Modes of Network Governance and Implications for Network Management and Effectiveness
Keith G. Provan
Eller College of Management
University of Arizona
Tucson, AZ 85721 U.S.A.
Patrick Kenis
Department of Organization Studies
Tilburg University
Tilburg, Netherlands
Prepared for presented at the Public Management Research Association meeting, September
29 to October 1, 2005, at the University of Southern California, Los Angeles, California.
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ABSTRACT
This paper offers an examination of network governance and the impact of governance on network effectiveness. Three pure models, or forms, of network governance are developed and the structural properties of each are examined. The tensions inherent in each form are then discussed, followed by the role that management may play in resolving or balancing these tensions. Focus is primarily on public sector networks since such networks are more likely than those in business to be concerned with network-level, rather than organization-level effectiveness. Implications for theory and practice are discussed.
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Networks have been widely recognized by both scholars and practitioners as an important form of multi-organizational governance. The advantages of network coordination are considerable, including enhanced learning, more efficient use of resources, increased capacity to plan for and address complex problems, greater competitiveness, and better services for clients and customers (see Brass et al., 2004, for a review). However, despite much progress made by researchers studying networks over the past 15 years, there is still a considerable discrepancy between the acclamation and attention networks receive and the knowledge we have about the overall functioning of networks. By network functioning we refer here to the process by which certain network conditions lead to various network-level outcomes. Understanding the functioning of networks is important since only then can we know how networks should be designed to produce certain outcomes, and how networks should be managed given the tensions that can be expected when coordinating through a network. This paper addresses these issues by focusing on the critical role of network governance.
Although networks have been studied from a variety of perspectives, surprisingly little attention has been paid to the governance of whole networks. In part, the reason for this may simply be that organizational scholars are used to studying organizations, not multiorganizational arrangements (Salancik, 1995). In addition, developing a deep understanding of network governance requires collection of data on multiple networks, which can be extremely time consuming and costly. While there is a sizeable literature on networks as a unit of analysis, the majority of this work has focused on single case studies and much of it has been descriptive (cf. Goldsmith and Eggers, 2004; Huxham and Vangen, 2005; Bueren et al., 2003). Finally, there is often reluctance among many who study networks to discuss formal mechanisms of control. A common assumption is that since networks are collaborative arrangements, governance, which implies hierarchy, is inappropriate.
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Consistent with these general observations, most research on organizational networks can be broadly characterized by two basic approaches - the “network analytical” approach and the “network as a form of governance” approach – both of which are limited when it comes to analyzing the overall functioning and governance of networks. Network analytical approaches focus on the micro-level issues of networks and build on the work done by sociologists studying networks of individuals (Wasserman and Faust, 1994). The work done using this approach for the study of networks of and within organizations has been considerable, making important contributions to the description and explanation of the structural characteristics of networks, developing such concepts as density, centralization, and structural holes. As such this is a genuine ‘network’ approach (based on sociometry and graph theory), since the units of observation are a set of objects (called nodes, positions, or actors) and a set of present or absent relations among these objects (called edges, ties, or links) (Knoke, 1990). In network analytical approaches the main objective can either be to describe, explore or compare relational configurations (e.g. Laumann and Knoke, 1987), to explain relational configurations (e.g. Ebers, 1999), or to use the relational configuration to explain certain outcomes (e.g. McGrath and Krackhardt, 2003).
The functioning of networks can be partially addressed using this network analytical approach, since we defined functioning as the process by which certain network conditions lead to certain network outcomes. The problem, however, is that for the most part, what gets analyzed and explained is not the network itself, but the ‘nodes’ and ‘relations’ that comprise the network. Apart from some notable exceptions (e.g. Provan and Milward, 1995; Owen-
Smith and Powell, 2004) the unit of analysis (i.e. the phenomenon to be investigated) in this literature is not the complete network but a node (ego) or a dyad. In these studies, findings are related to questions of whether or not the way an actor is embedded in a network has an effect on the outcomes of the actor (such as level of innovation, profit, etc.) or on describing
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and explaining the birth, death, effectiveness, etc. of dyadic relationships such as strategic alliances and joint ventures (cf. Larson, 1992; Ring and van de Ven, 1994; Gulati, 1995;
Uzzi, 1997). Consequently, this literature tells us little about the functioning of ‘networks’, simply because networks are seldom treated as the unit of analysis.
The “network as a form of governance” approach, on the other hand, does treat networks as the unit of analysis. ‘Network’ is viewed as a mechanism of coordination, or what has often been referred to as ‘network governance’. Starting with Williamson’s Markets and Hierarchies in 1975, a rich literature has developed on different forms of governance over the last two decades. As seen from an economic perspective, the innovativeness of this literature is that it challenged the conventional wisdom that the market is the only efficient system of coordination. From an organization and administrative science perspective the most innovative aspect of this literature is that it made clear that organizations cannot be taken as something for granted (see Perrow, 1986) and that other forms of coordination, such as networks, can equally achieve goals. Consequently, a discussion unfolded as to whether networks are simply a combination of elements of market and hierarchy, and could, therefore, be placed on a continuum between market and hierarchy, or whether they would be better understood as unique forms of governance in their own right (see Powell 1990). This literature moved towards treating networks as discrete forms of governance, characterizing them as having unique structural characteristics, modes of conflict resolution, bases of legitimacy, etc. (cf. Raab, 2004).
Whereas the governance literature considers networks, by definition, as the unit of analysis, networks are still treated as undifferentiated forms, as if they all could be characterized in the same general way (e.g. Powell 1990; Jones, Hesterly, and Borgatti,
1997). This is related to the fact that for a long time networks were seen as a ‘new’ and
‘positive’ mode of coordination and that it was important to distinguish the basic form from
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markets and hierarchies. A ‘functionalist’ argument dominated, claiming that networks are a response to failures of markets, failures of hierarchical coordination, and to societal and technological developments. The implication was, and continues to be, that networks in general can produce positive outcomes that would not be possible in a market or a hierarchy.
What we propose here is to combine the ‘network analytical’ and ‘governance’ perspectives. The governance perspective is valuable in that the network itself is considered to be the unit of analysis. Networks are forms of social organization, which are more than the sum of the actors and their links and which, in many circumstances, deserve to be studied in their own right. As discussed by a number of researchers (Browning, et al. 1995; Human and
Provan, 2000; Owen-Smith and Powell, 2004), network-level coordination can be critical for achieving successful outcomes, including new product development, enhanced sales, and better services. The network analytical perspective contributes another central idea. Here, networks are defined as a set of actors or nodes and a set of present and absent relationships between these nodes. A consequence of this definition is that networks are considered to vary with regard to their structural patterns of relations.
Consistent with this logic, we view ‘network’ as a variable, examining whether different network governance configurations produce different network effects. Only if we can demonstrate that networks with different configurations have different network-level effects can a rationale for developing network-level theories be established. To build our case, we will formulate a number of testable propositions about the relationship between the configuration of network governance and network effects. We will also argue that the role of management is critical for effective network governance, especially regarding the handling of tensions inherent in each governance form.
As such, our approach addresses Coleman’s quest to reconcile social theory and social research (see Coleman, 1986). Coleman criticized, on the one hand, a tradition in
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which the unit of analysis shifted from the community (i.e. social system, organization, network, etc.) to the individual level. Doing this has made it difficult to make empirically derived statements about the nature and behavior of broader social systems, a problem with the network analytical approach. On the other hand, Coleman also observed a trend towards holism in theorizing, which means that social systems are described without problematizing the causal links between structure and outcome. This is the key concern we have with the traditional network governance approach. Coleman favors a theoretical model that relates individual actions to systemic functioning; in other words, one in which social systems are considered the unit of analysis and in which the causal link between structure and outcome is founded in action.
Our approach follows Coleman’s proposal in that we develop propositions that relate network governance structure to network outcomes on the basis of the “meaningful connection” (Coleman, 1986: 1328) between events. This does not, however, imply that we limit ourselves to individual or even rational action as mechanisms to explain outcomes (see
Mayntz, 2004). Essentially, examining and explaining network-level coordination is not an issue of networks as a means of governance, but of the governance and management of networks themselves.
Our paper proceeds as follows. First, we will develop a typology of governance structures. The three pure forms of governance structures we have identified are selfgoverned, lead-organization governed, and network administrative organization governed, each of which has a set of unique characteristics. The typology is based on the relational configurations that characterize each form of network, or in other words, on the absence and presence of specific relations between different actors. We develop propositions on the likely conditions for emergence of each governance form. We also introduce the role of managerial discretion, or choice, as a moderating factor.
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Second, we focus on three tensions that are likely to exist as a result of choice of network governance form. We outline these tensions and develop propositions about which specific tensions are likely to be most prevalent for each of the three forms. We then argue that network-level outcomes, or effectiveness, will depend on how management resolves the tensions that are inherent in each governance form. Ultimately, our theory is an attempt to explain network effectiveness based on choice of governance form. Network effectiveness is defined here as the attainment of positive network-level outcomes that could not normally be achieved by individual organizational participants acting independently. Such outcomes might include strengthened community capacity to solve problems, improved access to services, enhanced economic development, improved customer satisfaction, and enhanced capacity to innovate. Although individual organizational participants may, and probably should benefit as well, effectiveness is viewed here at the network-level. While many factors can contribute to network effectiveness, our arguments are built around the assumption that there is a rationale for utilizing one form over another, and that there are consequences for selection of each form of governance. Network managers must recognize these consequences and address them appropriately if positive network outcomes are to be realized. Our arguments are outlined in Figure 1, which is our conceptual model.
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ORGANIZATIONAL VERSUS NETWORK GOVERNANCE
Governance is a topic that has long been studied by organizational scholars (cf.
Mizruchi, 1983; Westphal and Zajac, 1995). Traditionally, governance in business firms has focused on the role of boards of directors in representing and protecting the interests of shareholders (Fama and Jensen, 1983). Governance has also been studied in the nonprofit
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context, although the focus here has generally been on the role of boards of trustees, as representing and protecting the interests of community members or other politically important constituencies (Provan, 1980). In public management, governance refers not to the activities of boards, but mainly, to the funding and oversight roles of government agencies, especially regarding the activities of private organizations that have been contracted to provide public services (Kettl, 2002; Hill and Lynn, 2005). A critical role for governance in all these sectors, and consistent with principal-agent theory, is to monitor and control the behavior of management, who are hired to preside over the day-to-day activities of running the organization (Fama and Jensen, 1983; Eisenhardt, 1989). While there is much recent evidence that boards do not necessarily take their responsibilities seriously enough (i.e.,
Enron Corporation), board members do have a legal obligation to perform their duties and are liable if the organization they represent engages in illegal or irresponsible behavior.
As noted earlier, most of the literature on organizational networks does not explicitly address the issue of governance. Probably the most obvious reason for this is that networks are comprised of independent and autonomous organizations, and thus, are essentially cooperative endeavors. Since networks are not legal entities, the legal imperative for governance is simply not present as it is for organizations.
1 Regardless of the reason, however, it should be apparent that some form of governance is necessary to ensure that network participants engage in collective, and mutually supportive action, that conflict is addressed, and that network resources are acquired and utilized efficiently and effectively.
Even when mechanisms for governance have been discussed in the literature, they are generally discussed in terms of specific activities performed for a particular network, rather than in a comparative way. Thus, there is no broad theory on network governance regarding
1 Some might consider an exception to this to be joint ventures and other, contractual or equity-based alliances.
However, precisely because these relationships involve ownership, we do not consider them to be true networks.
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the various forms of governance that might exist, the rationale for emergence of one form versus another, and the impact of each form on network performance. This is our focus.
We define the term “network” more narrowly than is often the case. Our focus is on networks as groups of three or more legally autonomous organizations that work together collectively and collaboratively to try to achieve not only their own goals, but also, the collective goals of all or most network members. Thus, we focus on what Kilduff and Tsai
(2003) refer to as “goal-directed,” as opposed to “serendipitous” networks. When defined in this way, networks can become extremely complex entities that require explanations that go well beyond the dyadic approaches that have been traditionally discussed in the organization theory and strategic management literatures. A critical component of this expanded explanation of networks is governance. When multiple organizations are involved with each other in ways that demand multilateral coordination, organizational governance is no longer sufficient and network governance is required to achieve network-level goals. Although network governance may not be a legal issue, as with organizations, we argue that it is critical for effectiveness.
FORMS OF NETWORK GOVERNANCE
Based on a review of the literature on networks, coupled with our own extensive observations from research and consulting, we have identified three basic network governance forms plus a hybrid form. The three basic forms are self-governed, leadorganization governed, and network administrative organization governed. Each of these forms has certain key characteristics, especially regarding structure, which we identify here.
Each is utilized in practice for a variety of reasons and no one model is universally superior.
Rather, as we argue in subsequent sections of the paper, each form has its own particular strengths and weaknesses, and choice of which is utilized depends on a number of conditions that are unique to the network and its environment.
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Self-Governed
The simplest form of network governance is self-governance. Self-governed networks consist of groups of organizations that work collectively as a network but have no separate governance structure. Governance of collective activities resides completely with the network members themselves. This can be accomplished either formally, through regular meetings of designated organizational representatives, or more informally, through the ongoing but typically uncoordinated efforts of those who have a stake in network success.
Self-governed networks depend exclusively on the involvement and commitment of the organizations that comprise the network. The network participants are themselves responsible for managing internal network relationships and operations as well as external relations with such groups as funders, government, and customers. In health and human services, self-governed networks are common, in part because networks are often considered to be an important way of building “community capacity” (Goodman et al., 1997; Chaskin et al., 2001). The leaders of community organizations often feel that a grass-roots, bottom-up network, built and maintained by members themselves, is the only viable way of getting the
“buy-in” of participants. Only by having all network members participate, on an equal basis, can such “buy-in” occur. In business, self-governance is typically used in dyadic strategic alliances and partnerships designed to develop new products or to attract new business in ways that could not be otherwise accomplished through the independent efforts of network members (cf. Gulati, 1995; Venkatraman and Lee, 2004).
Figure 2a is a graphic illustration of the self-governed model. In this structure, it is the partners themselves that make all the decisions and manage partnership activities. There is no distinct, formal administrative entity, although when there are more than a handful of partners, some administrative and coordination activities may be performed by a subset of the full partnership. In theory, the network as a whole acts collectively to interact with outside
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groups, and no single entity represents the network as a whole. Later in the paper, we discuss in-depth the strengths and weaknesses of this and the other forms of governance, which helps to explain the likely emergence of one form versus another.
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Lead Organization
Lead organization governance typically occurs in vertical, buyer-supplier relationships, especially when there is a single powerful, often large, buyer/supplier/funder and several weaker and smaller supplier/buyer/resource recipient firms. The most obvious examples of this can be found in the Kiretsu models of Japanese manufacturing (Gerlach,
1992) and similar models of cooperative buyer-supplier models in the US (Uzzi and
Lancaster, 2003; Uzzi, 1999) and Europe (Inzerilli, 1990; Lazerson, 1995). It can also occur in horizontal multilateral networks, most often when one organization has sufficient resources and legitimacy to play a lead role. This is a model that often occurs in health and human services where there may be a core provider agency that assumes the role of network leader because of its central position in the flow of clients and key resources. In community health, this may be a hospital or a health clinic (Weiner and Alexander, 1998); in mental health, it may be a community mental health center (Provan and Milward, 1995); in community policing, it is likely to be the police department.
Figure 2b visually represents the lead organization model. In this structure, network members all share at least some common purpose (as well as maintaining individual goals) and they often interact and work with one another (dotted lines). However, all activities and key decisions are coordinated through and by one of the members, acting as a lead organization. This organization provides administration for the network and/or facilitates the activities of member organizations in their efforts to achieve network goals. The lead
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organization may underwrite the cost of network administration on its own, receive resource contributions from network members, or seek external funding through grants or government funding. Both the maintenance of internal relationships and the development of external relationships are typically activities that are accomplished by the lead organization.
Network Administrative Organization
The third form of network governance is the network administrative organization
(NAO) model. The basic idea is that a separate administrative entity is set up specifically to manage the network and its activities. Like the lead organization model, the NAO plays a key role in coordinating and sustaining the network. Unlike the lead organization model, however, the NAO is not another firm or agency manufacturing its own goods or providing its own services. Instead, the NAO is established with the exclusive purpose of network governance. It may be a government entity, or more likely, a nonprofit, which is typically the case even when the network members are for-profit firms. For instance, Human and Provan
(2000) describe two networks in the wood processing industry (furniture, etc.) that were both guided by a NAO. All firms were for-profit but the NAOs were nonprofit (a 501(c)3 nonprofit corporation under the U.S. federal revenue code).
A NAO may be modest in scale, consisting only of a single individual, often referred to as the network facilitator or broker, or it may be a more complex organizational form, consisting of executive director, staff, and board operating out of a physically distinct office
(cf. McEvily and Zaheer, 2004). The more complex form may be used as a mechanism for enhancing network legitimacy, dealing with unique and complex network-level problems and issues, and reducing the complexity of self-governance. These more formalized NAOs typically have board structures that include all or a subset of network members. The board addresses strategic-level network concerns, leaving operational decisions to the NAO leader.
Government run NAOs are generally set up when the network first forms, to stimulate its
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growth through targeted funding and/or network facilitation, and to ensure that network goals are met (Goldsmith and Eggers, 2004). Such NAOs are established locally for purposes of accomplishing broad goals, especially related to regional economic development (cf. Piore and Sabel, 1984; Saxenian, 1994; Gebauer 2005).
Figure 2c is a graphic depiction of the network administrative organization governance model. With this structure, participant organizations and groups may interact and work with one another (dotted lines) but activities and key decisions are coordinated through and by a separate, independent entity.
Hybrid Forms of Network Governance
The three network governance models discussed above are all pure forms. While each form is utilized in practice, hybrids are also possible, especially hybrids of the selfgoverned and NAO models. Participants in self-governed networks may adopt a NAO structure to facilitate governance on a daily, on-going basis; to address external issues such as working with customers and funders and to build legitimacy, while also implementing strategy. At the same time, partial self-governance may be desirable to address broader policy issues and to encourage at least a minimal level of involvement by all participants. In contrast, lead organization networks, by definition, are governed through the efforts and actions of a single dominant firm or core agency. While participants may well be consulted, the structure of the lead organization model makes any self-governance unlikely.
Figure 2d represents an example of a hybrid model, which includes components of self-governed and NAO forms. With this structure, network participants may interact and work with one another (dotted lines) but activities and key decisions are coordinated through a dual decision structure. The collaborative entity typically involves all organizations that want to be part of the network and attempts would be made to make decisions through consensus. This component of network governance thus closely resembles the self-
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governance model. However, to maintain efficient operations, a NAO-like form also exists.
This support entity may be a nonprofit corporation or a quasi-governmental organization that acts as the fiscal agent for the network. This entity is not inclusive, although its board would typically include an elected or rotating subset of the collaborative entity. The NAO-like support entity may or may not deal directly with individual network participants (dashed lines), except through the representatives of those organizations who serve on the board. The support entity often has an executive director and staff while the collaborative entity would not. A key issue for this or any hybrid model is the specification and alignment of roles and responsibilities for each component of the model and the relative influence of each.
DETERMINANTS OF FORMS OF NETWORK GOVERNANCE
So far, our discussion has focused solely on describing the various forms of governance. However, consistent with our conceptual model, a key contribution we hope to make is to develop a theoretical rationale for the emergence of one form over another. While the form of governance is sometimes mandated, especially when a network is established based on government funding, we focus only on explaining the emergence of governance form when no mandate is involved. We propose that the emergence of one form or another will be determined by each of four critical contingency conditions. We also recognize that governance form will be determined by managerial choice, which will be discussed in the next section. The four contingency conditions are number of network participants, task decomposability, organizational competencies, and trust history. While we presume that the cumulative effect of the conditions will have a greater impact on governance form than each condition on its own, we do not discuss which may be more important than others or exactly how they may interact. The four contingency conditions are discussed below, followed by propositions outlining when each form is most likely to occur.
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Number of Network Participants
A fundamental problem with governance of any network is that the needs and activities of multiple organizations must be accommodated and coordinated. While dyadic arrangements can, of course, be difficult to govern, as the number of organizations participating in a network grows, governance becomes extremely complex. Self-governance is often seen as highly desirable by network participants, since they can retain full control over the direction of the network. This form is best suited to small, geographically concentrated networks where full and active face-to-face participation by partner organizations is possible. But as the number of organizations in the network gets larger, governance becomes highly inefficient, with participants either ignoring critical network issues or spending large amounts of time trying to coordinate across ten, twenty, or more organizations (see Jones et al., 1997; Faerman, McCaffrey, and Van Slyke, 2001; Staber,
1998; Lazerson, 1998; Storper and Christopherson, 1987). The problem is especially acute when participants are spread out geographically, making frequent meetings of all participants difficult or impossible.
The likely solution to this problem is to have network governance activities performed either by a lead organization or a NAO. Both forms are more readily able to accommodate larger numbers of network participants since the direct involvement of all organizations is no longer required for many network decisions. While there are other specific reasons for choosing a lead organization over a NAO and vice versa, when a network has many participants, either form is more likely to be utilized than self-governance.
Task Decomposability
Although networks typically address problems that require joint and interdependent action, the actual tasks that must be performed by participants to solve these problems may either be done jointly or independently. When network tasks are decomposable, they can be
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readily allocated to individual network members. Network effectiveness occurs through the actions of multiple participants, each performing their own particular piece of a larger task that requires coordinated, but not collective action. The concept of decomposability is borrowed from Herbert Simon (1981), and represents the extent to which large tasks can be decomposed into smaller, specialized tasks. For instance, for a patient who is seriously ill or injured, their needs may be so acute that they must be treated in a hospital. Once their condition improves, however, the task of treating them becomes decomposable, allowing other health and human service organizations to provide needed services collectively, like meals on wheels, therapeutic treatment, medical treatment, and homemaker services.
Self-governance is likely to be an effective form when tasks are decomposable (see
Dodds 2003). Organizations can work together to ensure that their actions are coordinated and overall network goals are being met. But actual task performance can then be left to individual participants who can coordinate as needed on a dyadic basis with other network members. In contrast, when tasks are not decomposable, lead organization and NAO forms are better suited to the task of governing network activities. Several critical tasks that may not be decomposable include conflict resolution, sales to large customers, and resource acquisition for network-level activities. These are all tasks that require either the intense, coordinated efforts of network participants on an on-going basis, or the actions of a single entity (i.e., a lead organization or NAO) that acts on behalf of the network as a whole and all its participants. In the case of a lead organization form, there may only be one or two nondecomposable tasks that need to be performed, like representing the network to external funders or customers. With a NAO, however, a much wider range of actions may be undertaken including building and sustaining the network. With both forms, some tasks may still be decomposable, and thus, performed by individual network participants. But as more network tasks are recognized as being non-decomposable, network effectiveness will be more
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problematic under self-governance. Hence, lead organization, and especially, NAO forms are more likely to emerge.
It should be noted that task decomposability, as we develop it here, is not the same as task interdependence. Task interdependence is a critical component of network relations and contributes to the rationale for forming a network of any type (cf. Powell, 1990). But consistent with the shortcomings of the “network as a form of governance” approach, task interdependence cannot be used to explain why one specific form of network governance might be more effective than another. All networks, regardless of form of governance, have interdependent tasks, or else there would be little reason to form at all. There may, of course, be significant differences in the level of interdependence attained, which may be considered an important network-level outcome. Not all networks, however, have the same degree of task decomposability, which is, as we argue, a key determinant of governance form.
Organizational Competencies
A third critical contingency condition for emergence of governance form is the competencies of the organizations participating in the network. The competencies that matter here are those that relate specifically to overall network goals and objectives. In some cases, the competencies required to perform network activities are held jointly by network participants. When this happens, participants can work together through self-governance to achieve network goals. But often, the competencies possessed by network organizations are different from the skills needed to make the network successful. The most obvious example of this is network coordination, which is not only a new activity for most network members, but also one that individual participants may not want to assume. Other competencies that participants may not have and may not want to do themselves include grant writing, external legitimacy building, and political lobbying. For example, a network of business firms might set up a non-profit organization to assume tasks for which they are neither technically nor
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legally competent such as coordinating joint production, processing, sales, purchases, storage, transportation, inspection, promoting welfare and leisure for members, providing education and information for managerial and technological innovation, and signing collective agreements (e.g. Hollingsworth and Lindberg 1985).
While some network-level competencies may be ones that participants willingly take on, the greater the number and complexity of such competencies that are required, the more likely it is that lead organization or NAO forms will be utilized over self-governance. In addition, because lead organizations may only possess few such competencies and/or be unwilling to assume them, NAO forms are most likely when multiple and especially complex network-level competencies are required.
Trust
Trust is a concept that has been frequently studied in interorganizational network contexts (cf. Uzzi, 1997; Zaheer, McEvily, and Perrone, 1998). It is generally seen as a critical aspect of network relations – one that distinguishes networks from markets, hierarchies, and even other forms of interorganizational activity. Although research has focused on the overall importance of trust in networks in general, and especially, the role of trust in building and maintaining effective dyadic ties (Gulati, 1995), the role of trust history in determining the form of network governance has not been addressed.
The form of governance may, of course, be imposed on participants, in which case trust plays a minimal role. But when the network form is not mandated, trust can be extremely important in determining which form is most appropriate. For self-governance to be effective, a prior history of trust, or at least the expectation of, and the willingness to trust, must be at least moderately high. Since self-governance involves direct interactions and cooperation among all network participants, lack of trust will result either in self-interest seeking or opportunistic behaviors, either of which will undermine network effectiveness.
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Trust may be gradually established as self-governance evolves, but the absence of moderate levels of trust at the outset is likely to mean that this form will not be effective. When organizations have had a history of working closely together and have established trust
(Granovetter , 1985; Powell, 1990; Uzzi 1997), the formation of a self-governed network is a natural extension of their relationship that does not require intervention or involvement by either a lead organization or a NAO.
In contrast, when trust levels are low or modest, lead organization and NAO forms can work reasonably well, encouraging the emergence of either of these two forms. For instance, Gulati and Singh (1998) found that alliances in which there is less trust between partners are more likely to be organized with more hierarchical governance structures (see also Ring and Van de Ven, 1992). Although networks are typically thought of as collections of trust-based relationships, few, if any participants in larger networks interact with all others, and most will work only with a small number of other network organizations, making strong, trust-based ties across the network unnecessary. What is important is for participants to work collectively toward accomplishment of network-level goals. To achieve this end, network members will need to have trust-based ties with some other network participants, but they must also be able to trust the network’s lead organization or NAO. The difference between lead organization and NAO governance forms in this regard is that one of the key roles of a
NAO is to build trust among participants as the network evolves (Human and Provan, 2000).
This role is less likely for a lead organization, which does not have the advantage of being considered a neutral third party in the network, and thus, its actions may always be seen as somewhat self-serving by participants.
To summarize, we propose that the presence of four contingency conditions will lead to the emergence of one of the three forms of network governance, other things being equal.
The relationships we propose are outlined in the following propositions:
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Proposition 1: Self-governed network forms are most likely to emerge when there are few, geographically proximate network participants, when network tasks are readily decomposable, when organizational competencies regarding network goals and objectives are jointly held by participants, and when there is a history of trust among participants.
Proposition 2: Lead organization network forms are most likely to emerge when there are many network participants, when a few key network tasks are non-decomposable, when organizational competencies regarding network goals and objectives are held by a single network organization, and when trust among participants is low to moderate.
Proposition 3: Network administrative organization network forms are most likely to emerge when there are many network participants, when there is a mix of decomposable and non-decomposable tasks, when organizational competencies regarding network goals and objectives are not held by any network organizations, and when trust among participants is low to moderate.
Managerial Discretion
The propositions formulated so far rely heavily on basic contingency theory assumptions that structure, in this case, network governance form, is a function of certain critical contingencies (number of participants, etc.). As originally proposed by Child (1972), we would also like to emphasize the role of strategic choice or managerial discretion in explaining governance forms. Managers who are involved in network-level decisions have the capacity to make strategic choices about how the network will be configured. Such managers may be outside and above the network, as when choice of network form is imposed by a government agency. Alternatively, management choice may be made collectively by some or all network participants, or by a single individual appointed to be network manager.
Our argument here is that the strategic choices of network management can be an important moderating factor in explaining why a certain governance form emerges in a
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particular network. In fact, the role of strategic choice may be especially significant in the case of networks since the relationship between a suitable form of coordination and ultimate network performance is likely to be less apparent than for individual organizations. For instance, whereas it may be clear that a company utilizing small batch and unit production technology should be organized differently from a company utilizing large batch and mass production technology, this kind of simple contingency heuristic is less obvious in the case of networks. Moreover, coercive, mimetic, or normative pressures (DiMaggio and Powell,
1983) can lead to socially acceptable choices of network form but not necessarily to forms that are effective, based on the determinants outlined in the three propositions. Consequently, we propose that the emergence of network governance form will be moderated by managerial choice based on the effects of shared values, mimetic processes, and the like.
When the choice is inappropriate from a contingency perspective (based on propositions 1 to 3), we expect the network to be ineffective. If, however, the choice is consistent with the demands of the situation, then network effectiveness will subsequently depend on other factors, most notably, the management of tensions, which will be described below. In other words, choice of a network governance form that reflects key contingencies is a necessary but not sufficient condition for network effectiveness. Consistent with this logic, we offer the following proposition:
Proposition 4: Managerial choice will moderate the impact of the four proposed contingency factors on the type of governance form likely to emerge, such that an inappropriate choice will lead to network ineffectiveness while an appropriate choice will be a necessary but not sufficient condition for network effectiveness.
GOVERNANCE AND NETWORK TENSIONS
Up to this point, and consistent with our conceptual model, discussion has focused on those factors that explain why a particular network governance form is likely to emerge,
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based on four contingency conditions and managerial discretion. Once a form is in place, the challenge shifts from selection of governance form to implementation. Our argument here is that while one governance form may well be more appropriate than another, once chosen, network managers must recognize and respond to three basic tensions, or contradictory logics, that are inherent in the forms of network governance. While these tensions apply to all three forms of governance, the unique properties of each form means that each will occupy a different position along the tension continuum. How these tensions are managed will be critical for network effectiveness. We discuss each of the basic tensions below, developing propositions concerning the direction in which each tension is likely to be resolved, depending on the form of network governance utilized. Then, we discuss the role of network management in the process of tension balancing.
Efficiency versus Inclusiveness
Efficiency, a measure of inputs over outputs, is obviously a desired outcome.
However, even within organizations, there are inevitable tensions between efficiency and other goals, especially those related to broader measures of effectiveness. For instance, in contrast to traditional economic views, innovation is often thought to flourish only when resources are utilized less efficiently (Bourgeois, 1980; Nohria and Gulati, 1996). In government, efficiency has been the new mantra since the early 1990s, consistent with the
New Public Management movement (Osborne and Gabler, 1993; Hood, 1995) and creating tensions with those arguing for greater citizen participation.
The main tension for organizations in this regard is between efficiency and broader indicators of effectiveness, especially those with longer-term implications that may prove inefficient in the short run. In networks, the primary tension regarding efficiency is between the need for administrative efficiency in network governance and the need for member involvement, through inclusive decision making. Throughout the literature on networks, a
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common theme is the need to build trust through collaboration (Alter and Hage, 1993).
Collaboration, especially when the aim is to build greater trust among network partners, is seldom an efficient endeavor, however. The more that organizational participants are involved in the network decision process, the more time consuming and resource intensive that process will be.
As noted earlier, self-governance is a mechanism for maximizing participation and involvement in the decision process. However, this mode is also quite inefficient, especially when many organizations are involved. In some of our work, networks participating in selfgoverned systems were generally enthusiastic about their involvement during the earliest stages of network evolution, but soon began to suffer from “burn-out,” as network activities and involvement took an increased toll on their time and energies. A likely outcome of this problem is that a small subset of participants may end up doing most of the work, producing a drop in enthusiasm and increased levels of frustration. To increase efficiency, networks can shift to a lead organization model, where the burden of direct involvement can be reduced significantly. This form of governance is far more efficient, but the tradeoff may be a reduction in the commitment of participants and a focus on the needs of the lead organization, thereby potentially reducing overall network effectiveness.
A network administrative organization mode of governance is likely to provide a greater balance than either of the other two forms regarding the tension between the need for efficient operation and inclusive decision making. This mechanism is not a panacea, however, since any increase in administrative efficiency may be viewed by participants as being bureaucratic, and thus, inconsistent with network goals of collaboration. Essentially, a
NAO allows for structured and representative participation for key strategic issues, while having a staff assume more routine administrative burdens. It is a compromise mode of governance, but with an emphasis on efficiency. Based on our observations of networks in
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different sectors, the tension between efficiency and inclusion tended to be resolved most effectively in those networks that first evolved using a strongly participative, self-governed mode, and only later, were certain activities and decisions delegated to an administrative staff. In those networks where network administration was established and given considerable decision discretion during the early stages of network evolution, either through a
NAO or a lead organization, member resentment, disagreement, and apathy could readily occur. Based on this logic, we offer the following proposition:
Proposition 5: Networks face a tension between the need for administrative efficiency and inclusive decision making. In self-governed networks, the tension will be resolved in favor of inclusion; in lead organization governed networks, the tension will be resolved in favor of efficiency; and in NAO governed networks, the tension is likely to be more balanced, while still favoring efficiency.
Internal versus External Legitimacy
A second critical network-level tension that is likely to vary based on the form of network governance is legitimacy. Legitimacy has often been discussed as critical for maintaining the status and viability of organizations (Suchman, 1995), but there has been little attention devoted to the importance of legitimacy in and of networks. The main work that on the topic has been by Human and Provan (2000). Their work demonstrated not only that network legitimacy is a critical concept in its own right, as distinct from organizational legitimacy, but that the concept has multiple dimensions that must be addressed.
An essential part of Human and Provan’s (2000) argument was that legitimacy must be addressed both internally and externally. This results in an inevitable tension that must be recognized and managed through network governance. On the one hand, a key concern for any governance mechanism is to develop internal legitimacy among participants. Especially in business, organizations are used to competing. Thus, legitimizing interactions among
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other organizations, some of whom may be actual or potential competitors, is a critical function of network governance. If participants do not see interactions and coordinated efforts as being a legitimate way of conducting business, with potential benefits from these interactions, then the network is likely to exist in name only with little real commitment by participants to network-level goals and outcomes.
On the other hand, any form of governance must be responsive to external expectations. By doing such things as attracting customers, securing funding, dealing with government, and so on, network governance can provide the external “face” of the network.
Outside groups can see that the network is an entity in its own right, and not simply a group of organizations that occasionally get together to discuss common concerns or to buy and sell with one another. Having external legitimacy can also reinforce the commitment of network participants, who are more likely to see themselves as part of a viable network. Establishing external legitimacy is a critical role of network governance, since individual participants, acting on their own, will generally not be seen by outsiders as representing the full network.
The problem for network governance is not only to build network legitimacy both internally and externally, but to address the tension between them. Network participants need to believe that collaboration with one another is beneficial. Thus, the value of interactions among potentially competing and diverse participants must be legitimized. In part, this can be accomplished through mimcry (DiMaggio and Powell, 1983), as the participants of one network adopt the interactive practices of another based on the assumption that networks are essential for conducting business, developing innovation, serving clients, and so on. But it is also a key role of governance to develop and encourage interaction, making it commonplace and accepted. For instance, McEvily and Zaheer (2004) discuss the key role of network facilitator not only to maintain trust, but also to build trust among participants. This means
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concern with the internal needs of the network and its participants, building collaboration among organizations that might not normally work together, resolving conflicts, and so on.
The tension arises when the internal legitimacy needs of network members conflict with external demands. As Human and Provan (2000) found, the role of governance for building external network legitimacy often involves actions and activities that may benefit the overall network, but not necessarily many of the individual participants. Network participants have their own legitimacy needs, as independent, autonomous organizations with their own goals. These internal legitimacy needs, which can focus on the needs of clients, employees, board members, and other organizational stakeholders, are not always compatible with the broader external legitimacy needs of the network as a whole. In addition, providing a public “face” to the network means that participants will typically not be directly involved in interactions with large customers and funders, working instead through network-level staff.
Thus, participants may feel left out or that their own credibility is being undermined.
Essentially, the tension is between individualistic versus collectivistic legitimacy concerns.
Effective network governance means building structures that are responsive to both sets of legitimacy needs. The problem is that no single governance form is capable of fully addressing each side of the legitimacy tension. Because of its strong participatory focus, the self-governed form is best suited to address internal network legitimacy needs. The lead organization form is especially suited to addressing the external legitimacy needs of the network. The lead organization will, typically, already have legitimacy as an organization, and it can leverage that legitimacy on behalf of the network as a whole. It has an added incentive to do this, of course, since as the most powerful member of the network, it stands the most to gain. The NAO form attempts to strike a balance between these two forms. Its centralized administration can represent the network externally, while the need to legitimize interactions among participants can be addressed, at least in part, through its representative
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structure. The problem is that it may be quite difficult to adequately address both legitimacy needs, especially at the same time. Thus, while the tension may be resolved in a more balanced way with the NAO form, balancing may well occur sequentially rather than simultaneously and, as discovered by Human and Provan (2000), only following a legitimacy crisis stemming from lack of attention to one side of the tension. Stated as a proposition:
Proposition 6: Networks face a tension between the need for internal legitimacy and external legitimacy. In self-governed networks, the tension will be resolved in favor of internal legitimacy; in lead organization governed networks, the tension will be resolved in favor of external legitimacy; and in NAO governed networks, both sides of the tension are likely to be addressed, although in a sequential fashion.
Flexibility versus Stability
Networks are frequently discussed as adaptable, flexible forms (Huxham and Vangen;
2005) that are “light on their feet” (Powell, 1990). It is their flexibility that gives networks their advantage over hierarchies, which can be cumbersome and bureaucratic. Through networks, organizations can quickly and efficiently work with one another to achieve specific goals that require combined resources and expertise that hierarchies alone could not readily accomplish, except over a long period of time. These same organizations can reduce or even break their current relationships and develop ties to others, as needs and tasks change (cf.
Larson, 1992). This flexibility allows networked organizations to respond quickly to competition and other environmental threats, as well as to opportunities.
At the same time, networks must also focus on stability, if they are to be sustainable over time. Stability is critical for maintaining legitimacy, both inside and outside the network. Stable networks mean that participants can develop long-term relationships with at least some other members, so that each understands the other’s strengths and weaknesses and respond accordingly to maximize network outcomes. In one of the few studies on the topic,
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Provan and Milward (1995) found that stability was a major factor for explaining network effectiveness regarding client services, even when network-wide resources were inadequate.
Essentially, flexibility is important for ensuring rapid network responses in ways that meet changing stakeholder needs and demands. But stability is important for developing consistent responses to stakeholders and for efficient network management.
The most obvious mechanism for maintaining stability is the formation of a formal hierarchy. The problem is that governing networks as bureaucratic entities would mean destroying the intent and purpose of the form, as well as alienating most participants. On the other hand, high flexibility and adaptability is likely to be difficult to sustain, especially in view of legitimacy and efficiency pressures that may best be addressed by having a stable and sustainable formal structure. Developing a governance structure that is both stable and flexible is not impossible. However, it requires frequent reassessment of structural mechanisms and procedures in light of new developments, and a willingness to make needed changes even though they may be disruptive.
As with the other two network tensions, no single form of network governance is capable of fully resolving the stability-flexibility tension. Self-governed networks are highly flexible and adaptable, since they are shaped by the participants themselves on an ongoing basis. As network needs and expectations change, participants enter and leave the network and governance adapts accordingly since participants are directly involved in decisions.
NAO governed networks are likely to be much more formalized, emphasizing the stability end of the continuum. NAO structures are typically either imposed on participants, as with government broker entities, or they are established only after networks have started to mature. In either case, there is a recognized need or demand for having a formalized structure that can be sustained over time. Lead organization networks strike a middle ground along the tension continuum. They are stable and sustainable as long as the lead organization
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is able to continue in its role. And since the role of the lead organization is often emergent, based on network needs and the influence of the lead organization in the network, some flexibility in how the network is shaped is likely. Formulated as a proposition:
Proposition 7: Networks face a tension between the need for flexibility and the need for stability. In self-governed networks, the tension will be resolved in favor of flexibility; in
NAO governed networks, the tension will be resolved in favor of stability; and in lead organization governed networks, a middle ground, or balance of tensions is most likely.
NETWORK EFFECTIVENESS AND THE MANAGEMENT OF TENSIONS
Our conceptual model has specified that every network is characterized by three major tensions. We have formulated propositions on how governance forms differ with respect to resolution of these tensions. What is also clear from the discussion, however, is that the tensions we discussed are outcomes of the basic structural properties of each governance form. To be effective, the tensions inherent in each form must be addressed, if not resolved.
This is the role of network management. Networks are most likely to be effective when management recognizes the inherent tensions in each form of governance and strives to balance them.
Despite the absence of empirical research on the contribution of tension balancing to network effectiveness, it can readily be argued that the balancing of tensions matters as much in networks as it does in organizations. For example, if a network is highly inefficient or lacks internal legitimacy over an extended period of time, participating organizations will be likely to drop out of the network or greatly reduce their involvement and contributions.
Alternatively, if a network is stable but not flexible, the capability of the network in performing key functions, like development of innovation, integrating care, developing large scale projects, and so on, is likely to decline over time, especially as critical environment conditions change and as new members join. Because the governance form itself rarely
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addresses both sides of these tensions, it is up to network management, as part of the governance process, to work to resolve the tensions inherent in whatever form is utilized.
Although balancing tensions in networks is critical for their continued effectiveness, it is not necessary the case that all tensions have to be in balance at all times. In fact, maintaining a continual state of balance in tensions is probably an impossible managerial task. Instead, as demonstrated by Human and Provan (1997) in their study of network legitimacy, network tensions can be balanced sequentially, concentrating first on one side of the tension and then on the other, depending on network needs at any particular time.
The limited work that has examined network management has clearly demonstrated that it is substantially different from management in more traditional hierarchical organizations (e.g. Kickert, Klijn and Koppenjan, 1999; Mandell, 2001; Agranoff and
McGuire, 2003). Unlike employees in an organization, network participants are autonomous entities and are involved in the network by choice. Consequently, there are few institutional devices available for imposing mandates on actors and decisions must be made in an environment that is complex and unpredictable. Networks are truly “organized anarchies”
(March and Olsen, 1976) with conflicting goals and agendas and they must be managed accordingly. Under such conditions, tensions are unlikely to be resolved through hierarchy. It is beyond the scope of this paper to explore the details of network management. However, consistent with Brunsson’s (2002) ideas in
The Organization of Hypocrisy , we argue that the complex and uncertain nature of networks means that the resolution of tensions is likely only when management engages in political, as opposed to goal-directed behavior. Political behavior implies that managers will act as facilitators, activating network members, arranging meetings, and arbitrating disputes without making decisions for members.
Balancing network tensions may simply not be possible in many cases, even if done sequentially. For example, it is possible that the tension between efficiency and inclusiveness
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cannot be balanced because network participants hold traditionally strong beliefs about inclusion (e.g. Seibel 1996). Trying to become more efficient would undermine the internal legitimacy of the network and could result in dissolution of the network. What is possible, however, is that network management can choose an alternative course of action.
Specifically, instead of working to balance the tension inherent in a particular governance form, the form itself can be changed. For instance, instead of trying to resolve the tension between efficiency and inclusiveness in a self-governed network, network management can collectively decide to adopt a NAO form, in which this tension is largely balanced through the form itself. Naturally, the new form will have its own tensions, but management may find that some tensions are ones they can more readily address than others, or that network participants have an easier time working under certain tensions than others. Thus, shifting from one form to another may substantially enhance overall network effectiveness without any fundamental change in management.
It should also be noted that changing from one form of governance to another it is not an option for removing tensions completely. Like any method of restructuring, it is a way of changing from a governance mechanism that is no longer tenable due to one set of unresolvable tensions, to a form that has a different set of tensions, but one that seems more easily addressed. A key problem, of course, is that change itself is disruptive and may not be welcomed by network participants. While it is possible, in theory, to restructure from any one form of governance to another, it practice, this change may prove difficult. Change may be especially difficult once a NAO is established, since this governance form comes down on the stability side of the flexibility-stability tension, as discussed in proposition 3.
Listed below are final three propositions. These propositions summarize our discussion and conclusions on the impact of management tensions on network effectiveness and the role of network management in that process.
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Proposition 8: Network effectiveness (outcomes) will increase the greater the extent to which the tensions inherent in a particular network governance form are in balance.
Proposition 9: Because of the tensions inherent in each form of network governance, effective management within each form will emphasize political, as opposed to goal directed behavior in an effort to balance the tensions.
Proposition 10: The less successful network management is in balancing the tensions inherent in each form of network governance, the greater the extent to which decisions will be made to shift from one form of network governance to another.
CONCLUSIONS
This paper has provided an examination and discussion of the governance of organizational networks, offering a rationale for studying this under-researched topic and distinguishing among three different forms of network governance. Our intent has been to build new theory about governance, first, by discussing the basic characteristics of each form of governance; second, by outlining the determinants of each form; and third, by discussing the tensions inherent in each form and how these tensions might best be managed. We do not deny that the effectiveness of networks may, in part, be a function of the actions of individual network participants, or that individual participants may gain advantage from network involvement regardless of governance form. However, it is our basic contention that when focusing on collectively generated, network-level outcomes, the form of network governance, and the management of tensions inherent to that form, are likely to be significant factors for explaining network effectiveness.
It is clear that despite what we have tried to accomplish in this paper, there is still a great deal of work to do to build and test theory related to network-level activities, structures, and outcomes. Thus, this paper should only be viewed as a starting point for explaining what network governance is, what forms it takes, and especially, how it might matter. For
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instance, as we noted early in the paper, the relative importance of each of the various determinants (contingency conditions) of governance form was not addressed, nor was how these determinants might interact with one another to explain the form. In addition, the role of management clearly needs to be addressed in greater depth. We discussed the importance of management in balancing the tensions inherent in each governance form, but exactly what should be done and how was beyond the scope of this paper.
Another issue that deserves further attention is evolution of governance forms. A key point regarding which governance model is adopted is that some of these models, especially self-governance and lead organization forms, may well represent transitional structures.
While some networks are formally constructed at conception, many start out as loose coalitions with few or no formalized governance mechanisms, similar to the self-governance model. As the network evolves and grows, becoming more complex, further structure or formalization may be needed. The simplest mechanism in this case may be for one active and important network participant to become a lead organization. As the network continues to expand its activities, it may require adoption of more formalized structural mechanisms to coordinate and facilitate decisions, and ultimately, to enhance the sustainability of the network. Thus, a network administrative organization may eventually be adopted.
Although there has been some work done that attempts to specify how networks evolve over time (D’Aunno and Zuckerman, 1987; Ring and Van de Ven, 1994; Doz, 1996;
Human and Provan, 2000; Kenis and Knoke, 2002), these studies have focused mainly on the evolution of network relationships, not the form of governance. We can make no predictions about exactly how network governance evolves since many different paths of evolution regarding governance are possible. If networks are inherently flexible forms as many have claimed, the appropriateness of one governance structure over another is likely to shift over time to respond to changes in the needs and demands of network participants based on such
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factors as network size, composition, maturity, and both internal and external pressures. How this process unfolds would be an extremely useful avenue for additional theorizing.
Finally, although we have focused primarily on explaining the impact of governance form on network effectiveness, effectiveness itself was only addressed in a general way.
Research and further theorizing on network governance might move beyond this, addressing effectiveness as a multi-dimensional variable (cf. Provan and Milward, 2001). For example, it may be that one form of governance may be most likely to produce positive outcomes for some network outcomes, like innovation, but not for others, like better services. From this, it might also be possible to work backwards, predicting network form based on the type of outcome achieved. This capacity would be especially attractive to those trying to investigate and understand the functioning of illegal networks (e.g. Baker and Faulker 1993; Raab and
Milward, 2003; New York Times, May 22, 2005, on relational configurations with Enron). If the network form could be inferred from the outcome attained, then more effective intervention strategies might be designed.
Overall, our paper has been an attempt both to present new theory about network governance and to stimulate new thinking about how networks might be studied in the future.
The challenge to researchers will be to broaden their focus, moving away from a concern with how organizations function in networks and dyadic network relations. Instead, researchers will need to examine whole networks and how they are governed. Ideally, large scale comparative network studies would be undertaken, examining many networks across a range of different forms of governance. In view of the cost and complexity of conducting such research, however, it may be more reasonable to encourage the cumulative building of knowledge drawn from multiple network studies examining different forms of governance in more in-depth ways. Some of this research has already been conducted, but the accumulation of evidence has not yet been apparent. Hopefully, this paper will stimulate this process.
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Figure 1
Modes of Network Governance
Figure 2a: Self-Governed Network Figure 2b: Lead Organization Network
Lead
Organization
Figure 2c: Network Administrative
Organization Network
Figure 2d: Hybrid Network
Collaborative entity
Support entity
Network
Administrative
Organization
Network member organizations that are collectively involved in network governance
Stronger relationship
Weaker relationship
Network administrative organizations 44

Number of
Participants
Task
Decomposability
Organizational
Competencies
Trust
Figure 1
Network Governance, Network Management, and Network Effectiveness: Conceptual Model
Management 1 – appropriateness of selection of governance form
Network
Governance
Form
Management 2 management of tensions
Network Tensions
–
Degree of
Network
Effectiveness
45