WHAT IS NETWORK GOVERNANCE?

Definitions in the Literature

The terms "network organization" (Miles & Snow, 1986), "networks forms of organization" (Powell, 1990), "interfirm networks", "organization networks" (Uzzi, 1996a, 1996b), "flexible specialization" (Piore & Sable, 1984), and "quasi-firms" (Eccles, 1981) have been used frequently and somewhat metaphorically to refer to interfirm coordination that is characterized by organic or informal social systems, in contrast to bureaucratic structures within firms and formal contractual relationships between them (Gerlach, 1992:64; Nohria, 1992). We call this form of interfirm coordination network governance. Network governance constitutes a "distinct form of coordinating economic activity" (Powell, 1990:301) which contrasts (and competes) with markets and hierarchies.

A number of scholars have offered definitions (see Table 1), typically using different terms and providing partial definitions. These definitions cluster around two key concepts: (1) patterns of interaction in exchange and relationships; and (2) flows of resources between independent units. Those who emphasize the first concept focus on lateral or horizontal patterns of exchange (Powell, 1990), long-term recurrent exchanges that create interdependencies (Larson, 1992), informal interfirm collaborations (Kreiner & Schultz, 1993) and reciprocal lines of communication (Powell, 1990). Some highlight patterned relations among individuals, groups, and organizations (Dubini & Aldrich, 1991), strategic long-term relationships across markets (Gerlach & Lincoln, 1992), and collections of firms using an intermediate level of binding (Granovetter, 1994). Those who emphasize the second concept focus on independent flows of resources (Powell, 1990) between nonhierarchical clusters of organizations made up of legally separate units (Alter & Hage, 1993). They emphasize the independence of interacting units.

Our own definition includes elements from all of these definitions, and is intended to be more complete and specific than its predecessors.

TABLE 1

Differing Terms and Definitions for Network Governance

Proposed Definition of Network Governance

Network governance involves a select, persistent and structured set of autonomous firms (as well as non-profit agencies) engaged in creating products or services based on implicit and open-ended contracts to adapt to environmental contingencies and to coordinate and safeguard exchanges. These contracts are socially, not legally, binding.

We use the term "select" to indicate that network members do not normally comprise an entire industry. Rather, they form a subset which exchange frequently with each other, but relatively rarely with others. For example, in human service agencies, Van de Ven, Walker and Liston (1979) found three clusters of agencies that had more connections within cluster than between, and that each cluster employed different patterns of coordination to achieve distinct goals.

By "persistent" we mean that network members work repeatedly with each other over time. For analytical purposes we think of working together over time as a sequence of exchanges which are facilitated by the network structure and which in turn create and recreate the network structure. In this sense, network governance is a dynamic process of organizing rather than a static entity.

We use "structured" to indicate that exchanges within the network are neither random nor uniform, but rather patterned, reflecting a division of labor. We use the phrase "autonomous firm" in order to highlight the potential for each element of the network to be legally independent. However, we do not exclude business units that may share common ownership or that may directly invest in each other.

Finally, we use the phrase "implicit and open-ended contracts" to refer to means of adapting, coordinating and safeguarding exchanges that are not derived from authority structures or from legal contracts. To be sure, formal contracts may exist between some pairs of members, but these do not define relations among all the parties. For example, in a film project, both the cinematographer and the editor may have contracts with the studio, but these contracts do not specify the relationship between the two subcontractors. Yet the task before them requires these and many other pairs to work closely together in a complicated dance of mutual adjustment and communication. Thus, network governance is composed of autonomous firms that operate like a single entity in their tasks which require joint activity; in other domains, these firms are often fierce competitors. To enhance cooperation on shared tasks, the network form of governance relies more heavily on social coordination and control, such as occupational socialization, collective sanctions, and reputations than on authority or legal recourse.

A commonly cited example of network governance occurs in the film industry (Hirsch, 1972; Meyerson, Weick & Kramer, 1996; Miles & Snow, 1986; Powell, 1990; Reich, 1991). Here, film studios, producers, directors, cinematographers and a host of other contractors combine, disband and re-combine in varying combinations to make films. A select subset of film studios and subcontractors comprise network governance. The seven major film studios use repeatedly and share across their films an elite set of subcontractors who comprise 3% (459 of the 12,400) of those registered in guilds (Jones & Hesterly, 1993). Persistence is indicated by the fact that this network governance was in use by the mid 1970s and has thrived ever since (Ellis, 1990:437-439). Structured relations among subcontractors and film studios are based on a division of labor: film studios finance, market, and distribute films whereas numerous subcontractors with clearly defined roles and professions (e.g., producer, director, cinematographer, editor, etc.) create the film.