In times of trouble, companies with special connections in their networks do much better than others, a study from ESMT Berlin finds. These ‘exclusive brokers’ can adapt faster during crises, unlike those stuck in tight-knit groups.

The study looked at how different networks affect a company’s performance during crises like pandemics or economic downturns.

Relying on networks

Researchers studied what happened to internet-focused investment banks after the dot-com bubble burst. They looked at data on U.S. stock offerings from 1985 to 2006, focusing on companies that acted as key hubs in their networks versus those that didn’t.

Exclusive brokers have an edge because they can easily bring together the best ideas from different sources without competition. This flexibility helps them find safer paths during crises. For example, Legg Mason, a big asset management firm, saw its performance jump by more than 20% after the dot-com crisis by using its special network connections.

Overall, the study showed that exclusive brokers perform over 7% better than similar companies during crises. They can adapt to new challenges while still making the most of their existing connections. This holds true not just for the dot-com bust but also for later crises like the housing crash of 2008.

“In recent years we have witnessed a myriad of crises – the pandemic, various wars and conflicts, as well as market turbulence and inflation,” the authors conclude. “For many firms, these crises are detrimental, but for firms occupying unique brokerage positions, opportunities for “generative resilience” may well abound.”

The study stresses the importance of exclusive brokerage, despite the costs of solo bridge-building, as a springboard for sustained success in exigent circumstances. Given the escalating frequency and severity of crises, it is valuable for managers to prioritize and safeguard these exclusive relationships, ensuring they are robustly positioned for future challenges.