The Blackwell Companion to Sociology (77 page)

speculations on future directions for organizational network analysis and poss-

ible policy implications.

Core Network Concepts

Network theorists typically conceptualize social structures in terms of two

fundamental components: actors and their relationships. For organizational

networks, identifying which actors belong to a social system depends on the

level of analysis at which researchers frame their theoretical expectations. At the most comprehensive level, the organizational society encompasses every for-profit, non-profit, and governmental organization operating within a geographic-

ally bounded community, region, nation, or even at the global economy level. An

organizational population consists of all organizations exhibiting a specific form or type (usually defined as an industry providing an equivalent product or

service), such as banks, churches, or semiconductor firms. The organizational

field is a heterogeneous set of functionally interconnected organizations; for

example, all firms, interest organizations, and government agencies that deal

with agriculture, national defense, or health care. The population and field

concepts cross-cut one another, since organizational fields typically draw their members from several diverse populations. At a meso-level of analysis, an

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organization is a goal-directed activity system whose boundary is legally defined by authority and property rights over its human and material resources. Organizational subsystems are various internal work units necessary for organizational survival, such as divisions, departments, and teams. At the lowest microanalytic level are persons ± owners, directors, top executives, middle managers, and

front-line employees ± who perform both routine and exceptional activities.

Network analysis can proceed within each organizational level, using different

criteria to identify and observe the organizations, subunits, or persons belonging to an appropriately bounded system.

After identifying a bounded system and its members, an organizational analyst

must decide which relation(s) among the actors can best characterize structures

of interest. Rather than assuming that one type of tie completely captures ``the''

organizational network, analysts must acknowledge the simultaneous presence

of multiple networks composed of several distinct relational contents. Each

substantive type of tie may reveal a unique structural pattern among the system

participants. For example, an advice-giving network among co-workers in the

finance department of a large manufacturing corporation may bear little resemb-

lance to their pattern of interpersonal trust, with contrasting implications for employee demoralization and subversion during periods of corporate downsizing or expansion. Despite the limitless substantive diversity of interorganiza-

tional and interpersonal ties, five general categories should suffice to classify most relational contents arising at every level of network analysis.

1 Resource exchanges involve transactions where one actor yields control

over a physical good or service to another actor in return for some other

kind of commodity (including money).

2 Information transmissions are inter-actor communications, including

exhanges of strategic plans, scientific and technical data, work advice,

political opinions, and even gossip.

3 Power relations consist of asymmetrical interactions in which one party

exerts control over another's behaviors either by coercion or, more typic-

ally, by an authoritative superior exercising the taken-for-granted expecta-

tion that commands will be obeyed by subordinates (authority or

``legitimate power'' in Max Weber's meaning).

4 Boundary penetrations comprise coordinated actions to attain a common

goal that could not be achieved individually. Familiar examples include

interlocking boards of directors, industry committees to set technical

standards, strategic alliances for innovation or production, and collective

lobbying to obtain a public policy.

5 Sentimental attachments among individuals generate collective identities

and liabilities for mutual assistance and emotional support. A trust rela-

tion is particularly important for sustaining many other kinds of inter-

personal ties.

Researchers can choose to analyze the patterns connecting actors by their

relationships from two complementary viewpoints. First, an egocentric

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perspective examines a focal organization or person (`ègo'') and its pattern of

direct ties to others (''alters''). This procedure investigates such structural aspects as the number of ego's ties, their strengths and frequency, their multiplexity and reciprocity, the diversity of alters directly or indirectly reachable, and the density of ties among the alters in one's egocentric network. Second, a complete-network analysis examines total configurations of multiplex ties among all the actors in a social system; for example, all organizations in a field or all employees in a work team. Some macrostructural features parallel the egocentric approach: the density of existing to potential ties, the number of indirect links needed to connect every pair of actors, the extent to which multiplex ties directly connect the same pairs of actors. One crucial structural property for actors in complete networks is network centrality. This concept is intimately related to ideas about social

power derived from an actor's ability to influence or control others' interactions; for example, by manipulating the flow of information, personnel, and resources,

or by brokering political and economic deals between unconnected or hostile

parties.

Researchers have developed and applied a large array of data collection and

analysis methods for studying organizational networks (Wasserman and Faust,

1994). Primary methods include survey interviews and questionnaires, particip-

ant observations, and archival documents including news accounts and company

reports. Complete-network studies impose particularly demanding response

standards. Because the potential number of directed ties for a specific content

among N actors is N2 À N, missing data from even a small proportion of cases

exponentially erodes the quality of research results. For example, if just 30

percent of respondents refuse to cooperate, confirming information would be

unavailable for 53 percent of the possible connections.

Interorganizati

Interorganiza onal

tional Networks and Economic Behavior

Vulnerable within an increasingly global economy, large corporations seek com-

petitive advantages by slashing costs, improving quality, increasing productivity, and responding rapidly to technological innovations and fickle consumer tastes.

A proliferation of several new interorganizational forms is one consequence of

this churning environment. Pure market transactions require no recurring co-

operation and collaboration among exchange parties. Hierarchical structures ±

multi-establishment firms, corporate acquisitions, and mergers ± in which one

firm absorbs another's assets and personnel into a unitary enterprise cannot be

considered as true alliances because subunits preserve no ultimate independence

of action. Strategic alliances, such as equity and non-equity partnerships, com-

bine important aspects of both market and hierarchical arrangements between

independent organizations. These hybrid structures, N-form or ``networked''

organizations, emphasize interorganizational exchange and collaborative rela-

tions. A strategic alliance is defined as at least two partner firms that: (a) remain independent after the alliance is formed; (b) share benefits and managerial

control over the performance of assigned tasks; and (c) make continuing

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331

contributions in one or more strategic areas, such as technology or products

(Yoshino and Rangan, 1995, p. 5).

The formation of a strategic alliance requires mutual trust among potential

partners. Trust enables one firm to achieve some degree of social control over

another's behavior under conditions of high uncertainty. From a transaction cost perspective, trust expectations mutually deter each partner's temptation to mal-feasance or opportunism; that is, to dishonesty and dissembling about prefer-

ences and information (Williamson, 1981, p. 553). Writing explicit safeguards

against every possible opportunistic outcome is unrealistic. To the extent that

trust substitutes for more formal control mechanisms, such as written contracts, an alliance can reduce or avoid various transaction costs, including: searching

for information about potential partners; writing formal agreements stipulating

terms and conditions; monitoring partner performance; and enforcing the con-

tract terms if a partner fails to honor the agreements. Far less costly protections can be built on a self-enforcing foundation of interfirm trust. Interorganizational alliances emerge over time, with trust occupying a pivotal role between antecedent conditions and consequent alliance formations. Interorganizational com-

munication networks circumscribe an ego organization's capacity to screen and

evaluate potential alliance partners. The more central a firm's position within an organizational field communication network, the greater its visibility and hence the larger the number of informants available to testify regarding its reliability and integrity. ``The network structure that results from the accumulation of

those ties increasingly becomes the repository of information on potential part-

ners, helping organizations decide with whom to form new alliances'' (Gulati

and Gargiulo, 1999, p. 1475). Peripheral organizations positions enjoy fewer

opportunities to become familiar with potential partners and for their own

trustworthiness reputations to become vetted by the field. Unequal financial

size or market share may hinder interorganizational trust formation because

radically dissimilar partners often cannot fulfill their reciprocity obligations.

Organizations sharing common characteristics are more likely to develop stron-

ger bonds of trust. Many cross-border alliances, sought with foreign partners to gain access to local markets, founder on incompatible national and corporate

cultures that prevent the development of mutual trust.

Because new partners generally have few grounds for trusting one another,

equity-based contracts often initially protect both parties against the other's

potential opportunism. After they gain confidence in one another through

experience, `ìnformal psychological contracts increasingly compensate or sub-

stitute for formal contractual safeguards as reliance on trust among parties

increases over time'' (Ring and Van de Ven, 1994, p. 105). This sequence is

succinctly captured in the proverbial ``familiarity breeds trust'' (Gulati, 1995a).

Reduced transaction and monitoring costs make informal social control the

preferred cost-effective alternative to both market pricing and hierarchical

authority. Consistent with these expectations, Gulati's (1995a) analysis of

multisector alliances found strong evidence that formal equity-sharing agree-

ments decreased with the existence and frequency of prior ties to a partner.

Domestic alliances less often involved equity mechanisms than did international

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David Knoke

alliances, supporting claims that trust relations are more difficult to sustain

cross-culturally.

Transaction cost economics and resource dependence theory offer alternative

explanations for strategic alliance creation. Williamson (1981) asserted that

asset specificity is a key factor propelling organizational efforts to economize.

Interorganizational ties arise from specialized investments that would lose their value if transferred to another exchange partner. The more an investment is

tailored specifically to recurrent transactions between a buyer±seller pair, the more likely these parties are tò`make special efforts to design exchanges with

good continuity properties'' (Williamson, 1981, p. 555), thus effectively locking both partners both into prolonged bilateral transactions such as a strategic

alliance. Resource dependence analyzes alliance ties as outcomes of innate

power conflicts between organizational resource procurement needs and the

desire to preserve freedom of corporate decision-making. Interorganizational

relations emerge when one organization controls the critical resources ± infor-

mation, money, production and distribution skills, access to foreign markets ±

needed by another organization. Dependence theory argues that network ties

arise from executives' attempts to control their firms' most problematic environmental contingencies through complete or partial absorption. Alliances tend to

occur more often among interdependent than between autonomous firms. A

company prefers partners best able to satisfy critical resource requirements while imposing minimal constraints on its own discretionary actions.

Resource dependence seems superior to transaction cost principles in explain-

ing the cooperative research and development networks that emerged in the

1980s between new biotechnology firms and established agricultural, chemical,

and pharmaceutical corporations (Smith-Doerr et al., 1999). Complementary

resource needs drove these strategic alliances, primarily involving exchanges of financial support for technical expertise. The small, innovative research and