2011/10/24 17:30 Ron Burt, "How Do Social Networks Create Competitive Advantage?", S. D. Clark Memorial Lecture, University of Toronto

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S.D. Clark Memorial Lecture, in honour of founder of Sociology Department at U. of Toronto

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Introduction by Blair Wheaton

Reviewed paper

  • Struggling to get Lisrel 2 to converge, before 1980

Intro by Barry Wellman

  • Structural theory of action in 1982, a readable version of Parsons
  • At U. of Chicago since 1993
  • "Structural Holes"
  • 2010 "Neighbor Networks", people close to you, who will receive benefit
  • Moving to virtual world, role playing in Everquest and Second Life
  • Who do you discuss important matters with? General Social Survey, 1985 decline in the people who have social discussions

[Ron Burt]

(1) How do social networks create competitive advantage

(2) They don't really create competitive advantage, you have to engage


After WWII, came to know informal networks can serve as a proxy for information

Networks have lots of pockets

Weak ties (Granovetter)

  • Cheap to maintain
  • Easy way to get information

Bridge and cluster structure, have imformation implications

  • Come to understood good research - bad research, good history - bad history
  • Don't want to repeat over and over again, make jargon within the group
  • But with efficiency, then outside the group, people don't understant
  • Knowledge is sticky

How can individual people create value in this system?

Robert (Merton) and James (Coleman)

  • James has 6 strong ties, 1 week tie, all in one cluster
  • Drives variation out, ways of doing things, we get better at doing things, e.g. TQM, lean manufacturing
  • Robert's value proposition is opposite: bring in variation and information
  • Connects people who aren't connected to each other
  • Ties two clusters
  • Knows the way we do things here, and the way they're done in other places
  • Could be a synthesis: recombinant knowledge
  • Breadth of knowledge: Nuances
  • Timing: have you seen the article in, have you heard
  • Information arbitrage advantage: tribal dialects
  • Breadth of knowledge, timing of knowledge, information arbitrage

Broker's advantage isn't on access to information, it's on how it's framed

  • Don't want to get out of the box, give people a different box
  • How would this look if you were an anthropologist, an economist, ...
  • Two issues: (1) new ideas, (2) people who would take the new idea
  • People who can pitch in multiple directions, have an edge
  • Viagra was originally a heart medicine

Network from paper by Lee Fleming, Managing Creativity in Small Worlds, California Management Review 2006

  • People who wrote patents, versus those to coauthored patents
  • What was with Robert Stewart? The first to combine tech patents
  • 2000 technology categories to file patents
  • Filing across patents, subsequent have to cite
  • Coauthor patents
  • Sees synergy across patents
  • But no guarantee that combining things will create anything useful: Pet display clothing

Can you detect the combinations that will be valuable where you work?

  • How much energy do you have? Spend a lot of time on translation instead of production
  • Tries going to two conferences a year, where he doesn't know anything
  • Being a genius is in the eyes of the audience
  • Successful academics read dead guys that don't complain when reinterpreted
  • Consultants: find it where it's known, shift to where it isn't

Figure 1.8 from "Brokerage and Closure", "Social Capital of Brokerage"

  • Robert is across many structural holes
  • James has few structure holes
  • Horizontal axis: To what extent is 100% of your time spent across networks?
  • Vertical axis: residual performance metrics (across companies, professions), some outcome variables for people doing well, e.g. bonus compensation for investment bankers over 4 years $7M to $0
  • Why are some people getting more or less? Standard deviations
  • People with more structural holes do better

Some evidence of different cultures building networks differently

  • In U.S. (e.g. Raytheon), takes 1 to 1.5 years to trust someone, but in France it takes a decade

Three pie charts:

  • First pie chart: 55% of why Robert and James do better differently is due to brokerage
  • Second pie chart: Network only matters if you're promoted
  • Third pie chart: Who gets promoted? 64% is the network you build

Want to know what people do with freedom they get

  • Research was how to get free of a social structure
  • Who wins is who can get away
  • In a knowledge economy, getting free is who can get away from existing knowledge structures

The more unique your job, the steeper the relative performance line

  • Getting along, the curve gets flatter, doesn't matter as much because company processes dictate
  • As you rise up in the organization, you need to be able to frame differently
  • Want to move from low returns to steep returns to the benefit

There are people who understand networks intuitively, around people who don't appreciate them

  • Would like to develop B+ people into A- people

High-relative performance people get a lot of attention

  • But have of the people are below the median
  • The network around you could be like swimming in molasses
  • Once you pass the average, knowing a few more people doesn't add
  • A lot of people are at their smartest in graduate school, organizations will make you stupid
  • The more formal the discipline, the more likely the contributions will come from the young

Annalee Saxenian, compares Silicon Valley to Route 128

  • Says Silicon Valley companies are more porous, Route 128 is more fortress
  • X-axis: the length of time a manager has been in a role
  • Y-axis: the number of people you know
  • Below the line, the number of people you knew before entering; above is you know before
  • Rhone-Poulenc is different from DEC
  • Distribution is full: in Organization Science 2000
  • DEC had massive networks that went outside the firm


One way to obtain brokerage benefits quickly is to build connections with people who are already brokers: true or false? why?

  • If the advantage of being a Robert is knowing things, should have some spillover
  • Originally wanted to know about decay of information: one, two, three steps removed from a broker
  • Found that it decays instantly

Pairs of returns: expanded from Figure 4 in Burt, Secondhand brokerage, 2007, Academy of Management

  • How performance varies with your network
  • Either way, people connected to Robert do well
  • People connected to the well-connected do well
  • How much more?

It isn't the information

  • When you connect to people who connect well, you learn to communicate across groups
  • You have different yes, you become a different person
  • It's not access that is importance, it's surround yourself with diversity: the way they think

Three summary points

1. Networks aren't a center-periphery, they're a small world of pockets and bridges

2. Information is distributed around the world so that people who man the bridges have an advantage: breadth, timing and information arbitrage

3. The advantage requires personal engagement, you can't just be connected

  • Well-connected people don't have to connect with you, unless you have value


Structural holes in virtual worlds, on web site

  • Find same things
  • People brokeraging
  • Creating a blog or group, people survive a long time: know what blog topics will draw
  • Everquest, devleoping character more quickly
  • Creating a trusting environment

Diversity, at the point it becomes chaos, it's not linear. Interdisciplinary hiring phase

  • Yves Doz at INSEAD, would team teach in executive ed
  • Study at INSEAD, believed that interdisciplinary and intercultural mix would be a plus, but found very little effect
  • At Fontaineblue, quota on Brits and Americans
  • Some students would form groups of same, that were average
  • Diverse groups: two kinds: one tried to pretend all the same, and then found they did worse
  • Diverse groups who found different, and tried to bake in variety were successful
  • At Chicago: keep disciplines (psychology, sociology, economics) separate, let the students do the synthesis the same
  • Rotman School has an integrated centre
  • Integration is a competence

Access to wholes, centre-periphery

  • Correlation between network centrality and looking like Robert: 0.9
  • Can't be a broker unless people trust you
  • Can look at an ego network, Morton Hansen says he's a T-shaped manager, with a deep stem into an expertise, and reaching ties to get better at this