The governance of design alliances in ‘embedded’ settings: Evidence from the Italian design-intensive furnishings industry

Economic activity does not occur in a social vacuum. Instead, it is embedded in dyadic social relationships and structures of relationships. Starting from this assumption, several scholars have examined modes of organizing economic activities (i.e., organizational forms) based on social networks (Powell, 1990; Podolny and Page, 1998). Where such ‘network governance’ (Jones, Hesterly, and Borgatti, 1997) occurs, coordination is achieved through social mechanisms. Therefore, these mechanisms – individual attachments, trust, reciprocity, and reputation, in particular– emerge as major research issues for scholars interested in the relationships between economic action and social structures. Given that the role of social networks and mechanisms turns out to be especially relevant where economic activities need to be coordinated across the boundaries of partner organizations (Powell, 1990; Larson, 1992; Liebeskind, Oliver, Zucker, and Brewer,1996), interorganizational relationships, and in particular strategic alliances, are an ideal field for studying new organizational forms based on networks and the underlying social mechanisms. This is especially true for interfirm alliances that emerge and develop in business settings where the logics of embeddedness (Granovetter, 1985; Uzzi, 1997) are particularly salient. Whereas an extensive body of research has investigated a number of social mechanisms individually and discussed their influence on the governance of economic activity in (inter)organizational contexts (e.g., Ring and Van de Ven, 1994; Larson, 1992; McEvily, Zaheer and Perrone, 2003), we still lack a thorough understanding of the overall ‘system’ of social mechanisms that operate in ‘embedded’ settings. Drawing on case study research, the present paper tries to overcome this shortcoming in the extant literature on social networks and network forms of organization by examining the system of social mechanisms that characterize the governance of a number of interorganizational relationships that are embedded in the surrounding social and economic context. It does so by capitalizing on recent dialogue between economics and sociology (Baron and Hannan, 1994; Baum and Dobbin, 2000) to deepen the role of social variables in explaining economic behavior. Indeed, a theoretical stance that acknowledges the ‘problem’ of embeddedness may help overcome the prevailing rhetorics of rationality and efficiency, offering instead an explanation of economic behavior that emphasizes the social determinants of purposive action.