Transcript Document

Business Alliances and networks
Gerrit Rooks
21 October
Today's lecture
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Some leftovers
Toyota's supplier network
Ajuha networks and innovation performance
Powell et al "learning in networks"
The assignment
– network characteristics
– what you have to do
– Ucinet and netdraw
•
What is not a strategic alliance?
a) A buyer and supplier who integrate their logistics
b) Three universities co-developing one educational
program
c) Two firms that create one new firm to develop new
products
d) A firm that buys another firm
•
What is not a strategic alliance?
a) A buyer and supplier who integrate their logistics
b) Three universities co-developing one educational
program
c) Two firms that create one new firm to develop new
products
d) A firm that buys another firm
•
According to resources dependence theory,
firms enter alliances because
a) they lack internal resources
b) alliances are a strategy to ensure predictability of
access to resources
c) mergers are often too costly
d) this is a strategy to reduce competitive
interdependence
•
According to resources dependence theory,
firms enter alliances because
a) they lack internal resources
b) alliances are a strategy to ensure predictability
of access to resources
c) mergers are often too costly
d) this is a strategy to reduce competitive
interdependence
•
Transaction costs are:
a)
b)
c)
d)
the cost of the product
the costs of contracting
the costs of production
tranportation costs
•
Transaction costs are:
a)
b)
c)
d)
the cost of the product
the costs of contracting
the costs of production
tranportation costs
•
according to transaction costs theory, firms
enter alliances because
a) the risks of market transactions are too high
b) the governance costs of alternatives are too high
c) the transaction costs of vertical integration are too
high
d) the uncertainty in the environment is too high
•
according to transaction costs theory, firms
enter alliances because
a) the risks of market transactions are too high
b) the governance costs of alternatives are too
high
c) the transaction costs of vertical integration are too
high
d) the uncertainty in the environment is too high
•
What are the two basic assumptions about
human behavior of transaction cost theory?
a)
b)
c)
d)
uncertainty and risk
opportunism and bounded rationality
uncertainty and bounded rationality
bounded rationality and risk
•
What are the two basic assumptions about
human behavior of transaction cost theory?
a)
b)
c)
d)
uncertainty and risk
opportunism and bounded rationality
uncertainty and bounded rationality
bounded rationality and risk
•
transaction cost theory neglects
a) that firms depend on their environment for
resources
b) that not all individual and collective actors are
opportunistic
c) that transactions take place within a social context
that might influence transaction costs
d) that specialized assets might have a positive effect
on trust
•
transaction cost theory neglects
a) that firms depend on their environment for
resources
b) that not all individual and collective actors are
opportunistic
c) that transactions take place within a social
context that might influence transaction costs
d) that specialized assets might have a positive effect
on trust
•
In a repeated prisoners dillema the rational
choice is always to defect
a) correct
b) incorrect
•
In a repeated prisoners dillema the rational
choice is always to defect
a) correct
b) incorrect
The Toyata supplier network
• Japanese
automobile
makers are
more and more
productive, US
is lagging
• WHY?
• Dyer and
Nobeoka:
"Creating and
managing a
hihg
performance
knowledgesharing
network: the
Toyota case"
Knowledge sharing routines
• What is knowledge?
– Explicit knowledge or information
– Tacit knowledge or know-how
• 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?
Overcoming knowledge sharing dilemmas
• Creating a network 'identity' through networklevel knowledge-sharing routines
• Network `rules' for knowledge protection and
value appopriation
• Creating multiple knowledge-sharing processes
and sub-networks in the larger network
Why create an 'identity'?
• Social identity theory (Tajfel and Turner, 1986)
– Categorization: We put others (and ourselves) into
categories.
– Identification: We associate with certain group (our
ingroups), which serves to bolster our self-esteem.
– Comparison: We compare our groups with other
groups, seeing a favorable bias toward the group to
which we belong.
Social identity theory
• Experiment:
– 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.
• 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
How did Toyata create a network 'identity'?
• Toyota's network is known (labeled) as the `Toyota
group'.
• Toyota creates a shared network identity by developing
multiple groups
– The supplier association
– Toyota's operations management consulting division
– Voluntary small group learning teams (jishuken)
– (Interfirm employee transfers)
Supplier association
• Kyohokai: Toyota's supplier association was
established in 1943
• Suppliers must be close to each other
– Tokai (150 members)
– Kanto (65 members)
– Kansai (29 members)
Supplier association
• Suppliers association has general (high level) meetings
every other month
– Quality committees.
– Excellent plant tours allow network members to visit `best
practice' plants
– Quality management conference held once a year
– lectures from directors, senior managers + six success ful
supplier cases of quality improvement
Consulting teams
• Toyota's Operations Management Consulting
Division (OMCD)
– 6 senior executives, 50 consultants
• Direct free `on-site' assistance for suppliers
– periods ranging from one day to many months
– on average suppliers are visited about 4 times a year
with an average visit lasting 3 days
– emergent problem solving: cross divisional problems
solving teams helping a supplier
• What kind of social capital is this according to
Coleman?
Voluntary learning teams
• Jishuken: 60 of the key suppliers `voluntary study
groups'
• Each group consists of roughly 5-8 suppliers
– geographic proximity
– no direct competitors in the same group
– level of experience with Toyota
• Groups are reorganized every 3 years (Why?)
• After determining theme, the group visits each member
to develop suggestions
• Member of OMCD monitors (to assist and to learn)
Voluntary learning teams (II)
• Jishuken are reported to be very valuable
(especially in transmitting tacit knowledge)
Network rules for knowledge
protection
• Creating an identity isn't enough to solve sharing and
free riding problems
• Toyota sets a norm/rule by sharing its own knowledge
– eliminating the notion that there is `propriety knowledge'
• Suppliers must be willing to open their plants to other
network members to other network members
– reciprocal obligations: We will help you, but in return, you must
agree to help the network.
– reciprocity norm is enforced by implicit threat of withdrawal of
business
Network rules for knowledge
protection
• Tacit rule about value appropriation
– The recipient of knowledge may appropriate 100 percent of the
savings in the short run, but over time will be expected to share a
proportion of those savings with the network
• Compare Toyata practice with the GM
consultancy teams (PICOS)
Creating multiple knowledge sharing processes
How to maximize
efficiency?
Toyota established
variety of bilateral
and multilateral
processes, each
designed to
facilitate different
types of knowledge
The creation and evolution of Toyata's US
knowledge sharing network
• 1988: Toyota begins producing cars in
Georgetown, Kentucky
• Suppliers had virtually now contact with each
other, how did Toyota implement its knowledge
management ?
– Phase 1: Developing weak ties among suppliers
– Phase 2: Developing strong ties with Toyota
– Phase 3: Developing strong ties among suppliers
1. Developing weak ties
1989 Toyota initiates supplier association (BAMA)
2: strong ties with Toyota
Free of charge well trained consultants made available
to BAMA members
3: strong ties among suppliers
Toyota divided suppliers in small learning teams
-no competitors
-rotation
-equal capabilities
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One large network with core firm
as hub
Bilateral relationships
Weak ties/arm's lenght relations
Structural holes
Explicit knowledge
Members motivated to
demonstrate commitment
Power game
– self-interest
– independence
– closed formal contracts
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Large network plus multiple
nested networks
Multi-lateral relationships
Strong/embedded ties in nested
networks with core firm
Dense network
Both explicit and tacit knowledge
reciprocity; benefits of
participation outweigh isolation
Trust game
– fairness
– interdepence
– open informal contracts
Ahuja: Collaboration networks, structural holes,
and innovation.
• Two types of network
benefits
– Resource sharing
– Access to knowledge
spillovers
• Direct ties
– knowledge sharing
– complementary skills
– scale economies
• Indirect ties
– knowledge spillovers
Effects of direct ties
• The more direct ties,
the higher the
innovation output
– Knowledge
sharing
– Complementarity
– Economies of
scale
– High
maintenance
costs
Effects of indirect ties
• The more indirect
ties, the higher
the
innovation output
– Information
gathering
devices
– Screening
device
– low
maintenance
costs
Interaction of direct and indirect ties
• The greater the number of direct ties, the smaller
the benefits of indirect ties.
Direct and indirect ties
• 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
Closure vs structural holes
• 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
Results and conclusion
• 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
About optimal network structure
• Uzzi (1996) 'The
paradox of
embeddedness'
• Study of the
apparel industry
in New York
• Overembeddedness
– ossification,
no new, novel
info.
– relief
organization
– feuding
– extinction
effects
Powell, Koput and Smith-Doerr
• 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
interorganization
al relationships
The assignment
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
Centrality
• 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 (beware)
– betweenness
Closure \ cohesion
• Density
• Cliques
• Clustering
Structural holes (ego-network)
• 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
Ego-network of A
A
C
B
A
A
C
B
C
B
Size
Density
0
0
2
100
2
n.a.*
Effective size
Efficiency
Constraint
Hierarchy
0
0
0
0
1
1/2
1 1/4
0
2
1
1/2
0
* Ucinet ego-network density is not calculated, since the ego network of A (=B, C)
are not connected. The density of the whole network is 0.67
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 [email protected] .
• 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.
The assignment (I)
• Analyze and compare (parts of) three 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’).
– defense industry 1978 + 1982
– food and beverages industry 1978.
• The assignment is divided into four parts, you can earn 100 points in
total.
– In the first three parts you will have to compare networks.
– Use arguments, concepts and ways to measure those concepts
that were provided to you in the course
The assignment (II)
• In the first part you have to compare the defense industry network
1978 with the defense industry network of 1982. How do you
interpret and explain the differences you find?
• In the second part of the assignment we ask you to compare the
defense industry network of 1978 with the food and beverages
network. How can you explain the differences you find?
• In the third part of the assignment we focus on the ego-networks of
two firms in the defense industry: Dassault and Euromiss. How do
these two ego-networks differ? What performance implications do
those differences have?
The assignment (II)
• The third part is about the selection of new partners. Suppose that
you work as an alliance manager (for Dassault); 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.
• We value in particular that you sensibly argue about the results of
your findings.
a) 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.
b) 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.
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.
The Data
• 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
...
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!
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