In this post, co-authors Fabian Reck and Alexander Fliaster, both at the University of Bamberg, reflect on their research paper, “Far-Reaching or Closely-Knit, Innovative or Complementary? – Network Configurations and Firm-Level Innovation in the German Energy Sector,” published in Strategic Organization.
Digital, smart, green – companies in traditional industrial sectors are currently confronted with a range of innovative challenges. Typically, those innovative challenges require a variety of skills that no individual firm can possess on its own. Consequently, a systematic acquisition of knowledge, ideas and expertise from outside sources becomes a strategic imperative. To succeed in the innovation game, firms need to set up and orchestrate a vibrant network of valuable partners.
Management scholars have long recognized the importance of this issue, but provided rather inconsistent advice on how firms should configure their networks to foster innovation. In our recent paper published in Strategic Organization, we diagnose that previous research largely focused on isolated, effects of singular factors such as network size or partners’ diversity. Less is known, however, about how those key network characteristics operate together. We advocate that to understand the impact of networks on innovation, it is the combination of network characteristics rather than their individual effects that matters. Accordingly, the aim of our research is to identify “optimal” network configurations, i.e., combinatory patterns of key network attributes that consistently contribute to high innovation performance of the firm.
Based on survey data of CEOs and innovation executives from the 300 largest utilities in Germany and drawing on network analytics, we computed five key attributes (size, diversity, strength, innovativeness, complementarity) of each firm’s network, alongside two internal characteristics of the firm (intellectual capital, firm size). Deploying fuzzy-set qualitative analysis (fsQCA) on the data, we identified four distinct types of high-performing networks:
(1) “Share & Care”: This type of network combines high levels of complementarity and strong ties between the firm and its partners. One example from our research is a smaller utility that maintains trusted cooperative relations with project developers for renewables and specialists for building automation. This network was heavily involved, for instance, in the development of a nearly 100 percent self-sufficient renewable energy system for a large childcare facility – a highly innovative smart energy project that was awarded on the national level.
(2) “Elite Circle”: This network configuration is characterized by strong ties and high levels of partners’ innovativeness. An example from our dataset is a rather small firm that has been top-ranked by a major business magazine in its list of “Germany’s Most Innovative Energy Providers.” Its network consists of a small set of high-quality partners, including start-ups, research institutes, and multinationals. With its long-term partners, the firm engages in cutting-edge innovation projects in the energy business, such as blockchain-based applications.
(3) “Antennae”: The third type of network comprises a large number of ties to partners with strong innovation skills. Our exemplary case for this type of network is one of the largest German utilities with leading expertise in a broad range of technology fields, including e-mobility and smart home applications. To cultivate a network of many capable partners, the firm engages in a range of strategic initiatives to attract and scout new partnering opportunities. For instance, the company maintains ‘internet of things’ platforms for energy-related services, and recently issued an innovation contest to attract high-tech start-ups and grasp novel ideas and solutions that “rattle around worldwide” (as described by the CEO).
(4) “Portfolio”: The final type of network that has been identified in our study is characterized by a large number of partners and high level of partner complementarity. A case in point is a larger utility that engages in a deliberate search for the right partners in each of its innovative efforts. For instance, the utility cooperates with local mining companies in a project on geothermal heating, it participates in an innovation platform with leading software companies, and it engages in the development of illumination technologies together with an innovative medium-sized electronic company.
Taken one by one, the four configurations can serve as blueprints for business organizations on how to set up a high-performing strategic network. What’s more, our study reveals that each of the four network types benefits different kinds of firms: The “elite circle” and “antennae” networks (both characterized by partner innovativeness) work well for firms with a strong base of own intellectual capital. On the contrary, the “share & care” and “portfolio” networks (both characterized by partner complementarity) are advantageous for firms with rather weak internal expertise. In turn, large firms benefit more from engaging in “antennae” and “portfolio” networks (i.e., large-sized networks) whereas small firms should rather rely on “share & care” and “elite circle” networks (i.e., networks with strong ties).
In sum, we hope that the results of our study advance research on strategic interorganizational networks and also provide useful leads for strategists in business organizations who strive to increase innovation performance.