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Network capability revisited: empirical evidence from a new scale on two samples of small firms
Luleå University of Technology, Department of Business Administration, Technology and Social Sciences, Innovation and Design.ORCID iD: 0000-0003-3255-414X
Luleå University of Technology, Department of Business Administration, Technology and Social Sciences, Innovation and Design.ORCID iD: 0000-0001-5464-9292
Luleå University of Technology, Department of Business Administration, Technology and Social Sciences, Innovation and Design.ORCID iD: 0000-0002-8770-8874
2011 (English)Conference paper, Oral presentation only (Refereed)
Abstract [en]

Introduction Small firms are widely recognized as being in need of managing social and professional networks with other actors and are therefore no longer considered as individual and self-fulfilling units that do not require other actors to be competitive. Rather the individual firm can be seen as an “organizer” that interacts with other actors in order to be able to carry out a strategy and build competitive advantage that is far beyond the limitations of the single firm. Studies have also reported that all collaborating partners can focus on their core activities and by interlinking these, competitive advantage can be achieved (Dyer and Singh, 1998; Ebben and Johnson, 2006; Hong and Antoncic, 2003). As such, authors like Anand and Khanna (2000) and Kale et al. (2002) concludes that having a capability to know about and tap into other firm’s resources seems to be a valuable asset in the harsh competitive landscape of today’s business environment. Unfortunately, although prior research much emphasizes the value of such a network capability, there are not many scales or approaches integrating such scales in models of small firm entrepreneurial orientation and performance, with the exception of Hagedoorn et al. (2006) and Walter et al. (2006). As a response, our study develops and tests an operationalization of network capability, and examines the significance of this concept in order to understand small firm performance and entrepreneurial orientation. Based on scholars such as Walter et al. (2006, p.542) we define network capability as the firm’s “ability to develop and utilize inter-organizational relationships to gain access to various resources held by other actors”. Network capability includes the following components: a) the firm’s ability to coordinate collaborative activities , b) the firm’s relational skills , c) partner knowledge, i.e. possessing organized and structured information about their partner organizations, and, d) the firm’s internal communication. However, in our effort to refine the concept we also add a dynamic aspect, that is, a capability in locating and building up new relations. For small firms in today’s dynamic business environment, such a capability may be very valuable for both pursuing entrepreneurship and ultimately performing well (Kim and Aldrich, 2005). Consequently, we also see the relevance of e) skills in locating and building up new relations with future partners, as a potential part of network capability. Aware of problems using laundry lists of items in questionnaires, we test a measurement of these five dimensions of network capability with very limited set of items (three) in each dimension. As such, our research can also be considered as an assessment of a short scale of network capability. Besides evaluating measurement properties of a short scale of network capability we also investigate whether network capability has any effect on small firm behaviors and outcomes in terms of entrepreneurial orientation and firm performance. While developing this line of argumentation, we posit that entrepreneurial orientation could potentially be an important construct to consider, when understanding the network capability-performance linkage. Thus, this paper attempts to contribute towards the literature of “inter-organization network research” (Anand and Khanna, 2000; Kale et al., 2002; Oliver, 2001; Powell et al., 1996) and towards the entrepreneurship literature (Covin and Slevin, 1991; Lumpkin and Dess, 1996; Wiklund, 1999). Thus, based on the above background we propose three hypotheses: Hypothesis 1: Network capability consists of five prominent and distinct dimensions: coordination, relational skills, partner knowledge, internal communication, and building new relationships.Hypothesis 2: Network capability is positively related to entrepreneurial orientation.Hypothesis 3: Once the relationship between entrepreneurial orientation and performance is controlled for, network capability is still positively related to firm performance.Research MethodWe used two independent samples of small firms (i.e. firms having less than 50 employees) in Sweden to be able to reach our aim. The samples are selected based on their relevance for the study at hand. The first survey sample involved ICT-related firms. The sample is from single industry and we have under-sampled the smallest firms (i.e. less than five employees. The other survey is a random sample of firms that started their business 2003, representing firms that are fairly young and in their start-up phase. We believe that both these conditions (turbulence and start-up) constitute cases where networking is important and are worthy candidates in a study of networking capability. Both surveys were done in summer 2007. Altogether 462 answers were obtained, where 291 came from the ICT sample and 171 came from the start-up sample. This corresponds to response rates of 21 % and 12 % respectively. A non-response analysis shows little difference between respondents and non-respondents for both samples.The operationalization of networking capability is much based on refinements of the research of Walter et al. (2006). Three items from their study that measure each of the four dimensions (coordination activities, relationship skills, partner knowledge and internal communication) were selected as inputs for the scale. The wording was changed in some items based on feed-back from several pre-tests. We have also added a building component and measure it by three items. As with those noted above, also this measure was pre-tested and refined by being put to test to both scholars and practitioners before sending the surveys. Entrepreneurial orientation (EO) is measured based on the scale developed by Lumpkin and Dess (2001), where we consider the “classics” innovativeness, proactiveness, and risk taking. Consistent with prior small firm research, we used a perceived measurement of firm performance, where the respondents rate their performance in relation to their competitors (Walter et al., 2006 and Lichtenthaler, 2009). According to Chandler and Hanks (1993), asking firms to evaluate their performance in comparison with that of their competitors leads to a higher level of reliability and validity. Firm performance is captured by two items reflecting the firm’s sales performance. We used firm size, environmental dynamism and hostility, and actual networking (number of current partners) as controls. The statistical analysis is based upon factor analysis (exploratory and confirmatory) and hierarchical regression analysis.Result and Discussion The result from on the network capability scale showed acceptable reliability and discriminant validity. In both samples, all factors had good Cronbach’s alpha (Hair et al., 2006) between 0.72 and 0.90 and correlations between the five factors varying between 0.2 and 0.4, which indicates that these five aspects form an overall scale for network capability. In support of accuracy, a confirmatory factor analysis also report acceptable model fit measures. In evaluating the structural model we followed recommendations to interpret multiple model fit indexes (Bollen, 1990). For the start-up sample, we notice that model chi-square is significant, but that traditional goodness-of-fit indices are in line with recommended levels (2 = 150.62, df = 80, p < .001, NFI = .91, CFI = 0.96, RMSEA = .073). The corresponding numbers for the ICT sample is similar (2 = 169.10, df = 80, p < .001, NFI = .92, CFI = 0.96, RMSEA = .062). Overall, this provides support for Hypothesis 1 and our condensed scale operationalization suggesting that network capability consists of five prominent and distinct dimensions: coordination, relational skills, partner knowledge, internal communication, and building new relationships.When performing regressions to estimate influences on firm performance and entrepreneurial orientation as dependent variables, we get interesting results. For the start-up sample, two aspects of network capability is significant to explain entrepreneurial orientation, namely capabilities in building (0.27, p<0.01) and partner knowledge (0.15, p<0.10). Our control, the actual networking is also significantly affecting EO. The explanatory power is rather high with an R square adjusted at 0.363. For firm performance, the block of network capability do not increase explanation over and above what the controls and EO do. The link from EO on performance is in line with earlier research (Limpkin and Dess, 1996; Wiklund, 1999). For the ICT sample, there are three dimensions of network capability that show significant results in relation to EO. Both the internal communication (0.19, p<0.01) and the building (0.20, p<0.01) dimension have strong positive coefficients, while the coordination dimension has a marginally significant negative coefficient (-0.13, p<0.10). Among controls, firm size, hostility and networking have positive effects on EO. The level of R square adjusted (0.171), indicates a satisfactory explanatory power for the full model. For firm performance, two dimensions are significant. These are internal communication (0.21, p<0.01) and coordination (0.15, p<0.05). The effect from EO on firm performance is still strong, but the inclusion of the network capability block makes it somewhat more modest. Among controls, networking is a strong positive influence while a perceived dynamic environment influences the performance negatively at a lower significance level. Like the EO model, the overall explanatory level is satisfactory with an R square adjusted at 0.189. Overall, the above tests clearly support Hypothesis 2 suggesting that network capability is positively related to entrepreneurial orientation. Several network capability dimensions are related to EO. Hypothesis 3, positing that once the relationship between entrepreneurial orientation and performance is controlled for, network capability still is positively related to firm performance received mixed support. While no dimension proved significant for performance in the start-up sample, two network capability dimensions proved to be useful for improving firm performance in the ICT sample.To conclude, our results suggest that we have constructed a short but yet adequate scale for measuring network capability and that network capability seems to be important to understand mainly entrepreneurial behavior but also small firm performance in at least some contexts. Aspects of network capability explain significant parts of entrepreneurial orientation and moreover help to explain firm performance over and beyond what entrepreneurial orientation does. It is especially interesting to note that the most influential aspect of network capability when it comes to explain entrepreneurial orientation is the aspect we developed for this study. The capability to find and build a new relation thus seems vital to use in future studies on a firm’s network capability and its associations to entrepreneurship and performance. We encourage others to study network capability in other contexts and also contribute to the development of a robust scale for network capability. The current one definitely seems useful, but it needs to be further scrutinized to establish it’s convergent and discriminant validity before it can be used more broadly in entrepreneurship research.

Place, publisher, year, edition, pages
2011.
National Category
Other Engineering and Technologies not elsewhere specified
Research subject
Entrepreneurship and Innovation
Identifiers
URN: urn:nbn:se:ltu:diva-28381Local ID: 22938219-f090-4564-bc34-8a73dcb2e128OAI: oai:DiVA.org:ltu-28381DiVA, id: diva2:1001577
Conference
Research in Entrepreneurship and Small Business : 16/11/2011 - 18/11/2011
Projects
CiiR-Centre for Inter-Organizational Innovation Research
Note
Godkänd; 2011; 20110907 (vinpar)Available from: 2016-09-30 Created: 2016-09-30 Last updated: 2017-11-25Bibliographically approved

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