Firm dynamic governance of global innovation by means of flexible networks of connections
AbstractToday a plethora of inter-company alliances exists. Firms have networked value chains, disclosing consequently their strategy, which assets are internalized or externalized, and their ability to cope with fast change. The picture of all interfirm alliances in high tech sectors is that of an unstable complex network, or macrostructure, that evolves quickly and into which firms are differently entwined. Structural metrics borrowed from network research in sociology such as centrality and constraint (or lack of “structural holes”) can be used to assess dynamically a firm’s position in the macro structure and therefore the market: does the firm occupy a dominant or dominated position in an industry? How do its partners and competitors perform? Drawing also from recent theories on complex networks developed by statistical physicists, we show that firms are embedded in dynamic complex networks that have a ‘scale-free’ format, with only a few firms or “hubs” controlling the system, as well as a cohesive or ‘small-world’ structure. This small-world structure, which allows rapid diffusion of innovation along very short paths, also constrains firms continuously and can lead to a fast reversal of their position on the market. Taking as an example a major sector of the biopharmaceutical industry, this study offers insights for managers to assess effectively their environment and navigate under constant pressure within these ever-changing networks.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 12525.
Date of creation: Jul 2008
Date of revision:
Publication status: Published in Journal of Innovation Economics 2.2(2008): pp. 63-83
Innovation; alliances; structural holes; centrality; complex networks; small world;
Find related papers by JEL classification:
- L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-10 (All new papers)
- NEP-CSE-2009-01-10 (Economics of Strategic Management)
- NEP-KNM-2009-01-10 (Knowledge Management & Knowledge Economy)
- NEP-MIC-2009-01-10 (Microeconomics)
- NEP-NET-2009-01-10 (Network Economics)
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