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 ?