Monday, November 7, 2011

Reaping the Full Worth of Networks

In a recent quantitative study on the interconnectedness of transnational companies by three researchers at ETH (Swiss Institute of Technology) in Zurich (you can download the PDF here it was shown that there is worldwide a core group of 147 firms with the highest interrelationship of financial property rights. Although those firms represent just one percent of the 43,000 investigated firms, they controlled more than 40 % of the others based on ownership relationships. This interconnectedness on the basis of financial relations makes it evident, that firms in today’s economy are acting in a network-view and some are in the words of the authors “too interconnected to fail”.

Network interactions are not necessarily a risk. Besides the financial dominance, there are other interactions such as for example exchanging knowledge or experience. Therefore although interactions in networks may raise the risks for the participants, there are also the chances of possible benefits. Important is the insight that firms are creating value in a network of interactions, and not only in a value chain as suggested by traditional strategic management approaches. We could see in our empirical studies that if firms and stakeholders are aware of the networks of value creation, they are able to develop products or services with superior value (see Sachs, Rühli, 2011, p. 148). Suva, the Swiss insurance company we analyzed, implemented the New Case Management method of focusing on the recovery process from a network perspective. When customers are involved in an accident, in addition to receiving the best medical care, their families and employers, physicians and hospital, and the case manager are all involved in the recovery process. Thanks to this network approach, accident victims are able to return to their jobs earlier and to be reintegrated into the work process more quickly and comprehensively than without an interconnected process. This benefits not only the patient but also the firms and society.

Sybille Sachs

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