How do organizations interact with each other?

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

2. Networks as pipes and prisms • Two views of inter-organizational networks • As pipes: Flow of actual information • As prisms: Reflection of what might flow

3. 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

4. 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

5. 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).

6. 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

7. 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

8. The combination

9. 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

10. 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

11. 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…

12. 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

13. 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.

14. 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.

15. 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.

16. That’s all for now. • For the next session we will answer “how are organizations evaluated?”