Personal and Business Networks

1. Personal and Business Networks Gerrit Rooks 29-09-10 “no man is an island, entire of itself…” (Donne 1624).

2. This lecture • A tidbit on personal networks • How many close friends do people have? How many do you have? • The evolution of business-networks from entrepreneurial networks • The Toyota supplier network • Alliance networks: direct and indirect ties

3. Social Brain Hypothesis • Ronald Dunbar (1947), anthropologist and evolutionary biologist. Director of the Institute of Cognitive and Evolutionary Anthropology, University of Oxford • Ronald Dunbar hypothesized that the development of human intelligence (and the neo-cortex) is the evolutionary result of the need for social coordination and cooperation

4. Personal network size • the number of social group members a primate can track, appears to be limited by the volume of the neocortex region of their brain. Dunbar, R.I.M. (1993), Coevolution of neocortical size, group size and language in humans, Behavioral and Brain Sciences 16 (4): 681-735.

5. Dunbars number • Based on a regression equation on data for 38 primate genera, Dunbar predicted a human "mean group size" of 148 (casually rounded to 150). • Dunbars number: 150 (estimates of network size vary between 100-230) Dunbar, R.I.M. (1993), Coevolution of neocortical size, group size and language in humans, Behavioral and Brain Sciences 16 (4): 681-735.

6. Dunbars number • Support clique: people who we seek personal advice from • Sympathy group: special ties, frequent contact • Band: acquaintances, frequent contact Clan: all current contacts • Megaband + Tribe: larger social units

7. (Co)variation in network size

8. Any group greater than 150 will become disfunctional lieutenant general or higher 50,000 + 20,000 to 45,000 lieutenant general major general 10,000 to 15,000 colonel 20,000 to 45,000 lieutenant colonel 475-1000 captain 75-200 Organizations > 150 need bureaucracy… Company size = 75-200

9. Personal and business networks The organizational life cycle Hite & Hesterly. The Evolution of Firm Networks: From Emergence to Early Growth of the Firm Strategic Management Journal, Vol. 22, No. 3 (Mar., 2001), pp. 275-286

10. Socialnetwork entrepreneur = firmnetwork • `identity’ basednetworks • high proportion of tieswithsome type of personalorsocialidentification • Pre-existingties, strongembeddednetwork high in closure and cohesion

11. Early / Later growth • Calculativenetworks • Ties are primarilymotivatedbyexpectedeconomicbenefits • Weaktiesthat are more marketlike, less redundant • Result of pro-actively managing networks

12. From embedded to balanced • Emerging firms rely on embedded ties • Low reputation / legitimacy • Not an attractive partner • -> reluctant banks etc. • Limited search capabilities • Growth firms have to rely on arms length relations as well • Firm is more attractive etc • Better search capabilites

13. From cohesion to bridging structural holes • Emerging firms rely on cohesive networks • Reciprocity, Enforcable trust, direct access to resources • However, available resources are limited. • Add new contacts, bridge structural holes • Firms need a balanced network, neither too dense, nor too sparse

14. Intentionally managed networks • Firms (can) learn to create network value • Creation of networks also depends on specific skills (in case of persons social competences) • Co-evolution of firm and network

15. The Toyata supplier network • Japanese automobile makers are more and more productive, US is lagging • WHY? • Dyer and Nobeoka: "Creating and managing a high performance knowledge-sharing network: the Toyota case"

16. One large network with core firm as hub Bilateral relationships Weak ties/arm's length relations Structural holes Large network plus multiple nested networks Multi-lateral relationships Strong/embedded ties in nested networks with core firm Dense network

17. Knowledge sharing routines • Dilemmas associated with knowledge sharing • how can self-interested network members openly share valuable knowledge? • how to prevent free-rider problems? • how to maximize the efficiency of knowledge transfers?

18. Overcoming knowledge sharing dilemmas • how can self-interested network members openly share valuable knowledge? • Create a network 'identity' through network-level knowledge-sharing routines • how to prevent free-rider problems? • Network `rules' for knowledge protection and value appropriation • how to maximize the efficiency of knowledge transfers? • Creating multiple knowledge-sharing processes and sub-networks in the larger network

19. Why create an identity? • Many experiments demonstrate the powerfull effects of social identity, f.i. • Randomly assign individuals to a blue and a green group • Individuals were unknown to each other and were told that they would not meet again • Group members evaluated each other more positively and were more willing to cooperate with each other than non group members

20. How did Toyata create a network 'identity'? • Toyota's network is known (labeled) as the `Toyota group'. • Toyota creates a shared network identity by developing multiple groups • The supplier association • Toyota's operations management consulting division • Voluntary small group learning teams (jishuken)

21. Developing ties • The supplier association (s) • Kyohokai: Toyota's supplier association was established in 1943 • Suppliers must be close to each other • Supplier association has regular meetings, fi • Quality committees. • Visit `best practice' plants • Quality management conference held once a year

22. Developing ties • Toyota's operations management consulting division • Direct free `on-site' assistance for suppliers • Voluntary small group learning teams (jishuken) • Each group consists of roughly 5-8 suppliers • After determining theme, the group visits each member to develop suggestions • Groups are frequently rearranged

23. Network rules for knowledge protection • Creating an identity isn't enough to solve sharing and free riding problems • Toyota sets a norm/rule by sharing its own knowledge • eliminating the notion that there is `proprietary knowledge' • Suppliers must be willing to open their plants to other network members to other network members • reciprocal obligations: We will help you, but in return, you must agree to help the network. • reciprocity norm is enforced by implicit threat of withdrawal of business

24. Creating multiple knowledge sharing processes

25. Two types of ties Direct ties knowledge sharing complementary skills scale economies Indirect ties knowledge spillovers Alliance networks: Ahuja Indirect tie Direct tie

26. Effects of direct ties Many direct ties Fewer direct ties • Knowledge sharing • Complementarity higher innovation output • Economies of scale

27. Effects of indirect ties Many indirect ties Fewer indirect ties • Information gathering devices higher innovation output • Screening device

28. Effects of indirect ties depend on the # direct ties Many direct ties Fewer direct ties • Relative addition of new resources is smaller. • When many partners have indirect ties, information is likely less valuable. since it will reach many others

29. What is better for innovation output of firms: structural holes or network closure? • Ahuja finds clear support that network closure is superior