Proceedings of the 12th European Conference on Knowledge ...

3.1 Structural properties
3.1.1 Betweenness centrality
Meysam Poorkavoos, Yanqing Duan and John Edwards
The main argument in betweenness centrality is that a firm that lies between two o<strong>the</strong>r firms that are
not connected to each o<strong>the</strong>r directly has control on <strong>the</strong> information and resource flow (Freeman
1979). Network helps to transfer <strong>the</strong> required information and combine <strong>the</strong>m toge<strong>the</strong>r to provide <strong>the</strong>
potential for <strong>the</strong> company for a radical innovation (Gilsing et al. 2008). Burt (2004) argued that
knowledge, values and behaviors are more heterogeneous between groups ra<strong>the</strong>r than within groups.
According to this argument it is possible to say that inter-organizational networks are not transferring
just <strong>the</strong> existing knowledge but <strong>the</strong>y create opportunities to generate new knowledge. Firms’ centrality
helps <strong>the</strong>m to find opportunities to develop non-redundant relations with o<strong>the</strong>r companies (Gilsing et
al. 2008) which will contribute to <strong>the</strong> novelty <strong>of</strong> information that is being transferred to <strong>the</strong> company.
Thus firms with higher network centrality because <strong>of</strong> <strong>the</strong>ir position and novelty <strong>of</strong> <strong>the</strong> knowledge are
more radical innovator. Although network centrality is important but <strong>the</strong> research by Gnyawali and
Madhavan (2001) shows that one consequence <strong>of</strong> having too many non-redundant network ties is
dealing with high speed fellow <strong>of</strong> diverse information. For SMEs with limited resources and time from
a threshold point it is not possible to process and absorb <strong>the</strong> transferred knowledge. Therefore, <strong>the</strong>
following hypo<strong>the</strong>ses are proposed:
Hypo<strong>the</strong>sis 1a: Radical innovation has an inverse U-shaped relation with betweenness
centrality <strong>of</strong> <strong>the</strong> firm
Hypo<strong>the</strong>sis 1b: Incremental innovation has an inverse U-shaped relation with
betweenness centrality <strong>of</strong> <strong>the</strong> firm
3.1.2 Network density
Based on <strong>the</strong> previous research network density will increase <strong>the</strong> absorptive capacity by limiting <strong>the</strong>
novelty creation. (Gilsing et al. 2008). Inter-firm networks transfer and process <strong>the</strong> information (Ahuja
2000). Direct tie in <strong>the</strong> network not only provide access to <strong>the</strong> partners’ knowledge but also can act as
a medium to gain access to <strong>the</strong> partners’ partners knowledge (Gulati and Gargiulo 1999). Previous
researchers (Argote and Ingram 2000) found that firms in a network can act as an information
processing devices. They can process <strong>the</strong> transferred knowledge from <strong>the</strong>ir partners, process <strong>the</strong>
knowledge and transfer it to <strong>the</strong> focal firm. This feature can be helpful when <strong>the</strong>re is a large
technological distance between firms. High density networks may cause redundant information
transfer from partners to focal firm. The effects <strong>of</strong> indirect ties will be diminished since companies
already know that <strong>the</strong> knowledge from indirect ties will be almost same as <strong>the</strong> knowledge from <strong>the</strong>
direct ties. As a result <strong>the</strong> opportunities for novel combination will decrease (Gilsing et al. 2008).
Ano<strong>the</strong>r argument against density is unwanted knowledge spill over to <strong>the</strong> partners (Gilsing et al.
2008). This will cause to limit <strong>the</strong> opportunities <strong>of</strong> novelty and make firms less attractive to look for
such novelty in <strong>the</strong>ir network (Gilsing and Nooteboom 2005). Therefore, <strong>the</strong> following hypo<strong>the</strong>ses are
proposed:
Hypo<strong>the</strong>sis 2a: Radical innovation has an inverse U-shaped relation with network density
Hypo<strong>the</strong>sis 2b: Incremental innovation has an inverse U-shaped relation with network
density
3.1.3 Degree centrality
Freeman (1979) defines network centrality as “<strong>the</strong> degree to which <strong>the</strong> firm has a strategically
important position in <strong>the</strong> network”. Companies with higher degree centrality have more visibility in <strong>the</strong>
network and are more desirable for networking by o<strong>the</strong>r companies (Gulati et al. 2002). As a result, a
firm with higher degree centrality can attract more resource rich partners (Gulati 1999). Ano<strong>the</strong>r
benefit <strong>of</strong> degree centrality is <strong>the</strong> experience that <strong>the</strong>y gain in firm cooperation (Gulati et al. 2002).
Moreover it increases <strong>the</strong> abilities <strong>of</strong> <strong>the</strong> focal firm to extract value from alliances. Power <strong>of</strong>
endorsement is ano<strong>the</strong>r benefit <strong>of</strong> having higher status in <strong>the</strong> network (Stuart 2000). According to
resource dependency <strong>the</strong>ory (Pfeffer and Salancik 1987) <strong>the</strong> power <strong>of</strong> endorsement can provide
opportunities for <strong>the</strong> focal firm that is not available to o<strong>the</strong>rs.
Higher ego network size helps focal firms to receive feedback about <strong>the</strong>ir products or services from
different perspectives. They will have <strong>the</strong> opportunity to look at <strong>the</strong>ir products/services from different
aspects and improve <strong>the</strong>m (incremental innovation). Moreover higher degree centrality provides <strong>the</strong>
managers’ <strong>of</strong> <strong>the</strong> focal firms with more opportunities to interact with managers <strong>of</strong> o<strong>the</strong>r firms and
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