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Network structures and characteristics of association have become increasingly common in the study of the way business organizations search and take advantage of technological and market opportunities. Some research claims that a huge number of these relationships with a low level of relational embeddedness enhance the possibilities of the organization to collect new knowledge and earn good social capital to increase the productivity of the business organization. Other studies show that a high level of embeddedness between the business organization and its partners is imperative to get hold of the new knowledge and generally boost the social capital.
The similar bi-polarity can be realized when the structures of the network are taken into account. Some studies advocate for open network structures, whereas others stand in support of closed network structures. The bottom line of each business organization has its own restrictions based on resources and raises the question into the manner in which network configurations and associations impacts the possibilities of the organization to realize and exploit opportunities. In this paper, different theory strands have been utilized concerning network structure and relationship characteristics to establish an understanding about the way they must be configured,in order to enhance the search of the organization for opportunities and social capital.
The business network that surrounds the organization has a significant impact on the way the organization exploits and finds opportunities. The network characteristics have been researched increasingly in the recent past (Kenney and Goe 2004, pp. 691-707). In parallel, a large and strong convention of research has come up on this opportunity, particularly among researchers of entrepreneurship. In the social sciences, scholars seem to agree on the importance of network structure, but disagree on the relative benefits of opposite types of structures. Some regard closed network structures (cohesion) as the source of social capital; others have argued in favor of the benefits of open network structures brokerage. The main objective of this paper is to present a critical assessment to compare and contrast the network mechanisms underpinning these (apparently) opposing views of social capital with the aid of examples.
The aim is to put these two network mechanisms together and employ a procedural assessment of the difference between them and various types of networks and relationships. The behavior of entrepreneurs and social networks has in the past been studied. Such studies have highlighted a relationship between getting an opportunity and the characteristics of a given social network. However, there lacks some empirical study into the relationships character and network configurations and the way it impacts the organization’s way of getting and exploiting opportunities (Burt 2000, pp. 1-24). This paper will seek to fill up such a void by determining the real source of social capital and the way it can be developed effectively.
Social capital is a concept of sociology and social science, making reference to the value social relations have and the role of confidence and cooperation in getting collective and economic results. Social capital is thus the bottom line of social relationships and comprises of the expectative gains derived from the preferential cooperation and treatment between groups and individuals. Network structures have contributed a lot in the sourcing of social capital to firms and business organizations. Social capital regards network structures as a number of associations between individuals and groups comprising of social networks and related norms that have an impact on the productivity and welfare of business organizations (Burt 2000, pp. 1-24).
Social networks occur at both horizontal and vertical aspects. Social capital accounts for both negative and positive aspects through the inclusion of vertical and horizontal associations between groups and organizations. It takes into account behaviors inside and amongst organizations like firms. This perception recognizes that the horizontal associations are required to offer communities a sense of common purpose and identity (Burt 2000, pp. 1-24). All the same, it insists that without covering up the bonds that surpasses different social divides in matters of ethnicity, religion and socio-economic factors. Horizontal links can end up being a basis for the pursuit of slender interest and can actively prevent access to material resources and information that would be of great help to the concerned group or organization (Ardichvili et al. 2003, pp. 105-123).
Social capital has been evaluated in different innovative approaches even though a number of reasons gaining one exact measure may be not possible. For one, the most inclusive definitions given to social capital have many dimensions taking into account various levels and analysis units. Additionally, any effort of measuring the properties of intrinsically ambiguous concepts like network, organization and community is likewise problematic. Thirdly, few lasting surveys in the past were meant to evaluate ‘social capital’, leaving modern researchers to assemble indexes from the scope of approximate items like trust measures in government, trends of voting, civic organizations membership and time spent in volunteering. Emerging surveys currently in the testing process will expectantly yield accurate and direct indicators (Ellis 2000, pp.443-469). The measurement of social capital could be hard, although it does not mean that it is impossible. A number of studies have pointed out various proxies for social capital applying various combinations and types of comparative, quantitative and qualitative study methods.
Social network structures can promote productivity through the reduction of costs incurred in doing business. The social capital gain, thus, enhances cooperation and coordination. Social capital is derived from social network structures. However, social scientists say that different network types yield different levels of social capital and productivity (Kenney and Goe 2004, pp. 691-707). This paper will thus take into account these differences in network structures and predominantly the open network structures and the closed network structures. It will highlight how social capital has been sourced in promoting the productivity and welfare of the business organizations.
A common approach of describing network structures is regarding them as either open or closed systems (See figure 1 and 2 respectively). The open network structure is the result of the competitive effort between the parties that are motivated through self-interest. The main construct in such a network is the exclusive, non-redundant relationship (Figure 1). A relationship is said to be non-redundant if it happens to be the only path between two given actors. Therefore, a completely open network comprises of merely non-redundant relations where there is only one link between the organizations in the network (see Figure 1). This indicates that an open network enhances the flow of new knowledge due to the fact that it is less likely that an organization will get the same kind of knowledge from the other counterparts.
Moreover, actors that have different non-redundant relationships to the other actors who are not linked to each other have a robust brokerage position referred to as “structural holes” (Burt 1992a, pp. 113-78). Firms and organizations, positioned in structural holes, tend to have a more powerful position compared to those without because they have a control of the knowledge flowing between various networks (Burt 1992a, pp. 113-78). According to Kogut (2000, pp.405-425), networks of this nature usually have a ‘hierarchical’ structure even though there are different hierarchies, and the organization bridging the structural holes gets the credit.
The closed network structure builds on the idea that organizations in the network bring their actions and efforts together (Figure 2). The coordination is enhanced through the incessant knowledge flows amongst the actors in the network. The closed network structure does not give firms and business organizations a lot of knowledge, since it is ever likely that knowledge gained from one counterpart will in the end be got from another counterpart altogether. The redundant connections between the partners in a given network end up in a resolution to collective action issues (Kogut 200, pp. 405-425). However, it also allows the organization to check the quality of available knowledge while comparing and assessing the received knowledge.
The focus of a network structure is the position occupied by the firm in the network and more so beyond the relationships that are deemed to be immediate. In such positional perspectives, the reference frame moves from the triad or dyad to the system. Various positions in the network tend to have a number of advantages. For instance, an organization that is positioned in between two others that are not connected which characterizes the open network, can have control of the knowledge flow and termed as a good source of the social capital in this sense (Ardichvili et al. 2003, pp. 105-123). Consequently, an absolutely open network offers each organization in the structure a chance to control what and how knowledge tends to flow through the entire network which when putting together with the comparatively large portion of the new knowledge, makes it possible to keep important knowledge (confidential knowledge) in the boundaries of the organization. This is the same case for all organizations in the entire network.
On a different note, the closed network structure is believed to cause technological opportunities, which are founded on coordination and cooperation. However at the same time, organizations will get to know few opportunities in the market, since there is a limited flow of any new knowledge in the network structure that is closed. Therefore, it is less likely that any opportunity arising will be characterized by novelty when compared to the open network. Thus in the open network, there is no joint search and learning. From a different perception however, the open network makes the possibility for an organization to earn income founded on the position it has in the network. Take a situation as portrayed in Figure 3 below.
The business organization A has gotten new and for some good reason very important knowledge of the counterparts in the network; may be B and C. The business organization A can choose to charge the other counterparts D and E arbitrage for the reason that, it has supplied this knowledge as they are not linked with each other or linked to anyone else that can offer the knowledge except it be gotten from organization A. This shows that it is very easy to maintain the benefits in open networks within the organization’s boundaries. In the open networks, there are expectations to see that organizations, which get opportunities, endeavor to limit knowledge concerning them in order to completely exploit such opportunities without the loss of sharing the benefits to other actors in the network where they operate.
In comparison to a broker gaining credits in the open network structure, the closed network gains wholly. The gains of the closed network structure are not a result of efficient flow of emerging knowledge. It is due to the fact that, a big quantity of redundant links enhances cooperative coordination and behavior. Therefore, the new knowledge share in connection to the absolute amount of knowledge is by far small compared to the case in an open network (Burt 1992a, pp. 113-78). Even though a more open network usually offers a better structure for new knowledge flow in and out of the network, it does also offer some actors a level of control over the knowledge that circulates in the network. The open network structure, thus, appears to limit the reasons to coordinate and co-operate the activities of the actors (Eckhardt and Shane 2003, pp. 333-349). Seemingly, both the open and closed network structures have their advantages and disadvantages when analyzed in these absolute terms.
If this were to be analyzed differently, one should take an instance where an organization has a certain fixed volume of resources. If an organization has a connection to counterpart A which again has a link to B, it is better to give up the relationship to B and rather make use of the limited resources to take part in a new relationship with another counterpart C (see Figure 4). This is due to the fact that, the knowledge gotten from A already has the knowledge from B as they are linked together in the network (Burt 1992a, pp. 113-78).
There is an inherent risk of becoming locked-up in the closed network structure. This takes place when the organizations are very much involved in very many relationships, which are linked with each other. In such a network, there tends to be few or even no relationships with organizations externally that can potentially put in new knowledge to the network (Burt 1992a, pp. 113-78). A network, where the situation is very much closed, reduces any flow of new knowledge into the structure of the network since it is certainly that a similar knowledge revolves in the network that knowledge flowing is of a similar character as that already utilized in the relationship. The expansive novelty is normally hard to change into incremental changes. Therefore, a conclusion can be made that the open network structure repeats the hierarchical structure in a number of different ways, and the benefits accumulate to the bridging organization (Burt 1992a, pp. 113-78; Kogut 2000, pp. 405-425). On a different note, the closed network structure enhances the positive development of the entire network through coordination and cooperation amongst the organizations where the benefits are part of the entire network structure.
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While looking at the open and closed network structures, there can be at least four theoretical situations. The situations are by no means instances mainly found in reality but instead archetypes assisting to clarify the successive discussion (See Figure 5). Figure 5 below shows four scenarios comprising of both the open and closed network structures with different levels of relational embeddedness.
Considering the important issue concerning knowledge as an opportunity source, the possibilities for an organization to gain new knowledge appears to increase if the business organization has relationships to many other counterparts that could offer such knowledge (Ardichvili et al. 2003, pp. 105-123). From the structural view point, this is the situation when the relationships between organizations are not linked to each other (see section ‘A’ in figure 5). The chance of each counterpart in the open structure to contribute unique knowledge is enhanced as the organizations are not linked to each other. Additionally, when the open network has relations of low level relational embeddedness (see figure 6 below), it appears certainly to expect the organization to be in a very good position to get opportunities if they are founded on the knowledge that has been codified (Burt 1992a, pp. 113-78).
Therefore, this scenario implies that the opportunities present will be founded on a large portion of new knowledge that is codified. Such a scenario, in addition, tends to be a very good foundation for finding opportunities in the market, whilst exploiting opportunities technology-wise is less certain. The main reason for this is that, the incorporation of opportunities founded on non-codified knowledge is very hard, therefore, the more such knowledge is of a nature that is non-codified, the more hard it is to take the opportunities on board.
In such a scenario, the cooperation and coordination required for the integration of more multifaceted knowledge is hard to attain, as the relationships are not intertwined and thus lack a common base of knowledge. Another characteristic of this scenario is that, the organizations, in focus, can comparatively easy gain income to the disadvantage of other organizations (Kogut 2000, pp. 405-425). This is because it can maintain important knowledge within the organization and not let other organizations in the network know about the exploitation of such an opportunity. Such an inference has a great similarity with the actions and operations of a stockbroker. By linking buyers to sellers of different stocks, being in a position like this one, is the case for the organization in Figure 6 to be very helpful. For any broker in the stock market, the only important knowledge required is the person who wants to sell out a certain stock and the person who wants to buy that given stock.
By virtue of being the linking arm between the sellers and buyers, the brokerage firms earn a good income. The moment a direct relationship between the seller and the buyer exists, they can start out the deal without the need to make payment for the knowledge concerning the prospective seller or buyer residing right in the brokerage organ. Moreover, the stock broker does not gain to any large extent through the adaptation and learning about the selling counterpart, since quantity and price are enough to carry out a deal. Opportunities come up as the broker brings out matching pair of the sellers and the buyers. Ideally, opportunity and business is very much a similar thing in this instance. Therefore, it would be correct to say:
In this scenario, there is anticipation of more cooperation and coordination between the organizations in the closed network structure with low level degree of relational embeddedness than in scenario A (Kogut 2000, pp. 405-425). However, scenario B can present challenges for the organization. The closed structure in the entire network increases the chance of seeking and exploiting opportunities of technology as this structure type imposes the same base of knowledge on the organizations. Again, it is certainly that this situation in scenario B and the closed network will appear in order to give the organization advantages to search options in a case where knowledge is codified. This implies that taking on knowledge founded on the non-codified form is complex. Opportunities may appear to be founded on existing knowledge in this scenario. Lastly, it appears that this structure does not permit the organization to make subjective profits at the expense of the other organizations, as is the case in scenario “A” since the requirement to cooperate implies the benefits to be proportionally shared. In this scenario “B”:
Apparently, this scenario presents an ideal situation in a real life situation especially for the longer time periods. To some level, this scenario can be evident in the clothing arena and industry, where a given designer working from a country of origin may send various patterns to tailors, in such countries where the tasks requiring a lot of labor are very cheap to come by. All together, the designer makes orders for certain fabric from organizations from different countries. The fabric is shipped directly to the tailors who, for example, produce a specific kind of garment. Again, the advertising outlets in the end markets make preparations for the advert campaigns.
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When the garment is done, it is directly shipped through a transportation firm to the nations where sales are made to stores. The tailors then get a particular amount of garments to be made depending on the spare capacity at the specific time and it is also very easy to envisage that the tailors back up each other and alter the original order from the main designer. Given that the end garment is similar to what the designer has, maybe, no opinion concerning who has indeed produced the garment. Additionally, it is very easy to envision the way different outlets or stores in the same area or country carry out their operations to get shipment which is cheaper by having the same distributor. Given this situation, opportunities emerge when quantities or prices are altered for one reason or another and are culminated through the flexibility and speed of processing information concerning all the organizations that take part in the process (Choi and Shephard 2004, pp.377-395).
This is a multifaceted scenario since the open network structure and a high level of relational embeddedness are two conflicting forces. The latter enhances the acquisition of multifaceted knowledge and common problem solving, whereas the former provides the chance of controlling knowledge flows and to gain codified knowledge (Simsek et al. 2003, pp. 427-442). Much of what exemplifies the opportunities, in this scenario, is founded on the way the organization cooperates with the network counterparts, which particularly is about the exploitation of such opportunities because the issue of relational embeddedness implies good situations to take on board non-codified and complex knowledge.
The fact that the organization has a single path in the network accessing all other organizations in the network implies that much of the knowledge traveling through the network is ever new (Choi and Shephard 2004, pp.377-395). This appears to enhance the opportunity of technology. The exploitation of such opportunities, in this scenario, normally occurs within the boundaries of the organization and is mostly about the integration of resources and activities of the organization. This is, for example, the case in the running of operations in the car production industry, where there are deep and strong relationships between various actors, but where the structure to a large level comprises of a number of different relationships and in the instance where the development of technical matters, there is a continuous activity.
Additionally, there is a lot of adaptation between the organizations involved in administrative systems and logistics, in order to achieve Just-In-Time (JIT) deliveries and efficient and lean manufacturing. The network offers each organization a chance to maintain the knowledge within it and to gain capital from taking advantage of the knowledge given the organization has power pertinent to the counterpart. The situation takes after a value chain or a channel of distribution where the control and power are sources to gain profits and the conflict between organizations in the dyadic relationship are certainly going to take place, as the high level of relation embeddedness offers the organization good understanding in the operations of the counterparts.
All the same, the high level of relational embeddedness can compel the organization to share the gains with some particular counterparts because it is certainly that, due to the high level of relational embeddedness, it is capable of completely exploiting the available opportunities (Dyer and Chu 2000, pp. 259-285). However, this scenario also offers rise to other opportunities which are founded on dyadic cooperation learning jointly and not based on the knowledge flow in the entire network. In such a case, there are good chances to maintain the knowledge within the boundaries of particular relationships and to make sure that it is not spread out. In this scenario henceforth,
All the same, the perception (i) and (ii) above of the network could be very simple because, ideally, the role of the organization is not merely to absorb emerging knowledge. The role of the organization is also to take part in the process of development, which incorporates several other actors. Thus, the (iii) proposition is a crucial consequence to be addressed through the management in order to see that the business organization does not slip from the advantage from the opportunities that are created by the way of receiving non-codified and new knowledge.
In this scenario, the organization seems to have tight and strong relationships with the business partners. Since the relational embeddedness is high, coordination and cooperation of activities are very deep meaning that there are a lot of good technology opportunities. However, there could be a risk of receiving mainly existing knowledge through the various relationships (Dyer and Chu 2000, pp. 259-285). This is the instance where the actor is linked to the other actors, which in return are linked with each other; the actor is locked up and gets existing knowledge. However, this scenario offers the organization a very good position to evaluate the existing knowledge with a little new knowledge which largely pours out into the network. Through reflection and repetition, organizations can check the quality and content of the new knowledge and together with other organizations solve such matters jointly. In such a process, the issue is not about getting the one missing thing in the puzzle.
The most important thing is to understand and learn the way an organization’s puzzle can be modified to fit in the puzzles of other business partners. In such a scenario where the learning of multifaceted knowledge is required, the high level of relational embeddedness and networks with robust connectivity are vividly superior (Kogut 2000, pp. 405-425). This implies that most opportunities emerge from a cooperate learning in the network, which consequently affects the way the gains of the opportunity found are consequently exploited. The finding of such an opportunity is a cooperated effort and therefore, it is hard for a single organization in the network not to share out the benefits accrued with other partners. The scenario D tends to share out the benefits proportionally over the entire network than in the rest of the scenarios in A, B and C. Since there is an inbreeding risk in this scenario, organizations will have to search out for ties that could give new inputs and other opportunities. This kind of network is limited in time in a number of ways. It shows an organization that it is very much embedded.
The scenario where there is a network as in D taking place in huge, technically developed projects like establishing a new item of war, for example. All incorporated sub systems and elements are established at the edge of their technological abilities, and usually even in advance of this, the adaptation between all or a number of the organizations involved is important to the effectiveness of the project. Opportunities take place in the intersection that exists between various sub systems and their enhancement thereof. This means that the development that occurs in one system opens and forces changes and development in a different sub system. Altogether, these co-operate developments of two of the incorporated subsystems impact a third and need changes to it and the effect continues. Much of the opportunities and development take place when the organizations taking part solve issues corporately. Much of this exploitation comes up when the entire system is produced, although also after the project is done when each organization endeavors to exploit the learning it got through the application of the development in the various networks. In this scenario D, therefore:
The ability of an organization to search out and exploit opportunities depends on the network structure to which it is attached. This is basically on matters of closure, relationship characteristics and based on depth. Being attached in a number of social relationships and technological structures offers not only resources, knowledge, advice and support, although can also assist the organization to find opportunities (Jack and Anderson 2002, pp. 467-487). There are two contradicting forces that influence the position of an organization to find opportunities and arrangement of the network and what entails the relationships. For one, there is the issue of having sources, which offer new knowledge, which can be translated into opportunities. This appears to require that an organization has relationships with a low level of embeddedness and that part of its network is at least open.
Another inference is the ability of the organization to absorb knowledge and take advantage of such opportunities that are realized. It is reliant on having such relationships with a high level of embeddedness and being at a point which promotes coordination and co-operation with other actors, that is becoming part of the closed network. This is for the reason that, the more new knowledge of a non-codified nature the chance contains the greater the requirement to establishment strong relationships for the organization to have good possibilities to take the knowledge on board.
The advantages and disadvantages of the closed and open network structures and the low or high levels of relational and structural embeddedness rely on the specific scenario. The more the network of an organization contains deep and intense relationships measured by a high level of relational embeddedness, the wider the degree that its opportunities are based on multifaceted knowledge. If the configuration of the network is again of a closed nature, it is expected that taking advantage of such opportunities will be enhanced through the coordinative and cooperative character available in such networks. On a different note, new knowledge is more easily reached in the network with a lot of unconnected partners having relationships with a low level of embeddedness to one another. In the network of this nature, the organization detecting an opportunity also stands a better chance of maintaining knowledge within the organization and can gain profit in the exploitation stage.
It would be very hard to imagine any organization being located in any of the theoretical scenarios; in essence, an organization has associations that are characterized through both low and high degrees of embeddedness. In the same manner, no network system is absolutely open or even closed totally, even if the system parts could reflect such a homogenous existence. One significant conclusion from this reasoning should be that an ideal network must contain relationships that vary in the levels of embeddedness and are of a semi-closed/open structure to guarantee survival of the organization in the long term. The extension of boundaries of the researched network will show various and even conflicting results, henceforth. It is very imperative to remember that the content analyzed about the theoretical situations is for ideal scenarios and that they seldom appear in a real life situation.
The optimal realizations of social capital and taking advantage of opportunities is recognized to have various prerequisites. These are evident through the network, therefore, showing the various roles that the network has from a given market together with the technological aspect. Since the network concept is getting a lot of attention in business research, it is imperative to deduce that a network is not the same thing always. It varies in closure and in intensity and depth of relationships as well (Simsek et al. 2003, pp. 427-442). If a network as a concept is applied in business research, it must be defined thoroughly based on the characteristics as defined in this paper. It is evident from this analysis and comparisons that the network characteristics based on closure and relational embeddedness have very varying meanings for the way organizations search and take advantage of opportunities.
The impact of relational embeddedness on the possibilities of the organization in finding and taking advantage of opportunities is evidently dependent on whether the network is open or closed. Moreover, the impact that the structure of the network has on the possibilities of the organization in finding and taking advantage of the opportunities relies on the level of relational embeddedness it has with its partners in the network. When putting into consideration, this implies that there is more study needed to completely expose the way network structures and association characteristics impact on opportunities and social capital altogether.