NETWORKS AND
ORGANIZATIONS
Aaron McKenny
Agenda
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Authors
Networks
Major Uses
Networks in different organizational lifecycle
phases
Conclusion
Authors

Kelly Packalen (Maiden name: Porter)
 Assistant
Professor of Strategy and Organization
 Queens University
 Entrepreneurship, Strategy, OT
 Especially career histories of founders

Walter Powell
 Professor
of Sociology
 Stanford University
 Networks
Agenda
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Authors
Networks
Major Uses
Networks in different organizational lifecycle
phases
Conclusion
Network… a broad word
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“Networking” – in a business sense
Internal vs external networks
Nodes = individuals, organizations
IT definition
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Two types of network studies
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Networks as tools to trace relationships
 Networks as a governance structure
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Networks play different roles in different stages of the
organizational lifecycle
Important things not introduced
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Closure – The redundancy of ties in a network
Centrality – Your importance in a network (most
simple: number of ties you have to others)
Centralization – Degree to which the middle of the
network is dominated by one or few nodes.
Agenda
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Authors
Networks
Major Uses
 As
a tool for tracing relationships
 As a governance structure
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Networks in different organizational lifecycle
phases
Conclusion
As a tool for tracing relationships
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
Roots in sociology, social psychology
Webs of affiliation
 Moreno
(1934) developed the social network map
(sociogram)
 Use in investigating social
circles
 Formal
circle membership
 Informal circle membership
As a tool for tracing relationships
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Balance Theory
 Need
to maintain an equilibrium of relations
A
& B positively linked
 Only in balance if they agree in their other links
 (vice versa for negatively linked pairs)

Small Worlds
 http://oracleofbacon.org/
 Two
random people are not so distantly connected as
we tend to think.
As a tool for tracing relationships

The Strength of Weak Ties
 You
generally share common information with strong
ties
 Weak
ties have more information that is less familiar to you
(more informative)
 Bridging
relationship – ties two otherwise disconnected
(or weakly connected) subnetworks
 Many
advantages to this: promotion, compensation, etc.
(Burt, 2000)
 Structural
holes – what you have when there’s no
bridging relationship, two subnetworks that aren’t
linked
As Governance Structures
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Markets vs hierarchies (Ollie W)
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Market

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…vs. networks (Powell, 1990)
Goods exchanged based on price – prototypical
neoclassical economics supply & demand curve
Hierarchy
Employment relationship (rules-based)
 Management costs < Market transaction costs

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Networks
Relationship-based (friendship, obligation, trust)
 Benefits of small, agile businesses while still attaining
economies of scale
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Four types of network governance
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Centered around projects
Firm-led industrial districts (meta organizing?)
Geographical clustering of industries
Strategic networking
 Outsourcing
 Joint
Ventures
 Strategic Alliances
Agenda
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Authors
Networks
Major Uses
Networks in different organizational lifecycle
phases
 New
Ventures
 Growth
 Maturity and Decline
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Conclusion
What to expect
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Differences
 Types
of networks leveraged
 Formal
 Level
vs. Informal
of networks leveraged
 Internal
vs. external
 Roles
of the network
 Embeddedness in network
 Relational
– use direct ties to get information
 Structural – Value derived from holding a position in the
network
In new ventures
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Network of founders is the firm’s network
A conduit for resources
 Wealth,

Power, Legitimacy, Information
Use network to gather advice
 Gain
support and test business ideas
 Start network small, grow it in the planning phase,
shrink it in the establishment phase
 Frequently use family
 Also
venture capitalists, angel investors
In new ventures
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Money
Most entrepreneurs supplement their own investments with
others
 Family, Friends, VCs, Angels, SBA, etc
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Immigrant Entrepreneurs
Often discriminated against by traditional funding sources
 Some use revolving credit associations instead
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Socially very important for them to repay loans
Others are more creative

Revolving credit associations have a bunch of negative sideeffects
In new ventures
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Reputation
Helps establish legitimacy, access to favorable capital
sources (and not just financial capital)
 Investors use to gather information about you too
 Can affect IPO valuation

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Favored at Birth
Tend to expand the same social network, not establish a
brand new one when starting a venture
 Relationships based on one of three components
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Personal embeddedness (social, not work connection)
 Competency embeddedness (known, reliable party)
 Hollow embeddedness (based on reputation/3rd party ties)
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Growth Phase
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Connections to external resources facilitates growth
Internal Networks
 Influences
flow of information
 Moderate levels of internal socialization is optimal
 Contrary

to team-building studies findings
Networks Across Divisions
(internal and external) networks  more
productive
 Weak ties helps in search for knowledge, but not in
transfer of knowledge.
 Dense
Growth Phase

Networks Across Divisions (cont’d)
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Social network influences how well you receive change
Capturing Knowledge
Hiring – Bring in someone that will bring in new knowledge
 Foreign Expansion – Locate your R&D organization in
information-rich locations
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Acquire rather than establish
Informal Networks – Water cooler hierarchies
Important for knowledge sharing
 Organizations can still be nodes in an informal network

Growth Phase
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Creating Inter-firm networks as a source of
knowledge
Joint projects (research, product development)
Having relationships with too few established firms
gives them power over you
Smaller firms tend to get more knowledge out of
networks than larger firms
Dyads and beyond
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Dyads are the most common
They use Toyota as an example… maybe they had better
rethink that example.
Growth Phase

Location, Location, Location
 Real
Estate, Marketing, and Networks
 Organizations develop routines that embed them in
their regions
 Certain regions have more opportunity than others
 But
after the ‘gold rush’ to the region, they’re less attractive
 Likewise,
having other similar companies around can be
helpful
 But
too many can be detrimental
Growth Phase
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Limits to knowledge sharing
 Differences
among organizations’ information
processing abilities
 Based
on level of prior related knowledge
 Differences
in willingness of individuals to share
information
 Based
on social cohesion and dissimilarity of knowledge
pools.
 Access
to knowledge conditioned by
 Structural
position in network
 Prior level of knowledge.
Maturity and Decline
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New longitudinal databases to help study this
Survivability increases at bridging points between
networks
Very few studies on dissolution of ties
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Hard to get data on this (most companies don’t announce it)
Clique stability
Exchanges built on social attraction
 Identify complementary skills to accomplish collaborative
tasks
 Distribution of value throughout the clique.
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Agenda


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
Authors
Networks
Major Uses
Networks in different organizational lifecycle
phases
 New Ventures
 Growth
 Maturity and Decline
Conclusion
Conclusion

Very very brief overview of the literature

Other more extensive reviews:
Marsden (1990): Network Data and Measurement – ARS
 Marsden (2004): Network Analysis – Encyclopaedia of social
measurement
 Scott (1991): Social Network Analysis: A Handbook
 Wasserman & Faust (1994): Social Network Analysis: Methods
and Applications
 Portes (1998): Social Capital: Its origins and applications in
modern sociology – ARS
 Burt (2000): The Network Structure of Social Capital – Research
in Organizational Behavior
 Smith-Doerr & Powell (2005): Networks and Economic Life –
Handbook of economic sociology
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Big OT Questions
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Why do organizations exist?
Why are firms the same/different?
What causes changes in organizations?
Why do some firms survive and others don’t?
Emerging issue?