Networks: A Workable Paradigm

Pepperdine University Prof. Gary Mangiofico discusses the nature of networks and the special leadership networked organizations require.


Gary Mangiofico is professor of Organizational Theory and Management at Pepperdine University in Malibu, CA.

For most of his career he was in business, mainly in health care delivery. He developed a successful network of care delivery that benefited all stakeholders. Upon leaving business, he began teaching at Pepperdine and was asked to help launch a preschool education program in Los Angeles County. After considering the goals and resources, he felt it best to establish a network rather than a controlling entity. The results of Los Angeles Universal Preschool (LAUP) reflect its remarkable success. In October, Mangiofico taught a session at NACUSO's Designing & Implementing Collaboration and Business Networks.

How do you define network?

GM: A networked organization can take any of several forms. Generally a network is a system comprising parts under different ownerships.

The old model when approaching a market was trying to own as much of it as you could and being all things to the customer in the marketplace. But a network is a system not totally owned, run or internally organized by one company. Rather it integrates functions across several organizations. It forms a virtual organization that pools responsibilities and functions. The net effect is delivering a product or service to a customer in a way that the network structure is virtually invisible to the customer.

A network is different from simple coordinating or collaborating. Networks need collaboration but are more involved. A network has a greater depth of commitment and usually establishes written contractual relationships.

An example might be a global shoe company. It does not actually manufacture the shoes but rather is more a face to the market, a product manager or a marketing company. The production is done by others but to the shoe company's specifications, quality standards, design image and so forth.

Does a network have a name, a location and employees?

GM: It might or it might not depending on how you set it up. I did one in health care delivery. My company, let's call it Company A, had core competencies in high quality infusion (i.e., intravenous) care delivery in non-hospital settings such as a person's home or doctor's office. We could initiate the care with high-tech people, but for the follow-up less high-tech nurses were needed. We could have hired follow-up nurses but doing so would have shifted our concentration and possibly affected the perception of us by investors. Instead we created a network with Company B, whose core competency was delivering the kind of skilled nurses needed for follow-up.

We created a contractual relationship, Company A being the network manager. Company B nurses performed network functions as representatives of the network rather than of Company B. The network therefore did not have employees of its own, although the patient would not have known this.

In a network there generally has to be a network manager. This can be an employee of the network but, as in our case, it was an employee of the dominant player. The network can have a name or take the name of the dominant player, at least in the initial stages. Same with an office location.

Compare this with the old model of looking at the marketplace then trying to own everything and being everything to the customer.

Where are networks most likely to be viable?

GM: Mainly in dynamic, swiftly moving markets. The reason is that it is in such markets that the old models work the slowest. Under the old model you looked at a market as a place in which to grow and dominate. If you envisioned delivering a product or service, you either grew internally to create the core competency or you looked about for a company or companies with the core competencies you could buy or merge with. All of these options took time; even the fastest – buying or merging – often faced due diligence, regulatory scrutiny, stockholder approval and the like. Another problem is that you end up concentrating so much on creating the core competencies, or on the merger or acquisition, that you take your eye off both the marketplace and your vision for what you are going to do there. You lose focus. By the time you've gotten ready, the opportunity might well be gone.

Creating a network does not face these problems. You create contractual relationships, coordinate your core competencies and get going. A fast-paced market almost demands networks.

Moreover, you could be first to market, which has a great many advantages. But you also want to be the best in the market, because if you are first but not necessarily top quality, then someone is going to come in after you with higher quality and push you aside. A network is often the highest quality way to take advantage of an opportunity because you can collaborate with the groups having the best core competencies.

Does creating a network require a different vision of a marketplace?

GM: Yes. You don't see a marketplace as an arena to be carved up among competitors so much as a place where opportunities abound. Networks are meant to meet the need of those opportunities or create new ones.

Look at it this way. Mission is the reason your company exists, why the market should care you are there. Vision is what you want to do with your mission, where you want to take it. Strategy is the way you envision getting there. Building a network can be the most cost effective, fastest and highest quality way to deliver on a strategy when that strategy includes growth, adding services, adding market share and the like. Developing a network for the sake of a network is not necessarily
advantageous, it has to be your best strategic choice.

What kind of leadership is needed?

GM: You need people with the entrepreneurial spirit. Essentially you are acting on a future opportunity, so you are taking risk. You often have to commit to building a network before the structure is entirely worked out or before the financial pro forma can be completed. This takes a leader who can inspire the best in people, who can keep the mission and vision in front of them and give them reasons of why they are doing things this way. Building a network is not for the timid. You'll do due diligence but you have to begin a network at a strategic level before you can actually construct it at the operational level, the
level where you realize your financial gain.

A traditional business leader might be thought of as acquisitive, demanding and controlling. But a network builder needs different people skills. You don't lead by command and control but by building relationships and influence. Your immediate focus is not on the financial outcome (which is often difficult to assess in any case) or on the design (which often emerges from negotiations).




March 15, 2010


  • this last paragraph on successful leaders of networks is very insightful. Brings to mind some great leaders currently out there.,