Business Strategy & Network
Structure
Dr. Emanuela Todeva
Director of Research Centre for Business Clusters,
Networks and Economic Development
University of Surrey
Examples of Business Networks
• buyer-supplier networks, or vertical industrial
networks within a value-chain;
• horizontal diversified industrial networks of the
type of Keiretsu and Chaebol;
• networks of subsidiaries and subcontractors to
multi-national corporations;
• family business networks;
• entrepreneurial networks of autonomous small
businesses;
• project
network,
including
R&D
alliance
networks, and counter trade networks;
• utility networks.
Types of
Supply Chain Networks
•
•
•
•
•
Ego-centred
Dispersed
Project based
Value-chain based
A combination of value-added
chains & strategic control
networks
Definition of Business Networks
Business networks are sets of repetitive transactions
based on structural and relational formations with
dynamic boundaries comprising interconnected
elements (actors, resources and activities). Networks
accommodate the contradictory aims pursued by
each member, and facilitate joint activities and
repetitive exchanges that have specific directionality
and flow of information, commodities, heterogeneous
resources, individual affection, commitment and trust
between the network members. (E. Todeva, 2006).
http://www.surrey.ac.uk/BCNED/
http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1124332
The Network Diamond
cultural
approach
ACTORS
STRUCTURE
relational
approach
structural
approach
RELATIONSHIPS
Emanuela Todeva (2006) Business Networks: Strategy and Structure, New York: Taylor & Francis.
The Behavioural System of Business Networks
Reactive & Strategic Behaviour in Networks
Firm’s conditions &
attributes
Market conditions
Industry conditions
Factor conditions
Mediating factors
Manageability/Control
Decision making & goal setting
Negotiating identities, interests & agreements
Bargaining & negotiating contracts
Ascribing and accepting roles
Structuring information flow
Coordination
Maximising profits, payoffs, benefits
Minimising costs / Sharing costs
Optimising behaviour & maximising ‘expected utility’
Manage the use of their assets
Accumulation of heterogeneous resources
Investment in assets capabilities & relations (incl.
diversifying assets & capabilities)
Building strategic capabilities
Specialisation
Initiation of contacts and entrepreneurship
Contracting resources
Developing relationships
Extending commitments to partners (buyers, suppliers)
Acquiring & maintaining power
Monitoring & evaluation of partners, building expectations
Exchange of incentives
Strategic positioning
Mimicry, conformity & compliance
Legitimacy seeking
Forming coalitions and partnerships
Cooperation for a final outcome
Learning
Knowledge sharing
Manipulating external & internal environment
factors
Business operations
Other connected activities
Relational framework
/ context
Relational attributes
Legitimacy & Role
© Todeva, 2006
Relational Analysis
• What constitutes a business relationship (a question
about the nature of inter-firm associations);
• Why actors connect to each other (a question about
their motives and drivers);
• How actors connect to each other (a question about
forms and types of network links, and business
relationships);
• What takes place in a relationship (exploring the
possible content of communications, exchanges,
and transactions, their dynamics);
• What are the implications of being connected
© Todeva, 2005
Dyadic & Multilateral Relationships
ALTER
EGO
EGO
Attributes /
Affiliated members
and sub-units
E. Todeva, 2003
Connected Relationships
Future relationship
Past relationship
Focal relationship
Focal
firm
Direct
counterpart
of the focal
firm
Connected relationships
Indirect
counterpart
of the focal
firm
© Todeva, 2005
Indirect
counterpart
of the focal
firm
A-R-A model
Adapted from Hakansson, H. and Johanson, J. (1993) Actors / Resources /Activities Model (A-R-A model).
Resource A1
Resource A2
resource
Interdependence
4
4
Resource B1
Resource B2
2
2
Activity A
Activity B
1
1
3
4
3
activity
Interdependence
4
Actor 1
resource commitments by actor 1
resource commitments by actor 2
activity participation
emerging interdependencies
4
dyadic exchange
relationship
Actor 2
1.
2.
3.
4.
resource links
commitment links
participation links
interdependence links
Categories and Levels of Network Relationship
POTENTIAL
RELATIONSHIP
Co-presence in a field
Relation / Association
between subjects & objects
PRERELATIONSHIP
Initiating a link
Knowing someone or something
INTERACTION /
COMMUNICATIO
N LINK
(including learning about the other)
Mutual recognition between
human actors, or interaction with
objects
Establishing a relationship
(including certain reciprocity)
DYADIC MARKET
RELATIONSHIP
Market transaction
LONG-TERM
RELATIONSHI
P
Repetitive transactions
NETWORK
RELATIONSHIP
Interconnected relationships
(including
agreement)
(including a
partnership agreement)
transactions & resource flows)
(including
Single exchange of resources
between human actors
Repetitive exchanges, employing an
object into a process
Community exchanges
& interconnected processes
© Todeva, 2005
♦
◄
◘ ▼
►
Evolution of Relationships
- selecting partners
- initiate relationship
- reciprocate partner’s efforts
- framing
pre-relationship
stage
- identifying needs
- evaluation of
potential partners
exploratory
stage
- individual commitment
- learning
- seeking complementarities
& synergies
- framing
negotiation
stage
- designing transactions
- agreements
- framing
development
stage
-relationship assessment
-decision-making
-attempts for restoration
-dyadic communication
of termination
-network communication
of termination
-disengagement
-sense-making
-aftermath
stable execution
stage
-relationship management
termination
stage
Interorganisational Relations
•
•
•
•
•
•
•
•
•
•
•
•
•
joint ventures;
equity investments;
co-operatives;
R&D consortia;
strategic co-operative agreements;
cartels;
franchising;
licensing;
subcontractor networks;
industry standards groups;
action sets
market relations
hierarchical relations
Todeva & Knoke, 2002
REPRESENTATIVE & MARKET RELATIONSHIP – Exporting, Equity
investment
HIERARCHICAL RELATIONSHIP - Wholly Owned Subsidiary,
Franchising, Subcontracting
AUTONOMOUS PARTNERSHIP RELATIONSHIP - Contractual & Equity
Joint Ventures
INTER-DEPENDENT PARTNERSHIP RELATIONSHIP – R&D Consortia,
Industrial Co-operation Agreement, Management Contracts, Turnkey
Contracts
E
Production /
implementation
network in host
economy
A
A2
D
Headquarters
E
Exporter, Licensee,
Portfolio investment
B
Subsidiary, Joint Venture
C
Subsidiary, Franchisor,
Local distributor
A, A2
B
Subcontractors, Franchisees,
Suppliers, Business customers
Outsourcing / Subcontracting
relationship
C
Partners by contractual agreement
Equity control & resource sharing agreements
Transfer of operational control
D
Main relationship
Sharing agreements, Equity
control
Competitive relationship
© Todeva, 2005
Chinese Family & Community Business Networks
hegu, hui, guanxi, kongsi
© Todeva, 2005
Structural Analysis
• What constitutes a business network structure (a
question about the nature of inter-firm associations);
• Why some structures survive over time (a question
about their motives and drivers);
• How network structures facilitate actors’ behaviour
(a question about forms and types of network links,
and business relationships);
• What interactions take place in a different structural
configurations (exploring the possible content of
communications, exchanges, and transactions, their
dynamics);
• What dynamics take place in different structural
formations
© Todeva, 2005
Types of Structural Configurations
hierarchical organisation
(Weber, 1947)
functional organisation
matrix organisation
multidivisional organisation
(Simon, 1962; Chandler, 1962; Williamson, 1975)
trans-national (Bartlett & Ghoshal, 1989)
horizontal organisation / value-chain, supply
chain - through vertical integration of
activities (Porter, 1986)
industry groups (Porter, 1980)
hybrid organisation
(Miles & Snow, 1986, Powell, 1987)
producer
designer
broker
supplier
distributor
heterarchy (Hedlund, 1986)
community / dispersed / distributed
hegemonic / Ego-centred
clustered / dispersed / distributed
circular / regular / small-world
universal / core-periphery / scale-free
♦
◄
▼◘ ▼▼
Types of Network Structures
Hegemonic
Tree
Clustered
Circular
Regular
Core/Periphery (Scale-free)
Universal
Small world
Value Chain
Network Based Businesses
© Todeva, 2005
Distributed Supplier Networks and Commodity Chains
TRADING
COMPANY
BUYER
PRODUCER
DISTRIBUTOR
SUBCONTRACTOR
MANUFACTURER
BANK
Japanese Sogo Shosha Networks
Keiretsu
network
BANK
Sogo Shosha
trading
company
Foreign partners
© Todeva, 2005
Firms
MNC Networks
TURN-KEY
CONTRACT
FRANCHISEES
JOINT VENTURE
SUBSIDIARIES
EMBEDDED IN
LOCAL CLUSTERS
HEADQUARTERS
LICENSEE
INDUSTRIAL
CO-OPERATION
AGREEMENT
REPRESENTATIVE IN
FOREIGN COUNTRY
© Todeva, 2005
R&D Alliance Networks
Competing products
Competing technologies
MNC
Research
laboratory
MNC
Research
laboratory
RESEARCH
CONSORTIUM
Government
innovation policy
agencies
Government
standardisation
agency
subcontractor
Scientific
Association
Scientific and knowledge fields
© Todeva, 2005
International
Standardisation
agency
The Global Information Sector, 2002
Motion picture
Business services
Computer systems
sPublishing
Publishing
Electronic hardware
Telecom operations
© E. Todeva (2004)
Electrical Equipment and Component Manufacturing Cluster in
Zhe Jiang Province in China: Chint (led by Mr Nan) and Delixi
(led by Mr Hu)
Qiujing Swith Plant, 2005
Networks with Banks (1)
and Others (2)
Networks with Clients (1)
and Suppliers (2)
Bio-Medical & Health,
Greater South East, 2008
Regional Inter-University
Alliances & Partnerships
Database Research Projects
‘Regional University
Collaborations’
Greater South East, UK
Bio-Medical & Health,
Greater South East, 2008
Location of
Capabilities
Database Firms ‘Regional
Concentrations of Capabilities
Measured with a Two-mode
Graph of Relationships
Between Regions and Clusters’
Greater South East, UK
Cluster Value Chain: SURGICAL & MEDICAL INSTRUMENTS MANUFACTURING
(198 firms, ties between firms based on 5 or more shared industry codes)
(87% of firms have the core industry codes: 334510 Electro-medical and Electrotherapeutic Apparatus Manufacturing; 334517 Irradiation
Apparatus Manufacturing; 39112 Surgical and Medical Instrument Manufacturing; 339113 Surgical Appliance and Supplies Manufacturing)
R&D
All other personal
care stores
Plastic
products
198 firms
87% in 4 core
industries
Misc electrical
equip & component
manuf.
Holding
companies
Misc. metal
products
Electro-medical, electrotherapeutic, irradiation
apparatus; surgical &
medical instruments;
surgical supplies
manufacturing
Wholesale
© Todeva (2007)
Conclusions
• Acknowledge the presence of relational aspects
and long-term commitments between business
partners and the role of content, context and
relational dynamics
• Relational and structural properties of business
networks do affect performance and the
effectiveness of international partnership
agreements
• Heterogeneity of actors in business networks has
an impact on coordination and management of
partnerships
• Different dimensions of business networks do
require distinctive research methodologies
© Todeva, 2005