UNIVERSITY OF MARYLAND COLLEGE PARK R.SMITH SCHOOL OF BUSINESS PROF. BILL RAND SPRING 2009 Organizational Network Topology and Use of Networks In Organizations Condensed from “Social Networks and Marketing“ by Christophe Van Den Bulte and Stefan Wuyts Characteristics of Organizational Networks • Intra-Organizational Networks – Power – Dissemination of knowledge – Employee recruitment and Turnover • Inter-Organizational Networks – Coordination of Channels – Accessing ressources – Gaining Status – Managing Competitions Intra-Organizational Networks • Power – Associated with Central positions in workflow, advice, and friendship neworks – Related to measures of centrality: degree, closeness(related to access, especially to dominant actors in the firm), betweenness (information control) – Research shows that closeness to important actors in the firm is related to both power and promotion. However link of causality not clear. • Burkhardt and Brass (1992) show that centrality preceded power • Kilduff and Krackhardt (1994) concluded for the firm they studied that the perception people have of the quality of your network is associated with your reputation. • In another study, Krackhardt (1990) shows that accurate perception of the network structure is linked to power. Intra-Organizational Networks • Dissemination of Knowledge – Market information must be shared • How Marketers obtain information? Through their Network? • Most rely on Market reports and Mkt information systems • Little work is done on how marketers network affect their knowledge of the market. • Complexities are involved – Under conditions of high uncertainties, Bankers relied on strong ties for support on closing deals – Transactions in which they used sparse approval networks more likely to succeed than when they used dense approval network. Intra-Organizational Networks Disseminating Knowledge (ctd) – Little work on the role of social networks – Most work pertain on innovation: • The Boundary-spanning actors – Innovation comes from people holding a boundary-spanning position. Allen (1997) Hutt, Reingen, and Ronchetto (1988) – Actors with those positions have high betweeness centrality and span structural holes between their formal unit and the rest of the network. They are key actors for the flow of ideas. – While they may not continually be involved in projects, They are very important to projects because they act as mediators or bridges between people during projects. Intra-Organizational Networks Disseminating Knowledge (ctd) – Most work pertain on innovation: • Strong ties vs weak ties – Strong ties are related to the ability to mobilize ressources to get project going. – Strong ties to many actors or access to many actors through strong ties critical. – May be less effective in locating novel information but good in conveying complex information – Weak ties good for search of useful information in other subunits but bad in the transfer of complex knowledge Intra-Organizational Networks Disseminating Knowledge (ctd) • Closure or local clustering – Affect willingness and motivation of individuals to invent time, energy and effort in sharing kowledge with others » Teams with high closure among team members, but with low closure among their contacts tended to be more efficient. • Lack of Redundancy – Ability to access pool of nonoverlaping information – Greater confidence in information received • Results of Study: – combining closure and non redundancy boost innovation. Reagans and Zuckerman (2001), Uzzi and Spiro (2005). Intra-Organizational Networks Disseminating Knowledge (ctd) • Organization of the company for creativity and innovation – Adequate networking critical for success • Example of PARC: Successful in generating new ideas, but operated independendly of from corporate headquaters, and from commercial divisions. Failed to get their new product commercialized. • Example of 3M: Created intermediary unit to link innovation to market. OTC acted as a technology broker to find new applications. – Companies can organize themselves as constellation of communities of similar activities. Insight will be obtained to know who will benefit from interracting with whom. Companies will be more efficient. Intra-Organizational Networks • Employee Recruitment and Turnover – Metric important especially in the service industry – Formal network referral programs • Employers are provided with a wider pool of applicants • Readily available support for newly hired employees • Referrals are more productive, perform better, and longer committment than non referrals. Castilla (2005) • Cost savings. Fernandez, Castilla, and Moore (2005) Intra-Organizational Networks Employee Recruitment and Turnover(ctd) – Employee Turnover • Network effect: Social contagion. Krackhardt and Porter(1985, 1986). People will leave following people of similar position in the advice network. • However the friends of the leavers became more satisfied with the company and remained longer than those who were not friends with the leavers. – Employee advancement • Networks within the firms are used for advancement • Minorities suffer disadvantage because network s structure makes it less easy to use informal sources of information. • Customer porfolio may affect career pattern. Beckman and Philips (2005). Inter-Organizational Networks • Network effects on Coordination – Closure and Reputation • Efficient cooperation exists when actors know and remember other actors prior actions • Information concerning one supplier for example flows quicker in network with high closure • When network density and network centrality are high, reputation mechanism is most effective. – Case of Antia and Frazier (2001). Study on how franchisor enforces contract when contract violation occurs. Enforcement is weaker in cases of higher density and centrality. Other network members view severe enforcement as unfair. Leads to negative backslash against franchisor who is now seen unfair. Inter-Organizational Networks Network effects on Coordination(ctd) – Closure and Cooperative norms • Network closure increases sense of community • Leads to creation of norms for standard behaviors • Violation of clear and detailed norms leads to more severe group sanctions . – Closure and protection against exploitative brokering • Mitigation of information transfer problems associated with network structural holes – Example: when vendor is between supplier and buyer, he may select what information taken uptream to pass downstream. A corrective action to undertake by the buyer could be to increase closure and reducing the structural hole in the information network, by directly building ties with suppliers for example. Inter-Organizational Networks Network effects on Coordination(ctd) • Network structure and Affective commitment – Network structure will affect the degree to which firms desire to maintain particular relationships. This is the calculative commitment . Geyskens et al. (1996) – However with some specific partners, network structure may also favor affective commitment regarless of economic consequences. Existence of strong ties and closure which create sense of community and identification are the explication. Uzzi (1997) Inter-Organizational Networks Network effects on Coordination(ctd) • Adverse effects of Social Networks in Channel Coordination – Desire to maintain network can hinder firm’s economic imperatives – Networks can create the possibility of mutiple actors colluding against one other. Simmel (1950) leading to distrust. – Density of Networks can interefere with enforcing of regulations. – Exercising punishing power may intensify inter-firm conflict. Inter-Organizational Networks • Accessing Resources through alliances – Firms make alliances to cope with competition – Access complementary technology for complex products( example, Apple, Sony and Sharp) – Access complementary marketing resources ( example Pepsico and Starbucks to commercialize some of their products, Doubleshot and Frappucino) – Issues: Network that facilitate the assimilation of knowledge also increase the risk of leakage, as a firm’s partner in the network could have ties with one of the firm’s competitors. Inter-Organizational Networks • Gaining status from one’s network – People make inferences about a firm based on its network. To not confuse with reputation – Study shows that law firms that belonged to a cluster of equivalent law firms that served more profitable clients than themselves could negotiate higher prices . Uzzi and Lancaster (2004). – Study shows that network status facilitates market entry for commercial bank into investment banking. Jensen (2003) Inter-Organizational Networks • Managing Competition – Managers of competitive firms may form friendships – Networks characterized by strong ties, local closure and overall density often lead to higher performance for competing firms. Ingram and Roberts(2000) • Information exchange • Collaboration • Mitigating competition – Advantageous in cases when customers would love to play competitors against each other. Friendship networks between competitors help firms contain the extent of competitve behavior, like in the case of the Sydney Hotel Industry. Ingram and Roberts (2000) – Density increases the chance of detection of bad conduct. Baker and Faulker (1993): centraly located managers in price-fixing conspiracy have higher chance of being found guilty. Inter-Organizational Networks Managing competition (ctd) – Multi-firm contacts may soften competition. The gain from aggressive competitor behavior in one market may be weighed against the danger of retaliation by the competitor in other markets. QUESTIONS ?