How to organizations interact with each other BUS 374 Dr. 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 combination Low 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?”