Networks increase interdependencies, which creates challenges for managing risks. This is especially apparent in areas such as security and enterprise risk management, where the actions of a single player in an interconnected network can wreak havoc on everyone in the network. The network, in this case, is only as strong as its weakest link. There are related problems in encouraging investments for prevention and protection, because the expected payoffs from such measures by one player are affected by the actions of other players in the network. This chapter examines the challenges of interdependent security (IDS) and strategies for addressing these, including coordination with broader networks such as industry organizations and government.

Modern financial systems exhibit a high degree of interdependence, with connections between financial institutions stemming from both the asset and the liability sides of their balance sheets. Networks--broadly understood as a collection of nodes and links between nodes--can be a useful representation of financial systems. By modeling economic interactions, network analysis can better explain certain economic phenomena. In this chapter, Allen and Babus argue that the use of network theories can enrich our understanding of financial systems. They explore several critical issues. First, they address the issue of systemic risk, by studying two questions: how resilient financial networks are to contagion, and how financial institutions form connections when exposed to the risk of contagion. Second, they consider how network theory can be used to explain freezes in the interbank market. Third, they examine how social networks can improve investment decisions and corporate governance, based on recent empirical results. Fourth, they examine the role of networks in distributing primary issues of securities. Finally, they consider the role of networks as a form of mutual monitoring, as in microfinance.

Logistics is at the center of network-based manufacturing strategies, linking manufacturing sources with intermediate and final markets. As global logistics networks have grown and developed, they also have presented new challenges in managing risk and volatility across these broad, global networks. In this chapter, Kleindorfer and Visvikis discuss changes in logistics and financial instruments such as derivatives that have emerged to value and hedge the cost of capacity and services in these markets. They trace the recent history of maritime logistics and describe the convergence and integration of the physical and financial networks that underlie the valuation and use of logistics services. Global logistics illustrates how network-based strategies have integrated financial and physical networks. It also shows the emerging tools and competencies that have been needed to manage new risks arising from these broader networks.

In an environment of rapid and discontinuous change, managers have turned to alliances to access the resources they need. But research on alliances shows that more than half fail, demonstrating the difficulty of managing these relationships. Based on their extensive research on alliances, the authors explore the relational capabilities needed for building and managing successful alliances. Using the case of Royal Philips, they explore the role of strategy, structure, systems, people, and culture in alliance success. They also discuss the need for ongoing adaptation and renewal of relational capabilities as the business and its environment change.

Telecommunications is a networked business, yet it traditionally has resisted a network-based view in its strategies and business models. In this chapter, Kevin Werbach explores this paradox, contrasting the worldview of Monists such as AT&T, who see the infrastructure as inseparable from the network, and Dualists such as Google, who see the network and its applications as distinct from the underlying infrastructure. Not surprisingly, AT&T is a proponent of “tiered access” whereas Google argues for “network neutrality.” Finally, Werbach examines how a more modular future might bridge the gap between those who seek to own and capitalize on the network and those who seek to expand it through more neutral offerings.

The instant messaging generation, wired and integrated into broad, flat networks almost from birth, will not function as their predecessors did when injected into the social networks that form their professional organizations. IM’ers are creating their own network styles and content, as well as their own informal, back-channel networks, different from those of their more senior coworkers, and more compatible with their personal styles and loyalties. If their adoption of workplace communications norms indeed differs from that of their predecessors, how will these individuals function differently as employees, and how will organizations need to adapt their training, their managerial styles, and their expectations of employees’ motivations, performance, and loyalty to incorporate these new employees? After reviewing the literature on social networks, the authors explore a few prominent and visible trends that affect employers and employees: (1) changing communications technologies and their implication for social organization; (2) changing perception of fact, technique, and reality, and implications for authority and decision styles; and (3) outsourcing, downsizing, and the erosion of organizational loyalty. They then offer qualitative impressions, as well as insights from an online survey (of 80 respondents), and explore implications for managers and organizations.

Information about life-and-death matters such as ways to attain good health or prevent disease is often diffused through informal social networks. Network-based strategies and competencies are probably even more important in poor societies with limited means of communication and less effective formal structures than in developed economies. In this chapter, the authors explore the nature of and impacts of informal social networks in reducing fertility and HIV infection in Kenya and Malawi, using longitudinal quantitative and qualitative data that they and their collaborators have been collecting and analyzing for more than a decade. They find that social networks and informal interactions are relevant for many different health domains in developing countries. Their research shows that network effects may be nonlinear, that there may be multiple equilibria, and that networks may either reinforce the status quo or help diffuse new options and behaviors. They show that both the context (e.g., the degree of market development) and the density of networks matter (possibly interactively), as well as the endogeneity of network partners. Their work demonstrates that multiple approaches, including both qualitative and quantitative analyses, can be informative in providing greater understanding of what networks do and how they function.