Introduction to Structural Hole Theory

Structural holes exist in social networks when there is a lack of a direct contact or tie between two or more entities (Burt, 1992). The theory of structural holes was developed to explain how to benefit from competition in social networks and their intersecting relationships (Burt, 1992). The theory can be applied to the relationships between individuals, organizations, or other entities, that occupy social networks (Burt, 1992; Ahuja, 2000). Structural holes theory is applied in social network analysis — how are different entities (e.g., individuals, organizations, corporations, groups, entrepreneurs, etc.) tied to each other? And how can one benefit from these ties or lack thereof? (Burt, 1992; Goyal & Vega-Redondo, 2007; Obstfeld, 2005). Structural holes differ from “weak ties as bridges” as described by Granovetter (1973, p. 1065) in that it is not about the strength of the relationship between two entities but rather about the “chasm” or lack of a tie between entities (Burt, 1992). Burt (2004) argues that “opinion and behavior are more homogenous within than between groups, so people connected across groups are more familiar with alternative ways of thinking and behaving…” (pp. 349–50). In tightly networked clusters of people, discussion of redundant information is likely to be prevalent; therefore, it is in the exploration of the holes around and between these tight networks where an individual is also likely to find greatest benefit in bridging the hole to another individual and/or network to access non-redundant information and/or resources (Burt, 2004; Liu, Chiu, & Chiu, 2010; Cowan & Jonard, 2007).

Within an organization, a person that operates near structural hole(s) has the greatest chance of having good ideas (Burt, 2004; Liu, Chiu, & Chiu, 2010; Cowan & Jonard, 2007). This is due to that person being less likely to be immersed deeply in the network and therefore cut off from others and ideas outside the network. By operating on the edge of the network, that individual is more likely to be a bridge and link to non-redundant information from other networks (Burt, 2004; Liu, Chiu, & Chiu, 2010; Cowan & Jonard, 2007). The key to achieving a benefit to the individual as well as his/her network players is in the success of his/her ability to translate and transfer the idea (Burt, 2004). The ability to transfer idea(s) is key both in regards to innovation (Burt, 2004; Cowan & Jonard, 2007) as well as an individual’s promotions and compensation within an organization (Burt, 1992; Rodan, 2010).

Application of Structural Holes Theory

Some of the areas that structural holes theory can be applied by an organization include: increasing creativity (Liu, Chiu, & Chiu, 2010) and chances for having a good idea (Ahuja, 2000; Burt 2004; Cowan & Jonard, 2007), determining ideal websites for banner ad placement for the highest click-through rates (Hunter & Chinta, 2013), improving managerial innovation, performance, and recognition (Rodan, 2010), improving entrepreneurial decision-making (Aarstad, 2014), and growing and developing a new venture (Adams, Makramalla, & Miron, 2014; Ebbers, 2014; Martinez & Aldrich, 2011).

Organizations can use structural holes theory to analyze both their existing internal and external social networks. If there is a need for more ideas and innovation in the organization, they can look for where structural holes might exist, i.e., where there are two or more disconnected parties (Burt, 1992, 2004). By introducing these two parties, new, non-redundant information can be shared which often results in ‘aha’ moments of applying newly obtained knowledge to an old situation, either through adoption of that idea, or through creative effort to create something entirely new. For collaborative idea development, it is then helpful to strengthen ties between the parties to increase trust and commitment to each other’s goals (Ebbers, 2014; Martinez & Aldrich, 2011).

In new venture startups, understanding the impact of structural holes in one’s social networks can be key for entrepreneurs involved while making risk-taking decisions, both to find benefit from the structural holes as well as to avoid exploitation by others’ use of them (Aarstad, 2014; Adams, Makramalla, & Miron, 2014). Spanning structural holes gives access to new ideas and resources and is a way to broker a transaction between two disconnected parties, possibly for one’s own gain, such as an entrepreneurial venture’s growth and profitability (Burt, 1992; Adams, Makramalla, & Miron, 2014). However, structural holes can also be exploited by the new venture’s competition, especially in ideas-based businesses, so patents, trademarks, and other intellectual property right protections are recommended (Adams, Makramalla, & Miron, 2014). Also of consideration, when facilitating connection across structural holes, one study unexpectedly found that an entrepreneur’s increased networking activity and facilitation of collaboration among others appeared to be more of a selfless act and did not appear to lead to receiving more business contracts (Ebbers, 2013).

New ventures, in particular, are often involved in bridging structural holes themselves. An increased understanding of how the process works, can make the most effective use of their resources. For example, often, entrepreneurs will begin businesses with family members (Martinez & Aldrich, 2011). This approach can reduce initial cost in salaries and compensation and is built with a higher degree of trust and commitment, but due to the strong ties and closed network formation, the venture can easily fall victim to a closed network that circulates redundant information and lacks innovation. By recognizing this, the entrepreneur can seek to bridge structural holes in their social network by hiring someone without the strong ties and in a non-redundant area of expertise (Martinez & Aldrich, 2011). This can be crucial at times of growth and development when novel information and highly innovative problem-solving is likely to be necessary to the venture’s ultimate success (Martinez & Aldrich, 2011).

Structural holes can make a difference directly in the entrepreneurial decision-making process as well. An entrepreneur can choose to span structural holes to possibly gain some additional insight and effectively increase risk-taking behavior inherent in entrepreneurial decision-making. Aarstad (2014) found that the presence of structural holes and spanning these holes led to his entrepreneurial study subject — mostly farmers, to take higher risks by building larger hydroelectric micro-power plants. Aarstad (2014) suggests that increased risk-taking behavior and attitudes from spanning structural holes might be due to a reduced perception of uncertainty through non-redundant knowledge acquisition or possibly that entrepreneurs that span structural holes are inherently more willing to take risks but notes that further research is needed.

Yet another application of this theory is in an organization’s advertising efforts — a company can make strategic decisions about which websites to target for placement of their banner advertisements to achieve the highest click-through and conversion rates for the least amount of impressions (Hunter & Chinta, 2013). (Banner ad rates are based on the number of impressions received therefore this improves their ROI, or return on investment.) By identifying potential websites for banner advertisements that are least constrained, highly connected, and bridging structural holes in their social network structure, a company can achieve their highest ROI in their advertising efforts by maximizing their click-through to impression rate as predicted and found in Hunter & Chinta’s (2013) study on 25 Twitter-related websites. Specifically, this “has important implications for advertising with social networking sites like Twitter, Facebook, and MySpace” (Hunter & Chinta, 2013, p. 42). On the flip-side, a company website that is highly connected and spans structural holes can offer and sell advertising, possibly at an increased rate, through explanation and application of this theory.

Managers, specifically, would benefit from understanding more about structural holes theory due to the likelihood of good ideas when operating near structural holes and the increased innovation that is likely to result from having, and then spanning, structural holes within and around an organization (Burt, 1992, 2004; Rodan, 2010). For example, managers can use structural holes theory when noticing stale old problems that need a creative solution. By identifying existing structural holes, they can bridge these and form weak ties for information exchange which often results in innovation (Ahuja, 2000). They also can identify disconnected employees or subject areas and introduce them when they recognize opportunities for collaboration (Obstfeld, 2005).

Knowledge of awareness of the existence of structural holes and their potential for exploitation can also be used as a note of caution for a manager if there is a highly competitive individual within the organization that has put their own interests above the interests of the organization, such as by brokering, or withholding the knowledge, until it is most beneficial to themselves to utilize the knowledge, and not necessarily the organization as a whole (Burt, 1992). In general though, Rodan (2010) found that structural holes were not used by managers to exploit nor disadvantage others in order to gain recognition but “it seems that the heterogeneity of knowledge to which managers are exposed leads to greater creativity and innovativeness” leading to their recognition as long as they also had “sufficient autonomy to act on” the knowledge (p. 176).

References

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Adams, M., Makramalla, M., & Miron, W. (2014). Down the rabbit hole: How structural holes in entrepreneurs’ social networks impact early venture growth. Technology Innovation Management Review, 4(9), 19–27.

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Liu, C., Chiu, S., & Chiu, C. (2010). Intranetwork relationships, creativity, knowledge diversification, and network position. Social Behavior and Personality: An International Journal, 38(9), 1173–1190. doi:10.2224/sbp.2010.38.9.1173

Martinez, M. & Aldrich, H. (2011). Networking strategies for entrepreneurs: balancing cohesion and diversity, International Journal of Entrepreneurial Behaviour & Research (17)1, 7–38. doi:10.1108/13552551111107499

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Rodan, S. (2010). Structural holes and managerial performance: Identifying the underlying mechanisms. Social Networks, 32(3), 168–179.