors such as Daft have also emphasized the achievement of greater competitive advantage as feasible by means of individual com‐ panies specializing in a part of the network. Compa‐ nies and other organisations that are interlinked in the network can increase their competitive advan‐ tage by orienting themselves in the specialization of a particular field which they have already perfectly mastered in the past (Daft, 2000: 252). In his definitions, DiMaggio above all stresses the novelty of network organisations in the sense of moving away from the classical comprehension and perception of the organisation. In his opinion, trust, reciprocity, communication, a common way etc., are more in the forefront of network forms, while the principles of the bureaucratic approach central in their formation is less important (DiMaggio, 2001: 237). We find similar definitions of network organi‐ sations in even more recent works from the field of management. For example, Bleicher describes net‐ work organisations (with an emphasis on virtual di‐ mensions) as extremely dynamic and fluid forms of organisational links which have great potential for the exchange of ideas, information and resources (Bleicher, 2011: 321). Conversely, Hatch (2013: 281) defines network organisations as ”non‐hierarchical relationships comprised of human points of contact, called Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 Jure Kovač, Brigita Gajšek: Contemporary Network Organisations in Slovenia 6 nodes… Organisationally, network links headquar‐ ters with subsidiaries, and units with each other, their stakeholders and their employees”. From the above cited definitions, it may be con‐ cluded that network organisations are special forms of co‐operation and/or connectedness among indi‐ vidual companies and other organisations (Kovač, 2011: 21; Rozman & Kovač, 2012: 267). The funda‐ mental features of the network organisations are as follows (Winkler, 1998: 2; Vahs, 2005: 507; Gibbert & Durand, 2007: 172; Kieser & Walgenbach, 2010: 289; Bleicher, 2011: 322; Hatch, 2013: 283): • they represent a special form of co‐operation among organisations; • operators of linking and co‐operation may be very diverse: groups in the organisations, organisations and/or group of organisations; • mutual adjustment among individual operators is performed through hierarchical as well as through market relationships; • there is mutual linking and common interest among operators; • trust is an important element of co‐ordination among linking operators; • organisations link among each other both verti‐ cally and horizontally; • participating organisations are (or may be) eco‐ nomically independent; • for adjustment and functioning of the network, an independent and institutionalized form of the organisation or merely an informal organisation can be established; • information and communication technology rep‐ resents an important element in connecting and adjustment; • complex mutual links are established in different fields (information, personnel, technology, fi‐ nances, etc.); • there are both dynamic and stable links; • basic features are: decentralisation, diffusion of power and competency of decision making. Organisations may establish links from very dif‐ ferent interests and targets. This is why we come across networking among for‐profit organisations as well as among non‐profit ones. 2.2 Theoretical Starting Points for Comprehending Network Organisations In order to understand network organisations, we must look for a theoretical starting point and ex‐ amine different explanations that attempt to explain the functioning of the organisational phenomenon. As a social phenomenon, the organisation is an ob‐ ject of study in various scientific disciplines and pro‐ fessions. This is why the theory of network organisations should be considered as the result of single partial theories that offer an explanation per‐ taining to laws that govern the functioning of net‐ working. There exist efforts to establish a unified theory of networking, but this approach is not gen‐ erally accepted and so remains at the level of one single explanation (Sydow, 1992; Alstyne, 1997; Fleisch, 2001; Gibbert & Durand, 2007; Berghoff & Sydow, 2007; Kieser & Walgenbach, 2010; Mo‐ literno & Mahoney, 2011: 443; Hatch, 2013). Trans‐ action cost theory remains the single most important theory from which we may draw a theo‐ retical explanation for the functioning of network organisations. Transaction cost theory provides a basic expla‐ nation on the existence and development of the company. In the framework of transaction cost the‐ ory, the most prominent representatives ‐ Coase (1937) and Williamson (1985, 1991, and 1993) among others ‐ discover a link between transaction costs and a company’s organisational form. Trans‐ action cost theory provides a model explanation for allocating task or element co‐ordination, by means of attempting to clarify the reasons as to why cer‐ tain transactions are co‐ordinated and carried out by a company, while others are performed by the market. The starting point of research conducted under the conduit of transaction cost theory presents the processes of exchange and mutual adjustment that are prevalent among different types of specialized operators in the economic process. Emphasis is placed not only on the process of the exchange of goods, but rather, on the so‐called transaction that is linked to this process. Among other costs, partic‐ ipants in the transaction framework must bear the so‐called costs of the transaction itself (Picot et al., 1999: 67; Berghoff & Sydow, 2007: 19). Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 7 Basically, transaction costs are all those costs that are incurred by individual operators while per‐ forming the transaction process, during: • the preparatory phase (for example, travel, com‐ munication and consulting expenses, common purchasing costs incurred by sales, development and production); • communication (for example, negotiation costs, the costs of mutual adjustment during sales, de‐ velopment, production and purchase); • execution (controlling the process of exchange, managerial costs); • control (costs of quality control and costs of time‐ limit control); • adjustment (additional costs incurred over time‐ limit changes, quality and other unforeseen re‐ quirements) (Picot et al., 1999: 67; Fleisch, 2001: 62; Jones & Bouncken, 2008: 37; Kieser & Walgen‐ dach, 2010: 48). Within the organisation, an entire range of fac‐ tors has an impact on the decision of whether to leave certain transactions to the market or to the hi‐ erarchy. In considering major factors on which to base the decision of what is the most suitable form of organisational arrangement, transaction cost the‐ ory also includes a degree of vertical specificity of the single task. In highly specific transactions, the most optimal form of co‐ordination is the hierarchy. At the medium level of co‐ordination, this could be a hybrid form (co‐operation), whereas at a low level of specificity, it is the market form. By way of comparison, we can make an analogy of transaction costs, with losses incurred as a result of friction in the field of physics. Within economic systems, information technology decreases losses that are incurred by ˝friction˝. According to Malone (2004), the introduction of information technology decreases both fixed and variable costs. While re‐ search related to transaction cost theory is above all oriented to analysing processes governing exchange and adjustment in the economy, we can also use this theoretical framework to explain ̋ correct˝ work dis‐ tribution and specialization (Picot et al., 1999: 73; Kieser & Walgendach, 2010: 50). Work distribution may be classified among ele‐ ments that contribute to increased efficiency of the economic process. Specialization and work distribu‐ tion enable an essential increase in productivity. At the same time, work distribution imposes a require‐ ment for co‐ordination and mutual interconnected‐ ness. Co‐ordination does not run by itself but is instead connected to various elements. Costs that are incurred as a consequence of performing a co‐ ordinated effort are designated as transaction costs (or co‐ordination costs). A common task that a company (or a group of individuals) wish to carry out in the process of work distribution may be classified according to different criteria. To a great extent, the productivity of an or‐ ganisation will depend on the process of decompo‐ sition (work distribution). While transaction cost theory does not assist in directly explaining the sin‐ gular process of forming the technical work distri‐ bution, it does remain useful for the purpose of investigating transaction costs that have consequen‐ tially been incurred and that are inappropriately in‐ creasing as a result of technical work distribution. From this, it arises that transaction cost theory rec‐ ommends carrying out a process of decomposition of a common task in such a way that it would, to the largest possible extent, form transactions (links) among performers of partial tasks (these could also be clients or suppliers) with lowest effort (cost) re‐ quired for its completion (Picot et al., 1999: 73; Jones & Bouncken, 2008: 189). The higher is the level of interdependence among singular levels in carrying out a common task, the greater is the requirement to integrate into a common organisational unit. The lower is the level of interdependence, the greater is the degree of au‐ tonomy of the organisational decentralisation (Picot et al., 1999: 74; Jones & Bouncken, 2008: 193; Kieser & Walgendach, 2010: 51). An important ele‐ ment of an efficient execution of the work distribu‐ tion process is the need to optimally design knowledge transfer ‐ from the knowledge operator to the performer of the single partial task. In an era when knowledge plays an increasingly significant role within society and within organisations, design‐ ing knowledge transfer to operators of a single par‐ tial task is of growing importance. Providing the necessary knowledge to carry out partial tasks can significantly reduce costs that are otherwise in‐ curred by the lack of knowledge that is required to Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 Jure Kovač, Brigita Gajšek: Contemporary Network Organisations in Slovenia 8 effectively carry out a single partial task. Using an optimally organized process of knowledge transfer can assure a suitable transfer of necessary knowl‐ edge between the knowledge operator and the per‐ former of the single partial task. The positive aspect of introducing IT is predom‐ inantly reflected in the processes of creating, trans‐ mitting and applying information. In this way, information processes rationalise and speed up by means of modern information and communications technology. Sped‐up and rationalised information and communication processes significantly decrease transaction costs while they also reduce the level of technical work distribution. The tendency of mod‐ ern society to reduce the level of technical work dis‐ tribution is based not so much on the humanist principle as it is on the introduction of modern in‐ formation and communications technology. The contribution of transaction cost theory to the understanding of principles that govern the functioning of the network organisation lies in its ability to comprehensively explain the extension of interconnectedness among individual organisations (or individuals) from the perspective of transactions that take place among them and with particular em‐ phasis on explaining and understanding transaction costs that are linked to the form of co‐ordination. Transaction cost theory therefore provides a theo‐ retical explanation of the network organisation gen‐ esis. By means of transaction theory, an explanation establishing the impact of introducing modern in‐ formation and communications technology may also be developed. From the given conclusion, there also arises an explanation that is related to the top‐ icality of organisation network links over the last decade. A great development of information and communications technology and the expansion of its application has enabled (also from the perspec‐ tive of decreasing transaction costs) the propaga‐ tion of networking in modern society. 2.3 Existing Forms of Inter‐Organisational Network Links The term “network link” arises in diverse areas of academic literature. At the organisational level, reference is often made to network links across dif‐ ferent levels and areas (Miles & Snow, 1992; Sydow, 1992; Nohria & Eccles, 1992; Ebers, 1997; Staehle, 1999; Bullinger et al., 2003, Sydow & Manning, 2006; Jones & Bouncken, 2008; Kieser & Walgen‐ bach, 2010; Bleicher, 2011; Hatch, 2013). The basic division of existing forms of network links arises from the level of linking. There exist two levels of network linking (networking). The first rep‐ resents co‐operation and linking among individual organisations (inter‐organisational networks). The second represents the form of organisation within the company itself and the respective configuration of the organisational structure (the configuration of the intra‐organisational network). In the follow‐up, we will focus on the presenta‐ tion of links among organisations (at the inter‐or‐ ganisational level). Network links among organisations are in greater part related to the legal and statutory arrangement governing the functioning of individual companies and other organisations within a given environment. Given the Republic of Slovenia’s legal and statutory arrangements, network links on the basis of capital and contractual links are prevalent in Slovenia. (Kovač, 2011: 220; Rozman & Kovač, 2012: 267). In Slovenia, the best known forms of companies and/or organisations that are linked on the basis of capital or contract are (Bohinc & Ivanjko, 1999: 405): • commercial association of interest: an independ‐ ent legal entity whose activity is promoting the economic benefit of its members, however, with‐ out relationship of superiority or dependence; • holding company: an interlinked company that has in its possession a majority of shares of one or more independent companies and which pre‐ dominantly performs the financing and corporate governance activities of those companies. • trust, composed of (Bohinc & Ivanjko, 1999: 406): ‐ one governing and one or more dependent companies that are linked among themselves and under a unified administration of the gov‐ erning company (real trust); ‐ companies that are interlinked by a contract on governance (contractual trust); ‐ legally independent companies that are linked by a single management system where compa‐ Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 9 nies are not mutually interdependent (trust of equally entitled). The second aspect is represented by contractu‐ ally linked networking that is composed of the cap‐ ital of non‐interlinked companies or other organisations that form (or do not form) for the pur‐ pose of linking and co‐ordinating a network or a common independent organisation. The above mentioned very decentralised form of networking is represented by the so‐called enter‐ prise network which represents ˝intermediate˝ or‐ ganisational forms of economic activities between the market and the hierarchy that are characterised by a stable co‐operative (rather than a competitive) collaboration of capital independent companies. An analysis of the business environment indicates that the following forms of contemporary networking among companies and other organisations are prevalent in Slovenia on the basis of capital or con‐ tractual relations (Kovač, 2011: 220; Rozman & Kovač, 2012: 267): clusters, technology platforms, competence centres and centres of excellence as well as living labs. These forms best correspond to the criteria inherent to contemporary network or‐ ganisation, including: equality of partners, decen‐ tralization, non‐hierarchy, etc. The empirical part focuses on the above mentioned forms of contem‐ porary network organisations, analysing the devel‐ opment process from their establishment to their current state. 3. FORMS OF NETWORK ORGANISATIONS IN SLOVENIA 3.1 Introduction The empirical part is based on principles of in‐ stitutional theories of organisation‐environment re‐ lations which, among other principles, assume that institutions within a particular environment have a decisive impact on organisational change and adap‐ tation (Mihelčič, 2011: 138; Hatch, 2013: 74). We hypothesize that it was the institutional environ‐ ment which initiated start‐up processes that led to the establishment of contemporary network organ‐ isations within Slovenia and test this hypothesis uti‐ lizing the method of documentation analysis. In Slovenia, there dominate network connections among companies and other organisations that have been established by the policies and financial initiatives of state institutions. Strong links are critical for the performance of innovation systems. The Slovenian government has recognised the need for promoting links in innova‐ tion, notably between industrial sectors and aca‐ demic institutions. Over the past 15 years, the government has introduced a significant number of policy initiatives designed to better align innovation actors. In so doing, it has introduced various schemes for scientific‐industrial collaboration, technology transfer and related initiatives focused on entrepre‐ neurship and inter‐firm co‐operation. Slovenia has also experimented with cluster‐oriented policies and later also with Technology Platforms. Between 2008 and 2013, Competence Centres and Centres of Excel‐ lence were added to this list. The latter are not only instruments that may be used to strengthen links be‐ tween innovation actors but also important catalysts for changing the governance of the innovation sys‐ tem. Below is a brief description of all of the above listed instruments. 3.2 Clusters The most typical example of regional network formation is a cluster, which is fully geographically oriented, less loose and more stable than strategic network formations that are often transnationally or‐ ganized. A cluster is understood as a production/ser‐ vice system that includes: small and medium sized manufacturers of finished products and services; spe‐ cialized suppliers of components; manufacturers of complementary products/services; providers of tools and supplementary service companies with comple‐ mentary skills, know‐how and technologies; govern‐ ment institutions; research and consultancy institutions and customers/clients in a specific area of operation (Dermastia, 2002). From a global perspective, clusters obtained their knowledge and bases from supply chains that had been established much earlier and may also be classified as non‐capital contractual forms of net‐ working among companies. The theoretical bases of supply chains and clusters can be traced to the work of Michael Porter, who in his piece The Competitive Advantage of Nations (1990) highlights the level, Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 Jure Kovač, Brigita Gajšek: Contemporary Network Organisations in Slovenia 10 development and promotion of inter‐company con‐ nections as important elements for achieving com‐ petitive advantage in the economies of individual countries. In Slovenia, clusters are recognized as network connections between companies in a particular sec‐ tor. Due to its small size and prevailing market trends, regional clusters have not developed in Slovenia. Integration among companies can result in in‐ creased business efficiency, the modernization of production rationalization of operations, an in‐ crease in growth and development and increasing innovation (Dermastia, 2002). The development of clusters in Slovenia is de‐ scribed below in greater detail. 3.2.1 Initializing the Development of Clusters According to a survey (Jaklič, Svetina & Zagoršek, 2004) that included 1,700 companies, no clusters were present in Slovenia in 1999 (Dermas‐ tia, 2002). Given that companies were spread across Slovenia, segments identified as potential clusters did not have a strong geographical concentration and consequentially, there existed weak links among actors. Identified manufacturing/service sys‐ tems did not reach a critical mass of companies while the necessary infrastructure for the develop‐ ment of clusters remained at initial stages. Clusters later emerged due to government pol‐ icy that effectively resulted in the establishement of network organisations, as opposed to the removal of obstacles for the development of small business (due to the implementation of high interest rates; high taxes; extremely expensive business premises; difficulties in obtaining building permits; impossibil‐ ity of financing commercial properties...). Conversely, in 2001, the Ministry of the Economy (ME) prepared a program that was designed to en‐ courage the development of clusters in Slovenia and, during that same year, the ME financially supported the development of three pilot clusters by providing a contribution of 150 million SIT to this end. In prac‐ tice, some difficulties in promoting cluster develop‐ ment and establishing simultaneous cooperation and competition between actors arose. For example, a low level of trust among members of the cluster, a low level of top management involvement in the clustering project and lack of state‐level integrated implementation of measures required for stimulating the development of clusters. Tender ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Region Small Enterprise Medium Enterprise Total Number of Projects Co‐financing Number of Projects Co‐financing Number of Projects Fund Development of Clusters by Region 5 231,926,000 6 168,074,000 11 400,000,000 Podravje 1 85,000,000 FS UM Koroška 1 16,600,000 Lesna d.d. Savinjska 3 36,337,000 Geodetski zavod d.o.o., Smreka d.o.o., Veplas d.d. Obalno‐kraško 1 100,000,000 Transportno logistični grozd Osrednja Slovenija 3 123,863,000 Slovenski avtomobilski grozd, Infotehna d.o.o.,Kovinastroj Gastronom d.d. Notranjsko kraško 1 16,600,000 IMP Klima d.o.o. Goriško 1 21,600,000 Razvojni center za lesarstvo Zasavje, Pomurje, Spodnje Posavje, Gorenjska, JV Slovenija – 0 projects Source: Summarized from Andrič, 2003 Table 1. Distribution of Funds for Clustering in 2002 Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 11 3.2.2 A Period of Co‐financing and Growth Between 2002 and 2004, the ME continued to encourage clustering and presented a comprehen‐ sive program that promoted the development of en‐ trepreneurship and competitiveness (Andrič, 2003). The program of measures to promote entrepreneur‐ ship and competitiveness included incentives that were aimed at the entire corporate sector, irrespec‐ tive of size, sector of activity or ownership. Based on this program, 23 tenders were published in 2002, including a tender for the development of clusters (Table 1). Interest in subsidization was higher than was the level of available funds. As a result, 38.88% (or 7) project proposals were rejected for receipt of subsi‐ dizing in support of the development of clusters. Jaklič et al. (2004) reported: “After four years of co‐financing of cluster development, which aimed at about 2.141 billion SIT (Table 2) in the sense of development incentives, 29 clusters were devel‐ oped and together included about 390 organisa‐ tions and employed more than 60,000 people. Companies in clusters in terms of profitability and added value did not significantly differ from other companies in the industry.” nanc, 2003). In the period 2000‐2003, Slovenian clusters outgrew basic frameworks and pointed at a rapid growth trend. It had already then been ob‐ served that the growth trend may have negatively affected the abolition of subsidies and incentives for clustering and development of projects of national importance. In 2004, 1 billion SIT was made avail‐ able for this purpose. In addition to financial support from the ME, the Chamber of Commerce created non‐financial structures designed to support of this strategy. In so doing, the Chamber responded to members’ needs for horizontal integration by stimulating promo‐ tional activities. At first, clusters focused on those companies and/or organisations that wished to in‐ tegrate and link because of synergistic effects, irre‐ spective of government subsidies. Members of clusters later argued that government measures en‐ couraged a process that would otherwise not have taken place and that meetings would continue even in the event that government support were to cease. 75% of clusters would not have been formed without the support of the ME (Avberšek, 2006). Nearly all clusters were associated with foreign net‐ works and clusters. As many as two‐thirds of partic‐ ipating companies emphasized that the benefits of clustering would be visible in the long‐term and that the level of confidence in clusters was increasing (Avberšek, 2006). Slovene clusters provided incentive for con‐ necting clusters and technology networks for the purposes of stimulating greater efficiency and to more easily penetrate markets external to the initial state. In October 2005, eleven clusters established the Interest Group of Clusters and Technology Net‐ works at the Chamber of Commerce (IZ GTM). This interest group was established with the aim of pro‐ moting mutual cooperation among clusters and net‐ works for the design and implementation of development strategies. At the same time, IZ GTM was to contribute to the international promotion of development potential and strengthen the ability of engaging in international development partner‐ ships. As a member of IZ GTM, the Slovenian Cham‐ ber of Commerce provides the basic infrastructure for the continued operation of this group. In addi‐ tion, clusters and networks combine data and infor‐ mation on their operations and share activities and Year Million SIT Number of Clusters 2001 150 3 2002 331 11 2003 650 17 2004 1,010 29 Source: Andrič, 2003 Table 2. Amount of Co‐financing and Number of Projects in the years 2001 ‐ 2004 At the conclusion of 2003, State Secretary of the ME, Mateja Dermastia, stated: “The Slovenian model of cluster development is unique and inter‐ nationally recognized ‐ the accession has a leading position in the EU. In particular, clusters were sup‐ ported by the state with co‐financing of viable proj‐ ects rather than with subsidies entirely, as is generally in the majority practice in Europe. Sloven‐ ian clusters involving more than 350 companies and institutions with 55,000 employees.” (Redakcija Fi‐ Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 Jure Kovač, Brigita Gajšek: Contemporary Network Organisations in Slovenia 12 plans for the creation of a common information base. Financing is provided to all members that are a part of this association and in accordance with the agreed program of work and the extent of planned joint activities under the project principle. 3.2.3 Maturity Stage By 2008 and with the support of the Chamber of Commerce, the Slovenian government managed to establish an operational group of clusters, with no impact on the type of industry within which the individual cluster was developed. Precisely at that time, the European Union ascertained that clusters could play a huge role in future economic growth, given that key factors for competitiveness in the long‐run were identified as: economic performance, R&D and innovation (Bettendroffer, 2012). It has been observed that regions with strong clusters re‐ covered much more rapidly from the recent eco‐ nomic crisis than have regions without clusters (TechAmerica Foundation, 2010). One clear objec‐ tive of the Europe 2020 strategy is the move to‐ wards world‐class clusters (European Commission, 2008). The next step is to support cluster collabora‐ tion, which is essential to overcoming regional boundaries and for moving towards world‐class clusters via European inter‐clusters. As well as keeping records on the number of ex‐ isting clusters across the country, the Slovenian gov‐ ernment has also set up measures to gauge the effects of their operation. In 2010, the Chamber of Commerce and Industry of Slovenia published a brochure with a list and descriptions of 11 Slovenian innovative clusters and four technology networks (Slovenian Chamber of Commerce, 2010). According to these figures, 38% of the clusters are in operation when compared to the quantitative peak that oc‐ curred in 2004. The emergence and development of clusters in Slovenia can be summed up in the following phases: (1) triggering development of clusters by ME and the Chamber of Commerce; (2) peak in the number of clusters and inflated expectations; (3) search for funding sources, external integration, positioning in business premises; (4) existence of operational, fully independent clusters that are embedded within the wider business environment. 3.3 Technology Platforms Following 2004, there began in Slovenia a process of rapid deployment of Technology Plat‐ forms. Unlike clusters, technology networks are used for the development of certain technologies and the application of these technologies by various industries, companies and products. Technology Platforms are mechanisms of devel‐ opment policy. Their purpose is to enable the con‐ frontation of challenges inherent to individual fields and to determine strategic advantages and opportu‐ nities for technologically advanced areas. In the area of R&D, they promote targeted investments and a more effective approach to innovation. They also promote the coordinated action of European and na‐ tional research programs. Technology Platforms sup‐ port the continuous development of appropriate skills in relation to a particular field of technology and support the use of new technologies. Crucial to the functioning of Technology Platforms is that com‐ panies take over a leading role in shaping the func‐ tioning of each Technology Platform. Technology Platforms have an open structure. To be effective, they must necessarily include numerous key stake‐ holders, from companies to institutes, universities and public institutions (Štumberger, 2007). The following chapter describes the develop‐ ment of Technology Platforms in Slovenia in greater detail. 3.3.1 Initializing the Development of Technology Platform In preparation for the 7th Framework Program in 2004, the European Commission began to actively promote the creation of European Technology Plat‐ forms designed to integrate all key players in a par‐ ticular technological field and to provide suggestions for improved research policy and more effective implementation of transnational research projects. One purpose of the national Technology Platforms has been to facilitate improved coopera‐ tion within the European research area. The Republic of Slovenia’s Ministry of Higher Education, Science and Technology (MHEST) sup‐ ported the European Commission's plans and sought to ensure the participation of a greater num‐ Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 13 ber of Slovenian researchers within European Tech‐ nology Platforms. In 2005, it therefore carried out a call for the support and creation of national Tech‐ nology Platforms. These groups have had to be cre‐ ated in related areas to those already existing in Europe and have had to connect themselves with cognate European Technology Platforms. In 2005, 12 selected Technology Platforms de‐ signed their websites, organized a national work‐ shop and began preparing a strategic development plan (Table 3). In 2005, the development of national Technol‐ ogy Platforms in Slovenia was also encouraged by the Slovenian Chamber of Commerce and MHEST with a strategic business conference on Technology Plat‐ forms that represented the first in a series of planned milestones for the implementation of the project on Technology Platform Strategies Development. In 2006, the Directorate for Technology of MHEST continued with the tender it had initiated in 2005. With this tender, MHEST pursued the creation of new national platforms in areas where just a few European initiatives were already in existence. All of the former initiatives were further subsidized to con‐ nect with European platforms and to develop even greater and more precise strategic research plans for the future (7th Framework Programme EU, 2006). 3.3.2 A Period of Co‐financing and Growth In 2005, the adopted National Research and Development Programme (NRDP) for the period 2006‐2010 highlighted the identification of techno‐ logical development priorities in which Slovenia had the greatest potential knowledge (as well as in the general economy) as central tasks in the field of sci‐ ence and technology policies. Following adoption of the NRDP, this programme actually represented the first systematic and methodical approach to antici‐ pating technological innovations and determining priority technology areas in Slovenia. The govern‐ Technology Platform Institution Web Page Slovenian Hydrogen and Fuel Cell Technology Platform TECES, Technological Centre for Electrical Machines www.sihfc.si Slovenian Textile Technology Platform IRSPIN www.irspin.si Technology Platform Tool‐making and Mechatronics, T‐PLATAMM TECOS, Slovenian Tool and Die Development Centre www.manufuture.si Slovenian Construction Technology Platform University of Ljubljana, Faculty of Civil and Geodetic Engineering www.sgtp.si Photovoltaic Technology Platform Energy Restructuring Agency www.pv‐platforma.si Advanced Materials Technology Platform ‐ NaMat ISOKON d.o.o. www.namat.si Slovenian Wood Technology Platform Technological Institute of Wood Scienceand Technology Ljubljana www.sltp.si Technology Platform for Water Jožef Stefan Institute www.tpvode.si TN Information and Communication Technology University of Ljubljana, Faculty of Electrical Engineering www.ict‐slovenia.net Slovenian Technology Platform for Road and Vehicle Traffic Institute of Construction Slovenia www.ertrac.si TN Process Control Technology INEA Embedded Systems ARTEMIS Iskra Systems www.tp‐artemis.uni‐mb.si Table 3. Nationally Supported Technology Platforms in 2005 Source: 7th Framework Programme EU, 2006 Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 Jure Kovač, Brigita Gajšek: Contemporary Network Organisations in Slovenia 14 ment of the RS used the policies of existing national Technology Platforms and studies of technological foresight as the basis for a wider debate on devel‐ opment priorities in Slovenia within the framework of the Competitiveness Council at the Government of the RS Office for Development in 2008. At the end of 2009, the market economy con‐ firmed the growing importance of investing in Re‐ search and Development (R&D), which was in turn also reflected by the continuous increase of private‐ sector expenditure on R&D. Strategic research plans were established for 22 platforms while an analysis of priority technology areas with major impact on the competitiveness of the economy was also made on this basis. 31 developmental issues were there‐ after grouped into 14 key areas. 3.3.3 Maturity Stage Although there has been no significant co‐fi‐ nancing of operations since 2006, Technology Plat‐ forms have not disintegrated ‐ largely as a result of members’ interests. National Technology platforms have successfully competed for national and Euro‐ pean tenders and have represented the central component of the consortium for the development of Centres of Excellence. In 2009, Technology Plat‐ forms included 711 companies, 100 R&D organisa‐ tions and 82 universities. This refers to development platforms with interests in topical issues that hold‐ ers of knowledge from R&D institutions and the economy actually face. These are in turn able to argue for defining development policy priorities and measures that are necessary for effective Technol‐ ogy Platform implementation. At the 5th Conference on Technology Platforms in 2009 it was concluded that, due to the small num‐ ber of Slovenian researchers and developers in the economy, a concentration of researchers in a small number of integrated (inter‐disciplinary) develop‐ ment projects was needed to achieve technological breakthroughs. The Conference stressed the need for clearly defined and topical (actual) priority areas (GZS, 2009). In the summer of 2010, there followed a TRINET conference of three technology platforms, from the construction, wood and polymer sectors. Participants realized that tasks from prepared strategic development documents had been real‐ ized too slowly. On the entrepreneurial side, activi‐ ties and investment were too rare and too small due to the economic crisis that had spread across all three sectors, and particularly the construction sec‐ tor. Other elements found to be missing were human resources and innovation competencies. Even in the event that these resources and compe‐ tencies were located within a commercial sector, there was found to be a lack of opportunity to ab‐ sorb public resources. A major obstacle lies in the fact that instruments change each year, thereby pre‐ venting development planning that is of a longer du‐ ration. In terms of lack of economic absorption capacity, this harnesses the research sector to gain new knowledge and increase involvement in re‐ search projects. In this way, the research sector di‐ verges from the needs of the economy. Technology Platforms greatly assist with integration into EU Re‐ search and Development (GZS, 2010). Probably due to the economic crisis and the prevalence of poor conditions in certain industries, several Slovene Technological Platforms have greatly reduced the number of activities of their local mem‐ bers. One such example is the Slovene Textile Tech‐ nology Platform, where activities are largely limited to training, workshops and knowledge transfer. Membership in Technology Platforms can be re‐ duced at the expense of multiple company closures. However, this does not preclude that certain com‐ panies would not participate in the area of knowl‐ edge transfer and innovation, as they have an open path to European Technology Platforms that provide greater opportunities ‐ easier participation in ten‐ ders and better access to projects. Companies and researchers also seek out new opportunities in Competence Centres and Centres of Excellence that have also recently been sup‐ ported by the Government of RS. 3.4 Competence Centres and Centres of Excellence In accordance with the Rules on record keeping about innovative environment (2008) Centres of Ex‐ cellence are classified as other key entities of inno‐ vative supportive environments within Slovenia. Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 15 A Centre of Excellence comprises a high quality multi‐disciplinary team of researchers from acade‐ mia and industry that together provide a critical mass of knowledge and a suitable research infra‐ structure for allowing Centres of Excellence to break through into the world's top sciences and/or be‐ come included in an international network of excel‐ lence (Glas, 2007). These centres cover narrower, more specialized areas that are capable of market penetration on the European and global scale and that alongside the breakthrough of Slovenian com‐ panies, can ensure a leading position for Slovenia within the world’s technological development niches. The Instrument of the Competence Centre is a complementary instrument to Centres of Excellence. Together, these form a complete whole in the field of national Research and Development activities. 3.4.1 Initializing the Development of Competence Centres and Centres of Excellence MHEST has designated Centres of Excellence as a first priority task within the Unified Programming Document 2004‐2006 and their Operational Pro‐ grammes for the period 2007‐2013. In the MHEST tender for the development of Centres of Excellence in the 2009‐2013 period, 8 Centres of Excellence were selected in Slovenia. These are: the Centre of Excellence in Nanoscience and Nanotechnology; the Centre of Excellence for Biosensors, Instrumenta‐ tion and Process Control; the Centre of Excellence for Integrated Approaches in Chemistry and Biology of Proteins; the Centre of Excellence for Low Carbon Technologies; the Centre of Excellence Advance Ma‐ terials for the Future; the Centre of Excellence for Polymer Materials and Technologies; the Slovenian Centre of Excellence for Space Sciences and Tech‐ nologies; the Centre of Excellence for Research in Biotechnology, Pharmacy and Physics of Materials. National Structural Funds were intended to as‐ sist Centres of Excellence on their way to becoming leaders among their fields in the long‐term. Struc‐ tural Funds supported applied research of a company through direct co‐financing, thus demonstrating gov‐ ernment level interest in developing research achievements in the most innovative products and services for successful marketing on the European and global levels. With the financial assistance of these funds, Centres of Excellence were able to pur‐ chase some of the most advanced research equip‐ ment available to their respective fields. In connection with the tender for the develop‐ ment of Centres of Excellence in the 2009‐2013 pe‐ riod, 7 Competence Centres were also selected. These were: the Competence Centre for Advanced Control Technologies; the Competence Centre for Advanced Systems of Efficient Use of Electricity; the Competence Centre for Biomedical Engineering; the Competence Centre for Sustainable and Innovative Construction; the Competence Centre for Biotech‐ nology Development and Innovation; the Compe‐ tence Centre for Services Supported by Cloud Computing and the Competence Centre Open Com‐ munication Platform for Service Integration. 3.4.2 A Period of Co‐financing and Growth In 2008, Mešl and Bučar (2008) conducted a mid‐term evaluation of the results of 10 Centres of Excellence that was consistent with physical targets that had initially been set as well as with the meas‐ ure itself in the Unified Programming Document. Furthermore, they evaluated the results of Centres of Excellence and presented programs for the next programming period from the perspective of inte‐ grating economic partners and on the basis of the economic relevance of research programs. They also provided recommendations for the further imple‐ mentation of the measure in the context of the Op‐ erational Programme for the period 2007‐2013. Mešl and Bučar (2008) concluded that Centres of Excellence are one of the few instruments to pro‐ mote an inter‐ (trans‐) disciplinary approach to re‐ search and are therefore better suited to the needs of the economy, where issues are typically not en‐ closed within separate disciplines. Centres of Excel‐ lence are instruments that in some way determine priorities and place urgent and major focus on joint R&D ventures in priority technology areas that are of key importance for economic competitiveness. In Slovenia, Centres of Excellence also reflect upon economic fields that have the potential knowledge to achieve a breakthrough in the international envi‐ Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 Jure Kovač, Brigita Gajšek: Contemporary Network Organisations in Slovenia 16 ronment. Irrespective of the significant differences among them, these Centres involve a number of partners from both the academic and business en‐ vironments and therefore contribute to the elimi‐ nation of one of the most important deficiencies in the area of Research and Development in Slovenia ‐ the lack of an effective and integrated flow of knowledge and application of this knowledge to products and services. A common finding of the study was that the in‐ struments for the implementation of set measures do not fully conform to pursued objectives and to concepts that are defined by Centres of Excellence. Mešl and Bučar (2008) particularly exposed that Centres of Excellence are expected to con‐ tribute to integration in order to achieve a critical mass of knowledge within a particular field, thus en‐ abling inclusion into relevant international net‐ works. The criterion of the call for Centres of Excellence was that participant groupings must in‐ clude at least three partners. This was reflected in a very unequal structure of partners, where one indi‐ vidual area (such as new materials) was supported by several centres ‐ some of which had only a few partners that were also very sector limited and thus did not follow the rationale of building inter‐disci‐ plinary teams. Mešl and Bučar (2008) also observed that Cen‐ tres of Excellence have primarily been set‐up as in‐ struments for the promotion of strategic cooperation between and among different partners from academia and industry, for the purpose of en‐ couraging joint planning and directing investments into a development of knowledge with regard to long‐term development trends. Promotion instru‐ ments have thus far been limited solely to the pur‐ chase of common equipment and carried out on the basis of joint R&D projects. They have not, however, established cooperation, joint planning and devel‐ opment of environmental systems for long‐term co‐ operation and exploitation. The study (Mešl & Bučar, 2008) reported that Centres of Excellence are expected to significantly contribute to the flow of knowledge, the identifica‐ tion and pooling of partner competences in the fields of science and development and commercial‐ ization of new knowledge. Support instruments ig‐ nore this and unequally treat partners in such a way that enables co‐financing predominantly to those involved in the public research sphere. They also do not provide support throughout the process of de‐ velopment and application of knowledge. Mešl and Bučar (2008) further noted that there is no common strategy at the state level in terms of establishing more defined goals and policies. Upon achieving this ambitious goal, Slovenia could not only act as a source of finance and controller of spending, but should also become a partner in guid‐ ing the development of Centres of Excellence. This would further assist the Republic of Slovenia to be well‐positioned within the entire international inno‐ vation system. 3.4.3 Maturity Stage As reported by the Institute for Entrepreneur‐ ship Research (IER, 2011:8‐9), Centres of Excellence had by 2011 successfully upgraded from previous collaboration between companies and knowledge institutions and established new partnerships (for example in the fields of environmental technologies and nanotechnology). In 2011, 50 companies par‐ ticipated as active partners, while a further 100 were involved in other forms of cooperation. At that time, hundreds of researchers operated at Centres of Excellence... They created a series of excellent sci‐ entific results, reinforced the international dimen‐ sion and contributed to the development of higher education. They further contributed to the attain‐ ment of more than 200 patents and innovations, de‐ veloped new technologies, products and services and provided new jobs. Operations of instruments of Competence Cen‐ tres and Centres of Excellence that were financed by the Slovene Ministry of Education, Science and Sport (MESS) were completed by the end of 2013. The work done by the Competence Centres and the Centres of Excellence is currently being analysed to create a starting base for their continuation. Dr. Jernej Pikalo, Minister at MESS, provided an inter‐ view where he assured that the instruments would continue, but only with respect to those Compe‐ tence Centres and Centres of Excellence that man‐ aged to establish a high degree of cooperation with industry ‐ which was also identified as the main rea‐ Dynamic Relationships Management Journal, Vol. 3, No. 2, November 2014 17 son for their establishment (“Smart Specialization” [Technological Network ICT], 2013). Re‐tendering for Competence Centres and Centres of Excellence is to follow in up‐coming years. Currently, work that is being carried out as well as the corresponding effects of these activities are being analysed. 4. CONCLUSIONS Due to increased globalization and intensified competition, companies and other organisations must be capable of meeting requirements man‐ dated by the changing socio‐economic environ‐ ment. This is not only a question of cost and time, but also a question of being capable of meeting the diverse requirements of clients in different global markets. The need for quick reaction in a rapidly changing economic environment has stimulated the development of a series of new organisational con‐ cepts, which include the following components: dy‐ namics and openness. While companies perceive the need to develop new products and penetrate new markets, they are less aware of the benefits to be gained from participating in joint activities within their own sector and among interdisciplinary sec‐ tors. Elements of the institutional environment can bridge this gap by initiating activities and processes that enable faster developmental shift in a strategic direction. Clusters, technology platforms, compe‐ tence centres and centres of excellence are emerged forms of contemporary networking among companies and other organisations prevalent in Slovenia. This paper confirms the proposed hypothesis. The institutional environment of Slovenia initiated start‐up processes that led to the establishment of contemporary network organisations, namely Slovenian state institutions encouraged network connections between companies and other organi‐ sations through stimulating policies and the provi‐ sion of financial initiatives. There is no doubt that so‐called ˝organisational networking˝ represented one of the best known or‐ ganisational concepts as early as the end of the 1990’s. We can maintain that the diffusion and sig‐ nificance of networked organisation forms will con‐ tinue to increase in future. In Slovenia there are prevalent examples of initiated contemporary net‐ work organisations that are currently at a mature stage and which have successfully established them‐ selves within EU structures. While inter‐organisa‐ tional linking will likely have a different form and extensiveness from what it does today, it is likely to take position at in the forefront. Living Labs represent the next step to the con‐ temporary promotion of economic development. The Living Lab System enables real and user‐ori‐ ented research and innovation as a normative tech‐ nique to co‐design new products, services and social infrastructure. Living Labs offer services that allow users to actively participate in research and innova‐ tion. This network environment connects re‐ searchers, developers and users that work together to achieve a common goal in the shortest possible timeframe. As such, Living Labs require the contin‐ uation and further development of current research for a comprehensive impression of the functioning and effect of network organisations in Slovenia. EXTENDED SUMMARY / IZVLEČEK Sodobne organizacije se soočajo z velikimi izzivi. Glavni izziv jim predstavlja potreba po nenehnem prilagajanju spreminjajočim se razmeram v okolju. Da bi se lažje in hitreje prilagodile za‐ htevam sodobnih okolij, se povezujejo v mreže. Mrežna organizacija posledično hitro postaja priljubljena oblika sodobne organizacije. Na podlagi analize članov na področju mrežnih organizacij prispevek predstavlja dimenzije in opredelitve mrežnih organizacij. Predstavljena so teoretična izhodišča razlage mrežnih organizacij in njihove različne pojavne oblike. 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