#network structures

Spillover

Is it true that to obtain brokerage benefits, one should build connections with brokers? Many business practices, like mentoring, assume this spillover benefit.

There's a strong correlation between rewards and indirect network constraint (ie, your connections are brokers). 

However a lot of that correlation may be explained by the fact that those having low indirect network constraints also have low direct network constraints. The partial or pure effect of indirect network constraint may be negligible.

Effect of indirect network: Global process - High; Local process - Low; Personal process - Negligible

Stimulation

Agency Question: How much do individuals matter relative to their social structure. 

Network advantage is not a result of having the right access. Individual's reaction to network is the critical performance variable.

Bent Preferences are evaluations shaped by social comparison. What will I get in comparison to what I already have and what my peers have?

Network fear: The feeling of loss as peers overtake you are more severe than the feeling of gain in overtaking peers. However, the feeling of loss fades as peers continue to do well (because they are no longer your peers?).

In business, insider-outsider distinctions manifest in casual conversation as gossip-enforced stereotypes about "those people."

Outsiders should consider a third kind of network (other than Broker and Closed) -- Partner (Hierarchy) network. 

In a partner network, a strategic partner lends you access to others/nodes. She is your sponsor, and has a frame-of-reference effect on others.

For insiders, correlations of Rewards and: Network Size (+ve), Network Density (-ve), Network Hierarchy (-ve). 

For outsiders, correlations of Rewards and: Network Size (insignificant), Network Density (insignificant), Network Hierarchy (+ve).

LinkedIn's InMaps is a great tool to visualize your own network. Although when lines appear if one can reject the null hypothesis of “no connection” between two people, you end up getting a lot more connections than reality.

And here is my Facebook Network which is very concentrated considering I gave-in to the privacy hell that is Facebook only when I joined Booth.

Balancing Brokerage and Closure - Where

In stable networks, the primary focus of balancing is on "Where"

Performance is highest for internal closure (cohesive group) and external brokerage (diverse external contacts). 

This makes "Business Networks" valuable (example, Chicago's Commercial Club).

Balancing Brokerage and Closure - When

In dynamic networks, the primary focus of balancing is on "When"

The focus on brokerage and closure can be alternated through (a) oscillation or (b) learning-curve cascade (Focus on closure mostly with dramatic shift to brokerage for short durations in between)

Example: University of Chicago's economists. In-depth research (Closure), Workshops with experts from other areas (Brokerage). The combination makes it a "Nobel Prize Factory."

Transition from Closure to Brokerage

The power of casual conversation

Confirmation bias: People are likely to believe stories that are consistent with their preconceptions.

Socialization: Like grooming among primates, gossip among humans creates and maintains relationships. The information passed is just an unintentional by-product.

Identity: Insiders define and strengthen who they are (the insiders) by negatively stereotyping others who are on the boundary of the group.

Closure (For Bottom-line growth)

Trust can be built through good behavior (takes a long time) or through network closure (fast and efficient). Network closure creates "bandwidth" so that bad behavior information travels rapidly & accurately and is quickly punished.

Team Macintosh: is a great example of using closure to create a cohesive, strong-culture group built on reputation, trust and the "Us vs Them (Other Apple employees)" pride.

Learning Curve: The wide bandwidth provided by closure (which strengthens with time) enhances communication, which creates reputation and trust, aligns people, and pushes them for extraordinary efforts for "the team." Result is higher productivity and lower costs, which lead to bottom-line growth.

Reputation: Your reputation has to persist to have productive effects. It persists only if people gossip about you. So, reputation management involves three people: You, the gossiper, and gossipees :-)

Closure: The potential issues

Group-think. Extreme opinions (positive or negative) are amplified by gossip in closed networks. Gossip is guided by empathy between gossipers, not the facts.

Brokerage (For Top-line growth)

Brokerage explains a significant part of performance (compensation, promotion, success) differences between people. Brokers usually perform better because Value(Group1+Group2+Group3) > Value(Group1) + Value(Group2) + Value(Group3). Brokers are better positioned to extract more value from multiple groups through timing, arbitrage, greater chance of a productive accident, etc., which leads to top-line growth through new products, services, processes, clients, etc.

Note: Genius is less about intellectual horsepower and more about access to variation.

Brokers In Different Industries (image): Performance of brokers in various industries (Yellow squares are the official leaders in the company).

All brokers are rewarded well (Ex, A sales organization).

Official leaders (who are also brokers, which may be a result of their positions) are rewarded, but other brokers are not (Ex, An old manufacturing firm).

Official leaders are rewarded and they are not the brokers (Ex, A family-owned firm).

Contact Redundancy

If your contacts are connected to each other directly or if they get their information from the same source, then they are redundant contacts.

Brokerage: Potential Issues