Frontiers of Entrepreneurship Research
1997 Edition

SUMMARIES

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STRATEGIC NETWORK STRUCTURES AND OUTCOMES:  LESSONS LEARNED AMONG U.S. ENTREPRENEURS*  

1Sherrie E. Human
2Keith G. Provan

1Xavier University
2University of Arizona

Telephones: 1513-745-3160, 2520-621-1950
Faxes: 1513-745-4383, 2520-621-4171

Principal Topics

In recent years, increasing numbers of U.S. entrepreneurs have started to use non-traditional growth and survival strategies based on cooperative links with other firms, such as networks and alliances.  As popular as networks have become, U.S. researchers and entrepreneurs still know little about what firms really gain from network participation, especially over the long term.  Network company CEOs and network organizers from a previous research project were revisited to understand how entrepreneur networks grow over time, what benefits and costs are likely to accrue to member firms after several years of involvement, and what lessons have been learned that could benefit entrepreneurs considering joining or forming a network.

Method

As part of a longitudinal study of two U.S. manufacturing networks, we used the same sample as in a 1994-95 study:  two networks in the secondary wood products industry, which we refer to as alpha-net and beta-net.  Our findings are based on interviews with the CEOs of 25 network member firms (14 in alpha-net and 11 in beta-net), and the executive directors of the two networks' administrative organizations who were charged with facilitating network activities and member interactions.  Extensive interviews (1 to 3 hours) conducted during 1996-97 provide a solid grounding for understanding lessons learned and best practices of U.S. networks over time.  Three categories of questions were asked.  First, in order to understand outcomes from network participation, we asked CEOs to describe "major benefits" they or their company had received from network participation as well as "major costs or problems" they or their company had experienced from network involvement.  Second, to ascertain specific lessons learned, we asked respondents about their network experiences such as "what are the most (and least) effective characteristics of your network?" Third, to uncover perceptions regarding best practices for U.S. networks, we asked questions such as "what should networks such as yours definitely have or do to be successful?" and "definitely not have or not do to avoid problems or difficulties."  One of the networks had discontinued since our earlier study, so that network's former members and administrator were asked to describe key factors that led to the network's decline.

Major Findings

Network firm CEOs indicated that they received three types of benefits important to firm growth:  financial, information-dissemination, and credibility/strength benefits.  For instance, one CEO commented, "Last year our business expanded from a little over $2 million to well over $3 million, due a lot to our new contacts through [the network]."  Credibility/strength benefits came from the enhanced perception of firm size or strength in the eyes of important resources outside the network such as suppliers, customers and financial institutions.  One respondent described how "network involvement made me a part of a larger, more visible group, so that my own company's legitimacy increased."  Respondents also described three primary types of costs from network participation:  time, financial, and exchange/interaction costs such as "wasted energy" when other members did not follow through with commitments.

Responses regarding lessons learned and best practices of U.S. networks clustered into four categories for ongoing network success:  the role of network members, network composition, the role of the network administrative organization, and the structure of the network administrative organization.  Lessons learned regarding the role of network members pertained to their participation, goals, member-driven activities, and management of the "socialization process" that must occur in order for members to "buy in" to the network concept.  Critical success factors regarding network composition included the importance of having an early, focused membership, a later more diversified membership, and drawing members from a radius of no more than 100 miles to minimize travel time and perceptions of local-area advantages among members.  Respondents considered the role of the network administrative organization as critical for network success and for ongoing member firm interactions, and indicated that that role should focus on both economic and non-economic benefits for member firms, frequent and varied communication mechanisms both within and outside the network, and should create a tangible, "public face" such as a showroom or central office for the network and members. Finally, respondents indicated that the network's structure should include a separate, paid staff, an elected member-firm board of directors, and a self-supporting network organization with member dues substantial enough to facilitate self-support and to minimize dependence on external funds for network operations.

Implications

Despite the relative newness and uncertainty of networks in the U.S., our study has demonstrated that small, entrepreneurial firms can leverage their resources to achieve growth when they become involved in a meaningful way in a network of other, similar firms in the same industry.  However, if firms are to benefit from involvement in a network, the network itself must succeed.  Our findings produced a number of specific lessons that network firms and network organizers must learn if they are to improve the likelihood of success.
 


*The current studywas funded by a 1996-97 grant from the Ewing Marion Kauffman Foundation
 Center for Entrepreneurial Leadership.

 

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