DEANS OF BUSINESS

The value of networks

Posted Nov. 25, 2011, at 3:15 p.m.

These days things seem to happen on social media. People, especially the young, are glued to their smartphones and snap pictures and send instant updates — some engaging, others rather trivial — to all their “friends” and the world to see. Facebook is now one word, and so is LinkedIn, while tweets are no longer about how birds sing. The social media companies are followed closely in the business news as innovators who chart the horizons of technology.

While social networking seems so much a sign of the 21st century, it is indeed just a very popular extension of a powerful perspective in the social sciences that focuses on relations between social actors — individual people, groups or whole organizations — and the complex structures that these relations interweave. Though these networks are nowadays facilitated by electronic media, they have existed well before the Internet. They are important for business because they impact it in at least three powerful ways.

First, individuals and businesses can gain access to resources and opportunities through networks. It is through networks that information flows. Also, people establish trust and reputation in these networks, which reduces the necessity for checks and verification and facilitates access. These personal networks are important for companies, as relations between companies are embedded in the personal relations their representatives establish. Thus individuals and businesses can create value from relations, a phenomenon that researchers call social capital. Individuals and companies alike should evaluate their networks and target areas for improvement. Here are questions to ask in this evaluation: Do you know important decision makers? Are there gaps in the network that you need to address by establishing contact with key constituents? How can you get access to them?

Second, within companies work often gets done through the informal social network rather than the formal channels of the hierarchy. The social network is a flexible and efficient way to get organized that taps into the capabilities of people. Successful companies often map and assess their social network to identify leaders whom people turn to for advice. These companies provide opportunities for networking for their employees and managers and facilitate the learning that takes place within the informal network. Does your company have a solid informal network? Do people know and trust each other? Can management provide more opportunity for networking and encouraging informal leaders to spread positive experiences?

Third, entrepreneurial endeavors in a geographic region take place within a network of providers of diverse services and talent, such as entrepreneurs, inventors, managers, venture capital firms, investors, banks, incubators, universities and state and community economic development agencies. Entrepreneurship prospers when this network is large, elaborate and dense. A large network offers more expertise and opportunities. An elaborate network links diverse providers of complementary services and leverages entrepreneurial efforts. And in a dense network people know each other better, benefiting from superior information about capabilities and establishing needed trust. When evaluating such an entrepreneurial network, questions to ask include: Are there gaps in expertise in the network? Do people in the network know each other well? Are there multiple centers of expertise and success or is the network clustered around a small number of individuals, thus making it ineffective for most?

Managing networks is very different from managing a hierarchical organization: they consist of autonomous agents with relatively even power and thus depend heavily on their cooperation. Network members do not follow orders, however, they can be led effectively through example and negotiation. Networks do include people with different status, but status is usually determined by expertise, accomplishments and referrals rather than formal position. And, as much as networks are about relationships, they are also about information, which flows rather freely and very fast. Attempts to centralize and hoard information over the long run are most often doomed.

Understanding how networks work helps people and businesses build better networks and use their resources more effectively. Networks can produce multiple benefits to participants, their companies and communities.

Ivan Manev, an accomplished scholar in international business and entrepreneurship, joined the faculty of the University of Maine in 1997 and currently serves as dean of the Maine Business School.

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