Strategic business nets—their type and management
Introduction
The way economic value is created is fundamentally changing. The increasing importance of knowledge, technological complexity, global competition, and the availability of digital information technology are driving this change (Castells, 1996). Individual companies, even major multinationals, such as ABB, IBM, Microsoft and Nokia, cannot internally master all the relevant value activities of the value chain from product innovation to customer care, nor is it economically sensible for them to try. In consequence, firms and other social actors are creating increasingly complex webs of knowledge and technological bonds. Emerging networks of firms are replacing traditional markets and vertically integrated companies. Networks are claimed to be better adapted to knowledge-rich environments because of their superior information-processing capacity and flexible governance compared to markets and hierarchical organizations Achrol and Kotler, 1999, Eisenhardt and Martin, 2000, Foss, 1999, Snow, 1992. Empowered by the new digital media, network organizations are expected to take the leading role in the creation of economic and social innovations Castells, 1996, Grapher, 1993, Jarillo, 1993, Parolini, 1999, Thompson et al., 1994. In a nutshell, it is a question of how to combine the value activities of multiple actors to form ‘value-creating’ end products Anderson and Narus, 1999, Cravens et al., 1997, Doz and Hamel, 1998, Gadde and Håkansson, 2001, Normann and Ramirez, 1993.
The view that companies are closely interrelated through resource ties and activity links is, of course, the core proposition in Industrial Network Approach (INA; Axelsson and Easton, 1992, Håkansson and Snehota, 1995, Möller and Wilson, 1995). This viewpoint is also put forward in the more recent network propositions from the fields of economic sociology and strategic research, which are primarily based on the resource/capability view (RBV) of the firm Amit and Zott, 2001, Eisenhardt and Martin, 2000, Gulati et al., 2000, Gulati and Gargiulo, 1999, Gulati, 1998. Why, then, do we need another study of networks?
We argue that the majority of research has focused on the general characteristics of organically evolved networks, basically examining their structure and, to a lesser extent, their development processes. Much less attention has been paid to the issues of intentionally developed nets, and specifically to their management. There is a growing debate, however, about the manageability of networks. Many authors representing the RBV perspective seem to assume that large companies have a proactive ability to intentionally create, adapt, and control a specific network structure (e.g., Dyer and Singh, 1998, Rowley et al., 2000). On the other hand, Håkansson and Ford (2002), key scholars in the INA, argue convincingly that networks as historically embedded and constantly changing sets of direct and indirect organizational relationships cannot be controlled by any one actor or hub firm. Recently, Hite and Hesterly (2001) have proposed that the evolution of firm networks is more dominated by path-dependent processes during the emergence but will become more intentionally managed as firms mature. This suggests that the potentiality for intentional “management of networks” varies between different types of networks.
We adopt a pragmatic position and, while agreeing that a network cannot be managed in a strong sense (full control of another actor's resources and activities), maintain that the management in networks is a relative issue, and that the opportunities and challenges of control and coordination vary considerably in terms of the types of networks. Following that, our work is based on the premise that different skill sets or managerial capabilities are needed in operating in different types of networks. In exploring this notion, we need to deal with two key questions. (1) What are the basic types of strategic business networks? (2) What kinds of managerial capabilities are required in managing in these networks? The first question is fundamental as being able to describe the characteristics of a strategic net is a necessary condition for understanding the managerial capabilities required.
This article is organized as follows. We start by discussing briefly firm networks and proposing a value-system continuum that, we will argue, is a suitable construct for classifying different types of strategic networks. Second, a classification of these networks is suggested and discussed. Then, the core managerial questions posed and the capabilities required in management in networks are identified and discussed through two conceptual frameworks. Discussion on the theoretical and managerial conclusions, and suggestion for future research concludes the paper. The primarily conceptual analysis will be illustrated with examples from extant literature and business press. Through conceptual analysis and the frameworks to be proposed, we aim to contribute to the understanding of the variety and complexity of strategic networks and their management within both the INA and the strategic view into business networks.
Section snippets
Characteristics of strategic nets—constructing a value-system continuum
The term network is currently being used to refer to large range of phenomena ensuing ambiguity (e.g., Dyer and Nobeoka, 2000, Jones et al., 1997, Håkansson and Ford, 2002, Nohria, 1992). Thus, it is essential to establish what we mean by strategic nets. First, it is important to distinguish between a “network of organizations” and a “network organization”. The former refers to any group of organizations or actors that are interconnected with direct or indirect exchange relationships. According
Classification of strategic nets
We contend that the managerial challenges of strategic nets are fundamentally influenced by the position of the specific net in the value-system continuum. When the value-system information is combined with the goals of the actors and the structure of the net, we are able to derive the classification framework given in Fig. 2. We claim that most existing nets can be positioned in the following types according to this classification:
- 1.
Vertical value nets, including supplier nets, channel and
Managing in strategic nets
This section explores two themes. First we identify and describe the basic management issues involved in strategic nets through a four-level Network Management Framework Model. Second, the managerial capabilities required in management in strategic nets are discussed employing the value-system continuum.
Conclusions
We conclude this conceptual article with a brief discussion of the theoretical and managerial implications, and suggest some directions for future research in the field. The notion of value-creating systems, especially the work of Parolini (1999), provided the basis for our proposal for a value-system continuum that could have a central role in examining and understanding strategic business nets. By combining the value system with the net goal and structure—whether it incorporates vertically or
Acknowledgements
This research is part of the VALUENET Project financed by the LIIKE Programme at the Academy of Finland.
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