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This chapter is from the book

Meeting the Challenge of Networks

Shifting thinking and action is particularly challenging for mature and established companies. In our discussion of these issues with senior executives, they have raised practical questions such as this: How can managers move from the theory of network effects to implementing these concepts with a management team when the next item on the agenda is the quarterly financials? Ground-up new ventures such as eBay, Wikipedia, and Google have brought a radically different worldview, but their lack of a legacy has been an advantage in this process. Established firms face the more daunting challenge of making the leap from the firm-centric world to a networked world, without undermining their existing business and commitments of current stakeholders in it.

In some cases, the changes may appear at first to be incremental. This can lead to the “boiled frog” syndrome, in which managers don’t recognize the significance of the change until it is too late. The development of the Internet itself percolated behind the scenes for many years, confined primarily to academic and military circles, before the minor innovation of the web browser made it a transformational force in business. This is what Ron Adner and Dan Levinthal (2000) have called “technology speciation,” using a term from evolutionary biology to describe how technologies are transformed by a leap into a new domain. What might initially have looked like a difference of degree becomes a difference in kind. It appears that we may see the same kind of speciation with respect to networks, in which a number of small changes add up to very different models for business and different approaches to developing strategy and competencies.

The speed of network development is one uncertainty, and another is the models for networks that might emerge. Although we sometimes discuss “networks” as if they were a single concept, the models for networks that could emerge—and are emerging—are diverse. We need to understand the differences among these networks. Some, for example, may operate like formal orchestras, whereas others may more closely resemble the improvisational performance of a jazz quartet. Some will need conductors, whereas others will self-organize. What are the different types of networks and which ones work best in a given situation?

Some of the implications of this shift to a network-centric view are already beginning to emerge, as illustrated in Table 1-1.

Table 1-1. Network-Centric Thinking

Firm-Centric Thinking

Network-Centric Thinking

Leadership

Command and control

Self-organizing/empowered

Value creation

Firm-centric products

Network-centric experience

Innovation

Internal R & D

Open innovation

Core competencies

Firm-based core competencies

Network orchestration and learning

Competition

Firm against firm

Network against network

Risks

Local and direct

Systemic and interdependent

Finance

Appropriating rents

Building and sharing value

Marketing

Mass marketing

Mass contagion

Operations Focus

Efficiency

Flexibility

HR

Superstars

Supernetworks

The insights summarized in Table 1-1 are just the beginning. The role of networks and our understanding of them continue to evolve rapidly. This is largely uncharted territory, both for business disciplines and for the social and natural sciences that inform these disciplines. We are all learning what this world means. The challenge of understanding networks is like the old fable of the blind men trying to provide an accurate description of an elephant—except that it is a herd of elephants and they are all in motion, and they have not only observable physical characteristics but also unobserved motivations, knowledge, and attitudes. Any attempt to freeze the action to see what is going on or predict where the herd will go next, though useful, is necessarily limited. The act of concentrating on a specific aspect of networks such as human resources or alliances, or a type of networks such as terrorist networks or biological networks, necessarily leaves out part of the picture. We hope that by gathering individual experts from many disciplines and probing this phenomenon from many angles, we can overcome some of the blind spots that each may bring to the task and help illuminate the true nature of these networks and their significant implications for business.

The implication of networks ranges from the survival and growth of our businesses to the future of the planet, as we address highly networked issues such as international trade, global warming, and terrorism. Understanding networks is critical at every level, from personal decisions to business decisions to the broadest policy issues facing our world. We hope this book will help put the changes that are playing out in the structure of the global economy into a broader context for managers facing the challenges of leadership in the emerging networked world and for our colleagues as we attempt to shed new light on these phenomena through research.

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