Today's lecture

1. Today's lecture • Recap • Direct and indirect ties (Ahuja) • Learning in biotechnology networks (Powell et al.) • Combining Network characteristics & Network arguments • The assignment • Netdraw

2. Knowledge management by Toyota • Japanese Automotive labor productivity grows at higher rates than in the US • Many believe this is (at least partially) because of the way Japanese firms cooperate • Dilemmas associated with knowledge sharing • how can self-interested network members openly share valuable knowledge? • how to prevent free-rider problems? • how to maximize the efficiency of knowledge transfers?

3. Solving dilemmas • Creating a network 'identity' through network-level knowledge-sharing routines • Network `rules' for knowledge protection and value appropriation • Creating multiple knowledge-sharing processes and sub-networks in the larger network

4. Why does creating an `identity' work? • Rabbie and Horwitz (1969) “The arousal of ingroup-outgroup bias by a chance win or loss.” Journal of Personality and Social Psychology, 13: 269-277. • Experiment: • randomly assign individuals to a blue and a green group. • individuals were unknown to each other and were told that they would not meet again • based on the toss of a coin a price was given to one group • group members evaluated each other more positively and were more willing to cooperate with each other than non group members • Social identity theory (Tajfel and Turner, 1986) • group membership creates ingroup/ self-categorization • enhancement in ways that favor the in-group at the expense of the out-group. • The mere act of individuals categorizing themselves as group members is sufficient to lead them to display in-group favoritism.

5. Network rules • Identity is not enough to ensure cooperation (and to prevent free riding and opportunism), you need rules, however... • rules are not enough either, you need... • to monitor (identify free riders / opportunists), • and to sanction (f.i. withholding business). • If the suppliers in the network know that Toyota monitors and sanctions, this `threat' will be enough (given that the sanction outweighs benefits of free riding / opportunism).

6. Creating multiple knowledge sharing processes and sub-networks in the larger network • How to maximize efficiency?Toyota established variety of bilateral and multilateral processes, each designed to facilitate different types of knowledge

7. Some rules of thumb for the management of alliances • Be systematic in key areas: • Data base of previous partners • Data base of new partners • Data base of current partners • Play the trust game (instead of the power game) • Prepare for intercultural negotiations • Multiple interfaces • Evaluate, evaluate and evaluate • And if necessary terminate

8. Two types of network benefits Resource sharing Access to knowledge spillovers Direct ties knowledge sharing complementary skills scale economies Indirect ties knowledge spillovers Ahuja: Collaboration networks, structural holes, and innovation.

9. Effects of direct ties • Direct ties innovation output • Knowledge sharing • Complementarity • Economies of scale • High maintenance costs

10. Effects of indirect ties • Indirect ties innovation output • Information gathering devices • Screening device • low maintenance costs

11. Interaction of direct and indirect ties • The greater the number of direct ties, the smaller the benefits of indirect ties.

12. Benefits of indirect ties are quite low Indirect ties play two roles: resources <-> competitors Having many direct and indirect ties is not necessarily better Substitution possibilities between direct and indirect are limited. According to Ahuja benefits depend on context: exploration vs exploitation Direct and indirect ties

13. Closure/cohesion Redundancy of (strong) ties Trust / opportunism reduction / shared norms Fine grained information transfer / cope with information ambiguity Structural holes Non redundant ties Access to mutually unconnected partners, distinct information Brokerage opportunities Closure vs structural holes

14. Firms that are embedded in dense, cohesive networks have higher patenting rates than firms with open networks For patenting rates resource sharing is more important than access information spillovers Whether closed or open networks are good or bad depends on the context, again: exploration vs exploitation Results and conclusion

15. Uzzi (1996) 'The paradox of embeddedness' (optional reading) Study of the apparel industry in New York Overembedded-ness ossification, no new, novel info. relief organization feuding extinction effects About optimal network structure

16. Powell, Koput and Smith-Doerr (required reading) • Technological sophistication technology of an industry -> number of alliances • When knowledge is broadly distributed and brings a competitive advantage, the locus of learning is found in a network of interorganizational relationships

17. Basic network demographics • You need these demographics for the assignment. They are the basic characteristics of a network, and should be reported (in the assignment) • Network size • Number of actors • Number of relations • Components • Number of components • Size of components

18. The concept of centrality is closely related to (competitive) power Why is A in a better position in the top graph? More connections (degree) Closer (closeness) Between others (betweenness) Ucinet measures for centrality degree centrality power closeness betweenness Centrality

19. Density For binary data, density is simply the ratio of the number of ties divided by the number of possible ties - what proportion of all possible dyadic connections are actually present. Cliques At the most general level, a clique is a sub-set of a network in which the actors are more closely and intensely tied to one another than they are to other members of the network. Clustering clustering examines the local neighborhood of actors, and calculates the density in this neighborhood (leaving out ego).  After doing this for all actors in the whole network, we can characterize the degree of clustering as an average of all the neighborhoods. Closure \ cohesion

20. Structural holes • Effective size • is the number of alters that ego has, minus the average number of ties that each alter has to other alters.  • Efficiency • Effective size / actual size • Constraint • is a summary measure that taps the extent to which ego's connections are to others who are connected to one another.  • Hierarchy • measures whether constraint is concentrated in one actor

21. Ego-network of A A A A C B C C B B * Ucinet ego-network density will give the value 0, since the ego network of A (=B, C) are not connected. Thedensity of the whole network is 67.

22. The assignment: Logistics • Groups of at the most three students. • The papers should be handed in before 16 November in two ways: • in hard copy format to (Gerrit Rooks) my snail-mail box in the room PAV Q 1.05 (next to the secretariat). • as an email (pdf or Word) to c.c.p.snijders@gmail.com . • Obviously, papers handed in should be wholly original. • Deliver on time. If you foresee that you will miss the deadline for a reason, let me know (long) before it expires.

23. The assignment (I) • Analyze and compare (parts of) two networks. • The networks are composed of Research and Development alliances in two different industries in the end of the seventies (the beginning of the ‘alliance explosion’). • aircraft industry • food and beverages industry. • The assignment is divided into three parts, you can earn 100 points in total. • In the first two parts you will have to compare networks. • Use arguments, concepts and ways to measure those concepts that were provided to you in the course

24. The assignment (II) • 1. Compare the (complete) networks of the aircraft and the food and beverages network. How can you explain the differences you find? • 2. Compare the ego-networks of two firms in the aircraft industry: Fokker and Kawasaki. How do these two ego-networks differ? What performance implications do those differences have? • We value in particular that you sensibly argue about the results of your findings. • The description should include informative drawings of the networks. The description should also include a table representing the characteristics of the networks and a narrative that guides us through the table. • You should give reasons why certain characteristics (might) differ. Although you should apply the theoretical arguments that are presented in this course, we will also reward convincing ‘outside’ arguments.

25. The assignment (III) • 3. The third part is about the selection of new partners. Suppose that you work as an alliance manager (first for Fokker and second for Kawasaki); and suppose that an executive asks you to prepare a memo where you present two possible new partners. Which partners would you present, why? • Base the memo on the network as drawn in part 1 of the assignment, use network arguments, and assume that all firms are otherwise equivalent. Don't forget: you have to do this twice, once as an alliance manager for Fokker and second as an alliance manager for Kawasaki. • There are no explicit instructions as the number of pages or words you should use. However, if you have 4 pages or less, chances are you are missing something. If you have more than 15, perhaps you could economize somewhat more than you did. • In any case, do include a “Word Count” in the beginning of your document.

26. Two Ucinet DL files (called “food.dl”, and “aircraft.dl”), containing the (approximately) complete network of technology alliances. The DL file is in the so-called “edgelist1” format (each row in the DL-file represents an alliance). Pay attention: in this DL format alliances are treated as directed ties, although our alliances are obviously undirected ties. Symmetrize the data matrix after you have imported the DL-file in UCINET (see Transform > Symmetrize in UCINET). dl n=53 format = edgelist1 labels embedded data: AEROSPAT BRAEROSP AEROSPAT CASA AEROSPAT D-AIRBUS AIRBUS-I BOMBARD ALLISON ISHIKAWH ALLISON ROLLS-R BOEINGAC AERITAL BOEINGAC JADC BOEINGAC KAWASAKI ... The Data

27. Some hints • Try to make drawings as informative as possible. • Try not to include all possible network measures, but select a number of theoretically relevant network characteristics. • The assignment is defined in a relatively “open” format (“Compare the two networks” and “Compare Fokker and Kawasaki”), without actually digging down to all the details. This was done on purpose. The idea is that you are able to figure out what is relevant based on the course material. Moreover, there may very well be interesting ways to involve material from the course: surprise us!

28. Netdraw • First you have to create a UCINET data file • Second, start Netdraw and import the data file • See Chapter 4 Hanneman, or find out yourself