The Network Challenge Chapter 15

Zott and Amit explore the role of business models in creating value through networks. They review earlier, firm-centric views of value creation, including Porter’s value chain, the resource-based view, and the transaction costs approach. They point out that business models go well beyond classic views of network theory (e.g., topography and structure) and include notions of purpose, acceptance, fairness, coherence, and viability. Based on their earlier framework for e-business models, they explore the role of four major interlinked value drivers: efficiency, complementarities, lock-in, and novelty. They argue that the focal firm’s business model acts as both an engine for value-creation and an invaluable construct for understanding the firm’s role in relation to other business model participants in the networks in which it is embedded.

Telecommunications is a networked business, yet it traditionally has resisted a network-based view in its strategies and business models. In this chapter, Kevin Werbach explores this paradox, contrasting the worldview of Monists such as AT&T, who see the infrastructure as inseparable from the network, and Dualists such as Google, who see the network and its applications as distinct from the underlying infrastructure. Not surprisingly, AT&T is a proponent of “tiered access” whereas Google argues for “network neutrality.” Finally, Werbach examines how a more modular future might bridge the gap between those who seek to own and capitalize on the network and those who seek to expand it through more neutral offerings.

From oil companies seeking rights to drill to consumer products firms attempting to forestall a consumer boycott, organizations often seek to influence political or social policy to achieve their own objectives. But to exert this influence, they need to understand the structure of political and social networks. In this chapter, Witold Henisz examines how information about the structure of political and social networks can be integrated into data acquisition and analysis, as well as strategy implementation. Although sophisticated companies have long relied on an informal understanding of networks of informants to gather information about social and political actors at home and abroad, the analysis of the information and design of an influence strategy has too often occurred without reference to that structure. As Henisz points out, a more rigorous approach to analysis is transforming political and social risk management from art to quasi-formal science. This chapter outlines the past, present, and future frontiers of political and social risk management with particular attention to using an understanding of the network structure of diverse actors in perceiving, analyzing, and influencing the political and social environment.

Complexity theory offers valuable insights into the interactions of complex systems such as networked enterprises. Complexity theory addresses the “network effects” that result from interactions between many individual actors. This chapter examines the implications of this theory for business, and how these effects influence key management areas such as making sense, strategy, and organization. The author explores issues such as fads and crowds, using information and technology, and the use of agent-based simulations. Finally, he explores the shifts in management thinking, and business education, needed to utilize complexity theory--a shift in mental models that may be crucial to success in a networked world.

Although any manager would recognize the importance of “networking” in finding, developing, and retaining employees, human resource management traditionally has focused on individuals. In this chapter, the authors point out that core HR processes such as recruitment and hiring, training and development, performance management, and retention all depend on networks. They consider the importance of weak ties in matching employees with jobs and “structural holes” in promoting creativity. They urge managers to make the shift from an atomized view to a network view of human resources--from focusing on the “trees” to understanding the “forest.” They show that networks can boost efficiency and productivity by facilitating information sharing, attracting talent, and strengthening employees’ commitment to the firm. But networks may also pose risks such as “lift-outs,” in which a departing employee takes other workers in his or her network. The authors explore how managers need to understand the impact of networks and how to “manage” them.

If you accept, in the words of Thomas Friedman, that “the world is flat,” how do you need to reshape your organization, management, and thinking for this new terrain? This chapter offers strategies and insights on the capability for “network orchestration” that is essential in designing and managing networks that are centrally controlled. While most management education is focused on competition at the firm level, competition today is increasingly “network against network.” This changes the way we approach strategy, supply chains, building competencies, and managing enterprises. The authors examine the strategies used by successful networked companies in diverse industries. Effective network orchestration requires balancing control with empowerment of customers, suppliers, and entrepreneurial managers; and building value more from integration than specialization. While the traditional focus of core competencies has been at the firm level, the rise of networked organizations means that companies need to take a broader view. Success is based less on the competencies that the organization owns than those that it can connect to. This means that core competencies in network orchestration and learning may become increasingly important because these meta-competencies allow organizations to assemble and flexibly reconfigure the competencies needed to fulfill a customer-driven value chain.

Logistics is at the center of network-based manufacturing strategies, linking manufacturing sources with intermediate and final markets. As global logistics networks have grown and developed, they also have presented new challenges in managing risk and volatility across these broad, global networks. In this chapter, Kleindorfer and Visvikis discuss changes in logistics and financial instruments such as derivatives that have emerged to value and hedge the cost of capacity and services in these markets. They trace the recent history of maritime logistics and describe the convergence and integration of the physical and financial networks that underlie the valuation and use of logistics services. Global logistics illustrates how network-based strategies have integrated financial and physical networks. It also shows the emerging tools and competencies that have been needed to manage new risks arising from these broader networks.

Biology remains the most extensive and complex information network on the planet. This chapter examines the nature of biological networks, including their inherent stability and risks to their resilience. After a general introduction exploring networks and biological systems, this chapter reviews (1) the evolution of biological networks; (2) principles that govern biological networks; and (3) measures of stability, productivity, and efficiency in biological networks. The authors use examples from food (energy) transfer in rainforests and coral reefs, as well as the creation of a biological network through colonization in Darwin’s Finches of the Galapagos Islands. Research shows that while large biological networks are inherently unstable, some are more stable than others.