The Dark Side Of Innovation Networks Commerce Essay

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Organisations do not operate in isolation. They engage in relationships with the several other organisations that operate in the business environment. These relationships may involve organisations in a complementary line of business and/or a different line of business to the focal organisation. The totality of all the relationships that an organisation engages in constitutes its network. The interaction between organisations has been brought to the fore as a result of the sporadic and drastic changes that occur in the world of business. For an organisation to be able to develop its business activity and to maintain its competitive advantage, it needs to look beyond its borders and interact with other organisations operating in other areas of expertise in order to achieve its objectives. In many cases, they choose to or forge alliances.

The main reason underlying the establishment of business relationships between organisations is the acquisition of scarce and/or additional valuable resources that they need to carry out or even enhance their performance. Organisations also collaborate in order to engage in innovative activities, be it in the area of new product development, product improvement or improvement in the general business processes. This type of collaboration among organisations which is innovation based led to the concept of innovation networks.

Research on innovation networks has been concerned primarily with the positive outcomes of the business relationships that transpire through such networks. However, little is known about the negative situations that occur during an innovative collaboration between or among organisations, that is, the "dark side" of innovation networks. To this end, this research project aims to investigate the antecedents and consequences of negative aspects of innovative networks, in an attempt to bridge the gap that exists in current literature on business networks.

The research proposal is structured is follows. Firstly, there is a literature review of previous research bordering on business relationships, business networks and innovation networks. For this purpose, we draw on theories from several business network approaches such as the industrial network approach that was developed by the IMP group, and the strategic network approach. In this section, different aspects of network configuration, that is, of organisational set-up of networks, are also explored. Positive and negative aspects of innovations networks that have been previously discussed in the literature are also discussed. Drawing on the literature review, a series of research questions are then put forward. Investigating the nature and consequences of the negative situations that occur within an innovative network is defined as this project's research aim. This section is followed by the discussion of the adopted methodology. It is then defined that this project's research aim will be accomplished through the study of a focal innovative network, comprising 5-7 companies. Adopting a case-study methodology, the key activities, decisions and motivations of central firms operating in the network are explored. The discussion shows how network configuration and control was enacted. The methodology design will involve justifying the choices that were made for identifying the key personnel in the different selected organisations that were involved in the innovation process. It will also involve defining the data collection and data analysis techniques. Data will be collected by conducting a series of semi-structured interviews with the key respondents, with the aim of grasping the negative issues that occurred during the collaboration. Finally, we discuss some of the theoretical and managerial implications that we believe that will result from the project.


The Interaction Approach

Interaction is an interesting concept both in real life and as a theoretical construct. In real life interaction is significant when trying to understand how individuals behave and how companies or organizations influence each other. As a theoretical construct it is, for example, fundamental in market theory. It is the interaction between market actors that provides the market with its central mechanism. However, the use of interaction in this context has been criticized as being too restricted, or too "thin", with too much emphasis being placed on price alone (Swedberg 1994). One exception is in studies of business-to-business markets where there have been attempts to find a more multidimensional, or a "thicker" way to describe and characterize interaction by introducing the idea of business relationships.

The Network Approach

Networking includes all of the actions of an organisation or individual in a network. This includes all of the attempts by an organisation to deal with its own or others' problems. All of the organisations operating in a network are simultaneously networking by suggesting, requesting, requiring, reacting, performing and adapting activities. Networking is a function of an organisation's network picture and its expectations of the effects of its own actions and those of its counterparts and its view of its own problems and those of others.

The industrial network approach

According to Ford and Hakansson (2005), the widespread view was that the structure of the business world consisted of organisations that were more or less independent of each other, and which were each able to design and implement their own strategy. On the contrary, research has suggested that an alternative view of an economic world consisting of networks of inter-connected relationships between interdependent organisations could provide useful insights.

Much of the work of the IMP group has been concerned with exploring this structure and the nature of these relationships between individual companies and the ways in which they may form part of wider networks. This work suggests that business relationships encompass a facet of the dealings between organisations that transcend the actions and characteristics of individual organisations in the business environment. The concept of business relationships also suggests that the proper understanding of the activities that transpire in the world of business is not possible by examining individual transactions, as if they take place in isolation. Also, the concept of business relationships goes beyond focusing the attention on the single relationship of which these dealings form part and also transcends the aggregation of those transactions or relationships as if they were part of a generalized and anonymous collectivity that is traditionally called a "market". As an alternative, the concept espouses the multifarious reality of a network that consists of individually important mutually dependent companies and the specific, but interrelated relationships between them.

Ford and Hakansson (2005) and Chiu (2009) suggest that the importance of business relationships has become widely acknowledged by many managers and business academics. However, this acknowledgement has usually led to relationships being construed as some sort of managerial approach or technique that is presently available for managers, but which may be applied or not, at their discretion. This differs from the view in the IMP research where business relationships are neither a technique, nor are they owned or controlled by a single company, but are in some way an inherent part of the practical reality of business.

The strategic network approach

Gulati et al. (2000) and Johnston et al. (1999) posit that the recent attention afforded to business relationships and networks in certain organisation research, strategic management and marketing literatures can be explained by the shift in the view of organisations, from independent entities competing for profits with one another, to being engaged in networks of social, professional, and exchange relationships.

Fundamentally, a network consists of a set of actors linked by a set of social relationships whose contents vary in scope and depth (De Nooy et al., 2005; Hakansson and Ford, 2002). Emerson (1981) defines a business network as, "a set of two or more connected business in which each exchange relation is between business firms that are conceptualised as collective actors" while Johnston et al. (1999) define industrial networks as comprising independent organisations that coordinate their activities and resources and work together in order to accomplish common objectives. In addition, Gulati et al. (2000) categorise industrial relationships into horizontal and vertical relationships which connect the focal organisation to its suppliers, customers, competitors, or other actors. A business network consists of "nodes" or positions (occupied by firms, households, strategic business units inside a diversified concern, trade associations, and other types of organizations) and "links" manifested by interaction between positions (Thorelli, 1986). These links are usually called relationships. A network can be approached in terms of its activities, resources, and actors (Håkansson and Snehota, 1995). The activities and resources in two different relationships can complement each other, or they may be in competition. Similarly, actors can use the existence of complementarity or competitiveness in their relationships in different ways when interacting with each other. Networks are evolving organism and their dynamics is caused by the fact that actors, relationships, needs, problems, capabilities, and resources change over time (Ojasalo, 2002a).

Innovation networks

Research has shown that most product innovation relationships are not created and developed in isolation, but are part of a broader context of a network of interdependent relationships (Hakansson and Snehota, 1995; Biemans, 1999; IMP Group, 1999), from which organisational members can access and exchange different resources (Bower, 1993). Based on this view, each relationship is linked to some other relationship and cannot be understood if these connections are ignored. A number of scholars have documented the value of networking activity to innovation in a range of industries where knowledge is distributed across organisations and products are becoming increasingly modular (Baldwin and Clark, 2000).

Fig.1. Innovation partners and their contributions

(Adapted from Gemunden et al., 1996, p.450).

What is innovation

The term innovation, most importantly, implies newness (Johannessen et al., 2001). Innovative activity may relate to new products, new services, new methods of production, opening new markets, new sources of supply, and new ways of organizing. Innovation has been characterized as a process of commercialization of a newly developed product or practice (Freeman, 1982; Dickson and Hadjimanolis, 1998). Johne (1999) distinguishes three types of innovations: product innovation, process innovation, and market innovation. Product innovation provides the most obvious means for generating revenues. Process innovation provides the means for safeguarding and improving quality and for saving costs. Market innovation is concerned with improving the mix of target markets and how chosen markets are best served. Its purpose is to identify new or better potential markets; and new or better ways to serve target markets. The role of effective use of market information is emphasized particularly in the case of product and market innovation (Ojasalo, 2003a), including the generation, internal dissemination, and the firm's responsiveness to market information (Biemans and Harmsen, 1995).

Fig.2. Types of Innovation

Why organisations adopt a network approach to innovation

In many industries, the source and enactment of innovation has shifted from the single firm to a group of networked firms. Increasingly firms seek beyond their organisational boundaries to integrate resources and capabilities core to their ability to develop innovative products and services. Critical innovation resources frequently reside in a network and not in the firm alone (Afuah, 2000). Consequently, many industries now display features of high levels of innovation inter-dependency, where development activities by single firms have repercussions across the extended industry network. Depending on an organisation's innovation target, internal resources and external context, different external resources are required. Different types of actors in the network would be appropriately equipped to provide specific types of resources and technical know-how. The distinctive capabilities of an organisation are developed through its interactions in the relationships that it maintains with other parties. Hence, the identity of the organization is created through relations with others (Hakansson and Snehota, 1989). Additional, since the other parties to the interface also operate under similar conditions, an organisation's performance is influenced by the sum of the network as a context, i.e. even by interdependencies among third parties (Hakansson and Snehota, 1989).

Positive aspects of innovations networks

Scholars (Biemans, 1995; Tidd et al., 1997) have argued that inter-firm collaboration provides a means of managing some of the more complex aspects of product innovation. While the short-term collaborative benefit of risk and cost-cutting and increased speed to market is well-recognised (Lorange and Roos, 1991; Rice, 1991; Gugler, 1992; Bruce et al., 1995), the longer term and more strategic contribution of collaboration to the innovation process has recently been articulated. This includes greater intellectual depth, opportunity scanning, competence enhancement, value-added solutions or worldwide reach (Powell et al., 1999). Other authors (Hamel et al., 1989; Perks, 2000) have highlighted the benefits of sharing not only technological developments but also other resources, such as skills, knowledge and information about competitors, customers, suppliers and markets. Companies that are able to bring together complementary competencies are likely to be in a better position to take advantage of developments and achieve competitive advantage (Shan et al., 1994). In particular, the value of the dyadic relationship between manufacturer and customer has received most attention in collaborative product innovation research. Integrating customers in the innovation process can provide considerable value through their input into the generation of product ideas, information about user requirements, comments on new product concepts, assistance on development and testing of prototypes, and assistance in diffusion (Johnsen and Ford, 2000).

Negative aspects of innovations networks

Despite the recent focus on collaboration as a means of improving the innovation process, there has been limited questioning of these apparent benefits and little analysis of the disadvantages of collaboration (Perks and Jeffery, 2006). Bruce et al. (1995) noted that, for many firms, the collaborative process made product development more costly, complex and difficult to control and manage. Also, Prahalad and Hamel, (1990), Khanna et al., (1998) and Kale et al., (2000) draw attention to the danger of giving away core skills, knowledge and capabilities to partnering firms.

Research aims and research questions

For the purpose of this dissertation, the following research aims and questions were formulated:


To investigate how and why problems emerge in innovation networks.

To investigate the effects of these problems on

Network actors

Actors' relationships

The wider network

To attempt to bridge the gap that exists in the current literature on business networks.

To make recommendations based on findings


How and why do problems emerge in innovation networks?

How do negative aspects of innovation networks affect

Network actors?

Actors' relationships?

The wider network?


Taking into consideration that the negative aspects of innovation networks have been insufficiently studied, a research design that is mainly exploratory and partly descriptive (Ghauri et al. 1995) will be adopted towards exploring this research area. In addition, the research is also qualitative in nature because it is based on an unstructured and mainly exploratory research design which is intended to provide insight and understanding (Malhotra and Birks, 2006). This is because the research seeks out the "why", and the "how" of the topic through the analysis of unstructured information e.g. interview transcripts.

For the purpose of the dissertation, the case study approach will be adopted. A case-study methodology enables the researcher to preserve the complexities and contextual contingencies in which the organisations and the phenomena being studied are embedded (Yin, 2003). This is mostly relevant for network research where it is not easy to separate organisations from the chaotic and intricate realities in which they operate (Das and Teng, 2000). A case-study approach also allows exploration of the evolutionary processes by which the networks develop. The case study approach possesses the following characteristics:


Holistic and detailed understanding:

Abercrombie et al (1984) define the case study approach as an approach which describes the thorough examination of a single example of a class of phenomena. A case study enables an investigation to retain the holistic and meaningful characteristics of real-life events, such as organizational and managerial processes (Yin, 1984). This is corroborated by Gummesson (2000, p. 86), who states that, "An important advantage with the case study research is the opportunity for holistic view. research seeks to obtain a holistic view of a specific phenomenon or series of events".

Single and multiple case studies:

According to Yin (1984) and Eisenrahardt (1989) the case study approach can involve both single and multiple cases. There has been extensive use of single case studies and advocates of this approach (Dyer and Wilkins, 1991) suggest that a single case study approach would offer better theoretical insights than multiple-case research based on creating good constructs.

Qualitative and/or quantitative data:

Eisenrahardt (1989) opines that the empirical data of a case study may be qualitative, quantitative, or both. Also, Yin (1984) proposes that the sources of data in the data collection for case studies include interviews, direct observation, participant-observation, documentation, archival resources, and physical artefacts. Each form of empirical data requires a different technique for their collection and analysis.

Purpose to provide description, develop theory, or test theory:

Yin (1984) also divides the case study approach into three categories namely, descriptive, exploratory, and explanatory case studies. This categorisation implies that case studies can be used to achieve various aims which, according to (Eisenrahardt, 1989), include offering description, developing a theory, and testing a theory.


This dissertation is based on the analysis of an innovation network comprising five to seven companies. The companies selected for this dissertation would be Small and Medium-scale Enterprises (SMEs) in any sector who will be contacted and asked to participate in the research. Empirical data will be obtained from the case companies through the use of semi-structured and in-depth interviews of key personnel involved in the innovation process. The occurrence of critical episodes in the relationships between the network actors which have proved critical for the development of relationships within the network will be one of the central themes discussed in the interviews. The interviews will be conducted between June and July 2010. The interviews will be recorded and transcribed for analysis.

Data analysis will focus on capturing broad themes within the data and emphasis will be placed upon extrapolating extensive verbatim quotations from interviewees. This allows interviewees to describe and explain their experiences of negative aspects of innovation networks using their own language and jargon (Jones 1991) and will help in the development of a clearer understanding of the critical episodes that precipitate the occurrence of negative aspects of the innovation network.

The analysis will be conducted in two phases: open and selective coding of the data (Glaser, 1978).

Firstly, in the open coding or initial coding phase, the emphasis will be on identifying and grouping qualitative data related to the negative aspects of innovation networks. Critical episodes in the relationships that have critically affected the relationships will be examined in particular. This coding phase would result in an initial categorisation of the qualitative data. Next, selective coding or focused coding will be used to carry out an in-depth analysis of each initial category developed in the open coding phase. In this phase, all the qualitative data related to certain initial category will be examined and analysed together.

Expected Theoretical and Managerial Implications

This research will attempt to bridge the gap that exists in the current literature on business network in general and innovation networks in particular. This bridge is necessary because it would be a platform from which any future research on this interesting topic would build on. The research will alert organisations to the key factors that cause problems in innovation networks which will be vital towards the design and implementation of appropriate strategies to combat such problems.


The importance of innovation networks in the successful operations of any organisation cannot be over-emphasized. Just as human beings cannot live in seclusion, so also can organisations not operate in isolation in the business environment. In order to adequately harness its internal resources and gain access to certain external resources, every organisation needs to collaborate in one way or the other with other organisations in or outside its sphere of operations.

However, just as human beings encounter conflicts in their relationships with one another, so also do organisations face similar problems when they collaborate for business purposes. Based on this, this dissertation hopes to uncover those critical episodes that precipitate these problems which invariably result in the negative aspects of innovation networks.