How do organizations interact with each other?BUS 374Dr. Rajiv Krishnan Kozhikode

Networks as pipes and prisms Two views of inter-organizational

networks As pipes: Flow of actual information As prisms: Reflection of what might flow

Structural holes and Pipes• Granovetter’s Weak ties• Weak ties better than strong ties in helping

individuals find jobs• Burt says, strength of weak ties lies in non-

redundancy• Strong ties pass most information, but they

tend to pass similar information.• But weak ties do not pass as much

information but they tend to pass non-redundant, novel information

• Weak-ties with diverse sets of networks gives structural advantage

• Occupying structural holes is a social capital organizations should aspire for

Status and Prisms Your network reflects on you. Tell me who your friends are, I

can tell you who you are. Status heterophilous

relationships are often punished Tendency to maintain status

homophilous relationship But high status organizations

tend to have greater discretion to choose

So they might be able to occupy structural holes

Value of Status vs Structural holes Two types of uncertainty Egocentric uncertainty

An individual’s (known as ego in sociology) uncertainty about his/her capacity to deliver to the expectations of the audience – i.e., which resources to use, how to combine them, etc.

Altercentric uncertainty Uncertainty faced by audience (potential

affiliates, known as alters in sociology) about how to evaluate the offerings of an individual (ego).

Egocentric uncertainty Status can give you access to an entire range of

resources – from top quality to low quality to those of unknown quality

But homophily will restrict middle and low status actors to only low, unknown and moderate quality resources

But it does not tell you what will work Structural hole will tell you what will work and who

has what Hence, when ego centric uncertainty is high,

structural holes is more valuable than status

Altercentirc uncertainty Status tells the alters that the ego can

deliver an expected level of quality Occupying structural holes will not be

visible to the alters Even when visible, it signals ambiguity

about ego’s identity and capacity to deliver an expected level of quality

Status is more valuable under altercentric uncertainty

The combinationLow Altercentric uncertainty

High Altercentric uncertainty

Low Egocentric uncertainty

Wheat Roofing jobs

High Egocentric uncertainty

Vaccines Junk Bonds

Some hypothesis Actors occupying more structural holes

will engage in markets high in egocentric uncertainty

Higher status actors will engage in markets low in egocentric uncertainty

i.e., Assuming a certain level of altercentric uncertainty

Venture capital market as a testing ground Venture capitalist is the ego here Investors in venture capitalists’ funds are the

alters High egocentric uncertainty in early stage

investments (i.e., in seed capital) Low egocentric uncertainty in later stage

investment The findings

Venture capitalist with more structural holes tend to engage more in the early stage

Venture capitalist of high status engage more in the later stage

Multi-market contact and mutual forbearance

Multi-market contact – when competitors meet each other in multiple geographic markets…

Mutual forbearance in simple terms, I scratch your back, you scratch mine… or perhaps, live and let live…

MMC and market entry and expansion decisions Harming a MMC can harm you too. MMC can retaliate against you in multiple

markets MMC can retaliate against you in your

most dearest market So you avoid entering and expanding in

markets that are full of MMC rivals But firms aim to have a foot hold in such

markets to monitor the actions of the MMCs and have a tap on them in case they act against them in the future

MMC and Entry and expansion of single market firms Multi market firms could use their preserved

resources from mutual forbearance with other MMCs to fight single market firms… i.e., compete more intensively in markets not occupied by MMCs

But if a firm exhibits mutual forbearance to a MMC, the action will have a positive spillover to a single market firm as well… e.g., If you don’t engage in a price war with a MMC in a market, you will not be able to engage in a price war with a single market firm.

Role of market dominance MMCs will have terrains… If a geographic markets is dominated by

a particular MMC, another market will be dominated by another MMC.

MMCs tend to avoid markets dominated by another MMC.

Even single market firms will be less inclined to enter and expand in markets dominated by an MMC.

Ideas were tested in California’s Thrift market Entry and patterns in different California counties were

examined. Relationship between MMC density in a market and a)

entry and b) expansion of a focal MMC was inverted U shaped… increased and then decreased…

This was strengthened when a MMC dominated that market

Single market firms benefitted from the spillover of MMC density in a county

While single market firms avoided a location dominated by an MMC, it gained if that market had other MMCs too.

That’s all for now. For the next session we will answer

“how are organizations evaluated?”