NETWORKS AND ORGANIZATIONS

Aaron McKenny

Agenda

Authors Networks Major Uses Networks in different organizational

lifecycle phases Conclusion

Authors

Kelly Packalen (Maiden name: Porter) Assistant Professor of Strategy and

Organization Queens University Entrepreneurship, Strategy, OT Especially career histories of founders

Walter Powell Professor of Sociology Stanford University Networks

Agenda

Authors Networks Major Uses Networks in different organizational

lifecycle phases Conclusion

Network… a broad word

“Networking” – in a business sense Internal vs external networks Nodes = individuals, organizations IT definition

Two types of network studies Networks as tools to trace relationships Networks as a governance structure

Networks play different roles in different stages of the organizational lifecycle

Important things not introduced Closure – The redundancy of ties in a

network Centrality – Your importance in a network

(most simple: number of ties you have to others)

Centralization – Degree to which the middle of the network is dominated by one or few nodes.

Agenda

Authors Networks Major Uses

As a tool for tracing relationships As a governance structure

Networks in different organizational lifecycle phases

Conclusion

As a tool for tracing relationships

Roots in sociology, social psychology Webs of affiliation

Moreno (1934) developed the social network map (sociogram)

Use in investigating socialcircles Formal circle membership Informal circle membership

As a tool for tracing relationships

Balance Theory Need to maintain an equilibrium of relations

A & B positively linked Only in balance if they agree in their other links (vice versa for negatively linked pairs)

Small Worlds http://oracleofbacon.org/ Two random people are not so distantly

connected as we tend to think.

As a tool for tracing relationships

The Strength of Weak Ties You generally share common information with

strong ties Weak ties have more information that is less familiar

to you (more informative) Bridging relationship – ties two otherwise

disconnected (or weakly connected) subnetworks Many advantages to this: promotion, compensation,

etc. (Burt, 2000) Structural holes – what you have when there’s

no bridging relationship, two subnetworks that aren’t linked

As Governance Structures

Markets vs hierarchies (Ollie W) …vs. networks (Powell, 1990)

Market Goods exchanged based on price – prototypical

neoclassical economics supply & demand curve Hierarchy

Employment relationship (rules-based) Management costs < Market transaction costs

Networks Relationship-based (friendship, obligation, trust) Benefits of small, agile businesses while still attaining

economies of scale

Four types of network governance

Centered around projects Firm-led industrial districts (meta

organizing?) Geographical clustering of industries Strategic networking

Outsourcing Joint Ventures Strategic Alliances

Agenda

Authors Networks Major Uses Networks in different organizational

lifecycle phases New Ventures Growth Maturity and Decline

Conclusion

What to expect

Differences Types of networks leveraged

Formal vs. Informal Level of networks leveraged

Internal vs. external Roles of the network Embeddedness in network

Relational – use direct ties to get information Structural – Value derived from holding a

position in the network

In new ventures

Network of founders is the firm’s network

A conduit for resources Wealth, Power, Legitimacy, Information

Use network to gather advice Gain support and test business ideas Start network small, grow it in the planning

phase, shrink it in the establishment phase Frequently use family

Also venture capitalists, angel investors

In new ventures

Money Most entrepreneurs supplement their own

investments with others Family, Friends, VCs, Angels, SBA, etc

Immigrant Entrepreneurs Often discriminated against by traditional funding

sources Some use revolving credit associations instead

Socially very important for them to repay loans Others are more creative

Revolving credit associations have a bunch of negative side-effects

In new ventures

Reputation Helps establish legitimacy, access to favorable

capital sources (and not just financial capital) Investors use to gather information about you too Can affect IPO valuation

Favored at Birth Tend to expand the same social network, not

establish a brand new one when starting a venture Relationships based on one of three components

Personal embeddedness (social, not work connection) Competency embeddedness (known, reliable party) Hollow embeddedness (based on reputation/3rd party

ties)

Growth Phase

Connections to external resources facilitates growth

Internal Networks Influences flow of information Moderate levels of internal socialization is

optimal Contrary to team-building studies findings

Networks Across Divisions Dense (internal and external) networks

more productive Weak ties helps in search for knowledge, but

not in transfer of knowledge.

Growth Phase

Networks Across Divisions (cont’d) Social network influences how well you receive

change Capturing Knowledge

Hiring – Bring in someone that will bring in new knowledge

Foreign Expansion – Locate your R&D organization in information-rich locations Acquire rather than establish

Informal Networks – Water cooler hierarchies Important for knowledge sharing Organizations can still be nodes in an informal

network

Growth Phase

Creating Inter-firm networks as a source of knowledge Joint projects (research, product development) Having relationships with too few established

firms gives them power over you Smaller firms tend to get more knowledge out

of networks than larger firms Dyads and beyond

Dyads are the most common They use Toyota as an example… maybe they had

better rethink that example.

Growth Phase

Location, Location, Location Real Estate, Marketing, and Networks Organizations develop routines that embed

them in their regions Certain regions have more opportunity than

others But after the ‘gold rush’ to the region, they’re

less attractive Likewise, having other similar companies

around can be helpful But too many can be detrimental

Growth Phase

Limits to knowledge sharing Differences among organizations’

information processing abilities Based on level of prior related knowledge

Differences in willingness of individuals to share information Based on social cohesion and dissimilarity of

knowledge pools. Access to knowledge conditioned by

Structural position in network Prior level of knowledge.

Maturity and Decline

New longitudinal databases to help study this Survivability increases at bridging points

between networks Very few studies on dissolution of ties

Hard to get data on this (most companies don’t announce it)

Clique stability Exchanges built on social attraction Identify complementary skills to accomplish

collaborative tasks Distribution of value throughout the clique.

Agenda

Authors Networks Major Uses Networks in different organizational

lifecycle phases New Ventures Growth Maturity and Decline

Conclusion

Conclusion

Very very brief overview of the literature Other more extensive reviews:

Marsden (1990): Network Data and Measurement – ARS Marsden (2004): Network Analysis – Encyclopaedia of

social measurement Scott (1991): Social Network Analysis: A Handbook Wasserman & Faust (1994): Social Network Analysis:

Methods and Applications Portes (1998): Social Capital: Its origins and applications in

modern sociology – ARS Burt (2000): The Network Structure of Social Capital –

Research in Organizational Behavior Smith-Doerr & Powell (2005): Networks and Economic Life

– Handbook of economic sociology

Big OT Questions

Why do organizations exist? Why are firms the same/different? What causes changes in organizations? Why do some firms survive and others

don’t? Emerging issue?