© Nathan Mandell
Faculty Research: Ranjay Gulati, MORS
the network adds to the net worth
firms may not realize the full value of their ties to other
organizations through strategic alliances. Professor Ranjay
Gulati's new book tells how to manage these 'network resources'
Matt Golosinski and Adrienne Murrill
advertisements and annual reports tout the idea of "socially
responsible" companies. But what about "social"
companies? What benefits might they gain from their connections
to other firms?
recent decades, even the concept of inter-company partnerships
was less familiar than that of competition between them. Competition,
after all, is the historical basis of capitalism, with firms
determined to outpace one another in pursuit of the most profitable
value propositions. But, faced with mounting commoditization
and increasingly demanding customers, many organizations have
turned to cooperative
arrangements with other firms to gain advantage.
of us recognize that firms have internal resources that make
them successful," says Kellogg School Professor Ranjay
Gulati, an influential scholar of strategic and organizational
issues, who has been ranked among the 10 most-cited researchers
in economics and business by ISI-Incite. Such resources typically
include intellectual property, factories and plants, technology,
human capital — anything a company holds that can produce
value for it. "We have long recognized and studied the
value of these resources residing within the firm," says
Gulati, the Michael L. Nemmers Distinguished Professor of
Strategy and Organizations. "But a firm's connections
to other firms through ties such as strategic alliances enhance
its access to its partners' internal resources."
addition, there are "more subtle resources stemming from
the firm's connection to other companies," Gulati says.
These include valuable information flows and timely access
to new technological developments in the industry, as well
as the ability to identify future alliance partners through
referrals from current and prior allies. And in today's global
economy, managers must recognize and use all available assets
— within and external to their firms.
create a framework for these complex dynamics, Gulati has
introduced the concept of "network resources" as
an important but overlooked factor in understanding organizational
behavior. Network resources accrue from a firm's past and
present connections with external constituents, such as strategic
alliance partners, suppliers and customers, among others,
and as such are distinct from resources that reside within
the company's boundaries. Gulati says any business leader
will admit that an extremely important asset for their firm
is the connections they have built with important stakeholders.
Yet very little research has sought to understand and articulate
the antecedents and consequence of holding these valuable
new book, Managing Network Resources: Alliances, Affiliations,
and Other Relational Assets (Oxford University Press,
2007), will help managers and researchers appreciate the breadth
of resources available to companies. The text synthesizes
more than 15 years of the professor's research on the dynamics
of firms embedded in networks of alliances and other ties
that influence their performance and behavior. According to
Gulati, this body of work reflects a more comprehensive view
of the resources available to firms, assets that are increasingly
important in today's business context where going it alone
is not an option. The research also accounts for "the
complex interplay that may occur among the disparate networks
of ties in which a single firm can reside." The book
considers many issues, including how network resources help
shape governance structures used to formalize ties, and how
network resources accruing from a firm's connection to key
stakeholders influence perceptions of its legitimacy among
financial institutions and potential investors.
relationships that generate network resources can be interpersonal,
as well, including affiliations of the firm to other companies
based on interlocking board memberships or past ties of upper
echelon managers. Based in part on this observation, Gulati
writes, "It is not simply the magnitude of a firm's prior
ties that matters, but rather the distribution of those ties
across current partner firms and past allies." In other
words, who you know is at least as important as how many people
suggests that a firm's network resources can provide it both
with direct access to partners' resource bases, and a broader
set of physical and informational assets, thereby shaping
its alliance-formation behavior, decisions related to the
governance of future alliances and, ultimately, its performance.
An important but under appreciated benefit of a firm's prior
ties, Gulati says, is the firm's ability to leverage those
ties to gain access to timely information that reduces uncertainty
and may trigger future ties. Many such contemporary ties are
initiated "in the contexts of past or existing sets of
relationships that are conduits for valuable, behavior-influencing
information," Gulati suggests. He illustrates this principle
and others related to network resources using examples from
his doctoral dissertation at Harvard and multiple lines of
example involves Starbucks, which Gulati considers a "relationship-centered
company rich with network resources." By outsourcing
a range of activities to key suppliers — Gulati terms
this "shrinking the core" — and partnering
with allies to provide a broader and higher value set of offerings
to customers, or "expanding the periphery," Starbucks
has maintained enviable growth and profits. The operating
principle here is "leverage." By building a network
of partnerships, Starbucks can leverage those ties to focus
on what it does best and leave the rest to its partners, creating
a much larger footprint of offerings and activities than it
could have by itself.
notes that because of increasing commoditization — or
homogenization of products and services across a wide swath
of the economy — managers must consider redefining the
very architecture of their firms to differentiate cost-effectively.
Two major tactics for accomplishing this are shrinking the
core and expanding the periphery, which are impossible to
carry out without network resources, he says.
more knowledge and insights managers can gain about the value
and function of their firms' network resources, the more they
will be able to realize the full potential of these assets.
One important goal of Managing Network Resources, then,
is to raise managers' awareness of these important but often
overlooked assets. A second is to establish a "conceptual
anchor" management scholars can use to develop a common
vocabulary and research base that will enable a more coherent
and applicable body of knowledge related to network resources.