Structural centrality in Alliance Constellations: A study of the performance on the firm by means of social network analysis

1. Master Thesis Defense
Structural Centrality in Alliance Constellations
A Study of the effects on firm Performance by Pico De Lucchi
Date: Wednesday, June 20th, 2012

2. Overview
✤ Introduction
✤ Method
✤ Results
✤ Contributions to Literature and Management
✤ Limitations and Future Research
✤ Questions & Answers

3. Introduction
✤ What my research consists of
✤ Relevance
✤ Research Objectives & Questions

4. Alliance
Constellations

5. Alliance
Constellations
✤ Is an alliance group which
competes together as a
strategic block in multiple
value chain activities

6. Alliance
Constellations
✤ Is an alliance group which
competes together as a
strategic block in multiple
value chain activities
✤ Enclosed network with
limited membership and a
group governance

7. Alliance
Constellations
✤ Is an alliance group which
competes together as a
strategic block in multiple
value chain activities
✤ Enclosed network with
limited membership and a
group governance
✤ In a birds-eye view it is a subset network block of the larger network
of alliances of the firm

8. Structural Centrality

9. Structural Centrality

10. Structural Centrality
How does it Translate to Firm Performance?

11. Structural Centrality
How does it Translate to Firm Performance?
Resource Access Centrality; Trust Centrality; Status & Power Centrality

13. Relevance of the research field

14. Relevance of the research field
✤ Constellations are an important and emerging business practice.
Famous examples include SEMATECH, the Android alliance (OHA)
and Airline Groups.

15. Relevance of the research field
✤ Constellations are an important and emerging business practice.
Famous examples include SEMATECH, the Android alliance (OHA)
and Airline Groups.
✤ Alliance Constellations is a young and developing field of study, born
from the more established, yet still emerging Alliance Network
literature.

16. Relevance of the research field
✤ Constellations are an important and emerging business practice.
Famous examples include SEMATECH, the Android alliance (OHA)
and Airline Groups.
✤ Alliance Constellations is a young and developing field of study, born
from the more established, yet still emerging Alliance Network
literature.
✤ Not much research has been done on alliance centrality performance
in the network and none in the constellation environment. A Network
analysis of the Constellation will help to expand the knowledge of
both fields.

17. Evolution of Network Centrality Analysis
Through a discipline centrality time-lapse!

18. Evolution of Network Centrality Analysis
Through a discipline centrality time-lapse!

20. Research Objectives and
Questions

21. Research Objectives and
Questions
✤ The effects of structural centrality in alliance constellations on firm
performance

22. Research Objectives and
Questions
✤ The effects of structural centrality in alliance constellations on firm
performance
✤ Which centrality mechanism is most crucial? How do they interact?

23. Research Objectives and
Questions
✤ The effects of structural centrality in alliance constellations on firm
performance
✤ Which centrality mechanism is most crucial? How do they interact?
✤ How does the centrality performance relation change from network to
constellation?

24. Research Objectives and
Questions
✤ The effects of structural centrality in alliance constellations on firm
performance
✤ Which centrality mechanism is most crucial? How do they interact?
✤ How does the centrality performance relation change from network to
constellation?
✤ Are there any influencing variables?

25. Method

26. Method
✤ 1. Find an appropriate industry which supports a constellation/
network analysis.

27. Method
✤ 1. Find an appropriate industry which supports a constellation/
network analysis.
✤ 2. Build a network.

28. Method
✤ 1. Find an appropriate industry which supports a constellation/
network analysis.
✤ 2. Build a network.
✤ 3. Calculate the network centrality values

29. Method
✤ 1. Find an appropriate industry which supports a constellation/
network analysis.
✤ 2. Build a network.
✤ 3. Calculate the network centrality values
✤ 4. Find and calculate the performance variables

30. Method
✤ 1. Find an appropriate industry which supports a constellation/
network analysis.
✤ 2. Build a network.
✤ 3. Calculate the network centrality values
✤ 4. Find and calculate the performance variables
✤ 5. Performing a regression analysis

31. Airline Constellation Network

32. Building the Code-Share Alliance
Network

33. Building the Code-Share Alliance
Network
✤ Step 1: Collecting the
Codeshare Flights

34. Building the Code-Share Alliance
Network
✤ Step 1: Collecting the
Codeshare Flights

35. Building the Code-Share Alliance
Network
✤ Step 1: Collecting the
Codeshare Flights

36. Building the Code-Share Alliance
Network
✤ Step 1: Collecting the
Codeshare Flights
✤ Step 2: Build a node
matrix for the Network
(287x287) and
Constellations (53x53)

37. Building the Code-Share Alliance
Network
✤ Step 1: Collecting the
Codeshare Flights
✤ Step 2: Build a node
matrix for the Network
(287x287) and
Constellations (53x53)

38. Building the Code-Share Alliance
Network
✤ Step 1: Collecting the
Codeshare Flights
✤ Step 2: Build a node
matrix for the Network
(287x287) and
Constellations (53x53)

39. Building the Code-Share Alliance
Network
✤ Step 1: Collecting the
Codeshare Flights
✤ Step 2: Build a node
matrix for the Network
(287x287) and
Constellations (53x53)
✤ Step 3: Plug-in the
matrices in the social
network analysis
software

40. Building the Code-Share Alliance
Network
✤ Step 1: Collecting the
Codeshare Flights
✤ Step 2: Build a node
matrix for the Network
(287x287) and
Constellations (53x53)
✤ Step 3: Plug-in the
matrices in the social
network analysis
software

41. Building the Code-Share Alliance
Network
✤ Step 1: Collecting the
Codeshare Flights
✤ Step 2: Build a node
matrix for the Network
(287x287) and
Constellations (53x53)
✤ Step 3: Plug-in the
matrices in the social
network analysis
software

42. Building the Code-Share Alliance
Network
✤ Step 1: Collecting the
Codeshare Flights
✤ Step 2: Build a node
matrix for the Network
(287x287) and
Constellations (53x53)
✤ Step 3: Plug-in the
matrices in the social
network analysis
software

43. Calculating the Centrality
Mechanisms

44. Calculating the Centrality
Mechanisms

45. Calculating the Centrality
Mechanisms
Mechanism Subsection Measure
Direct Access Degree Centrality
Resource Access Speed of Access Closeness Centrality
Quality of Access Betweenness Centrality
Trust Closeness Centrality
Status Eigenvector Centrality
Power
Power/control Bonacich Power Centrality

46. Calculating the Centrality
Mechanisms
Mechanism Subsection Measure
Direct Access Degree Centrality
Resource Access Speed of Access Closeness Centrality
Quality of Access Betweenness Centrality
Trust Closeness Centrality
Status Eigenvector Centrality
Power
Power/control Bonacich Power Centrality

47. Calculating the Centrality
Mechanisms
Mechanism Subsection Measure
Direct Access Degree Centrality
Resource Access Speed of Access Closeness Centrality
Quality of Access Betweenness Centrality
Trust Closeness Centrality
Status Eigenvector Centrality
Power
Power/control Bonacich Power Centrality

48. Calculating the Centrality
Mechanisms
Mechanism Subsection Measure
Direct Access Degree Centrality
Resource Access Speed of Access Closeness Centrality
Quality of Access Betweenness Centrality
Trust Closeness Centrality
Status Eigenvector Centrality
Power
Power/control Bonacich Power Centrality

49. Calculating the Centrality
Mechanisms
Mechanism Subsection Measure
Direct Access Degree Centrality
Resource Access Speed of Access Closeness Centrality
Quality of Access Betweenness Centrality
Trust Closeness Centrality
Status Eigenvector Centrality
Power
Power/control Bonacich Power Centrality

50. Calculating the Centrality
Mechanisms
Mechanism Subsection Measure
Direct Access Degree Centrality
Resource Access Speed of Access Closeness Centrality
Quality of Access Betweenness Centrality
Trust Closeness Centrality
Status Eigenvector Centrality
Power
Power/control Bonacich Power Centrality

51. Calculating the Centrality
Mechanisms
Mechanism Subsection Measure
Direct Access Degree Centrality
Resource Access Speed of Access Closeness Centrality
Quality of Access Betweenness Centrality
Trust Closeness Centrality
Status Eigenvector Centrality
Power
Power/control Bonacich Power Centrality

52. The Performance Variables

53. The Performance Variables

54. The Performance Variables
Operational
Financial Performance Performance
Revenues &
Profitability KPIs Flight Operation KPIs
Costs
Gross
Operating Net Income Operating
Revenues Expenses Profit Load Factor Passengers RPKs FTKs
Cost Ratio Margin Margin
Margin

55. The Performance Variables
Operational
Financial Performance Performance
Revenues &
Profitability KPIs Flight Operation KPIs
Costs
Gross
Operating Net Income Operating
Revenues Expenses Profit Load Factor Passengers RPKs FTKs
Cost Ratio Margin Margin
Margin

56. The Performance Variables
Operational
Financial Performance Performance
Revenues &
Profitability KPIs Flight Operation KPIs
Costs
Gross
Operating Net Income Operating
Revenues Expenses Profit Load Factor Passengers RPKs FTKs
Cost Ratio Margin Margin
Margin

57. The Performance Variables
Operational
Financial Performance Performance
Revenues &
Profitability KPIs Flight Operation KPIs
Costs
Gross
Operating Net Income Operating
Revenues Expenses Profit Load Factor Passengers RPKs FTKs
Cost Ratio Margin Margin
Margin

58. The Performance Variables
Operational
Financial Performance Performance
Revenues &
Profitability KPIs Flight Operation KPIs
Costs
Gross
Operating Net Income Operating
Revenues Expenses Profit Load Factor Passengers RPKs FTKs
Cost Ratio Margin Margin
Margin

59. The Performance Variables
Operational
Financial Performance Performance
Revenues &
Profitability KPIs Flight Operation KPIs
Costs
Gross
Operating Net Income Operating
Revenues Expenses Profit Load Factor Passengers RPKs FTKs
Cost Ratio Margin Margin
Margin

60. The Performance Variables
Operational
Financial Performance Performance
Revenues &
Profitability KPIs Flight Operation KPIs
Costs
Gross
Operating Net Income Operating
Revenues Expenses Profit Load Factor Passengers RPKs FTKs
Cost Ratio Margin Margin
Margin

61. The Performance Variables
Operational
Financial Performance Performance
Revenues &
Profitability KPIs Flight Operation KPIs
Costs
Gross
Operating Net Income Operating
Revenues Expenses Profit Load Factor Passengers RPKs FTKs
Cost Ratio Margin Margin
Margin

62. The Performance Variables
Operational
Financial Performance Performance
Revenues &
Profitability KPIs Flight Operation KPIs
Costs
Gross
Operating Net Income Operating
Revenues Expenses Profit Load Factor Passengers RPKs FTKs
Cost Ratio Margin Margin
Margin

63. The Performance Variables
Operational
Financial Performance Performance
Revenues &
Profitability KPIs Flight Operation KPIs
Costs
Gross
Operating Net Income Operating
Revenues Expenses Profit Load Factor Passengers RPKs FTKs
Cost Ratio Margin Margin
Margin

64. The Performance Variables

65. The Performance Variables

66. Regressions
5 types of Centrality vs 10 Performance variables vs 4 Models vs 2 Settings

67. Regressions
5 types of Centrality vs 10 Performance variables vs 4 Models vs 2 Settings

68. Findings & Conclusions

69. Findings in the Constellation

70. Findings in the Constellation

71. Findings in the Constellation
✤ All mechanisms and types of constellation centrality are required for the best
firm performance

72. Findings in the Constellation
✤ All mechanisms and types of constellation centrality are required for the best
firm performance
✤ Power is the strongest centrality determinant of firm performance in a
constellation.

73. Findings in the Constellation
✤ All mechanisms and types of constellation centrality are required for the best
firm performance
✤ Power is the strongest centrality determinant of firm performance in a
constellation.
✤ Trust is the second most important determinant of a constellation firm’s
performance.

74. Findings in the Constellation
✤ All mechanisms and types of constellation centrality are required for the best
firm performance
✤ Power is the strongest centrality determinant of firm performance in a
constellation.
✤ Trust is the second most important determinant of a constellation firm’s
performance.
✤ Of the Resource Access sub-mechanisms Speed of Access ties trust in second
place, Quality of Access remains mostly insignificant and Direct Access is
important yet too multi-collinear to the other centrality variables to be
ranked.

75. Findings in the Constellation
✤ All mechanisms and types of constellation centrality are required for the best
firm performance
✤ Power is the strongest centrality determinant of firm performance in a
constellation.
✤ Trust is the second most important determinant of a constellation firm’s
performance.
✤ Of the Resource Access sub-mechanisms Speed of Access ties trust in second
place, Quality of Access remains mostly insignificant and Direct Access is
important yet too multi-collinear to the other centrality variables to be
ranked.
✤ Status was found to quite strongly inhibit firm performance across the board.

76. The mediating effect of Time of Entry to the
Constellation

77. The mediating effect of Time of Entry to the
Constellation
✤ The early members and founders are found to have a gained a
profound first mover advantage over time. The 14.04% increase in
explanation power of Model 3 shows it.

78. The mediating effect of Time of Entry to the
Constellation
✤ The early members and founders are found to have a gained a
profound first mover advantage over time. The 14.04% increase in
explanation power of Model 3 shows it.
✤ In particular Resource Access, in particular Quality of Access,
becomes over time the single most important influencer of firm
performance.

79. The comparison with the Alliance
Network results

80. The comparison with the Alliance
Network results

81. The comparison with the Alliance
Network results
vs

82. The comparison with the Alliance
Network results
vs

83. The comparison with the Alliance
Network results
✤ Trust in Alliance Network has a considerably reduced impact on
performance
vs

84. The comparison with the Alliance
Network results
✤ Trust in Alliance Network has a considerably reduced impact on
performance
✤ Quality of Access on the other hand plays a much more critical role in
the Alliance Network
vs

85. The comparison with the Alliance
Network results
✤ Trust in Alliance Network has a considerably reduced impact on
performance
✤ Quality of Access on the other hand plays a much more critical role in
the Alliance Network
vs
✤ Status in Alliance Networks is an important positive influence of
performance

86. The Dark sides of Centrality

87. The Dark sides of Centrality
✤ The Expense anomaly: the results showed an almost perennial
positive relation between centrality and expenses. This means that
being central in both Networks and Constellation increases the firm’s costs.
There are 2 main explanations: the costs of network maintenance and the
protection costs from the many ‘leakage points’.

88. The Dark sides of Centrality
✤ The Expense anomaly: the results showed an almost perennial
positive relation between centrality and expenses. This means that
being central in both Networks and Constellation increases the firm’s costs.
There are 2 main explanations: the costs of network maintenance and the
protection costs from the many ‘leakage points’.
✤ Status in the Constellation shows how being connected to other
powerful players increases the risk of exploitation by ‘corporate
sharks’ and ‘structural equivalence’.

90. Thesis Contributions

91. Contribution to the Alliance
Network Literature

92. Contribution to the Alliance
Network Literature
✤ Consolidation of separate research. Through the results we are now able
to understand the unique interaction and importance of the previously
independently researched centrality mechanisms.

93. Contribution to the Alliance
Network Literature
✤ Consolidation of separate research. Through the results we are now able
to understand the unique interaction and importance of the previously
independently researched centrality mechanisms.
✤ Establishment of a ranking of importance of the centrality performance
drivers in a network: 1. Power, 2. Resource Access: Quality of Access, 3.
Status, 4. Trust

94. Contribution to the Alliance
Network Literature
✤ Consolidation of separate research. Through the results we are now able
to understand the unique interaction and importance of the previously
independently researched centrality mechanisms.
✤ Establishment of a ranking of importance of the centrality performance
drivers in a network: 1. Power, 2. Resource Access: Quality of Access, 3.
Status, 4. Trust
✤ The confirmation of the ‘dark side of centrality’ as Expenses are found
to increase with firm centrality.

95. Contribution to the Alliance
Constellation Literature

96. Contribution to the Alliance
Constellation Literature
✤ It is the first empirical proof of structural centrality having an effect
on firm performance in constellations.

97. Contribution to the Alliance
Constellation Literature
✤ It is the first empirical proof of structural centrality having an effect
on firm performance in constellations.
✤ More specifically it shows the ranking of: 1. Quality of Access over
time, 2. Power, 3. Trust & Speed of Access

98. Contribution to the Alliance
Constellation Literature
✤ It is the first empirical proof of structural centrality having an effect
on firm performance in constellations.
✤ More specifically it shows the ranking of: 1. Quality of Access over
time, 2. Power, 3. Trust & Speed of Access
✤ It extends the knowledge on the mediating effect of time of entry

99. Contribution to the Alliance
Constellation Literature
✤ It is the first empirical proof of structural centrality having an effect
on firm performance in constellations.
✤ More specifically it shows the ranking of: 1. Quality of Access over
time, 2. Power, 3. Trust & Speed of Access
✤ It extends the knowledge on the mediating effect of time of entry
✤ An additional force of the ‘dark side of centrality’ was discovered in
the constellation, the fallacy of status.

100. Contribution to the Management
Practice

101. Contribution to the Management
Practice
✤ The results of the Network and the Constellation allow managers to gain
insights for the simultaneous management of a firm’s alliance network and
constellation partners.

102. Contribution to the Management
Practice
✤ The results of the Network and the Constellation allow managers to gain
insights for the simultaneous management of a firm’s alliance network and
constellation partners.
✤ Managers need to pay attention to balance simultaneously two opposite
processes: Status & Quality of Access in its network activities and build trust to
reinforce the resource access over time in the constellation.

103. Contribution to the Management
Practice
✤ The results of the Network and the Constellation allow managers to gain
insights for the simultaneous management of a firm’s alliance network and
constellation partners.
✤ Managers need to pay attention to balance simultaneously two opposite
processes: Status & Quality of Access in its network activities and build trust to
reinforce the resource access over time in the constellation.
✤ Managers are warned of the dangers of having a high status centrality, over-
investing in direct access conduits and joining a constellation late.

104. Limitations
24

105. Limitations
✤ The Code-share Network is not a comprehensive representation of the
depth of the airline constellation alliances which are not restricted to
codesharing practices exclusively.
24

106. Limitations
✤ The Code-share Network is not a comprehensive representation of the
depth of the airline constellation alliances which are not restricted to
codesharing practices exclusively.
✤ Endogeneity: 1. Simultaneity of centrality/performance, 2. unobserved
heterogeneity, the possibility of another actor characteristic that translates
centrality into better performance.
24

107. Future Research

108. Future Research
✤ Use more fine grained and advanced financial ratios

109. Future Research
✤ Use more fine grained and advanced financial ratios
✤ Test whether the centrality/performance relationship is more influenced by firm
Size or Time spent in the constellation

110. Future Research
✤ Use more fine grained and advanced financial ratios
✤ Test whether the centrality/performance relationship is more influenced by firm
Size or Time spent in the constellation
✤ Collect longitudinal data & cross industry analysis

111. Future Research
✤ Use more fine grained and advanced financial ratios
✤ Test whether the centrality/performance relationship is more influenced by firm
Size or Time spent in the constellation
✤ Collect longitudinal data & cross industry analysis
✤ Alliance network and constellation literature needs to be consolidated by
integrating and developing unifying frameworks in a structured scientific way.
In particular the insights of Organisational Network theory, Social Capital theory
and the Strategic Management Alliance literature

113. Thank you for your attention!
I hope you enjoyed the show

115. Sources
✤ http://www.leydesdorff.net/journals/socnetw/index.htm
✤ http://www.youtube.com/watch?v=6v9CNKrrQDY

116. Regression Analysis

117. Regression Analysis
✤ Model 1 shows the results of the regressions of the control variables with the performance
ones. The R2 of Size and Age on the average the performance variables is 43.96%.

118. Regression Analysis
✤ Model 1 shows the results of the regressions of the control variables with the performance
ones. The R2 of Size and Age on the average the performance variables is 43.96%.
✤ Model 2 illustrates the results of the regression of the centrality mechanisms on top of the
control variables. The R2 of the model is of 54.69% which is a 24.41% increase from Model 1.

119. Regression Analysis
✤ Model 1 shows the results of the regressions of the control variables with the performance
ones. The R2 of Size and Age on the average the performance variables is 43.96%.
✤ Model 2 illustrates the results of the regression of the centrality mechanisms on top of the
control variables. The R2 of the model is of 54.69% which is a 24.41% increase from Model 1.
✤ Model 3 exhibits the results of the all the control and centrality variables with the
influencing mediating variable of ‘time of entry’ to the constellation. The explanation
power of this model rises to 62.37% which means that the mediating variable is responsible
for a 14.04% increase from Model 2.

120. Regression Analysis
✤ Model 1 shows the results of the regressions of the control variables with the performance
ones. The R2 of Size and Age on the average the performance variables is 43.96%.
✤ Model 2 illustrates the results of the regression of the centrality mechanisms on top of the
control variables. The R2 of the model is of 54.69% which is a 24.41% increase from Model 1.
✤ Model 3 exhibits the results of the all the control and centrality variables with the
influencing mediating variable of ‘time of entry’ to the constellation. The explanation
power of this model rises to 62.37% which means that the mediating variable is responsible
for a 14.04% increase from Model 2.
✤ Model X is a comparison model created to analyse the centrality variables without the
disturbing effect of the control variable of Size in order to understand the pure interaction
dynamics of the centrality variables on performance. Furthermore it allows for a clear
comparison between the constellation’s and the network’s individual centrality
mechanisms. The average R2 of the the Model X constellation is 33.62% which is marginally
higher than Model X network’s 32.78%.