Structural holes, or “Why is Enterprise 2.0 a good idea?”

February 5, 2009
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I attended the Enterprise 2.0 Summit at CeBIT in Hannover last March. It was great, and it’s kind of embarrassing that I’m just now getting around to mentioning it. It was a fairly small conference, but the speakers were almost uniformly stellar, so the signal-to-noise ratio was about as good as one can hope to experience for such an event. I met a number of people in carbon (including not just the speakers, but attendees as well) with whom I either had a passing acquaintance, or had been following from virtual afar, either by reading their blog, or following their Twitter feed and whatnot. Dion Hinchcliffe, Euan Semple, Craig Cmehil and Simon Wardley, for example. Among the people I met who were new to me, the absolute standout was Jenny Ambrozek. In the context of the conference, Simon described Jenny, at one point, as “one smart cookie”, and I can only confirm that. +1

Jenny gave a talk entitled “Structural Holes & the Space between the Tools”, and it just left me fired up, frankly. The reason for that is fairly simple — stated rather plainly in Jenny’s talk was the outline of some real hard-core theory that not only explained the intuitive appeal of social networking,

I attended the Enterprise 2.0 Summit at CeBIT in Hannover last March. It was great, and it’s kind of embarrassing that I’m just now getting around to mentioning it. It was a fairly small conference, but the speakers were almost uniformly stellar, so the signal-to-noise ratio was about as good as one can hope to experience for such an event. I met a number of people in carbon (including not just the speakers, but attendees as well) with whom I either had a passing acquaintance, or had been following from virtual afar, either by reading their blog, or following their Twitter feed and whatnot. Dion Hinchcliffe, Euan Semple, Craig Cmehil and Simon Wardley, for example. Among the people I met who were new to me, the absolute standout was Jenny Ambrozek. In the context of the conference, Simon described Jenny, at one point, as “one smart cookie”, and I can only confirm that. +1

Jenny gave a talk entitled “Structural Holes & the Space between the Tools”, and it just left me fired up, frankly. The reason for that is fairly simple — stated rather plainly in Jenny’s talk was the outline of some real hard-core theory that not only explained the intuitive appeal of social networking, but also posited ways of using networks to entrepreneurial advantage (where the term “entrepreneurial” has a quite broad meaning, as much sociological as economic). So why did this excite me? Well, herein I heard an explanation for both why social networking (and the software that supports it) is interesting, as well as an explanation for why these ideas might be useful and profitable. In other words, I heard the “why” of Enterprise 2.0. In much of the existing literature about the term, the primary focus seems to be in defining what it is, and less the why. What there is said about the why seemed (and seems) to me to be superficial, and full of assumptions, many of them a priori, or, at best, based on the extrapolation of anecdotal evidence (always a shaky proposition). It’s not that I don’t agree with these descriptions or assumptions — like many people, I find them appealing and interesting on the merits of their surface alone. On the other hand, when it comes to actually doing this stuff — implementing a strategy that explicitly takes these ideas into account — I’ve found that the fairly superficial level of discourse hasn’t been that helpful: it doesn’t provide a degree of structure and guidance that I would like to have.

One of the things (perhaps the primary thing) that I dislike about “SOA” is a similar lack of theoretical rigour. Every conversation about “SOA” begins and ends with talking about what the term means. Moreover, the lack of clear meaning has allowed every vendor to define it as they see fit, and a consensus has only emerged fitfully, slowly, and painfully (and arguably, too late, as the ongoing REST-vs.-SOA wars (a misguided effort, but an understandable one) attest). The clearest indicator (and simultaneously the most serious consequence) of this lack of theoretical rigour are the endless discussions about “What is a service, exactly? How do I decompose my system into them? Where are they demarcated, and how do I find them?” I assert that these discussions can never have a satisfying conclusion, because there is no theoretical model underlying the buzzword to allow us to reason in a coherent way about the problem space that the term presumes to define. This is also, I think, one of the attractions that some of the walking wounded of the WS-* wars see in REST — Fielding’s model of what a resource is, and how they are related to each other, is fairly rigourous. I also think that attempts to derive such a theoretical framework post hoc (such as JJ’s wsper idea, or arguably, SCA), while interesting, are probably too late. I see this same danger inherent in buzzwords like Enterprise 2.0. Even very bright people (like say, RedMonk’s Stephen O’Grady, here) seem content to scratch around on the surface of these ideas, reinventing wheels and insights.

That’s a law of nature with regard to buzzwords, of course. But imagine if there was, in fact, solid theory, grounded in (eye glazing quantities of) mathematics, underlying a given buzzword. Imagine if that theory was not only able to define quite rigourously what the buzzword’s domain was, but also how to go about making use of it. Wouldn’t that be cool? Wouldn’t you want to know about it? Well, the stuff lurking in Jenny’s talk was just that, for the buzzword “Enterprise 2.0”.

So, you may still be asking yourself, why did Mark get excited about it? Well, fair enough. But there are, I suspect, only two classes of people that read this blog: a) my mother (God bless her), and b) people who share my particular mental disorders and oddities, to some extent. Assuming you belong to the latter category, therefore, read on.

Jenny’s talk built itself on the ideas of one Ronald S. Burt, professor of sociology and strategy at the University of Chicago Graduate School of Business. In 1992, Burt published a book entitled “Structural Holes: The Social Structure of Competition”. This book is the aforementioned body of theory. Fortunately for me, somebody else has already blogged about the theory of structural holes, namely Rian Van Der Merwe, who manages a “User Experience Research” group at eBay. Rian’s done an outstanding job here of summarising Burt’s book, which is not light reading (in a private email, someone described it to me as a “slog”, and they weren’t kidding), so I will content myself with quoting Rian here (and encouraging you, fellow nutcase, to go read Rian’s post (and see this post for Rian’s summary of Burt’s (and others) related ideas on social capital, while you’re at it)). Rian says:

Ronald Burt’s theory of ‘structural holes’ is an important extension of social network theory. This theory aims to explain “how competition works when players have established relations with others” (Burt, 1992), and argues that networks provide two types of benefits: information benefits and control benefits.

  • Information benefits refer to who knows about relevant information and how fast they find out about it. Actors with strong networks will generally know more about relevant subjects, and they will also know about it faster. According to Burt (1992), “players with a network optimally structured to provide these benefits enjoy higher rates of return to their investments, because such players know about, and have a hand in, more rewarding opportunities”.
  • Control benefits refer to the advantages of being an important player in a well-connected network. In a large network, central players have more bargaining power than other players, which also means that they can, to a large extent, control many of the information flows within the network.

Burt’s theory of structural holes aims to enhance these benefits to their full potential. A structural hole is “a separation between non-redundant contacts” (Burt, 1992). The holes between non-redundant contacts provide opportunities that can enhance both the control benefits and the information benefits of networks.

In other words, a structural hole is the thing that generates value in a social network. Having set that context, Burt then goes on to explain the strategies for exploiting that knowledge. Rian explains:

To understand the role of structural holes in this regard, it is necessary to understand the concept of tertius gaudens. Taken from the work of George Simmel, the tertius gaudens is defined as “the third who benefits” (Simmel, 1923). It describes the person who benefits from the disunion of two others.

This is actually a quite common figure of speech in my second language (German): “der lachende Dritte” — “the third (person) who laughs”. More from Rian:

For example, when two people want to buy the same product, the seller can play their bids against one another to get a higher price for the particular product. Structural holes are the setting in which the tertius gaudens operates. An entrepreneur stepping into a structural hole at the right time will have the power and the control to negotiate the relationship between the two actors divided by the hole, most often by playing their demands against one another.

Where structural holes provide a platform for tertius strategies, information is the substance with which the strategy is performed (Burt, 1992). Accurate, timely and relevant information delivered between two non-redundant contacts at the right time creates an immense opportunity to negotiate and control the relationship between these actors. That is the power of structural holes, and that is why the theory is so relevant for social networks on the Internet.

Yes. Precisely.

Burt’s work doesn’t appear to have received much exposure, outside academia. On the face of it, this is odd — given the obvious, and enormous potential to profit from it. Perhaps it’s a question of accessibility — as mentioned, the “Structural Holes” book is not an easy read. But that can’t be the only reason — Burt has a later book, called “Brokerage and Closure: An Introduction to Social Capital” which is much more accessible, and contains much of the underlying theory. In his earlier post on social capital, Rian remarks on a perceived lack of interest in theory:

Theory makes the facts of social life comprehensible and places seemingly meaningless events in a general framework that enables us to determine cause and effect, to explain, and to interpret.

The theories of social networking and social capital can enhance our understanding of what happens in online social networks, which can, in turn, become strong business ideas. Some questions these theories raise for me are, for example, How can we point out who the opinion leaders are in your online social network, something that is not always apparent? How can we use the rules and customs that online networks adhere to in creating a more meaningful experience for users?

I don’t know about you, but I’d sure like to hear the answers to questions like those as applied to, say, Friendfeed, or Twitter. For the architects of such systems, Burt’s theory provides them with the tools to determine how to best add and create value with their software. For enterprise architects like me, it provides a framework to help me make choices, evaluate alternatives, and develop a strategy that is not a shot in the dark, but a targeted attempt at increasing value within my organisation. What’s not to like?

I’ll be attending the Enterprise 2.0 conference in Boston all of next week. Jenny is also going to be there, and she plans to hold a session at the BarCamp-like event with her partner in crime, Victoria Axelrod. I’ll be in the audience, and if my experience at CeBIT is any guide, it will be a high point. If you’re going to be there, I encourage you to do the same (and drop me a line, or ping me on Twitter, or Friendfeed, or Skype, or…). By the same token, I cannot recommend Ron Burt’s work highly enough to anyone who wants or needs to come to grips with Enterprise 2.0.

Here are some online resources to Burt’s work, in case you’d like to learn more: