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Industry peer networks: The better get-ahead strategy?

Globalization and the information age have made it crucial for organizations to stay in tune with their markets, changing trends, and new innovations in an effort to remain relevant. Entrenched beliefs and tried and true systems, however, are often favored long after they have stopped being effective. Where should executives turn for fresh perspectives and new recipes for success? The answer may be among peers.

Industry peer networks (IPNs) are small groups of noncompeting peers who meet on a regular basis in an environment of intimacy and trust, with the purpose of exchanging information and discussing important company matters under the greater goal of improving capabilities and increasing profit share in the market. Ezra Zuckerman, Professor of Technological Innovation, Entrepreneurship, and Strategic Management at MIT Sloan, has studied the effects of industry peer networks in the last decade, collecting data about the role and pervasiveness of relationships among noncompeting peers and, more specifically, industry peer networks in the U.S. economy.

Zuckerman used different internet-based surveys of U.S. industries to gauge the cross-industry variation among industry peer networks, or IPNs, and summarized the results in the Sloan Management Review article “Improving Capabilities Through Industry Peer Networks.

“Although industry peer networks have not received very much attention in the business press,” writes Zuckerman, “thousands of U.S. companies in dozens of industries participate in them to great benefit.”

Industry Peer Networks Help Organizations Stay Relevant

Managers tend to prioritize what is mastered and controllable, rather than investing time and resources into what they perceive as risky unknown terrains. This inertia results in overconfidence and blind spots, preventing companies from acquiring the information they need to stay relevant in changing markets. According to Zuckerman, “myopia and inertia were responsible for the inability of U.S. manufacturers to respond effectively to Japan’s entrance into the automotive, camera, copier, and television markets in the 1980s.”

IPNs are crucial in the quest to avoid this pitfall. IPNs increase an organization’s ability to learn vital industry information and enhance their capabilities in a safe environment. At the same time, IPNs stimulate members to make performance-enhancing changes via critical feedback and the natural competition that arises in peer pressure environments. In Zuckerman’s survey of a peer network in the remodeling industry, 99.3% of members acknowledged that the desire to obtain new skills and timely information was important to their decision to join an IPN.

Says Zuckerman, “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.”

Know Before You Go

Like any get-ahead strategy, there are upsides and downsides to IPNs. The longer running networks find it challenging to engage their more successful longstanding members. This threatens the ecosystem of a vibrant ideas exchange. Similarly, IPNs run the risk of placing heavier weight on members who are perceived to be more successful or better connected. If these members leave the group, the group becomes unbalanced, often triggering the departure of other members following suit.

Periodic rotation of members to different groups and the assignment of new members to existing groups helps to keep an IPN dynamic. Making sure an IPN has regular “check-ins” to address the efficacy of the group also helps to keep members engaged.

If knowledge is power, however, then the benefits of a well-managed IPN far outweigh the risks. “The information received about peers,” says Zuckerman “is to some extent a substitute for what companies would most like to have: information about rivals. The exchange of information helps companies achieve competitive advantage by introducing them to a wide array of business practices.”

Ezra Zuckerman is a Professor of Technological Innovation, Entrepreneurship, and Strategic Management at MIT Sloan and teaches in the Advanced Management Program, as well as in the course, Developing and Managing a Successful Technology and Product Strategy, at MIT Sloan Executive Education.


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