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1 Social Networks The Basic Network Arguments U. Matzat Slide 2 Social Networks, TU/e - 0ZM05/0EM15/0A150 2 Network theory and background - Introduction: what are they, why important - Small world networks - Four basic network arguments - Kinds of network data (collection) - Business networks The setup in some more detail Slide 3 Social Networks, TU/e - 0ZM05/0EM15/0A150 3 Today Its not what you, but whom you know! Arguments of classical social network theories that make clear 1. why 2. which network characteristics 3. have what effect? Slide 4 Social Networks, TU/e - 0ZM05/0EM15/0A150 4 What you have learned already the last time.....what is a network? NetworkA set of ties among a set of actors (or nodes) Actorspersons, organizations, business-units, countries TiesAny instance of connection of interest between the actors Slide 5 Social Networks, TU/e - 0ZM05/0EM15/0A150 5 What you have learned already the last time..... Example: relations among organizations Firms as actors Buys from, sells to, outsources to Owns shares of, is part of Has a joint venture or alliance with, has sales agreements with Has had quarrels with Slide 6 Social Networks, TU/e - 0ZM05/0EM15/0A150 6 What you have learned already the last time..... Why networks & innovation? Classical innovation studies: characteristics of individuals or firms firm size However, innovation social in nature firms have relations with other firms networks important in explaining innovation and innovation changes networks as well Slide 7 Social Networks, TU/e - 0ZM05/0EM15/0A150 7 Today Arguments of classical social network theories that make clear 1. why 2. which network characteristics 3. have what effect? Slide 8 Social Networks, TU/e - 0ZM05/0EM15/0A150 8 Outlooking Example: Innovation Success Network closure high low trust, safeguard against opportunism Slide 9 Social Networks, TU/e - 0ZM05/0EM15/0A150 9 Outlooking Example: Innovation Success Network diversity (of a single company) high low brokerage benefits, diverse resources, innovative ideas Slide 10 Social Networks, TU/e - 0ZM05/0EM15/0A150 10 Outlooking Example: Innovation Success Contingency H: Alternative networks for different objectives: (1) Close-knit networks optimize benefits from collaboration (2) Diverse networks optimize competitive benefits Slide 11 Social Networks, TU/e - 0ZM05/0EM15/0A150 11 Mark Granovetter: The strength of weak ties James Coleman: Network closure as social capital Ron Burt: Structural holes J. Coleman/R. Burt: Diffusion of innovation: cohesion versus structural equivalence All good theories are portable. Take them to your problem. 4 Basic Social Network Arguments Slide 12 Social Networks, TU/e - 0ZM05/0EM15/0A150 12 Argument 1: Mark Granovetter The strength of weak ties Slide 13 Social Networks, TU/e - 0ZM05/0EM15/0A150 13 Mark Granovetter: The strength of weak ties Dept of Sociology, Harvard, The strength of weak ties (1973) strong vs. weak ties - frequency of interaction - emotional closeness - duration of contact interviewed 100 people who had changed jobs in the Boston area. More than half found job through personal contacts (at odds with standard economics). Slide 14 Social Networks, TU/e - 0ZM05/0EM15/0A150 14 M. Granovetter: The strength of weak ties (2) Many contacts rather indirect (a weak tie) surprising, strong ties usually more willing to help you out Granovetters conjecture: strong ties are more likely to contain information you already know According to Granovetter: you need a network that is low on transitivity Slide 15 Social Networks, TU/e - 0ZM05/0EM15/0A150 15 M. Granovetter: The strength of weak ties (3) weak ties: better access to information Coser (1975) bridging weak ties: connections to groups outside own clique (+ cognitive flexibility, cope with heterogeneity of ties) Empirical evidence: Granovetter (1974)28% found job through weak ties 17% found job through strong ties Langlois (1977): result depends on kind of job Blau: added arguments about high status people connecting to a more diverse set of people than low status people Slide 16 Social Networks, TU/e - 0ZM05/0EM15/0A150 16 Example: acquisition of diverse information through weak ties Assume manager C has to to eliminate some contacts and he has the opportunity to get rid of T or D Whom should he dump? X X Get rid of T and the tie to T! Slide 17 Social Networks, TU/e - 0ZM05/0EM15/0A150 17 Social Networking in plain English http://www.youtube.com/watch?v=6a_KF7TYKVc Slide 18 Social Networks, TU/e - 0ZM05/0EM15/0A150 18 Argument 2: James Coleman Social Capital and network closure Slide 19 Social Networks, TU/e - 0ZM05/0EM15/0A150 19 Social capital vs human capital Coleman: Social capital in the creation of human capital Dep. of Sociology, University of Chicago, died 1995 Slide 20 Social Networks, TU/e - 0ZM05/0EM15/0A150 20 Coleman: Social capital in the creation of human capital (2) some (vague) definitions SEVERAL DEFINITIONS OF SOCIAL CAPITAL: OF AN ACTOR (person/organisation) The resources you can mobilize through others The value of social networks that actors can draw on to solve common problems. The benefits of social capital flow from the trust, reciprocity, information, and cooperation associated with social networks. OF A SOCIETY The attitude, spirit and willingness of people to engage in collective, civic activities: the social infrastructure The collective value of all social networks Slide 21 Social Networks, TU/e - 0ZM05/0EM15/0A150 21 Coleman: Social capital in the creation of human capital (3) Human capital: the competencies and resources you have available yourself (e.g., intelligence, education, experience, ) Social capital: the resources you can mobilize through others + the way in which your connections to others facilitate achieving ones goals Note: Social capital need not be social. For instance: mafia family ties Slide 22 Social Networks, TU/e - 0ZM05/0EM15/0A150 22 Coleman: Social capital in the creation of human capital (4) One of Colemans social capital examples: The diamond merchants Compare Diego Gambettas 1996 The sicilian mafia ( social capital need not be good for society) Putnams Bowling alone: Social capital is declining in the US (and according to him, this has something do do with privatization and television) At the same time: new social networking sites for professionals (LinkedIn..) Slide 23 Social Networks, TU/e - 0ZM05/0EM15/0A150 23 Coleman: Social capital in the creation of human capital (5) Social capital (of a society or group) consists of: 1. Obligations and expectations Example: Kahn El Khalili market in Cairo 2. Channels of information 3. Norms about what (not) to do all kinds of collective action problems can then be solved(e.g., prevention of deviant behavior in small cities through gossiping curious neighbours) For 1. and 3. you need closure (dense networks between actors / connections between your ties) Slide 24 Social Networks, TU/e - 0ZM05/0EM15/0A150 24 Coleman: Social capital in the creation of human capital (6) Social capital (of parents) leads to human capital (of children) Empirical analysis To explain: school dropouts Network actors: pupils and their parents Network ties: having frequent contact with To do well in school, you need Financial capital (physical resources) Human capital (cognitive environment) AND: Social capital Pupils whose parents spend more time on them, drop out less often. in Catholic schools parents know each other from church related meetings some parents have stayed in the same neighborhood, parents know each other better Slide 25 Social Networks, TU/e - 0ZM05/0EM15/0A150 25 Example: Social capital for successful innovation through collaboration Two collaborating firms anticipate opportunistic behavior of the partner e.g.: pooling of resources for collaborating Standard solution: contracts Disadvantage: costly, sometimes difficult to manage (e.g., are the best employees given for participation in collaborative projects?) Alternative/additional solution: implementation of collaboration in an organisational environment with high network closure Slide 26 Social Networks, TU/e - 0ZM05/0EM15/0A150 26 Example: Social capital for successful innovation through collaboration (2) A B Market 1 Market 2 with high closure A* B Assume that manager of company B has to choose between collaboration in the two markets which one should he choose? Who would loose more by opportunistic behavior: partner A or partner A*? Slide 27 Social Networks, TU/e - 0ZM05/0EM15/0A150 27 Example: Social capital for successful innovation through collaboration (3) Opportunities for company B under high network closure: -damage of reputation of A* -collective action with other (third) parties if A* violates basic standards A* anticipates these dangers; therefore special interest in avoidance of anything that could appear as opportunism Network closure as safeguard against opportunism Network closure facilitates trust Slide 28 Social Networks, TU/e - 0ZM05/0EM15/0A150 28 Argument 3: Ronald Burt Structural holes Slide 29 Social Networks, TU/e - 0ZM05/0EM15/0A150 29 Ron Burt: Structural holes versus network closure as social capital Burts conclusion: structural holes beat network closure when it comes to predicting which actor performs best Coleman says closure is good Because information goes around fast and it facilitates trust [fear of a damaged reputation precludes opportunistic behavior] Burt subsequently compares people (managers) with dense networks with those with networks rich in structural holes University of Chicago, Graduate School of Business Slide 30 Social Networks, TU/e - 0ZM05/0EM15/0A150 30 Ron Burt: Structural holes versus network closure as social capital (2) Robert AB C 1 2 3 4 5 6 7 James Roberts network is rich in structural holes James' network has fewer structural holes 8 9 D Slide 31 Social Networks, TU/e - 0ZM05/0EM15/0A150 31 Ron Burt: Structural holes versus network closure as social capital (3) Robert will do better than James, because of: informational benefits tertius gaudens (entrepreneur) autonomy Slide 32 Social Networks, TU/e - 0ZM05/0EM15/0A150 32 Ron Burt: Structural holes versus network closure as social capital (4) It is not that clear (yet) what precisely constitutes a structural hole, but Burt does define two kinds of redundancy in a network: Cohesion: two of your contacts have a close connection Structurally equivalent contacts: contacts who link to the same third parties This more or less corresponds to the inverse of structural holes: If two of your contacts are connected, you do not connect a structural hole If two of your contacts lead to the same other, then to get to that other, you actually would have needed only one of those contacts Slide 33 Social Networks, TU/e - 0ZM05/0EM15/0A150 33 Structural holes vs network closure Empirical evidence on Dependent variable= early promotion = large bonus = outstanding evaluation Most or all of the evidence seems to favor Burts structural holes Burt on Coleman: Colemans dependent variable = dropping out of school parents in a close network smaller probability of school dropout of children but: parents may tend to earn less And about network closure: Best team performance when groups are cohesive but team members have diverse external contacts. Slide 34 Social Networks, TU/e - 0ZM05/0EM15/0A150 34 Structural holes vs network closure (2) Coleman: closure can overcome trust and cooperation problems (empirical evidence from data on school dropouts) Burt: Structural holes give entrepreneurial possibilities (empirical evidence from data on US managers) Perhaps this is not so much a controversy after all ? There is a problem though, when it comes to innovation. For successful innovation one needs both to overcome trust and cooperation problems and entrepreneurial possibilities. Slide 35 Social Networks, TU/e - 0ZM05/0EM15/0A150 35 Argument 4: James Coleman vs Ronald Burt The diffusion of innovation: Cohesion vs. structural equivalence Slide 36 Social Networks, TU/e - 0ZM05/0EM15/0A150 36 J. Coleman/R. Burt: Diffusion of Innovations What happens with innovations? a) How and when do they spread (adoption)? b) How and when are they used? 2 theories (network theories of social influence) A: Coleman: Diffusion by cohesion B: Burt: Diffusion by structural equivalence Both theories predict which individuals of a social system are similar with regard to behavior, evaluation of some phenomena, and attitudes. Both theories make predictions about who adopts an innovation. Slide 37 Social Networks, TU/e - 0ZM05/0EM15/0A150 37 Diffusion via social networks effects of individual differences in receptivity (k) dy/dt = k*(1-y)*t effects of social contagion (influences via social networks): The Snowball Effect dy/dt = k*y*(1-y)*t Slide 38 Social Networks, TU/e - 0ZM05/0EM15/0A150 38 Which situations? social influences of cost-benefit evaluation do not always take place important for social influences: uncertainty of results of actions (often when actors are confronted with innovations) no scarcity of information, sometimes even information overload problem: finding trustworthy information individuals rely on others both models (cohesion, structural equivalence) argue that the decisions of actors are influenced by "other actors" in the social network they make different predictions about who these "others" are Slide 39 Social Networks, TU/e - 0ZM05/0EM15/0A150 39 J. Coleman: Diffusion of Innovation by cohesion two actors share same understanding of costs and benefits (shared attitudes) of an innovation when they socialize with each other shared understanding of costs and benefits (shared attitudes) leads to similar behavior if alter adopts the innovation then ego will follow soon who are the relevant alters? the less indirect and the stronger the relationship between ego and alter the more likely that social influences take place the stronger the relationship with alter the more likely that the adoption of alter will trigger the adoption of ego Slide 40 Social Networks, TU/e - 0ZM05/0EM15/0A150 40 J. Coleman: Diffusion of Innovation by cohesion (2) Robert James AB C 1 2 3 4 5 6 7 Peter Tom Frank assume Peter adopts the innovation who would be the next to adopt? who would follow thereafter who would never adopt? Slide 41 Social Networks, TU/e - 0ZM05/0EM15/0A150 41 R. Burt: Diffusion by structural equivalence 3 classes of equivalent actors: class A: 1 & 2 class B: 3 & 4 class C: 5 What is structural equivalence? - An example 1 2 3 4 5 Slide 42 Social Networks, TU/e - 0ZM05/0EM15/0A150 42 R. Burt: Diffusion by structural equivalence (2) two actors in structurally equivalent positions act in the same way because their positions imply that they act under the same structural conditions individuals take others as a frame of reference for judging whether their decisions are correct theory offers a different answer to the question "Who are the relevant others that are taken as a frame of reference?" structural equivalence emphasizes the competitive character of many situations that lead to social comparisons Slide 43 Social Networks, TU/e - 0ZM05/0EM15/0A150 43 R. Burt: Diffusion by structural equivalence (3) the more similar the relationships of ego and alter are to other (third) individuals the more likely that ego takes alter as a frame of reference for social comparisons hypothesis: the higher the degree of structural equivalence between ego and alter the more likely that alter's adoption will trigger ego's adoption of an innovation Slide 44 Social Networks, TU/e - 0ZM05/0EM15/0A150 44 Structural Equivalence versus Cohesion: 3 typical Cases A: Identical predictions of both models: social influence between ego & alter ego Person 1person 2 alter B: cohesion: social influence between ego & alter structural equivalence: no influence ego Person 3Person 4 alter C: structural equivalence: social influence between ego & alter cohesion: no influence ego Person 3Person 4 alter Slide 45 Social Networks, TU/e - 0ZM05/0EM15/0A150 45 Today Its not what you, but whom you know! Arguments of classical social network theories that make clear 1. why 2. which network characteristics 3. have what effect? Slide 46 Social Networks, TU/e - 0ZM05/0EM15/0A150 46 To Do: Read the following articles Granovetter, M. S., "The Strength of Weak Ties," American Journal of Sociology 78 (6): 1360-1380 (1973).The Strength of Weak Ties Coleman, J.S. "Social Capital in the creation of human capital" American Journal of Sociology 94: 95-120 (1988).Social Capital in the creation of human capital Burt, R. (2001) "Structural Holes versus Network Closure as Social Capital", in: Social Capital. Theory and Research, ed. by Lin, N., Cook, K. & Burt, R.Structural Holes versus Network Closure as Social Capital Read these papers with in the back of your head the idea that you will have to be able to apply similar network arguments to problems of alliance management and innovation science.