Rise of strategic nets — New modes of value creation

ent 36 (2007) 895–908
Industrial Marketing Managem
Rise of strategic nets — New modes of value creation

Kristian Möller ⁎, Arto Rajala 1

Helsinki School of Economics, Department of Marketing and Management, P.O. Box 1210, FI-00101 Helsinki, Finland

Received 21 December 2005; received in revised form 10 May 2007; accepted 20 May 2007Available online 31 July 2007

Abstract

This paper focuses on the type and management of intentionally created business networks called nets. Nets are extensively being used toachieve a variety of benefits over those of a single firm or market transaction. We propose that the effective management of different types ofbusiness net is dependent on their underlying value creation logic. Based on this notion a value creation framework of three generic net types –‘current business nets’, ‘business renewal nets’, and ‘emerging new business nets’ – is suggested. We argue that they pose widely differentconditions and requirements for net management. The management mechanisms of these basic net types are then identified and discussed. Wecontend that the proposed contingency framework captures the complexity and variety of the expanding strategic business nets in a more validway than the extant classifications of network organizations. The paper contributes to the emerging theory of network management.© 2007 Elsevier Inc. All rights reserved.

Keywords: Network management; Strategic networks; Business networks; Value creation; Value nets

1. Introduction

In his seminal paper on the ‘Changes in the Theory ofInterorganizational Relationships in Marketing: Towards aNetwork Paradigm’ Achrol (Achrol, 1997; Achrol & Kotler,1999) suggested that one of the fundamental shifts in the 21stcentury is from a dyadic perspective of interorganizationalexchange relationships towards a network perspective of valuecreation involving different types of network organizations.This was a perceptive observation as there has been anexceptional growth in corporate collaboration and interorgani-zational networks (Achrol & Kotler, 1999; Amit & Zott, 2001;de Man, 2004; Frels, Shervani, & Srivastava, 2003; Gulati,1998; Powell, Koput, & Smith-Doerr, 1996; Spekman, Isabella,& MacAvoy, 2000). Besides the sheer growth in the number ofnetworks, this kind of organizational configuration is also beingused to pursue an expanding set of goals. In addition to thetraditional buyer-supplier constellations, interorganizationalnetworks can now include distribution channels, brand net-

⁎ Corresponding author. Tel.: +358 9 43138 515; fax: +358 9 4313 660.E-mail addresses: [email protected] (K. Möller), [email protected]

(A. Rajala).1 Tel.: +358 9 43138 580; fax: +358 9 4313 660.

0019-8501/$ - see front matter © 2007 Elsevier Inc. All rights reserved.doi:10.1016/j.indmarman.2007.05.016

works, technological innovation and product developmentnetworks; as well as competitive coalitions such as thecollaborations that bring competing firms together to establishindustry standards or the widely publicized airline coalitions(Amit & Zott, 2001; Cartwright & Oliver, 2000; Ford, Gadde,Håkansson, & Shenota, 2003; Frels et al., 2003; Gummesson,2002; Möller & Halinen, 1999; Srinivasan, Lilien, & Rangas-wamy, 2006). In more abstract terms, the network perspectiveassumes that actors are embedded within networks ofinterconnected relationships that provide opportunities for andconstraints on their actions (Brass, Galaskiewicz, Greve, & Tsai,2004).

The rising importance of business networks has attracted anincreasing amount of research efforts among several fields.Easton and Araujo (1996) and Grandori and Giuseppe (1995)have, in their reviews of extant network studies identified noless than close to 20 different approaches or schools ininterorganizational networks (see also Brass et al., 2004;Ebers, 1997; Gulati, Nohria, & Zaheer, 2000; Oliver & Ebers,1998 for analysis of literature). This great diversity in networkresearch has produced important new knowledge but has alsounfortunately resulted in conceptual confusion of the corephenomenon itself. There are several important issues thateither remain unresolved or pose important theoretical ormanagerial questions.

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http://dx.doi.org/10.1016/j.indmarman.2007.05.016

896 K. Möller, A. Rajala / Industrial Marketing Management 36 (2007) 895–908

Of primary importance is the ongoing discussion about theontological character of business networks. The studies drawingon economic sociology and the social networks tradition (seee.g. Powell et al., 1996) as well as the key authors within theindustrial network approach tend to emphasize the historical,evolutionary and embedded character of business networks(Håkansson & Ford, 2002; Håkansson & Snehota, 1995) andview networks as borderless, self-organizing systems thatemerge in a bottoms-up fashion from local interactions. Onthe other hand, many scholars representing the strategic man-agement perspective and the RBV are suggesting that there arealso more intentionally created ‘strategic networks’ or ‘valuenets’, which contain a specific set of organizations with agreedroles (see e.g. Brandenburger & Nalebuff, 1996; Jarillo, 1993;Möller & Svahn, 2003; Parolini, 1999).

One should note that also emergent networks are based onintentional actions by the actors that construct them. Thereare, however, significant differences between the ‘networksof organizations’ view and the ‘network organization’ view(Achrol, 1997) on the assumed role of management and man-ageability in the network. Researchers adopting the formerperspective emphasize the self-organizing aspects of networksand maintain that networks cannot be managed by any singlecompany. In this view, firms and networks of firms are seen ascomplex adaptive systems, comprising of interacting sets oforganizational and social relationships in which each actor ispursuing its own goals (Stacey, 1996). From this perspectivenetworks are only weakly manageable, and no single ‘hubfirm’ can provide direction or control to any network (Ritter,Wilkinson, & Johnston, 2004). On the other hand, researchersfocusing on network organizations with deliberately createdstructures, negotiated roles and goals argue that these can, andindeed have to be managed in order to be efficient (Dyer, 1996;Dyer & Nobeoka, 2000; Dyer & Singh, 1998, 2000; Lorenzoni& Lipparini, 1999). Agreeing with Ritter et al. (2004), we feelthat both of these network views are relevant in understandinghow companies behave and try to manage in network contexts.The key issue, we argue, is not whether networks can or cannotbe managed but what kind of governance or managerialsolutions are most suitable for different types of networks.

In this study, in view of the rapidly increasing utilization ofintentional business networks, we focus on these and on theirmanagement. To make a difference between networks in generaland intentional business networks we will call these nets; alsoterms value nets and strategic nets will be used. We propose thatdifferent types of nets involve and require different types ofmanagement in terms of their coordination and control mech-anisms. The key question in this proposition is how to classifythe great variety of business nets, as the classification solutionwould then influence what kind of management mechanismscan be identified or postulated for each net type. Drawing onresearch on business nets (Hite & Hesterly, 2001; Möller,Rajala, & Svahn, 2005; Parolini, 1999) and on regional businesssystems (Ståhle, Ståhle, & Pöyhönen, 2003; Pöyhönen &Smedlund, 2004) we suggest that the value creation logic orsystem, through which the net creates value for, and with, itsend customers, has a fundamental role in influencing effective

mechanisms for governance. In other words our aim is todevelop a contingency theory for net management.

This aim is pursued in the next section by discussing theways in which nets and networks have been classified in extantliterature. Then a value–system construct, to be deployed in theclassification of different net types, will be proposed togetherwith the net typology. The fourth section examines the differentmanagement mechanisms that are postulated as being requiredwhile operating in the proposed business nets. The paper con-cludes with a discussion on the theoretical and managerialimplications as well as the agenda for future research.

2. Strategic business nets — extant classifications

Viewing the rapid proliferation of business networks andnets there are surprisingly few attempts to provide understand-ing in this field through identifying different forms of networkorganizations. Notable exceptions are the work by Achrol(1997), Cravens, Shipp, and Crawens (1994), de Man (2004),Möller et al. (2005), Piercy and Cravens (1995); we are focusingon these, although we certainly feel that more research must beavailable.

Achrol (1997) distinguishes four network forms, (1) internalmarket networks, (2) vertical market networks, (3) intermarketnetworks, and (4) opportunity networks. The prominence of theAchrol and Kotler (1999) contribution within marketing has ledus to use this classification as a discussion platform. We brieflydescribe each of these network forms (the Internal MarketNetwork has been excluded as it does not represent an inter-organizational business network).

Vertical Market Networks (Marketing Channel Networks)refer to a set of direct supply or distribution relationshipsorganized around a focal organization best positioned to mon-itor and cope with the critical contingencies or value activities ina particular market. Accordingly, a vertical market network isan industry-specific chain of suppliers and distributors oftenorganized around a classic manufacturing company. This focalorganization itself may perform only limited manufacturingfunctions but acts as an integrator often specializing, for ex-ample, in the marketing, product technology, or final assem-bling, outsourcing the rest of its business functions.

Intermarket Networks (Concentric Networks) originatedfrom Japanese keiretsu organizations representing alliancesamong firms operating in a variety of unrelated industries.These networks have often been organized around one majorfinancial institution, trading company, or manufacturing firm,which in turn represents institutionalized affiliations. Thesenetworks are characterized by dense interconnections in re-source sharing, strategic decision making, culture and identity,and periodic patterns of collective actions (Gerlach, 1992, ref.Achrol, 1997, 61).

These patterns of financially centered intermarket networksare largely becoming redundant. The new economy with noveltypes of enterprises and converging industries as well as theglobal nature of capital markets has challenged the basicassumption of intermarket networks in the sense that they are notany longer organized around the traditional hubs (banks, trading

897K. Möller, A. Rajala / Industrial Marketing Management 36 (2007) 895–908

companies, etc.) but, for example, around organizations whichcontrol the key technologies. We believe that the intermarketnetworks are more or less disappearing or developing towardsstructures that Achrol terms as opportunity networks.

Opportunity Networks, dynamic networks (cf. Snow, Miles,& Coleman, 1992), or market exchange companies (Achrol,1991) are temporary alignments usually established around aparticular customer project. Often a marketing company can befound at the heart of the network (cf. the hollow and virtualnetwork by Piercy and Cravens (1995)). According to Achrol(1997), this marketing company is an organization specializingin collecting and disseminating market information, negotiatingand coordinating projects for customers and suppliers, and evenregulating product standards and exchange behaviors for thenetwork of participating companies. The strategic core of thiscompany is a worldwide network of marketing offices andinformation centers connected together by modern informationtechnology. This system produces real-time intelligence of theneeds of potential customers, and it links the company into aworldwide directory of potential suppliers for the products andservices. Achrol and Kotler (1999) have labeled these kinds ofnets ‘business opportunity networks’ and see that they areprimarily established to provide consumers access to a varietyof new types of offerings.

It should be noted that in Achrol's classification all networktypes are formed around a single, and often powerful, hubcompany, which acts as an integrator, controlling the key valueactivities and resources. Moreover, all the three types resemblesome kind of vertical integration between the participatingcompanies. However, there are an increasing number ofnetworks that are not organized around a single hub companyin a vertical manner. For example, in technology and knowledgeintensive industries companies cooperate in order to developa new technology (e.g. the Bluetooth coalition); or assemblecomplex offerings for customers. These ‘value nets’ (Srinivasanet al., 2006) are often horizontal networks or ‘diagonal net-works’ (containing actors from the two-dimensional valuespace). Horizontal co-operation is also established whencompeting actors form competitive coalitions like in the caseof the global airline alliances, e.g. StarAlliance, SkyTeam(Kleymann & Seristö, 2004).

Piercy and Cravens (1995) have launched the concept ofhollow network, which seems to be a pure marketingorganization that is a hybrid form of Achrol's (1997) verticalnetworks and opportunity networks. The term ‘hollow organi-zation’ emphasizes that the core company draws heavily uponother firms' resources to satisfy its customer needs. The hollownetwork is postulated to be very flexible in shifting to newsources of supply and being able to benefit from emergingopportunities in the market; just as Achrol's opportunity net-work. However, the short-term commitment and subsequentoperations based on opportunistic market behavior raises thequestion of whether these networks (hollow and opportunityones) are able to compete against other business networks thatare operating with more long-term relationships with a limitednumber of partners (Håkansson & Ford, 2002; Piercy &Cravens, 1995).

Piercy and Cravens (1995) present a virtual network that iscomposed of a group of individual companies that have agreedto co-operate for a temporary period of time in order to exploitsome market opportunity. In the virtual network the involvedparties bring their own core competencies into the net, and,when a new project is started the needed actors are chosenfrom the network and the missing resources are searched outsidethe existing network. This is the ‘virtual’ part of the network andit is dissolved after the project is completed. The importantaspect in the virtual network is that experiences, learning, andideas remain in the existing network, and the knowledgegathered from the projects can be accumulated and utilized inthe future.

The discussed network classifications are primarily based ona conceptual analysis. Drawing on the work of Castells (1996)de Man (2004, 19-36) has suggested a more comprehensiveclassification based on the goals that networks seek to achieve.His solution involves five categories which are further orderedinto three groups:

Quasi-integration networks- Primarily horizontal networks established to achievemarket power and reach and drawing on the comple-mentary resources of a limited set of member organiza-tions and is competition oriented; example networks:airline alliances.

Supply (and demand or customer) oriented networks- Vertical networks, between suppliers and producers inconsecutive positions within the value chain, aimed atincreasing efficiency; drawing on the specializedresources and competences of members; examplenetworks: Dell and Toyota.

- Solution networks, between producers of complemen-tary goods and services aiming to serve a comprehen-sive customer-specific problem; client activated, caninvolve both horizontal and diagonal partners; examplenetworks: IT-offerings, Schwab financial services.

Technology oriented networks- R&D networks, between companies aiming to sharerisks, costs and/or competences in the development ofnew technologies; pre-market competition; project-likecooperation that can involve both horizontal anddiagonal partners; example networks: Microsoft WebTV, Sematech consortium in the semiconductor re-search and business.

- Standardization networks, between horizontal or diag-onal partners and often co-opting companies aiming toset dominant technology in a product/service field;market development and competition oriented; examplenetworks: WAP Forum, Symbian coalition, both in themobile telephony operating systems.

de Man's (2004) network classification usefully covers theearlierwork ofAchrol (1997), Cravens et al. (1994), and Snowet al.(1992). One should note that in his solution the supply oriented


network types also covers customer or distribution networks “…because these are fundamentally the same” (2004, 19).

Looking at the presented network types and classifications, anumber of underlying dimensions can be identified: thestructure of the network, whether primarily vertical, horizontalor diagonal; the goal that the network or its key partners try toachieve; whether the network draws value by integrating thespecialized resources and competences of its members or seeksbenefits by combining similar resources; and whether thenetwork is operating in the pre-market competition or marketcompetition phase of a business field. Although useful, wecontend, drawing on work by Möller et al. (2005), that thesedimensions – and categorizations - are missing a key aspect inunderstanding business nets and their management, their valuecreation logic.

3. Business nets as value-creation systems

3.1. Fundamental role of value-creation system

We argue that essential to any business net is the underlyingsystem through which it produces value. This value–systemconstruct is based on the notion that each product/servicerequires a set of value creating activities performed by a numberof actors forming a value-creating system, using Parolini's term(1999, p. 59-68). Value system is not a new concept, and hasbeen given different shades of meaning by authors such asHåkansson and Snehota (1995), Normann and Ramirez (1993),Parolini (1999), and Porter (1985). Porter (1985) used the valuechain concept primarily to refer to the firm-level activitiesthrough which a firm produces value for its customers. How-ever, he also conceived industries as interlinked value-chains ofindividual firms. Normann and Ramirez (1993) criticizedPorter's value-chain construct for linearity and for primarilyassuming competition driven market exchange relationshipsbetween independent firms. Håkansson and Snehota (1995, 24-49), while not using the term value system, provide anarticulated conceptual scheme for describing a business net-work. It consists of interrelated layers of three basic concepts:actors, resources and activities. Similar to this conceptualizationis Parolini's (1999, 61-66) description of value-creating systemsas “a set of activities creating value for customers; …activitiesare carried out by economic players using sets of human,tangible and intangible resources…” Based primarily onParolini's scheme we define the value system of a businessnet as a set of specific activities carried out by the actorsconstituting the net. We also share the view that these activitiesare based on the resource constellation controlled by the actors.One should note that resources in this context are to beunderstood in a broad manner. Besides assets they containcapabilities (Grant, 2007). These have a fundamental role asthey define not only the current value activities that an actor cancarry out but also its capacity to renew the current capabilitiesand development new ones through the so called dynamiccapabilities (Eisenhardt & Martin, 2000; Teece, Pisano, &Shuen, 1997; Zollo & Winter, 2002). In this respect the bundleof capabilities that a net has and controls influences directly the

efficiency of its current value production and its renewalpotential (Araujo, Dubois, & Gadde, 2003). Finally, it should beemphasized that it is the customers who, through their buyingand consuming activities define the value of the offer producedby the net. In fact, as pointed out by Vargo and Lusch (2004)and embraced by the interaction and network perspectives inbuyer–supplier research (Håkansson, 1982; Möller & Wilson,1995; Normann & Ramirez, 1993), customers are always co-producers of value.

Following this reasoning any business net can be describedthrough its underlying value-creating system. How useful is thevalue system construct as there can obviously be as many valuesystem configurations as there are business nets? We suggestthat the key characteristic of the value system from theclassification perspective of nets is the level of determinationof the system. In other words, how well known are the valueactivities of the net and the capabilities (resources) of the actorsto carry them out, and to what extent can these value activitiesbe explicitly specified? As value activities are essentially basedon knowledge, embedded in capabilities manifested in organi-zational routines (Zollo & Winter, 2002; the level ofdetermination is related to the level of codification of know-ledge. The aspect of how well known the capabilities under-lying the value activities are is further linked to how easily theunderlying knowledge can be accessed and shared between theactors in the value net. The higher the level of determination ofthe value system, the less uncertainty there is, and, the lessdemanding its management. This idea is based on thefundamental notion that the characteristics of information andknowledge – as reflected in the level of determination of thevalue system – influence both the learning mechanisms and therequired managerial capabilities (Eisenhardt & Martin, 2000;Möller & Svahn, 2006; Zollo & Winter, 2002). Theoretically,one can conceive of a continuum of value systems extendingfrom those with a high level of determination, to emerging oneswith a low level of determination. Identifying the characteristicsof the value system underlying a specific business net means itcan be positioned on this theoretical continuum.

3.2. Business net classification

Fig. 1 shows a value–system continuum (VSC) with threeideal or generic value systems, which are described in the lowerpart of the figure. It is argued that not only do they representsignificantly different logic of value creation but also requiredifferent management mechanisms. The primary types ofstrategic business nets identified in the previous section aredescribed in the upper portion of the figure along with someexample nets. It is important to note that the hub firm has beenused to refer to the net that it is part of. A brief description willnow be made of the underlying logic of value production, whilethe next section addresses the management mechanismspertaining to each basic net type.

The left end of the VSC describes clearly-specified andrelatively stable value systems. The actors producing anddelivering specific products, and their activities and capabilities,are basically known. As such this value-creation system domain

Fig. 1. Business net classification framework.


describes well such business nets which have achieved arelative stability and high level of resource and business processspecification in their value production. Vertical demand–supplynets (involving both supply and distribution nets) and part of thehorizontal market nets are postulated to belong to this domain.

The multi-tiered supply nets in the automobile industry,especially the Toyota supplier net, provide a typical illustration(Dyer, 1996). Dell, IKEA and Nike also illustrate well-specifiedsupplier and distribution nets (Gadde & Håkansson, 2001;Holweg & Pil, 2001; Lipparini & Fratocchi, 1999). It is notablethat, all of these example nets primarily pursue efficiency gainsin terms of production/logistics and time compression, rapidgrowth opportunity, and access to a wider customer base.Another feature is the hierarchically distributed coordination ofthe net. In terms of value creation and the role of knowledge, thecapability of exploiting current actor competencies througheffective knowledge transformation and sharing is expected tobe essential in these nets (Dyer & Nobeoka, 2000; Levinthal &March, 1993; March, 1991). More specifically, we contend thata high level of knowledge codification and advanced informa-tion systems are essential for building an efficient verticaldemand–supply net. Without these it is not possible to link theproduction and logistical processes of the net members (Hoover,Eloranta, Holmström, & Huttunen, 2001). More detailed dis-cussion on the management aspects are provided in the nextsection.

Considering horizontal nets, similar value-creation condi-tions are also valid for such horizontal market nets that havebeen created for producing combined offerings for their endcustomers on a continuous basis (versus project or temporalbasis). Horizontal market nets are created when competingfirms recognize that they have products, channel relationshipsor customer-service systems that can be combined to achieve astronger position in global-level competition. Competitionalliances, such as the airline alliances OneWorld, SkyTeam,and StarAlliance, represent enduring strategic nets, which aregenerally based on the combination of partners' existing re-

sources (routes and airport rights) and on the joint creation ofrenewed and new processes and resources (reservation system,customer bonus system). Many service providers have alsoestablished more loose horizontal market nets by providingcomplimentary services which produce added value to theircustomers through various bonus programs. In the U.K. theNectar reward card system, for example, is soon covering mostof the consumption and service need of consumer customers(http://www.nectar.com/NectarHome.nectar). It provides value-added for its company members by creating additional demandthrough cross-selling and increased ‘customer-pull’ throughrewarding customers for concentrating their purchases on theNectar companies. American Express represents a more hub-driven horizontal market system providing an extensive set ofofferings in travel and financial services based on wide-rangingpartner nets. It seems evident that the availability of the Internetis facilitating the establishment of horizontal market nets.

It should be noted that horizontal nets are seldom purelyhorizontal. They often contain vertically-positioned supplierand distributor companies. The airline coalitions, for example,expand into complex diagonal multi-field nets through theirrelationships with hotel chains and car-rental companies.

The middle of the continuum describes value systems whichare based on current value-creation systems and as such arerelatively well determined, but which are being modified byactors through incremental and local innovation activitiestargeting to achieve improvements in current value systems. Weprimarily distinguish between two net categories in this relativelyunrecognized value net domain. First, most multi-company R&Dprojects, which generally involve a hub company and its leadsupplier(s), pilot customer(s), and often consultants and specifictechnology providers, can be regarded as temporal, goal-orientednets. This can also hold true for other multi-party projectsestablished for business-process improvements. Usually, thesenets, which we call business renewal nets, aim at increasing theefficiency of the existing vertical demand–supply nets orhorizontal market nets by improving their offerings or specific

http://www.nectar.com/NectarHome.nectar


parts of their business processes (production, logistics, informa-tion systems, etc.). One example is Toyota's cooperation withtheir key suppliers for mastering the major model changes in theauto production, which often cause serious adjustment problemsfor the efficient flow of key components (see description in Adler,Goldoftas, & Levine, 1999).

Customer solution nets form the other group of renewal nets.Solution nets are formed by producers with complementaryresources and competences who operate mainly in project-basedbusiness, e.g. in construction industry, engineering, or softwaredevelopment. In construction, for example, most large-scaleprojects based on tenders and ranging from power stations tonew housing estates are carried out by hub-company drivencustomer solution nets. They are temporal in the sense that aspecific net partner constellation is decided on the basis of thegoal of the specific solution project. The goal defines thecompetences required, which then guide the selection of the netmembers. In spite of this temporal character, solution netsgenerally have a hub firm or a set of relatively stable coremembers around which the projects are organized. This im-proves their value production effectiveness compared to com-pletely ad hoc project arrangements.

From the value-creation and knowledge perspectives, the localrenewal nets require a balanced position between knowledgeexploitation and exploration. The capability of bridging differentcommunities of practices – experts of various technologies andfunctional areas, software developers, business managers – isessential in creating new specialized knowledge (Araujo, 1998;Brown & Duguid, 2001; Dyer & Nobeoka, 2000). This socialcharacter of knowledge production emphasizes an ability to createtrusting partnerships and requires project managers and memberswho perform well in multi-functional and multi-actor teams(Birkinshaw, Nobel, & Ridderstråle, 2002; Dougherty, 1992). Interms of the network structure, renewal nets are generallydiagonal, having members from both vertical and horizontaldimensions of the value creation.

The right-hand end of the continuum describes emergingvalue systems. Through them new technologies, businessconcepts or even business fields are being created. In thisrespect, this domain concerns radical, discontinuous and system-wide change as illustrated by the birth of commercial Internet orgenetechnology. It is characterized by dispersed and vaguelyidentifiable ideas about the future involving great uncertainty.

We identify three network/net categories in this relativelyunresearched and highly complex domain (for a moreextensive discussion on the networked emergence of newtechnologies and business fields see Geels (2002), Lundgren(1995), and Möller and Svahn (2005)). First, there areinnovation networks, which are relatively loose science andtechnology-based research networks involving universities,research institutions, and research organizations of majorcorporations. These are characterized by professional andsocial relationships and are not primarily business networksbut are guided by the ethos of scientific discovery. However,large corporations are to a growing extent participating inthese networks through their own researchers and bysponsoring university laboratories and other research institu-

tions (Lundgren, 1995). They are also harnessing these broadscience networks through multi-party research projects havingspecific application oriented goals. CERN, the EuropeanOrganization for Nuclear Research and the world's largestparticle physics centre is an example of multiple overlappingscience and technology networks involving both science andtechnology-based professional networks from not-for profitand for-profit organizations (http://public.web.cern.ch). Thesestructures fulfill the characteristics of temporal project nets(Doz, Santos, & Williamson, 2001).

Second, proactive companies try to create so-calleddominant technological designs in the pre-market phase ofthe business field evolution in order to favor their positions inthe field and to accelerate the market construction (Abernathy& Utterback, 1987; Anderson & Tushman, 1990; Tushman &Rosenkopf, 1992). This competition takes place through net-working as no single firm can generally achieve a dominantdesign by itself (Srinivasan et al., 2006). These dominantdesign nets are diagonal coalitions of partially competing andpartially complementing companies, which share similar tech-nological view, exemplified by the Symbian and Bluetoothcoalitions within the mobile phoning and services field (http://www.symbian.com ; http://www.bluetooth.com). Often therecan be several nets competing to establish technologicaldominance like in the competition of flat panel displaysolutions (Murtha, Lenway, & Hart, 2001). It is notable thatthis networked competition deals not only with companiesand technological actors but also other stakeholders suchas regulators and financial institutions through a complexprocess of agenda setting with the ultimate objective of subtlyaligning public opinion with the interest of the dominantdesign net.

The third net type in this domain is application nets, which areformed to support the race for achieving commercially viablebusiness applications out of the evolving technology. These netsmay overlap with dominant design nets but they are generallydriven by a hub company and involve a web of complementarycomponent, software, and other technology producers, as well aspilot customers. For example, emerging mobile services aregenerally created through business nets involving a telecomoperator, several ‘middleware-type’ software producers, andcontent/service providers.

From the perspective of value creation logic, the challengesfaced by the actors in the emerging business nets creating newtechnology and business concepts are pronouncedly differentfrom those faced by the actors in stable business nets. Thepervasive uncertainty and tacit nature of beliefs and ideas abouttechnological and commercial opportunities lead to a situationwhere sense making of the emerging opportunities (Weick,1995) and the co-creation of knowledge through exploration(March, 1991) dominate over the issues of transferring existingexplicit knowledge. In the early phase it is very much aboutcompetition to reduce the perceived uncertainty through agendasetting, and, in the later phases by networked creation ofworking designs and applications. These activities presumedeep collaboration capabilities and joint creation of newsolutions.

http://public.web.cern.ch

http://www.symbian.com

http://www.symbian.com

http://www.bluetooth.com


The proposed value system continuum framework is anabstract theoretical construct. It does not postulate any devel-opment phases or path but proposes ideal types of businessnets -current business nets, business renewal nets, emergingnew business nets - based on the level of determination and therole of knowledge of their underlying value systems. In reality,we will never find purely ideal value systems, in the same wayas there is no pure market governance, hierarchical gover-nance, or network governance (Adler, 2001; Bradach &Eccles, 1989; Powell, 1990). All net types exhibit hybridforms of governance mechanism, varying from more pro-nounced hierarchical coordination to self-organization throughmutual adjustments (Adler et al., 1999). Nets may also beinterrelated through actors having roles in several nets; andmost large corporations hold roles in several nets across thecontinuum. The point that large corporations may hold roles indifferent types of nets is related to the variety of their goals andactivities. Using Nokia and the mobile phone business as anexample, Nokia has mobilized a supplier net pursuing highoperational efficiency. Simultaneously it has been involved inmany technological coalitions like the one behind the Blue-tooth technology and has been active in the establishment ofthe Open Mobile Association (OMA) which can be seen as anet of firms driving the openness and interoperability of futuremobile services. These net activities are examples of the‘emerging new business nets’. These two net types – thecurrent business nets and the emerging new business nets –have different logics and require different managerial mechan-isms. This is reflected in the fact that Nokia uses differentorganizational entities to carry out its role in these differentnets.

Finally, the ‘content’ of the continuum, the business nets andtheir underlying value systems, is in constant evolution. Oncenets creating innovative services, such as mobile banking, havebeen able to specify their offerings and their value-creationsystems, they can be reclassified as current business nets. In asimilar fashion, when new offerings or business processimprovements have been achieved through renewal projectnets, they are subsumed into the regular ‘clock work’functioning of efficient current business nets.

Based on the preceding discussion, we suggest that theissues faced in managing business nets are profoundlyinfluenced by their underlying value–systems. While compar-ing the learning skills and capabilities required in our threeideal-type nets, the fundamental driver of their differencesseems to be the varying character and role of knowledge intheir underlying value systems. This ontological dissimilarityis obvious between the well-established and emerging valuesystems. In the former, knowledge is primarily codifiable andfirmly held, whereas in the latter the role of tacit knowledge,widely dispersed, vague and uncertain, is more pronounced.The incremental knowledge creation, the middle position inthe value continuum, shares aspects of both extremes, the keyissue is the invention of new modifications out of the existing,partly codified and partly tacit, knowledge bases. In brief, weargue that the challenges of management are remarkablydifferent across the continuum.

4. Management mechanisms in business nets

Drawing on the discussions in the previous sections wesuggest that it is useful to examine the management require-ments, posed by the different types of strategic nets, by focusingon the following perspectives or dimensions: the role ofefficiency versus effectiveness in achieving net goals; the role ofknowledge utilization versus the production of new knowledgein achieving net goals; the type of interdependence betweenactors. These dimensions are related to the underlying value-creation logic of the net and they are expected to exertsignificant influence on the viable management mechanisms pernet type. These are discussed with the help of the frameworkdepicted in Table 1.

4.1. Management of current business nets

Vertical demand–supply nets (VDNs) are primarily estab-lished for competing through efficient production of establishedcustomer offerings by ‘lean manufacturing’ (lowering costs,shortening lead time) systems and ‘assembly on demand’(lowering inventories, matching demand and production)processes. The end offering which the net produces is generallydecomposable into smaller subunits requiring specializedresources and value activities from the net actors. Thisspecialization leads into strong serial interdependence betweennet actors; i.e. the output of actor A is the input of actor B(Håkansson & Persson, 2004; Thompson, 1967). This high levelof specialization enables actors to reach efficiency gains. Theefficient integration of components and the coordination of therelated value activities require a high level of knowledgecodifiability facilitating its sharing amongst the members of thenet (Kogut & Zander, 1992). This is required to solve serialinterdependence problems such as the scheduling of demandpull-production and logistics, which require reciprocal informa-tion exchange and adaptability (for a commentary on serial andreciprocal interdependence see Håkansson and Persson (2004)and Thompson (1967)). Drawing on this reasoning we proposethat highly integrated demand-supply nets can be constructedand managed effectively only when the underlying value systemhas reached a high level of codifiability and transparency.

What kinds of management mechanisms are paramount inthese nets? Evidently, the specialized components have to beintegrated and their production schedules and logistics need tobe coordinated through cross-company IT systems (Adler et al.,1999). A prerequisite is that the hub can mobilize a set of actorswilling to form a tightly coordinated supply and channel net.Companies with a well-established position in their field,providing sound end customer demand for the net throughstrong brands, have a high potential to become the integratorfirm. A strong demand position is essential in convincingimportant first-tier component vendors and integrated manu-facturers that they can benefit from a closer value net in terms oflarger volumes and more stability (Holweg & Pil, 2001). Themore powerful the position of the hub firm, the more selective itcan be in choosing the net actors. In general, there is marketpressure influencing the net members; each member has to be

Table 1Business nets — their characteristics and management mechanisms

Current business nets Business renewal nets New business nets

Ontological characteristics Ontological characteristics Ontological characteristics▪ Relative stable, multi-tiered structure ▪ Coexistence of stability and incremental change ▪ Radical change involving change of

existing value systems and creation ofnew ones

▪ Prominent level of codifiability of value activitiesand knowledge

▪ Specialized knowledge embedded in persons,communities of practice, and routines - partly tacitpartly explicit. ▪ Uncertainty concerning emerging

knowledge structures and value activities▪ Relative transparency and level of determinationof value activities ▪ Temporary in nature

▪ Dispersed vaguely held ideas

Typical net goals Typical net goals Typical net goals▪ To achieve high systemic efficiency through valueactivity integration and coordination

▪ Renewal of existing offerings and business processes ▪ Influencing emerging field

▪ Provide integrated customer offerings bycombining complimentary resources

▪ Produce of customer-driven/specified solutions ▪ Creating new dominant technologysolutions

▪ Creating new commercial applications

Management mechanisms Management mechanisms Management mechanismsVertical demand–supply nets (VDNs) Business renewal nets (BRNs) Innovation networks (INs)▪ Strong sequential interdependence between actors ▪ Pooled and reciprocal interdependence ▪ Mainly reciprocal interdependence▪ Reciprocal information exchange and adaptability ▪ Coordination of dispersed resources ▪ Self-coordination / informal leadership▪ High level of specialization ▪ Bridging borders of both the involved firms and

communities of practice▪ Weak ties, loose coupling (trust, norms)

▪ Controlling efficiency (tight enough integration andcoordination of resources, value activities andnet members)

▪ Coordinated collaboration▪ Cannot be managed by one actor alone

▪ Distributed coordination / hierarchy also needed(risk of too high level of control by the hub)

▪ Trusting culture, enhancing joint-development▪ Actors holding node positions connectmultiple actors

Horizontal market nets (HMNs)

▪ Motivating partners (sharing benefits, IPRs)Dominant design nets (DDNs)

▪ Pooled (or reciprocal) interdependence

▪ Balancing with tight and loose coupling▪ Pooled and reciprocal interdependence

▪ High autonomy but shared operating principles (revenuesharing, joint branding & marketing communication)

Customer solution nets (CSNs) ▪ Setting and communicating agendadevelopment

▪ Joint IT systems for sharing customer and marketinformation

▪ Serial, pooled, and reciprocal interdependence(coordination ans scheduling) ▪ Mobilizing and coordinating for

activities

▪ Coordination of cross-marketing activities

▪ Systems for rapid establishment of a net/customer project(constellation of partners) ▪ Influencing the sense-making process

(meaning power/premise control)

▪ Formal central committees, equity holdings, etc.

▪ Advanced project management systems▪ Using working groups/alliance teams▪ Advanced systems for sharing benefits

Application nets (ANs)▪ Balancing with tight and loose coupling

▪ Serial, pooled, or reciprocalinterdependence

▪ Hub company-driven with hybridcharacter (similar to BRNs and CSNs)

▪ Collaborative project-based systems(boundary persons / linking-pin roles)

▪ Efficient systems under construction


able to maintain its relative competitiveness, as otherwise itcould be replaced with a more efficient one.

The resource integration capability requires a systemic typeof knowledge on the architecture of the value activitiesunderlying the net (Parolini, 1999; Sanchez & Mahoney,1996; Seufert, von Krogh, & Back, 1999). Achieving this incomplex vertical nets involving several technological platformscan be very demanding, costly or outright impossible asintimate knowledge is dispersed amongst different actors atdifferent levels of the net. The solution lies in the multi-tieredstructure of the net. There are several integrating andcoordinating actors who possess the necessary knowledgebase for understanding and coordinating their own ‘valuesegments’ of the value system. One can speak of distributedcoordination. Such integrating actors – e.g. Intel or Cisco –form the key nodes in the net, besides the hub firm, as they

create and retain the specialized knowledge and theories that areused in their value segments.

Finally, a hub that tries to achieve complete centralizedcontrol reduces the very variety and specialization thatconstitute the source of competitive strength for the net. Inlearning terms, one-sided emphasis on exploitation destroys thepotential for exploration and generative learning (Håkansson &Ford, 2002; March, 1991; Slater & Narver, 1995).

In Horizontal Market Nets (HMNs) members have primarilypooled interdependencies (Thompson, 1967) in the sense thatthey are producing products and/or services that, when puttogether offer added value for the customers of the net. TheAmex and Nectar card companies, for example, are poolingtheir partners' services as wider service offerings are moreattractive to their cardholding customers. In other words, byconsuming more the end-customers earn higher bonuses. This


makes the net more attractive for new potential serviceproviders as well. Establishing and managing these kinds ofnet requires developing and sharing operating principlesincluding decisions on revenue sharing, joint branding andmarketing communication programs. Companies have also todevelop a joint IT system for sharing customer information andenabling the coordination of cross-marketing activities; in otherwords the net members are also reciprocally interdependent. Anattractive integrator or hub company should also have a largeand financially well-off customer base and advanced CRMsystems. Compared to the VDN nets HMN net member com-panies maintain high autonomy and continue to market theirservices also independently — like Sainsbury, the large U.K.retailer participating in the Nectar reward card net.

Compared to such horizontal customer reward nets, airlinealliances share more characteristics with the vertical supply netsin the sense that their members share both serial and pooledinterdependence. That is, the members of these nets have tocreate stronger linkages between their business processes. Theheavy investments and the strategic nature of issues involvedcause these kinds of competitive alliance nets to have formalcentral committees that may also lead to equity holdings (deMan, 2004; Kleymann & Seristö, 2004). It may take severalyears for a partnership to become a co-coordinated net onaccount of the varying corporate cultures and goal incongruencecharacterizing firms participating in the net.

4.2. Management of business renewal nets

Business Renewal Nets (BRNs) are established to provideimprovements to the existing offerings and business processesof the value-production systems that we have labeled as currentbusiness nets. Collective action is required when resources andcompetencies involved in renewal are dispersed among severalnet partners due to firm specialization. Renewal nets typicallyhave explicit goals and timetables and are organized as multi-party projects. Complex renewal objectives are often pursuedthrough several interrelated projects. Most product developmentand business process modification projects, exemplify netssharing these characteristics as they involve various participantssuch as pilot customers, lead suppliers (von Hippel, 1988), andtechnology and service providers. Customer Solution Nets(CSNs) share most of the features of the Business RenewalNets. In solution nets, a group of companies with complemen-tary resources and competences provide customer-drivensolutions on a project basis. A specific partner constellation isdecided on the basis of the goal of the specific solution project,as illustrated by major construction industry projects.

In this kind of targeted project nets the actors are highlyinterrelated and have to solve serial, pooled, and reciprocalinterdependence issues as the output of one phase wouldcorrespondingly be the input to the other leading to serialinterdependence. Pooled interdependence arises from the scarcequalified personnel that have to be pooled between projects.This pooling requires mutual understanding of the kind ofexpertise involved in the project and knowledge of thecompetences and capacity of each net member. The joint-

learning and problem solving requires reciprocal communica-tions and the sharing of professional expertise, and hence, leadsto reciprocal interdependencies (Dougherty, 1992; Tuomi,2002).

Business renewal nets and current business nets are oftenhighly embedded in terms of having many organizations andpersons in common. We contend, however, that these nets differin their value-producing logic. From the knowledge perspective,local development nets require a balanced position betweenknowledge exploitation and knowledge exploration. Theseaspects are manifested in Tunturi Ltd (http://www.tunturi.com,part of international Accel Group), one of the leading fitnessequipment producers, which has been carrying out its researchand product development through organizingmulti-party projectteams including members from its key components and servicesuppliers (including ergonomic design, gear equipment, fitnessdiagnostic instruments, software programming, metal compo-nents, and plastic components). The goal was not only to shortennew fitness equipment model development times and reducecosts but to enable the integration of the rapid developments inergonomic design, instrument technology, and software pro-grams to the new models. The new system was created throughlearning by doing, letting the teams go through the processesinvolved and establish their own working routines and processprotocols.

An essential aspect in both business renewal nets (BRNs)and customer solutions nets (CSNs) is the net's ability to notonly exploit the specialized knowledge held by each actor butalso to expand this knowledge through collaborative learning.The more adjustments and new solutions are required by theproject (compared to the current value productions system), themore critical the joint knowledge production. This is achallenging task due to the embeddedness of each net member'sspecial, partly explicit partly tacit, knowledge in people androutines. This social character of knowledge and learning hasbeen underlined by the communities of practice perspective(Brown & Duguid, 2001; Lave & Wenger, 1993; Tuomi, 2002).

The social character of knowledge production puts emphasison the capability of bridging the borders of both the involvedfirms and their communities of practice (Mowery, Oxley, &Silverman, 1996; Nonaka & Takeuchi, 1995; Simonin, 1999).Bridging is not free, however, but requires specific organiza-tional capabilities. Being able to understand specialized know-ledge domains as exemplified by experts of product and processtechnologies, software developers, marketing and businessmanagers (Birkinshaw et al., 2002; Dougherty, 1992) presumesan ability to cross their professional languages and sub-cultures.

The role of boundary persons working on cross-organiza-tional teams is central in the business renewal nets. Partnerspecific experiences, general alliance experience, and relationalgovernance structures and processes support the creation of suchinterorganizational routines that facilitate effective joint renewalsolutions (Kale, Dyer, & Singh, 2002; Lambe, Spekman, &Hunt, 2002; Mowery et al., 1996; Simonin, 1999; Zollo, Reuer,& Singh, 2002). A key issue is to share the benefits of businessrenewal in a way that motivates all the net partners. Withoutmembers' initiatives much of the learning potential of the net

http://www.tunturi.com


depends on the hub firm's more restricted knowledge base,leading to a kind of ‘hierarchy trap’ (Håkansson & Ford, 2002).

The management of renewal nets involves, again, a balancingdilemma. A tightly coupled renewal net with strong unifyingculture and coordinated relationships can be very efficient indevelopment projects which directly exploit the current know-ledge bases of net members. Without enough autonomy andspace, time and resources for exploration tightly coupledsystems tend, however, to loose their innovativeness in thelong-run (Levinthal & March, 1993; Weick, 1995).

4.3. Management of emerging new business nets

The value systems at the right end of our value continuum(Fig. 1) represent the varying stages of emergence. They involveactors aiming at developing new technologies, products orbusiness concepts. This action is future-oriented in the sense thatthe economic value potential of these nets is generally fullyrealized only in the future. Uncertainty and ambiguity related tovalue activities and to actors and their capabilities are inherentfeatures of this landscape, exemplified by the converginginformation, communication, and e-content fields (Amit &Zott, 2001; Eisenhardt & Martin, 2000). We distinguish threeinterrelated but different networks and nets in this broad domain:innovation networks, dominant design nets, and applicationnets. These are located in different parts of the emergencecontinuum, as application development already requires rela-tively specified technological solutions whereas innovation andinvention networks operate at the edge of the low level ofdetermination.

Innovation Networks (INs) are relatively loose science andtechnology-based research networks involving universities,research institutions, and research organizations of majorcorporations. As we pointed out earlier, these are mainlyprofessional networks, not business networks, and guidedprimarily by the ethos of scientific discovery. As such, theycannot be managed by any one company or institution alone.However, large corporations are to a growing extent participat-ing in these networks through their own researchers and bysponsoring university laboratories and other research institutions(Doz et al., 2001; Lundgren, 1995).

In the field of software development, the open source, oropen innovation movement, based on the work in virtualdevelopment communities, represents a new form of collectiveinnovation where not-for profit motives are dominant. (Crow-ston & Scozzi, 2002; Feller & Fitzgerald, 2001; Osterloh &Rota, 2007). In order to utilize the early ideas of virtualcommunities, companies, or more specifically their personnel,should become members of these communities. This view issupported by research on the relationship between consumermarketers and consumer communities (Cova & Cova, 2002).

A key managerial challenge in this early phase of emergenceis the identification and sense making of widely dispersed andinherently the local nature of technological and breakthroughbusiness ideas (Doz et al., 2001; Lundgren, 1995; Murtha et al.,2001). Ideas are often fuzzy, that is, there is ambiguity about thepossible cause and effect relationships between existing

knowledge and the emergent knowledge. Fuzzy ideas do notyet contain a clear heuristic of how to pursue the idea(Scharmer, 2000). The key question is then, how to enhancean actors' sense making ability? It appears that actors located innodes which connect multiple actors and create different typesof new knowledge have a better chance of recognizingemerging technological and business opportunities than actorswho are highly specialized (Håkansson, Havila, & Pedersen,1999; Kogut, 2000; Powell et al., 1996). Since they are involvedin several interlinked but different networks, major corporationshave increased exposure to ideas emerging from other actors.Furthermore, Granovetter's (1973) and Uzzi's (1997) findingssuggest that weak ties with many actors form an importantsource of information about ideas that originate outside of anactor's more-immediate network environment. Weak ties helpto expand a firm's network horizon beyond its local network(Alajoutsijärvi, Möller, & Rosenbröijer, 1999). This can beindispensable for making sense of the flux in early businessfield emergence. The findings of the relevance of socialnetworks and social capital in the early growth of biotechnologystart-ups support these views (Maurer & Ebers, 2006) as doesemerging understanding how the newest academic knowledgeis diffused through more close epistemic communities (Husler& Ronde, 2007).

Besides this kind of ‘environmental scanning’ for earlysignals of breakthrough science-driven business ideas, proactiveincumbent corporations have also deliberately increased theirexposure to emerging technologies by acquiring tens or evenhundreds of small high technology firms. This is a costly way ofincreasing the variety and richness of one's learning environ-ment. Similar results may be achieved by having an extensivealliance network, including R&D projects with interestingSMEs (Dyer & Singh, 2000; Hinterhuber, 2002). Majorcompanies are also harnessing broad science networks, throughmulti-party collaborative research projects with universities andresearch institutions having more specific and applicationoriented goals (Doz et al., 2001; Murtha et al., 2001). Thesestructures share many management characteristics with thetemporal project nets (BRNs and CSNs) discussed earlier.

Compared to Innovation Networks Dominant Design Nets(DDNs) represent target oriented mobilization of a coalition, ornet of actors, aiming to establish a dominant technologicaldesign to an emerging business field, as exemplified by theSymbian and Bluetooth coalitions within the field of wirelessand mobile communications. We conceive two critical aspectsin the DDN mobilization. First, it involves setting andcommunicating a development agenda for the field, and second,a mobilization and coordination of the activities of a DDN.

Through agenda setting a proactive company can influencethe sense-making and selection processes of other actors andthus guide the lock-in investment decisions that lead to a newtechnological trajectory for commercialized business offerings(Geels, 2002). Agenda setting is also a necessary condition formobilizing a net of actors into trying to develop a dominantdesign. The basic idea of agenda construction is to reduce thevery uncertainty and ambiguity inherent in radical emergence. Itis this uncertainty about the technological alternatives, required


investments, and business potential in terms of volume andrevenue, which impedes business investment decisions.

Through agenda construction a company, or a net, caninfluence the relevant actors' sense-making processes andconsequently the way they frame and interpret the businessemergence. This aspect, which Hardy (1996) and Swan andScarborough (2005) call ‘meaning power’ and Perrow (1986)‘premise control’ refers to the extent an actor can influence themeanings through which the emerging business field is seen andconstructed by the involved actors. Agenda construction linksthe sense-making perspective and actors' focusing and decisionmaking processes, thus, making it an essential part of the socialconstruction of new business.

The Bluetooth coalition is a good example of a technologicalinnovation where partially competing and partially complement-ing wireless technology and service companies joined theirforces to develop a technological solution, which became adominant design for future commercial applications and services(http://www.bluetooth.com).

Active mobilization of a DDN presumes a credible designsolution and a road map of technology development. Ifsuccessful, this leads to a lock-in and commitment to a paththat the mobilizer is driving. This presumes either a strongcompany with a good track record (like Ericsson, the initiator ofBluetooth coalition) or a small innovative company with a veryattractive technological solution (like Psion in the case ofSymbian coalition). The management of a dominant design netgenerally involves at least two levels. First, the technologicaldevelopment work is carried out through collaborative projects,characterized by the similar issues of management as in thetemporal project nets (BRNs and CSNs) discussed earlier.Second, the strategic management of the coalition generallyinvolves the establishment of a formal organization where all theinvolved net members are represented. The net development isgenerally carried out through working groups, and the membersaim to arrive at shared unidirectional decisions (de Man, 2004).

Finally, Application Nets (ANs) refer to the networkeddevelopment and launch of early commercial applicationswithin the emerging business field. The early mobile phones,Internet portals, or UNIX-based workstations provide someexamples. ANs may overlap with dominant design nets but aregenerally driven by a hub company and involve a web of com-plementary component, software, and other technology produ-cers as well as pilot customers. Thus, ANs do not generallycontain clear market competitors that are relatively typical inDDNs. In terms of their management, ANs are argued to exhibita hybrid character. The application development work is carriedout through similar structures involved in Business Renewal andCustomer Solution nets. It contains analogous issues in terms ofcollaborative, project-based learning, enhancing the importanceof boundary persons and the trust-based sharing of knowledge,and efficient project management in general.

In parallel to solving the technological aspects of anapplication, the net must work on creating an efficient marketing,distribution, and production system for the application. Thesemay involve inviting new members to the network. Themanagement issues of these aspects belong to the domain of

Current Business Nets; in a sense a successful application is‘moved’ to the value creation logic of either the vertical demand–supply net or the Horizontal Market Net depending on thebusiness logic and model of the application.

5. Conclusions

This paper proposes two significant contributions to theemerging theory of management in interorganizational net-works and business nets: the classification framework forintentionally developed business nets, and the analysis of themanagement requirements in different types of net. Thesecontributions are first discussed from a theoretical perspectiveand a managerial perspective. Next, the limitations of the paperare identified, and finally, suggestions for future research areprovided.

6. Theoretical and managerial implications

We started by emphasizing the relevance of differentiatingbetween the evolutionary interorganizational networks perspec-tive adopted in economic sociology and embraced by mostresearch into industrial networks, and the business netsintentionally formed by a set of organizations. A significantimplication of this distinction is the question of what kind ofnets are being formed and whether one can identify specificconditions related to specific forms of organizing and managingthe different nets. Following this reasoning, we have con-structed a value system-based framework for identifying thecharacteristics of different types of business net. This theory-driven framework with its three ideal types – current businessnets trying primarily to achieve efficiency gains throughdemand–supply coordination, business renewal nets lookingfor local business process improvements by incrementalinnovation and change, and emerging new business netsseeking to create more effective technological applicationsand business concepts by means of radical innovation andbusiness system change – extends our knowledge of the varioustypes of business net considerably.

By highlighting the characteristics of each ideal type, ourvalue system continuum provides an abstract but powerfulcontingency view-based conceptualization of the ontologicaland epistemic conditions influencing the management indifferent types of net. We contend that this framework capturesthe complexity and variety of the expanding strategic businessnets in a more valid way than the extant classifications ofnetwork organizations (cf. Achrol, 1997; Cravens et al., 1994;de Man, 2004; Piercy & Cravens, 1995; Snow et al., 1992).

Using the value–system framework we identified, throughthe review of extant literature, eight strategic net forms underour basic typology of three value creation logic domains –Vertical-Demand Supply Nets, Horizontal Market Nets, Busi-ness Renewal Nets, Customer Solution Nets, InnovationNetworks, Dominant Design Nets, and Application Nets –and discussed their pertaining management issues and mechan-isms. This analysis makes a significant contribution to thedeveloping theory of network management.

http://www.bluetooth.com


In essence, we are saying that the ontological distinctions invalue systems underlying the postulated net types are formingwidely different epistemic conditions influencing their effectivemanagement solutions. The level of determination of the valueactivities is reflected in the specificity of knowledge structuresinfluencing the relevance of different modes of learning andknowledge utilization through capabilities across the nets. Thisontological dissimilarity is obvious between the well-estab-lished current business nets and the emerging new business nets.In the former knowledge is primarily codifiable and firmly held,whereas in the latter it is tacit, widely dispersed, causallyambiguous and vaguely held. The incremental knowledgecreation, the middle position, shares aspects of both extremes.The key issue is the invention of new modifications out ofexisting, partly codified and partly tacit knowledge bases.

The majority of studies on management in the networkcontext has primarily focused on identifying conditions formanagement in general (Håkansson & Ford, 2002; Jones,Hesterly, & Borgatti, 1997; Powell et al., 1996; Ritter et al.,2004). It can also be claimed, that studies examiningmanagement in particular nets have not provided a unifiedtheoretical base for identified differences in management(Achrol, 1997; Cravens et al., 1994; Piercy & Cravens, 1995).Compared to this extant research we contend that ourframework makes a significant contribution by proposing asystematic, theory-based conceptualization relating the onto-logical characteristics of the types of intentional business nets totheir knowledge and learning requirements. Our framework alsoexpands the emerging theory of network management. Based onour analysis, we argue that the more traditional dynamiccapabilities such as relational partnering and alliance manage-ment (Eisenhardt & Martin, 2000; Kale et al., 2002; Spekman etal., 2000) are not sufficient for complex knowledge sharing andco-creation in different types of business net. In brief, ourbusiness nets framework offers clear managerial guidance forconstructing and managing specific types of net for particulargoals.

Our conclusions and propositions must be considered in thelight of the limitations of this study. One aspect is the number ofdifferent literatures employed. Due to space limitation we havehad to present rather brief discussions to many important themesand conceptualizations. We have, however, tried to maintainclarity by using a limited set of key concepts from each relevantfield and by providing core references on each central topic.Another aspect is the rather scant discussion concerning thecharacteristics of the capabilities related to particular net typesand the firm roles in these (see Araujo et al., 2003; Möller &Svahn, 2003).

6.1. Suggestions for future research

Programmatic empirical research is required to deepen andvalidate our proposition of the characteristics of different typesof intentional business net and the postulated managementmechanisms and requirements. Here, a careful theory-drivenmulti-case design involving the identification of business netswhich represent our three ideal types as closely as possible,

comparison of their organizational structures and managementmechanisms employed, and assessment of the performance ofdifferent nets would appear to be a viable strategy. The examplesoffered in the paper suggest a few suitable industry contexts. Anassembly type of mature consumer and business products,exemplified by PCs and basic models of mobile phones, could beused for examining the current business nets and the businessrenewal nets. Advanced mobile services and other emerging ICTofferings seem to provide a good milieu for the analysis of thenew business nets and innovation networks.

We also need better understanding of the dynamics ofbusiness nets: through what kind of processes companiestransform themselves from being participants in innovationnetworks into active organizers of Dominant Design Nets andApplication Nets; and similarly, what are the specificcharacteristics of those companies that become the key moversin creating new network-based business models as exemplifiedby Dell, IKEA, and the airline alliances. Moreover, is this roleprimarily dependent on the innate corporate and leadershipcharacteristics? Does it involve a distinct cooperation orienta-tion? And finally, how dependent the role transformation is onthe supportive characteristics of the context and the businessecosystem? We hope that the proposed ideas will supportresearch efforts in this rapidly developing field. Deeperunderstanding is needed concerning the behavior and manage-ment of strategic nets, a pertinent topic in the world of rapidlyglobalizing networks and nets.

Acknowledgements

This study is a part of the Dynamo research project fundedby Tekes' (Finnish Funding Agency for Technology andInnovation) LIITO program, and the ValueNet research projectfunded by Academy of Finland's LIIKE2 program.

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Kristian Möller is a Research Professor and Director of the Business NetworksResearch Programme at the Helsinki School of Economics. Formerly Presidentof the European Marketing Academy, Professor Möller is an active member ofthe academic marketing network in Europe. His current research is focused onbusiness marketing, strategic business nets, and on marketing capability andbusiness performance. His recent articles have been published in IndustrialMarketing Management, Journal of Business Research, Journal of ManagementStudies, and Journal of Marketing Management.

Arto Rajala is an Assistant Professor of Marketing at the Helsinki School ofEconomics and an Adjunct Professor at Lappeenranta University ofTechnology, Finland. His current research focuses on business networks,business-to-business marketing, and high-technology marketing. Dr. Rajala'sresearch has been published in Industrial Marketing Management, Journal ofBusiness Research, and International Journal of Technology Management.

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Rise of strategic nets — New modes of value creation