Academic journal article Innovation: Organization & Management

The Effect of External Network Competence and Intrafirm Networks on a Firm's Innovation Performance: The Moderating Influence of Relational Governance

Academic journal article Innovation: Organization & Management

The Effect of External Network Competence and Intrafirm Networks on a Firm's Innovation Performance: The Moderating Influence of Relational Governance

Article excerpt

Over the past decades, firms have been increas- ingly innovating within networks rather than through in-house R&D (Lichtenthaler, 2009; Tushman, 2004). An inter-organizational network is considered to be an alternative for internal innovation because it can both reduce the economic risks associated with innovation and increase the pool of diverse resources needed to introduce new products successfully (Powell, Koput, & Smith-Doerr, 1996; Rampersad, Quester, &Troshani, 2010). While the beneficial impacts of collaborative innovation are generally acknowledged in existing research, its failure rate is relatively higher. So how to effectively manage an innovation network presents a great challenge for many firms (Hedaa, 1999). Here external network competence refers to the capability to obtain information and resources by identifying value and opportunities that external networks provide, and also by developing, maintaining and using network relationships (Möller & Hahnen, 1999; Ritter & Gemünden, 2003).

Despite increasing interest in this topic, several aspects of innovation network remain underdevel- oped. First, though extant literature highlights the important role of external and intrafirm network in facilitating innovation, it is still unresolved and unexplored as to how an external network inter- acts with an intrafirm network to affect a firms innovation performance (Tsai, 2001). Extant research has tended to investigate network link- ages only in isolation, focusing exclusively on either interfirm linkages, i.e., among business units of independent organizations (Gulati, 1995; Rowley, Behrens, & Krackhardt, 2000) or inter- nal linkages among a multidivisional firm's dif- ferent business units (Hansen, 1999). Because external and intrafirm networks play different roles in the process of innovation, and resources brought by an external innovation network can contribute to a firm's innovation only after they can be absorbed effectively through an intrafirm network (Cohen & Levinthal, 1990), examining the effects of interfirm and intrafirm networks on innovation simultaneously, and how they inter- act with each other, is important (Reagans & Zuckerman, 2001).

Second, even though collaborating with dif- ferent external partners might seem likely to sub- stantially enhance innovation due to the amount and variety of knowledge to be shared, according to transaction cost theory the efficiency of an external network might be damaged by oppor- tunistic behavior (Williamson, 1985), especially in emerging economies. Prior research has noted that emerging economies represent an institu- tional context characterized by a lack of well- established legal frameworks (Hoskisson, Eden, Lau, & Wright, 2000). Relational governance has therefore been proposed as an important supple- ment to weak legal frameworks and enforcement, by promoting information sharing and deep col- laboration, and by mitigating opportunistic risks and conflicts among involved parties (Li, Poppo, & Zhou, 2008; Poppo, Zhou, & Zenger, 2008), thereby significantly influencing the role of exter- nal networks in firm innovation performance. So far, however, little theoretical or empirical work has investigated the role of relational governance in inter-organizational innovation networks (Thorgren, WIncent, & Ortqvist, 2009).

Building on innovation network and rela- tional governance theories, we develop a frame- work to examine the effects of external network competence and intrafirm networks on firm innovation performance. We first consider how external network competence and intrafirm networks affect firm innovation performance individually. We further examine the moderat- ing effects of intrafirm networks and relational governance on the relationship between external network competence and innovation outcome. Using empirical evidence from China, the pres- ent study contributes to innovation management literature by investigating the combined role of external network competence and intrafirm net- work in a comprehensive framework, and the contingent role of external network competence in emerging economies. …

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