Network effects on radical innovation and financial performance: An open-mindedness approach.
| Autor | Perin, Marcelo Gattermann |
| Cargo | Report |
Abstract
This study examines how companies can achieve high performance through certain organizational behaviors (open-mindedness and social networks) and innovation. The impact of open-mindedness in defiance of basic assumptions and processes could motivate the use of internal and external networks. These social networks are the cornerstone for the creation of knowledge and the construction of radical innovations, which in turn trigger the transformation new knowledge into organizational performance. We use structural equation modelling (SEM) to test our research model and hypotheses in a sample of 324 companies from the Brazilian industrial sector. Data were collected by a regular mail survey. The study brings a proper understanding that radical innovations play a crucial role for organizational performance in emerging economies. Results also show that open-mindedness is associated with both internal networks and external social networks. In addition, the external social network mediates the effects of open-mindedness on the internal social network. Finally, external social networks have an indirect influence on radical innovations, through internal social networks, and a direct effect on organizational performance.
Key words: open-mindedness; social networks; radical innovation; financial performance.
Introduction
Perhaps the most objective pursued by most companies is to try to be competitive in the markets in which it operates. The idea, though attractive, is often a tortuous path in which companies must face different changes from political, economic, social and technological changes that affect the ways of creating value. Different strategies are adopted by companies to improve their results, innovation being a promising way to create value (Slater, Mohr, & Sengupta, 2014).
One idea that is becoming evident in recent years is the need to seek models of generation of open innovation (Chesbrough, 2003; Dittrich & Duysters, 2007; Hung & Chou, 2013). The advantages of acquiring knowledge from different sources, both internal and external, allow companies to access a greater variety of techniques, research and knowledge that would be able to develop the company individually. This knowledge facilitates the creation of new knowledge that can be applied to development of innovations and, ultimately, to obtain greater business results (Kostopoulos, Papalexandris, Papachroni, & Ioannou, 2011).
No wonder that companies are favoring collaboration with outside companies as a mechanism to promote their innovative capabilities and increase their competitive advantage (Perez-Luno, Cabello-Medina, Carmona-Lavado, & Cuevas-Rodriguez, 2011). Thus, innovation and company success are linked through networks and relationships (Story, O'Malley, & Hart, 2011), especially in an uncertain environment (M.-C. Wang & Fang, 2012). This is especially truth when companies have to face difficulties to codify knowledge and intensive skills through processes of collaborative information sharing (Powell, 1990). Thus, social networks become the locus of innovation rather than companies that comprise the network in isolation (Powell, Koput, & Smith-Doerr, 1996).
The benefits derived from networks constitute the definition for the organization social capital (Coleman, 1988; Houghton, Smith, & Hood, 2009). By social capital we mean the "goodwill generated by the network of social relations" (Yang, Alejandro, & Boles, 2011, p. 160), derived from the interaction between an organization and its internal and external agents (Bowey & Easton, 2007).
Previous literature has underline that social networks play an important role for organizations and are a clear determinant of organizational performance (Stam, Arzlanian, & Elfring, 2014). Those networks can make a critical opportunity for companies institutionalizing cooperation, sharing information and assuring results (Larson, 1992). They can also create value in alliances by enhancing coordination among companies participating in an alliance (Gulati, Nohria, & Zaheer, 2000). Thus, the interactions between the business organization and the others firms contribute to financial performance (Hakansson, Ford, Gadde, Snehota, & Waluszewski, 2009).
Researchers have also established the connections between organizational learning and innovation development (Chang & Cho, 2008; Lynn, Reilly, & Akgun, 2000; Madhavan & Grover, 1998). In this way, social networks, as main sources of new knowledge, should be related to organizational innovation. They use the organization's internal experience, expertise, and processes to interpret the meaning of the external knowledge and to exploit it to generate innovations (Yangmin Kim & Cannella, 2008). Pittaway, Robertson, Munir, Denyer and Neely (2004) have pointed a gap in the literature concerning to the relationship between networking and different types of innovation. In this sense, Cuevas-Rodriguez, Cabello-Medina and Carmona-Lavado (2014) had stated that more research should be done to point which organizational factors contribute to the impact of internal and external social network on radical innovation.
However, the emphasis on radical or breakthrough innovations demands a major intensity in the process of learning and the uses of different sources of knowledge to generate radical innovations (Slater et al., 2014). This suggests a disruption of the knowledge, practices and current relationships between the different agents with the target of generating really new and different products (Karim & Kaul, 2015). Despite its importance, however, studies focusing on the determinants of radical innovation are still scarce. The radicalness of product innovations has received relatively less attention from researchers.
In this paper, besides exploring the influence of social network on radical innovation, we have focused on a key factor for the use of these networks and the generation of innovations: the open-mindedness. The organizational receptiveness to new ideas is fundamental in business situations where the competitive intensity and market turbulence are high. Companies need new tools to distance themselves from their traditional routines in the search for new ideas and mechanisms to adapt to the environment (Slater et al., 2014). Open-mindedness had been theoretically related to social networks in the previous literature (Dombrowski et al., 2007; Hernandez-Mogollon, Cepeda-Carrion, Cegarra-Navarro, & Leal-Millan, 2010), but not empirically tested up to now. This relationship is crucial since generation of new ideas always starts from an open-mindedness that allows the company to be receptive to new trends and ideas that arise anywhere (Baker & Sinkula, 1999). This means that the company will be sensible to consider different perspectives that arise from the contact with individuals or companies in their environment.
Furthermore, most of the proposed constructs were studied in development countries. However, it is important to study these relationships in other contexts, such as emerging economies, to understand its implications in other competitive conditions and technological turbulence (Sheth, 2011), where the existence of an external social network and radical innovation might produce different results (Kropp, Lindsay, & Shoham, 2006). This idea is recognized by Burgess and Steenkamp (2006), who have pointed out the need to undertake more research in emerging markets, since the current body of studies does not offer a precise framework to explain firms' operation in those markets.
In summary, this study addresses the following two questions: Does the development of open-mindedness in emerging markets trigger the creation and enhancement of social networks? Does the enhancement of social networks result in radical innovations and better performances?
The article is structured to understand these relationships and meet the next objectives. First, a literature review of the most important concepts and relationships is made. The influence of radical innovation in financial performance, the influence of the open-mindedness in the internal and external social networks and the influence of both social networks on radical innovation and financial performance is analyzed. The subsequent section describes the method used to test the hypotheses. The empirical data used for this investigation come from Brazilian firms and the results of the analysis are then presented. Finally, conclusions are presented together with suggestions for future research and then, a discussion of the limitations faced during the study.
Conceptual Framework
The importance of radical innovations
Traditionally it is considered that in a competitive and technological uncertainty environments companies cannot ignore strategies that allow them to adapt their businesses and develop new skills that enable them to achieve competitive advantages in this new context. Innovation is one of those tracks that allows to develop new products or services that compete and open possibilities for long-term livelihood. The Resource-Based View of the company (Wernerfelt, 1984) argues that a firm is a bundle of resources and capabilities. The main task of the company is to maximize its value through an optimal exploitation of its resources and capabilities, while developing the basis for future company resources (Grant, 1996). In this sense, the focus of the Resource-Based View constitutes an essential framework to study innovation because these resources and capabilities need to be managed successfully to develop innovation and generate competitiveness. Under this perspective, the introduction of new products also requires a set of processes to coordinate, improve, and reconfigure critical resources and capabilities.
It should be noted, however, that the most noteworthy intangible resource is knowledge. As Grant (1996) argues, competitive firms exist because they better integrate and apply specialized...
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