Seeing What Others Miss: A Competition Network Lens on Product Innovation

Abstract

How a firm views its competitors affects its performance. We extend the networks literature to examine how a firm’s positioning in competition networks—networks of perceived competitive relations between firms—relates to a significant organizational outcome, namely, product innovation. We find that when firms position themselves in ways that allow them to see differently than rivals, new product ideas emerge. Simply put, firms with an unusual view of competition are more innovative. We situate our analysis in the U.S. enterprise infrastructure software industry, examining the relationship between the firm’s position in competition networks and its innovation over the period of 1995–2012. Using both archival and in-depth field data, we find that two factors—the focal firm’s spanning of structural holes in the network and the perception of peripheral firms as competitors—are positively associated with its product innovation. At the same time, turnover in firms perceived as competitors has an unexpected negative association with innovation. Overall, the findings suggest that firms benefit when they see the competitive landscape differently than their competitors. The findings also show that what we know about innovation-enhancing positioning in collaboration networks does not necessarily hold in competition networks.