Improving Capabilities Through Industry Peer Networks

By sharing insights and perspectives with a group of noncompeting peers from other regions, managers can stay abreast of industry trends and combat complacency.

In a world of increasing globalization, companies of all sizes need to stay attuned to new developments and currents of innovation beyond their core markets. Now more than ever, managers need to be aware of the dangers of dependence on entrenched beliefs and technologies. This article highlights an intriguing way in which managers at smaller regional companies in the United States improve their ability to stay abreast of industry trends: with the help of networks of non-competing peers from other geographic areas. We call these networks industry peer networks (IPNs).

While trade associations are the best-known venue for interaction among companies in the same industry, industry peer networks comprise small groups of noncompeting peers who gather regularly, in an atmosphere of significant intimacy and trust, to exchange information and discuss matters of company performance. The group members come from companies that provide similar services but operate in different regional markets and compete for different customers. Although industry peer networks have not received very much attention in the business press, thousands of U.S. companies in dozens of industries participate in them.

IPNs help members learn vicariously from the experiences of their peers and address deep-rooted problems common to many companies. These problems assume various forms, but the most important can be categorized as myopia and inertia. In a strategic context, myopia refers to managers’ tendencies to emphasize the significance of local developments and familiar things at the expense of the global, distant and unfamiliar. This fixation on the local frequently leads managers to ignore more distant developments that are likely to be important sources of learning over the long term.1 The inability of U.S. manufacturers to respond effectively in the 1980s to the entry of Japanese brands into the automotive, camera, copier and television markets is a prime example of how immersion in a local context may blind companies to disruptive external events.

Related to the problem of myopia is that of inertia. Employees and managers alike tend to cling to assumptions and time-tested ways of doing things, and companies grow comfortable in their familiar niches. Managers tend to give priority to knowledge and procedures that are well-mastered and controllable, rather than investing in the exploration of unfamiliar terrains. This inertia is usually accompanied by a sense of overconfidence, based on the belief that things will continue as they are.

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References

1. See D.A. Levinthal and J.G. March, “The Myopia of Learning,” Strategic Management Journal 14 (1993): 95–112; and W.P. Barnett and M.T. Hansen, “The Red Queen in Organizational Evolution,” Strategic Management Journal 17 (1996): 139–157.

2. R.M. Grant, “The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation,” California Management Review 33, no. 3 (spring 1991): 114–135.

3. P.J. Kampas, “Shifting Cultural Gears in Technology-Driven Industries,” MIT Sloan Management Review 44, no. 2 (winter 2003): 41–48.

4. J.A. Baum and P. Ingram, “Survival-Enhancing Learning in the Manhattan Hotel Industry, 1898–1980,” Management Science 44 (1998): 996–1016.

5. These quotes come from the organizations’ Web sites: www.naw.org and www.adhq.com.

6. For more details, see J.H. Dyer and K. Nobeoka, “Creating and Managing a High-Performance Knowledge-Sharing Network: The Toyota Case,” Strategic Management Journal 21 (2000): 345–367.

7. K.E. Klein, “How to Make Bigger Better,” BusinessWeek Online, June 9, 2005.

8. G. Saloner, A. Shepard and J. Podolny, “Strategic Management” (New York: John Wiley & Sons, 2001).