Post on 03-Jan-2016
description
Inter-Builder Ties, Clientalized Relationships and Organizational Failure in Clyde River
Shipbuilding, 1711-1990
Ingram & Lifschitz
Networks and Organizational Performance
• Influence of a given social form depends on others
• Horizontal and vertical ties make up the social structure of industries– Position in these networks is likely correlated
– Overlap in the mechanisms of their influence, e.g. reputation and knowledge sharing
– No analysis of performance considers them simultaneously (few enough consider them separately)
Our Argument:
1) Horizontal ties to competitors reduce failure;
2) Vertical ties to customers reduce failure;
3) Horizontal ties contribute to the establishment of vertical ties.
Clyde Shipbuilding Setting
• “Shipbuilding capital of the world”
• Technology leader, first steam, first iron, first professorship in Marine Engineering
• Part of an industrial complex that made Glasgow the 2nd city of the empire
• Industry peaks in 1900, in crisis from the 1930s onward
Social Ties in Clyde Shipbuilding
• Three centuries of ties
• Horizontal and vertical ties
• Multiple measures of each form
Robert Napier’s ties
1861-1931
1858-1870
1870-1886
1834-1873
1852-1896 1833-1963
1886-1970
1879-1897
1850-1858
1899-1906
1821-1836
1843-1851
1848-1861
1844-1876
1844-1892
1836-1900
W Denny & Bros’ ties
1821-1931
1821-1906
1853-1866
1838-18651845-1853
1853-1866
1833-1838
1844-1849
1818-1833
1849-1963
1868-1950
1877-1947 1907-1957
1871-1954
1877-1951 1894-1951
1874-1949
Horizontal Ties
• Inter-builder learning and knowledge transfer
• Collusion
• Access to extra-industry resources
• Customer Sharing
Knowledge Transfer
• Ties between competitors promote knowledge transfer through:– Opportunity, motivation, and capacity
• E.g. – Steam/Iron technologies, from D. Napier, to R. Napier,
to a host of tied others
– William Denny’s administrative innovations
Customer Sharing• Capacity-
constrained industry (as hotels)
• More than a favor to a friend, a way of maintaining good relationships w/customers
Likelihood of Customer Sharing
Extent of
Customer
Sharing
Formal Tie 0.342 0.215
Informal Tie 0.570** 0.253*
Proximity to
Industry Leaders
0.711** 0.222**
Same Region 0.420** 0.011**
Sharing Knowledge and Sharing Customers
H1: Shipbuilders will have a lower failure rate to the extent they have more ties to other shipbuilders.
Access to extra-industry resources
• Transcending the provincial bounds of the industry for:– Capital
– Political Clout
– Prestige in the wider social system
Cunard’s Founding
• The extra ship and the increase in size raised Cunard’s costs and there was little evidence of support from English investors. Napier, with a group of Glasgow friends and business partners, was able to float the British and North American Royal Mail Steam Packet Coy. (which later became the Cunard Steam Ship Coy. Ltd.) with Samuel Cunard as the main shareholder, Napier himself investing £6100 of the initial capital of £270,000. Establishing this great shipping company was no easy task…. It was largely Napier’s reputation and his proven ability to provide reliable and powerful engines which persuaded his fellow Glaswegians to invest in Cunard’s high-risk venture (Osborne, 1991).
Industry Leaders
• Napier, Denny, Beardmore, Scott
• H2: Shipbuilders will have a lower failure rate to the extent they are more closely connected to industry leaders.
Collusion
• Some evidence this was attempted
• Tough here:– Customers few, deals are large– Competition from other locations
• But, collusion, or cohesion wrt workers is another matter…
Builders vs. Labour
• “Red Clydeside”
• Builders’ Association acts like a capitalists’ union
• Espionage and other efforts to hold down sedition
Collusion/Cohesion
• Cohesion in networks between competitors:– Shut customer’s structural holes– Provide trust necessary for the transfer of
sensitive information
H3: Shipbuilders will have lower failure rates when their horizontal networks are more dense.
Clientalized Relationships
• Repeat interactions between seller and buyer lead to trust and problem solving (Larson, 1992; Uzzi, 1996,1997, 2001; Zaheer, McEvily and Perrone, 1998)
• William Denny: “[w]e are bound, if we render ourselves worthy of it, to occupy the position of professional advisers, instead of that of mere manufacturers”
Clientalization
E.G., Cunard, John Brown & Co. and the Lusitania
H4: Shipbuilders with more clientalized relationships to customers will have lower failure rates.
Over-clientalization
• At some point, clientalized relationships may imply:– Overdependence (Uzzi,1996)
– Insufficient diversity (Regans & Zuckerman, 2001)
H5: At high levels, the clientalized relationship’s of shipbuilders to customers will come to increase failure rates.
Links between Horizontal and Vertical Ties
• Ties between competitors may lead to ties directly to customers through:– Referrals– Builder Reputation
H6: Builders with more horizontal ties will have more clientalized relationships with customers.
Indirect Links between Horizontal Ties and Vertical Ties
• It’s a complicated world….
• Organizations look to competitors to choose how to meet the market (White, 1981)
• Organizations whose CEOs have ties to others in industry follow industry’s mean tendencies regarding strategy
Indirect Effect of Horizontal Ties on Vertical Ties
H7: Builders will tend to have patterns of clientalized relations that reflect those of their horizontal ties.
Data & Method
• 299 Builders, 1711 to 1990
• 205 Fail
• 76 moved or merged + 18 alive at end of period (right censored)
• No left censoring
• Piecewise Exponential models of failure
Measures of Horizontal Ties
• Informal Ties– Family ties
– Founders had worked together
• Formal Ties– Financial Association
– Sub-contracting arrangements
• H2: Proximity to Napier, Denny, Beardmore, Scott
• H3: Density among ties (ties between ties)
• H1 tested with total horizontal ties, and the totalBroken into its two components:
Measures of Vertical Ties
• Repeat Customers
• Non-repeat customers
• Herfindahl Index of Customer Concentration (first & second order)
• % of sales to best customer
• Current and past sales to Admiralty
Results
Acrobat Document
Results for Horizontal Ties (Table 2)
• H1 Supported:– Total Horizontal Ties Reduce Failure (20% per)– Formal ties reduce failure (11% per)– Informal ties reduce failure (31% per)
• H2 Supported– Reach to the dominant clique reduces failure (up to 74%)
• H3 Rejected:– Density among horizontal ties increases failure
Examining the Knowledge Sharing Angle (Table 3)
• Own Experience, and Experience of Network Contacts
• Four discount rates to allow for experiential decay
• Own Experience Reduces Failure
• Experience of Formal Ties Reduces Failure
Results for Vertical Ties (Table 5)
• H5 supported:– Repeat customers reduce failure– Customer concentration reduces failure
• H6 supported:– One-shot customers reduce failure– Reliance on best customer raises failure
• Selling to Admiralty doesn’t influence failure
Production Volatility (Table 6)
• Repeat Customers Customers have a large stabilizing effect, one-shot customers a smaller one– Customer portfolio effect, with additional
steady business from clientalized ties
• Proximity to leaders and network density also reduce volatility
Influence of Horizontal on Vertical Ties (Table 7)
• Direct effect is minor (weak support for H6)– Proximity to Leaders leads to Repeat Customers
– Formal Ties leads to Customer Concentration
• Indirect effect is major (strong support for H7)– Ties’ average affects focal builder’s level on each of
Building for Admiralty, Repeat Customers, One-Shot Customers, Customer Concentration
Summary
• Horizontal Ties Reduce Failure– Knowledge sharing through formal ties– Customer sharing and ?? Through informal ties– Extra-industry resources through industry leaders
• Vertical ties Reduce Failure– Clientalized relations are good– One-time customers are good– Overdependence is bad
• Builders mirror patterns of vertical relations of their horizontal ties
Informal/Formal Distinction
• Informal and family ties and the heart of an important industry
• Tie types depend on firm history
Hierarchy in the Industry
• Why doesn’t cohesion reduce failure?– Difficulty of collusion
• Industry is cliquey– Correlation of horiz. ties and network density– Clustering coefficient (Watts, 1999)– Visual Inspection of graphs
Figure 1Horizontal Network of Clyde Shipbuilders, 1900
Scotts
Napier
Denny
Denny
Napier
Scotts
Industry Leaders as “Good Fathers”
• Leaders at the centers of the cliques
• Direct effect to reduce failure
• Customer sharing and smooth productin within their shadow
• Horizontal analog to Keiretsu?
That was then, this is now…
1863 1990
Size of the largest cluster
20 2
Avg. Horizontal Ties
1.3 0.33
Avg. Repeat Customers
1.48 0.12
Next Steps
• Does a given tie mean the same thing at across history?– Networks and institutions as compliments and substitutes
• Effect of Provincial Status in a Declining Empire
• Network Externalities: Implications at the Industry Level
• Active comparison of ecological and network arguments– Analysis of Founding
Figure 1Influence of Horizontal Ties Over Time
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Year
Mu
ltip
lier
of
Fa
ilure
Ra
te
Formal Ties
Informal Ties