Business Strategy & Network Structure

Dr. Emanuela Todeva Director of Research Centre for Business Clusters, Networks and Economic Development

University of Surrey

Examples of Business Networks Examples of Business Networks

• buyer-supplier networks, or vertical industrial networks within a value-chain;

• horizontal diversified industrial networks of the type of Keiretsu and Chaebol;

• networks of subsidiaries and subcontractors to multi-national corporations;

• family business networks; • entrepreneurial networks of autonomous small

businesses; • project network, including R&D alliance networks, and

counter trade networks; • utility networks.

• buyer-supplier networks, or vertical industrial networks within a value-chain;

• horizontal diversified industrial networks of the type of Keiretsu and Chaebol;

• networks of subsidiaries and subcontractors to multi-national corporations;

• family business networks; • entrepreneurial networks of autonomous small

businesses; • project network, including R&D alliance networks, and

counter trade networks; • utility networks.

Types of Supply Chain Networks

• Ego-centred• Dispersed• Project based• Value-chain based• A combination of value-added

chains & strategic control networks

Business networks are sets of repetitive transactions based on structural and relational formations with dynamic boundaries comprising interconnected elements (actors, resources and activities). Networks accommodate the contradictory aims pursued by each member, and facilitate joint activities and repetitive exchanges that have specific directionality and flow of information, commodities, heterogeneous resources, individual affection, commitment and trust between the network members. (E. Todeva, 2006).

Definition of Business Networks

http://www.surrey.ac.uk/BCNED/

http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1124332

RELATIONSHIPS

STRUCTUREACTORS

culturalapproach

relationalapproach

structuralapproach

The Network Diamond

Emanuela Todeva (2006) Business Networks: Strategy and Structure, New York: Taylor & Francis.

The Behavioural System of Business Networks

Reactive & Strategic Behaviour in Networks

Firm’s conditions & attributes Business operations

Market conditions

Manageability/Control Legitimacy & Role

Relational framework/ context

Relational attributes

Industry conditions

Factor conditions

Mediating factors

Other connected activities

Decision making & goal settingNegotiating identities, interests & agreementsBargaining & negotiating contractsAscribing and accepting rolesStructuring information flowCoordinationMaximising profits, payoffs, benefitsMinimising costs / Sharing costsOptimising behaviour & maximising ‘expected utility’Manage the use of their assetsAccumulation of heterogeneous resourcesInvestment in assets capabilities & relations (incl. diversifying assets & capabilities)Building strategic capabilitiesSpecialisationInitiation of contacts and entrepreneurshipContracting resourcesDeveloping relationshipsExtending commitments to partners (buyers, suppliers)Acquiring & maintaining powerMonitoring & evaluation of partners, building expectationsExchange of incentivesStrategic positioningMimicry, conformity & complianceLegitimacy seekingForming coalitions and partnershipsCooperation for a final outcomeLearningKnowledge sharingManipulating external & internal environment

f a c t o r s © Todeva, 2006

Relational Analysis

• What constitutes a business relationship (a question about the nature of inter-firm associations);

• Why actors connect to each other (a question about their motives and drivers);

• How actors connect to each other (a question about forms and types of network links, and business relationships);

• What takes place in a relationship (exploring the possible content of communications, exchanges, and transactions, their dynamics);

• What are the implications of being connected

© Todeva, 2005

EGOALTER

Attributes /Affiliated members

and sub-units

Dyadic & Multilateral Relationships

E. Todeva, 2003

EGO

Connected Relationships

Focalfirm

Directcounterpart of the focalfirm

Indirectcounterpart of the focalfirm

Indirectcounterpart of the focalfirm

Focal relationship

Connected relationships

Past relationship

Future relationship

© Todeva, 2005

A-R-A modelAdapted from Hakansson, H. and Johanson, J. (1993) Actors / Resources /Activities Model (A-R-A model).

resource commitments by actor 1resource commitments by actor 2activity participationemerging interdependencies

Resource B2

Resource A2Resource A1

Resource B1

Actor 1 Actor 2

Activity A

Activity B

dyadic exchangerelationship

resource Interdependence

activityInterdependence

1 1

2 2

3 3

1. resource links2. commitment links3. participation links4. interdependence links

44

4

4 4

Initiating a link(including learning about the other)

Establishing a relationship (including certain reciprocity)

Market transaction (including agreement)

Repetitive transactions (including a partnership agreement)

Mutual recognition between human actors, or interaction with objects

Single exchange of resourcesbetween human actors

Repetitive exchanges, employing an object into a process

Knowing someone or something

Relation / Association between subjects & objects ►

▼◄ ♦◘Co-presence in a field

Interconnected relationships (including transactions & resource flows)

Community exchanges& interconnected processes

POTENTIALRELATIONSHIP

LONG-TERM RELATIONSHIP

DYADIC MARKET RELATIONSHIP

INTERACTION / COMMUNICATION LINK

NETWORK RELATIONSHIP

PRE-RELATIONSHIP

Categories and Levels of Network Relationship

© Todeva, 2005

Evolution of Relationships

pre-relationshipstage

exploratorystage

negotiationstage

developmentstage

stable executionstage

terminationstage

- relationship management- identifying needs- evaluation of potential partners

- designing transactions- agreements- framing

- selecting partners- initiate relationship- reciprocate partner’s efforts- framing

- individual commitment- learning- seeking complementarities & synergies- framing

-relationship assessment-decision-making-attempts for restoration-dyadic communication of termination -network communication of termination-disengagement-sense-making-aftermath

Interorganisational Relations Interorganisational Relations

• joint ventures; • equity investments; • co-operatives; • R&D consortia; • strategic co-operative agreements; • cartels; • franchising; • licensing; • subcontractor networks; • industry standards groups; • action sets• market relations• hierarchical relations

• joint ventures; • equity investments; • co-operatives; • R&D consortia; • strategic co-operative agreements; • cartels; • franchising; • licensing; • subcontractor networks; • industry standards groups; • action sets• market relations• hierarchical relations

Todeva & Knoke, 2002

REPRESENTATIVE & MARKET RELATIONSHIP – Exporting, Equity investmentHIERARCHICAL RELATIONSHIP - Wholly Owned Subsidiary, Franchising, SubcontractingAUTONOMOUS PARTNERSHIP RELATIONSHIP - Contractual & Equity Joint VenturesINTER-DEPENDENT PARTNERSHIP RELATIONSHIP – R&D Consortia, Industrial Co-operation Agreement, Management Contracts, Turnkey Contracts

© Todeva, 2005

Subcontractors, Franchisees, Suppliers, Business customers

Outsourcing / Subcontracting relationship

A

B

C D

Production / implementation network in hosteconomy

A2

Partners by contractual agreementEquity control & resource sharing agreementsTransfer of operational control

C

A, A2

B

Subsidiary, Franchisor, Local distributor

Main relationship

Sharing agreements, Equity control

Competitive relationship

E

E Exporter, Licensee, Portfolio investment

Subsidiary, Joint Venture

D Headquarters

hegu, hui, guanxi, kongsi

Chinese Family & Community Business Networks

© Todeva, 2005

Structural Analysis

• What constitutes a business network structure (a question about the nature of inter-firm associations);

• Why some structures survive over time (a question about their motives and drivers);

• How network structures facilitate actors’ behaviour (a question about forms and types of network links, and business relationships);

• What interactions take place in a different structural configurations (exploring the possible content of communications, exchanges, and transactions, their dynamics);

• What dynamics take place in different structural formations

© Todeva, 2005

Types of Structural Configurations

hierarchical organisation(Weber, 1947)

trans-national (Bartlett & Ghoshal, 1989)

multidivisional organisation(Simon, 1962; Chandler, 1962; Williamson, 1975)

matrix organisation

functional organisation

horizontal organisation / value-chain, supply chain - through vertical integration of activities (Porter, 1986)

hegemonic / Ego-centred

clustered / dispersed / distributed

circular / regular / small-world

universal / core-periphery / scale-free

heterarchy (Hedlund, 1986)

community / dispersed / distributed

hybrid organisation(Miles & Snow, 1986, Powell, 1987) broker

producerdesigner

distributorsupplier

▼◄♦◘▼ ▼ ▼

industry groups (Porter, 1980)

Hegemonic Tree Circular Regular Universal Value Chain

Clustered Core/Periphery (Scale-free) Small world

Types of Network StructuresTypes of Network Structures

Network Based Businesses

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Distributed Supplier Networks and Commodity Chains

BUYERPRODUCER

MANUFACTURERBANK

TRADINGCOMPANY

SUBCONTRACTORDISTRIBUTOR

Sogo Shoshatradingcompany

Foreign partners

BANK

Keiretsunetwork

Firms

Japanese Sogo Shosha Networks

© Todeva, 2005

HEADQUARTERS

LICENSEE

JOINT VENTURE SUBSIDIARIESEMBEDDED INLOCAL CLUSTERS

REPRESENTATIVE INFOREIGN COUNTRY

INDUSTRIALCO-OPERATIONAGREEMENT

TURN-KEY CONTRACT

FRANCHISEES

MNC Networks

© Todeva, 2005

Competing products

Scientific and knowledge fields

Research laboratory

Research laboratory

Governmentinnovation policyagencies

MNC MNC

InternationalStandardisationagency

Scientific Association

Competing technologies

subcontractor

Governmentstandardisation agency

RESEARCHCONSORTIUM

R&D Alliance Networks

© Todeva, 2005

Computer systems sPublishing

Telecom operations

Electronic hardware

Motion picture

Business services

Publishing

© E. Todeva (2004)

The Global Information Sector, 2002

Electrical Equipment and Component Manufacturing Cluster in Zhe Jiang Province in China: Chint (led by Mr Nan) and Delixi

(led by Mr Hu)

Qiujing Swith Plant, 2005

Networks with Banks (1)

and Others (2)

Networks with Clients (1)

and Suppliers (2)

Regional Inter-University Alliances & Partnerships

Bio-Medical & Health, Greater South East,

2008

Database Research Projects‘Regional University Collaborations’ Greater South East, UK

Location of Capabilities

Bio-Medical & Health, Greater South East,

2008

Database Firms ‘Regional Concentrations of Capabilities Measured with a Two-mode Graph of Relationships Between Regions and Clusters’ Greater South East, UK

Cluster Value Chain: SURGICAL & MEDICAL INSTRUMENTS MANUFACTURING(198 firms, ties between firms based on 5 or more shared industry codes)

(87% of firms have the core industry codes: 334510 Electro-medical and Electrotherapeutic Apparatus Manufacturing; 334517 Irradiation Apparatus Manufacturing; 39112 Surgical and Medical Instrument Manufacturing; 339113 Surgical Appliance and Supplies Manufacturing)

© Todeva (2007)

Holding companies

All other personal care stores

Wholesale

Misc. metal products

Electro-medical, electro-therapeutic, irradiation apparatus; surgical & medical instruments;

surgical supplies manufacturing

R&DPlastic

products

198 firms87% in 4 coreindustries

Misc electrical equip & component

manuf.

Conclusions• Acknowledge the presence of relational aspects and

long-term commitments between business partners and the role of content, context and relational dynamics

• Relational and structural properties of business networks do affect performance and the effectiveness of international partnership agreements

• Heterogeneity of actors in business networks has an impact on coordination and management of partnerships

• Different dimensions of business networks do require distinctive research methodologies

© Todeva, 2005