Power games in industrial networks

The most nerdy activity of academia is publishing papers, and the joy of having a paper accepted by a good journal is difficult to share with people outside the trade. Anyway, a couple of weeks ago we had a paper accepted for publication in the Journal of Business Research, and it has now been published online.

In the paper we analyse the business interactions between a set of foor product suppliers and a set of retail chains in Norway. It is based on the legal documents from the court case between the Norwegian Competition Authority and the agricultural cooperative TINE SA. Tine was accused of abusing its market power to squeeze its competitors out of the supermarket shelves of the major retail chain Rema 1000. In the end Tine won the case with 3 against 2 votes in the Norwegian Supreme Court.

More interesting than the court ruling, however, is how the legal documents contain extraordinarily rich documentation of business interactions (negotiations, dialogues, collaborations, economic mechanisms, etc etc) between a number of the major players in the Norwegian food sector. The investigators have done a very thorough job, I must say, and the result (which is openly available online, although in Norwegian), is highly interesting for industrial network researchers.

In the abstract of the paper we write:

“Power is a long standing theme in inter-organizational research, yet there is a paucity of studies about how power emerges and is constructed over time at the network level. […] Three power mechanisms are identified, gatekeeping, decoupling and resource allocation, which form the basis of a model of networked power dynamics. […] The paper extends current understandings of power as ‘conflict and coercion’ to include influencing, leveraging and strategic maneuvering in the actual performance of networked power.”

In short, we find that a few of the major players (on the retail side in this case study) are capable of mobilizing, maintaining and increasing their inter-organizational power over time, and utilize this to systematically increase their profits. Inter-organizational power and the following economic advantages seem to be produced via (1) mobilizing resources across companies, (2) controlling access to the marketplace, and (3) mobilizing alternative solutions enabling their de-coupling of certain other actors. Currently, Norgesgruppen (with the retail chains Kiwi, Meny, Ultra, and a number of others in their portfolio) seem to, by far, outperform their suppliers and competitors in the Norwegian food sector power games.

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What does it take to learn technology entrepreneurship?

Practice. This is what it takes, hard work and practice. But this is not all, it also requires systematic learning. I am not talking about (or even interested in) those few (but often famous) one-off entrepreneurs making it by chance. By pure luck. While luck may be important in many startups, it is far more interesting to study those entrepreneurs succeeding several times. Saras Sarasvathy and her growing network of researchers studying “effectuation” has done a superb job in highlighting how successful serial entrepreneurs are using particular methods for problem solving. Effectuation is based on systematic and thoughtful experimental learning. From this point of view, the question of entrepreneurial learning is not whether education is useful or not, it is rather a question of how to educate entrepreneurs. Knowledge, and the creative interpretation of it, is at the core of entrepreneurship (Casson, 2008), as well as at the core of how successful entrepreneurs explore novel ideas and transform them into new businesses and markets (Sarasvathy, 2008).

I therefore think that students should learn mainly from doing and practising entrepreneurship, guided by academic materials to support and make the learning process more systematic. Failure is an important part of such learning processes, as well as the experience of finding ways through – or around – barriers and resistance to change. In our new textbook on Technology Entrepreneurship, we have made humble attempt at moving entrepreneurship education materials a few steps towards fulfilling such a function.

Another important aspect with entrepreneurship is it is context dependent. This is why numerous entrepreneurship lecturers in Europe and elsewhere have expressed frustrations with the, with just a few exceptions, dominance of US based textbooks. In our book we have sought to relate more to non-US contexts, particularly the European context. In the institutionally oriented chapters, as well as in most of the case studies and examples, the European context, and European (and even a few Canadian and Asian) tech startups are portrayed, including Rovio (Angry Birds, etc), Meltwater Inc, Aerogen Ltd, Daintel, Celtic Catalysts, Skype and Spotify. (Still, we must admit we fell for the temptation of including exciting case studies on the Facebook IPO and the Apple vs Samsung patent war).

Posted in education, entrepreneurship, knowledge and learning, technology entrepreneurship | Leave a comment

Technology Entrepreneurship: Bringing Innovation to the Marketplace

While the manuscript for our new textbook in Technology Entrepreneurship is with the proof-readers, I have spent this semester testing the book as curriculum in my New Venture Creation course at BI Norwegian Business School. Having written it with tecnology students in mind, I was curious how it would work with business school students. It seems to be working very well. Evers et al Tech Entrep

In our book we relate to what I call the “iterative turn” in entrepreneurship theory and practice. This means that the Business Plan should no longer be the central artefact for learning entrepreneurship. Long term planning clearly has limitations when it comes to starting new ventures, as well as with innovation projects in general. To many practitioners and scholars this comes as no surprise. Still, around 80-90% of entrepreurship textbooks (and entrepreneurship courses, I would guess) still are organized around how to write a business plan!

We have not gone as far as Steve Blank, who has proclaimed the death of the business plan. Rather, we acknowledge that such a strongly institutionalised practice will remain important for certain purposes for some time. However, we do encourage a continuous learning (or: iterative) orientation for learning and practicing entrepreneurship. In line with Sarasvathy, Blank, Ries, McGrath and many others, we suggest to utilize iterative methodologies to boost learning in practice: the basic thinking of business modelling, lean start-ups, discovery-driven growth, effectuation, and more, is this: The uncertainty and complexity of starting new ventures (and innovating in general) requires the entrepreneur to design the process for continuous learning. Making smart failures, challenging own assumptions, testing and adjusting customer value with customers early, developing strong alliances to resource and create markets for the venture, etc.

We have also done what an academic textbook in entrepreneurship should do: put the phenomenon in context and seek to stimulate critical reflection regarding its conditions. Our context is mainly European. Innovation policies, competence, industrial practices, IP legislation, market conditions, etc all are somewhat different from the US. And, we seek to use as many European business cases as possible. For the first time in my ten-year history as an entrepreneurship lecturer, I now have an updated entrepreneurship/new venture creation textbook relevant to the context of the majority of my students. Feels good.

The textbook will be available in-store in December this year.

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The two kinds of knowledge (the innovation conflict)

I am in the final phase of writing a textbook in Technology Entrepreneurship together with my good Irish colleagues Natasha Evers and James Cunningham. It will be published by Palgrave Macmillan this fall. Here is an excerpt from the chapter on innovation:

Scientific and technological inventions are mainly driven by the passion and curiosity of scientists and technologists (1). The same passion that inspires the inventor to search for the solution also drives the entrepreneur. However, many technology entrepreneurs have experienced how the idealism of science and the rigidity of scientific methods are necessarily compromised on the path from invention to commercialized innovation (2). This evolution is often confusing and frustrating for the entrepreneur. The business of transforming an invention into a commercialized innovation is a highly-pragmatic practice of drawing together the often diverse interests and practices of economic actors, as well as consumers and industrial partners, making compromises necessary (3). Hence, the encounter between the inventions of techno-science and the tough realities of business often produces the question of what will remain of the initial innovation in the end. Along with the question how will the innovation to be combined with existing business practices in order to find users, it is uncertain how the innovation will take part in changing standard practices. Increasing levels of uncertainty can produce insecurity within the team; therefore, strong leadership and confidence from the entrepreneur are needed to guide the team through times of struggle.

Sometimes it appears almost like the innovation process is at war with itself. Whereas mobilisation is directed towards aligning interests and reducing risks, exploration is directed towards formulating and testing propositions about reality (i.e., will the technology work, will users be interested, etc). While mobilisation seeks to converge and simplify the idea, exploration frequently leads to divergence of the innovation.

Entrepreneurs thus have to produce two different kinds of knowledge: first, a chain of arguments suited for convincing, mobilising, and maintaining network partners and their resources; and second, they need to produce testable propositions about reality (e.g., of how to make the technology work and what users have interest in such a product). 

Finally, the interaction between mobilisation and exploration processes often leads to controversies and compromises that may set the project off in new directions (5). This typically happens when the project has run out of money or time, and the entrepreneur has to go back to the different stakeholders. Preliminary results are presented, and new plans have to be negotiated, because the project has moved in different directions than anticipated initially. In these interactions, it is common to change the direction of the project, sometimes by doing smaller adjustments, and other times by making a pivot (6).

– – –

1: Karin Knorr-Cetina (2001) “Objectual practice” in Schatzki et al (eds) The Practice Turn in Contemporary Theory, Routledge.

2,3,4,5: Thomas Hoholm (2011) The Contrary Forces of Innovation, Palgrave Macmillan

6: Eric Ries (2011) The Lean Startup, Crown Business

Posted in controversy/tension/friction, entrepreneurship, innovation process, technology entrepreneurship | 2 Comments

The specialization paradox

Good companies tend to specialize over time. This happens partly because competition drives companies to improve continuously, and partly because they get gradually more and more integrated (interdependent) in business networks, where it makes sense to let others do some of the work (as they have expertise, as the division of work is negotiated, as it enables reducing costs, or as it strengthens marketing/distribution, etc). This continuous and incremental innovation, leads the company towards specialization.

However, to enable more radical (or indeed disruptive) innovation, the company needs a much wider set of skills and resources, simply because such innovation requires the exploration and utilization of new/different knowledge and resources than are being used by the company in its established activities. Hence, we have  a gap between the specialized company, and its need for general (or different) knowledge and resources. It turns out that this gap is not easily bridged. Such bridging requires (1) to reduce the gap as much as possible, partly by reconceptualizing what the gap consists of (making the new more similar to the established), and partly by simplifying the innovation (taking away some of the novel elements). (2) After reducing the gap, the bridging can sometimes be done successfully, e.g. by hiring or partnering with complementary actors, or connecting new resources in creative ways

So, is it possible organize for specialization, and maintain capacity for radical innovation at the same time? To a certain extent this could be possible: First, by maintaining a wider knowledge base, and second, by acknowledging that specialization is unavoidable and therefore develop bridging mechanisms.

Source: “Interaction to bridge network gaps: The problem of specialization and innovation in fish technology”, by Thomas Hoholm and Håkan Håkansson (2012), in The IMP Journal 6(3).

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A Fishy Tale: Contrary forces review

Tudor has reviewed my book over at the Leaders We Deserve blog. I am glad to read that he finds the story realistic and relatively typical of how innovation happens in practice. 

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Conflict and creativity

Could someone please investigate the relationship between level of frictions among teams and their ability to solve complex tasks? Or perhaps someone have done it already? I should do a literature search on this. 

My suggestion is that conflict is at the core of innovation processes, and that those able to utilize the energy of such frictions are more creative. In other words, those showing high conflict avoidance are probably less able to solve complex tasks in teams, while those showing openness to tensions (i.e.diversity) and ability to handle it without conflicts escalating too much (and what is ‘too much’?) would more innovative.

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