8 Ecosystems embedded in networks: network relational dimension
Business networks are based on a web of relationships between two or more actors. These relationships can be informal and personal. For example, entrepreneurs rely on their family and friends, personal contact networks, and on their extended social networks to gain access to resources – such as capital and talent – needed to establish their business.
Oftentimes business relations and formal cooperative agreements, such as supplier and buyer contracts, are based on a sea of personal and social networks. This is because knowing your partner helps to build a relationship based on trust. Trust is important because it creates reassurances that partners will commit and honour contractual or exchange agreement. Trust is an important lubricant for knowledge exchange and sharing of valuable information and resources in cooperative agreements.
Activity 3
Go back to Week 1 and revisit your business idea. In Weeks 4–6 you were introduced to the business model canvas as a way of gaining an overview of your new business idea and all the elements required to develop it. Use the space below to reflect on how your personal and social networks can support you to gain access to the resources you require to develop your business.
Besides trust, for cooperative agreements to work, partners need to meet each other’s objectives and to offer to each other something desirable and valuable. Usually this is based on partners bringing to the agreement either complementary or supplementary resources.
Complementarity between two (or more) partners is an ecosystem principle. It means that two (or more) partners bring together pieces of a jigsaw, as in the case of the drone ecosystem of Figure 7 or the iPhone ecosystem. Complementarities exist between drone products and software, with the latter being based on specialist algorithms trained and developed to analyse case-specific data (e.g. livestock images generated by drone monitoring). Complementarities suggest that partners become interdependent, which means that one partner’s success depends on that of the others in a relationship. This can form the basis to ensure partner commitment to promoting the objectives of their relationship.
Actors in dyadic or multi-lateral agreements can also enjoy benefits from cooperation when they pool supplementary resources. In some cases, partners may join forces to share risks and costs. This in turn may increase the variety of alternative options for end-users. For example, think of the airline industry and the alliances formed to economise on-ground service costs and to create hub-and-spoke route sharing to serve transatlantic markets.
Likewise, farmer producer cooperatives can be formed on a similar basis, with the intent of sharing resources, such as machinery, and growing their market. Producer cooperatives have traditionally been used in countries such as Greece because they can improve the negotiating power of farmers. Farms are usually small in size and produce relatively standardised, quite similar and highly substitutable products between them, so pooling their produce together improves their negotiating power against wholesale traders. Farmers may collectively organise activities that add value to their main agriculture produce or assume direct sales (e.g. cooperatives of olive producers may organise processing and direct sales of edible olives, produce pitted olives and olive tapenade).