On networks
After all local.ch is a network company. So here some thoughts on networks I wrote some time ago (And you discover that networks are nothing really new).
The term network has become a fashionable term to describe contemporary organizations. Manifold examples are advanced from regional networks, say the Prato area in Italy (textiles), to Silicon Valley in the United States (information technology). The term network is used on the one hand to describe the pattern of inter-organizational cooperation and on the other hand to outline towards what organizations must strive in order to be successful in the competitive business environment of tomorrow. The common explanation for the latter statement is as follows: the current competitive environment simultaneously demands levels of quality, low cost, innovation and fast response times that traditionally organized companies cannot deliver [1]. The suggested strategic network organization includes key resources, suppliers, and customers with one company assuming the role of central controller and organizer of the flow of goods and information, to make sure that the final customer gets in the most efficient way exactly what he is supposed to get (Nohria and Eccles 1992a). How do these organizational patterns differ from markets or hierarchies [2]?
The study of networks is nothing new. Nohria (1992) traces interest in networks back to the 1930s. Later Thompson (1967) and Mitchell (1969) examined networks. The newly arisen interest in networks is due to three reasons: (1) fierce competitive conditions, (2) IT allows new forms of networks, and (3) increased academic research in networks. However, this led to a rather confusing situation with respect to terminology.
Relations are the building blocks of network analysis [3]. A network is generally defined as a specific type of relation linking a defined set of persons, objects or events, usually grounded in a long-term relationship. In the past the emphasis was more on non-profit inter-organizational networks and less on inter-firm networks. Networks rely on mediating technology to link suppliers or customers who are or wish to be interdependent. The mediating technology facilitates relationships of exchange among customers who are distributed in time and space. However, let us note that a network is not an administered market. Different types of relations identify different networks, even when imposed on an identical set of elements. The set of persons, objects, or events on which a network is defined are called the actors or nodes. These elements possess some attributes that identify them as members of the same equivalence class for purposes of determining the network of relations among them.
The network organization is a specific organizational type. A cooperative relationship itself is not a network, but it is a building block. A network is thus more than cooperation among firms. The components of industry networks are relationships that involve project-specific investments, both productive and administrative. In that sense all organizations are networks – patterns of roles and relationships. The chief structural characteristic of a network organization is the high degree of integration across formal boundaries, and the integration covers vertical and spatial differentiation as well as horizontal differentiation. (Baker 1992).
The position of a firm in the network becomes a matter of great strategic significance: power, information, money, and products and services flow along the links of the network, and the more central the node the more influence that node has on the overall network. This position of a node in any given network depends on at least three major factors: the domain of the company (indicating its role in the division of labor), the position of the company in other networks, and the power of the company relative to other participants in the network [4] (Thorelli 1986).
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Notes:
[1] Traditional insofar as the firms make most things in-house or rely on tight contracts with subcontractors for supplies or distribution.
[2] Thorelli (1986, 42) offers this comparison: “Under conditions of pure competition the market is guided by an invisible hand. Using an analogous metaphor we may say that the network is surrounded by an invisible wall of varying thickness and height. The wall comes equipped with ‘strategic windows’ providing access to other networks, and sometimes they may be prised open by outsiders wanting to join the inside network.”
[3] The following relations occur in a network: Transaction relations, communication relations, boundary penetration relations, instrumental relations, sentimental relations, authority or power relations, kinship and descent relations (Knoke and Kuklinski 1982).
[4] Thorelli (1986) defines five interrelated sources of power: economic base, technology, expertise, trust, legitimacy.
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References:
Baker 1992: Baker W.E., “The Network Organization in Theory and Practice”, in Nohria N. and Eccles R.G. (eds.), Networks and Organizations: Structure, Form, and Action, Boston: Harvard Business School Press, 1992, pp. 397-429.
Knoke and Kuklinski 1982: Knoke D. and Kuklinski J.H., Network Analysis, London: Sage Publications, 1982.
Nohria 1992: Nohria N., “Is a Network Perspective A Useful Way of Studying Organizations?”, in Nohria N. and Eccles R.G. (eds.), Networks and Organizations: Structure, Form, and Action, Boston: Harvard Business School Press, 1992, pp. 1-22.
Nohria and Eccles 1992a: Nohria N. and Eccles R.G. (eds.), Networks and Organizations: Structure, Form, and Action, Boston: Harvard Business School Press, 1992.
Mitchell 1969: Mitchell J.C., “The concept and use of social networks”, in Mitchell, J.C (ed.), Social networks in urban situations, Manchester: Manchester University Press, 1969, pp. 1-50, as cited in Sydow J., Strategische Netzwerke – Evolution und Organisation, Wiesbaden: Gabler-Vieweg, 1992, p. 78.
Thompson 1967: Thompson J.D., Organizations in Action, New York: McGraw Hill, 1967.
Thorelli 1986: Thorelli H.B., “Networks: Between Markets and Hierarchies”, Strategic Management Journal, 7 (1), 1986, pp. 37-51.
The term network has become a fashionable term to describe contemporary organizations. Manifold examples are advanced from regional networks, say the Prato area in Italy (textiles), to Silicon Valley in the United States (information technology). The term network is used on the one hand to describe the pattern of inter-organizational cooperation and on the other hand to outline towards what organizations must strive in order to be successful in the competitive business environment of tomorrow. The common explanation for the latter statement is as follows: the current competitive environment simultaneously demands levels of quality, low cost, innovation and fast response times that traditionally organized companies cannot deliver [1]. The suggested strategic network organization includes key resources, suppliers, and customers with one company assuming the role of central controller and organizer of the flow of goods and information, to make sure that the final customer gets in the most efficient way exactly what he is supposed to get (Nohria and Eccles 1992a). How do these organizational patterns differ from markets or hierarchies [2]?
The study of networks is nothing new. Nohria (1992) traces interest in networks back to the 1930s. Later Thompson (1967) and Mitchell (1969) examined networks. The newly arisen interest in networks is due to three reasons: (1) fierce competitive conditions, (2) IT allows new forms of networks, and (3) increased academic research in networks. However, this led to a rather confusing situation with respect to terminology.
“Anyone reading through what purports to be network literature will readily perceive the analogy between it and a terminological jungle in which any newcomer may plant a tree.” (Nohria 1992)
Relations are the building blocks of network analysis [3]. A network is generally defined as a specific type of relation linking a defined set of persons, objects or events, usually grounded in a long-term relationship. In the past the emphasis was more on non-profit inter-organizational networks and less on inter-firm networks. Networks rely on mediating technology to link suppliers or customers who are or wish to be interdependent. The mediating technology facilitates relationships of exchange among customers who are distributed in time and space. However, let us note that a network is not an administered market. Different types of relations identify different networks, even when imposed on an identical set of elements. The set of persons, objects, or events on which a network is defined are called the actors or nodes. These elements possess some attributes that identify them as members of the same equivalence class for purposes of determining the network of relations among them.
“The structure of relations among actors and the location of individual actors in the network have important behavioral, perceptual, and attitudinal consequences both for the individual units and for the system as a whole.” (Knoke and Kuklinski 1982, 13)
The network organization is a specific organizational type. A cooperative relationship itself is not a network, but it is a building block. A network is thus more than cooperation among firms. The components of industry networks are relationships that involve project-specific investments, both productive and administrative. In that sense all organizations are networks – patterns of roles and relationships. The chief structural characteristic of a network organization is the high degree of integration across formal boundaries, and the integration covers vertical and spatial differentiation as well as horizontal differentiation. (Baker 1992).
The position of a firm in the network becomes a matter of great strategic significance: power, information, money, and products and services flow along the links of the network, and the more central the node the more influence that node has on the overall network. This position of a node in any given network depends on at least three major factors: the domain of the company (indicating its role in the division of labor), the position of the company in other networks, and the power of the company relative to other participants in the network [4] (Thorelli 1986).
-------
Notes:
[1] Traditional insofar as the firms make most things in-house or rely on tight contracts with subcontractors for supplies or distribution.
[2] Thorelli (1986, 42) offers this comparison: “Under conditions of pure competition the market is guided by an invisible hand. Using an analogous metaphor we may say that the network is surrounded by an invisible wall of varying thickness and height. The wall comes equipped with ‘strategic windows’ providing access to other networks, and sometimes they may be prised open by outsiders wanting to join the inside network.”
[3] The following relations occur in a network: Transaction relations, communication relations, boundary penetration relations, instrumental relations, sentimental relations, authority or power relations, kinship and descent relations (Knoke and Kuklinski 1982).
[4] Thorelli (1986) defines five interrelated sources of power: economic base, technology, expertise, trust, legitimacy.
-------
References:
Baker 1992: Baker W.E., “The Network Organization in Theory and Practice”, in Nohria N. and Eccles R.G. (eds.), Networks and Organizations: Structure, Form, and Action, Boston: Harvard Business School Press, 1992, pp. 397-429.
Knoke and Kuklinski 1982: Knoke D. and Kuklinski J.H., Network Analysis, London: Sage Publications, 1982.
Nohria 1992: Nohria N., “Is a Network Perspective A Useful Way of Studying Organizations?”, in Nohria N. and Eccles R.G. (eds.), Networks and Organizations: Structure, Form, and Action, Boston: Harvard Business School Press, 1992, pp. 1-22.
Nohria and Eccles 1992a: Nohria N. and Eccles R.G. (eds.), Networks and Organizations: Structure, Form, and Action, Boston: Harvard Business School Press, 1992.
Mitchell 1969: Mitchell J.C., “The concept and use of social networks”, in Mitchell, J.C (ed.), Social networks in urban situations, Manchester: Manchester University Press, 1969, pp. 1-50, as cited in Sydow J., Strategische Netzwerke – Evolution und Organisation, Wiesbaden: Gabler-Vieweg, 1992, p. 78.
Thompson 1967: Thompson J.D., Organizations in Action, New York: McGraw Hill, 1967.
Thorelli 1986: Thorelli H.B., “Networks: Between Markets and Hierarchies”, Strategic Management Journal, 7 (1), 1986, pp. 37-51.
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