Evaluating business networks : the case of Ireland

Business networks are used by firms as a tool for organising interdependent business activities, where such networks are defined as a cooperative arrangement between independent business organisations that can vary from informal to formal exchanges of resources and information. Although the benefits and costs associated with business network membership have been highlighted in the literature, there is a distinct lack of discussion regarding appropriate evaluation frameworks to estimate the impact of business network membership on firm performance. This thesis addresses this specific issue through the development of an ex-post evaluation framework to estimate the impact of business network membership on firm performance. This research therefore makes a key methodological contribution through the development of an evaluation framework, while it also fills a gap in the international business network and evaluation literatures. The Irish case is used as a laboratory where data is gathered from a telephone survey of 169 firms in formal business networks and 100 non-formal business network firms (a control group profiled on the business network respondents). The responses provided by the business network firms show that business network membership benefited the participants firms in a number of ways. Almost three-quarters of the business network firms attributed some part of their overall business success to network membership. In considering the potential ‘dark-side’ of business network membership, business network firms highlighted the lack of commitment by other members to the network and the possibility of entering non-reciprocal relationships as the main costs associated with membership. Deeper analysis incorporates a control group of non-business network firms. This inclusion facilitates comparisons between the firm, managing director, and performance profiles of business network and non-business network firms. In isolation, without controlling for any other influential factors (e.g. if the firm is an exporter or innovator), business network firms appear to outperform their nonbusiness network counterparts. A natural question which emanates from these results however, is whether it is business network membership itself that is positively influencing the performance of the business network firms or does it in fact relate to the characteristics of the business network firms themselves? Additionally, these findings implore the question of whether there is a selection effect also at play here. To control for firm and management specific characteristics, and selection effects, a Heckman two-step model was employed. When these factors were controlled for, no significant influence of being a member of a business network was evident on firm performance. This result indicates that it is not business network membership which influences firm performance but rather that firm performance is related to firm characteristics and selection effects. More specifically, faster growing firms tend to become members of these formal business networks. The ex-post evaluation framework developed in this thesis not only makes a novel contribution vis-à-vis the academic literature of business networks and policy evaluation but also provides important insights to policymakers charged with evaluating the impact of their business network policy interventions. Although the model developed here is ‘tested’ in the Irish context, there are transferrable lessons that can be made regardless of country context.