Social Networks The Basic Network Arguments U. Matzat

1. Social NetworksThe Basic Network ArgumentsU. Matzat

2. Today • “It’s not what you, but whom you know!” • Arguments of classical social network theories that make clear 1.why 2. which network characteristics 3. have what effect?

3. What you have learned already the last time.....what is a network? • Network A set of ties among a set of actors (or “nodes”) • Actors persons, organizations, business-units, countries … • Ties Any instance of ‘connection of interest’ between the actors

4. Firms as actors Buys from, sells to, outsources to Owns shares of, is part of Has a joint venture or alliance with, has sales agreements with Has had quarrels with What you have learned already the last time..... Example: relations among organizations

5. What you have learned already the last time.....Why networks & innovation? • Classical innovation studies: characteristics of individuals or firms • firm size • However, innovation social in nature • firms have relations with other firms • networks • important in explaining innovation • and innovation changes networks as well

6. Today • Arguments of classical social network theories that make clear 1. why 2. which network characteristics 3. have what effect?

7. Outlooking Example: Innovation Success Network closure high low trust, safeguard against opportunism

8. Outlooking Example: Innovation Success Network diversity (of a single company) high low • brokerage benefits, • diverse resources, innovative ideas

9. Outlooking Example: Innovation Success Contingency H:Alternative networks for different objectives: (1) Close-knit networks optimize benefits from collaboration (2) Diverse networks optimize competitive benefits

10. 4 Basic Social Network Arguments • Mark Granovetter: The strength of weak ties • James Coleman: Network closure as social capital • Ron Burt: Structural holes • J. Coleman/R. Burt: Diffusion of innovation: cohesion versus structural equivalence All good theories are portable. Take them to your problem.

11. Argument 1:Mark GranovetterThe strength of weak ties

12. Mark Granovetter: The strength of weak ties • Dept of Sociology, Harvard, “The strength of weak ties” (1973) • strong vs. weak ties - frequency of interaction - emotional closeness - duration of contact • interviewed 100 people who had changed jobs in the Boston area. • More than half found job through personal contacts (at odds with standard economics).

13. M. Granovetter: The strength of weak ties (2) • Many contacts rather indirect (a “weak tie”) • surprising, “strong ties” usually more willing to help you out • Granovetter’s conjecture: strong ties are more likely to contain information you already know • According to Granovetter: you need a network that is low on transitivity

14. M. Granovetter: The strength of weak ties (3) • weak ties: better access to information • Coser (1975) bridging weak ties: connections to groups outside own clique (+ cognitive flexibility, cope with heterogeneity of ties) Empirical evidence: • Granovetter (1974) 28% found job through weak ties 17% found job through strong ties • Langlois (1977): result depends on kind of job • Blau: added arguments about high status people connecting to a more diverse set of people than low status people

15. Example: acquisition of diverse information through weak ties • Assume manager C has to to eliminate some contacts and he has the opportunity to get rid of T or D • Whom should he dump? X X • Get rid of T and the tie to T!

16. Social Networking in plain English • http://www.youtube.com/watch?v=6a_KF7TYKVc

17. Argument 2:James ColemanSocial Capital and network closure

18. Coleman: Social capital in the creation of human capital • Social capital vs human capital Dep. of Sociology, University of Chicago, died 1995

19. Coleman: Social capital in the creation of human capital (2) – some (vague) definitions SEVERAL DEFINITIONS OF SOCIAL CAPITAL: OF AN ACTOR (person/organisation) • The resources you can mobilize through others • The value of social networks that actors can draw on to solve common problems. The benefits of social capital flow from the trust, reciprocity, information, and cooperation associated with social networks. OF A SOCIETY • The attitude, spirit and willingness of people to engage in collective, civic activities: the social infrastructure • The collective value of all social networks

20. Coleman: Social capital in the creation of human capital (3) Human capital: the competencies and resources you have available yourself (e.g., intelligence, education, experience, …) Social capital: the resources you can mobilize through others + the way in which your connections to others facilitate achieving one’s goals Note: Social capital need not be ‘social’. For instance: mafia family ties

21. Coleman: Social capital in the creation of human capital (4) One of Coleman’s social capital examples: The diamond merchants Compare … Diego Gambetta’s 1996 “The sicilian mafia” ( social capital need not be good for society) Putnam’s “Bowling alone”: Social capital is declining in the US (and according to him, this has something do do with privatization and television) At the same time: new social networking sites for professionals (LinkedIn..)

22. Coleman: Social capital in the creation of human capital (5) Social capital (of a society or group) consists of: • Obligations and expectations • Example: Kahn El Khalili market in Cairo • Channels of information • Norms about what (not) to do • all kinds of collective action problems can then be solved (e.g., prevention of deviant behavior in small cities through gossiping curious neighbours) For 1. and 3. you need “closure” (dense networks between actors / connections between your ties)

23. Coleman: Social capital in the creation of human capital (6) Social capital (of parents) leads to human capital (of children) Empirical analysis • To explain: school dropouts • Network actors: pupils and their parents • Network ties: “having frequent contact with” To do well in school, you need • Financial capital (physical resources) • Human capital (cognitive environment) • AND: Social capital Pupils whose parents spend more time on them, drop out less often. • in Catholic schools parents know each other from church related meetings • some parents have stayed in the same neighborhood, parents know each other better

24. Example: Social capital for successful innovation through collaboration • Two collaborating firms anticipate opportunistic behavior of the partner e.g.: pooling of resources for collaborating • Standard solution: contracts • Disadvantage: costly, sometimes difficult to manage (e.g., are the best employees given for participation in collaborative projects?) • Alternative/additional solution: implementation of collaboration in an organisational environment with high network closure

25. Example: Social capital for successful innovation through collaboration (2) Market 2 with high closure Market 1 B B A* A • Assume that manager of company B has to choose between collaboration in the two markets – which one should he choose? • Who would loose more by opportunistic behavior: partner A or partner A*?

26. Example: Social capital for successful innovation through collaboration (3) • Opportunities for company B under high network closure: -damage of reputation of A* -collective action with other (third) parties if A* violates basic standards • A* anticipates these dangers; therefore special interest in avoidance of anything that could appear as opportunism • Network closure as safeguard against opportunism • Network closure facilitates trust

27. Argument 3:Ronald BurtStructural holes

28. Ron Burt: Structural holes versus network closure as social capital Burt’s conclusion: structural holes beat network closure when it comes to predicting which actor performs best Coleman says closure is good • Because information goes around fast … • … and it facilitates trust [fear of a damaged reputation precludes opportunistic behavior] Burt subsequently compares people (managers) with dense networks with those with networks rich in “structural holes” University of Chicago, Graduate School of Business

29. Ron Burt: Structural holes versus network closure as social capital (2) A 1 B 7 3 2 James Robert 6 4 5 9 8 C • Robert’s network is rich in structural holes • James' network has fewer structural holes D

30. Ron Burt: Structural holes versus network closure as social capital (3) • Robert will do better than James, because of: • informational benefits • “tertius gaudens” (entrepreneur) • autonomy

31. Ron Burt: Structural holes versus network closure as social capital (4) • It is not that clear (yet) what precisely constitutes a structural hole, but Burt does define two kinds of redundancy in a network: • Cohesion: two of your contacts have a close connection • Structurally equivalent contacts: contacts who link to the same third parties • This more or less corresponds to the inverse of structural holes: • If two of your contacts are connected, you do not connect a structural hole • If two of your contacts lead to the same other, then to get to that other, you actually would have needed only one of those contacts

32. Structural holes vs network closure Empirical evidence on Dependent variable = early promotion = large bonus = outstanding evaluation Most or all of the evidence seems to favor Burt’s structural holes Burt on Coleman: • Coleman’s dependent variable = “dropping out of school” • parents in a close network  smaller probability of school dropout of children  but: parents may tend to earn less And about network closure: Best team performance when groups are cohesive but team members have diverse external contacts.

33. Structural holes vs network closure (2) • Coleman: closure can overcome trust and cooperation problems (empirical evidence from data on school dropouts) • Burt: Structural holes give entrepreneurial possibilities (empirical evidence from data on US managers) Perhaps this is not so much a controversy after all …? There is a problem though, when it comes to innovation. For successful innovation one needs both to overcome trust and cooperation problems and entrepreneurial possibilities.

34. Argument 4:James Coleman vs Ronald BurtThe diffusion of innovation: Cohesion vs. structural equivalence

35. J. Coleman/R. Burt: Diffusion of Innovations • What happens with innovations?a) How and when do they spread (adoption)? b) How and when are they used? • 2 theories (network theories of social influence) • A: Coleman: Diffusion by cohesion • B: Burt: Diffusion by structural equivalence • Both theories predict which individuals of a social system are similar with regard to behavior, evaluation of some phenomena, and attitudes. • Both theories make predictions about who adopts an innovation.

36. Diffusion via social networks • effects of individual differences in receptivity (k) dy/dt = k*(1-y)*t • effects of social contagion (influences via social networks): The ‘Snowball Effect’ dy/dt = k*y*(1-y)*t

37. Which situations? • social influences of cost-benefit evaluation do not always take place important for social influences: • uncertainty of results of actions (often when actors are confronted with innovations) • no scarcity of information, sometimes even information overload • problem: finding trustworthy information • individuals rely on others • both models (cohesion, structural equivalence) argue that the decisions of actors are influenced by "other actors" in the social network • they make different predictions about who these "others" are

38. J. Coleman: Diffusion of Innovation by cohesion • two actors share same understanding of costs and benefits (shared attitudes) of an innovation when they socialize with each other • shared understanding of costs and benefits (shared attitudes) leads to similar behavior • if alter adopts the innovation then ego will follow soon • who are the relevant alters? • the less indirect and the stronger the relationship between ego and alter the more likely that social influences take place • the stronger the relationship with alter the more likely that the adoption of alter will trigger the adoption of ego

39. J. Coleman: Diffusion of Innovation by cohesion (2) A B 1 7 Peter 3 2 James Robert 6 C 4 5 Tom assume Peter adopts the innovation who would be the next to adopt? who would follow thereafter who would never adopt? Frank

40. R. Burt: Diffusion by structural equivalence • What is structural equivalence? - An example 1 2 3 4 5 • 3 classes of equivalent actors: • class A: 1 & 2 • class B: 3 & 4 • class C: 5

41. R. Burt: Diffusion by structural equivalence (2) • two actors in structurally equivalent positions act in the same way because their positions imply that they act under the same structural conditions • individuals take others as a frame of reference for judging whether their decisions are correct • theory offers a different answer to the question "Who are the relevant others that are taken as a frame of reference?" • structural equivalence emphasizes the competitive character of many situations that lead to social comparisons

42. R. Burt: Diffusion by structural equivalence (3) • the more similar the relationships of ego and alter are to other (third) individuals the more likely that ego takes alter as a frame of reference for social comparisons • hypothesis: the higher the degree of structural equivalence between ego and alter the more likely that alter's adoption will trigger ego's adoption of an innovation

43. Structural Equivalence versus Cohesion:3 typical Cases • A: Identical predictions of both models: social influence between ego & alter ego Person 1 person 2 alter • B: cohesion: social influence between ego & alter structural equivalence: no influence ego Person 3 Person 4 alter • C: structural equivalence: social influence between ego & alter cohesion: no influence ego Person 3 Person 4 alter

44. Today • “It’s not what you, but whom you know!” • Arguments of classical social network theories that make clear 1.why 2. which network characteristics 3. have what effect?

45. To Do: • Read the following articles • Granovetter, M. S., "The Strength of Weak Ties," American Journal of Sociology 78 (6): 1360-1380 (1973). • Coleman, J.S. "Social Capital in the creation of human capital" American Journal of Sociology 94: 95-120 (1988). • Burt, R. (2001) "Structural Holes versus Network Closure as Social Capital", in: Social Capital. Theory and Research, ed. by Lin, N., Cook, K. & Burt, R. • Read these papers with in the back of your head the idea that you will have to be able to apply similar network arguments to problems of alliance management and innovation science.