Innovation in networks and alliance management An introduction to the course

1. Innovation in networks and alliance managementAn introduction to the course

2. www.tue-tm.org/INAM • All course info, literature, slides, and messages can be found here. Check regularly!

3. Today • Course design and content • Introduction to network analysis and concepts

4. Lecturers • Chris Snijders c.c.p.snijders@gmail.comhttp://www.tue-tm.org/snijders/home • Uwe Matzat u.matzat@tue.nlhttp://www.tue-tm-soc.nl/~matzat • Mila Davids m.davids@tue.nl (+ two guest speakers)

5. The course: organization • Two courses: 0ZM05 (5 ects) and 0EM15 (6 ects) • Lectures every week on Tuesdays, hour ? and ??. Later in the program less lecture time, more "assignment time" (see the course website). • Several guest lectures  attendance is mandatory! • 0EM15 participants have a higher lecture and exam load

6. Course requirements • Two (group) assignments + written exam. Grade = 50% assignments + 50% exam. Both assignments and the exam should be at least a 4.0. Final grade should be at least 5.5.

7. To do: register in Studyweb

9. Course design • Aim: knowledge about concepts in network theory, and being able to apply them, in particular in a context of innovation and alliances • Network theory and background • Business alliances as one example of network strategy • Assignment 1: business networks • Assignment 2: <to be decided> • Exam: content of lectures and slides plus literature online

10. The setup in some more detail 1. Network theory and background • Introduction: what are they, why important … • Four basic network arguments • Kinds of network data (collection) • Typical network concepts • Visualization and analysis 2. Business alliances as one example of network strategy - Kinds of alliances, reasons to ally - A networked economy

11. (social) Networks – an introduction

12. We live in a connected world “To speak of social life is to speak of the association between people – their associating in work and in play, in love and in war, to trade or to worship, to help or to hinder. It is in the social relations men establish that their interests find expression and their desires become realized.” Peter M. Blau Exchange and Power in Social Life, 1964 How?

13. Make our 'social space' visible "If we ever get to the point of charting a whole city or a whole nation, we would have … a picture of a vast solar system of intangible structures, powerfully influencing conduct, as gravitation does in space. Such an invisible structure underlies society and has its influence in determining the conduct of society as a whole." Jacob L. Moreno New York Times, April 13, 1933 Making the invisible visible

14. Why do networks matter?

15. Why do networks matter?

16. Social network analysis – it's core • An interdisciplinary perspective emphasizing structural relationships as key explanatory concepts and principles: • Structural propertiesof social formations are contexts that shape the perceptions, beliefs, attitudes, and actions of individuals and collectivities • Social influence and collective action may be facilitated and/or constrained by direct and indirect exchanges (transactions) among social actors possessing differential resources (e.g., information) • Actors and transactions/interactions between actors are embedded, i.e. located within actual situational contexts

17. A B The network perspective Two firms in the same market. Which firm performs better (say, is more innovative): A or B? • This depends on: • Cost effectiveness • Organizational structure • Corporate culture • Flexibility • Supply chain management • …

18. A B The network perspective Two firms in the same market. Which firm performs better (say, is more innovative): A or B? Note Networks are one way of dealing with “market imperfection” and ... on the structure of the network

19. Multi-level and interdisciplinary • Network applications appear in diverse substantive fields of mostly social sciences – anthropology, management, political science, public health, sociology (and recently also in economics) • Studies span micro- meso- & macro-levels of analysis: • personal social & health support systems • children’s play groups, high school cliques • employee performance • neighboring behavior, community participation • work teams, voluntary associations, social movements • military combat platoons, terrorist cells • corporate strategic alliances, board interlocks • international relations: trade, aid, war & peace

20. It's a science ...

21. Example: crime research • Example topics • "Cold case" research • forensic psychiatry • (youth) crime • ...

23. Network analysis: origins Started in 1920s, Jacob L. Moreno pioneered social network analysis for his “psychodrama” therapy. He usedsociomatricesand hand-drawnsociogramsto display children’s likes and dislikes of classmates asdirected graphs (digraphs).

24. Moreno’s socio-matrix

25. … displayed as a sociogram

26. Modern computing makes a big difference “Visualizationhas been a key component of social network analyses from the beginning, proliferating into today’s dazzling computer-based multidimensional displays” (Freeman 2001)

27. A network (or graph) contains a set of actors (or nodes, objects, vertices), and a mapping of relations (or ties, or edges) between the actors Most simple network: two actors, one relation Social networks: actors are people or groups of people Social network basics 1 2 For instance: Actors: persons Relationships: “participates in the same course as” Or: Actors: organizations Relationships: have formed an alliance

28. Relationships can be directed: Symmetrical by choice: Symmetrical by definition: (usually depicted as) Social network concepts: ties 2 1 For instance: person 1 likes person 2 1 2 Person 1 likes 2, 2 likes 1 1 2 Person 1 is married to 2 1 2

29. Relationships can carry weights : Actors can have a variety of properties associated with them: Social network concepts: weights 2 1 4 3 Actors: persons Relationships: know each other 3 and 4 know each other better (stronger tie)    

30. Reciprocity: whenever there is a tie from a to b, there also is a tie from b back to a Social networks: translating arguments 1 2 3

31. Quantifying matters through network concepts • Actor characteristics: • outdegree • indegree • betweenness • Network characteristics • density • segmentation

32. An example of a modern network:9-11 Hijackers Network SOURCE: Valdis Krebs http://www.orgnet.com/

33. OECD Trade Flows 1981-1992 SOURCE: Lothar Krempel http://www.mpi-fg-koeln.mpg.de/~lk/netvis.html

34. Social network software • UCINet – Many things on network analysis Lin Freeman, Steve Borgatti, Martin Everett • MultiNet – Whole Network Analysis + Nodal Characteristics • Structure – Ron Burt – No longer maintained • P*Star – Dyadic Analysis – Stan Wasserman • Krackplot – Network Visualization (Obsolete) David Krackhardt, Jim Blythe • Pajek – Network Visualization – Supersedes Krackplot • StocNet – Tom Snijders - collected programs for, e.g., analysis of dynamic networks

35. Internet facilitates social networking…

36. … for recreational use …

37. … also for business purposes … <see “Visible path” demo>

38. Organizations as networks:org-chart shows formal ties… SOURCE: Brandes, Raab and Wagner (2001) <http://www.inf.uni-konstanz.de/~brandes/publications/brw-envsd-01.pdf>

39. … but the graph of actual connections is really different

40. … and can be restructured to reveal the “real” hierarchy!

41. Why networks & innovation? • Classic innovation studies focus mainly on characteristics of individuals or firms to explain innovation • e.g. firm size and innovativeness • However, innovation, is inherently social in nature • e.g. firms have relations with other firms and consequently access to additional external resources • Hence, networks of social relations between actors • (individuals and organizations) may be important factors in explaining innovation • and innovation may change networks of social relations as well

42. Why networks and alliance management? The knowledge economy is a network economy Third Industrial Revolution Second Industrial Revolution CEO • Networked model: • Economies of skill: • access to knowledge • co-development • leverage knowledge • focus on core competences • learn and innovate Staff Divisions Guild Master Pupil Master Pupil Master Pupil • ‘Stand alone’ model: • Economies of scale • Optimize assets Organizational models are transforming from “stand alone” to “networked”

43. CEOs rate alliances among the most important management tools • Bain researched the 25 most popular management tools in a survey among 960 international executives • Alliances are among the 10 most widely used tools by top executives • 63% of them use alliances • Note that other tools involve alliance and network related aspects as well: CRM, outsourcing, growth strategies, supply chain management Source: Rigby, 2005, Management Tools 2005, Bain & Company

44. Alliances lead to networks Network in Flat Screens 2000-2001 Source: De Man, 2006, Alliantiebesturing In 2 years time 75% of the firms in the industry are directly or indirectly connected

45. Alliances come in a variety of forms Forms of cooperation Market transaction Licensing Joint venture Merger/ acquisition Outsourcing (traditional) Minority participation Joint R&D, production etc Outsourcing (new) Alliances Important elements are joint decision-making, joint revenues, joint risks, actual collaboration between people taking place while partners remain independent

46. Network questions and arguments

47. Typicalities of network arguments • Non-linear effects can occur easily (cf “Small-world phenomenon”) in networks [lecture 3] • Data collection often daunting = “is being eaten by”

49. Typical network related questions • Which of these actors has the best position in the network? • Example: firms in alliance networks • Which kinds of networks are best for <…> purposes? • Example: R&D teams • Which are the key relations in the network? • Example: terrorism

50. Networks = Y or Networks = X In most social science applications, networks are considered as an independent variable. For instance Firm A performs better than B because firm A is embedded in a network with a lot of ties (a network of higher “density”) or Person A performs better than B because person A has a lot of ties to other persons and person B doesn’t (firm A has a higher “outdegree”)