How Personal Networks Shape Business An Anthropological Study of Social Embeddedness, Knowledge Development and Growth of Firms Parker, Peter 2004 Link to publication Citation for published version (APA): Parker, P. (2004). How Personal Networks Shape Business: An Anthropological Study of Social Embeddedness, Knowledge Development and Growth of Firms. Department of Sociology, Lund University. 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LUND UNIVERSITY PO Box 117 221 00 Lund +46 46-222 00 00 Parker, sida 1 HOW PERSONAL NETWORKS SHAPE BUSINESS Parker, sida 2 Parker, sida 3 Peter Parker How Personal Networks Shape Business An anthropological study of social embeddedness, knowledge development and growth of firms LUND MONOGRAPHS IN SOCIAL ANTHROPOLOGY 14 Parker, sida 4 © Peter Parker 2004 Kjell E. Eriksson Ilgot Liljedahl Kjell E. Eriksson Dept. of Sociology, Lund University 2004 --- Dept. of Sociology, Lund University P. O . Box 114 SE-221 00 Lund, Sweden Fax 046-222 47 94 E-mail [email protected] www.soc.lu.se/info/publ Parker 5 Acknowledgements I owe a great deal of thanks to different persons for making this work possible. I am indebted to my advisor Jonathan Friedman for his insightful comments, panoramic research interests and generally for making anthropology intellectually stimulating. I am also particularly grateful to the mentors of the research platform in which this work was conducted. Mats Forsgren and Sture Svantesson provided straightforward critique and encouragement. Both have been invaluable. The research underlying this dissertation was conducted within a platform spon- sored by Stiftelsen Kunskap och Kompetens at the Department of Business Admin- istration at the University of Kristianstad. I am grateful to colleagues at the depart- ment for providing comments along the way and particulary to Nils-Gunnar Ruden- stam for his careful and insightful reading. Thanks also to Pierre Carbonnier for re- viewing statistical methods and arguments in the dissertation. In the initial phase of this research I had the pleasure of working with Henrich Dahlgren. His ideas, con- stant projects and friendly attitude made research easier and more stimulating. Hans Westerlund, Sara Johnsdotter and Aje Carlbom all offered input and advice on this text and intellectual companionship over a number of years. I wish to express my gratitude toward the firms that took part in this study. The research would not have been possible had it not been for a generous and curious at- titude of the people in these firms. The work developed along a winding path and it was not always clear to the firms what kind of results they could expect. Nonetheless managers often took precious time to discuss research issues in-depth an on a recur- ring basis. I also wish to thank Kjell-Åke Johansson who took interest in the research at an early stage and provided a link with regional interests. Finally, but certainly not least I owe thanks to my mother Birgitta Lenning who provided perspective on the text and proofread drafts. To Jenny Hall I owe more than I can express. Thanks also to S. Gumps for an unwaveringly positive attitude. 6 Parker Abstract The research draws from anthropological work on social exchange and later work on embeddedness in an exploration of how personal networks shape business. The pur- pose of the research is to contribute to an understanding of how social relations shape economic processes and vice versa. The research takes its starting point in small manufacturing firms in southern Sweden primarily in the plastics industry. Internal and external relations of these firms are studied using qualitative methods and formal network analysis. Qualitative methods are used to identify important mechanisms of personal net- works. It is argued that personal networks provide a domain of interaction outside short term economic rationality but at the same time, the development of personal networks is fuelled by the need for coordination in achieving business ends. Particu- larly personal networks are essential for gaining access to a diverse set of expertise. They may create informational advantages, trust and quality of communication. Per- sonal networks are shown to be an integral part of both effective production and firm development in these firms. This is in stark contrast to notions of impersonal markets and bureaucracy that still shape discourse on business. Formal network analysis, starting form recurring problems of coordinating pro- duction, provides an important complement and expansion of the findings. It be- comes evident that certain structures of informal organization provide an individual with means of gaining recognition and a means of navigating a dynamic environ- ment. The same structures are also found to be important on a firm level. Certain structures of informal organization provide a better basis for acquiring useful infor- mation and meaningfully integrating in the firm. There is a strong correlation be- tween the structure of informal organization and firm growth. These structures of in- formal organization also seem to be linked with more intangible aspects of commu- nicative climate. The research develops relatively simple methods to differentiate a beneficial infor- mal organization from less beneficial ones, at least in terms of firm development. It also outlines factors shaping the development of beneficial personal network struc- tures in and between firms. These findings, if corroborated in subsequent research, have important implications both for understanding knowledge development and growth of firms and also for understanding how individuals are shaped by the infor- mal structures of their work experience. Hopefully, the research will stimulate further dialogue between anthropology and research on social embeddedness. Parker 7 Table of Contents Figures, tables and diagrams 10 Introduction 11 Background 11 Social exchange 12 Social exchange and social systems 14 Relational values 16 Emergent properties 16 Anthropology of business and bureaucracy 18 Research on embeddedness 22 Research questions and aims of the dissertation 24 Structure of the thesis 26 Method 29 A first phase of research 30 A second phase of research 32 Anonymity 34 Mixed methods 34 Embedded relations and coordination between firms 35 Introduction 35 Coordinating production between firms 36 Making a bid for production 38 Mold injection firm and mold manufacturer 39 Mold manufacturer and mold designer 41 Plastic firms and customers 43 Effects of proximity 45 General aspects of specific relations 46 Lacking social infrastructure 48 Conclusions 50 8 Parker Embedded relations and business development 53 Introduction 53 Background 53 Functional aspects of embedded relations in business development 54 Trust 55 Information gathering 55 Quality of communication 56 Product and business development in four small business networks 59 Alpha 59 Beta 61 Gamma 64 Delta 65 Embedded relations and customer structures 66 Personal network structures 66 Customer structures 68 Limitations of personal networks 70 Conclusions 71 Customer structure 73 Introduction 73 Dependency and constraint 74 Exploring the effect of dependency on growth 75 Calculating constraint 76 Effects of constraint on growth 77 Fragmentation of customer structures 79 Combined constraint and plural customer structures 81 Conclusions 83 Problem solvers and their networks 85 Background 85 Personal networks and knowledge development 86 Mapping networks of problem solving and knowledge development in production 88 Characteristics of personal networks in the firms 91 Graphs of firm networks 92 Problem solvers 97 Experience 99 Functional aspects of personal networks 100 Structural aspects of networks 102 Measuring reciprocity 103 Measuring informational advantages 106 Combined effects of reciprocity and diversity 109 Parker 9 Controlling for indegree 111 Conclusions 113 Firm problem solving capacity 115 Introduction 115 Firm problem solving capacity 115 Combined constraint 118 Number of persons in key roles 119 Combined constraint and knowledge development 119 Knowledge development and growth 120 Further probing the relationships 121 A note on direction of causality 123 Conclusions 124 The development of personal networks 125 Introduction 125 Difficulties delegating 126 Responsibility as a role and product of microsocial negotiation 128 Increasing participation of peripheral persons 129 Removing bottlenecks 131 Creating an environment conducive to knowledge development 133 Summary: the development of a beneficial informal organization 134 Conclusions 137 Are