Connect with us

Networking

The principles of network advantage

Learn how you can leverage the principles of the network advantage to expand your network
Editorial team

/ Last updated on 5th November 2017

A network of interconnecting ropes representing a network between business people.

Network advantage is actually not a complicated concept. As you’ve probably experienced already, networks are powerful and pervasive factors in all aspects of people’s social lives. In fact, you likely make decisions every day based on your personal networks. Do you use your personal contacts to gain introductions to others who have useful information? Have you worked on a task force that brings together people with different expertise? Both situations demonstrate how to use your personal network to generate more value than would be gained from each relationship. No matter what kind of network, certain principles apply. We’ve translated these principles for use with understanding alliances. Let’s put the Stealth Bomber example aside and look at how the network advantage principles apply using a person-to-person network.

Related: A quick guide to networking for entrepreneurs

Consider a study of family doctors in a small community in the United States.1 Each doctor was asked to identify other doctors they turned to for advice, they discussed cases with, or they saw socially. The network depicted in Figure 1 shows the doctors’ responses. Each numbered dot represents a doctor. The lines show how the doctors are connected to one another. Now, put yourself in the shoes of a senior vice president of marketing for a major pharmaceutical company which sells an antibiotic. Your life is far from easy because there is increasing regulatory pressure to curb marketing spending on specific activities such as taking doctors to dinners and conferences. So, to influence the doctors, you need to be creative.

Looking at Figure 1, does it provide clues for maximising the return on your efforts to influence these doctors to write prescriptions for your company’s product? Would you spend the same amount of marketing time and money on each doctor or be more discriminating? If you only had enough budget to market to a handful of doctors, which ones would you target?

Figure 1 can help you answer these questions by identifying the most influential doctors—those who have the greatest number of linkages to other doctors and those who have the best chance to influence the largest number of other doctors based on their positions in the network. If you already had this answer in your head, it means that you understand the basic network concept. This map of social relationships shows that some doctors have a greater influence on the behaviours of other doctors in the network. Doctor #048 has 15 arrows pointing toward him, meaning he is a direct source of advice for 15 doctors. Doctors #013 and #081 have eight such ties each. It looks like #013 has 9, but the tie between #013 and #081 is actually #013 getting advice from #081, not giving it. Assuming these doctors discuss cases involving medication choices with their peers, it would be prudent to invest a disproportionately larger amount of time and money into marketing your products to them. Knowing where in the network you can more effectively seek influence is bang for your buck, and that is network advantage.

To unlock the advantages inherent in any network, it’s important to understand the six key principles of network advantage which are summarised in Table 1 and come to life through the examples used in this chapter.

The most basic concept involves how networks provide information, cooperation, and power advantages. This is,

Network Advantage Principle #1: Links among alliance partners transfer information, cooperation, and power.

This applies to work colleagues, countries, or in this case, doctors. Let’s begin by looking at one of the doctors on the periphery of the network, such as Doctor #038. He has a relationship with only one other doctor, who, in turn, also has only one other relationship.

This applies to work colleagues, countries, or in this case, doctors. Let’s begin by looking at one of the doctors on the periphery of the network, such as Doctor #038. He has a relationship with only one other doctor, who, in turn, also has only one other relationship.

Clearly, not everyone in the network reaps the same advantages. Poor Doctor #038 has less potential for influencing others and likely is disadvantaged when it comes to accessing information flowing across the network of doctors. This illustrates,

Network Advantage Principle #2: Even though networks transfer information, power, and cooperation, these advantages are not evenly distributed within the network. 

That is, some network players (individuals or firms) occupy better positions than others. And that is why network advantages create competitive advantages. Some network positions are better than others.

Six key principles of network advantage

1. Links among alliance partners transfer information, cooperation, and power

2. Even though networks transfer information, power, and cooperation, these advantages are not evenly distributed within the network

3. Success comes to firms that actively manage their alliance portfolios

4. It’s important to recognise the different mechanisms at play in the first-, second-, and third-degree perspectives and be able to shift across these perspectives in designing your alliance portfolio

5. Network advantage accrues to those firms which are best positioned in their alliance networks

6. Maximum network advantage is realised when an organisation coordinates its alliance activities internally

We see similarities between the networks drawn in this chapter and the network of roads illustrated in the map of Roman Britannia shown in the Introduction. Just like roads help transfer people, goods, and money between cities, relationships between firms help transfer information, cooperation, and power. And so do relationships between people. Regardless of their basis—roads, alliances, or advice—relationship networks are important. They affect cities, firms, and people, and these effects occur whether the cities, firms or people are aware of them or not.

About the Authors

Henrich Greve is a Professor of Entrepreneurship and the INSEAD Chair of Organization and Management Theory. He holds a Ph.D. in Business Administration from Stanford University Graduate School of Business. He does research on organisational networks and learning, and he teaches strategy and organisational change for executives at the Singapore campus of INSEAD.

Tim Rowley is a Professor of Strategy and Organisations at the Rotman School of Management, University of Toronto.  He teaches courses on competitive advantage and corporate governance, and his research is focused on how organisations are influenced by the network of relationships surrounding them.

Andrew Shipilov is Associate Professor of Strategy and Akzo Nobel Fellow at INSEAD. His research and teaching revolve around networks, innovation and competitive advantage. He holds a Ph.D. from the University of Toronto, Rotman School of Management.

Related: Business networks in the UK

Advertisement
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

NEVER MISS OUT

Get the latest advice and guides on starting, managing and growing a business.

Trending