In The Power of Networks, Christopher G. Brinton and Mune Chiang—respected academics from Princeton and Purdue’s engineering departments—discuss the pervasiveness of networks in today’s world. So-called disruptive innovations often derail traditional firms, and networks are typically at the center of these disruptions. For example, online retail has disrupted much of the traditional brick-and-mortar retailing. Thus, for today’s business executives, a rudimentary understanding of networks is both critical and central for business value preservation. Through an elegant explanation of this topic, the book highlights six core principles that are critical for understanding networks.
The first of these fundamental principles is that sharing is difficult: Efficiently dividing shared resources among many users is an often-overlooked problem. The classic example of this challenge involves the sharing of a radio spectrum between mobile phone operators. The authors leverage this example to argue that meaningful network pricing is the most efficient resource allocation mechanism.
Brinton and Chiang’s second principle states that ranking is hard. Despite a plethora of available methods, ranking remains a difficult problem to solve. This explains Google’s competitive edge as a search engine.
Key principle number three is that crowds are wise. Therefore, the challenge is leveraging the opinions of as large a crowd as possible. Doing so allows you to achieve more precise product ratings and recommendations, as Amazon and Netflix both currently do. The crowds’ collective wisdom also emerges within massive open online courses and social learning networks. In these systems, we observe that large groups’ collective decisions tend to lead to better outcomes. However, this finding is dependent on the fact that every individual respondent’s opinion is independent.
Principle four counters the previous one by claiming that crowds are not so wise. Whenever people’s decisions are not independent—for instance, when people influence each other through things such as social networks—the outcomes are rarely optimal. Social phenomena take over, and this allows videos or news to become viral, regardless of their accuracy.
The fifth principle is to divide and conquer. This finding relies on how the Internet is built and managed, namely through the following:
Packet switching, which divides information into smaller entities. These packets are sent via shared communication channels instead of dedicated ones.
Hierarchy distribution which spreads control across different sections of a network.
Modularization, which divides tasks into different functional layers that are managed separately.
Thus, it is possible to efficiently route Internet traffic based only on these three factors.
The last principle is coined end-to-end, and it provides some insights into congestion control when networks operate on a wide scale. Given the large amount of traffic on the Internet, it is impressive that this network largely avoid congestions and delays.
The book concludes with a brief discussion of six phenomena often found in networks:
Negative feedback: uses signals about the network’s conditions to drive it to equilibrium.
Positive feedback: the opposite of the above, in which the network uses signals to move away from equilibrium.
Distributed coordination: spreads responsibility for a task across smaller entities within the network.
Positive network effect: when more people join a network, additional benefits are provided to everyone (e.g., the Lorange Network!).
Negative network effect: the opposite of the above.
Opinion aggregation: works well when people’s opinions are unbiased and independent.
A recent controversy in the world of networks relates to 5G technology. Potential national security issues arise if one adopts 5G from the Chinese manufacturer Huawei. So, what is 5G? Early mobile telephony allowed people to make voice calls, first through analogous technology (1G) and later via digital technology (2G). In 2000, the newly standardized 3G technology added Internet access and video calls to this portfolio. 4G, the subsequent generation of mobile telecommunication, brought faster and cheaper data connections. The emerging 5G focuses even more on the transfer of data, with which it will replace traditional voice calls. But will this data transmission be secure? It might depend on the supplier you choose. Some manufacturers could add features to 5G that lead to data leaks. Huawei faces distrust because of this risk. Although it is not yet on par with Huawei with regard to 5G technology, the Swedish company Ericsson appears to be the closest runner-up!
So, why would busy, active business executives read this book? At a minimum, networks are here to stay as a major influence on how we can conceptualize our businesses. With a lot of new opportunities opening up, our major goal is to achieve scalability in our businesses. Our costs are also likely to decrease. We will structure our future organizations in two ways.
By adopting a more dynamic view when it comes to the potentially limitless power of networks, we can see that people are conceiving entirely new networked business models (i.e., largely based on platforms). The ten most valuable companies in the world today are “new,” because they integrated network thinking into their business model. The present book can help us come up with creative new business models for the future, which is the essence of today’s value preservation!
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