March 2015Strategy

What to Consider Before Joining a Network

What to Consider Before Joining a Network

As Apple and Samsung battle out the smartphone war, developing and marketing new products designed to tempt each other’s customers, it is interesting to note that neither company has total control over their success. In the telecom world, outsiders — namely the software developers who create Apps — can sway consumers as much as the manufacturer can.

Steve Jobs knew the importance of a strong network that included App designers back in 2008. When it launched the App Store, Apple offered designers 70 percent of the sales of their apps, and waived credit card and hosting fees. For a while, it was enough to lure a majority to write for the iPhone. But today, more developers, especially in emerging markets, are writing for the Android platform, and Google Play has overtaken the App Store in the number of Apps it offers. It’s an important development, one that has strong implications for future sales.

Wharton management professor Harbir Singh says the telecom networks “inform the companies’ ability to compete. They are increasingly reliant on outside developers for their success. It is an interesting position to be in and it highlights the need for a robust network that is well managed.”

Singh notes that the need for strong networks isn’t confined to the telecom industry, though. “It is influencing business in the airline and semiconductor industries and many others. But forming one or joining one isn’t something many companies are necessarily good at.”

In Strategic Alliances: Creating Growth Opportunities, Singh explains the key factors involved in successful networks. “Today, networks influence the paths of industries and individual organizations. The key is to choose one that can provide you with the greatest benefits, and be the kind of strategic partner that others want to work with.”

In the four-day program, Singh and Prashant Kale, a Fellow at Wharton’s Mack Center for Technological Innovation, show participants how to evaluate networks, how to decide when to join (and when to leave), and how to get the most out of a network. “It’s not enough just to join one,” says Singh. “You need to consider when to get in. There are advantages to getting in early, but there is also risk. Early entrants get the chance to shape the network — with no guarantee it will be successful. If you wait, though, it might be harder to join. You may or may not be attractive to the other members of the network.”

He says in addition to considering the timing of your entry, you should also think about when to leave a network. “Many companies stay too long,” Singh explains. For example, Continental Airlines was initially part of the Sky Team Alliance. When fellow network member Delta acquired Northwest Airlines, the merger created redundancy in terms of the uniqueness that Continental brought to the network. That redundancy diminished Continental’s relative position and power in the alliance, and ultimately led to Continental’s decision to leave.

Prashant Kale explains that in addition to alliance networks, the Strategic Alliances program examines bilateral alliances and joint ventures between two companies, which “continue to remain an important means of competing and creating value for most companies. Companies are well-advised to master the skills of effectively managing such relationships.”

Singh agrees that relationships are paramount in any type of alliance. “Companies must build a reputation as a good partner. You need people who can manage relationships and your behavior must be trustworthy and reliable. It is also critical that you invest in the network. Don’t look at it as solely a resource that you take value from. Determine where you can add value, and be an effective partner while also protecting your interests.”