Exploring the Moderating Effects of Absorptive Capacity on the Relationship between Social Networks and Innovation

By Ahlin, Branka; Drnovsek, Mateja et al. | Journal of East European Management Studies, April 1, 2014 | Go to article overview

Exploring the Moderating Effects of Absorptive Capacity on the Relationship between Social Networks and Innovation


Ahlin, Branka, Drnovsek, Mateja, Hisrich, Robert D., Journal of East European Management Studies


1. Introduction

Entrepreneurs exploiting innovation are seen as facilitators of regional dynamism (Audretsch et al. 2006), employment (Huggins/Williams 2012), and overall economic development (Anokhin et al. 2008). Since there is no general consensus on the entire scope of innovation determinants (Becheikh et al. 2006), there is no universal recipe for success in innovation (Bullinger et al. 2004). Yet, what is currently agreed upon is that the most successful innovators invest in the breadth of accumulated knowledge and absorb information from all kinds of sources - not just internal, but also all available external (Murovec/Prodan 2009:859). Relatedly, "absorptive capacity" refers to recognizing the value of new external knowledge and information, and assimilating and utilizing such knowledge for commercial ends (Cohen/Levinthal 1990). Entrepreneurial networks can provide many benefits in the form of novel information and accessing to diverse pools of information sources (Granovetter 1973), knowledge transfer (Tomlinson 2010), access to customers and suppliers (Brüderl/Preisendörfer 1998), advice and experiential learning, referral trust, and solidarity by a third party (Zhou et al. 2007). The dominant view in the literature is that through social networks firms share knowledge that can improve their capacities for innovation (Molina-Morales/Mas-Verdu 2008), which leads to greater levels of both product and process innovations (Tomlinson 2010) and creates sustainable competitive advantage for firms (Hervas-Oliver et al. 2012).

Previous research has focused on organizational networks when examining their impact on SME innovation outcomes (e.g. Jorgensen/Ulhoi 2010; Leick 2011). These findings have progressed our understanding of the role of organizational networks in maintaining competitive advantage in the face of hyper-competition confronting firms today (Jorgensen/Ulhoi 2010). There is a parallel view that personal networks of an entrepreneur may be an even more important factor than organizational networks in affecting performance (e.g. Watson 2007; Witt 2004). Personal networks of individual entrepreneurs in SMEs are seen as the basis to formation of broader social networks (e.g. inter-firm networks) (Xiangyang et al. 2010). Because many entrepreneurs are the only ones involved in the innovation process in small firms (North/Smallbone 2000), understanding the role of personal networks in the process is important.

In this paper we make the following contributions. First, we explore mechanisms through which entrepreneurs' personal networks directly and indirectly impact an SME's innovation. Although several researchers (e.g. Hervas-Oliver et al. 2012) emphasize that internal capabilities enhance the firm's ability to assimilate and exploit external knowledge, a question of how smaller firms build and grow capacities for innovation based on the benefits from networks remains unanswered. Because networks can offer SMEs free flows of new ideas, researchers (e.g. Brüderl/Preisendörfer 1998) emphasize that networks will improve success only if the entrepreneur makes use of them. This suggests that mechanisms through which SMEs develop network-related resources may not be linear, and other factors may be intervening in determining the relationship between network co-operation and innovation. Our first contribution is to the literature on the role of personal networks in entrepreneurship.

Second, we explore the nuanced effects of absorptive capacity in small and medium-sized firms. In the context of larger organizations, absorptive capacity was shown to be a key internal capacity of a firm that impacts how effectively external information and knowledge are adopted (e.g. Escribano et al. 2009; Kotabe et al. 2011). In entrepreneurship research, absorptive capacity was associated with SMEs' capabilities to collaborate with external partners (i.e. universities and technology transfer centres) (e.g. Muscio 2007), use of new production technologies (e. …

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