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ENTREPRENEURSHIP 2, 3.01 (V) 3.0 Networks, Innovation, and Entrepreneurship

3.01 (V) 3.0 Networks, Innovation, and Entrepreneurship

Hi I'm Lori Rosenkopf. I'm the Vice Dean of the Wharton Undergrad Division, and today's session we'll be talking about networks, innovation, and entrepreneurship. What I'd like to do in this session is a little bit different. We're going to spend some time first of all just talking about the basic principles of network theory. And then connect how those relate to innovation and ultimately get to the implications for entrepreneurship. So, the kinds of things we'll be talking about, you'll see we'll weave to many of the topics that you seen both before, and after this session as well. This figure depicts a very simple social network. Now, you're all familiar with social networks because you're embedded in them and interacting in social network apps all the time. But at its simplest we can think of a network as just a set of actors who are connected by some sort of relationship that allows information to flow. So in this picture, we have 11 people who are connected, some of them more connected than others. And when we talked about network, to think about networks, everything that we'll talk about today is going to be underlaid by the following assumptions. The idea is that the set of network contexts that you have, the nature of the relationships between these context and the overall pattern of these relationships are going to determine whether you have more or less access to resources, whether they be information, referrals, endorsements, support, etc. These patterns, and nature of relationships, are going to affect the opportunities that you have to create and mobilize linkages, get a movement behind what you're trying to accomplish. These patterns are going to affect your ability to get noticed and get things done. So that's the underlying assumption. And when we look at our 11 people here, you can see that they each have a different stock of context, relationships with the context, and between those contexts. When I ask people to look at a chart like this and say who would you like to be, most people's attention gravitates towards number 9 or number 6, because those are the players that are in the thick of things. Of course there's usually one joker who says I'd like to be number 1, I'd like to be left alone for a while to get some of my work done, but we know that's not a good long term strategy, that being in the thick of things does really matter. By the same token, though, another argument would be you'd like to be number 11. Why? Number 11 is right next to number 9. 9's spending a lot of effort to get all this information. 11 can get it all from 9. So in some ways, 11's in a great situation because they don't have to work as hard for the information but by the same token, they're totally indebted to 9 and 9 can hold them up if they're not going to be fully cooperative. So with these kinds of ideas in mind, and this focusing on numbers 9 and number 6 and this volume of information flow. Now we want to get a little bit more careful and thinking about which sorts of network positions are most effective. To do that I'm going to talk about three different characteristics of high performing networks and we'll take each them in turn, Diversity, Brokerage and then Trust. So, this will help us start to sort out between different sorts of network patterns and relationships. Let's start by talking about diversity in networks. Here, I'm portraying a very simple comparison between two people with the same number of contacts. 1 and 2, in these simple network pictures, each have exactly five contacts. And I've set it up this way so that we can assume that they're both doing the exact same amount of work to maintain these contacts. And I'm talking about real contacts here. I'm not talking about the people who you can tabulate because you've met them once at a conference and your gigantic list of LinkedIn contacts or Facebook contacts or Tweeter contacts and the like. But instead, these are the people who you really have relationship with. Who you're spending effort to let them know about the information that's of value to them. You're inviting them for coffee, you're staying in touch with them and the like. So, real contacts. One and two both have the same number of contacts, so you would assume all other things equal that they'd get the same amount of information. Look what happens when we introduce some colors to represent the type of knowledge that each of your contacts are bringing to the network. Here we see that number two is getting the same information over and over again from all the different contacts whereas actor number one is getting not only purple information, but red, and blue, and green as well. So right now I'm just using abstract colors to represent different sorts of knowledge, but this idea of having diverse knowledge inputs coming to you through your network connections is going to be really important. Let's make this more concrete. One of the ways to think about those different colors might be that, if you're working in an organization currently, at a particular function, are all of your contacts in the same function as you or from different functional areas in the organization? That is, if you're in marketing, are all the people who are providing you with the information you need to get your job done, are they also in marketing? Or are they spread more generally through production and R&D and other parts of your organization? That's knowledge diversity. Another way to think about it would be, is everyone in your professional specialty. Are you a doctor, a lawyer? Are all of your contacts also doctors or lawyers, or are you looking at a much broader set of people who might use your services, which would give you again different knowledge and different inputs that could be really helpful. And let me be clear, when I use the term diversity, much attention these days is rightly on demographic diversity, and while your networks may or may not have demographic diversity, that may or may not be correlated with knowledge diversity. And here because we're focusing on the knowledge inputs that your network is creating for you, we're really interested in the knowledge that people have, regardless of their demographic characteristics. Because it's the mix of different kinds of knowledge that really is the engine, is the source of innovation and that's work from economics that goes all the way back to Joseph Schumpeter. How can you think about getting more diversity in your networks? It's worthwhile to take some stock of the networks that you have, the contacts that provide you with the knowledge, the resources that you need to get your current job done, the things you'd like to get done. And to decide if you need to find ways to get new contacts into your network that would help improve that knowledge diversity. And again, that knowledge diversity has been associated with better ideas. And also in research the opportunity for, for example, semiconductor startup firms to have more alliances with companies. And that's of course a channel for delivering your product. So diversity in networks really matters. You might want to think about ways in which you can extend your networks by looking at the sorts of affiliations you have or can create. So, you have networks in the opportunity for contacts through the people who you go to school with. Or the people who you currently work with, one of the reasons why entrepreneurs, young entrepreneurs, startup firms are so interested these days in the possibility of working in an accelerator is that it gives them a chance to build a lot of network connections into other domains. But even without this sort of opportunity, you can think about what community groups can I join, what sorts of clubs can I join to get me access to different sorts of contacts in a variety of industries and in the like. Even Bill Gates, just to use his historical example, he connected up with funding for his efforts because his mother was actually on the board of a not for profit with John Akers, who was at that time the president of IBM. So those two step connections can really be helpful for you. Now let's talk about brokerage. This is closely related to the ideas on diversity in knowledge bases, but we're going to get at the concept from a very different direction. A and B are our two actors now, and both of them in this new depiction have the same number of contacts once again. So A and B are putting the same amount of effort into maintaining their network connections. Now, let's let each of their contacts be connected to four additional parties. Look what happens. Look what happens when we add in four connections on each of A or B's five original contacts. Two completely different pictures here. With the same rules to make them operate. In A's situation, the network is folded back on itself. So there aren't any indirect connections for A, but rather the same set of people are all communicating with each other. So they're putting all of their effort into sharing the same information over and over again. In mathematical graph theory, the mathematicians would call this a fully connected click. And I think that's very suggestive when we think of a clique of people gossiping and saying the same things with each other. In contrast, B's network is very open and sparse and so B is getting 20 indirect contacts because each of the five original contacts are providing indirect access to four more sources. So B is having access to far more information and so B, the broker, is really able to create far more knowledge recombination. So when I set it up like that, it sounds like B's network is perfect and A's network is problematic but there's more to the story. Research findings have let us know that while people with B networks are better at innovating, they come up with more innovative ideas, they tend to get promoted faster in an organization. We also find that people who have A type networks enjoy more long term cooperation between the members of their group. So the idea of everyone being connected to each other may not let as much unique information flow but allows everyone in the group to work together effectively to get a shared set of identity to focus on common goals, and ensure that everyone carries their weight to accomplish it. So the story isn't just being A or B but in some cases being some A and some B and indeed most networks are in between the poles of A and B. What does this mean for entrepreneurial teams? I think the findings are particularly poignant when you think about constructing a team, and that's something we've been talking about in previous modules, and of course, we'll continue to talk about throughout this course. You're always thinking about who are on your team and what sorts of networks they can be bringing to the situation. So the best way to think about an entrepreneurial team would be to say that the members of your key team are an A team internally. So all your connective with each other and sharing the information that you need to keep your goals on the same page to keep yourselves focus and the like. But then each of the parties, the cost of your complimentary skill sets and the like are really bringing a B network to your organization, to your team because each of you have different, unique, diverse sets of knowledge that you're going for and bringing into the organization. And again, research has shown that these sorts of teams, not just for startups but also in a consulting organizations and the like. Teams that are A internally, well connected and cohesive among the key team members, but then have a wide diverse range and reach beyond the team, are the ones that tend to be the most high performing. While we're thinking about the idea of indirect contacts, I want to say a little bit more about that. Because networks, as you know, get very big and complex very quickly. As everyone is connected to many other people, and so networks are typically much bigger than the very small and simplified pictures I've been showing you. It's very tempting to move beyond the two steps sort of contacts that I've been focusing on, to much or larger kinds of network. And thinking of ways to create a chain or a set of paths and connections to people of interest. It's very tempting to go to your LinkedIn profile and say, well, who would I like to connect with? And this prominent venture capitalist, for example, is a four-step connection to me, and so I should be able to go one, two, three, four steps through these acquaintances and make that happen. What we typically see happening is that while there's a lot of attention in the popular press on what they call small worlds. Or six degrees of separation, the idea that everyone can be connected to someone through a small number of steps. It's typically very hard to activate those kinds of paths, beyond the two step paths. So the two step is pretty easy because you're asking someone with whom you have a relationship to introduce you to one other person. But then to ask to introduce, to introduce, to introduce, becomes a lot harder. So, I just want you to remember that, just because you can draw a small world sort of path or a multi step path, to a wide, wide, large range of people doesn't mean that you're going to be able to make those connections. So, in order to think about how we get those connections going in a meaningful way, that brings us to our third characteristic, which is trust. When we think about network ties and this context that had been made. The question is whether a contact is what we can call stronger or weak tie. And I've illuted to this earlier when I talked about whether your connections were quick acquaintances that you had made and tabulated in one of your social network apps, or whether these people are true friends or long standing relationships. Obviously in the longer standing relationship where most trust is built up, this is the situation where you're going to be able to ask for and receive help. And also you're going to reciprocate that if the other person is asking you for help. And so these kind of connections where you're friends with the person or you've worked with them for a really long time when you have repeated interaction. Versus very infrequent or just a new one time sort of interaction. When the relationships are multiplex and by that I mean, whether there's more than one way that you're connected. For example, you're related to someone and you're working together. As one example, you went to college with someone and you're also members of the same team for an intramural sports league. These kinds of relationships, they happen in multiple domains, tends to become stronger as well. When you have strong ties, that's when you're in a situation where you're really able to activate these kinds of network connections. So if we go back to this picture of the ideal entrepreneurial team, what I want to do is emphasize by these thick lines, rather than the thin lines, that these relationships need to be solid and strong in order for the networks to really deliver the kinds of benefits that we've been talking about. Let's summarize a few takeaways from today's session. We use the basic principles of network theory to provide some prescriptions for what you should be doing as a member of an entrepreneurial team. How you can be constructing your own personal network to help shape the flow of ideas, personnel, funding or endorsements to your fledgling organization. We discussed how effective teams need to be cohesive internally, A inside, and have brokerage externally, B outside. In short, always take the time to examine and re-examine your own personal network and your team's overall networks. And seek to build additional contacts strategically. Thank you.


3.01 (V) 3.0 Networks, Innovation, and Entrepreneurship

Hi I'm Lori Rosenkopf. I'm the Vice Dean of the Wharton Undergrad Division, and today's session we'll be talking about networks, innovation, and entrepreneurship. What I'd like to do in this session is a little bit different. We're going to spend some time first of all just talking about the basic principles of network theory. And then connect how those relate to innovation and ultimately get to the implications for entrepreneurship. So, the kinds of things we'll be talking about, you'll see we'll weave to many of the topics that you seen both before, and after this session as well. This figure depicts a very simple social network. Now, you're all familiar with social networks because you're embedded in them and interacting in social network apps all the time. But at its simplest we can think of a network as just a set of actors who are connected by some sort of relationship that allows information to flow. So in this picture, we have 11 people who are connected, some of them more connected than others. And when we talked about network, to think about networks, everything that we'll talk about today is going to be underlaid by the following assumptions. The idea is that the set of network contexts that you have, the nature of the relationships between these context and the overall pattern of these relationships are going to determine whether you have more or less access to resources, whether they be information, referrals, endorsements, support, etc. These patterns, and nature of relationships, are going to affect the opportunities that you have to create and mobilize linkages, get a movement behind what you're trying to accomplish. These patterns are going to affect your ability to get noticed and get things done. So that's the underlying assumption. And when we look at our 11 people here, you can see that they each have a different stock of context, relationships with the context, and between those contexts. E quando olhamos para nossas 11 pessoas aqui, você pode ver que cada uma delas tem um estoque diferente de contexto, relacionamentos com o contexto e entre esses contextos. When I ask people to look at a chart like this and say who would you like to be, most people's attention gravitates towards number 9 or number 6, because those are the players that are in the thick of things. Quando peço às pessoas que olhem para um gráfico como este e digam quem você gostaria de ser, a atenção da maioria das pessoas gravita em direção ao número 9 ou número 6, porque esses são os jogadores que estão no meio das coisas. Of course there's usually one joker who says I'd like to be number 1, I'd like to be left alone for a while to get some of my work done, but we know that's not a good long term strategy, that being in the thick of things does really matter. By the same token, though, another argument would be you'd like to be number 11. Da mesma forma, porém, outro argumento seria que você gostaria de ser o número 11. Why? Number 11 is right next to number 9. 9's spending a lot of effort to get all this information. 11 can get it all from 9. So in some ways, 11's in a great situation because they don't have to work as hard for the information but by the same token, they're totally indebted to 9 and 9 can hold them up if they're not going to be fully cooperative. Então, de certa forma, 11 está em uma ótima situação porque eles não precisam trabalhar tanto para obter informações, mas, da mesma forma, estão totalmente em dívida com 9 e 9 pode segurá-los se não forem totalmente cooperativo. So with these kinds of ideas in mind, and this focusing on numbers 9 and number 6 and this volume of information flow. Now we want to get a little bit more careful and thinking about which sorts of network positions are most effective. To do that I'm going to talk about three different characteristics of high performing networks and we'll take each them in turn, Diversity, Brokerage and then Trust. Para isso, vou falar sobre três características diferentes de redes de alto desempenho e vamos analisar cada uma delas, Diversidade, Corretagem e Confiança. So, this will help us start to sort out between different sorts of network patterns and relationships. Let's start by talking about diversity in networks. Here, I'm portraying a very simple comparison between two people with the same number of contacts. 1 and 2, in these simple network pictures, each have exactly five contacts. And I've set it up this way so that we can assume that they're both doing the exact same amount of work to maintain these contacts. And I'm talking about real contacts here. I'm not talking about the people who you can tabulate because you've met them once at a conference and your gigantic list of LinkedIn contacts or Facebook contacts or Tweeter contacts and the like. But instead, these are the people who you really have relationship with. Who you're spending effort to let them know about the information that's of value to them. You're inviting them for coffee, you're staying in touch with them and the like. So, real contacts. One and two both have the same number of contacts, so you would assume all other things equal that they'd get the same amount of information. Look what happens when we introduce some colors to represent the type of knowledge that each of your contacts are bringing to the network. Here we see that number two is getting the same information over and over again from all the different contacts whereas actor number one is getting not only purple information, but red, and blue, and green as well. So right now I'm just using abstract colors to represent different sorts of knowledge, but this idea of having diverse knowledge inputs coming to you through your network connections is going to be really important. Let's make this more concrete. One of the ways to think about those different colors might be that, if you're working in an organization currently, at a particular function, are all of your contacts in the same function as you or from different functional areas in the organization? That is, if you're in marketing, are all the people who are providing you with the information you need to get your job done, are they also in marketing? Or are they spread more generally through production and R&D and other parts of your organization? That's knowledge diversity. Another way to think about it would be, is everyone in your professional specialty. Are you a doctor, a lawyer? Are all of your contacts also doctors or lawyers, or are you looking at a much broader set of people who might use your services, which would give you again different knowledge and different inputs that could be really helpful. And let me be clear, when I use the term diversity, much attention these days is rightly on demographic diversity, and while your networks may or may not have demographic diversity, that may or may not be correlated with knowledge diversity. And here because we're focusing on the knowledge inputs that your network is creating for you, we're really interested in the knowledge that people have, regardless of their demographic characteristics. Because it's the mix of different kinds of knowledge that really is the engine, is the source of innovation and that's work from economics that goes all the way back to Joseph Schumpeter. How can you think about getting more diversity in your networks? It's worthwhile to take some stock of the networks that you have, the contacts that provide you with the knowledge, the resources that you need to get your current job done, the things you'd like to get done. And to decide if you need to find ways to get new contacts into your network that would help improve that knowledge diversity. And again, that knowledge diversity has been associated with better ideas. And also in research the opportunity for, for example, semiconductor startup firms to have more alliances with companies. And that's of course a channel for delivering your product. So diversity in networks really matters. You might want to think about ways in which you can extend your networks by looking at the sorts of affiliations you have or can create. So, you have networks in the opportunity for contacts through the people who you go to school with. Or the people who you currently work with, one of the reasons why entrepreneurs, young entrepreneurs, startup firms are so interested these days in the possibility of working in an accelerator is that it gives them a chance to build a lot of network connections into other domains. But even without this sort of opportunity, you can think about what community groups can I join, what sorts of clubs can I join to get me access to different sorts of contacts in a variety of industries and in the like. Even Bill Gates, just to use his historical example, he connected up with funding for his efforts because his mother was actually on the board of a not for profit with John Akers, who was at that time the president of IBM. Mesmo Bill Gates, apenas para usar seu exemplo histórico, conectou-se com financiamento para seus esforços porque sua mãe estava na diretoria de uma organização sem fins lucrativos com John Akers, que na época era presidente da IBM. So those two step connections can really be helpful for you. Now let's talk about brokerage. This is closely related to the ideas on diversity in knowledge bases, but we're going to get at the concept from a very different direction. A and B are our two actors now, and both of them in this new depiction have the same number of contacts once again. So A and B are putting the same amount of effort into maintaining their network connections. Now, let's let each of their contacts be connected to four additional parties. Agora, vamos deixar cada um de seus contatos ser conectado a quatro partes adicionais. Look what happens. Look what happens when we add in four connections on each of A or B's five original contacts. Two completely different pictures here. With the same rules to make them operate. In A's situation, the network is folded back on itself. Na situação de A, a rede é dobrada sobre si mesma. So there aren't any indirect connections for A, but rather the same set of people are all communicating with each other. Portanto, não há conexões indiretas para A, mas o mesmo conjunto de pessoas está se comunicando umas com as outras. So they're putting all of their effort into sharing the same information over and over again. In mathematical graph theory, the mathematicians would call this a fully connected click. Na teoria matemática dos grafos, os matemáticos chamariam isso de clique totalmente conectado. And I think that's very suggestive when we think of a clique of people gossiping and saying the same things with each other. In contrast, B's network is very open and sparse and so B is getting 20 indirect contacts because each of the five original contacts are providing indirect access to four more sources. So B is having access to far more information and so B, the broker, is really able to create far more knowledge recombination. So when I set it up like that, it sounds like B's network is perfect and A's network is problematic but there's more to the story. Research findings have let us know that while people with B networks are better at innovating, they come up with more innovative ideas, they tend to get promoted faster in an organization. We also find that people who have A type networks enjoy more long term cooperation between the members of their group. So the idea of everyone being connected to each other may not let as much unique information flow but allows everyone in the group to work together effectively to get a shared set of identity to focus on common goals, and ensure that everyone carries their weight to accomplish it. So the story isn't just being A or B but in some cases being some A and some B and indeed most networks are in between the poles of A and B. What does this mean for entrepreneurial teams? I think the findings are particularly poignant when you think about constructing a team, and that's something we've been talking about in previous modules, and of course, we'll continue to talk about throughout this course. You're always thinking about who are on your team and what sorts of networks they can be bringing to the situation. So the best way to think about an entrepreneurial team would be to say that the members of your key team are an A team internally. So all your connective with each other and sharing the information that you need to keep your goals on the same page to keep yourselves focus and the like. But then each of the parties, the cost of your complimentary skill sets and the like are really bringing a B network to your organization, to your team because each of you have different, unique, diverse sets of knowledge that you're going for and bringing into the organization. Mas então cada uma das partes, o custo de seus conjuntos de habilidades complementares e similares estão realmente trazendo uma rede B para sua organização, para sua equipe, porque cada um de vocês tem conjuntos de conhecimento diferentes, únicos e diversos que estão buscando e trazendo para a organização. And again, research has shown that these sorts of teams, not just for startups but also in a consulting organizations and the like. Teams that are A internally, well connected and cohesive among the key team members, but then have a wide diverse range and reach beyond the team, are the ones that tend to be the most high performing. While we're thinking about the idea of indirect contacts, I want to say a little bit more about that. Because networks, as you know, get very big and complex very quickly. As everyone is connected to many other people, and so networks are typically much bigger than the very small and simplified pictures I've been showing you. It's very tempting to move beyond the two steps sort of contacts that I've been focusing on, to much or larger kinds of network. É muito tentador ir além dos dois tipos de contatos em que tenho focado, para tipos de rede muito ou maiores. And thinking of ways to create a chain or a set of paths and connections to people of interest. It's very tempting to go to your LinkedIn profile and say, well, who would I like to connect with? And this prominent venture capitalist, for example, is a four-step connection to me, and so I should be able to go one, two, three, four steps through these acquaintances and make that happen. What we typically see happening is that while there's a lot of attention in the popular press on what they call small worlds. Or six degrees of separation, the idea that everyone can be connected to someone through a small number of steps. It's typically very hard to activate those kinds of paths, beyond the two step paths. So the two step is pretty easy because you're asking someone with whom you have a relationship to introduce you to one other person. But then to ask to introduce, to introduce, to introduce, becomes a lot harder. So, I just want you to remember that, just because you can draw a small world sort of path or a multi step path, to a wide, wide, large range of people doesn't mean that you're going to be able to make those connections. So, in order to think about how we get those connections going in a meaningful way, that brings us to our third characteristic, which is trust. When we think about network ties and this context that had been made. The question is whether a contact is what we can call stronger or weak tie. And I've illuted to this earlier when I talked about whether your connections were quick acquaintances that you had made and tabulated in one of your social network apps, or whether these people are true friends or long standing relationships. Obviously in the longer standing relationship where most trust is built up, this is the situation where you're going to be able to ask for and receive help. And also you're going to reciprocate that if the other person is asking you for help. And so these kind of connections where you're friends with the person or you've worked with them for a really long time when you have repeated interaction. Versus very infrequent or just a new one time sort of interaction. When the relationships are multiplex and by that I mean, whether there's more than one way that you're connected. For example, you're related to someone and you're working together. As one example, you went to college with someone and you're also members of the same team for an intramural sports league. These kinds of relationships, they happen in multiple domains, tends to become stronger as well. When you have strong ties, that's when you're in a situation where you're really able to activate these kinds of network connections. So if we go back to this picture of the ideal entrepreneurial team, what I want to do is emphasize by these thick lines, rather than the thin lines, that these relationships need to be solid and strong in order for the networks to really deliver the kinds of benefits that we've been talking about. Let's summarize a few takeaways from today's session. We use the basic principles of network theory to provide some prescriptions for what you should be doing as a member of an entrepreneurial team. How you can be constructing your own personal network to help shape the flow of ideas, personnel, funding or endorsements to your fledgling organization. We discussed how effective teams need to be cohesive internally, A inside, and have brokerage externally, B outside. In short, always take the time to examine and re-examine your own personal network and your team's overall networks. And seek to build additional contacts strategically. Thank you.