Strategic Leadership Review Session

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1 University of Chicago Booth School of Business Strategic Leadership Review Session Professor Ron Burt XP-82 TA: Craig Tutterow

2 Overview Go over basic format of exam Crash course in social networks Key terminology Key graphs, tables, and their interpretation Use as mnemonic device Statistics refresher If we have any remaining time, Q & A

tables, and their interpretation Use as mnemonic

3 Format Comprised of 40 short answer questions, each worth 3 points (like those you saw in an earlier class) Ron wasn t joking those questions from last session will be on the exam About 10 pages to write on - questions are drawn from a large pool that Ron has maintained over the years Numbers will not be sequential

session will be on the exam About 10 pages to write on - questions are drawn

4 Types of Questions Prescriptive Assess a situation and make a suggestion Need to know what networks are optimal for certain tasks Analytical Analyze a graph/table in light of what we have learned about how social networks function Analytical & prescriptive Analyze a graph, make a diagnosis, and suggest treatment Case related Terminology What does mean?

what we have learned about how social networks function Analytical & prescriptive

5 Bridge & Cluster Structure Also known as the small world model of networks short path to everyone else Structural holes as whitespace Brokerage/network entrepreneurship as act of connecting two disparate cliques

Structural holes as whitespace Brokerage/network

6 First Principle of SNA The social network is a proxy for information flow A sociogram is an illustration of access to and control of ideas and information Social capital (value stemming from connections between people; vs. human capital) Multiple levels of analysis All social capital is not created equal Some ties are more valuable than others (situationally determined based on objectives, task structure) i.e. nonredundant ties (decreases constraint) Brokerage as specific type of social capital Optimizes access to heterogeneous information Enables information arbitrage Closure/Cliques Delivers value (reputation costs) Partnership/Hierarchy Sponsored access to create value

human capital) Multiple levels of analysis All social capital is not created equal Some ties are more valuable than others (situationally determined based on objectives,

7 Returns to brokerage High vs. low constraint and access to information Timing, breadth, information arbitrage Vision advantage Creativity and learning Adaptive implementation (Clendenin) Who to involve, others motivations, etc. Improves risk of productive accident All else equal, brokers perform better (compensation, promotions, ideas, etc) Top line growth, new products Risks: agency costs, hamster vests

Creativity and learning Adaptive implementation (Clendenin) Who to involve, others motivations, etc.

8 Returns to closure Tie durability, reputation persistence, trust, learning through routinization, alignment, reduction Minimize variation for execution phase Reputation costs and nonmonetary incentives for work, self-monitoring Bottom line growth Comfort, support Risks: stasis, groupthink, ignorant certainty, difficult to innovate, inertial

costs and nonmonetary incentives for work, self-monitoring Bottom line growth

9 Tacit/Sticky Knowledge Dependent on local processes Requires embedded ties to transfer Wide bandwidth/short cycle (e.g. workshops) Function of closed groups/cliques, division of labor leads to development of jargon Indexical/dependent on knowledge of other concepts E.g. Glaxo Wellcome s acquisition of Affymax

workshops) Function of closed groups/cliques, division of labor leads to

10 Embedding E.g. micro-lending Extent to which a relationship is housed in past experience (interpersonal/relational) or mutual contacts Provides mechanism for trust-building, mutual dependence

11 Simple vs. Complex Contagion For complex contagion, need embedded ties to activate reluctant adopters

12 Max ROI Slide

13 Behavioral Processes on Networks Now start to think about the social mechanisms that produce the observed outcomes, as well as some contingencies to the classical results

14 Brokers as Source of Good Ideas Framing and creativity (recombination) mechanisms Emotional aperture, vulnerability, trustworthiness

15 Serial Closure Final network vs. process/sequence through which it is constructed

16 Distinguishing formal from informal social structure

17 Collateral Brokerage

18 Brokerage as a Learned Skill

19 Self-Assessment of Networks Not accurate Most people are delusional Positively skewed Everyone tends to think their networks are good

20 Bandwidth vs. Echo Effect Bandwidth: The more connections around you, the greater the volume of pipe or bandwidth through which information can flow. Reputation costs rise, lowers risk of bad behavior, fosters trust Echo: communication of accurate information is not focus, but rather using such information to cement a social relations with others. Witch hunts, mobbing Reputation (the social construction of you) ceases to be owned by you not dyadically communicated. Your reputation is sustained and in a real sense depends on the others gossiping about you (embedded rather than relational ties). Ignorant certainty from etiquette filter (confirmation bias)

cement a social relations with others. Witch hunts, mobbing Reputation (the social construction of you) ceases to be owned by you not dyadically communicated.

21 Ignorant Certainty from echo

22 Reputation Persistence

23 How to build a reputation in light of the echo effect

24 Milgram experiments Autopilot, taking orders Need to inject choice, multiple/conflicting authorities

25 Balance

26 Balance, VSR Variation Selection Retention

27 Network Constraint Ron s aggregated measure of how much of a broker you are ranges from 0:100 (scaled from 0:1) Inversely related to brokerage (straight jacket), Distinguish from centrality (i.e. prominence) Featured prominently on the x-axis of many graphs Negative slope: as you move up in constraint, generally move down in performance Positive slope: brokers aren t rewarded Outsider problem number of lines between contacts (TIES). Divide by the number possible (n[n-1]/2, where n is the number of contacts

28 Statistics Primer Multiple Correlation = r^2, or the % variance explained by the parameters in our linear model The numbers contained in the parentheses are t-statistics they indicate whether there is a statistically significant relationship between the independent and dependent variables (i.e. the extent to which we would expect to observe this result due to random chance. By convention when p<=.05, we say this value is significant). Generally, when t >1.96, the relationship is significant (though this depends on the degrees of freedom, or numbers of parameters in the model) If and only if the t-test is significant, then look at the number above it. On most diagnostics this number is the standard coefficient. This tells you how the outcome variable changes with a one unit increase/decrease in the independent variable. Graphically, it corresponds to the slope of the regression line. Look at the coefficient and see what the relationship is between the outcome or dependent variable (such variables depend on the independent variables) and the independent variable(s). Pay attention to the size (less important) and sign (more important) of the standard coefficients. z-scores - Relative scale for salary, publications, etc., allowing comparisons across populations. 0 is the mean of the variable. +/- 1 indicates one SD above/below the mean, etc. Ron uses this prominently in a number of his charts to show the relationship between constraint and performance, net of all controls. If a z-score is positive, that means that one is doing better than what we would expect, holding these other factors (e.g. human capital) constant

29 Outsider Problem Outsiders are not rewarded for brokerage, therefore, they must borrow another s network to see returns benefit indirectly from social capital Outsiders: +

30 Returns to Partnership Strategic partners do not purport to provide you access to information Strategic partners loan you their reputation and as a result you are ritually cleansed allowed to proceed with implementation Receive and pay back in reputation (with interest)

31 Second Hand Brokerage Indirect brokerage attach to individuals who are brokers you may or may not be a broker yourself (often correlated with direct brokerage) The implied mechanism is spillover/affiliation through well-connected others Second-hand brokerage does not yield advantages. When we control for one s own network, the effect washes out (becomes insignificant). Lack of indirect network effects implies that advantages to social capital are through improved emotional and cognitive skills developed from brokerage, not just info flow network/social capital as forcing function for human capital Skills required to process varied information

32 Second Hand Brokerage

33 Network Fear Hypothesis People are more motivated into action by fear of falling behind rather than the lure of gain More likely when people are in a closed network because they are more likely to have other people like them (structurally equivalent others)/ peers in closed groups where social comparison is easier Person is made redundant no diversification. Ostracization from group particularly feared by these individuals. E.g. NASCAR racers and risky behavior/crashes, Finnish car buyers/neighbors

34 Intrepid Broker Hypothesis Brokers are more motivated into action by lure of gain than fear of failure They have less peers/structurally equivalent others in the network thus, they are less consumed by fear of falling behind Diverse range of contacts Like portfolio theory for colleagues (diversification) Another mechanism for how brokers elicit advantage from their position Explains why there is no advantage to SHB (don t get the experience of processing the information) More likely to be expressive (both positive and negative)

35 Communication Structural equivalence & returns to communication

Strength of Weak Ties, Structural Holes, Closure and Small Worlds. Steve Borgatti MGT 780, Spring 2010 LINKS Center, U of Kentucky

Strength of Weak Ties, Structural Holes, Closure and Small Worlds Steve orgatti MGT 780, Spring 2010 LINKS Center, U of Kentucky Strength of Weak Ties theory Granovetter 1973 Overall idea Weak ties are