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Cooperation gains from network goods
Johannes Glückler and Ingmar Hammer
This is an Author’s Accepted Manuscript of an article published by Ashgate Publishing, Burlington
in Jung S, Krebs P and Teubner G (eds) Business Networks Reloaded. 2015: 22-41, doi:
10.5771/9783845261812-22, available online at: http://www.nomos-
elibrary.de/10.5771/9783845261812-22/cooperation-gains-from-network-goods
1
1 Introduction
How can a firm increase its competitiveness? We would like to answer this question from a
relational perspective that understands innovation as the result of collective effort and thus
suggests the concept of the organised network. We argue that the purposeful development of
organised networks enhances the individual entrepreneurial achievement and creates
opportunities for collective innovation. In particular, we will try to explain which form of
cooperation promises to be especially successful in order to enhance the competitiveness both of
the individual firm members as well as the overall inter-firm network.
1
Organised inter-firm networks emerge from the intentional cooperation of independent
companies so as to jointly pursue and achieve economic objectives (Glückler 2012). The
concept of the organised network represents an independent perspective on inter-firm networks
that has so far attracted only little attention in research. Our analyses show that organised inter-
firm networks provide an opportunity to realize cooperation gains especially from the collective
creation of innovations. Based on a Germany-wide company survey we will illustrate the
relevance of organised networks and their significance for the creation of knowledge and the
process of learning.
Unlike sector or ego networks, which have been researched comprehensively, organised inter-
firm networks offer the particular advantage of pursuing multiple yet common purposes in an
organised framework of multilateral, collaborative interaction. In the pursuit of common goals
they hope to realize cooperation gains that are not achievable in isolation. Which forms of
cooperation exist? We will distinguish between various activities observable in organised inter-
firm networks and we will identify typical problems of the respective interaction levels. Which
form of cooperation is so decisive for an organised network that it compensates for the costs of
the network organisation? It is the joint development of network goods that are the property of
the network. The concept of network goods allows us to identify the value added of organised
networks that emerges if companies jointly create knowledge in different project groups, which
can subsequently be used by all members of the network.
This chapter is structured as follows: in part two we develop the concept of the organised inter-
firm network, which we qualify by comparison with existing network perspectives already
discussed in extant research. In part three we demonstrate the empirical significance of
organised inter-firm networks in the German economy and the opportunities they offer
regarding knowledge, learning and innovation. The basis for this is a Germany-wide survey of
180,000 companies. Based on thirteen case studies of organised inter-firm networks, part four
analyses the diversity of different activities among companies, which are aggregated into three
activity types with regard to the value added of the network organisation. In part five we
conceptualize the activity type of collective goods and develop it further into our approach of
network goods that not only describes the basic mechanism of collective knowledge creation
and cooperative knowledge use, but also holds it accountable for substantial cooperation gains.
1
The concepts and results achieved in this contribution were developed at Heidelberg University within
the scope of the research project www.kreanets.com funded by the Federal Ministry of Education and
Research (Bundesministerium für Bildung und Forschung, BMBF) and carried out between 2008 and
2011 with the purpose to develop concepts and governance forms of organised inter-firm networks. The
studies and concepts illustrated here are based on volume “Unternehmensnetzwerke: Architektur, Struktur
und Strategien” (Glückler et al. 2012).
2
2 The concept of the organised inter-firm network
2.1 General framework and the concept of entrepreneurial cooperation
Many companies only succeed in offering marketable products and services by linking their
resources with those of other companies. Together companies enter new markets, reduce costs
for common infrastructure, minimise entrepreneurial uncertainties or they cooperate based on
the division of labour in value chains. The rise of inter-firm cooperation is the result of an
increasingly dynamic environment, a functionally deepening and spatially expanding division of
knowledge-oriented work as well as flexible and cooperative strategies to access resources and
create value. The traditional management of innovation with its linear understanding of
knowledge creation and learning seems inappropriate in light of such developments.
Accordingly, linear models of innovation development give way to a reflexive understanding of
the creation of novelty. The notion of innovation is increasingly replaced by the notion of
learning because many innovations are to be understood as improving rather than radically
breaking with existing processes or organisational principles. Especially small and medium-
sized companies face the challenges of linking their limited resources with other companies and
of thus compensating for the diseconomies of (small) scale. However, recent studies show that
despite their need for cooperation especially small and medium-sized companies generally
cooperate less with other businesses (Destatis 2003) and – if they do so – they achieve less
innovation from the cooperation than large companies (Caloghiro et al. 2006). Consequently,
the management of innovation-oriented networks faces serious challenges. Research on the
organisation and the governance of organised inter-firm networks (Jones et al. 1997; Provan and
Kenis 2008) is still in its infancy.
From the perspective of social network theory, a network is defined as a specific set of relations
between a specific set of actors with the additional feature that the characteristics of these
relations as a whole can be used to interpret the behaviour of the actors (Mitchell 1969). This
perspective has two consequences: firstly, it places the relations centre stage of the analysis and,
secondly, it shows that the structure of the relations as a whole contains information about the
opportunities of individual as well as collective actors (Mizrucki 1994, Knoke and Kuklinski
1991). Thus, the network perspective is interested in the relations between the companies and
the action opportunities as well as the collective effects resulting therefrom for the entire
network. How can an inter-firm network be distinguished from its environment? In network
analytical organisational research, various perspectives have developed depending on the focus
of research that feature their own rules of delimitation.
2.2 Total and focal business networks
Total networks comprise all actors that maintain relations of a specific kind. The relation rather
than the actors primarily defines the network. Accordingly, an analysis of the inter-firm
alliances in biotechnology will only consider those biotechnology firms that are involved in
such relations (Owen-Smith and Powell 2004; Powell et al. 2005). Total networks depict the
complete structure of relations between companies and enable the analysis of network-specific
characteristics such as density, connectivity, fragmentation or centre-periphery-structures and
many more (Powell et al. 1996).
3
Focal networks and so-called ego networks each represent that part of an overall network that
depicts the neighbourhood of a focal actor. The focal network contains the focal actor, its
connected partners as well as the relations between these partners (Burt 1992). The research
interest focuses on the question of how individual actors should organise their direct relations to
achieve economic advantages. In manifold empirical studies Burt has demonstrated the positive
effect a position of structural autonomy in ego networks has on the careers and salary structures
of managers (Burt 1992; Burt et al. 2000; Burt 2004) or on the differential profit rates of
industry sectors in the system of economic input-output-relations (Burt 1988; Burt and Carlton
1989).
Total networks comprise an overall network of relations that is neither coordinated as a whole
nor perceived as a whole by the participants in the sense of a membership. In contrast, ego
networks exclusively concentrate on the strategic position and the opportunities of individual
actors. Neither network perspective is interested in multilateral and coordinated interaction
(Glückler 2012). The disadvantage of focal networks lies in the fact that they firstly fail to take
into account the complexity of the entire relations in the network and therewith secondly cannot
depict networks as collective organizations. The understanding of the totality of the network and
e.g. questions of collective gains, cohesion and sustainability of a network are thereby
overlooked (Provan and Milward 1995).
2.3 Organised inter-firm networks
Even though companies increasingly engage in collective forms of organisation, organised
networks have been virtually neglected in research. Only recently has the scientific interest of
structural network research focused on questions regarding the management of cooperative
groups that aim at achieving permanent cooperation gains (Provan and Kenis 2008). Various
approaches advance the phenomenon of multilateral, coordinated inter-firm cooperation by
using different notions such as e.g. federations (Provan 1983), multilateral networks (Human
and Provan 2000) or purposeful networks (Kilduff and Tsai 2003). It can be assumed that
organised networks of smaller and medium-sized companies were, at least in the USA, first
formed in the late 1980s at the earliest (Human and Provan 2000) and that even today many
companies are able to use only little network-specific management knowledge, besides the
established management concepts, to professionally, effectively and innovatively design and
manage this organisational form. The starting point of the research work presented in this
contribution is the notion of the organised network, which is at the same time the object of
knowledge of the following case study. Organized networks are definied as: “[…] ein
freiwilliger und absichtsvoller Zusammenschluss von Mitgliedern, der die multilaterale
Kooperation zwischen einer begrenzten Zahl von rechtlich unabhängigen Organisationen auf
ein gemeinsam geteiltes wirtschaftliches Ziel ausrichtet“
2
(Glückler 2012, S. 7).
Networks are here considered multilateral if they comprise of at least three members that are
basically engaged in mutual cooperation so as to create or utilise collective goods. This criterion
excludes the bilateral cooperation of companies as its sole characteristic feature, which has
already been comprehensively researched in transaction cost theory and which neglects the
incentive problems in the production of collective goods (Podolny and Page 1998). Organised
2
“An organised network is a voluntary and purposeful affiliation of members that aligns the multilateral
cooperation among a limited number of legally independent organisations with a mutually shared
economic objective”.
4
networks form a type of organisation that is constituted of a certain degree of coordination and
collective awareness. While, for instance, a network of strategic alliances in biotechnology
includes all cooperation relations in the sector, an organised network merely refers to those
companies that are organised as members of a group in which they pursue cooperative goals.
Organised networks exhibit the basic elements of an organisation. An organisation is a system
of deliberately planned and coordinated actions based on the division of labour between a
limited number of members with a clear line demarcating the environment or the surroundings
(Bathelt and Glückler 2012, p. 201). Networks are then perceived as organised if they have an
identity and if management elements can be recognised at the network level. A network can
only be interpreted as organisation if it exhibits a minimum amount of demarcation vis-à-vis the
environment and if a minimal consensus exists about who belongs to the network and who
belongs to the environment. Whenever the members of a network share an understanding of a
joint membership and affiliation and the other members can identify the network, then the
network exhibits a collective identity that is discernable from the environment. In the empirical
practice, the network identity becomes visible e.g. through brands, a corporate form or a
documented description of the network as organisation (e.g. an online representation). The
criterion of identity is considered to be sufficient in order to include also less institutionalised
non-contractual forms of multilateral cooperation if they occur in awareness of collective
actions with an assignable circle of partners. This comparably soft definition allows non-
contractual forms of inter-firm networks to be considered that are based on mutual recognition,
exclusive membership and management founded on social habits and conventions (Glückler
2012).
3 Organised inter-firm networks in Germany
3.1 A Germany-wide company survey
Developing practical design concepts for a long-term multilateral cooperation of companies first
requires an empirical understanding of the occurrence, quality and diversity of different forms
of inter-firm networks in practice. We refer to a large-scale and Germany-wide field research
that screened the variety of inter-firms networks (Glückler, Janneck et al. 2012). In the scope of
this screening, three questions were paramount: What is the significance of organised inter-firm
networks in the German economy? Which formal features characterise these networks? Are
these networks innovative and which innovation goals do their member firms pursue? A
questionnaire was used to address characteristics of the geography, network size, innovation
successes and relations to other networks.
177,789 small and medium-sized companies with no more than 250 employees based in the
Federal Republic of Germany were invited to participate in an electronic survey. Among the
11,440 companies that responded 3,822 companies stated that they operated in networks.
However, among the 3,822 identified inter-firm networks merely 1,382 companies fulfilled the
criteria of the above-mentioned definition of an organized network. The following data pertains
to this pool of companies. Before putting the organised inter-firm networks into the context of
knowledge, learning and their significance for the entrepreneurial value creation, some typical
features of organised networks shall be illustrated. Organised inter-firm networks emerge in all
economic sectors and take almost all legal forms that can be chosen in Germany (Glückler,
Janneck et al. 2012). Project networks are rare; the overwhelming majority of companies design
5
their networks on a long-term basis and aim for cooperation for an unlimited period of time.
Geographically, the networks are almost equally allocated in balanced proportions among
regional, Germany-wide and international forms of cooperation. With regard to creation and
financing, the vast majority of networks act without public subsidies or participation. The
largest challenge networks face is the adequate distribution of rewards for the individual
contributions to the overall network outcomes. In this chapter we argue that an opportunity
emerges for companies to generate innovations by cooperating in organised networks. The role
organised networks play in the development of new products, marketing concepts and
organisational improvements shall be illustrated in the following part.
3.1 Knowledge and learning in organised business networks
The survey results (hereafter obtained from Glückler, Janneck et al. 2012) show that irrespective
of their objectives organised inter-firm networks have been conducive to innovation and
therefore may be a vehicle for new knowledge and learning. Networks are created for a wide
range of reasons. They can be set up to share costs or to jointly develop new knowledge or
creative ideas within the entrepreneurial group. This survey inquired after the basic orientation
of the networks and thereby distinguished the use of existing, the acquisition of external and the
creation of new resources by joint cooperation. More than three quarters of the firms joined a
network either to use or to commonly market their resources within their alliance. Only barely
one-seventh of all respondents was organised in networks to jointly create new resources, i.e. to
jointly develop new products or conduct research and development.
The low number of networks that built in pursuit of explicit research and development suggests
a low number of innovations that arise from the resource creating business networks. Much in
contrast, however, 70 per cent of the networks stated that they had already created an
innovation. Consequently and irrespective of the actual founding objective, the majority of
networks were capable of developing innovative products, processes as well as new
organisation or marketing concepts. Apparently, learning is especially well achieved in
organised networks, because their members co-create innovations even though innovativeness
need not be the leitmotif for the constitution of the network.
Whereas innovations occurred as a result both in innovation-oriented as well as in purely
utilisation-oriented networks, networks create different kinds of innovation depending on their
network objective. Following the typecast of the OECD we distinguish four types of innovation
(OECD 2005): product and process innovations more often refer to technical innovations than
organisation and marketing innovations. The analysis of the screening proves a clear statistic
association between the network objectives, the geography of the networks and the kind of
innovation results. Utilisation networks rather create organisation and marketing innovations,
are more often trans-regionally or internationally rather than locally organised and they count
more members than innovation networks. The smaller innovation networks, in contrast, rather
create product and process innovations and are more often than utilisation networks regionally
organised.
The survey at hand is one of the largest surveys on inter-firm networks in Germany. It provides
information about the relative significance and variety of networks in the cooperation of small
and medium-sized companies and illustrates the significance of organised inter-firm networks as
an important form of organisation to achieve entrepreneurial objectives. Organised inter-firm
6
networks are constructed very differently. A decisive result of the survey was that organised
networks not necessarily have to affiliate on an innovation-oriented basis in order to be
innovative. Many networks whose main objective did not lie in researching and developing
products or processes reported on the successful introduction of innovations resulting from the
work in the network. Apparently, organised networks are conducive to successful learning
processes and collective innovation. In the following section we use selected case studies to
elaborate more deeply into the various activity levels that may emerge within multilateral
cooperation and to analyse which of those are particularly important for successful collective
innovation.
4 Activities of organised business networks
In thirteen case studies of organised networks among small and medium-sized enterprises
(SMEs) we have analysed the activities of the members by means of situated organizational
network analysis (Glückler and Hammer 2011). Typically, firms interact with each other at
multiple different levels of activity. We classify the empirical diversity of the individual activity
levels into three basic types: (i) management, (ii) the exchange of resources and (iii) the
production of collective goods. The following table provides an overview of the organised SME
networks examined and their main features. Which opportunities and which problems are
connected with the individual activity levels?
7
Table 1: Characteristics of the organised SME networks examined
Age
Members
Legal form
Sector
Geography
Funding
Collective
good
DENTIS
12
28
Ltd.
Medical
technology
National
No
Yes
REGIO
CONSULT
3
23
Registered
association
Consulting
services
Regional
No
No
COMRA.DE
8
25
Registered
association
E-Commerce
Local
No
Yes
BIOCL
6
63
Registered
association
Biotechnology
Global
Yes
Yes
ZWÄG
7
49
Registered
association
Health
Local
No
No
FORUM Z
16
62
-
Waste
National
No
No
GKT
7
43
Ltd
Health
Local
Yes
No
GLASTEC
92
95
Registered
association
Glass
National
No
Yes
CARBFIBRE
5
120
Registered
association
Material
National
No
No
ENERGIE²
3
300
Registered
association
Energy
Regional
Yes
Yes
BIOCON
15
-
Registered
association
Biotechnology
Regional
Yes
No
RNBIOCELL
3
61
Registered
association
Biotechnology
Regional
Yes
No
TECOP
10
55
Registered
association
Optics
Regional
Yes
Yes
All figures refer to the survey period in the year 2011. All networks mentioned are anonymised
by pseudonyms for reasons of confidentiality.
4.1 The management of the community
All SME networks examined have formalised the governance of the organisation as a
management function. Different entities take on the governance of organised affiliations. In
most cases, the administration as well as the collection of contribution fees and network
strategies in the business networks examined here are taken on by a central network
organisation. This organisation has its own branch office with office space as well as employees
in the administration and the departments. The members cover the thereby created costs with
network fees. The branch office also takes on the services provided by the network. The
networks under study offer their members services such as the joint purchase of production
goods, the monitoring of company processes or contract research. The amount of employees
varies considerably between the members. Small branch offices merely have one employee, the
largest network headquarters up to twenty. It is little surprising that the extent of the work
regarding the content increases the larger the size of the network organisation is, as the example
of GLASTEC illustrates. Graduated and post-doctoral employees working in the branch office
not only conduct research in commissioned work, but also within network projects. Network
8
projects or working groups are, in addition to the organisational administration, the central
means of governance in organised inter-firm networks. Network projects and network working
groups thereby serve to create collective goods. They are particularly important to realize
cooperation gains by developing valuable network goods. The network members monitor the
governance of the joint work in projects and working groups through monitoring committees.
The lateral management of network goods and the concomitant chances and problems have been
hardly researched so far and remain the object of future research (Glückler and Németh 2012).
4.2 The exchange of resources
The exchange of knowledge between the members is a critical network activity. From an
economic perspective, various intensities of knowledge flow can be observed starting with
simple tips and tricks or recommendations, successful methods or procedures reaching to firm-
specific knowledge affecting its competitiveness. We shall illustrate this with examples.
Members of the BioCon Network meet on a daily basis in the same canteen. Asked about the
knowledge exchange they report that during the meetings they pass on information, which,
however, never contains critical knowledge regarding the company (e.g. company processes,
biotechnical procedures or corporate key figures like contribution margins of business
processes). Instead, the exchange focuses on the recommendation of important external
cooperation partners such as patent lawyers or investors. The exchange of less important
knowledge is contrasted with forms of exchange that contain important business information.
Let us take a look at the example of DENTIS und COMRA.DE. In the case of DENTIS the
members exchange key performance indicators of production processes so as to jointly improve
these production processes in each individual member firm. In the case of COMRA.DE, the
members pass on programme codes to other network members in agreement with their
superiors. Both exchange processes have in common that, firstly, they occur free of charge and
that, secondly, the recipient of the information most benefits from the information. The
economic benefit of these exchanges may reach significant extents. Without the exchange the
companies would have to invest considerably more resources in order to achieve the same level
of corporate learning. Especially due to this tangible advantage the exchange of resources as
activity level is very common in all networks. The exchange of knowledge is thus able to
accomplish a considerable task, but this is also exactly where one of the largest problems of
bilateral knowledge exchange lies: the community hardly benefits from this form of bilateral
interaction. How, then, may the community benefit as a whole? This form of interaction is
called the production of collective goods.
4.3 The production of collective goods
Only few of the inter-firm networks examined have created collective goods over the course of
their development. Solely the network DENTIS has by means of a member-funded cooperation
created common goods, which are the property of the network and can be used in the scope of a
membership. The network members create collective goods by cooperating in working groups
and projects. The collective goods are accompanied by the network service. Network services
are offered by employees of the network and include tasks such as assisting with project
proposals, organising a purchasing pool or optimising business processes. These services are
9
subject to charge and have to be disbursed by the members. The earnings benefit the community
and are used to finance joint activities.
We argue that this type of activity, which creates network goods, is the key to the cooperation
gain in organised networks and generates particular value for the network as a whole. But how
is new knowledge jointly created? Which contributions do the members make and how are the
innovations used? We shall develop the concept of the network good for innovations created
and used collaboratively. The following section is based on a detailed case study of an organised
inter-firm network so as to examine the innovation-oriented design under concrete context
conditions (Glückler and Hammer 2012).
5 The network good: Creating and using knowledge collectively
5.1 From the club good to the network good
Knowledge-based collective goods are interesting from an economic perspective since they
create additional value and thereby offer incentives to join a network and to retain the
membership on a long-term basis. Innovative marketing concepts, new production processes or
exceptional technical methods that are developed in the community and at the exclusive
disposal of the members provide an opportunity for the individual companies to secure
competitive advantages vis-à-vis competitors outside of the network. With the concept of the
club good Buchanan (1965) introduced a concept that explains how goods in the community of
a club can be provided and used since the joint use of resources is afflicted with social dilemmas
either by free riding or crowding.
Let us assume a set of companies wants to share the use of a machine. They can pool the
financial means and acquire the resource at divided individual charges. However, if the circle of
participants is not restricted then the first dilemma emerges: Free riders are members who
indeed use the resource but have never contributed to its provision. Access controls solve the
problem, because only those who contribute resources to the acquisition are also allowed to use
the resource. However, if more members in a club would like to use a machine than capacities
available then the common resource is either overused in the course of crowding or the
individual benefit gets lost. Buchanan (1965) solves this problem with a cost-benefit model of
the optimal club size at which the members achieve the best compromise of individual costs and
benefits. The monitoring of the club size and the provision of the club good is ensued by third
parties. The central achievement of the club good theory lies in clarifying how a collective of
users can use an existing good without suffering from the dilemmas caused by free riding and
crowding. Can the club good theory be applied to knowledge goods in organised inter-firm
networks? Before answering this question we shall explain the concept of knowledge goods.
We assume that knowledge, similar to material goods, is rival in its use. For instance: A group
of companies has developed an extensive documented repository of knowledge over the years
that describes effective and efficient business processes and work flows and therewith allows
individual savings as well as creates access to a certification according to DIN-ISO standard. In
addition, this set of rules is updated and further developed on an annual basis. As long as only
few market participants use this document they enjoy a competitive advantage vis-á-vis their
competitors. The market advantage lies in the comparative cost advantages achieved by
improved business processes. This advantage is based on better knowledge, and may be subject
10
to the dilemma of crowding. If all market participants had access to this repository of
knowledge, the individual competitive advantage would disappear. Just as with material goods,
free riding is also possible with knowledge goods. One may only think again of the jointly
created document mentioned above to improve business processes. If companies use the results
of jointly created work without having contributed their own resources to its development then
they act as free riders in the classical sense and gain advantage by fraud at the expense of others.
Free riding and crowding are thus social dilemmas that also occur with the commercial use of
knowledge goods.
Therefore, we propose to develop the concept of the club good further to that of a network good.
There are three reasons for the theoretical deficit of the club good: Firstly, crowding is not a
problem within the group since knowledge can be replicated any number of times. In contrast to
the club theory, the problem of crowding emerges not among the members within the inter-firm
network but between club members and market participants outside of the club. Secondly, the
theory of club goods merely takes into account the use but not the production of collective
goods by members. Imagine a network affiliates new members. The joint development of
knowledge goods is at the core of the common goal of many business networks. It requires the
collective project work of the member companies. As a result, not only the members involved in
the project work, but all other network members can learn from this if the results are made
available in the entire network. However, since all members are equal partners and are not
authorised to discipline or command other members, the participation in a joint project is
ultimately left open to each member. This results in the possibility for the network members to
free ride. While in the concept of club goods the access control successfully excludes the free
rider, this is obviously not possible with a knowledge-based network good. The third problem
derives from the second: If the members contribute partially to the creation of the network good,
then the structure of cooperation between the members becomes important. Companies that
contribute more intensively by sharing their own knowledge, lose more of their competitive
advantage than those companies that contribute little or nothing at all. The theory of generalized
exchange (Bearman 1997), however, indicates that commitment and knowledge transfer will be
rewarded in the future in that network members are also more willing to pass on their own
knowledge to active members. In the following section, the example of DENTIS illustrates the
creation of knowledge-based network goods, their network value, the absence of the crowding
dilemma within the network, the production of network goods in the community by personal
contribution and the overcoming of the free riding problem.
5.2 The production of network goods
DENTIS is a successful organised network of SME dental laboratories. The 27 member-
companies employed overall 800 members of staff and generated about 50 million Euro revenue
during the reference year of the survey. Accordingly, DENTIS is one of the largest dental
laboratory networks in Germany. It represents roughly 1.5 per cent of the total turnover of the
dental industry in Germany. In comparison to many other dental laboratory networks, more than
three times as many companies have joined DENTIS. The member-companies are all
competitors. As dental laboratories they operate on the same stage of the value chain between
dentists and equipment providers. There are four forms of activities (see section four) in the
DENTIS network: the intercompany exchange of information, the bilateral leasing of production
capacities, the management of joint working groups and the joint development of network
goods. Figure 1 shows the networks of each of the four activities. The points represent the
11
member-companies; the arrows between the companies indicate the actual relation between the
member-companies.
Figure 1: Four activities in the business network DENTIS
In the production of network goods, a range of different members works together. The
cooperation in DENTIS is organised in project groups, in which new technologies, concepts and
products are developed for the members. At the time of the survey, DENTIS had eleven project
groups altogether, which cooperated in all aspects of the value chain such as procurement,
manual skills, process technology and marketing. In organised networks, the development of
network goods requires the multilateral input and recombination of individual skills and
expertise of the members to develop new knowledge or solutions. The solutions developed in
the various project groups are subsequently made available to all members. Beyond achieving
purely private advantages, DENTIS thus offers its members the opportunity to be able to
collectively generate and individually use additional value added at the network level. The
example of the production manual illustrates this. With great effort and during many years, a
project group has pursued the objective of collecting all important production stages and
production processes in dental technology practiced by all member-companies in the network
12
and to further develop them with external consultants. Many dental technicians and dental
technician masters researched and integrated the technical details in a database, which is now
available to all members in form of a production manual. The production manual is a complete
template about how every dental technical product possibly imaginable is to be produced in
order to combine high quality and speed. The production manual is specifically adjusted by
every laboratory. The individual advantage lies in the fact that obvious rationalisation potential
becomes apparent in the individual company by implementing the proposed production ways in
that e.g. the same products can be produced in a shorter time. Crowding is not a possible effect
for this network good since it can be reproduced as often as needed without great costs for every
existing and also any new member. The competition advantage vis-à-vis non-members always
remains as long as the good does not become a public good.
What are the benefits of the network goods for the individual companies and the community?
Members of DENTIS evaluate the outcome of their project groups as profitable and lucrative.
They were able to achieve savings by either improved processes, increased process quality or by
innovative marketing concepts. This advantage of collective cooperation becomes apparent in
the scope of a benefit assessment carried out by the members. Merely five out of the 27
members rate the project groups rather poorly. All other members evaluated their individual
benefits as clearly positive. However, not only do the member-companies gain benefits from
network goods, but also the network as a whole. As a limited liability company DENTIS is the
proprietor of licensing rights and collective expert knowledge. The common property improves
the attractiveness of a membership. Members enjoy larger incentives to stay and applicants are
generally willing to accept higher fees for a new membership. Despite this very positive result
the members’ individual benefit assessments vary clearly. Why do the members evaluate the
benefit of the network goods in different ways if it is impossible that crowding impairs the
benefits? With the solution to this question we will approach the solution to the free riding
problem in relation to knowledge-based network goods.
How is the problem of free riding regarding network goods overcome? If merely some members
jointly develop a new solution, but all other members are also allowed to use it then the benefits
should be distributed equally among all members. Hence, how is the individual utility indeed
distributed? Those members who are highly engaged in the project cooperation at the same time
report significantly higher individual benefits than lesser-involved members. In the end, the
individual benefit of knowledge goods depends on the extent of the individual involvement in
the production process to be able to understand and absorb new knowledge. Learning processes
imply learning costs so that knew knowledge that was exclusively developed by others is
sometimes possibly less well understood or less adequately used.
7 Conclusion
The ability to initiate or affiliate with organised inter-firm networks may enhance both
individual and collective competitiveness: trans-regionally, if companies are a part of nationally
and internationally organised networks as well as regionally, if they are members of local
networks. We develop the concept of the organised network as a specific type of multilateral
organization of independent firms that is particularly conducive to the creation of network
goods and thus to realize enduring cooperation gains. In organised networks, companies enjoy
the possibility to create new knowledge with divided responsibilities by means of different
project groups. This knowledge can be exclusively used by all network members. The observed
13
value of knowledge is especially large if the companies use the jointly created knowledge to
improve their own processes, i.e. if learning is aligned with the own company. The Germany-
wide survey and the identification of roughly 4,000 networks show the empirical importance of
this form of cooperation. The advantages of organised networks are underscored by the fact that
most of these networks reported successful innovations in the course of their collaboration.
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