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Modes of Network Governance: Structure, Management, and Effectiveness

Keith G. Provan University of Arizona

Patrick Kenis Tilburg University

ABSTRACT

This article examines the governance of organizational networks and the impact of

governance on network effectiveness. Three basic models, or forms, of network governance

are developed focusing on their distinct structural properties. Propositions are formulated

examining conditions for the effectiveness of each form. The tensions inherent in each

form are then discussed, followed by the role that management may play in addressing

these tensions. Finally, the evolution of governance is explored.

Networks have been widely recognized by both scholars and practitioners as an important

form of multi-organizational governance. The advantages of network coordination in both

public and private sectors are considerable, including enhanced learning, more efficient use

of resources, increased capacity to plan for and address complex problems, greater com-

petitiveness, and better services for clients and customers (see Alter and Hage 1993;

Brass et al. 2004; Huxham and Vangen 2005). However, despite much progress made

by researchers studying networks of organizations over the past 15 years and more, there is

still a considerable discrepancy between the acclamation and attention networks receive

and the knowledge we have about the overall functioning of networks. By network func-

tioning, we refer to the process by which certain network conditions lead to various

network-level outcomes. Understanding the functioning of networks is important since

only then can we better understand why networks produce certain outcomes, irrespective of

whether networks result from bottom-up processes or are the product of strategic decisions

made by network participants or government officials.

This article addresses these issues by focusing on the critical role of network gover-

nance and its impact on network effectiveness. We recognize that the study of effective-

ness has been problematic at both organizational (Goodman and Pennings 1977) and

network (Provan and Milward 2001) levels, especially regarding the key question, ‘‘effec-

tiveness for whom?’’. Yet despite problems regarding conceptualization and measurement,

An earlier version of this article was presented at the Public Management Research Association meeting,

September 29 to October 1, 2005, at the University of Southern California, Los Angeles, California. Address

correspondence to the author at [email protected]

doi:10.1093/jopart/mum015 Advance Access publication on August 2, 2007

ª The Author 2007. Published by Oxford University Press on behalf of the Journal of Public Administration Research and Theory, Inc. All rights reserved. For permissions, please e-mail: [email protected]

JPART 18:229–252

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effectiveness is a critical concept, for both researchers and practitioners, that cannot simply

be ignored. Network effectiveness is defined here as the attainment of positive network-

level outcomes that could not normally be achieved by individual organizational partic-

ipants acting independently. Although individual organizational participants may, and

probably should benefit as well, effectiveness is viewed here at the network level. The

specific type of network-level outcome considered is not, however, defined by us but

depends on the particular constituency assessing the functioning of the network (see

Provan and Milward 2001). This implies that we do not consider a certain outcome a priori

as the correct one because each presents a potentially valid point of view. Such outcomes

might include strengthened community capacity to solve public problems like crime, home-

lessness, or health care; improved integration of critical services to vulnerable populations;

regional economic development; and responsiveness to natural or made-made disasters.

Although networks have been studied from a variety of perspectives, surprisingly

little attention has been paid to the governance of whole organizational networks. This

broader focus is what Powell et al. (2005, 1133) recently referred to as ‘‘illuminating the

structure of collective action.’’ In part, the reason for adopting a more narrow perspective

may simply be that organizational scholars are used to studying organizations, not multi-

organizational arrangements (Salancik 1995). In addition, developing a deep understand-

ing of network governance requires collection of data on multiple networks, which can be

time consuming and costly. Although there is a growing literature on networks as a unit of

analysis, the majority of this work has been descriptive (cf. Agranoff and McGuire 2003;

Goldsmith and Eggers 2004; Huxham and Vangen 2005; van Bueren, Klijn, and Koppenjan

2003). Finally, there seems to be some reluctance among many who study networks to

discuss formal mechanisms of control. A common assumption is that since networks are

collaborative arrangements, governance, which implies hierarchy and control, is inappro-

priate (Kenis and Provan 2006).

ORGANIZATIONAL VERSUS NETWORK GOVERNANCE

Governance is a topic that has long been studied by organizational scholars (cf. Mizruchi

1983; Westphal and Zajac 1995). Traditionally, governance in business firms has focused

on the role of boards of directors in representing and protecting the interests of share-

holders (Fama and Jensen 1983). Governance has also been studied in the nonprofit

context, although the focus here has generally been on the role of boards of trustees, as

representing and protecting the interests of community members or other politically im-

portant constituencies (Provan 1980). In public management, governance refers not to the

activities of boards, but mainly, to the funding and oversight roles of government agencies,

especially regarding the activities of private organizations that have been contracted to

provide public services (Hill and Lynn 2005). A critical role for governance in all these

sectors, and consistent with principal-agent theory, is to monitor and control the behavior

of management, who are hired to preside over the day-to-day activities of running the

organization (Eisenhardt 1989; Fama and Jensen 1983). Although there is much recent

evidence that boards do not necessarily take their responsibilities seriously enough (i.e.,

Enron Corporation), board members do have a legal obligation to perform their duties and

are liable if the organization they represent engages in illegal or irresponsible behavior.

With some exceptions (cf. Goldsmith and Eggers 2004; Imperial 2005; Jones,

Hesterly, and Borgatti 1997; Moynihan 2005; Park 1996), most literature on organizational

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networks does not explicitly address governance. The most obvious reason is that networks

are comprised of autonomous organizations and, thus, are essentially cooperative endeav-

ors. Since networks are not legal entities (we do not consider joint ventures and equity-

based alliances to be true networks), the legal imperative for governance is simply not

present as it is for organizations. For goal-directed organizational networks with a distinct

identity, however, some form of governance is necessary to ensure that participants engage

in collective and mutually supportive action, that conflict is addressed, and that network

resources are acquired and utilized efficiently and effectively. Although all networks

comprise a range of interactions among participants, a focus on governance involves the

use of institutions and structures of authority and collaboration to allocate resources and

to coordinate and control joint action across the network as a whole. These interactions

are distinct from operational links, which are often dyad based including referrals, sharing

of information, and joint programs. Even when mechanisms for governance have been

discussed in the literature, they are generally discussed in terms of specific activities

performed for a particular network, rather than in a comparative way. As a result, there

has been no theory on the various forms of governance that exist, the rationale for adopting

one form versus another, and the impact of each form on network outcomes. This is our

focus.

We define the term ‘‘network’’ narrowly. Our focus is on groups of three or more

legally autonomous organizations that work together to achieve not only their own goals

but also a collective goal. Such networks may be self-initiated, by network members

themselves, or may be mandated or contracted, as is often the case in the public sector.

When defined in this way, as multilateral collectivities, networks can become extremely

complex entities that require explanations that go well beyond the dyadic approaches that

have been traditionally discussed in the organization theory and strategic management

literatures. Our definition focuses on what Kilduff and Tsai (2003) refer to as ‘‘goal-

directed,’’ as opposed to ‘‘serendipitous’’ networks. Although goal-directed networks occur

less frequently, they have become extremely important as formal mechanisms for achiev-

ing multi-organizational outcomes, especially in the public and nonprofit sectors where

collective action is often required for problem solving (cf. Agranoff and McGuire 2003;

Imperial 2005; Lemieux-Charles et al. 2005; Provan, Isett, and Milward 2004; Provan and

Milward 1995). Especially in the European literature, which is less based on an individ-

ualistic fiction (Coleman 1990, 300–05), a substantial number of cases of goal-directed

networks have been empirically described (Acevedo and Common 2006; Daguerre 2000;

Entwistle et al. 2007; Sydow 2004; Teisman and Klijn 2002). Serendipitous interactions, of

course, occur within goal-directed networks, resulting in coevolutionary trajectories that

may prove advantageous or detrimental to network outcomes. However, unlike serendip-

itous networks, which develop opportunistically, goal-directed networks are set up with

a specific purpose, either by those who participate in the network or through mandate, and

evolve largely through conscious efforts to build coordination.

Addressing complex issues that demand multilateral coordination, as is often the case

in the public and nonprofit sectors (to deal with major disasters, increase economic activity

in the region, address critical and complex health or human service needs, etc.), requires

more than just achieving the goals of individual organizations (O’Toole 1997). It requires

collective action and the governance of these activities. Although network governance may

not be a legal issue, as with organizational governance, we argue that it is critical for

effectiveness. Unlike organizations, networks must be governed without benefit of hierarchy

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or ownership. In addition, network participants typically have limited formal accountabil-

ity to network-level goals and conformity to rules and procedures is purely voluntary.

Most research on organizational networks can be broadly characterized by two basic

approaches: the ‘‘network analytical’’ approach and the ‘‘network as a form of governance’’

approach, both of which are limited when it comes to analyzing network-level functioning

and governance. Network analytical approaches focus mainly on micro-level, egocentric

aspects of networks, building largely on work done by sociologists studying networks of

individuals. This perspective has had a long history (Moreno 1934). Scholars have con-

tributed especially to the description and explanation of network structural characteristics

using such concepts as density, centrality, and structural holes (Burt 1992; Wasserman and

Faust 1994). The units of observation are a set of objects called nodes, positions, or actors,

and a set of present or absent relations among these objects referred to as edges, ties, or

links (Knoke 1990). In network analytical approaches, the main objective can be either to

describe, explain, or compare relational configurations or to use these configurations to

explain certain outcomes.

The functioning of organizational networks can be partially addressed using this

approach, since we defined functioning as the process by which certain network conditions

lead to network outcomes. The problem, however, is that for the most part, what gets

analyzed and explained is not the network itself, but the ‘‘nodes’’ and ‘‘relations’’ that

comprise the network (cf. Graddy and Chen 2006; O’Toole and Meier 2006). Apart from

some notable exceptions (e.g., Owen-Smith and Powell 2004; Powell et al. 2005; Provan

and Milward 1995; van Raaij 2006), the unit of analysis (i.e., the phenomenon to be

investigated) in this literature is not the complete network but a node (ego) or a dyad. In

these studies, findings are related to questions of whether or not the way an actor is

embedded in a network has an effect on the outcomes of the actor (such as level of inno-

vation, performance, and learning) (Ahuja 2000) or on describing and explaining the birth,

death, effectiveness, etc. of dyadic relationships (cf. Larson 1992; Ring and Van de Ven

1994; Uzzi 1997). Consequently, this literature tells us little about the functioning of

networks, because networks are seldom treated as the unit of analysis.

The network as a form of governance approach, in contrast, does treat networks as the

unit of analysis. Network is viewed as a mechanism of coordination, or what has often been

referred to as network governance. Starting with Williamson’s (1975) Markets and Hier-

archies, a rich literature has developed on different forms of governance over the last two

decades. As seen from an economic perspective, this literature challenged the conventional

wisdom that the market is the only efficient system of nonhierarchical coordination. From

an organization and administrative science perspective, the most innovative aspect of this

literature is that it made clear that organizations cannot be taken as something for granted

(see Perrow 1986) and that other forms of coordination, such as networks, can equally

achieve goals. Consequently, a discussion unfolded as to whether networks are simply

a combination of elements of market and hierarchy, and could, therefore, be placed on

a continuum between market and hierarchy, or whether they would be better understood as

unique forms of governance in their own right (see Powell 1990). This literature moved

toward treating networks as discrete forms of governance, characterizing them as having

unique structural characteristics, modes of conflict resolution, bases of legitimacy, etc.

(cf. Jones et al. 1998; Raab 2004).

Although the governance approach considers networks as the unit of analysis, the

tradition has been for networks to be treated as undifferentiated forms, as if they all could

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be characterized in the same general way (e.g., Jones, Hesterly, and Borgatti 1997; Powell

1990). This may be due to the fact that for the most part, networks were seen as a ‘‘new’’

and ‘‘positive’’ mode of coordination that needed to be distinguished from markets and

hierarchies. A functionalist argument dominated, claiming that networks are a response to

failures of markets, failures of hierarchical coordination, and to societal and technological

developments. The implication was, and continues to be, that despite problems, networks

in general can produce positive outcomes that would not be possible in a market or

a hierarchy.

What we propose here is to combine the network analytical and ‘‘governance’’ per-

spectives. The governance perspective is valuable in that the network itself is considered to

be the unit of analysis. Networks are forms of social organization, which are more than the

sum of the actors and their links and which deserve to be studied in their own right

(O’Toole 1997). The network analytical perspective contributes another central idea to

our work—that networks are a set of actors or nodes, with relationships between these

nodes as being either present or absent. Thus, networks are considered to vary with regard

to their structural patterns of relations.

Consistent with this logic, we view network as a variable, examining different net-

work governance configurations and the conditions for the effectiveness of each form.

Only by demonstrating that networks with different configurations have different network-

level effects can a rationale for developing network-level theories be established. To build

our case, we formulate a number of propositions about the relationship between the

configuration of network governance and network effects. We also argue that the role of

management is critical for effective network governance, especially regarding the handling

of tensions inherent in each governance form. Essentially, our focus is not on networks as

a means of governance, but on the governance and management of networks themselves.

The article proceeds as follows. First, three basic forms of network governance are

identified. Second, we focus on development of four contingency conditions that are likely

to affect the successful adoption of each governance form. Specific propositions are de-

veloped. Although many factors can contribute to network effectiveness, our arguments are

built around the assumption that there is a rationale for utilizing one form over another and

that there are consequences for selection of each form of governance. Network managers

must recognize these consequences and address them appropriately if positive network

outcomes are to be realized.

Next, we focus on three tensions that result from choice of network governance form.

We outline these tensions and discuss which specific tensions are likely to be most prev-

alent for each of the three forms. Finally, we discuss the evolution of network governance.

If the effectiveness of a form is tied strongly to a set of critical contingencies, then what

happens when these contingencies change? We explore the pattern of change from one

form to another.

FORMS OF NETWORK GOVERNANCE

Based on a review of the literature on whole networks (rather than dyad-based network

relationships; cf. Provan, Fish, and Sydow 2007), coupled with our own extensive obser-

vations, network governance forms can be categorized along two different dimensions.

First, network governance may or may not be brokered. At one extreme, networks may be

governed completely by the organizations that comprise the network. Every organization

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would interact with every other organization to govern the network, resulting in a dense

and highly decentralized form. This is what we call shared governance. At the other

extreme, the network may be highly brokered, with few direct organization-to-organization

interactions, except regarding operational issues such as the transfer of business, clients,

information on services, and the like. Instead, network governance would occur by and

through a single organization, acting as a highly centralized network broker, or lead

organization, regarding issues that are critical for overall network maintenance and sur-

vival. At the mid-range, a single organization might take on some key governance activ-

ities while leaving others to network members. Alternatively, network members may

divide governance responsibilities among various subsets, or cliques of network members,

with no single organization taking on significant governance tasks.

A second distinction regarding governance can be made in brokered networks by

focusing on whether the network is participant governed or externally governed. As

discussed below, participant-governed networks are, at one extreme, governed either

collectively by the members themselves (i.e., shared), or at the other extreme, by a single

network participant that takes on the role of a lead organization. Externally governed

networks are governed by a unique network administrative organization (NAO), as dis-

cussed below, which may be either voluntarily established by network members or man-

dated as part of the network formation process. Each of these forms has certain key

structural characteristics, which we identify below. Each form is utilized in practice for

a variety of reasons, and no one model is universally superior or effective. Rather, each

form has its own particular strengths and weaknesses, leading to outcomes that are likely to

depend on the form chosen.

Participant-Governed Networks

The simplest and most common form is participant governance. This form is governed by

the network members themselves with no separate and unique governance entity. Gover-

nance in this form can be accomplished either formally; for instance, through regular

meetings of designated organizational representatives, or more informally, through the

ongoing but typically uncoordinated efforts of those who have a stake in network success.

At one extreme, participant-governed networks can be highly decentralized, involving

most or all network members interacting on a relatively equal basis in the process of

governance. This is what we refer to as shared participant governance. At the other

extreme, the network may be highly centralized, governed by and through a lead organi-

zation that is a network member.

Shared participant-governed networks depend exclusively on the involvement and

commitment of all, or a significant subset of the organizations that comprise the network.

Network participants are themselves responsible for managing internal network relation-

ships and operations as well as external relations with such groups as funders, government,

and customers. In health and human services, shared-governance networks are common, in

part because networks are often considered to be an important way of building ‘‘commu-

nity capacity’’ (Chaskin et al. 2001). Only by having all network members participate, on

an equal basis, will participants be committed to the goals of the network. In business,

shared governance may be used in smaller, multi-firm strategic alliances and partnerships

(where multi-firm ownership is not involved) designed to develop new products or

to attract new business in ways that could not be otherwise accomplished through the

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independent efforts of network members (Venkatraman and Lee 2004). The form has also

been used in multilateral relations among investment banking firms and venture capitalists

working to assemble a financial package for a project or business (Eccles and Crane 1988).

When network governance is shared, it is the collectivity of partners themselves that

make all the decisions and manage network activities. Power in the network, at least

regarding network-level decisions, is more or less symmetrical, even though there may

be differences in organizational size, resource capabilities, and performance. There is no

distinct, formal administrative entity, although some administrative and coordination ac-

tivities may be performed by a subset of the full

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