Managing Maturing Government‐Supported Networks: The Shift from Monitoring to Embeddedness Controls

AuthorJoakim Wincent,Sara Thorgren,Sergey Anokhin
DOIhttp://doi.org/10.1111/j.1467-8551.2012.00819.x
Date01 December 2013
Published date01 December 2013
Managing Maturing
Government-Supported Networks:
The Shift from Monitoring to
Embeddedness Controls
Joakim Wincent, Sara Thorgren and Sergey Anokhin1
Luleå University of Technology, SE-971 87 Luleå, Sweden, and 1Kent State University, PO Box 5190, Kent,
OH 44242-0001, USA
Corresponding author email: joakim.wincent@ltu.se
In formal inter-firm networks backed with significant financial support by policy-
makers, network boards are typically established to monitor network activities and to
manage the tension between organizational and collective interests. This approach to
network governance, however, builds mainly upon agency logic. We integrate agency
with embeddedness theory to offer insights into the effectiveness of monitoring as a
governance mechanism as networks mature and member firms become embedded. The
analyses focus on two issues: (1) how network board characteristics typically associated
with monitoring – board independence, board size and board compensation – influence
network performance; and (2) how these effects are moderated by network age. The
model is tested with longitudinal data on 53 government-supported networks. In addition
to the direct effects of board characteristics, network board size and board compensation
have a stronger positive impact on network performance in younger networks than in
more mature networks. This study provides insight into why the instituting of boards may
prove successful for network-level performance in newly formed government-supported
networks, but also explains why the positive effects from network board monitoring may
diminish as networks grow older.
Introduction
To stimulate firms’ competitiveness and innova-
tiveness, many local governments encourage firms
to join forces in formal inter-firm networks, which
pursue a high-calibre innovation agenda (Fuku-
gawa, 2006; Rosenfeld, 1996; Thorgren, Wincent
and Örtqvist, 2009a; Thorgren, Wincent and
Anokhin, 2010; Wincent, Anokhin and Boter,
2009; Wincent, Anokhin and Örtqvist, 2010).
Through these networks, companies get the ben-
efits of size typically unavailable to individual
firms and may partake of the governmental pro-
vision of funds and valuable resources that can
contribute to improving member firms’ innova-
tiveness. For example, Träinnova – a Swedish
network in the wood industry, with about 30
member firms – thanks to the governmental
support for the network creation in the wood
industry was able to identify alternative outlets
for wood fibre and to engage in the development
of products out of wood polymer composites.
These are technological advancements that may
replace many of the plastics and metals of today.
Because of significant funding from government,
covering approximately 50% of the costs of devel-
opment, the network firms managed in just a few
years to develop joint product offering for global
retailers, as well as mastering new techniques for
The authors thank Ewan Ferlie and two anonymous
reviewers for their constructive comments, which greatly
improved the quality of this paper.
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British Journal of Management, Vol. 24, 480–497 (2013)
DOI: 10.1111/j.1467-8551.2012.00819.x
© 2012 The Author(s)
British Journal of Management © 2012 British Academy of Management. Published by John Wiley & Sons Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
producing wood products and technologies with
potential to renew the wood industry itself.
On the mandated–voluntary network spectrum
(e.g. Kenis and Provan, 2009), such government-
supported networks are somewhat atypical. They
resemble mandated networks, since they are often
initiated by policy interventions, but are volun-
tary in that the member firms are free to decide
whether they want to join the network arrange-
ment and the extent to which they want to take an
active role in it. While member firms strive to
benefit individually from these networks, it is
equally critical to reach effectiveness at the
network level, defined as ‘the attainment of posi-
tive network-level outcomes that could not nor-
mally be achieved by individual organizational
participants acting independently’ (Provan and
Kenis, 2008, p. 230). To reach network-level
success, the member firms need to engage, commit
and reciprocate each other’s contributions
(Wincent, 2008). In these types of government-
supported networks, it does, however, become
particularly challenging to balance the organiza-
tional and network interests. Prior research has
shown that, when networks are formed upon the
initiative of someone other than the network
members, the network can lack a common nor-
mative system from the start and be less self-
activating, such that there is a risk that the
network members free-ride by down-prioritizing
network-level outcomes for their own organiza-
tional interests (van Raaij, 2006; Wincent, 2008).
While the knowledge about organizing in these
government-supported networks is limited, it is
common to institute network boards to mitigate
free-riding and ensure network effectiveness
(Chaston, 1995; Fukugawa, 2006; Hanna and
Walsh, 2002; Lewis et al., 2004; Sherer, 2003;
Thorgren, Wincent and Anokhin, 2010; Wincent
et al., 2010b). The board acts as a steering group
by coordinating and monitoring joint activities.
As government funding is provided to the
network firms via national innovation and
regional development programmes, the question
of network accountability, in terms of innovative
gains, and the network governing strategies
become particularly interesting. Little attention
has, however, been provided so far to the balance
of governance at the network level. To what
extent should the network participants and the
cooperative projects carried out be controlled?
When does it make sense to take a passive stance
and trust that the participating firms will develop
their own rules of reciprocation to manage the
network projects effectively on their own?
We believe these questions are interesting
because they point to a theoretical disagreement
with respect to the role that governance mecha-
nisms play in mitigating free-riding.
On the one hand, the monitoring role of boards,
widely acknowledged in the agency-based litera-
ture, advocates for a more active control-oriented
approach to mitigating exchange problems such as
free-riding and opportunism (Eisenhardt, 1989;
Fama and Jensen, 1983). On the other hand, there
are scholars interested in network governance
who advocate a passive and autonomy-oriented
approach, claiming that network activities do not
have to be monitored. They build their arguments
on embeddedness theory, suggesting that, as the
network matures, knowledge and information
about focal network actors, their competencies
and their actions, will spread in the network (e.g.
Gulati and Gargiulo, 1999; Madhavan, Koka and
Prescott, 1998; Powell et al., 2005; Wincent,
Anokhin, and Boter, 2009; Thorgren and Wincent,
2011; Wincent et al., 2010a). Because network
member firms strive for influence and reputation in
the network, firms in mature networks automati-
cally become more embedded and are surrounded
by more developed norms of reciprocation, thus
facing less risk of free-riding (Cook and Emerson,
1978; Walter, Lechner and Kellermanns, 2008).
Despite these insights from embeddedness
theory, extant research has not yet distilled the
most effective means to control government-
supported networks to balance the tension
between organizational and network interests. We
aim to shed light on this issue by developing an
integrative framework to examine whether the
agency logic that favours the designing of boards
for monitoring of network activities is indeed the
most effective for network-level outcomes. More
specifically, we test the idea that monitoring of
network activities by network boards may be most
effective for network-level outcomes when the
network is newly formed. When the network
matures, embeddedness will develop among the
member firms and, with the rise of embeddedness,
the mechanisms that mitigate the risk of member
firms not spending efforts towards reaching
network-level effectiveness will emerge. In other
words, from being an object of control, the
network develops into being a mechanism of
Maturing Government-Supported Networks 481
© 2012 The Author(s)
British Journal of Management © 2012 British Academy of Management.

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