Corporate Strategy and Network Change

Abstract

Networks change when either the ties or the nodes are modified. Research on interfirm networks has conceptualized network change as driven almost exclusively by modifications in ties (additions and deletions). Yet firms frequently engage in actions that modify the ownership and existence of nodes: acquisitions ‘collapse’ nodes, divestitures ‘split’ nodes, industry entries ‘create’ nodes, and industry exits ‘remove’ nodes. The literatures on corporate strategy and organizational networks have mostly overlooked the implications of node-modifying actions for network change. We explore those implications in three ways. First, we systematically analyze and compare the network-changing properties of the six node- and tie-changing actions. Second, we link the strategic objectives that boundedly rational firms pursue through each corporate action to changes in their ego network positions (openness, closure, and status). Third, we consider how these ego-network changes set off ripple effects that create externalities for the networks of the focal firm’s immediate partners and that produce unintended structural effects at the global network level. The result is a much more expansive understanding of the mechanisms driving structural change in interfirm networks.

Keywords: network change, corporate strategy, ego networks, global networks, externalities, acquisitions, divestitures, alliances

JEL Classification: M1