Networks and Organizations

1. Networks and Organizations Aaron McKenny

2. Agenda • Authors • Networks • Major Uses • Networks in different organizational lifecycle phases • Conclusion

3. 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

4. Agenda • Authors • Networks • Major Uses • Networks in different organizational lifecycle phases • Conclusion

5. 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

6. 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.

7. Agenda • Authors • Networks • Major Uses • As a tool for tracing relationships • As a governance structure • Networks in different organizational lifecycle phases • Conclusion

8. 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

9. 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.

10. 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

11. 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

12. 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

13. Agenda • Authors • Networks • Major Uses • Networks in different organizational lifecycle phases • New Ventures • Growth • Maturity and Decline • Conclusion

14. 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

15. 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

16. 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

17. 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)

18. 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.

19. 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

20. 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.

21. 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

22. 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.

23. 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.

24. Agenda • Authors • Networks • Major Uses • Networks in different organizational lifecycle phases • New Ventures • Growth • Maturity and Decline • Conclusion

25. 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

26. 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?