Comparing Public and Private Sector Networks

Comparing Public and Private Sector Networks

Two years ago, I decided to apply to CU Denver’s MPA program at the very last minute, many months after having submitted applications to MBA programs. Still, I’m often drawn to comparisons of public administration and business administration. So, I was excited to be assigned reading on network science from both the public and private sectors’ perspectives. It would provide a great opportunity for comparing public and private sector networks.

Unsurprisingly, scholars and practitioners in both sectors have come to recognize the importance of networks as a form of governance. They argue that effective networks can bring about “enhanced learning, more efficient use of resources, increased capacity to plan for and address complex problems, greater competitiveness, and better services for clients and customers.” And the network leader in any case likely faces arduous tasks of maintaining trust and relationships with multiple members.

However, inherent distinctions between the public and private sector determine that networks may be set up and governed rather differently. Profit motivation, supply chain relationships, and contractual obligations, all of which tend to be more prevalent in the private sector, can alter the purpose, hierarchy, and accountability of networks. Here’s my analysis, comparing public & private sector networks in these areas.

Network Purpose & Problems

Public sector organizations join networks when the scope of a problem exceeds the boundaries of a single organization. By joining forces and sharing resources, public management networks can enact “collaborative advantage” of members and tackle bigger issues.

In comparison, private sector networks emphasize their effectiveness in facilitating innovation. The design of the collaboration network, either as open or closed participation and either flat or hierarchical governance, is a strategic choice to maximize problem discovery and problem solving.

Network Hierarchy

Public administration literature emphasizes lack of hierarchy in network structures, as it is often the case for networks consisted of public agencies and nonprofits, and the challenges this feature poses. The lack of hierarchy reflects the relatively informal relationships between members of such collaborative networks sustained by trust and reciprocity.

Meanwhile, private sector networks can range from flat to hierarchical. Since many business networks are based on existing supply chain relationships, particular dynamics of that particular market and requirements by contracts between the partners can greatly affect the power and governance structure of such networks.

Network Accountability

In the public sectors, network leaders often assume the task of “determining who is responsible for what outcomes”, “rewarding and reinforcing compliance with network goals”, and “monitoring and responding to network ‘free riders.’”

In business networks, even as members share common interests, each member’s profit motivation is still present. Contractual obligations and the threat of reputational risks help keep members accountable to their expectations. However, asymmetry in information and control over essential resources (e.g. the consumer market) can lead to significant power imbalance in private sector networks, making it potentially difficult for network members to hold a bullying leader accountable.

I should illustrate this with an example. To a good deal, the collaboration network consisting of Apple and its app developers benefits everyone. The app developers help Apple share the burden of innovation. In turn, Apple supplies to the developers a consumer market of millions of iPhone users. However, Apple sometimes rolls out apps and features that essentially copies the ideas existing apps, severely undercutting the developers who originally generated the ideas. In this case, there is very little developers can do to hold Apple accountable.

Implications from Comparing Public and Private Sector Networks

Researchers have suggested three forms of economic organization: market, hierarchy and network; their corresponding normative basis are contract, employment relationship, and complementary strength, respectively. Public sector networks tend to be “purer” networks, more strictly based on complementary strength and norms of reciprocity and trust. In comparison, private sector networks can feature attributes more typical of market and hierarchy. Firms sometimes establish networks based on existing supply chain relationships. They negotiate precise risk-and-reward-sharing systems in contracts based on market conditions. Some firms can also hold sway over other network members due to control over key resources. In some cases, this leads to hierarchical behavior.

With little deriving from contractual, hierarchical mandates, public network leaders have fewer levers for influencing members. But that’s why it is so paramount for public sector networks leaders to focus on managing relationships and cultivating trust and reciprocity.

About the Author: Andy Zheng

Data Science Intern, Visible Network Labs

Andy serves as an Intern at Visible Network Labs, working with our Evaluation and Engineering Teams on Data Science projects. He has a B.A. in economics and mathematics from Bowdoin College, and is completing his Masters in Public Administration at CU Denver. 

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