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On structural holes and closed networks

More thoughts from the research I’m doing for my book on structural holes and closed networks:

In some cases, you can benefit by being in a highly interconnected network, one in which there are virtually no structural holes . This is a “closed network”, “in which everyone is connected such that no one can escape the notice of the others”.

A naturally occurring example of a closed network is a family. Anyone in a large family benefits from being in a high-strength and highly interconnected network. The Kennedy, Bush, and Gore political dynasties are excellent examples in the USA. Any aspiring politician from those families has a huge head start over someone from a less prominent family.

Another powerful example is a business school section. At many leading business schools, students are grouped into a section of perhaps 80 students and take many classes together. As a result, they spend a great deal of time together and get to know one another well. This is a very powerful club to join. Precisely because the section is so interconnected, the members trust and support one another.

There are two benefits of membership in a closed network:

+ Improves access to information. Remember the children’s game of “Telephone”? Information deteriorates in quality the more steps it has to pass through. In a closed network, you have multiple ways to get access to the same information, so it is more likely that you will get accurate information. The members of a small fraternity all know a lot of accurate information about one another’s activities.

+ Closed networks make it easier to reward and punish people, which in turn makes it less risky to trust other members. The common group membership provide a check. You are not too likely to rip off another member of your business school section in a business deal, because that abuse will hurt your relationships with the others. The group as a whole can also reward and punish outsiders.

For example, let us say that Ikenna runs a three-person consulting firm, and Neena runs a food delivery business. If Neena provides bad service to Ikenna, she will get no further business from Ikenna, and she will also get no further business from any of Ikenna’s colleagues. Similarly, if she provides excellent service, it is likely that Ikenna will influence his colleagues, or perhaps even hire Neena to cater an event for the firm.

The larger Ikenna’s company, the more motivation Neena has to treat Ikenna well. However, a large organization cannot be a closed network, and so it is more difficult to create consequences for outsiders. If Ikenna works for a huge company like GE, then Neena can provide bad food to him, without hurting her sales of food to another GE office. And good service to GE’s CEO will likely have little influence on catering purchases throughout GE.

Closed networks also exist within open networks; people call them cliques. If Ikenna works in a small department with five other people, that is a closed network. If Neena sells bad food to this department, the consequences for her will be the same as if she sold bad food to a small consulting firm.

The implication for you: it is often advisable to join a formal, small group in which you can get to know everyone. If you are not lucky enough to be born into a large and high-powered family, and not fortunate enough to marry into one, creating such a high-strength network requires a significant amount of time. However, it is well worth the investment.

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