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Networks and Organizations

This paper explores the significance of networks within organizations, emphasizing their roles in different phases of the organizational lifecycle, from new ventures to decline. Authors Aaron McKenny, Kelly Packalen, and Walter Powell discuss networks as tools for tracing relationships and as governance structures. They analyze the existence of internal versus external networks, the importance of closure, centrality, and the utility of weak ties. By examining various types of networks and their strategic uses, this work provides insights into leveraging relationships for organizational success and sustainability.

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Networks and Organizations

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  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?

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