Network position and firm performance – the mediating role of innovation

ABSTRACT

Analysing a unique, domain-similar database including all horticulturalists in a major flower-producing country, this paper shows that a firm’s central position in a network significantly improves its financial performance. The effect of strategic positioning in a network is in large part mediated through its enhanced innovativeness. Strategically positioning in a network of firms contributes more to firm performance, both directly as well as indirectly, than other strategic options a firm has available, such as seeking scale, seeking to diversify, pursuing cost advantages, or locating in a cluster.

KEYWORDS:

• Innovation
• firm strategies
• network position
• performance

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Wilfred Dolfsma, economist and philosopher, is professor of Innovation and Entrepreneurship at Loughborough University London. He authored Institutional economics and the formation of preferences (Edward Elgar, 2004), Knowledge economies (Routledge, 2008), The Elgar companion to social economics (ed. with John Davis; Edward Elgar, 2008), Institutions, communication and values (Palgrave, 2009) and The nature of the new firm (ed. With Kilian McCarthy, Maya Violet; Edward Elgar 2011). His articles have featured in, a.o., the Journal of Economics Issues, the Journal of Evolutionary Economics, the Journal of Economic and Social Geography, the Journal of Business Ethics, The Information Society, and Research Policy.

Rene van der Eijk is a research associate at RSM Erasmus University Rotterdam, where he also took his PhD.

Notes

1. Modifying the quality of a product is a broadly recognised strategy a firm may choose that we cannot include for methodological reasons, as we will explain below.

2. Belderbos, Carree, and Lokshin (2004) use data from the Community Innovation Survey (CIS). While CIS data has a number of advantages, it has disadvantages too (cf. Kleinknecht, van Montfort, and Brouwer 2002). Firms with fewer than 10 employees, for instance, are not surveyed, thus significantly underestimating innovative activity (Dolfsma and Van der Panne 2008).

3. This section partly draws from Snijders, Jacobs, and Vrolijk (2007).

4. The Floraholland and Aalsmeer auctions are among the world’s largest flower auctions. Flowers from across the world (Europe, Colombia, Ethiopia, etc.) are traded on a daily basis. The auction houses merged on 1 January 2008.

5. Interviews with growers with a revenue below €100,000 from Freesia flowers indicated that these growers focus primarily on growing other crop, indicating that information on them is a-typical.

6. The strategic options that firms can employ may result in both higher financial performance, but could also show in higher average price per product sold. We have used this alternative dependent variable in a separate analysis. The results of this analysis, which are mostly similar with weaker model-fit indicators, are available upon request from the authors.

7. A search of the Web of Knowledge database using the combined keywords “firm strategy”, “innovation” and “firm performance”, for instance, does not turn up results that empirically compare the contribution of different strategy options firms have for their innovative and ultimately financial performance.