Personal and Business Networks

Gerrit Rooks29-09-10

“no man is an island, entire of itself…” (Donne 1624).

This lecture• A tidbit on personal networks

– How many close friends do people have? How many do you have?

• The evolution of business-networks from entrepreneurial networks

• The Toyota supplier network• Alliance networks: direct and indirect ties

Social Brain Hypothesis• Ronald Dunbar (1947),

anthropologist and evolutionary biologist. Director of the Institute of Cognitive and Evolutionary Anthropology, University of Oxford

• Ronald Dunbar hypothesized that the development of human intelligence (and the neo-cortex) is the evolutionary result of the need for social coordination and cooperation

Personal network size

• the number of social group members a primate can track, appears to be limited by the volume of the neocortex region of their brain.

Dunbar, R.I.M. (1993), Coevolution of neocortical size, group size and language in humans, Behavioral and Brain Sciences 16 (4): 681-735.

Dunbars number• Based on a regression

equation on data for 38 primate genera, Dunbar predicted a human "mean group size" of 148 (casually rounded to 150).

• Dunbars number: 150 (estimates of network size vary between 100-230)

Dunbar, R.I.M. (1993), Coevolution of neocortical size, group size and language in humans, Behavioral and Brain Sciences 16 (4): 681-735.

Dunbars number

• Support clique: people who we seek personal advice from

• Sympathy group: special ties, frequent contact

• Band: acquaintances, frequent contact Clan: all current contacts

• Megaband + Tribe: larger social units

(Co)variation in network size

Any group greater than 150 will become disfunctional

Company size = 75-200 Organizations > 150 need bureaucracy…

75-200

475-1000

50,000 +

20,000 to 45,000

10,000 to 15,000

20,000 to 45,000

lieutenant general

major general

colonel

lieutenant colonel

captain

lieutenant general or higher

Personal and business networks

The organizational life cycle

Hite & Hesterly. The Evolution of Firm Networks: From Emergence to Early Growth of the Firm Strategic Management Journal, Vol. 22, No. 3 (Mar., 2001), pp. 275-286

Social network entrepreneur = firm network

`identity’ based networkshigh proportion of ties with some type of personal or social identification

Pre-existing ties, strong embedded network high in closure and cohesion

Early / Later growth

Calculative networksTies are primarily motivated by expected economic benefits

Weak ties that are more market like, less redundant

Result of pro-actively managing networks

From embedded to balanced

• Emerging firms rely on embedded ties – Low reputation / legitimacy

• Not an attractive partner • -> reluctant banks etc.

– Limited search capabilities• Growth firms have to rely on arms

length relations as well– Firm is more attractive etc– Better search capabilites

From cohesion to bridging structural holes

• Emerging firms rely on cohesive networks– Reciprocity, Enforcable trust,

direct access to resources– However, available resources

are limited.– Add new contacts, bridge

structural holes• Firms need a balanced network,

neither too dense, nor too sparse

Intentionally managed networks• Firms (can) learn to create

network value• Creation of networks also

depends on specific skills (in case of persons social competences)

• Co-evolution of firm and network

The Toyata supplier network• Japanese

automobile makers are more and more productive, US is lagging

• WHY?• Dyer and

Nobeoka:"Creating and managing a high performance knowledge-sharing network: the Toyota case"

• One large network with core firm as hub

• Bilateral relationships• Weak ties/arm's length

relations• Structural holes

• Large network plus multiple nested networks

• Multi-lateral relationships• Strong/embedded ties in

nested networks with core firm

• Dense network

Knowledge sharing routines• Dilemmas associated with knowledge

sharing1. how can self-interested network members

openly share valuable knowledge?2. how to prevent free-rider problems?3. how to maximize the efficiency of knowledge

transfers?

Overcoming knowledge sharing dilemmas

1. how can self-interested network members openly share valuable knowledge?

– Create a network 'identity' through network-level knowledge-sharing routines

2. how to prevent free-rider problems?– Network `rules' for knowledge protection and value

appropriation3. how to maximize the efficiency of knowledge transfers?

– Creating multiple knowledge-sharing processes and sub-networks in the larger network

Why create an identity?• Many experiments demonstrate the powerfull effects of social

identity, f.i.

• Randomly assign individuals to a blue and a green group• Individuals were unknown to each other and were told that

they would not meet again• Group members evaluated each other more positively and

were more willing to cooperate with each other than non group members

How did Toyata create a network 'identity'?

• Toyota's network is known (labeled) as the `Toyota group'.

• Toyota creates a shared network identity by developing multiple groups– The supplier association– Toyota's operations management consulting division– Voluntary small group learning teams (jishuken)

Developing ties

• The supplier association (s)– Kyohokai: Toyota's supplier association was

established in 1943– Suppliers must be close to each other

• Supplier association has regular meetings, fi– Quality committees.– Visit `best practice' plants– Quality management conference held once a year

Developing ties

• Toyota's operations management consulting division– Direct free `on-site' assistance for suppliers

• Voluntary small group learning teams (jishuken)– Each group consists of roughly 5-8 suppliers– After determining theme, the group visits each

member to develop suggestions– Groups are frequently rearranged

Network rules for knowledge protection

• Creating an identity isn't enough to solve sharing and free riding problems

• Toyota sets a norm/rule by sharing its own knowledge– eliminating the notion that there is `proprietary knowledge'

• Suppliers must be willing to open their plants to other network members to other network members – reciprocal obligations: We will help you, but in return, you must agree

to help the network.– reciprocity norm is enforced by implicit threat of withdrawal of

business

Creating multiple knowledge sharing processes

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Alliance networks: Ahuja

• Two types of ties

• Direct ties– knowledge sharing– complementary

skills– scale economies

• Indirect ties– knowledge

spilloversDirect tie

Indirect tie

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Effects of direct ties

Many direct ties Fewer direct ties

Knowledge sharingComplementarity higher innovation output Economies of scale

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Effects of indirect ties

Many indirect ties Fewer indirect ties

Information gathering devices higher innovation output Screening device

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Effects of indirect ties depend on the # direct ties

Many direct ties Fewer direct ties

Relative addition of new resources is smaller.

When many partners have indirect ties, information is likely less valuable. since it will reach many others

What is better for innovation output of firms: structural holes or network closure?

• Ahuja finds clear support that network closure is superior