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

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.