How can firms facilitate innovation in a virtual environment

Abstract

Innovation is crucial for firms to maintain a competitive advantage and survive. Knowledge management processes and the increasing virtuality in modern firms presents challenges and opportunities to implement innovation within an organization.

For this study, we used data from a questionnaire on management practices that facilitate innovation. The questionnaire was collected in 2020-2021 and answered by 161 Nordic respondents and 200 Chinese companies. These results are analyzed primarily by specifying direct and indirect relationships between constructs from the questionnaire and applying Structural Equation Modeling (SEM).

Findings were mixed. Surprisingly, virtuality had no statistically significant effect on innovation. Knowledge management processes (Knowledge creation, Knowledge sharing, and External knowledge sourcing) had a positive mediating effect between virtuality and innovation, with external knowledge sourcing having the highest standard effect size. Interestingly, there were only minor differences found between the Nordic and China group respondents. Disregarding the overall moderation analysis model fit, positive moderation effect was found for virtuality as the moderator for external knowledge sourcing and innovation.

For practitioners, firms reliant on innovation could benefit most from focusing on external knowledge sourcing first, depending on the level of firm capabilities.