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i Corporate Strategy and Network Change Exequiel Hernandez [email protected] Anoop Menon [email protected] The Wharton School (Authors listed alphabetically) Date: 31 October 2018 Conditionally Accepted Academy of Management Review ABSTRACT: Networks change when either the ties or the nodes are modified.Research on interfirm networks has conceptualized network change as driven almost exclusively by modifications in ties (additions and deletions). Yet firms frequently engage in actions that modify the ownership and existence of nodes: acquisitions ‘collapse’ nodes, divestitures ‘split’ nodes, industry entries ‘create’ nodes, and industry exits ‘remove’ nodes. The literatures on corporate strategy and organizational networks have mostly overlooked the implications of node-modifying actions for network change. We explore those implications in three ways. First, we systematically analyze and compare the network-changing properties of the six node- and tie-changing actions. Second, we link the strategic objectives that boundedly rational firms pursue through each corporate action to changes in their ego network positions (openness, closure, and status). Third, we consider how these ego-network changes set off ripple effects that create externalities for the networks of the focal firm’s immediate partners and that produce unintended structural effects at the global network level. The result is a much more expansive understanding of the mechanisms driving structural change in interfirm networks. Keywords: network change, corporate strategy, ego networks, global networks, externalities, acquisitions, divestitures, alliances Acknowledgements: We received helpful comments from Joel Baum and the Academy of Management Review referees, as well as Jaeho Choi, Connie Helfat, Nick Poggioli, Maxim Sytch, Aks Zaheer, seminar participants at the Wharton School, and participants at the 2016 Academy of Management conference, the 2017 SMS Costa Rica conference, and the 2018 INSEAD networks conference. We thank the Wharton Dean’s Research Fund for generous financing. The usual disclaimers apply.
1 All networks are made of two basic building blocks: nodes and ties. The structure of a network is determined by the distribution of ties among the nodes. Hence, structural change is fundamentally a function of modifications in either the ties or the nodes. Yet in the literature on interfirm networks, structural change has been conceptualized almost exclusively as the consequence of changes in ties. Most studies focus on how tie additions alter networks, such as firms establishing alliances or making joint investments (e.g. Ahuja, Soda, & Zaheer, 2012; Gulati & Gargiulo, 1999; Sytch & Tatarynowicz, 2014). Some work has also considered how tie deletions, such as firms ending alliances, modify networks (e.g. Hernandez, Sanders, & Tuschke, 2015; Polidoro, Ahuja, & Mitchell, 2011). The idea that network change can also be the result of alterations in the nodes is virtually missing from research on interfirm networks (with a few exceptions we note later).

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