Internal Social Network, Absorptive Capacity and Innovation: Evidence from New Ventures in China

Abstract

This research investigates the impact of the internal social network on new venture's innovation by building a comprehensive structural equation modeling (SEM) that integrates three streams of research: internal social network, innovation, and absorptive capacity. Based on a sample of 279 new ventures from China, the current study's results show that absorptive capacity plays a full mediating effect in the relationship of the internal social network and innovation. Particularly, among the skill set of absorptive capacity, a mere skill of knowledge acquisition does not guarantee an enhancement of new venture's innovation. For new ventures to better utilize the social capital generated by the internal network in the process of innovation, they must focus more on the skills of knowledge digestion and knowledge application. The authors further separate the new ventures into two different sub-samples: the new venture supported by mature enterprises (M-type) and the independent new venture (I-type). This study's findings indicate that the effect of the social network on innovation through knowledge digestion is greater in the M-type sample than in the I-type sample; internal social network heterogeneity in general plays a less important role in improving a new venture's innovation than internal social network density, for both M-type and I-type new ventures.Among the numerous studies and reports on innovation, a general belief was that innovation processes are interactive processes [8]. The "interactive" here actually suggests a "social network" concept. To have an innovation project work out, it requires an active involvement of personnel from different organizational bases [9], such as scientists, designers, marketers, end users, and even external partners. According to Felix et al. [10], network could provide a good cross-functional structure for firms to implement new initiatives that need joint work from all employees and departments, such as social media marketing, innovation and so on. Previous research has greatly emphasized the effect of inter-organizational or external networks on firms' innovation [3,[11][12][13][14][15], as external partners might provide a variety of supports to the innovative firm [16]. However, the fact that firms innovate based on their internal structure [17] is somewhat neglected; the generation of new ideas often starts within the firm and the implementation is necessarily controlled by the firm itself. Google is a typical example of an organization that is committed to utilizing "internal social capital", encouraging its employees to innovate from within rather than looking outside for new ideas. Google has attracted and retained a lot of creative talents in doing so, and quickly grew into a monopoly in the online space. The success of Google evidences the fundamental role of an internal social network in boosting innovation.Numerous studies have provided evidence on how internal resources, such as human resources [18], technological capability [19], and so on, would affect a firm's...

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