The dynamics of organizational networks: Structural embeddedness and economic behavior

This paper advances a network perspective, called the structural embeddedness framework, that attempts to explain organizational behavior through an understanding of how social ties and resource dependencies among firms affects market structure and the resulting behavior of firms within it. The basic proposition of the approach is that the structure and content of ties among firms in a network significantly affects individual firm behavior as well as the behavior of the network as a whole. I apply the theory to the study of organizational decline, which I argue, is currently dominated by neoclassical perspectives that lack a sophisticated account of how social structure and interdependency among organizations affects their survival and failure. Using ethnographic data as well as empirical data on all network ties among firms in the New York apparel economy, I find strong support for the main features of the approach. The results, based on ethnographic and network regression analyses, reveal that firms that are embedded in resource and social network ties have much higher survival rates than do firms that maintain the type of arm's-length market relationships argued by neoclassical and transaction cost economic frameworks to be the most efficient. I conclude by discussing the implications of a network perspective for organizational theory and economic sociology.