Network centrality measures how prominent an organisation is in an ecosystem’s web of relationships. Firms with high centrality have more ties, shorter paths to everyone else, or links to other well-connected firms.
Table of Contents
Types of centrality
- Degree: how many direct ties a firm has.
- Closeness: how few steps it takes to reach everyone else.
- Betweenness: how often a firm sits on the shortest path between others, which gives it bargaining power.
- Eigenvector: how well connected a firm’s partners are, a measure of status.
Key factors
- Context. Central positions pay more in large markets and where partners trust each other.
- Which network. Being central among suppliers says little about being central among alliance partners or company boards.
- The measure that matters. A large review of studies found that links to well-connected partners are becoming a better predictor of performance than the raw number of ties.
- Concentrated risk. Many firms can depend on the same few partners further up the chain, which a map of direct ties will miss.
Examples
SWIFT. SWIFT, a cooperative owned by its members, carries payment messages between more than 11,500 banks and other institutions in over 200 countries. Its centrality made it a tool of sanctions. In March 2022 the EU had seven Russian banks cut off from it, isolating them from much of the world’s financial system.
Renesas. Renesas makes nearly a third of the microcontrollers used in cars, often supplied through several layers of other firms. A fire at its Naka plant in Japan in March 2021 halted production there for about a month and worsened the global chip shortage. Carmakers with no direct tie to Renesas found they depended on it.
Frequently asked questions
What is the difference between centrality and network position?
Network position is the full picture of where a firm sits and what it controls. Centrality is one measurable part of that picture.
Is high centrality always an advantage?
No. Central firms see more information and opportunities, but they also carry more coordination work and become targets for regulators, rivals and attackers.
How do you measure centrality in a business ecosystem?
Map the ties between firms, such as alliances, supply deals or integrations, then use network software to score each firm. The hard part is collecting reliable data on who is tied to whom.
How is centrality different from size?
A small firm can be highly central if many others route through it, while a large firm can sit at the edge of a network.