In recent years, small- and medium-sized manufacturing enterprises (SMEs) have joined or formed cooperative interorganizational relationships, such as networks, to access resources for organizational growth without the constraints of vertical integration. Recent publications describe how "networks help small companies think and act big" (Selz, 1992: B2). By working closely with former competitors and suppliers, SMEs can gain knowledge, resources, and customers that might otherwise be available only to much larger firms. Modeled after European network successes, U.S. networks have focused on increasing member competitiveness through joint activities such as design, production and marketing. Since SMEs in the U.S. have not traditionally formed ongoing inter-firm relationships, especially with competitors, the recent SME network phenomenon has spawned considerable interest in the U.S. among researchers and practitioners alike. However, much of this work has served only to document the phenomenon, while describing some basic network characteristics and expected outcomes.
The study reported here is an attempt to fill this knowledge gap by examining some issues that appear to be key to SME network success. Specifically, we examine the extent to which SME network firms actually utilize their network to exchange resources and the extent to which the network serves as a learning mechanism, enabling firms to enhance their awareness of competition as well as their own competitiveness. We examine these issues through the comparative study of two SME networks in the secondary wood processing industry. The concurrent appearance of SME networks across the U.S. provides a unique opportunity to compare exchange patterns across networks at similar points in their development and to draw inferences about what firms learn from their network participation.
NETWORK RESOURCE EXCHANGE AND LEARNING
Building on organization scholars interest in inter-firm cooperative strategies, entrepreneurship scholars have increasingly focused on external resource exchange among small or entrepreneurial firms (see discussion by Day, 1992). However, efforts to examine specific resource exchanges in purposefully created networks have been limited. In particular, scholars have yet to compare exchanges in different SME networks and to compare these network resource exchanges with non-network market arrangements.
Scholars have also suggested that inter-firm relationships, such as networks and joint ventures, result in organizational learning, facilitating adoption of new processes and procedures (Hamel, 1991; Lyles, 1988). In a similar manner, SME network participation can allow members to learn more about themselves and each other, thereby enhancing competitiveness in dealing with firms outside the network.
Guided by relevant gaps in the literature and our interest in SME network resource exchanges, our exploratory study addressed two primary research questions. First, what are the types and patterns of resource exchanges among "designated cooperators" of small- and medium-sized network member firms. Second, how does network participation among these normally independent and competitive SMEs influence their awareness of themselves and other organizations? Consistent with exploratory research, our project retained "theoretical flexibility" (Eisenhardt, 1989: 533) by not adopting specific theoretical perspectives in advance.
A two-stage exploratory research design was used, incorporating multiple data sources such as in-depth interviews, surveys and archival documents (Eisenhardt, 1989; Jick, 1979). Data collection occurred during 1994 and 1995.
Network and Market Sampling
Two manufacturing networks in the secondary wood products industry were selected from a national directory (Lichtenstein, 1992) after preliminary interviews with network consultants, administrators, and member firms. Secondary wood products represented one of three primary industries in the national network directory and comprised ten of the nearly 30 networks profiled in the directory. Both networks selected included an administrative or broker role (Aldrich & Zimmer, 1986) that coordinated member-firm activities and interactions. We obtained commitment to participate in our study from the executive directors of both network administrative organizations, who then provided us with network membership directories. Total members listed in each network directory were 69 and 86 organizations respectively. Table 1 describes the two networks. Based upon later analyses of network firm characteristics, we adopted naming conventions of H-net and V-net for network 1 and 2, respectively. We discuss these naming conventions and firm characteristics below.
Preliminary interviews with the network administrators and with sample firms in both networks indicated that not all organizations listed in the membership directories were equally active in the networks. Our research questions focused on network exchanges best addressed by active participants, thus suggesting we use a sampling technique that would more likely provide a sample of active firms than random or snowball procedures (Holsti, 1968; Scott, 1991). Consequently, within each network, a reputational sample (Burt & Minor, 1983) of member companies was studied based on their nomination by their respective network administrators as being active network participants. The administrators were the appropriate key respondents to nominate a sample of network firms, given their own participation in network formation and evolution. After extensive review of the membership lists with one of the researchers, the administrators nominated 22 firms and 23 firms, respectively, for the study with a conscious intent for variation among firms.
The sample of firms from the first network represented all five major product lines in the complete network membership directory including furniture, millwork and cabinetry. Thirteen (60 percent) of the 22 firms were small retail furniture manufacturers and the mean radius from the network broker organization for all firms was 75 miles. Firm size ranged from one to 120 employees and from $60,000 to $2,600,000 in gross sales. Based on firm size, product line and distance from the network broker organization, sample firms appeared to be representative of the complete network. Since the firms were relatively homogenous regarding product line and could be considered as potential competitors, we characterized the network as being horizontally linked and adopted the naming convention of H-net.
The sample of firms from the second network represented ten of the 11 major product lines in the complete membership directory. Some of these product lines were similar to those of H-net (e.g., millwork, furniture) while others were different (e.g., marine products, garden furnishings, musical instruments). The firms were located within a mean radius of 44 miles from the network broker organization and ranged in size from one to 125 employees and from $10,000 to $20,000,000 in gross sales. Thus, the second network included a more heterogeneous group of firms representing multiple product lines and sizes. In addition, a key feature of this network was that firms represented multiple points along the supplier-buyer value chain. Because the second network had many vertical linkages, we adopted the naming convention of V-net.
To examine differences between network and non-network firms regarding resource exchanges, we also collected data on a sample of firms that were not part of any formal network. Specifically, we randomly selected ten market firms, five from each state in which the two networks operated, from current state directories of secondary wood manufacturers. These firms operated in the secondary wood products industry, met similar size requirements as the network firms, were located in the same states as the two networks, and were located within a similar distance to the network broker organization as network members.
Data Collection and Analysis
In stage one, exploratory one- to two-hour interviews were conducted with the executive directors of the two networks' administrative organizations and with CEO/managers of five member firms from each network sample. The purpose of the open-question interviews was to uncover patterns of resource exchanges among network firms that could be further investigated in a second stage survey. For instance, we asked the CEO/managers of network sample firms to indicate the types of interactions they had with one another, both prior to and after network participation. Through systematic coding and analysis of textual data (Miles & Huberman, 1994) regarding the content of inter-firm exchanges we identified response patterns and thematic commonalties which we compared with network exchange literature (e.g., Knoke & Kuklinski, 1982). Using this constant comparison approach (Glaser & Strauss, 1967), we continued our pattern search process until few new insights occurred from the network interview data.
We developed the market questions after completing the network pattern search and codification so that market questions could address inter-firm exchange issues uncovered during network interviews. For example, we identified one network response theme, differing types of inter-firm exchanges (e.g., information, business, competency and friendship), and consequently developed open-format questions to explore types of inter-firm exchanges with market respondents. Market interviews lasted up to one hour.
In stage two, we developed and administered a survey to the full sample of firms in each network (including the ten stage-one firms) based upon topics uncovered during the exploratory interviews. Survey pre-testing had found that accuracy and response rates would be impaired if respondents were required to complete time-intensive sociometric survey items on the complete network membership lists (e.g., 69 and 86 organizations). Consequently, we included only the sample firms on the second stage survey. Response rates were 86% for H-net (19 of 22 nominated firms responded) and 100% for V-net ( 23 firms). Table 1 presents descriptive characteristics of the respondent firms.
Survey items provided descriptive organization data, sociometric (resource exchange) data and rated response data. For the sociometric data, we utilized a two-step analysis. First, we confirmed overall resource exchanges (i.e., "Have you interacted with this firm in the past year?") and calculated overall response reciprocation rates using Ucinet network analysis software (Borgatti, Everett & Freeman, 1992). Reciprocation rates indicated a high degree of agreement regarding network firms mutual interactions in the past year (.90 and .92 for H-net and V-net, respectively). Only confirmed interactions were included in the final analysis of exchange data (Burkhardt, 1994). In the second step of analysis of the sociometric data, we employed an exploratory data analysis approach using Ucinet and KrackPlot, a social network graphing software (Krackhardt, Lundberg, & ORourke, 1993) that allowed computation of network densities and changes in perceptions of competition before and after network membership. Densities describe linkages and perceived relationships as a proportion of the total possible linkages/relationships among companies, ranging from 0 to 1 (Scott, 1991).
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