Personal Interaction Drives Innovation

Abstract

Based on knowledge sharing, transaction cost, and networking theories, the present study investigates the effects of instrumental guanxi-based physical knowledge café (IGPKC) and instrumental guanxi-based virtual knowledge café (IGVKC) on innovation capabilities. Relational psychological contract (RPC) acts as a mediator between IGPKC & IGVKC and innovation capabilities. Present study surveys 210 employees of software development Chinese firms and analyzes results through PLS-SEM. This study finds IGPKC and IGVKC have a significant effect on innovation capabilities and RPC partially mediates this effect. Through importance-performance matrix analysis (IPMA), it establishes that IGVKC has high importance but less performance than IGPKC and RPC for innovation capabilities. Thus, management needs to enhance the performance of IGVKC by following the trust commitment theory. The present study has implications for Chinese organizations to enhance their innovation capabilities and for the Chinese government to promote knowledge base economy with low transaction cost.