Unit 4:Exploiting Networks AU Management
Chapter 4
Exploiting Networks
Innovation Networks
A network can be defined as “a complex, interconnected group or system,” and networking
involves using that arrangement to accomplish particular tasks. As we've suggested innovation has
always been a multiplayer game, and we can see a growing number of ways in which such
networking takes place. The concept of innovation networks has become popular in recent years, as
it appears to offer many of the benefits of internal development, but with few of the drawbacks of
collaboration.
Why Networks?
Networks are appropriate where the benefits of cospecialization, sharing of joint infrastructure, and
standards and other network externalities outweigh the costs of network governance and
maintenance. Where there are high transaction costs involved in purchasing technology, a network
approach may be more appropriate than a market model, and where uncertainty exists a network
may be superior to full integration or acquisition. Historically, networks have often evolved from
long-standing business relationships. Any firm will have a group of partners that it does regular
business with – universities, suppliers, distributors, customers, and competitors. Over time, mutual
knowledge and social bonds develop through repeated dealings, increasing trust, and reducing
transaction costs. Therefore, a firm is more likely to buy or sell technology from members of its
network.
There are four major arguments pushing for greater levels of networking in innovation:
Collective Efficiency: in a complex environment requiring a high variety of responses, it is hard
for all but the largest firm to hold these competencies in-house. Networking offers a way of getting
access to different resources through a shared exchange process – the kind of theme underlying the
cluster model, which has proved so successful for small firms in Italy, Spain, and many other
countries.
Collective Learning: networking offers not only the opportunity to share scarce or expensive
resources. It can also facilitate a shared learning process in which partners exchange experiences,
challenge models and practices, bring new insights and ideas, and support shared experimentation.
“Learning networks” have proved successful vehicles in industrial development in a variety of cases
see later in the chapter for some examples.
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Collective Risk-Taking: building on the idea of collective activity networking also permits higher
levels of risk to be considered than any single participant might be prepared to undertake. This is
the rationale behind many precompetitive consortia around high-risk R&D.
Intersection of different knowledge sets: networking also allows for different relationships to be
built across knowledge frontiers and opens up the participating organization to new stimuli and
experiences.
No Man Is an Island
Eating out in the days of living in caves was not quite the simple matter it has become today. For a
start there was the minor difficulty of finding and gathering the roots and berries – or, being more
adventurous, hunting and (hopefully) catching your mammoth for the stew pot. And cold meat isn’t
necessarily an appetizing or digestible dish so cooking it helps; but for that you need fire and for
that you need wood, not to mention cooking pots and utensils. If any single individual tried to
accomplish all of these tasks alone they would quickly die of exhaustion, never mind starvation!
We could elaborate but the point is clear: like almost all human activity, it is dependent on others.
But it’s not simply about spreading the workload. For most of our contemporary activities the key is
shared creativity: solving problems together and exploiting the fact that different people have
different skills and experiences which they can bring to the party.
In reality, taking any good idea forward relies on all sorts of inputs from different people and
perspectives. For example, the technological breakthrough which makes a better mousetrap is only
going to mean something if people can be made aware of it and persuaded that this is something
they cannot live without – and this requires all kinds of inputs from the marketing skill set. Making
it happen is going to need skills in manufacturing, in procurement of the bits and pieces to make it,
in controlling the quality of the fi nal product. None of this will happen without some funding so
other skills in getting access to finance – and the understanding of how to spend the money wisely –
become important. And coordinating the diverse inputs needed to turn the mousetrap into a
successful reality rather than a gleam in the eye will require project management skills, balancing
resources against the clock and facilitating a team of people to find and solve the thousand and one
little problems which crop up as you make the journey.
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Innovation is not a solo act but a multiplayer game. Whether it is the entrepreneur who
spots an opportunity or an established organization trying to renew its offerings or sharpen up
its processes, making innovation happen depends on working with many different players.
Increasingly it’s also about links between organizations, developing and making use of increasingly
wide networks. Smart firms and solo entrepreneurs have always recognized the importance of
linkages and connections – getting close to customers to understand their needs, working with
suppliers to deliver innovative solutions, linking up with collaborators, research centres, even
competitors to build and operate innovation systems. But in an era of global operations and high-
speed technological infrastructures populated by people with highly mobile skills, building and
managing networks and connections becomes the key requirement for innovation. It’s not about
knowledge creation so much as knowledge flows.
Networking is important right across the innovation process – from finding opportunities, through
pulling together the resources to develop the venture, to making it happen and diffusing the idea –
and capturing value at the end of the process. The idea of a solo entrepreneur able to carry all of this
out on his/her own is a myth; putting new ventures together depends on securing all kinds of input
from many different people and managing this team as a network. the emerging themes around the
question of innovation as a network-based multiplayer game. And of course, in the 21st century this
game is being played out on a vast global stage but with an underlying networking technology – the
Internet – which collapses distances, places geographically far-fl ung locations right alongside each
other in time and enables increasingly exciting collaboration possibilities. However, just because
we have the technology to make and live in a global village doesn’t necessarily mean we’ll be able
to do so: much of the challenge, as we’ll see, lies in organizing and managing networks so that they
perform. Rather than simply being the coming together of different people and organizations,
successful networks have what are called emergent properties – the whole is greater than the sum
of the parts.
The Spaghetti Model of Innovation
innovation is a core process with a defi ned structure and a number of infl uences. That’s helpful in
terms of simplifying the picture into some clear stages and recognizing the key levers we may have
to work with if we are going to manage the process successfully. But like any simplifi cation, the
model isn’t quite as complex as the reality. The ways knowledge actually flows around an
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innovation project are complex and interactive, woven together in a kind of social spaghetti where
different people talk to each other in different ways, more or less frequently, and about different
things. This complex interaction is all about knowledge and the ways it flows and is combined and
deployed to make innovation happen. Whether it’s our entrepreneur building a network to help him
get his mousetrap to market or a company like Apple bringing out the latest
generation iPhone, the process will involve building and running knowledge networks. And
as the innovation becomes more complex so the networks have to involve more and different
players, many of whom may lie outside the fi rm. By the time we get to big complex projects
like building a new aeroplane or hospital facility – the number of players and the management
challenges the networks pose get pretty large. There is also the complication that increasingly
the networks we have to learn to deal with are becoming more virtual, a rich and global set
of human resources distributed and connected by the enabling technologies of the Internet,
broadband and mobile communications and shared computer networks.
Innovation and entrepreneurship are evolving – from a world of centuries ago which
saw the sole inventor/entrepreneur as the key player through one in the last century in which major
corporations came to dominate the landscape to today’s picture, which is becoming
massively networked, globally distributed and connected via communication and information-
processing technologies which enable a very different approach.
Types of Innovation Networks
If networking is becoming the dominant mode for innovation and entrepreneurship then it will be
useful to begin with a clear understanding of our terms. A network can be defi ned as a complex,
interconnected group or system and networking involves using that arrangement to accomplish
particular tasks. As we’ve suggested, innovation has always been a multiplayer game and we can
see a growing number of ways in which such networking takes place. At its simplest networking
happens in an informal way when people get together and share ideas as a by-product of their social
and work interactions. But we’ll concentrate our attention on more formal networks which are
deliberately set up to help make innovation happen, whether it is creating a new product or
service or learning to apply some new process thinking more effectively within organizations.
Innovation networks are more than just ways of assembling and deploying knowledge in a complex
world. They can also have emergent properties. Being in an effective innovation network can
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deliver a wide range of benefits beyond the collective knowledge efficiency mentioned above.
These include getting access to different and complementary knowledge sets,
reducing risks by sharing them, accessing new markets and technologies and otherwise pooling
complementary skills and assets. Without such networks, it would be nearly impossible
for the lone inventor to bring his or her idea successfully to market. And it’s one of the main
reasons why established businesses are increasingly turning to cooperation and alliances: to
extend their access to these key innovation resources.
Entrepreneurs’ Networks
The idea of the lone inventor pioneering his or her way through to market success is something
of a myth, not least because of the huge efforts and different resources needed to make innovation
happen. While individual ideas, energy and passion are key requirements, most successful
entrepreneurs recognize the need to network extensively and to collect the resources they need via
complex webs of relationships. They are essentially highly skilled at networking, both in building
and in maintaining those networks to help create a sustainable business model.
Networking is not just a way of providing leverage for entrepreneurs seeking to access resources. It
also provides valuable support in other ways, from acting as a sounding board through to providing
valuable guidance and mentoring. An increasing number of networking clubs, often linked to
entrepreneur incubators, are emerging to tap into this need for support networks.
Network Type Characteristics
Entrepreneur Bringing different complementary resources together to help take an
-based opportunity forward. Often a combination of formal and informal depends a
lot on the entrepreneur's energy and enthusiasm in getting people interested
to join – and stay in – the network. Networks of this kind provide leverage
for obtaining key resources, but they can also provide support and
mentoring, for example, in entrepreneur clubs.
Internal project Formal and informal networks of knowledge and key skills within
teams organizations that can be brought together to help enable some opportunity
to be taken forward, essentially like entrepreneur networks but on the inside
of established organizations. The networks may run into difficulties because
of having to cross internal organizational boundaries.
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Internal entrep Aimed at tapping into employee ideas, this model has accelerated with the
reneur networks use of online technologies to enable innovation contests and communities.
Typically mobilizes on a temporary basis employees into internal ventures –
building networks. Not a new idea, comes out of two traditions – employee
involvement and “intrapreneurship” but social and communications
technology has amplified the richness/reach.
Communities These are networks that can involve players inside and across different
of practice organizations – what binds them together is a shared concern with a
particular aspect or area of knowledge. They have always been important,
but with the rise of the Internet, there has been an explosion of online
communities sharing ideas and accelerating innovation (e.g., Linux, Mozilla,
and Apache). “Offline” communities are also important (e.g., the emergence
of “fab-labs” and “tech-shops” as places where networking around the new
ideas of 3D printing and the “maker movement” is beginning to happen).
Spatial clusters Networks that form because of the players being close to each other (e.g., in
the same geographical region). Silicon Valley is a good example of a cluster
that thrives on proximity – knowledge flows among and across the members
of the network but is hugely helped by the geographical closeness and the
ability of key players to meet and talk.
Sectoral networks Networks that bring different players together because they share a common
sector and often have the purpose of shared innovation to preserve
competitiveness. Often organized by sector or business associations on
behalf of their members where there is shared concern to adopt and develop
innovative good practice across a sector or product market grouping.
New product or Sharing knowledge and perspectives to create and market a new product or
Process develop process concept(e.g., the Symbian consortium (Sony, Nokia, Ericsson,
pment consortium Motorola, and others) worked toward developing a new operating system for
mobile phones and PDAs).
New technology Sharing and learning around newly emerging technologies (e.g., the
Development pioneering semiconductor research programs in the United States and Japan,
consortium or the BLADE server consortium organized by IBM but involving major
players in devising new server architectures).
Emerging Exploring and establishing standards around innovative technologies (e.g.,
standards the Motion Picture Experts Group (MPEG) working on audio and video
compression standards).
Supply Developing and sharing innovative good practice and possibly shared
Chain learning product development across a value chain (e.g., the SCRIA initiative in UK
aerospace).
Learning networks Groups of individuals and organizations who converge to learn about new
approaches and leverage their shared learning experiences.
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Recombinant Cross-sectoral groupings that allow for networking across boundaries and the
innovation transfer of ideas.
networks
Managed open Building on the core idea that “not all the smart people work for us,”
innovation organizations are increasingly looking to build external networks in a
networks planned and systematic fashion. Underlying purpose is to amplify their
access to ideas and resources. It may involve joining established networks or
it may require constructing new ones. In this space, there is a growing role
for “brokerage” mechanisms (individuals, software, etc.), which can help
make the connections and support the network building process
User networks Extending the above idea these networks aim to connect to users as a source
of innovation input rather than simply as passive markets. Often mobilizes a
broadcast approach, opening up to large open networks via crowdsourcing.
Problem is converting front-end interest into meaningful long-term
cocreation activity.
Innovation markets An extreme version of the open and user networks approach is to broadcast
the innovation needs and connect to potential solutions in a marketplace. The
Internet has enabled the emergence of such eBay-type models for ideas,
allowing connections across a wide area in response to broadcast challenges.
This model can often be the precursor to establishing a more formal
managed network between key players found on the open market.
Crowd funding and Another extension of the above ideas is to mobilize the crowd not as sources
new resource of ideas but of resources and judgement (e.g., websites like Kickstarter allow
approaches comment and discussion around new ideas as well as proving a platform for
assembling the resources, and often mobilizing the early market, around
innovation).
Networks as Purposeful Constructions
If networking is becoming the dominant mode for managing knowledge flows in innovation then it
is worth looking at how we can construct them. It requires finding relevant partners, forming a
network around them and fi nally operating that network and fi nding, forming and performing is
not always easy. We have enough diffi culties trying to manage within the boundaries of a typical
business. So, the challenge of innovation networks takes us well beyond this.
The challenges include:
→ how to manage something we don’t own or control
→ how to see system-level effects not narrow self-interests
→ how to build trust and shared risk taking without tying the process up in contractual red
tape
→ how to avoid ‘free riders’ and information ‘spillovers’.
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It’s a new game and one in which a new set of management skills becomes important. For
example, there is a big difference between the demands for an innovation network working
at the frontier where issues of intellectual property management and risk are critical and one
where there is an established innovation agenda. But the challenges are about building trust
and sharing key information – as may be the case in using supply chains to enhance product
and process innovation.
Building networks involves three steps: finding, forming and performing. The ‘finding’ stage is
essentially about setting up the network. Key issues here are around providing the momentum for
bringing the network together and clearly defining its purpose. It may be crisis triggered, for
example perception of the urgent need to catch up via adoption of innovation. Equally, it may be
driven by a shared perception of opportunity, the potential to enter new markets or exploit new
technologies. Key roles here will often be played by third parties, that is network brokers,
gatekeepers, policy agents and facilitators. ‘Forming’ a network involves building a kind of
organization with some structure to enable its operation. Key issues here are about trying to
establish some core operating processes:
→ Network boundary management. How the membership of the network is defined and
maintained.
→ Decision making: How (where, when, who) decisions get taken at the network level.
→ Confl ict resolution: How confl icts are resolved effectively.
→ Information processing: How information fl ows among members and is managed.
→ Knowledge management: How knowledge is created, captured, shared and used across the
network.
→ Motivation: How members are motivated to join/remain within the network.
→ Risk/benefit sharing: How the risks and rewards are allocated across members of the
network.
→ Coordination: How the operations of the network are integrated and coordinated.
Finally, the ‘performing’ stage is about operating the network and allowing it to evolve.
Networks need not last for ever. Sometimes they are set up to achieve a highly specific purpose
(e.g. development of a new product concept), and once this has been done the network can be
disbanded. In other instances, there is a case for sustaining the networking activities for as long
as members see benefi ts. This may require periodic review and ‘re-targeting’ to keep the
motivation high.
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