Business Networks

Conceptual Overview

The concept of BN is similar to the concepts of culture, organization, and relationship, which are overloaded with connotations of personal experience and academic discourse, and are open to limitless interpretations. One of the earliest formal definitions of networks refers to a specific type of relation: linking a defined set of persons, objects, or events. The emergent structure is defined as a configuration of present [Page 132]and absent ties between the actors. While present ties are the existing relationships and exchanges between members, absent ties in BN could be potential relationships, or needs for resources and information.

Wellman and Berkowitz offer another definition of networks as social structures: They are seen as ordered arrangements of relationships that are contingent upon exchanges among members of social systems. This definition could easily be applied to BN as socioeconomic structures of transacting economic agents. Exchanges in BN could be interpreted both as input-output relations between actors, and as transformation of resources, information, symbols, meaning, and value (including economic value).

BN are also seen as sets of connected exchange relationships between actors controlling business activities as resources flow between different organizational units based on intraorganizational and interorganizational linkages. Alternatively, these relationships can be conceptualized as an integrated and coordinated set of ongoing economic and noneconomic relationships embedded within and outside business firms. BN are defined also as a set of three or more interconnected actors, or as two or more connected dyadic business relationships. A strategic BN is defined as a system of small or mid-size firms and strategic business units, functional and regional units, suppliers, controlled firms, and other partners that are linked together in order to satisfy key stakeholders. BNs thus optimize specific core competencies and improve critical business processes.

The common theme between all distinctive conceptualizations of the term BN is that they all refer to a structural formation that facilitates interactions and exchanges between actors. BNs are structures of relationships between heterogeneous actors interacting for a business purpose. The heterogeneity of actors refers to business organizations, individuals within them, managers that make decisions and choices on behalf of an organization, various institutions that govern relationships, technologies, industry standards, and other social artifacts that participate in the framing and the development of business relationships.

Traditionally, the literature supports the view that networks provide a special governance structure, where trust conveys more commitment than hierarchy and the loose coupling provides variation close to that of a market. The main benefits from the network form of organization are superior learning, enhanced legitimation and status, and a range of economic benefits.

Critical Commentary and Future Directions

The three dominant approaches to the analysis of BN are the structural/positional approach, the relational approach, and the cultural approach (see Figure 1). The theoretical underpinnings of these approaches come from the work on social network analysis (i.e., structural/positional approach, with contributions from Freeman; Nohria and Eccles; and Wasserman and Faust); the research on industrial markets and supply-chain management (i.e., relational approach, with contributions from Hakansson and Johanson, and Johanson and Mattsson); the developments in the field of knowledge and technology networks and actornetwork theory (i.e., cultural approach, developed by Latour, Callon, and Law); and a range of economic and strategic management theories that have discussed the behavior of interlinked economic agents.

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