When Performance Drives Innovation: The Mediating Role of External Networks in Croatia’s Local Governance
When Performance Drives Innovation: The Mediating Role of External Networks in Croatia’s Local Governance

Summary/Abstract: This study examines how perceived organisational performance influences innovation capacity within local self-government units (LSGUs) and their locally owned enterprises in Croatia, with a particular focus on the mediating role of external networking.Drawing on Dynamic Capabilities Theory (DCT), the research conceptualises perceived performance not only as an outcome but also as a driver of innovation. Specifically, the studybuilds on the notion that high performance fosters internal legitimacy and organisational confidence, in turn reducing the risks often associated with experimentation, i.e., innovation,and encouraging public managers to consider shifting scarce resources toward innovative behaviour. The study emphasizes the interaction between this internal readiness of organisations and external networks, namely political, partner, and policymaker connections. The results reveal that perceived performance has a significant and positive effect on innovation capacity. Moreover, all three dimensions of external networking partially mediate this relationship, serving as crucial intermediaries that help convert internal organisational motivating factors into tangible innovative outputs. Among these,partners’ networking demonstrating the strongest indirect effect, highlighting the importance of knowledge-sharing and joint problem-solving in public sector. Political networking followed, underscoring the necessity of securing goodwill for resource allocation, while policymaker networking provided the regulatory credibility for making long-term innovative initiatives sustainable. The findings of this research suggest that, while organisational success fosters internal readiness for innovation, translating it into tangible outcomes depends on the strength and quality of external networks. This means that local public managers need to cultivate strategic external partnerships and political relations to sustain innovation capacity and improve service delivery.

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