On structural holes

You will usually benefit if the members of your network do not know one another. Ronald Burt, in his innovative and influential book, Structural Holes: The Social Structure of Competition, provides fascinating support for the argument that both people and companies benefit by sitting in a “structural hole” of a network. A structural hole exists when there is only a weak connection between two clusters of densely connected people.

For example, let us say you are the head of German country sales for Hasbro, Inc., a major manufacturer of games and toys. Your value to Hasbro is as a pipeline to the German market. It is in your interest to build relationships with many people in both Hasbro headquarters and in the German market. You fill a structural hole between those two groups. In order to preserve that structural hole, we recommend you should probably not introduce the two pools of people (the American Hasbro toy-sellers and the German toy-buyers).

Structural holes can generate two types of benefits, control benefits and information benefits:

• Control benefits: By sitting between two groups who both need you, you have control over them. Your salary is your payment for brokering the relationship. For example, your clients in Germany need you to push Hasbro for extra shipments of a hot new toy for Christmas. Because the German retailers need the benefits of your influence, they will compensate you, perhaps by placing a larger order with you next month.

• Information benefits: You have superior information because of your privileged position. You have better information about the German market than your colleagues at Hasbro US, who do not speak German and do not have many relationships in Germany. That information is part of your value to Hasbro.

If you introduce your clients to your boss, you are much more dispensable. Your boss can readily terminate you, and then replace you either himself or with another, cheaper person. You have destroyed the structural hole.

You also currently have ties with both Hans and with Franz, two colleagues in the Buyers department at Wal-Mart Germany. Hans and Franz work closely together and lift weights together five times a week.

We recommend that you focus on building strong ties with just Hans or just Franz, and not spend too much time building ties with the other person. We believe that the control and information benefits you can get from Hans and Franz are redundant, for two reasons.

• Hans and Franz are structurally equivalent, i.e., they fill a virtually identical role within Wal-Mart Germany. They have the same job and interact with the same people all day. Simply because of their identical role, they have access to the same information as one another.

• Hans and Franz are highly cohesive; i.e., they spend a lot of time together and constantly talk and share ideas. Because of that, anything one knows, the other probably knows also.

For both of these reasons, Hans is likely going to provide you virtually the same sort of information as Franz, and vice versa. If you spend time building relationships with both of them, you are not going to sell twice as many games and toys. Given that you only have bandwidth for a limited number of relationships, you should focus on just Hans or just Franz. Sell to that one person.

Instead of spending lots of time with Hans and Franz, we recommend instead that you spend more time selling to (for example) Karstadt, another top European department store group.

Let us say that you offer Wal-Mart a more attractive deal than you do Karstadt. However, you can only do that if the two companies have a structural hole between them. If Hans quits his job and goes to Karstadt, he will likely stay in touch with his old weightlifting buddy Franz. You will then have less negotiating power versus Karstadt, because Hans will know all about the extra-low prices that you gave Wal-Mart.

Because Hans and Franz are closely tied to one another, the structural hole between Wal-Mart and Karstadt has disappeared. You are now in a much weaker negotiating position.