The Sources and Consequences of Embeddedness for the Economic Performance of Organizations: the Network Effect, a Review

The Sources and Consequences of Embeddedness for the Economic Performance of Organizations: The Network Effect

A Review by Sanne Middelhoek

In ‘The Source and Consequences of Embeddedness for the Economic Performance of Organizations: The Network Effect’ Brian Uzzi examines the impact of embeddedness on organizational performance.
There is plenty of research regarding the structural embeddedness of business decisions, for example Romo and Schwartz (1995).  Yet, these papers only cover the structural embeddedness. Uzzi tries to advance the concept of embeddedness beyond this level, by investigating how embeddedness and network structure affect economic behavior.

Summary
Uzzi starts with introducing the structural embeddedness approach based on existing theory. To do so, he lists some problems of embeddedness in markets and networks by linking the concept of embeddedness to other theories. He explains why and how the theories conflict with the vision of the network theory. Next to that, he conducts an ethnographic study to show the implications of the structural embeddedness argument. The findings suggest that there are three features and functions of embedded ties: trust, fine-grained information transfer and joint-problem solving which happen in a causal order. ‘A “primed” relationship develops into ongoing embedded ties in stages.” (Uzzi, 1996)

After the structural approach, he conducts sets several hypotheses to test the plausibility of his implications. His method consists of two parts: first-order network coupling, which is the degree to which a firm uses embedded ties to link its network, and second-order network coupling, the degree to which a focal firm’s network partners maintain arm’s-length or embedded ties with their network partners. The results are in line with hypothesis 4, implying that a firm’s performance peaks when it is linked by embedded ties to an integrated network composed of both embedded and arm’s length ties.  

This article leads its strength through its interesting contribution to literature by broadening the concept of embeddedness. Furthermore, the ethnographic fieldwork part is written in detail and a great contributor to the understanding of the reader. Including quotes and real-life examples of the participants, the idea of structural embeddedness becomes, next to theoretical, practical as well.  Lastly, Uzzi uses figures to illustrate his results which are a clear representation of the causal relationship.

Data and Methods

The data base includes information about modern apparel firms in New York and is obtained from the International Ladies Garment Workers Union. Although the data has a couple advantages which are mentioned by Uzzi, it is not applicable to all firms and industries. Consequently, the results may be somewhat biased. Future research should be conducted using other data bases.

The control variables used by Uzzi when testing the hypotheses proposed are network size, network centrality, organization age, organization size and generalist. In the Discussion part, the states that future research is needed to specific the boundary conditions under which his findings hold. Examples given are ethnicity, organization size and the fashion sensitivity of markets. Both the control variables used and the proposed variables for future research are focused on firm, ties, or network characteristics.  What about external factors? The preference for either individualism or collectivism might depend on the country or culture in which the firm operates. Next to that, the source of trust is an important issue which is influenced by culture. As an example, David De Cremer states that, “in China you build trust first, once that is achieved, only then you do business. In the West, on the other hand, people are used to doing business almost immediately when they work in the same industry. Westerners feel more comfortable conducting business and building trust at the same time, if the opportunity arises” (2015). Without a solid base for trust, it is hardly likely that an embedded relationship would arise. Thus, to increase the accuracy of the methods and the results, it might be an idea to consider external, cultural factors as well.