Efficiency, Effectiveness and the Design of Network Governance

The design of networks in their institutional and organizational aspects is a key determinant of their competitiveness. Consequently managers in agricultural and food industries have to address the question of governance design, i. e. of choices concerning the content and the architecture of business relationships. We will define network governance as the institutional matrix that encapsulates the configuration of multi-stage business arrangements within a given strategic network. Our objective is to show that the design of network governance must follow a two-track principle of efficiency and effectiveness. Both are organizational standards of global performance. The first one is an internal standard of performance measured by the ratio of resources utilized for a specific output, while the second one gives a measure of objectives reached by the organization for external evaluators. Drawing from transaction-cost economics and strategic management theory, we propose a grid that allows the simultaneous assessment of these two aspects. The grid is then applied to two stylized agrifood networks. We show that the choice of a governance form is an optimization calculus. A limited number of network governances are able to meet an efficiency/effectiveness principle. In these agrifood networks, the governance optimizes a cost-and-value ratio, but creates at the same time the conditions for flexibility and adaptability while developing and sustaining (tangible or intangible) strategic assets.