Better Off Friends? The Performance Implications of Network Formalization
(With Russell Funk, Aks Zaheer, & John Hollingsworth, Job Market Paper)
The interplay between informal and formal network ties is an important determinant of how organizational networks perform and change. However, research in this area often examines the relationship between informal and formal ties in contexts where both types of interaction already exist. In this study, we examine the structural and performance implications of introducing formality into a previously informal network context. To better understand this phenomenon, we introduce a theory of “network bounding,” which views network formalization as the establishment of a new boundary within a broader system of network interactions. Though network bounding is intended to enhance collective performance, we argue that the particular configuration of network ties that are bound may be an important determinant of whether formalization creates a more effective network. Using medical claims data before and after the introduction of the Medicare Shared Savings Program Accountable Care Organizations—formal networks among healthcare providers in the U.S. healthcare industry—we examine the effects of network bounding on patient mortality following coronary artery bypass graft surgeries from 2008-2014.