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Computational & Mathematical Organization Theory 4:2 (1998): 109–147
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° 1998 Kluwer Academic Publishers. Manufactured in The Netherlands
Intra-organizational Networks and Performance:
A Review
HENK FLAP, BERT BULDER AND BEATE V ¨
OLKER
Department of Sociology/ICS, Utrecht University, Heidelberglaan 1, 3584 CS Utrecht, The Netherlands
email: h.flap@fsw.ruu.nl.
Abstract
Intra-organizational network research had its first heyday during the empirical revolution in social sciences before
World War II when it discovered the informal group within the formal organization. These studies comment
on the classic sociological idea of bureaucracy being the optimal organization. Later relational interest within
organizational studies gave way to comparative studies on the quantifiable formal features of organizations. There
has been a resurgence in intra-organizational networks studies recently as the conviction grows that they are critical
to organizational and individual performance. Along with methodological improvements, the theoretical emphasis
has shifted from networks as a constraining force to a conceptualization that sees them as providing opportunities
and finally, as social capital. Because of this shift it has become necessary not only to explain the differences
between networks but also their outcomes, that is, their performance. It also implies that internal and external
networks should no longer be treated separately.
Research on differences between intra-organizational networks centers on the influence of the formal organi-
zation, organizational demography, technology and environment. Studies on outcomes deal with diffusion and
adaptation of innovation; the utilization of human capital; recruitment, absenteeism and turnover; work stress and
job satisfaction; equity; power; information efficiency; collective decision making; mobilization for and outcomes
of conflicts; social control; profit and survival of firms and individual performance.
Of all the difficulties that are associated with intra-organizational network research, problems of access to
organizations and incomparability of research findings seem to be the most serious. Nevertheless, future research
should concentrate on mechanisms that make networks productive, while taking into account the difficulties of
measuring performance within organizations, such as the performance paradox and the halo-effect.
Keywords:
intra-organizational networks, social capital, performance
1.
Introduction
Some fifteen years ago an economic geographer, lecturing to a conference audience about
the factors that determine the success of starting enterprises, was puzzled by one of his
findings. He could not understand why the quality of the entrepreneur’s marriage was
the best predictor of business success. Later findings by others corroborated that the self-
employed profit from being married and having their partner working in the firm: chances
of survival and making a profit increase noticeable (see Zimmer and Aldrich 1987; Brüderl
et al. 1996). What our scientist had identified was a rudimentary but strong case of what
is rapidly becoming common knowledge today is that within a firm, informal networks are
as an important a factor of production as its financial capital, buildings, and machinery and
the human capital of its personnel. This also implies that even if a company is momentarily
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profitable, its financial status satisfactory, its personnel well trained and experienced, and
demand for its products on the rise, the company may still fail if its employees do not trust
management, are divided into warring cliques, or hardly interact with each other.
The productive role of co-worker relationships has not always been high on the research
agenda in organizational research. It is only recently that there has been a new, or actually
a renewed interest (see Section 2), in the various networks within companies and their pro-
ductive role. Interest in organizational studies has taken three consecutive forms (Coleman
1993: 85). First research and management advice has looked at the psychological and
physiological functioning of the workers, later the focus turned to how organizational in-
centive systems could be aligned with the personal interests of the workers such that the
workers could be mobilized for the goals of the company, and finally there was an attempt
to use the employees’ social relations to increase the efficiency of the organization. Today’s
managers do not only need skills in entrepreneurship, they also need intrapreneurship in
order to coordinate production factors and activities within the firm. Not the least of these
are the employees and their relationships (see Burt 1987).
2.
History of Intra-organizational Network Studies
and the Current State of the Art
The history of intra-organizational network studies within sociology proper can be seen as
falling into four periods, although this is somewhat at odds with Coleman’s reconstruction.
Organizational studies within sociology started in the first decades of this century with
the Weberian idea that a formal bureaucracy is the best way to get things done in large
organizations and his analysis of how bureaucracies emerged as part of a battle against
particularism at the job and in society as a whole.
After its classic theoretical phase, social science took an empirical turn. This empirical
revolution in anthropology and sociology, which took shape before, during and after World
War II, produced classic research monographs that document the discovery of informal
networks within and outside formal organizations. Anthropologists showed that they are
a substitute for formal order in situations where there was none. The Boston youth gang
studied by Whyte (1947), for example, was not a red lap, but a tight friendship clique, with
some status differentiation. In studying American industrial organizations, sociologists
detected informal networks within these organizations that supplemented or went against
the formal blue chart by enforcing norms against rate-busting (Roetlishberger and Dickson
1939). They also helped workers to collectively resist managerial dictates (Gouldner 1954).
In the 30s, 40s, and 50s many studies were carried out within this human relations tradition in
which informal networks were depicted as either subverting bureaucratic goals or furthering
private agendas at the expense of the larger collective (Galaskiewicz 1996: 27).
Solidarity amongst workers does not always have to work against management or be a
hindrance to productivity. Homans (1954) in his field study of so-called cash posters in a
New England utility firm pointed out how productive social networks at work can be. These
girls worked harder (they exceeded the standard set by the company by about 20%) than
was agreed upon just because they enjoyed their work and each other.
1
Probably more well-
known is the sobering fact established by military sociologists in the aftermath of World
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War II that the smallest German fighting units at the front often had such a tremendous
fighting drive, not because of a fanatic allegiance to their ideology but because of group
integration (Janowitz and Shils 1948). Various sociometric studies produced in this second
phase, such as those by Lipset et al. (1956) and Dalton (1959), warrant more extensive
treatment than we can give them here. The general thrust of these studies is that a large
discrepancy between formal and informal social structure is detrimental to overall cohesion
in the work place, and probably also to performance since employees will not cooperate
and work for the company goals and management does not know where the ties between
the workers are (Krackhardt and Hanson 1993).
During the 60s and 70s problems with the collection and management of network data
directed research interest away from relational matters towards data on ‘absolute’, formal
characteristics of organizations which data was easier to assess.
2
Blau, for example, in
his comparative organization studies describes how rationalization is ongoing in modern
society as administrative ratios decline with the increasing size of organizations (Blau and
Meyer 1987: 95). The main research question in the third phase was how to explain differing
organizational forms.
With respect to data-collection on intra-organizational networks, the central issue was
(and still is) how can access to an organization be achieved (for a depiction of what it takes
as a researcher to handle the odd mixture of curiosity and fear generated in employees and
management about what network research might show, see Van der Bunt 1997). Therefore,
it is difficult to get a sufficiently large N , that is, data on a number of intra-organizational net-
works that allows comparative statistical analysis. Furthermore, once intra-organizational
network data is available, drawing sociograms of a group of people will result in a bowl
of spaghetti if groups are larger. Matrix algebra and the representation of networks as ma-
trices help in managing and analyzing network data, but it took time before the discovery
(around 1950) that networks can be represented as matrices without any loss of information
and the application of mathematical theory resulted in what the state of the art in research
methodology is now (Scott 1991).
In the 70s, at the end of the third phase, networks of relations between organizations
came under scrutiny (Mizruchi and Galaskiewicz 1987). Access was less of a problem,
because relations between firms could be studied with secondary data, for example, data
on interlocking directorates between large companies is publicly available in all western
countries. The study of interlocking directorates became a considerable research industry,
although it has waned somewhat lately.
In its present phase, that is since the 80s, the informal group has been rediscovered within
formal organizations, in fact there is a widespread interest in intra-organizational networks.
The further development of mathematical theory on networks (inter alia, graph theory) and
software to analyze network data were important push factors. An additional factor was the
growing popularity of network research in other research areas, such as social support and
health, informal job-search and labor market chances, and informal recruitment to social and
religious movements. Recently more attention has been given to data-gathering problems
and the quality of network data: inter alia by asking two-sided questions (“to who do you
go to and who comes to you to...”) one can reconstruct a person’s network position even if
he refuses to participate in a study (Stork and Richards 1992). Moreover, some interview
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questions have become more or less standard (who does a person communicate with, who
does he respect and who does he discuss with problems at work) (see Krackhardt and
Hanson 1993). Renewed use of experts as a source on the network within organizations—
Roetlishberger and Dickson reconstructed the sociograms of the bankwiring room with
the help of a few experts—seems reasonably successful in recent research on collective
decision making within organizations (Stokman and Zeggelink 1996). Multidimensional
scaling methods help to draw pictures of networks (for example, Krackplot), which is a great
advantage since, as Krackhardt et al. (1993) state, ‘a picture is worth a thousand words.’ In
addition to the more inductive methods of multidimensional scaling and blockmodelling,
multi-level regression analysis of networks was developed for ego-centered networks in the
free (Snijders et al. 1995), as well as for personal networks as part of a total network in a
bounded group (see Holland and Leinhardt 1981; Wasserman and Pattison 1996; Van Duijn
and Snijders 1996; Lazega and Van Duijn 1997). The methods of analysis here are geared
more to testing since they provide test statistics.
Probably the greatest push in the study of intra-organizational networks and their produc-
tive role was the realization that most major recent developments within the technology and
the design of organizations and jobs in the western world seem to increase the importance
of social networks to get things done, for the company as a whole as well as for the indi-
vidual employees (for example, Appelbaum and Batt 1994; Wickens 1995). ‘Post-Fordist’
production systems are more decentralized, there are cuts in middle management leading to
a flattening of organizations and to larger spans of control. Product life cycles have become
shorter as demand among consumers changes faster and the speed of technological inno-
vations augments this trend. These developments make jobs more autonomous and they
demand cooperation across departments, inducing peer training in tacit knowledge, and
making it more difficult to establish quality objectively. There are probably also forces that
work towards a greater standardization and substitutability of workers with a specific human
capital, for example, mastery of modern information technology, especially software, is a
skill quasi independent of the kind of an employer an employee works for.
At first sight the studies on intra-organizational networks are more numerous than those
on the outcomes of networks, but the latter are simply less visible, because as they deal with
different ‘dependent variables’, they are located in separate literatures. Network studies on
organizational or individual performance in a more strict sense have certainly been rare until
now. Thus reviews of research on intra- and inter-organizational networks do not stress the
performance question (see Galaskiewicz 1996; Krackhardt and Brass 1994; Mizruchi and
Galaskiewicz 1994). Studies on internal networks and performance in the economic sense
of profit and the like, are still more scarce, probably because it is even more threatening
to firms—managers and employees alike—to provide information on performance in a
economic sense.
It is no overstatement, going by the contents of journals and themes of conferences,
that studies of intra-organizational networks are rapidly becoming a research specialty.
Perhaps because of its relative youth or may be a reflection of the general state of affairs
in organizational studies, the research field seems to be ill-organized, and not cumulative
in terms of problems worked on, theories proposed, research methodology applied, or
findings established. Further, the field is rather empirically minded and not strongly guided
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by theory. Much effort is spent on establishing differences between networks, not only to
amass data but also to make differences visible methodologically. This effort is perhaps to
the detriment of reflection on the explanatory problems posed and the theoretical solutions
offered, which often remain implicit and not well elaborated.
Below we will attempt to review what has been done in the last decades, sort out the
problem areas, identify, if possible, the theoretical assumptions, and report on empirical
regularities found. So much can be said in advance, over time the theoretical perspective
on intra-organizational networks, has changed from seeing them as constraints on norm-
oriented actors, for example, forcing employees to comply with norms against rate-busting,
towards networks as providing opportunities to man as a rational consumer, for example,
as relays for the diffusion of business news. Lately networks are increasingly seen as social
capital—while defining man as a rational producer—that enables the producing of goals that
would otherwise be impossible to attain. Galaskiewicz (1996) describes this first change,
Burt (1992) and Flap (1995) the latter one. The introduction of the notion of social capi-
tal holds promise for the field as it integrates many existing findings, presents a common
perspective on the emergence and effect of networks, helps to find answers to existing
questions and to pose new questions, yet one still would want to know what mechanisms
are responsible for the productive aspects of social capital (see the discussion section at the
end of our contribution). Because the idea of social capital implies that more or better social
capital leads to better performance of individuals and possibly of organizations as well it
forces upon the field the question of performance (Coleman 1993).
We will first discuss research relating to the causes of different forms of networks within
firms, and after that we will discuss research on outcomes of networks. This division reflects
the research literature, since there is little research that deals with the emergence as well as
the effects of particular intra-organizational networks simultaneously.
In our review we cannot discuss all the intricacies of past and present-day research. We
prefer to discuss sociological studies that rely on empirical field work. In writing such
a review one inevitably cannot do justice to all research and some will receive too little
attention, for example, the traditions of communication research which is not sociological,
or the social-psychological and sociological experimental research of small groups and the
recently emerging tradition of simulation research on intra-organizational networks, which
are often not based on field research although they deal with intra-organizational networks
and outcomes. We will not discuss the strength of the research designs used, we will only
note whether it was a case study or comparative study, and whether quantitative techniques
were employed. Take note, a case-study can be quantitative. Moreover, the organizations
referred to, whether private or public, are practically all work organizations.
3.
Research Themes
3.1.
Causes of Differences Between Intra-organizational Networks
An examination of the literature learns that three general conditions are held responsi-
ble for differences in intra-organizational networks: (a) the formal organization, (b) the
organizational demography and (c) an organization’s technology and environment.
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(a) Formal Structure. Since its inception, the relation between the formal and infor-
mal structure of an organization has been a major topic of research in studies on intra-
organizational networks. One view is that cohesive networks are produced as a by-product
of task-related interactions, such that if the formal organization of tasks or their actual ful-
filment does not involve co-workers, no cohesion will develop between coworkers. Hodson
et al. (1993: 408) establish in a reanalysis of ethnographic data of case-studies on 90 work
places that only two job characteristics, that is, a great degree of peer training and hazardous
working conditions lead to more cohesion between employees. More formal job character-
istics like job-autonomy, job-security, and team work have a positive, though non-significant
effect on the extent to which workers seek each other out for social contact. Various la-
bor force and organizational characteristics do not affect the level of cohesion. However,
another analysis of the same data-set (Hodson 1996: 732) demonstrates that friendship
between workers is undermined in workplaces that are organized on the assembly line. Bu-
reaucratic structures and participatory management organizations do only slightly better,
they also isolate workers from each other, perhaps because competition is hidden in such
organizations. Craft organizations and direct supervision are most congenial to friendship
at work.
Specific organizational rules and practices sometimes produce integration in a firm, as
Lazega (1992) demonstrates for a medium-sized traditional corporate law firm in New
England. Tendencies of inbreeding between those working at different offices are countered
by friendships between partners and between associates that have been forged in the early
years after they entered the firm and before they began to specialize. Rules that forbid
partners working alone on a case engender advice relations between partners that balance
the possible negative effects of a division of labor between ‘finders’ who bring in clients and
‘minders’ who take care that work gets done. Other rules stipulating that partners have to
take on associates on a case stimulate co-worker ties crossing the status boundary between
partners and associates.
The match or mismatch between formal and informal structure is not only a result of
the exigencies of the workflow, but also of the attraction between similar others as well as
an outcome of a status-game between workers and managers jockeying for informal status
among their peers and subordinates. Within the law firm, for example, the choice of advisors
is strongly influenced by the formal structure of the firm, especially by an individual’s
formal status as a partner or associate, seniority, speciality and office membership. Effects
of gender and having attended the same law school are very weak. The seniority effect is
strongest among partners, the office-effect strongest among associates. Most advice occurs
between lawyers of similar status, seniority and office. Advice across levels of status or
seniority is very asymmetric: one does not ask for advice from people below (Lazega and
Van Duijn 1997). This reiterates Blau’s conclusion that employees prefer to go to their
peers for advice rather than to their superiors since the latter will not call back upon them
for advice, which means that they would have to repay their superiors with respect in stead
of a counter service (Blau 1955).
In a detailed case-study of relations among 76 employees in a large retail corporation
with four hierarchical layers and a number of different divisions, Han (1996) also finds that
formal organizational boundaries strongly affect relational patterns. Most contacts occur
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within, rather than between, divisions. Contacts across divisions occur most in the higher
echelons. Density of personal networks at work increases with the level of an individual’s
prescribed formal position. Moreover, interaction is most likely to occur between employees
of the same hierarchical level. Those in lower ranks hardly ever advice or consult those
above them or negotiate with them or try to persuade them. They are given advice though.
More generally, hierarchical position seems to determine engagement in interactions, not the
receiving of interaction. Stevenson (1990) found a similar status differentiation in informal
contacts in an American public transit agency. However, employees working at middle
ranks seemed to originate contacts with higher and lower levels but few among themselves.
A good testing ground for the effects of formal organization on informal social struc-
ture are instances in which existing organizations are reorganized. Research documents
a network-lag, as informal networks do not adapt immediately to a change in the formal
structure of the organization as is demonstrated by organizations as diverse as a large Italian
computer firm and a department of a Dutch government ministry (Benassi and Gargiulio
1993; Bulder et al. 1996). The first introduced teams between different units in the hope
of promoting cooperation in the development of new ideas, the other introduced teams as
a way of enforcing more equal job-performance. Yet newly introduced work teams left
no trace in the networks, as employees kept on interacting with the same people. These
results suggest that existing ties have a lasting, pervasive effect, they are rewarding or each
has invested so much that a reorganization of tasks and work flow is not enough to create
cohesion between new colleagues put together as a team on a common job.
There is a special research interest for the networks of those people that occupy the
most important formal position within a firm, the managers, as they are taught to be more
decisive to the fate of work organizations and the economy at large. Managers as compared
to ordinary employees have larger, more open work-related networks, with stronger ties to
their colleagues which are less tightly connected among themselves (Carroll and Teo 1996).
Managers spend one third to two thirds of their time talking to numerous people within their
firms to keep informed on upcoming business opportunities as well as impending disasters.
They execute their agenda’s by mobilizing their network (Mintzberg 1973; Kotter 1982).
According to Kotter’s ethnography a manager’s network correlates with the size of his tasks
and the time-span over which he is planning. Yet in more quantitative studies there do
not seem to be great differences in the networks of managers at different positions or of
different sex (Moore 1992; Burt 1996a). Even the kind of work contacts managers cite as
most important or most troublesome are stable across different types of managers (Burt and
Celotto 1991: 319). In conjunction with the fact that there are clear differences between
the networks of managers and employees, this suggests that managers are selected for, inter
alia, on their network characteristics. The result of such a selection is that managers have
similar networks.
Fernandez (1991) studied the association of different types of informal networks within
a manager’s network in three organizations that varied in hierarchy. One would expect that
the quality of his communication would be poorer, if he remains impartial. In hierarchical
organizations respect relations are strongly predicted by reporting relations, whereas in
less hierarchical organizations respect relations are best predicted by friendship ties. More-
over, the combination of both is not always conductive to authority: in more democratic,
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non-hierarchical organizations one does not respect those to whom one reports if one is also
friends with them. However, leaders that combine instrumental and emotional roles might
still be most effective, this is an open question. Older research on air crews actually supports
such a contention (Levi et al. 1954). Fernandez does not come up with an explanation for
the intriguing finding that an employee finds it harder to both like and respect his superior
in a less hierarchical structured organization.
Differences in appointment rules and rules of succession of management, as they exist,
for example, between private and public organizations, can influence networks and their
returns quite directly. In France quite unlike Germany, large companies are more state
controlled and these state-controlled corporations often perform less well because when
executive officers are replaced new managers are often parachuted into top positions from
the outside without having any ties to the people working within the firm or the necessary ties
to relevant business partners outside of the firm (Bauer and Bertin-Mourot 1991: 83–87).
Usually as the research referred to above shows the assumption is that the formal or-
ganization influences the informal one, and indeed it does. But there is also an effect of
informal networks on the formal organization and there has not been much attention to
this in recent research. It did not wholly go unnoticed in earlier research though, or in the
practice of organizational life. For example, spans of control are partly a result of informal
networks of lateral ties between employees. Graicunas (1937) explained that although a
supervisor is used to measuring the burden of his responsibility by the number of direct
single relationships between himself and those he supervises, he does not merely manage
the individual actions of his subordinates, but the relations among these employees them
as well. As the number of contacts between his sub-ordinates is potentially far greater
than the number of his subordinates, a supervisor usually cannot be responsible for more
than five or six subordinates. Further increases in the number of his subordinates would
cause large increases in the potential number of relationships among his sub-ordinates (for
5 subordinates, 20 links, for 10 subordinates, 90 links). A smaller span of control means
more hierarchy and more control. Yet this probably also means loss of information, as the
chain of interaction before any message from the top reaches those at the lowest levels of the
organization, or vice versa, becomes longer (cf. Lincoln 1982). Such differences in span of
control and levels of hierarchy do not only have implications for the size of an organization,
but for pay differentials as well. Of course if to get the work done requires less coordination
between employees, because the job is repetitive given a certain production technology,
spans of control can be larger (for a discussion see Blau and Meyer 1987: 103–109).
More paradigmatic is the recent case study by McGuire et al. (1992, 1993) showing
how particular persons with a particular network can start path dependent developments
towards the institutionalization of particular ways of organizing production, i.e., electricity
being produced in the US by large public utility companies instead of by small home-based
power stations. Edison, entrepreneur and inventor, wanted to keep control of what had
to be invented to apply electricity in industries and private households. That is why he
wanted to organize the production of electricity on a large scale and become the owner of
such companies. Financiers like Morgan saw possibilities for financial profit and wanted
to invest but only if Edison was prepared to make small production systems that could be
used in private homes, for in that way the returns to their investments would come fast
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and secure. They were, however, unable to do without Edison’s genius and his patents.
The ‘small difference’ that decided upon the way in which electricity production became
organized for a whole country in one way rather than another was that Edison found a
German financier through his own personal network, who helped him to realize his plans.
Later on, when Edison was struggling with technical and financial difficulties he was forced
to sell his plant and most of his patents to Morgan, but by that time the development of
electricity production was well under way making the costs of altering the organization of
electricity production prohibitive for Morgan or anybody else.
(b) Organizational Demography. The existing work force within an organization con-
strains the possible relationships. This organizational demography puts severe restrictions
on the kinds of relations possible (Pfeffer 1983; Tsui et al. 1995), the most basic one being
simply the numbers of people present with certain characteristics. The argument can be
formulated in even more general terms: without meeting, there will be no mating. Apart of
course, from work role defined relationships in which persons have to cooperate with par-
ticular others or pass on their work load to the next employee (Han 1996). Co-membership
of a department in an organization is one of the main ways in which people meet each other
nowadays. The literature that studies its implications for work life is mainly based on the
psychological assumption that people are attracted to similar others.
Studies of work groups established how similarities of race and gender engender friend-
ships within the work place, though not work contacts. Educational similarities do lead to
work contacts (Lincoln and Miller 1979). Similarities in age and tenure also stimulate work
contacts (Zenger and Lawrence 1989). Differences in tenure contribute to disintegration
of work groups, which in turn leads to a higher turnover (Tsui and O’Reilly III 1989).
However, there are also some inconsistent findings, as differences in tenure, education and
age, contrary to sex and race differences, sometimes make for greater commitment to the
organization (Tsui et al. 1992). Take note that majorities within organizations show less
commitment to stay if the sex or race heterogeneity of the work place increases if the minor-
ity groups grow in numbers. If minorities grow in number, the status of majorities seems to
be threatened which increases their urge to leave the organization. Perhaps this is the case
because a rise in the share of minorities within an occupation lowers the overall status of
the occupation.
A study of social relations among employees in a federal bureaucracy in the U.S. shows
that there is truth in Blau’s idea that small minorities are forced by the sheer absence of
available interaction partners of the own kind to interact with the majority group. For
example, as the proportion females in an department grows, they interact more frequently
with other women, although they receive less social support from each other, probably
because of increased competition (South et al. 1982).
Survey data on core-networks of the general population enable the analysis of the part
co-workers play in the core of people with whom a person discusses his personal problems.
Those in higher occupational positions, especially women, have more co-workers in their
core-network. Men had somewhat larger co-worker networks than women. Generally, the
prevalence of cross-sex co-worker ties was low, women reporting a greater number of
cross-sex co-worker ties than men. It also appears that one’s extra-work life influence what
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happens at work, for example, married male workers have fewer female co-workers among
their confidants than unmarried ones (Straits 1996).
It is important to realize that homophily within an organization is also induced, and is
not simply the result of free choice, but a necessary outcome given the size of the pool
of available interaction partners and their demographic characteristics (South et al. 1982;
McPherson and Smith-Lovin 1987).
(c) Technology and Environment. Technological and environmental conditions seem to
enhance work-related networks partly as a by-product when employees have to cooperate
because of common or otherwise interdependent tasks and it makes sense to invest in each
other because a common future is forced upon them by circumstances.
Physical proximity and relative freedom of movement have often been found to stimulate
social interaction in the past (Bass 1990), although recently Hodson (1993, 1996) could not
replicate this finding in his re-analysis of ethnographies of the work place. Others found
that men working in machine-intensive jobs report fewer co-workers in their core-network,
although higher occupational involvement with people instead of things does not promote
co-worker relationships (Straits 1996).
A study of 36 small agencies shows that routine operations technologies in work-
organizations induce centralized, structured, single stranded, and sparse networks of asym-
metric communication. Organizations with non-routine technologies, in which there is more
uncertainty in work flow operations, have denser, more cohesive, and less segmented net-
works consisting largely of reciprocated ties (Shrader et al. 1989).
There are indications that a turbulent environment in which work tasks are non-routine
leads to a flat structure in the formal organization and many lateral informal links among
employees, while a stable, homogeneous environment correlates with pyramid-shaped so-
cial networks (Barney 1985). The findings by Eccles and Crane (1987) are pertinent in this
respect. They show how investment banks operate through a vast lateral internal network
in highly volatile markets by mediating the asset flow between issuers (sellers of assets)
and investors (buyers of assets). Their work is characterized by a loose coupling between
the services rendered to a client and the fees earned. All kinds of services are rendered
at a small profit margin just to keep informed on possibilities of doing the more profitable
deals for the customer. The firms external ties create a need for comparatively unusual
complex, flexible internal networks between people servicing the same issuer or investor,
as each deal involves a unique combination of the firm’s internal resources. Moreover, the
interdependence of these different kinds of services is another cause of the complex and flat
internal network between, for example, traders, sales people, research analysts, managers
or product specialists. Connecting a big issuer and a big buyer sometimes involves as many
as a hundred people coming together timely from within and outside the firm, often at short
notice. These networks usually dissolve at the moment that the deal has been completed.
Finally, in a rapidly changing financial markets, the bank’s various employees need each
other to keep abreast of business opportunities.
The organization of knowledge in information intensive organizations affects their intra-
organizational network. Friedkin (1978), for example, has shown for a relatively small
research university how the communication network of a diversely specialized population
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of physical scientists was more cohesive than one composed of more homogeneously spe-
cialized scientists, probably because in comparison with the more homogeneous group,
scientists in the heterogeneous group, had more different types of information for which it
made sense to exchange them with others.
3.2.
Different Outcomes of Intra-organizational Networks
Outcomes that have been studied in intra-organizational research are numerous and diverse:
(a) diffusion and adoption of innovations, (b) underutilization of human capital, (c) work
stress and job satisfaction, (d) recruitment, absenteeism, turnover, (e) equity, (f) information
efficiency, (g) mobilization for conflicts and outcomes of conflicts, (h) social control, and
(i) survival and growth of firms and performance of individual employees. We will not
discuss the literatures on power and on collective decision making, since these are largely
based on experimental research and simulation models.
3
Looking at the different outcomes
that have been studied might instill the impression that the research is a mixed bag, but upon
closer inspection these outcomes can be seen as aspects of or immediate preconditions for
performance. There even is a plausible sequence of what it takes to be successful as an
organization: first one needs to have a new product, or innovative way of production, but
one also has to recruit adequate employees, keep turnover within bounds, curb absenteeism,
motivate personnel, keep them satisfied with their job, and create the feeling of being fairly
treated; moreover, managers need to have the informal power to implement their agenda;
information efficient communication networks should be in place; as well as procedures
for collective decision making; absence of large scale conflicts between employees; and
those who do not work for the common good should be controlled socially. Finally, of
course, survival and profit and individual performance seem to be basic requirements for
respectively firms and individual employees.
(a) Diffusion and Adaptation of Innovations. Innovation is probably a requisite for any
firm that wants to stay in business, or for that matter, any government organization that
wants to be successful, especially if competition is stiff. To be effective many organizational
innovations require that they are adopted not only by the managers but by the majority of
the employees.
The most well known idea on the effects of the networks on innovation is probably Gra-
novetter’s argument on the strength of weak ties. Its core statement is that no strong tie
can be a bridge between hubs of strong ties. This implies that, although most people might
individually learn about new ideas and other innovations from their friends at work, knowl-
edge about innovations spreads through an organization via weaker ties. Friedkin (1980)
put the idea to a test in a study of the network among faculty members of seven biological
science departments belonging to a single university and the extent to which they were
aware of each other’s work, or had even talked to each other about their work. Granovetter’s
argument is corroborated in a number of ways as all bridging ties between departments
were indeed found to be weak, contact circles of two scientists overlap more according
to the strength of their tie, and interdepartmental ties disproportionally consist of weak
ties.
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The intra-organizational network and the diffusion process also is influenced by institu-
tional and technological features of the organization. Lundberg (1975) conducted so-called
small world experiments in two large organizations in Dallas, that differed in the level of
bureaucratization and the standardization of production technology. Employees had to for-
ward a parcel to a particular employee working at their firm whose name and position were
given, while only using personal contacts they knew on a first name basis as a go-between.
Within the company that was less bureaucratized and had less standard technology, more
chains were completed, and employees were better able to cross hierarchial lines. Further-
more higher echelons could locate each other far better, than employees at lower ranks of
the organization.
Yet learning about an innovation is different to deciding to adopt it and the first will
be more influenced by weak ties than the latter (Flap 1976). Employees worry whether
an innovation will serve their interest, which is something they would not want to admit
to everybody. To establish whether it is wise to adopt they talk to similar others, that is
their direct colleagues. A new idea diffuses within an organization as workers talk about it
with colleagues with whom they also discuss work and personal matters, rather than with
their formal superiors. Decisions on adoption of innovations give insecurity. The more
important and insecure those decisions are, the more employees speak freely about them
with and seek advice from only those they trust. Those also happen to be people of more
or less similar ranks. Just being a work mate obviously is not enough in discussing new
ideas, to discuss more risky decisions one needs a sense of security (Albrecht and Ropp
1984; Krackhardt 1994). However, the presence of such strong, multiplex, trusted ties
does not mean that new ideas will be adopted because such discussion may occur only
among those of similar position and authority and do circulate to other levels or circles.
Such discussion may also lead to the formation of a coalition that is against applying new
ideas.
To reduce their insecurity employees might also look at those who are similarly placed
within the network of the organization, which are co-workers to whom they do not nec-
essarily have direct ties. For this there is still only indirect evidence in Burt’s study on
occupational groups. The diffusion processes between those working in different organi-
zations depend on cohesion as well as structural equivalence, both are conditions in which
persons see themselves as socially similar and which make them find value in the same ideas
and behaviors. These contagion effects dwindle if the social structure of a group is more
complex, not only because comparison becomes more troublesome but, according to Burt
(1996b), the need to compare also becomes less important. Later on in the diffusion process,
if a large part of the employees already chose for adoption, the rest will probably follow as
an effect of conforming to norms of what it constitutes to be a good employee. In line with
this interpretation Ibarra (1993) found, contrary to the romantic idea that marginal people
are the first to adopt, that the most central persons in the informal network are the first to
adopt administrative innovations. This socialization process seems to be more about trans-
mitting knowledge than about exercising moral pressure, if findings on the transmittance
of existing culture through networks are studied. The socialization of newcomers in the
culture of the organization, is more successful if their network, especially the information
network is more connected (Sherman et al. 1986).
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Finally, it is important to emphasize that organizational behavior also feeds back into
network structures, as for example, those who can handle insecurity and adopt an innovation
early usually increase their centrality and power within the informal network (Burckhardt
and Brass 1990).
(b) Utilization of Human Capital.
The performance of an organization probably suffers if
the human capital of its personnel is underutilized. From the perspective of individual em-
ployees this will first be seen as a case of unjust inequality. The extent to which employees’
human capital is utilized in a work organization seems to depend partly on their informal
social networks. Minorities and women often have a kind of division of labor between
ties within their network at work: for friendship and emotional support they turn to the
minority or female colleagues and for work-related advice and other kinds of instrumental
help they turn to white male colleagues (Ibarra 1992, 1995, 1997). This probably puts
them at disadvantage if vacancies at a higher level arise, because then they have to compete
with majority men who have more multiplex ties to those who decide upon promotion and
filling a vacancy, i.e., usually white males. The managers deciding upon promotion need
‘proof’ that candidates do not represent potential damage and will be acceptable to the rest
of management. To that end they gather trusted, fine-grained information from those with
whom they have strong, multiplex ties of work contact and friendship, ergo they exclude
women and minorities from their considerations.
More concrete evidence as to what is sometimes called a ‘glass ceiling’ through which
women and minorities cannot break, is provided by Brass (1984, 1985) who demonstrated
that not only is there such a divide between practically all male and all female networks in
a group of non-supervisory workers but that also female workers have far less chance of
being promoted to a supervisor-position, probably because they were not-integrated in the
male network. Concordant with this hypothesis is evidence from survey research that shows
that there is hardly any effect of sex on occupational chances left once the education and
the social network of an employee is taken into account. Additional support comes from
research that shows that male managers are promoted earlier if they have more autonomous
networks (i.e., their alters are disconnected among themselves), but that female managers
as well as males who just entered higher managerial ranks are in need of a more cohesive
network, or even better, a high prestige sponsor that provides them with legitimacy, or else
they do not succeed in getting further promotion (Burt 1992; 1998).
Underutilization of human capital will also occur in other forms, for example, as we
already referred to, in that employees prefer to call upon their nearest colleagues for advice
rather than go to the officially assigned person (Blau 1955). It is no different for managers.
In cases of complaints by clients, managers rather go to a colleague manager than to the
person officially appointed to deal with customer complaints (Stevenson and Gilly 1991).
(c) Recruitment, Absenteeism, and Turnover. A basic reason for starting a firm is that
many economic ventures are only feasible if undertaken by a group of people organized
as a firm, thus an entrepreneur needs employees. There are strong indications that social
relations of employees of an organization are relevant to company results because they help
in recruiting new personnel, curtailing absenteeism, promoting productivity at the job, and
in countering turnover.
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Labor market research shows that most work organizations recruit a major part of their
work force through sitting personnel, especially if they have an internal labor market
(Windolf and Wood 1988). Of course, such networks have to be in place, otherwise they
cannot be used by employers (Fevre 1989: 103). At the moment that a new company is
installed, management cannot recourse to an existing labor force for the recruitment of
new-comers. For example, after the establishment of a new steel company somewhere
in the Mid-West of the US, the community network was first used to find new workers,
while later on the company’s work force became increasingly disconnected from the local
community as existing employees became responsible for the recruitment of new people to
existing vacancies (Burt and Ronchi 1990).
Social reports of large companies sometimes contain information on recruitment chan-
nels. They indicate that a company that uses its own personnel to recruit for vacancies has
to screen fewer candidates before the right choice is made. By hiring someone informally
through the existing labor force, especially a family member or a friend who is already
working at the company, the employer economizes on search as well as on enforcement
costs as he has the assurance that this contact person will somehow vouch for the person he
has recommended. In addition he also knows that the newly hired candidate will get along
with existing employees. Tacit skills needed for the job will also be more easily transferred
to the newcomer if there is some pre-existing tie (cf. Grieco 1987). Employers turn out
to recruit informally for functions with a high damage potential, that is in which ‘a wrong
choice’, i.e., the new recruit can make costly mistakes, and if it concerns occupations in
which criteria for measuring performance are unclear. Persons connected to those that al-
ready work at the firm are more visible than others and they probably signal a better quality
and higher trustworthiness (Flap and Boxman 1996). This suggests that the productivity
of an employee’s work-related social capital will be higher in the internal labor market, for
example, in internal promotions.
With regard to its effects one equality it has to be said that informal hiring through the
existing work force unintendedly promotes closure and reproduces existing social divisions
in the work place. Kapferer (1972) shows, for example, for a cloth factory in Zambia how
tailors came to their job through sponsors, resulting in tribal homogeneity of particular lines
of work within the firm as sponsors tended to refer fellow tribesmen.
If an organization has recruited capable employees, its performance will still be seriously
impaired if these employees show high rates of absenteeism. More cohesive networks and
stronger ties between employees within a work-organization curb absenteeism (Winnubst
et al. 1988). These results hold after controlling for tenure, age and sex. Cohesive networks of
stronger ties probably contribute to job-satisfaction which in turn leads to less absenteeism.
In line with this interpretation Tsui et al. (1992) find that an employee’s satisfaction with
his own network goes along with job-satisfaction.
Persons who are recruited through some kind of informal channel will not quit their newly
found job as readily as those who were recruited through some other channel (Montgomery
1991). Recruitment as well as turnover are somewhat akin to a snowball rolling along
existing social networks. In their so-called McDonald studies Krackhardt and Porter (1985,
1986) demonstrated that networks of those that leave are rather similar. Once there is
some turnover, it induces further turnover of others who are similarly located in the advice
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network (Krackhardt and Porter 1986). If workers see someone similar to themselves leave
the organization, this is particularly relevant information about the nature of their jobs and
their alternatives to working in that particular organization, information that stimulates to
imitate. To determine what is in their interest employees watch each other instead of other
employers.
Turnover is generally considered to be unproductive and detrimental to the organization.
It is also generally assumed not to enhance the cohesion of the employees, that is of the
stayers and the movers. However, both statements can be doubted. Granovetter (1986)
has emphasized that whenever a colleague is mobile, a remaining employee’s network is
enlarged too. This might improve his chances of getting ahead as well as his performance
at the job and thereby that of his company. There are indeed findings that demonstrate that
longer tenure leads to fewer contacts with peers and to isolation on the job, especially for
men (Olson and Miller 1983: 46). In addition and contrary to what one would expect, those
whose friends left, became more satisfied with their organization after their closer friends
left, perhaps because they are relieved, freed from complaints and negative opinions on
their work place (Krackhardt and Porter 1985: 254; cf. Krackhardt and Brass 1994).
(d) Work Stress and Job Satisfaction. If employees are at their job and not absent, they
might still not be motivated to work as they experience too much stress. Or they may be
dissatisfied with their job which is probably neither conductive to job-performance. Em-
pirical research shows that the association between job-satisfaction and performance is not
that clear cut, though. The relation between social integration at the job and performance
is also not that simple. For one thing, isolated employees identify themselves strongly
with their jobs, while socially better integrated workers have a higher internal motivation,
suggesting that managers should take care how to organize the workflow among differ-
ently motivated workers (Moch 1980). In research within organizations Brass (1981) and
Bulder et al. (1995) do not find an association between network centrality and job satisfac-
tion. Yet Hurlbert (1991), while using survey data on personal networks, shows that being
enmeshed in social circles of co-workers with similar characteristics or similar interests
does contribute to job satisfaction, a finding that suggests that satisfaction comes from
interacting with similar others. A more instrumental interpretation such that co-worker
social circles are only beneficial if they offer resources, is also possible, because in ad-
dition to the fact that a larger number of coworkers in a worker’s core-network promotes
job-satisfaction, there is a sizeable interaction-effect: if co-workers have a higher education
the effect is positive, whereas it is negative if they have less education. Using a design
in which he analyzed his reconstructed data-set on work place ethnographies and newly
collected data in a survey among workers Hodson (1997) established that solidarity among
co-workers as well as good relations with management contribute positively to workers’
job-satisfaction.
Assuming yet another explanatory mechanism, i.e., people strive for cognitive balance,
Krackhardt and Kilduff (1990) demonstrate that where there is more agreement amongst
friends at work about opinions on the work-attitudes of specific colleagues, the more satisfied
they are with their job. Disagreement about the work-attitudes of colleagues reduces job
satisfaction. Elsewhere Killduff and Krackhardt (1994) predict that if a person is in-between
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two people who are not friends with each other, this fact will be detrimental to his job
satisfaction.
Among the many studies on stress, there are only a few on social networks and stress at
work (see Winnubst et al. 1988). Most of these studies are cross-sectional and do not find
a correlation between social support at work and less job-stress (Buunk 1990). However,
in a carefully designed longitudinal study among over 2000 employees of 21 firms in the
Netherlands no evidence was found for the popular idea that social support at work buffers
work stress, or forecloses its occurrence (Marcelissen et al. 1988). This study suggest that it
is the other way round: stress changes an individual’s network, as others in the network try
to avoid focal persons that are stressed. Social support has positive effects in that it reduces
role ambiguity, work overload, and job future uncertainty for the lower occupational groups,
but not stress. Thus the association between work-stress and less social support is a selection
effect and cannot be attributed to the absence of social support. The same study indicates
that simply pleasurable companionship prevents stress (Buunk 1990: 317). Furthermore
it shows that persons from the highest as well as the lowest occupational levels perceive
less support from other individuals. In general there is more support by co-workers than by
supervisors.
(e) Equity. Feelings of inequity by employees about the unfair treatment they get from su-
periors or co-workers is also a probable cause of underperformance and conflict (Cropanzano
and Greenberg, 1997). Employees come to judgments about the fairness of the wages they
earn by comparing their salary to points of reference. They construct such a frame of ref-
erence when they become aware of the compensation of those in other occupations, often
through direct contacts at work with co-workers and with friends and family outside work.
Gattrell (1982) in his research among a group of 90 blue-collar workers, in different man-
ual occupations in a municipal public works department in Cambridge, finds that skilled
workers are more aware than unskilled workers of wages earned by colleagues working in
comparable jobs in the private industry. Persons in managerial or professional jobs become
aware of others’ wages more often through strong ties, probably as they are more secretive
about their earnings than other workers. Which of the groups they have ties to is chosen
as a point of reference also depends on physical proximity at work and the visibility of an
occupational position in general, for example, its sheer number of incumbents.
Therefore, employees seem to use those colleagues with which they have direct social
contact and who are more or less similarly placed within the same industry as a reference
group. Gattrell points to an interesting implication of this research as he stresses that
comparison processes, precisely because they are embedded within social networks of
various types of co-workers, will produce a stickiness of relative wages, that engenders
pressures for upward movement of all wages, that is wage inflation, once the earnings of a
particular occupational group are noticeably enhanced.
(f) Information Efficiency. There is an interesting more formal literature largely within
business economics on information-efficient networks within organizations that is not well
known within sociology. Perhaps because an information-efficient structure is seen as a
proxy for an optimal group performance there is not much actual empirical research on how
strongly information-efficient networks promote performance of real organizations. An
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exception is the already cited study by Krackhardt on local branches of banks (Krackhardt
and Hanson 1993; Krackhardt 1994). These studies generate important arguments and make
interesting predictions. The claim of the information efficiency approach is that it is not
opportunism or other incentive problems of workers and managers that reduce performance
but communication costs in the production process, while production is presented largely
as consisting of processing information in a group of information processing units, i.e.,
workers.
Williamson (1967) makes the fundamental point that information overload is not only the
result of bounded rationality and limits to information processing by individual managers
which force them to delegate tasks to others. There will also be information overload to the
firm depending on how the tasks of those in the firm are coordinated in a communication
network. The question posed is how to process a certain amount of information with as
few as possible persons with minimum delay. What are optimum network designs for an
organization?
It has been made clear, inter alia, by Radner (1992) and Bolton and Dewatripont (1994),
that if it is assumed that organizations have to produce decisions and that they are like
a network of information processors in computer science, hierarchies will be remarkably
effective in decentralizing information processing. The most efficient hierarchies are not
the archetypical regular hierarchies but hierarchies in which superiors have subordinates at
all levels of hierarchy, with so-called ‘skip level reporting’. Efficiency of an information
processing network is a trade-off between serial and parallel production. Trade-offs between
the cost of specialization in information processing and coordinating between workers at
the same and at different levels of hierarchy mean that a regular pyramid is not always the
most efficient structure. The need for urgency sometimes makes pyramids with parallel
processing sub-optimal for throughput, especially if information specialization has high
returns, in that case serial production will be more efficient.
In contrast to the existing models on information efficient networks some relational
redundancy probably promotes performance in real organizations, for example if demand or
the production process itself results in many exceptions to existing routines, a worker might
need to consult with many others. Moreover, with some ‘relational’ slack in the organization,
the network is less affected by turnover or by the sickness of particular employees (cf.
Krackhardt 1994).
(g) Mobilization for and Outcome of Conflicts.
Not all differences in opinion are ar-
ranged reasonable, or orderly within the context of existing procedures. Some differences
of opinion between members of an organization turn into conflicts for which both parties
try to mobilize supporters in an effort to decide the conflict in their favor. The common
assumption, which is probably true, is that such conflicts generally are neither good for
performance, nor for cohesion among the employees. But often conflicts between employ-
ees last and keep soaring because they do not deal with the co-workers who cause them
difficulties, for example, those who are before them in the work flow, while they do talk
with those who are less important as far as doing their job is concerned (Burt 1987).
Network conditions influence whether a conflict between individual employees comes
into the open and whether there is any collective mobilization for such a conflict. Based
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on a study of 20 different organizations Nelson (1989) reports that a high aggregate level
of many strong ties goes together with the absence of disruptive conflicts, and that orga-
nizations are more conflict ridden if cohesion is low. Strong ties between groups within
an organization, especially between a dominant group and other groups, reduce chances
of disruptive conflicts among employees (see also Nelson 1986). In a combined study of
his data-set on ethnographies and a new survey among workers Hodson (1997) found, in
contradiction to the common assumption that solidarity among workers would promote
strained relations with management, that such solidarity actually promotes good relations
with management, and that conflicts between workers are associated with conflicts between
workers and management.
In a more detailed study Kapferer (1972) describes two consecutive episodes in an Indian
cloth factory in Zambia where skilled workers who have invested more in their job and in ties
at their job try to mobilize fellow workers for a strike against management. In contrast to a
first time they try such an action they succeed in mobilizing their fellow workers in a second
phase because, as Kapferer describes, some of them succeeded in establishing ties that cross-
cut existing cleavages along ethnic lines, type of work, and level of skill. In another study
in a zinc factory also in Zambia Kapferer (1969) finds that in conflicts between employees
it is not so much the number of direct supporters, but rather the multiplexity of their ties
to ego as well as the ties amongst each other that decides who will be supported. More
generally expressed, people try to align themselves in such a way that least possible damage
is done to their investments in other persons. Doreian (1982) reanalyses Kapferer’s (1969)
and Thurman’s (1969) case-studies of conflicts within organizations. He reformulates
Kapferer’s conclusion and states that levelling coalitions against particular employees can
only succeed if the first order zones of the networks of the targets are not part of the first
order zones of the networks of others.
Burt and Ronchi (1990) describe the situation of a large steel plant in the US in which
the new management met with lack of cooperation and obstruction of its plans without the
grounds for this resistance being clear to management. Using unique information from
personnel records on informal recruitment they demonstrate something that was unknown
to management: the work-force of the company actually consisted of two large factions
that were opposed to each other and there was practically no one among the employees
who had ties that bridged this divide. What had happened was that in the course of a
reorganization the new manager had layed off employees with no consideration for the
social capital they represented. Actually he had fired the few employees who formerly
tied together both factions. If social credit grows sour, management loses access to the
knowledge and capacities of its employees and will loose the company.
Indirect ties are important for the emergence, development and outcome of conflicts. If
a person has ties to friends of the opposed party, this fact forecloses that levelling coalitions
will be organized against him. The existence of brokers, especially if they are well-respected
(cf. Krackhardt 1994) prevents conflicts becoming disruptive. If conflicts escalate, the
chances of winning increase if a person is supported by alters who, in turn are supported by
many others. The sketch of the explanation being that employees defend their investments
in others, and that is why they generally dislike becoming mixed up in conflicts between
co-workers: this puts their investments at risk. They especially do not want to be caught on
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the wrong side, and if caught up in the middle they will try to make peace or choose parties
in such a way that least damage is done to their investments.
(h) Social Control.
In research on power it is implicitly assumed that if one knows the
network structure, one can detect the distribution of power, and consequently predict be-
havior as individual actors will make use of the possibilities their network position allows.
Recently this assumption has come under attack as ‘the power to punish does not automati-
cally lead to its use’, that is to bilateral, harsh confrontational strategies (Molm 1996: 149;
cf. Wittek 1997). Molm (1996) discovered in experimental research that those who have
much power because of their structural location within the network do not have to use that
power or any other control strategy, as they receive many advantageous interactions anyhow.
Those who are dependent on others and find their requests for help unanswered, will not
try to coerce the others, since coercion is risky if one is less powerful. Fieldwork research
among managers in American firms shows, however, that in reality confrontational styles
of conflict management are not that rare, they are used as often as ignoring grievances, and
especially if a manager has reliable allies within the firm (Morrill 1995: 86).
There are other instances of the non-use of structurally induced power in controlling
others. There is a collective good aspect to social networks since a person borrows, so to
speak, the resources and contacts of the persons he has access to. This leads to the question:
who will bear the costs of sanctioning a freeloader? There are a number of alternatives, one
of which is: ‘Let George do it’. The other alternatives are ignoring the trespass, exit, or
doing the sanctioning yourself. Why is one strategy chosen instead of another? Network
research shows that network position determines the type of control strategy used. Analysis
in a small number of diverse organizations shows that actors with many ties generally do
not prefer harsh bilateral control strategies and that they often ignore the negative effects
that other’s behavior might inflict upon them. Actors who are structurally autonomous, who
have holes in their network and are therefore powerful, do not use this power in a bilateral
way. They frequently prefer trilateral strategies, i.e., they gossip and mobilize others to
restrain the culprits from anti-social behavior (Wittek 1997).
The so-called second-order-free-rider problem of who is to bear the costs of monitor-
ing and enforcing others to conform to organizational and professional rules is especially
prominent in firms of professionals since they are usually formally equals. Lazega (Lazega
and Vari 1992; Lazega and Lebeaux 1995; Lazega 1996) studied how lawyers in a middle-
sized traditional corporate law firm in New England use trilateral strategies to control each
other, to make sure that each of the partners works and does not freeload upon others.
Members avoid open face-to-face conflicts. They protect their own social capital, they do
not like to spend it. Only if the infractor is within their own personal network did they
mobilise their own network to restrain the infractor. People mobilize others who are similar
to the offender and have strong ties to that person. Put in another way, they prefer to spend
the social capital of others rather than their own. Those others chosen for the job are not
the ‘rainmakers’ who bring in the clients or the ‘grinders’ responsible for a lot of the work
that can be billed, but a small group of so-called ‘minders’ who mind the shop and do a
lot of the administrative work. Leverage is concentrated in these multi-target menders who
because they are uncontroversial can legitimately speak on behalf of the common good.
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These persons are not central in the friendship or the advice network, but they are in the
influence network.
Sometimes it is in the common good to bend official rules, for example, in the case
of conflicts of interests that occur if attorneys of the same firm represent different parties
involved in a legal controversy. The professional rules and ethics prescribe that one of them
should give back the case. Yet both attorneys are better off when they play down or even
hide the conflict of interests. Moreover no one can force the other to renounce the case,
not even those with more informal power, since the other can always threaten to go public.
The outcome is that every attorney remains autonomous as to which clients he takes on,
and they help each other to bend the rules by Lazega (1994).
In cases of conflict one might also expect people to take recourse to internal grievance
procedures. Not all organizations have such procedures, but in cases of conflict, at least
according to Morrill’s ethnographic research among American managers, a manager hardly
ever takes recourse to internal grievance procedures even if they are there. They like to
deal with their conflicts informally. The formal structure of an organization influences the
control strategy used. Morrill (1995) shows that bilateral strategies are used in mechanistic
bureaucracies, atomistic, professional firms and matrix organizations in one fourth of all
trouble cases between managers. Trilateral strategies are often used in matrix-organizations
but hardly ever in atomistic or bureaucratic firms, these rely on unilateral forms of conflict
management. In atomistic firms, with sparse networks of weak ties, many conflicts are man-
aged by simply ignoring them, while in mechanistic bureaucracies grievances, especially
by top management, are expressed in an accusory manner. Remedial modes of expression
are used in all kinds of firms in a third of all cases of grievance. Take note that Lazega
paints quite another picture of a firm of professionals. The law firm he studied has a rather
dense network and is not atomistic at all, moreover trilateral control strategies abound.
According to Morrill there is an inertia in organizations in the sense that informal pat-
terns of conflict management reproduce themselves over time because of the way informal
network patterns and formal structure stimulate the choice of how to control and handle
conflicts, which in turn reproduces existing networks (Morrill 1995: 68–91). It seems an
especially dangerous strategy for firms that persons avoid addressing others who cause
trouble in the work process or fail to contribute to the company’s goals.
Still another manner of resolving a conflict is to apply some network surgery (Burt 1987).
In his study of an agricultural cooperative in Uruguay, Gargiulio (1993) finds evidence that
members who are constrained by particular others follow a two-step-leverage strategy: they
attempt to embed conflicting ties to people upon whom they depend in relationships with
third parties over whom they have more control, and in doing so creating some indirect
leverage, thus relieving the constraint that the first person exerts upon them.
Trust, next to an excess of power or official grievance procedures, seems to be yet another
plausible alternative for network control. Several authors (Granovetter 1985; Coleman
1990; Raub and Weesie 1991) argue that being embedded in closed networks of strong
ties produces trust. People are kept from acting opportunistic by easy observability and
by reputation effects. These statements have not yet been put to a real empirical test, at
least not in an intra-organizational context. There are impressive illustrations, though. For
example, ‘on the wholesale diamond market a merchant will hand over to another merchant
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a bag of stones worth hundreds of thousands of dollars for the other to examine in private at
his leisure, with no formal insurance that the latter will not substitute one or more inferior
stones or a paste replica. Close ties, through family, community, and religious affiliation,
provide the insurance that it is necessary to facilitate the transactions in the market. If any
member of this community defected through substituting other stones or through stealing
stones in his temporary possession, he would lose family, religious, and community ties’
(Coleman 1990).
Burt (Burt and Knez 1995) recently started more quantitative research of the production on
trust through social networks within organizations. Gossiping about others can be considered
a special type of control strategy. By telling stories about a third party that another person
wants to hear someone can lessen the social distance between him and that other person.
In a study of 284 managers in a hightech firm distrust was shown to be unlikely in strong
relations. More intriguing is the fact that not only trust but also distrust is more likely when
there are more indirect connections, as others relay stories about third parties that confirm
what the focal person seems to think about that third person. Negative opinions about others
become usually enforced while gossiping about that person with a third party. Ego only
has a firm chance of correcting his distrust of another person by gossiping about him with
relative strangers. Elsewhere Burt calls this the Groucho-principle in honor of Groucho
Marx who once said: ‘I don’t care to belong to any club that would have me as a member’
(Burt 1996a: 22). Wittek et al. (1996) recently established in an intra-organizational data-set
on a number of work organizations that trust indeed makes for greater cooperation between
employees. A history of cooperation makes this effect stronger still.
It is noteworthy that employees are only aware of a local part of the total network and
the role performance of those implied (Friedkin 1983). This horizon of observability is
strongly affected by network characteristics, especially the existence of two-step indirect
ties to others. Observability tends to be restricted to those who are either in direct contact
or who have at least one contact in common. Accordingly informal control processes will
rarely include persons who are more than two steps removed from each other.
(i) Profit, Survival and Individual Performance. Most telling to managers is probably
that informal ties affect profit. The most convincing evidence here has been provided by
two comparative studies on local branches of banks. They provide a near ideal set up for
research on the productivity of informal networks, since the institutional context is constant,
the formal organization, that is, the prescribed social network, is constant, the size of the
local establishments is similar and human capital is not that different. Thus the only thing
that can be held responsible for any differences in profit and the like, perhaps apart from
clientele, is the informal make up of these local branches.
Krackhardt (1994) and Krackhardt and Hanson (1993) in a study of 24 local branches of a
large bank on the American East Coast established that little hierarchy in the communication
network as well as some ‘slack’ in the informal advice network was conductive to higher
profit margins. Non-hierarchical branches, those with two-way communication between
people of all levels were 70% more profitable than branches with one-way communication
between superiors and staff. Some relational slack is productive as it makes the network less
vulnerable. Employees are not sealed of from each other if a particular person leaves or is
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absent. Least-upper-boundedness in the advice network is a predictor for profit too, where
a least-upper-bind means that two people have a person in common they both respect and
who, because of this, can act as an arbiter if a conflict arises between these two employees.
Robbins et al. (1995) report similar results from their study of 15 local branches of a retail
bank in Melbourne, Australia. Sales performance is best if employees express affective ties
to their managers, if branch leaders like each other, and if workflow and affective networks
are congruent with the formal hierarchy. Management in this situation is probably better
able to produce enthusiasm and convince its staff of how to sell new products. Influence
and advice networks are not significant predictors of performance.
Another convincing argument would be to demonstrate that social networks help an
enterprise in the event of an economic setback. Meyerson (1992) studies 29 public firms
in Sweden, some of which have spread ownership, while others have a stockholder with
majority ownership, and analyzed how quickly they recover after experiencing a drop in
stock prices. The companies with spread ownership have a cohesive management team, and
weak, non-overlapping external ties. This team is decision competent, able to buy time
after a major set back like a fall in stock prices. The management team of a majority-
owned company is less cohesive and has an external network with overlapping, strong ties,
especially to the major owner. This type of team is less well informed and less able to
buy time, or to come to a decision and stick to it and less adept in circumventing take-
over bids, but it is quicker to recover on the stock-market. Meyerson argues that one can
speak of a leadership paradox, as property rights lead to either a decision competent or
to an information-competent management team, whereas it would be better for a firm’s
performance to have a management team that is both information- and decision-competent.
A third literature that seems to allow clear cut conclusions on the relation between
network and business success is the newly emerging one on business success of newly
founded small firms. Next to growth of sales, profit or personnel, success can be measured
by time of survival since its founding. Moreover as the new firm usually is quite small,
network measurement is not that complicated. Research on this topic received a great
impetus from the discovery that the declining historic trend in the number of self-employed
has recently been reversed, and that small firms are responsible for much innovation and
job-growth. It was found that the success of starting entrepreneurs partly depends on their
social networks. Family and close friends help to amass the financial means to start a
business, information on employees and business opportunities is received from weaker
ties to colleagues, regular customers and other acquaintances. Again it was confirmed that
a partner who helps by providing emotional support, and also works within the firm is
a great asset to a starting entrepreneur (Br¨uderl et al. 1996; Br¨uderl and Preisend¨orfer
1997; Flap et al. 1998). Related literature, starting from the observation that some ethnic
minorities are overrepresented among the self-employed, proposes that strong and large
families combined with a bounded social solidarity among co-ethnics, caused by a lack
of alternatives, are responsible for the business success of ethnic entrepreneurs. As yet,
however empirical findings on social networks of ethnic entrepreneurs and their business
success are less equivocal (see Flap et al. 1997).
One could of course also see associations between types of networks and job rewards,
such as status, income, promotions or bonus payments which have been established in other
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network research as indications productivity of social capital (cf. Brass 1985; Boxman
et al. 1991; Burt 1992, 1996a), because in principle they can be seen as rewards for job-
performance. But job-rewards like income and prestige are only a proxy of performance,
since many other factors besides performance will co-determine an employee’s income and
prestige.
4
Moreover, payment is probably as much an incentive for future performance as
it is a reward for past performance.
Surveying the field it is quite amazing that only very few studies have been published up
to now on personal networks and performance of persons while they do their job. One is
Tsui and O’Reilly III (1989) who find that increasing dissimilarity in superior-subordinate
characteristics leads to lower effectiveness as perceived by superiors, less personal attraction
on the part of the superior and more role-ambiguity for the subordinate on top of the effects
of simple demographic characteristics. Different lengths of tenure and different sexes
(women superiors rate women subordinates higher) interfere with performance ratings.
Racial differences between superiors and subordinates do not have an effect on performance
ratings, nor do educational differences.
Lazega’s study of performance in a law firm is another exception. He demonstrates that
attorneys informally sought out for advice and for collaboration by many other partners earn
more money for their firm. Being popular in terms of friendship within the firm does not have
an effect on economic performance. Furthermore those with a constraining co-workers’
network, work harder and earn more money for their firm (Lazega 1998). The latter effect is
somewhat at odds with Burt’s idea of structural autonomy being advantageous to success at
the job. Lazega’s interpretation is that underperforming employees are brought back in line
because a dense network with many multiplex ties of friendship, co-workership and advice
enables others to bear pressure on them. A closer look at the types of different exchanges
between different attorneys lays near that there is a multiplex generalized exchange system
within the firm, a kind of corporate social capital that is a precondition for personal social
capital to be productive.
Finally, one has to take into account that there is evidence that the good performance
of an organization affects ongoing social relations within that organization. This applies
to ordinary employees and managers: members of more effective work groups have a
greater tendency to socialize together (Bass 1990: 667). The favorable market position of a
company or the prestige of a department within a firm will also increase the informal power
of the managers (Blau and Alba 1982).
4.
Conclusions and Discussion
Our review makes clear that informal networks are, in various ways, important in explain-
ing how work actually gets done within an organization. Network research improves our
understanding of the functioning of organizations, although we perhaps should have elab-
orated more upon how much. Moreover there is progress within network research. But
rather than summarizing what we have already said above, we think a more fruitful way of
concluding this review would be to concentrate on a few issues more or less common to
all intra-organizational network studies and which probably will not go away, and which
stand in the way of network research within organizations becoming more than a research
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speciality, and having a more lasting influence on organizational studies, or for that matter,
on sociology.
We will start by briefly mentioning some issues and finish by discussing a few in more
depth.
(a) One issue that is unresolved is the relation between the formal and the informal social
structure of an organization, and what their match or mismatch means for productivity.
Proponents of network research are inclined to present the claims of their perspective in
somewhat absolute terms: ‘Give us the structure of the network, and we will tell you what
the people involved will do’. In doing so they forget the institutional and organizational
conditioning of network structures and their productivity which we already mentioned ear-
lier in this review. An alternative view that deserves research is that networks between
employees and between employees and their superiors are simply alternatives, that it sub-
stitutes for other ways of getting things done within an organization, such as working along
standard rules or obeying formal hierarchy (Granovetter 1992). Probably even more realis-
tic is the view that in every organization some mix of these different ways of coordinating
and motivating people is used (Douma and Schreuder 1992).
(b) Our review shows that intra-organizational networks influence organizational behavior
and its outcomes, including its economic performance, but organizational behavior and
performance also feed back into existing network structures. On this matter, which is more
than just the methodological question of how to control for possible confounding factors
(cf. Mullen and Copper 1994), we cited a few examples, but there is not much systematic
knowledge as yet.
(c) Social capital has until now, often seemed to be the forgotten factor, not only in
research but also in management. Yet even if attention is paid to social capital, is existing
social capital also managerial social capital? (Burt 1987; Kanter and Eccles 1992; Bulder
et al. 1996). This is an undiscovered territory. That networks can be manipulated to a
certain extent, is clear. Take the already mentioned example of the greater fighting spirit
of German troops at the front in World War II. Unlike the allied commanders the German
army command quite consciously kept these groups together even after heavy casualties,
and only replaced wounded and dead soldiers by new ones if the troops were not at the front
for a brief spell (Janowitz and Shils 1948). However, one cannot force people to like each
other. What is certain is that management can do a lot of wrong to existing social capital
(see Burt and Ronchi 1991).
Moreover, the common assumption is that any mismatch between informal and formal
networks is detrimental to the performance of the organization and that to make amends
is to adapt these networks to their function. In addition the assumption seems to be that
while reorganizing a company the informal organization will simply adjust. Krackhardt
and Hanson (1993) argue that in light of everything that is known about the robustness
of informal networks, it makes more sense to change the formal structure to reflect the
structure of the informal network.
(d) Social capital is often presented as some kind of lubricant that helps us attain all kinds
of goals. But social capital is probably more goal specific. In this respect there is a more
general importance to the findings on small firms, as it is clearly demonstrated that starting
entrepreneurs use specific parts of their personal network to accomplish different goals.
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Recently Podolny and Baron (1997) showed the positive effect of having an autonomous
network position, that is having a network with so-called structural holes (see also point (k)
of this section), is conditional on the content of the ties. Holes in one’s advice network are
conductive to promotion, but those in one’s network of sponsors are not. Lazega (1997)
suggests that at the level of intra-organizational networks social capital is also goal specific,
different networks solving different problems of the organization. A complicating factor
is that these goals are not all constant and given, larger firms especially follow business
strategies and decide upon their own goals.
Now we will turn to a number of issues that we will treat somewhat more extensively
because they are important, relatively unknown, and even more specific to the research on
the productivity of intra-organizational networks than those mentioned above.
(e) Difficulties in data-gathering and data-analysis and research design are still great.
Many of the other problems within network research stem, at least partly, from the difficulty
to get access to organizations to do intra-organizational network research. The first of which
is how to amass data on a large number of ‘units’ so as to be able to compare and draw strong
conclusions, based upon statistical analysis. To make the best of the situation Hodson drew
up a catalog of existing case-studies in comparative respect in a way that has been done in the
Human Relations Area Files project of G.P. Murdock in which anthropological field studies
of different pre-industrial societies were coded in such a way that the resulting data-matrix
made it possible to test all kinds of evolutionistic theories on the development of societies.
Another way out would be to engage in future intra-organizational network studies with
the idea of stacking these findings together with those of similar other studies. Naturally,
some standardization of interview-questions is a minimum requirement here (Krackhardt
and Hanson 1993).
Another serious matter is that most existing knowledge on intra-organizational networks
and performance has been gained in cross-sectional studies and it is not known how stable
intra-organizational networks are. In methodological terms the question becomes how
large a time window should studies cover? And even if there are changes to be reported,
how great is the chance that they are caused by interviewer-effects or intra-respondent
effects? (see Weesie and Flap 1990). Longitudinal designs can help decide upon ‘the
chicken-or-egg’ problem we also alluded to above, for example, whether particular networks
influence the diffusion process, or whether networks are a result of a diffusion process, or
whether it is a two-way process. Longitudinal intra-organizational data sets are very scarce,
and those that are available have not been reported upon in any detail up to now (Wittek
1997).
Simulation might be of help as a method for theoretical advance (Lin 1994; Krackhardt
1994; Stokman and Zeggelink 1996; Banks and Carley 1996). It makes it possible to
have one model that gives an endogenous explanation of network change as well as the
ensuing alterations in the performance (see Montgomery 1996). Perhaps simulation might
in an indirect way also do something for the problem of how to get access, as it shows,
that rather crude ways of measuring networks, such as following what a few experts say
about the internal network of an organization produce predictions that turn out to be correct
(Stokman and Zeggelink 1996). Yet one would be sceptical about its general usefulness
given Krackhardt’s findings on how badly some employees, including management, know
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to describe the networks in their department (see below). Although not unique to the study of
intra-organizational networks, cognitive biases probably impede the quality of network data
more because, whether or not a particular network member is mentioned by a respondent
might drastically change the recorded network structure (cf. Freeman et al. 1987).
(f) Cognitive representations of intra-organizational networks play a part in the discussion
not only as a possible source of bias. A more forceful theoretical argument has been made by
Krackhardt (1987, 1990) and Kilduff and Krackhardt (1994). According to him cognitive
networks, that is the images people have of the networks they are enmeshed in, are a more
immediate cause of what people do than their actual networks. This argument is backed
up by empirical evidence. For example, those who misrepresent the network they are part
of are less powerful within the organization. Or it is not no much the actual ties to a high
status person but the belief by others that someone is connected to such a person that works
as a signal of his quality and brings advantages to the person in question, for example, a
better evaluation by a superior.
5
Research should and probably will continue on this point
and seek out, amongst others, whether this is generally so or only in specific situations,
or for specific persons. And if managers and employee misrepresent their own and other
people’s network why do they do so?
(g) An intriguing theme, but not very well spelled out until now, is the relation between the
social capital of individual actors and that of the corporate actors they work for. There are
hardly any studies that deal with networks at the level of the department or the organization
and personal networks on the one hand and how these interact in the solution of problems
at the organizational or departmental level on the other. The much used solution of treating
collective, corporate actors like an individual does not help much (see Coleman 1990), if
one asks how the aggregate social capital of a department of an organization as a corporate
actor relates to the social capital of individual members of an department or organization.
Indeed, is there such a thing as the social capital of an organization?
Coleman (1990) proposes the image of the number of credit slips standing out as an
image of an individual’s social capital. The total number of credit slips employees have
outstanding with their co-workers might be a useful point of departure in drawing up account
balances of the social capital within the firm, yet workers might employ this social capital
to their own ends and not to those of the company. This proposal is also rather abstract, no
efforts have been made to see whether it can be made ‘operational’.
There is also the collective good aspect of internal networks as social capital and the
accompanying problems of underinvestment in such goods—who invests in networks that
are used by others?—and second-order-collective-good problems—whom should punish
the opportunists? Coleman’s proposal does not take into account that there could be much
outstanding credits slips, but that they are not used to further the goals of the firm but for
private, opportunistic ends.
The question of property rights in social capital is hard to solve not only in sociological
theory but also in everyday practice, as is demonstrated by publishing companies that loose
out if one or more of their editors leave for a competitor taking with them the authors whose
books they promote (Powell 1984). Powell describes how publishing houses in reality
consist of a number of small firms or even better network of authors tightly connected to a
particular editor within the firm. Recent history of the western financial world shows that
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investment banks run similar hazards, as bankers take clients whose account they managed
along with them to the highest bidder. Contracts between employers and employees that
stipulate that the employee cannot work for some time in a similar position after leaving the
present employer are no real solution. Of course, there will also be examples of the opposite,
employers engaging certain persons as employees or taking over certain enterprises just to
get a hold of their contacts with clients without being interested in the other productive
assets of the people.
One way out in this issue might be to concentrate on the products of social capital.
Some individual outcomes can be aggregated without further ado into company results, like
individual figures on absenteeism that can be aggregated into an average rate of absenteeism
for a company. Better individual performances will probably also translate into a better
performance of the firm. Other individual outcomes, for example leadership, or promotion
are by their very nature positional characteristics. It has also to be remembered, as we
mentioned earlier, that what appears to be a case of inequality or perhaps discrimination
from the perspective of individuals, is a form of underutilization of human capital by the
organization that employs them.
Perhaps new insights can also be gained by reversing the usual perspective of an individ-
ual seeking a job, becoming a member, etc., to the perspective of organizational ecology
according to which work organizations compete for members in space and in real time
(cf. McPherson and Smith-Lovin 1987; Liedka 1991).
(h) There is a watershed between the research literatures on internal and external net-
works of firms. Only a few studies deal with both simultaneously, for example Meyerson
(1992). This watershed prevents that certain questions get attention, such as the issue of the
compatibility of internal and external networks in the attainment of company goals. The
boundary between internal and external networks is partly a matter of the strategy chosen
by management. For example, one investment bank has an in-house sales network, that is
ties within the firm, while another decides to buy these services on the market, that is use
informal ties that reach beyond the firm (Podolny 1995: 292). Or to take another example,
many large firms nowadays take legal advice from external and internal lawyers not only
in an effort to instill competition between external and in-house lawyers but also simply to
learn what is the best way to proceed (Baker and Faulkner 1991).
What is internal and external is also not definitive through time. It is even hard to de-
cide what is internal and external at a particular moment of time. For example, at one
extreme investment banks have highly fleeting internal and external networks, take-overs
or issuing stock nearly always involve many different parties, from within and outside the
firm, sometimes a particular service is rendered by an outsider, sometimes by someone
from within (Eccles and Crane 1987). At another extreme there are companies which have
long-time contracts with each other, which means that they operate as if they were one firm
(Stinchcombe 1990). And what about multidivisional firms whose divisions charge each
other transfer prices and compete with each other, as well as with external companies, or
rather, divisions of other companies (Eccles and White 1986). There are many hybrid forms
on the continuum between market type situations and a monopoly (Powell 1990).
The fruitfulness of doing away with the separate treatment of internal and external social
networks is shown in an interesting historic example provided by Adams (1996). She
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describes how the returns on a particular intra-organizational network of a firm, the world’s
first multinational, the Dutch United East Indies Company (the VOC), depended on the
external ties of important actors within the company. In the eighteenth century, the company
declined as the relationships between principal and agents and the network in which their
relation was embedded changed. The principals in the Dutch Republic were for a long time
able to successfully monitor and control their agents in the East because both needed each
other, the principals needed their agents in Batavia and further afield to extend their political
sovereignty and to make a profit from trading, while the agents needed the principals in the
Republic for protection and to allow them transport home what they gained by corruption
and side-trading. The high betweenness centrality of the representatives of the VOC in
Batavia made them powerful brokers. At the end of the eighteenth century the English East
India Company had become a viable competitor, and it provided alternative partners to the
agents of the VOC to trade with. Moreover the English could also transport the money they
made through corruption. The increasing closeness centrality of the agents of the VOC in
Batavia made them independent of the principals in the Republic and increased the costs
of monitoring and controlling for the principals in the Republic.
A modern day example shows that those that span the boundary between external and
internal informal networks in a research laboratory will become more influential than sim-
ilarly placed persons in a technical laboratory, because of the greater task and environment
uncertainty of a research laboratory (Tushman and Romanelli 1983).
(j) The interest in intra-organizational networks is instigated by the search for what
kind of organizations perform best. Findings that informal networks are important for
the performance of an organization refute the Weberian/functionalistic idea that a formal
bureaucracy is the most rational organization, a type of organization at odds with all kinds
of particularism. Yet recent research makes clear not only that particularism is still rampant,
and moreover productive, but also that performances are hard to measure in real life.
There are various reasons why it is difficult to establish the performance of a company or
an individual even if one knows what aspect must be examined, for example, productivity,
profitability or reliability (Lin 1994: 114). Sometimes the product itself contributes to these
difficulties, for example, in the production of culture. Of course, one can go by the profits
made from the earlier cultural products of a particular artist, but this does not guarantee
future success (Powell 1984; Faulkner 1983). Teamwork is a condition that makes it difficult
to access the contribution of individual workers. As a consequence it is hard to tie incentives
to performance, and pay and individual performance cannot be coupled.
Where individual or company performance can be established somehow, performance
measurements run down nevertheless after some time. Meyer called this the performance
paradox (Meyer and O’Shaughnessy 1991; Meyer and Gupta 1994). There are several
causes for a decreasing correlation over time between indicators and performance. This
can happen through (a) positive learning, i.e., as performance improves, indicators loose
their usefulness as detector of bad performance; (b) perverse learning, that is performance
seems to improve without actually doing so, because employees or managers adapt to the
measurement systems and learn how to fix indicators; and (c) selection or replacement of
poor performers for better performers. Often these processes occur more or less simu-
ltaneously.
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In organizations performance measurement is often politicized. Criteria and actual per-
formance ratings are at least partly socially defined and socially constructed and manage-
ment will often decide what will count as a performance, and they will favor aspects they
themselves are good at. Moreover informal network within the organization are often impli-
cated in the process of performance appraisal in non-obvious ways. Measures of individual
performance, for example, estimates given by a work leader or a colleague, are liable to be
products of what psychologists call the halo effect, that is the marked tendency to think of the
person in general as rather good or rather inferior and to color the judgements by scores on
specific performance dimensions (Balzer and Sulsky 1992). Work leaders rely on what they
think are signals of good quality and performance. One of them is being connected to high
status persons. Kilduff and Krackhardt (1994) show that it is not so much actual ties to high
status persons but the belief that someone is connected to such a person that works as a signal
of his quality and brings advantages to the person in question. It is the cognitive network
of the others that predicts what work leaders think of someone performance as a worker.
6
Networks are also implicated more directly. To decide upon bonus payments for par-
ticular managers many large American firms make use of evaluation committees. It turns
out that if high status managers are evaluated by an evaluation committee consisting of
managers of relatively lower status, their rewards will be relatively higher (Belliveau et al.
1996).
7
Research on quality circles provides another suggestive illustration of the involve-
ment of employees’ networks in getting a certain performance recognized as being impor-
tant. Quality circles whose members have larger and more heterogeneous networks have
more of their proposals for improvement accepted and implemented by management. Su-
pervisors and managers have a higher opinion of circles’ effectiveness if members of these
circles have more extensive networks and longer tenure (Stohl 1986). Members’ percep-
tions of effectiveness depend more strongly on the cohesiveness of the quality circle itself.
Lately it has been argued that even seemingly neutral systems of monitoring and control
can easily lead to a fixation of workers on what is seemingly important to managers, still
worse it can destruct mutual trust especially in jobs that can only be done in an autonomous
way (Sitkin and Stickel 1995). In reaction Lindenberg (1993) proposes to search for con-
ditions in which there is a kind of social metering through lateral control within networks
of colleagues which is not offensive but helpful and productive. In this context it might be
worthwhile to cite what psychologists found on the relationship between group cohesive-
ness and performance in small-group research. The review of such studies by Mullen and
Copper (1994) shows an increasing effect of cohesiveness on performance from artificial
groups to non-sport, non-military real groups, to military groups, and finally to sports teams.
This trend might reflect an increasing salience and legitimacy of standards of excellence.
(k) Although there are remarkably few studies that deal explicitly with explanatory mech-
anisms, network studies, including intra-organizational network studies, have become ‘more
theoretical’ through time, as the theoretical status of informal networks changed: from be-
ing a restriction, to offering opportunities, and nowadays becoming a form of capital, i.e.,
social capital. The explanatory claim of social capital theory is quite simple, if an actor has
more resources, this actor will better achieve its goals.
Even if the introduction of the notion of social capital gives the mind some momentarily
rest, soon questions emerge as to the particular mechanisms responsible for the productivity
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of social capital. Future efforts should concentrate on the question of the mechanism between
social capital and the returns on social capital. What is the mechanism? There are many
ways in which social capital could provide advantages for an actor, as there are at least
three dimensions to social capital: the number of people prepared to lend a helping hand,
the extent to which they are prepared to help, and which kind of resources they can put
to this job, including the social connections of those who are prepared to help. Intra-
organizational research clearly has not thoroughly studied this last dimension. We met
with one exception: Hurlbert (1991) demonstrated that employees are more satisfied with
their job when their network members have better resources, that is a higher education.
And in a way others who emphasize that some structural features of networks have a social
capital aspects are dealing with this third dimension. Burt (1992) emphasized that there are
advantages especially in having so-called structural holes in one’s network, that give non-
redundant information and enhance control over others. Coleman (1990) instead pointed
to the social capital represented by a closed network, which gives cooperation advantages,
as it decreases transaction costs by providing more information on transaction partners and
spreads their reputations. Burt in a sense topples the argument of Coleman that friends
will tell you about a third party whom you trust but who might also cheat you. Burt says
that only if you speak to relative strangers can you correct misplaced distrust. The recent
ideas on trilateral control strategies by Lazega et al. seem to complicate the discussion still
further: people like to spend the social capital of others, especially in cases of producing
or protecting a common good.
Is it non-redundant information or the timing of the information, for example, on the
situation on the particular market the company is working on (Burt 1996b), or is it the
intensive information they can provide? Do employers recruit through informal, preferably
strong industry-related ties to decrease the risks of a wrong hiring? Do they ‘buy’ managers
and other employees who have rich social networks that will be productive in the industry
at hand? (Boxman et al., 1991). Or is it learning by the good and bad examples set by other
managers or co-workers? Is it that they instill a sense of belonging and consistent role-
expectations? (Podolny and Baron 1997). Is it that they provide points of reference against
which they evaluate whether they have been dealt with in a fair way by their employer? Is
it that they lower not only the search cost but also those of contracting and enforcement? Is
it that certain networks restrain others from opportunistic short-term profit-making? Or are
some kinds of relations helpful in doing one’s job by exchanging one favor for another (Fung
1991; Lazega 1998), while others are needed to get a better compensation, at least partly
independent of how one did one’s job? (Belliveau et al. 1996). Or are personal networks
particularly apt at tasks with many contingencies, not easily subdivided, and for which the
time of their occurrence is hard to tell in advance? (Litwak 1985).
Potential revolutionizing is the view of information theorist like Radner (1992) who
put forward the idea that what makes it difficult to get things done does not derive from
evil intention or misunderstandings but from the problem of how to coordinate the work
of a multitude of employees. Is it true that most transaction costs do not spring from
opportunism or individual rationality, but from coordinating sets of employees in such a
way in a network of information or work flow, that they work as efficiently as possible? So
apart from incentive problems, many other things can go wrong, incentive problems being
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only a minor problem. Information efficiency arguments are about how fast a certain task
can be accomplished with a certain number of workers under strongly idealized conditions.
There is no explicit focus on the time wasted by waiting in actual organizations. It might be
interesting to inquire into how much can be learned from what is known on waiting times
and the different networks of production in logistics.
An interesting, possibly helpful lead has recently been given by evolutionist psychology,
i.e., there has been a selection among humans and their ancestors over a long period of time
for certain behavioral responses that are supportive of life in a social group. These age-old
pro-social altruistic responses could in part explain the productivity of informal networks in
work contexts (Cosmides and Tooby 1992). Living together in groups of 40 to 200 persons
made people dependent on repeated face-to-face contact and led them to expect a common
future. Moreover, as persons know that they will meet with reversals of fortunes, they
learn it is wise to cooperate. Evolutionary psychologists speculate that such expectations
are perhaps part of human nature. Another example is that people generally seem to be able
to decide upon who is to be trusted, if only there is face-to-face interaction. This idea has
unexpectedly been supported by a finding from network research on electronic networks.
Such networks prove to be less helpful in building trust, and only do so if they are supported
by face-to-face interaction (Nohria and Eccles 1992).
The literature on performance implicitly addresses almost all the various explanatory
mechanisms we just described. First of all it was assumed that people receive help from
others in the expectation of future help or as payment of an existing debt, be it some kind
of information, advice, financial assistance, assistance at the job, or emotional support. But
the use of power, pressure to conform, or setting a standard for comparison are also alluded
in the explanation sketches that were given. This situation in the literature in which so many
mechanisms are held responsible for network effects is somewhat unsatisfactory, although
one can discern two more general mechanisms at work in producing network effects.
8
These
could be summarized as ‘providing different types of instrumental help, depending on the
goal at hand’ and ‘providing cognitive frames of reference’. ‘Instrumental’ should be used
in a broad sense, since one can subsume the exchange of status for advice under the heading
of instrumental help. To determine one’s status and that of others one needs a frame of
reference that gives an estimate people’s comparative status.
The theoretical situation is even more complicated since different theories have also
been proposed to explain the emergence of networks. At least four mechanisms have been
referred to in the above: ties are presented as a result of investment in social capital, as
the outcome of emotional attraction based on similarity, as a by-product of interactions
engaged in for other goals, and as the product of selection to the job of persons with
particular networks. It would be theoretically concise to have one theory to explain the
emergence as well as the effects of social networks (see Lindenberg 1998), but may be in
effect two different accounts may give a better understanding of the problems.
Given the many issues that confront intra-organizational research, and we have only men-
tioned the most pressing ones here, our assessment of the present state of the art is mixed.
Yet hope of further progress might be derived from realizing how much of what we know
now has been achieved in the last ten to fifteen years. To our mind it is not per se the prob-
lem of getting access to organizations and the incomparability of research results that is the
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OLKER
most serious issue. Future research and discussion should focus foremost on mechanisms
that make networks productive, as a better understanding of the explanatory mechanism is
not only a key to a number of the other issues mentioned, but it will also help in guiding
data-gathering. As to the difficulties related to measurement of performance within organi-
zations, such as the performance paradox and the halo-effect, they should be considered as
explanatory problems in which the role of social networks should not be neglected.
Acknowledgment
A large part of this review was written during a stay of the first author at Maison Suger and
Iresco, Paris, made possible by a grant of the Dutch Science Foundation. We are grateful
for critical comments made by Emmanuel Lazega on an earlier version of this paper.
Notes
1. Akerlof (1982) used Homans’ study as evidence for his efficiency wage theory: Wages somewhat above market
price boost production as workers work harder as a quasi gift to the employers to reciprocate for the descent
wage and the way the company treats them.
2. In the 60s Crozier (1963) inaugurated a tradition of organizational research in French sociology that is still
going on today, largely as a critique of the human relations tradition that according to Crozier ignored power
issues, yet network issues stay implicit within his work.
3. Field research on power finds that centrality within the social network of the department or the work group leads
to being reputed as powerful (Brass and Burkhardt 1992; Freeman 1979). The studies on collective decision
making acknowledge that large organizations are no unitary actors any more and that their decisions are actually
collective decisions of a number of people of parties. These studies give more support to a policy-oriented
model that assumes that individual actors try to bolster their position by influencing those who are near in policy
position than a conflict model that assumes that actors try to influence those with the most power (Stokman
and Zeggelink 1996).
4. If one accepts job-rewards as a proxy for performance, it is interesting to learn that Burt (1997) recently showed
how network of personal relations, i.e., confiding and socializing relations among a group of nearly 300
managers of a high tech-firm were responsible for early-promotion instead of informal or formal authority
relations (formal and informal authority were important for the projects a managers was able to issue). At the
senior management level the two types of networks were more jointly responsible for early-promotion.
5. Lindenberg (1997) gives another twist to the argument on the pre-eminent importance of cognitive networks,
which is supported by some experimental evidence (Ligthart 1995). Solidarity among employees would be
precarious as people are myopic and opportunistic. Solidarity, for example, among members of an organization,
is strongly based on the relational signals with which they confirm and stabilize each other in thinking that
they have a relation of solidarity with each other. Such cognitive frames of solidarity would be triggered by
signalling engender solidarity between people, rather than that people are thinking of how to safeguard past
investments or future chances at exchanging favors, or that they feel attracted to others because of similarities
between him and them.
6. From a research perspective self-report measures of performance might proof to be a solution as they correlate
strongly with more objective measures of performance and are less subject to the halo-effect that slips in
performance evaluations by work leaders (Kalleberg and Marsden 1995).
7. These results also suggest an alternative interpretation of the association that was established by Burt (1996a)
for managers of an investment banking division of a large American financial organization. Managers with
structural holes in their networks, meaning that their alters are disconnected from each other, receive larger
bonus compensation payments, but do they receive bonus payments because they are so productive or because
they are so powerful within the firm?
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8. Adding still more variation, recently several authors used various learning theories to simulate the emergence of
different networks in sociological simulation studies (e.g., Banks and Carley 1996; Doreian and Stokman 1997).
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Henk Flap is associate professor of Sociology at the Department of Sociology and fellow of the ICS research
school at Utrecht University. He studied sociology at the University of Groningen and received his Ph.D. from the
University of Utrecht. Previously he was a fellow of the Netherlands Institute of Advanced Study at Wassenaar and
Maison Suger in Paris and visiting professor of Sociology at Columbia University, New York. His research interests
are social networks, labour market research and organizational sociology. His articles have appeared in Koelner
Zeitschrift fuer Soziologie und Sozialpsychologie, Social Forces, Social Networks, L’Année Sociologique, Revue
Francaise de Sociologie and European Sociological Review.
Bert Bulder was assistant professor of Sociology in the Department of Sociology at Utrecht University. Recently
he joined the Institute of Policy Research at Leiden. He studied sociology at the University of Groningen and is
currently working on his Ph.D. on the effects of public sector reforms in the Netherlands. His research interests are
organizational sociology and policy research. He published in Evaluation. The International Journal of Theory,
Research and Practice.
Beate V¨olker is post-doc research fellow at the Department of Sociology/ ICS research school, Utrecht University.
Trained in social psychology and theoretical psychology at the University of Heidelberg and Leiden University,
she got her Ph.D. in 1995 with a study on long-term changes in the personal networks of citizens of the former
GDR after the fall of communism. Research interests are social networks, primary relations, and organizational
sociology. She published in Revue Francaise de Sociologie and European Sociological Review.
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