Improving Innovation Efficiency Through Competition Networks and Digitized Operational Integration

Abstract

Given the considerable investments in innovation, Innovation Efficiency is of high priority for policy makers, practitioners and academics. The pervasiveness of digitization and changes in the structure of competition networks are two converging trends that play an important role in innovation by facilitating access to information and knowledge. However, the links between digitization, competition networks and innovation remain poorly understood. In this study, we develop a multilevel research model of Innovation Efficiency that simultaneously considers the effects of Digitized Operational Integration (DOI, firm level), and Competitive Brokerage (competition network level). We assess the model using a 7-year (2004-2010) longitudinal secondary dataset including firms from multiple industries. We find that DOI and Competitive Brokerage positively influence Innovation Efficiency. We also find that DOI and Competitive Brokerage are substitutes, as they provide similar information and knowledge access benefits to the firm. Taken together, these findings have relevant managerial and policy implications. Specifically, we show that DOI enhances Innovation Efficiency, especially for firms that are not competitive brokers. We also show when firms are competitive brokers, investing more in DOI does not endow marginal benefits to Innovation Efficiency. Our results are robust to concerns of endogeneity and alternative model specifications. These findings imply that policy measures aimed at increasing Innovation Efficiency can either be micro-level by incentivizing firm-level investments in digitization, or macro-level by driving network-level changes in the structure of competition networks.