Chapter 2: Why Business Relations and Networks Exist I: Specialisation and the Economics of Insourcing and Outsourcing
1 INTRODUCTION Why do business relations and networks exist, and what role do they play for ﬁrms and the economy generally? Much has been written about this, but it boils down to two basic reasons. First, they are the means by which the fruits of the division of labour in a society are realised: the way the activities, skills, resources and outputs of people and ﬁrms specialising in diﬀerent tasks are accessed, combined, recombined and coordinated in order to produce and deliver value in the form of desired products and services. Second, they play a central role in shaping the way an economic system develops and evolves through their impact on innovation, learning and knowledge development. Through these roles business relations and networks extend what a ﬁrm can do, know and think. They act as both pipes and prisms, providing the means of accessing and using the resources, knowledge and skills of others, and the means by which the ﬁrm can know and understand the problems and opportunities it faces (Podolny 2001). In this chapter I focus on the ﬁrst of these reasons. Chapter 3 examines the role of business relations and networks in the development and evolution of an economy. To appreciate the role that business relations and networks play in creating and delivering value in society we need to understand the work that has to be done to provide us with the products and services we use to live our lives. Many types of activities have to...
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