Combating Inertia

One of the most important functions of IPNs is to stimulate members to make performance-enhancing changes. Many successful and innovative companies become victims of hubris, failing to sustain a competitive advantage that gradually becomes eroded by advances engineered by their rivals. Many IPN members told us that a key driving force behind their decision to join an IPN was the fear of getting caught in the trap of complacency. They acknowledged a need for a group to urge them into pursuing change more vigorously. For example, the owner of a very successful auto dealership in the Chicago area admitted that his favorable location and capable staff ensured a profitable operation and that he needed additional challenges to make him raise his company’s performance level.

The motivational force of membership is embodied in members’ desire to avoid inferior ranking in the group and the peer pressure to meet collective performance standards. Two processes are particularly important here: the financial rankings within groups and the mechanisms for holding members accountable for their commitments. In many IPNs that we studied, members are ranked routinely on a number of performance indicators. Members typically display a strong desire to gain recognition in the eyes of their peers through a high ranking. IPNs make consistent efforts to maintain an environment in which members are encouraged to make concrete commitments to incremental improvement and to be accountable for the fulfillment of their goals.

In part, members seek the accountability imposed by membership because they typically are owners of small private companies that do not face public scrutiny by analysts, by the media or by boards of directors. One member told us that owners are the last people to hold themselves accountable. This statement and similar sentiments expressed by others reflect a belief that too much autonomy may prevent business owners from making difficult but necessary changes because they can become set in their ways.

The importance of accountability is illustrated in our survey of the remodeling IPN. Nearly 60% of members admitted that the desire to become accountable before the group was an important reason for pursuing IPN membership. That number, however, rose to 93% when members were queried about the role of accountability in their decision to continue being a member. Members apparently come to appreciate the enhanced sense of accountability even more during the course of their membership. The role of the incentives for improvement provided by IPNs is also illustrated in the fact that three out of four members recognized that a “very important” reason for continued membership was that “one’s commitment to improve the company’s performance be enhanced.”

Limitations of IPNs: The Pitfalls to Avoid

We do not wish to give the impression that IPNs are a panacea. In the course of our research, we have identified several factors that may limit their value. For example, one key challenge for IPNs lies in keeping their more successful, longer-tenured members engaged even when they may be learning less than newcomers. Such an imbalance threatens the vibrant exchange of ideas that supplies the knowledge gained in IPNs. One method for alleviating this problem is to help members find new groups in which they will be able to learn more. In some cases, the problem seems to be lessened by the feelings of obligation that develop due to the friendships formed in the groups.

A second set of issues confronts networks as they age. Many respondents describe a process in which members are typecast into particular roles of repeatedly stressing certain issues and voicing particular opinions. This can lead their peers to view their comments as reflecting personal prejudice rather than an objective critique. Another damaging tendency occurs when group members start to feel too close to one another to voice trenchant criticism. Finally, a process of homogenization may take place over time as a group converges on a set of practices its members think are “best,” but that leaves them with a lower capacity for absorbing new ideas. Potential solutions to all these tendencies include periodic rotation of members to different groups and the assignment of new members to existing groups.

Another challenge for IPNs concerns the comparability of member companies. While IPNs are founded on the premise that a company in one region may learn a great deal from a peer in a different region, it is also possible that they will learn inappropriate lessons from one another.4 This danger is by no means unknown to IPN participants, and they strive to ascertain which aspects of their peers’ experiences are relevant, useful and transferable.

A final challenge to IPNs is rooted, ironically, in one of the key factors for their success: the cohesion of the groups. Cohesion is the result of the establishment of many informal relationships that bind members together and forge loyalty to the group, but it also creates the preconditions for turmoil should influential, well-connected group members leave. The value that each member derives from membership depends on the degree to which others find their membership valuable. This form of interdependence, if properly channeled, can yield mutually beneficial outcomes, but it can backfire if simmering tensions in the group are not diffused in time. For example, one of the more cohesive groups in a remodeling IPN imploded in a spectacular fashion in a matter of days after dissatisfaction with a particular issue led to the departure of a few core members. Their departures triggered more departures shortly after, effectively breaking the group apart.

Other Forms of Peer Networking

IPNs are not, of course, the only type of association that brings together noncompeting companies. There are other networks that facilitate a mix of relationships within an industry, including those among noncompetitors. Trade associations are a primary example. National conventions provide opportunities for non-competitors to meet, share knowledge and compare themselves with one another, albeit to a less extensive degree than in an IPN. For example, the National Association of Wholesaler-Distributors (NAW), based in Washington, D.C., organizes conferences that include as a main feature “discussion groups that enable [participants] to benchmark with noncompeting peers.” These groups are billed as “rare opportunities to network with non-competing peers representing various commodity lines, enabling [participants] to solve pressing business problems.” Another example is Affiliated Distributors, a marketing group for industrial distributors that is based in King of Prussia, Pennsylvania. Each of the 350 members of Affiliated Distributors belongs to a network consisting of “approximately ten to twelve noncompeting, same industry companies … [that] meet twice annually … [to] share successes, challenges and best practices.”5

While IPNs facilitate relationships among noncompeting peers in the same industry, other organizations facilitate relationships among noncompetitors in distinct but related industries. For example, there are groups of suppliers to Toyota Motor Corp. known in Japan as jishuken and in the United States as plant development activity core groups. Each of these comprises five to 12 Toyota suppliers. Members of these groups visit one another’s place of business and develop social ties in an atmosphere of openness and trust that is akin to what we observed at IPNs.6 There are also peer networks designed to exploit the potential for learning among companies in different industries. Examples include the Executive Committee, the Alternative Board, the Young Presidents’ Organization and the Inner Circle, each of which organizes small networks of entrepreneurs or managers from different industries to discuss common business challenges. Sometimes shared membership gives rise to informal arrangements that strongly resemble IPN practices. For example, one entrepreneur created an advisory board of other entrepreneurs he met through the Young Presidents’ Organization. The advisory board meets once a month and assists him with strategic decisions. Its members collectively devise a schedule for change and ask him to make progress on each objective by the next meeting.7

These examples reveal that the IPN is one of a family of institutions in the U.S. economy that fosters relationships among noncompeting peers, and that there are ample opportunities to reap the benefits of such association outside the IPN context. It should be underlined that the value of peer networking is not restricted by company size or governance form. For example, while there has been significant consolidation among auto dealers in recent years, people we interviewed in our research told us that megadealers, who own multiple dealerships, are even more likely than the typical dealer to belong to an IPN. And note that most of the benefits of peer networking can be realized under the corporate roof as well. Business units at large corporations often become inward-looking, evaluating themselves relative to the rest of the company and tending to “play it safe” by setting goals for the unit that are relatively easy to achieve.8 As consistent behavior of this kind leads to poor corporate-level results, it is not surprising to find that several of the consultancies that organize IPNs also facilitate similar meetings for subunits of large companies or franchisees in large franchise systems.

While IPNs are more widespread in industries with regionalized competition, opportunities for active exchange with non-competing peers exist in a wide array of industries. If a manager decides to establish relationships with noncompeting peers, the decision about which network to join depends on his or her preferences with respect to industry overlap (peers from the same industry, related industries or unrelated industries), the level of financial disclosure (none to full), the frequency of meetings (twice annually to monthly) and the rank of involvement (owners, managers or division heads).

The variety of forms of peer networking we have encountered indicates that it has a broad appeal. As these forms are just beginning to attract attention from scholars, there will be a period before their performance implications are fully researched. Our research, however, indicates that many companies join them, that they do not seem to be a passing fad, and that members have a strong sense of the reasons why they join and the value they obtain. The surveys we have conducted register a very high level of satisfaction with IPN membership, a level significantly higher than for trade associations in the same industry. For example, fully 95% of the members of the remodeling IPN we surveyed were willing to endorse it to nonmembers. Naturally, performance has a lot to do with satisfaction: More than 90% of those members reported that the performance of their company was benefiting from membership. There is little we have seen so far to suggest they are wrong.

(Reprint #:47210)

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