Brokerage in SME networks

Firms are increasingly facing their own limitations in today’s complex and demanding environment. The need for cooperation is evident in an environment characterized by uncertainty, complexity and rapid technological progress. Small and medium-sized enterprises in particular are faced by a dilemma. On the one hand SMEs feel the urge to cooperate with others in order to acquire knowledge and other competencies; on the other hand they often face difficulties in finding partners and often they lack the knowledge base to be able to absorb the required knowledge. This dilemma clearly points to a need for understanding their environment, and brokers in particular, in order to deal effectively with the complex environment. Brokers, or intermediaries, are regarded as people who connect disconnected parties and facilitate knowledge flows in the local innovation system. Since brokers are becoming more and more important the need arises to provide SMEs with insight into the role of brokers in the network. The main question of this dissertation is: Which factors contribute to the capacity of main brokers in a SME network? This dissertation investigates their network environment, their inter-firm relations and intrinsic characteristics that facilitate networking at an individual level. The focus of this study is on the SME network of design and high-tech companies in Southeast Netherland. The fields ascribe to the research since their activities involve complex knowledge processes which in turn benefit highly of optimal knowledge creation and exchange. Design is seen as increasingly important in product development and there is an increase in efforts to establish co-operations between design and high-tech organizations. The design sector is a dynamic but highly fragmented industry. However, high-tech organizations (i.e. original equipment manufacturers, first, second and third tier suppliers) in the region seem to be highly interdependent. By this study we aim to gain a better understanding of efficiency across these particular fields. To study the network environment, inter-firm relations and intrinsic characteristics of brokers, we have conducted quantitative and qualitative research. A questionnaire was used to map the most important work relations between people who are active in the fields of design and high-tech industries. Respondents were asked to mention the names and organizations of at most ten Dutch business partners who had an important (qualitative) influence on their performance over the last five year. In order to take into account the full richness of relationships in the network the respondent had to identify who was important to them in what way. Everybody who was listed in the response also received an invitation to fill in the survey. Data collection took place in several waves. This snowball technique is developed to identify hidden members and relation patterns. Social network analysis is used to draw the actual network and to identify the brokers. The results in Chapter two and three are based on the main component of this network which includes 440 names and 584 relations mentioned by 93 respondents. Finally, in order to investigate what brokers actually do an empirical multiple case study is conducted. The information regarding the actual network across design and high-tech industries is used to select 12 brokers for semi-structured interviews. A qualitative comparative analysis of the results has provided a more general picture of how brokers span structural holes between various social groups. Question 1 This dissertation searches to answer five subquestion underlying the main research question. The first of these questions addresses connectivity and efficiency of the SME network across design and high-tech industries. These characteristics are likely to be different for networks of various industries. The growing importance of networks requires that SMEs thoroughly understand its characteristics, so they can use this knowledge to their own advantage. The first question of this research is: 1) What are the structural network characteristics of the SME network, in particular at network and subgroup level? Chapter two investigates if knowledge is transferred in an efficient way, if there are partnership concentrations and who is involved in co-operations. The concept of ‘small worlds’ is used to investigate knowledge diffusion in the network and consequently judge overall network efficiency. Proximity to others is important in order to manage the complex processes. However entrepreneurs or SMEs do not have the resources to manage a large network. A few well positioned stakeholders can be dealt with. A small world consists of a relatively small number of intermediaries which are relative closely positioned to people in the environment and which probably have stable reputations and various backgrounds. Knowing more about small worlds in this network is therefore highly interesting for science and valuable to the region. The actual network can be classified as one in which a small world is present. The short paths between people indicates the presence of efficient knowledge flows, the high clustering of efficient knowledge exploitation. Visualization of the results shows a single core group in the network, indicating that the two industries are not distinctly separated. It is found that people of the non-profit as well as science sector are overrepresented in the core of the field. Still, this part of the study describes the core-group of people only to a certain extent. Chapter three and four explore who has significant brokerage capacity and the concept of brokerage. Question 2a and 2b In order to investigate brokers they have to be identified first. The second question is: 2a) Can brokers be identified within the SME network? 2b) What types of brokers can be detected within the SME network Chapter three highlights the personal networks of members across design and high-tech industries and investigates the brokerage roles they fulfill. The concept of brokerage roles perceives brokerage behavior as the facilitation of information flows whether or not a direct reward is involved. A person in a network can fulfill several roles depending on his interests. The study of brokerage roles enables to identify who has significant brokerage capacity in the network, but also enables to describe what types of brokers are observed. Our empirical results show that there are persons with significant brokerage capacity in the actual network. Furthermore significant values with regard to gatekeepers, representatives and liaison roles are found. Question 3 In addition to identifying main brokers, Chapter three investigates whether specific characteristics are associated with these brokers. Studying characteristics provides clear insights into how third parties contribute to the transfer and development of knowledge. Question three is: 3) What are characteristics of brokers in the SME network? Whether or not people emerge as brokers seems to depend on the characteristics of people and the context in which they work. Chapter three highlights individual’s affiliation, kind of partners and kind of information exchanged in the network, with controls for gender, education and years in branch as sources of brokerage capacity influence. Empirical results show that people with high brokerage capacity are found in the nonprofit and science sector and have a long track record in their branch. Furthermore a wide variety of information is discussed with brokers; practical support in the form of valuable contacts and innovation-related information, but also finance, marketing and operational information. Question 4 The last part of the study complements the research regarding characteristics of brokers by taking an in-depth look at what brokers actually do. This leads to the fourth question of this study: 4. How is brokerage enacted in the SME network? How brokers actually seize network opportunities can be investigated by studying their strategic goals, strategic actions and strategic behavior. Empirical results in Chapter four show that specific strategic goals, activities and behavior can indeed be associated with having high brokerage capacity. The main brokers have a tertius iungens orientation; they strive to interconnect others. It is not in their interest to keep parties, passively or actively, separated for their own personal benefit. They seem not to neglect their personal aims in favor of others. It is just that more can be accomplished together. Furthermore, brokers are mainly involved in knowledge exploring activities, i.e. articulation of needs and requirements, information gathering, connecting partners, setting up projects in order to generate and combine information, and facilitating contract negotiations. Finaly brokers work according to the logic of effectuation. They prefer to focus on current means and they transform these means into co-created goals with others. They consider it less important to focus on setting clear goals in advance and carefully plan and execute their bridging actions to accomplish these goals. At a detailed level, there are differences among main brokers regarding (the combination of) strategic goals, activities and behavior. It indicates that there are different kind of types among main brokers. The answering of the various subquestions enables us to draw a more detailed picture of how brokers span structural holes. People with the highest brokerage capacity are found in the non-profit and science sector. However, the resemblance between these brokers and others is high in general. Brokers discuss a variety of information with others and they have a long track record in their branch. Brokers in general focus on the same strategic goals, activities and behavior. The results implicate that the brokers operate as architects and lead operators of the network. Brokers in this field are less involved in care-taking activities; maintaining and enhancing the existing network. In Chapter 4 it is shown that the sector, especially the job context, influences strategy preferences only at sub-level. Theoretical implications The study is important from an academic perspective because it addresses the voids in research about brokers at the individual level who (consciously) position themselves between heterogeneous actors in networks; people who differ in industry backgrounds and skills. Our results are based on a network of both formal (business) as well as informal (personal) oriented relations at the individual level, while most relationships in the existing literature are based on formal relationships only and usually studied at firm level. The study in general provides more insights into the concept of brokerage regarding SME networks in different fields. In particular it highlights how third parties in general contribute to the transfer and development of knowledge. Chapter two contributes to empirical research concerning structural aspects of a network as a whole and in particular on network structures that span sectors by taking an inter-sectoral approach. Furthermore network theory regarding small worlds is enhanced because our insights contributes to the still infant field that studies the efficiency of partnerships in SME networks. Chapter generates knowledge regarding brokers in general. The main contribution of this part of the study is, in contrast to most other work than our own, that it is quantitative and that it focuses on brokers identified in an actual network (based on both suppliers and users of the knowledge infrastructure). The research contributes to social network theory by taking a look at empirical data in order to generate a better understanding of the specific brokerage concepts first. One can argue that a grounded theory perspective is taken by trying to show how people handle information problems. Chapter four addresses the lack of empirical research regarding the range of brokers and their practices in detail. Chapter four enhances the understanding of social network theory by integrating theories based on the fields of innovation and entrepreneurship regarding brokerage. To be able to develop an individual-level understanding of brokers other theories besides network theory need to be studied. Cross theory studies creates a more holistic view regarding brokerage at the individual level. Such research was not undertaken before. In addition, highlighting individual strategic dimensions separately as well as in combination will also contribute to an extended picture of how intermediaries contribute to the transfer and development of knowledge. By empirically highlighting brokerage in general, brokers of the actual network can be compared to others in other industry networks and thus can be valued. In general, the research contributes to theory on mediation processes, alliances, social capital, network dynamics, SMEs and innovation. Practical Implications The study contributes to the efficiency of knowledge creation and exchange in dynamic industries, especially across sectors. It contributes to the design and high-tech industries in particular. The research is the first attempt to actually construct the design and high-tech network in a social network way. No such data was available before in the Netherlands. Chapter two shows that increases of efforts of various parties to establish co-operations between the two industries seem to work. The triple helix between companies, governmental institutions and science organizations is well present in this network. In policy terms these are interesting findings. Despite the positive results, policy makers may reflect on these findings in terms of improving their interventions in the economic structure of the region even more. Results of Chapter two and three imply that SMEs should get involved in projects in the non-profit or science sector. Chapter three also shows that SMEs or even non-profit organizations whose brokerage capacity is not in line with their ambitions should invest in connections with branch experienced people with a broad knowledge base. From a non-profit consultant point of view these findings are also interesting. They often have difficulties in proving their successes. Sometimes merely mentioning contact information leads to a successful match. Sometimes brokerage takes much time and effort and still the involved parties are dissatisfied. Moreover the effectiveness of non-profit organizations, like branch associations, is subject to discussion in the Netherlands. This research shows that the intervention of non-profit consultants (eventually) is of value to companies. Traditional supply-side innovation policies seem to be insufficient to meet the challenges posed in promoting competitiveness. At the European Union level interest is focused on public procurement as a means to spur innovation. Measurement at individual level gives a profound picture of actual contributions of government expenditures. It is now possible to review policy from the bottom up. Chapter four shows that brokers are involved in exploration of an opportunity together with others, but generally are not involved in exploitation of an opportunity; the building of efficient business systems for full-scale operations. The focus on exploration of information indicates that the time spend on brokerage is important, but the results are not predictable. The non-profit and science sector should be aware that the efficiency of this work is not predictable and should take this awareness into account when timetables are being made. The profit sector should be aware that investments without secure profit are necessary. Brokerage is labor with delayed profits; at the moment of investment it is still unclear if payment will be possible and who will pay in the end. The results also imply that co-developing and coordinating projects concerned with commercialization of exploration outcomes over time, may be interesting to stimulate in this field. Furthermore since people of the non-profit and science sector can not operate in the competitive field, the research findings imply that an important role can be fulfilled by people in the profit sector. SMEs can strengthen their broker capacity by leaping in on projects related to the commercialization of outcomes