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The Centrality Efficiency Index: A New Social Network Analysis Measure Scott Droege, Ph.D. Western Kentucky University Department of Management 1906 College Heights Blvd. #11058 Bowling Green, KY 42101-1058 Phone: 270-745-6033 E-Mail: [email protected] Lily C. Dong Assistant Professor of Marketing University of Alaska School of Management (Marketing Area) P.O. Box 756080 Fairbanks, AK 99775 Phone: 907-474-1993 E-Mail: [email protected] ABSTRACT This research develops a new measure of communication efficiency—the centrality efficiency index (CEI)— be examining the ratio of actual centrality to potential centrality. The CEI has two purposes. One, it can be a useful measurement for calculating communication flow efficiency through social networks with respect to central actors, Two, it provides a way to calculate the degree to which trust moderates closeness centrality of actors responsible for dispensing sensitive information to actors with lower degrees of centrality. 2 Introduction Social network centrality measures contribute to our understanding of communication flows within social structures (Ibarra, 1993). In general, centrality refers to actors who are in a central position within a social network (Brass, 1995). Although a number of centrality measures have been proposed, the present research focuses on one specific centrality measure, closeness, which is a global measure of an actor's centrality (Poulin, Boily, & Mâsse, 2000). There are two goals of this research. One is to develop a useful measurement for calculating communication flow efficiency through social networks with respect to central actors. The second goal is to provide a method to calculate the degree to which trust moderates closeness centrality of actors responsible for dispensing sensitive information to actors with lower degrees of centrality. The research is organized into four sections. First, a theoretical overview of the role of centrality and trust in the communication process is provided. Second, propositions are developed regarding trust as a moderator of closeness centrality; that is, trust moderates the relationship between communication flows and the closeness centrality possessed by an organizational actor. Further, the CEI and its use in gauging the extent to which trust provides this moderating relationship are proposed. Third, managerial implications and future research directions are suggested. Theoretical Background This section focuses on three areas: (1) closeness centrality in social networks; (2) vulnerability, trust, and opportunism; and (3) intra-organizational communication flows. Closeness Centrality Operationally, centrality is the number of ties an actor possesses to others in a social network. This is further weighted by the number of ties the latter actors possess to other actors (Emirbayer & Goodwin, 1994). Centrality explains the relative connectedness of an actor. For example, if one considers communication flows in a social network, an actor high in centrality would have access to a large amount of information by virtue of his or her central position. Communications with others would be "close" to the actor with high centrality. Even though communication may not flow directly to the central actor, that actor would have access to the information via the closeness of others to whom the actor is connected. Closeness centrality further defines centrality by specifying the position that an actor occupies in a social network. It indicates reachability; that is, an actor's ability to easily reach or connect to others by being connected closely enough that the actor has access to others’ information. Closeness centrality is a straightforward measurement that simply calculates the average of the direct and indirect links to all others in the network relative to the focus actor (Brass, 1995). Vulnerability, Trust, and Opportunism Vulnerability may be viewed as two side of the same coin. On one side is trust. Doney, Cannon, and Mullen refer to trust as the "willingness to rely on another party and to take action in 2 3 circumstances where such action makes one vulnerable to the other party" (1998: 604). This assumes rationality on the part of the trustor: "The elements confronting the potential trustor are nothing more or less that the considerations a rational actor applies in deciding whether to place a bet" (Coleman, 1990: 99). In other words, trust can be viewed as the rational choice to make oneself vulnerable to another. If one willingly becomes vulnerable, then a rational actor would only place himself or herself in that vulnerable position if he or she believed that positive, or at least neutral, outcomes would result. The other side of the coin is opportunism, defined by Williamson's (1975, 1981) wellknown phrase of self-seeking with guile. Although Williamson's unit of analysis focused on interfirm interaction and contract law, the basis of his approach in transaction cost analysis allows one to consider opportunism from an intraorganizational level—the level of analysis that is considered in this paper. Williamson (1981) suggests that the two behavioral assumptions of bounded rationality and the potential for opportunism give rise to the ever-present potential of vulnerability. When an actor willingly exposes himself or herself to vulnerability, that individual has chosen, whether consciously or not, to trust another (Eisenhardt, 1989) and become exposed to opportunistic behavior. Thus, the threat of opportunistic behavior provides a disincentive to trusting behavior. To avoid oversimplifying the issue, one must recognize that trust and opportunism have affective and cognitive components (Smith, Haynes, Lazarus, & Pope, 1996) and involve more than rational decisions as might be inferred from Williamson's (1975) definition. Indeed, cognitive trust can serve as an antecedent to affect-based trust (McAllister, 1995). Affective trust involves the emotional processes of care and concern for others; cognitive trust involves one's beliefs regarding the dependability and reliability of others (Kramer, 1999; McAllister, 1995) and is more similar to the rational actor perspective of trust. Trust forms by a variety of mechanisms. In some situations, an actor trusts another based on the other's degree of perceived reliability (Kramer, 1999; McAllister, 1995) or the belief that the other's intentions show concern (Ring & Van de Ven, 1994). In other situations, it is not the individual per se in whom trust is placed. Rather, it is the specific context of the communication that regulates the degree of trust. For example, the explicit role served by one in whom trust is placed can serve as a basis for trust (Kramer, Brewer, & Hanna, 1996) as well as the perceived reliability and competence of the one in whom trust is placed (Szulanski, 1996). Burt and Knez (1996) suggest that the necessity for an actor to maintain his or her reputation serves as a basis of trust. Further, organizations may impose formal sanctions that discourage actors from taking advantage of the trust placed in them (Shapiro, Sheppard, & Cheraskin, 1992). Another cognitive trust formation mechanism occurs when trust is based simply on another's similarity to oneself. The assumption is that similar others are more trustworthy than nonsimilar others (Jones & George, 1998). Finally, "institutional trust," or the social norms and environment of the organization, can engender trusting behavior (McKnight, Cummings, & Chervany, 1998). Intra-Organizational Communication Flows The flow of communication within an organization can have far-reaching effects. Obtaining crucial information when needed is an issue of major consequence (Zander & Kogut, 1995). The efficient flow of communication from one actor to another reduces the time one must spend searching for critical information (Zack, 1999). Efficient access to information thus enhances the downstream productivity of organizational activities. Opportunism can interfere with efficient 3 4 communication of information among individual actors. Williamson suggests that opportunism may take the form of "strategic manipulation of information" (1975:26). When this occurs, trust declines in the actor who acted opportunistically. Future transactions with that actor will tend to be avoided, even if that actor holds an otherwise central position. Propositions Trust has been recognized as an influential component of social exchange and cooperation in which "trust lubricates cooperation" (Nahapiet & Ghoshal, 1998), with low trust inhibiting cooperative behavior (Gambetta, 1988). Individuals in low trust situations may consider the risks of opportunism from another party to be greater than the potential benefits derived from transferring crucial information to others (Jones & George, 1998). In Szulanski's (1996) discussion of "internal stickiness," she suggests that difficult relationships among individuals are a primary impediment to transfer of best practices. Similarly, the current research suggests that relationships characterized by low trust result in rerouting of communication flows through actors who are higher in trust but less central in a social network. Low trust results in communication that must flow through potentially longer, less efficient routes. In these situations, a possible negative effect can be the inefficient transfer of information among organizational actors. Buskens (1998) adds to this the role of trust in buyer-seller situations. Viewing trust as the dependent variable, he examines in-degree and out-degree centrality metrics of information accessibility and suggests that the level of centrality degree, both in-degree and out-degree, influence trust. We propose an extension of this line of thinking: trust influences centrality and serves as an antecedent moderating variable of centrality measures. The specific centrality measure on which this research focuses attention is closeness centrality due to its function as a global evaluator of centrality (Freeman, 1979). As a measure of reachability, closeness is a centrality measure that explains an actor's ability to easily connect to others. In other words, closeness centrality explains the links within a network placing an actor in a central location such that he or she has access to information and could potentially pass that information along to others. Higher closeness centrality requires fewer links or steps necessary to move information from one location to another. Although closeness does not require that an actor be situated between two others, it determines how accessible others are by means of direct and indirect links within a network. The average of the direct and indirect links to all others in the network determines an actor's closeness centrality (Brass, 1995). The transfer of information to an actor with high closeness centrality involves the risk that the actor will use the information opportunistically. For example, to gain power, the actor may fail to pass along the information in its completeness to downstream actors who are ultimately dependent on this central actor for the information. An actor may believe that the risk of opportunism outweighs the benefits of using the closeness actor as a communication conduit. The former actor may either withhold information or find an alternate route to the deliver the information to the end user. With the development of alternate communication routes, the closeness actor's necessity for communication declines in importance. As alternate communication routes are formed, the closeness actor becomes less central to communication within the network. That actor's closeness centrality subsequently declines. Low trust in a closeness actor creates a downward spiral of information inaccessibility. When trust is high, others have confidence that the closeness actor will not behave 4 5 opportunistically with information gained through the network. On the other hand, if trust is low, actors will bypass that actor and develop alternate routes of communication. Communication patterns will form that decrease the importance of the closeness actor's position. As trust decreases and the actor is bypassed, that actor's closeness centrality decreases. When trust is high, an actor's perception of the risk of opportunism is low. He or she is therefore more willing to become vulnerable by entrusting others with sensitive information that could potentially be used to the former actor's disadvantage. Goldberg (1980) suggests that the threat of opportunism can be deliberately decreased through social forces such as improving the quality of dyadic relationships or relational norms. When this occurs, those who trust others can use the most efficient (the shortest) communication routes without fear of having their vulnerability to opportunism exploited. Actors who are trusted will be more frequently used as information transfer conduits. Actors possessing high levels of closeness centrality will maintain those positions as long as trust levels do not decline. In this case, there is no incentive from a vulnerability standpoint to find alternate routes of communication. Subsequently, actors are likely to utilize the most efficient communication routes through these trusted actors. Schein's original definition of centrality is that centrality is “denotes the person's objective position as measured by the degree to which company secrets are entrusted to him, by ratings of others of his position, and by his actual power" (1971: 408). Schein's definition provides two aspects of interest to the present discussion. First, centrality involves trust. Without trust, one will likely have a decrease in his or her ability to successfully occupy a central position in a network. In addition, centrality is, in part, a function of "ratings of others of his position." Thus, an actor's centrality is partially a function of his or her ability to be trusted, which in turn, leads to others rating that actor as a central player. Second, the phrase "secrets are entrusted to him" denotes the transfer of confidential information to those who possess centrality. These conditions are precisely those necessary to create the context needed for successful opportunism. If one believes that opportunism is likely due to lack of trust in an actor, the latter actor's ability to occupy a position of centrality is jeopardized. Therefore, in low trust situations in which opportunism is perceived to be a significant threat, otherwise central actors will not occupy a position of centrality. When this is the case, closeness centrality masks the most efficient routes of communication. Closeness centrality measures actual routes, but not necessarily the most efficient routes. Closeness, therefore, does not give any indication of the extent to which an organization is using its communication networks efficiently. A measure of potential closeness centrality would be useful to contrast with actual closeness centrality to provide an index of communication efficiency with respect to closeness centrality. One way to think of this is to envision communication efficiency as similar to capacity utilization of production facilities. Capacity utilization measures the extent to which a company utilizes its production facilities. The highest efficiency approaches 100 percent utilization of a firm's facilities to maximize production and reduce costs associated with unused physical resources. An index of potential versus actual closeness centrality could serve as a comparable gauge of organizational efficiency of communication network utilization in transferring information between and among actors. The ideal index would find the ratio of actual centrality to potential centrality with respect to the geodesic (shortest path) distances between beginning and ending points of communication flows. The closer the ratio approaches 1.0, the more efficient the network. In other words, an ideal centrality efficiency index (CEI) would place current actual centrality in the ratio's numerator. The denominator would show the shortest 5 6 reasonable path, given the organizational structure from the origin of information to the final recipient of that information, where the final recipient is defined as that actor who makes a decision based on the information provided. Therefore, CEI = Actual Centrality / Potential Centrality P1: A theoretical index of communication efficiency with respect to closeness centrality can be calculated by measuring the ratio of actual centrality to potential centrality. Clearly, such a measure would be quite difficult to obtain in practice due to the possible number of network configurations. As the number of actors in a network increases, there is an exponential increase in the possible number of network configurations. However, a realistic and reasonable proxy of this theoretically ideal index may be constructed using easily obtainable measures. By placing closeness in the numerator and a measure of potential centrality in the denominator, a reasonable estimate of CEI may be calculated. An individual's closeness centrality in a connected network (Ccs) can be calculated using the formula: Ccs = (N-1) / ∑d (i,j) where N = the total number of actors in the network and d(i,j) = the path distance between actors i and j. Therefore, a formula that approaches the values one would obtain with the theoretical CEI is given by: CEI = (N-1) / ∑d (i,j) Potential centrality The measurement of potential centrality is more difficult. However, Valente and Foreman (1998) have developed a formula they refer to as relative point integration. Relative point integration is the ratio between integration—the actor's connectedness in the network—and radiality—how well that actor's ties reach out into the network. In essence, relative point integration measures connectedness and reach. An integrated actor is easily reached by others, while an actor high in radiality is able to reach out into the network. By considering both the ability to reach as well as the ability to be reached, a broad measure of the potential for one to possess a high level of centrality is available. Using relative point integration in the denominator of the CEI provides a rough measure of actual centrality versus potential centrality. The relative point integration is calculated by: I'(k) = I(k) / max(RDjk) j,k Placing this in the denominator of the CEI results in: CEI = (N-1) / ∑d (i,j) I(k) / max(RDjk) j,k 6 7 Thus, P2: A reasonable proxy of the theoretical index of communication efficiency with respect to (x x) / /(x x) closeness centrality is given by: CEI N 1)/ d(i, j) / i i Managerial Implications and Future Research Directions Trust is an admittedly difficult construct to define (Bigley & Pearce, 1998). When applied to social networks and communication flows, the degree of difficulty is further exacerbated. However, despite the inherent difficulties, trust can serve as an important organizational resource (Gallivan, 2001). Efficient and effective transfer and use of information is a potentially valuable organizational resource (Appleyard, 1996). When viewed as a resource, effective utilization of trust becomes a managerial concern. Managers should view trust as they do other intangible resources. The inefficient use of network patterns for locating information can be costly. Consequently, if managers can enhance the level of trust throughout a network, information search costs should decline. This article is a first step toward developing a centrality efficiency index to measure communication flow efficiency in social networks viewing trust as a moderating variable. The next step would be to further hone the CEI and determine whether it is valid and reliable by adding error terms. In addition, there may be other measure of centrality that would be better suited to a measurement of communication efficiency. Structural holes—actors connected to otherwise disconnected others (Burt, 1992)—may be an appropriate construct for determining communication efficiency. Using structural holes in a CEI may be an alternative way to capture the nature of crucial information transfer within networks. Other moderators should also be considered. In addition to trust, constructs such as relational norms, competition within and between intrafirm work groups and business units, and organizational structure may be brought to bear. Nevertheless, the CEI provides a starting point for further work. A robust measure of communication efficiency within social networks should enhance managerial consulting practice, particularly for those consultants and managers involved with firms undergoing downsizing, restructuring, and other drastic measures that affect employee's perceptions of security. A valid, reliable measure of the extent to which trust moderates this relationship would shed light on the efficiency with which information is transferred as organizations undergo such disruptive changes. An index of the actual versus the potential communication flows would ideal, but this ideal is limited by the impracticality of direct measurement of communication flows. 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