Rotterdam School of Management, Erasmus U., Netherlands
This study examines the extent to which employees in closed networks can compensate for the lack of structural access to heterogeneous knowledge and information. We introduce the “performance ceiling” concept to describe the maximum level of innovative performance that individuals can potentially achieve with a given level of network closure. Leveraging insights from the literature on necessary conditions and constraint causal mechanisms, we argue that network closure not only reduces the average individual innovative performance of employees, but also puts a cap on the maximum level of innovative performance they can potentially achieve. Our empirical analysis of a professional service firm indeed shows that closed networks serve as social straitjackets, preventing them from achieving high levels of innovative performance. An important implication of our study is that employees in closed networks cannot fully compensate for the lack of structural access to heterogeneous knowledge and information. We discuss the implications of our findings for the literature on social networks and innovation.