Networks: Integrative Perspectives

Given that every organization or set of organizations is essentially a social network (Lincoln, 1982), concepts of social network methods especially have been applied to understand how alliance and organizational networks emerge, function, and perform. Most notably, social network analysis has been deployed to increase our understanding of how firms obtain and use information about partner needs, knowledge, competencies, and reliabilities in their search for potential alliance partners (Gulati, 1995). Firms searching for partners are more likely to resort to their networks and choose their past partners or their partners’ partners if they are faced with high levels of partnering uncertainty (Rowley and Baum, 2008). Information about partner reliability and competencies received increases trust, reduces the likelihood of opportunistic behavior, and influences the choice for governance structure. However, information about the capabilities and willingness of partners to cooperate may be more or less imperfect, which raises search costs. Reliable information may be difficult to obtain before an alliance is initiated, and thus firms face concerns of adverse selection and moral hazard. One way firms can overcome the possibility of opportunism occurring and obtain reliable information is to capitalize on the personal social ties between members of an alliance through which they obtain information about the reputation of a partner (Gulati, 1998; Ring and Van de Ven, 1994). In that sense, social network analysis has been instrumental to explain endogenous aspects of network formation (Gulati and Gargiulo, 1999). In the same vein, social network analysis has been instrumental in explaining intraorganizational linkage formation (Hansen, 2002; Tsai, 2000). In a meta-analytic review, Van Wijk et al. (2008) use concepts deployed in social network analysis to understand the antecedents and consequences of knowledge transfer in alliance and organizational networks.

In addition to explaining network formation, social network analysis has been applied in order to understand the performance benefits of alliance and organizational networks. For example, in a study of the Canadian biotechnology industry, Baum et al. (2000) found that startups can enhance their innovative performance by entering into alliances and by configuring them into a network through which access to diverse information and capabilities is provided. Similarly, using social network methods, a variety of studies (e.g. Dhanaraj et al., 2004; Hansen et al., 2001; Koka and Prescott, 2002) examined the role of structural and relational embeddedness on performance of alliances in different environments. Singh and Mitchell (1996: 112) argue that ‘businesses that are able to work closely with current partners while at the same time identifying possible new partners are likely to succeed in an industry marked by ongoing technological change.’ The studies of both Rowley et al. (2000) and Uzzi (1996) found that in exploitation-favoring environments, which are stable and predictable, strong ties between partners have a positive influence on performance. In exploration-favoring environments, which are turbulent and unpredictable, weak ties are more important for performance. Continuous formation of new relationships with diverse partners allows firms to maintain access to a broad knowledge base, which contributes to innovation and exploration. At the same time firms need to develop stable and strong relationships, which enable them to develop deep knowledge, which is essential in stable environments.

Since it has application in a variety of contexts and across a variety of levels, social network analysis is at the root of developing more general network theories (Jones et al., 1997) and of understanding how networks shape knowledge creation and transfer. Yet, even beyond social network methods, concepts used to understand the characteristics, functioning, and value of one type of network are increasingly used in the context of another network. For example, Lane and Lubatkin (1998) argue that relativity of absorptive capacity not only applies to partners within alliance networks, but could also explain learning processes between units in organizational networks. Indeed, absorptive capacity has been found important in social networks (Ahuja, 2000b; Tsai, 2001), alliance networks (Dyer and Singh, 1998; Lane et al., 2001), and organizational networks (Gupta and Govindarajan, 2000; Szulanski, 1996). Likewise, Dhanaraj and Parkhe (2006) argue that an alliance network needs a hub firm that occupies a central position in the network, spans structural holes, bridges positions, and orchestrates activities in the network. By the same token, Gupta and Govindarajan (2000) argue that corporate headquarters in MNCs continue to play a pivotal role in coordinating knowledge transfer between subsidiaries. Studies by Goerzen (2005) and Hoffmann (2005) show that successfully reaping benefits from an alliance portfolio requires coordination and the creation of synergies across internal units and subsidiaries.

MNC subsidiaries can tap into a variety of internal and external knowledge sources to produce innovations (Phene and Almeida, 2008). Andersson et al. (2002) found that the embeddedness of MNC subsidiaries in local networks has a positive impact on subsidiary performance and on the development of new products in the MNC. The extent to which subsidiaries become embedded in local business networks is, in turn, dependent on the extent to which the subsidiary provides technology within the MNC (Andersson et al., 2007). Similarly, Almeida and Phene (2004) found that subsidiaries maintaining close linkages to a local network of diverse partners contribute to innovation within the MNC as it enables them to tap into broad knowledge. While subsidiaries provide diverse, broad knowledge to an MNC’s innovations, the necessary rich, deep knowledge is provided by the MNC itself. Tsai (2001) found that the degree to which such central network positions lead to increased innovative and financial performance is dependent on the capacity of units to absorb the diverse knowledge they have access to. To create synergies and to commercially use the knowledge that they share and receive, subsidiaries of an MNC need to balance demands from their alliance network and their position in the organizational network, while the MNC aligns the network of subsidiaries. In that sense, these findings may partially explain why MNCs provide different roles and power to the subsidiaries across the organizational MNC network (cf. Gupta and Govindarajan, 1991).