How do organizations interact with each other

How do
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 nonredundancy
• 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 nonredundant, 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
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
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
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
The combination
Low Altercentric
High Altercentric
Low Egocentric
Roofing jobs
High Egocentric
Junk Bonds
Some hypothesis
 Actors
occupying more structural holes
will engage in markets high in egocentric
 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
High egocentric uncertainty in early stage
investments (i.e., in seed capital)
Low egocentric uncertainty in later stage
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
Mutual forbearance
in simple terms, I
scratch your back,
you scratch mine… or
perhaps, live and let
MMC and market entry and
expansion decisions
 Harming
a MMC can harm you too.
 MMC can retaliate against you in multiple
 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
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?”

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