The objective of this paper is to understand the contribution of networks to innovation and firm performance in small and medium enterprises (SMEs). Based on longitudinal data from 1,435 SMEs, we show that strong, heterogeneous ties improve innovation in SMEs. However, the connections between network ties and firm performance are more complex than previously thought, as the positive association is mediated by innovation. Consequently, SMEs should only concentrate on cultivating and maintaining networks if they lead directly to improvements in innovation.

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Tim Kastelle is a senior lecturer in innovation management at University of Queensland Business School (UQBS). He is managing editor of Innovation: Management, Policy & Practice, the leader of the UQBS executive education and MBA innovation programs, and does research and consulting on the topic of management of innovation. John Steen is a senior lecturer in strategy at UQBS. He currently holds an Australian Research Council grant to examine innovation in capital-intensive and project-based firms. He has published in a variety of strategy and innovation journals, but does not refer to any of them when he is talking to managers.

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