A new perspective on open innovation: established and new technology firms in UK bio‐pharmaceuticals

The aim of this paper is to explore open innovation (OI) implementation and its impact on firm innovation performance in sectors experiencing technological discontinuities. The paper employs the framework of inbound, outbound and coupled OI to identify processes reflecting sourcing, externalising and exchanging knowledge across organisational boundaries on upstream and downstream innovation activities and explores their impact on the innovation performance of new and established technology firms. The empirical setting is the UK bio‐pharmaceuticals sector during 1991 and 2001, a paradigmatic era of discontinous change and intensified OI implementation. First, our findings show that new technology firms (NTFs) and established technology firms (ETFs) differ in their extent and patterns of inbound, outbound and coupled OI, reflecting that they implement OI to manage their competences in light of technological change. Second, we identify a complex and multifaceted relationship between OI and patenting performance, with NTFs experiencing enhanced performance from some OI processes while ETFs experiencing challenges. The paper suggests that delineating OI into inbound, outbound and coupled, along upstream and downstream activities, offers a deeper understanding of the role of OI in innovation, guiding selective implementation in pursuing enhanced innovation performance during periods of discontinuous technological change.     

When general recommendations fail: how to search in single innovation project settings

External sources are main elements of a firm's search strategy as they positively influence a firm's innovation activities. While previous research has almost exclusively focused on search patterns on firm level, we focus on search mechanisms in single innovation project settings. Based on an inductive case study of eight cross‐industry innovation projects, we present a theoretical framework of three archetypes. In our research, we transfer the concept of breadth and depth from firm to project level and present decisive criteria. We provide evidence that search on project level is not only influenced by breadth and depth, but the character of search represented by its level of abstraction plays a major role. Furthermore, we show that at least in our context and contrary to firm level, not always high levels of breadth and depth are required. In addition, our research contributes to an enhanced operation of search in firms applying our archetypes.     

Complementing open innovation in multi-business firms: practices for promoting knowledge flows across internal units

Over the past decades open innovation (OI) practices have gained prominence among both scholars and practitioners as a mean to accelerate time-to-market and reduce development costs of innovations. Thereby scholars have nearly exclusively focused on cross-boundary knowledge flows between the focal firm and (its) external collaborators. This paper argues that such a focus limits our understanding of how multi-business firms with a diverse knowledge base profit from internally applied open innovation practices that in turn provide complementary benefits to OI. We build on the current literature by investigating and describing OI activities that are conducted within the boundaries of the multi-business firm. Based on a multiple case study of 23 collaboration practices conducted across 14 firms, our findings reveal 5 archetypal forms of internally applied open innovation activities. We draw on the literature of cross-divisional innovation and crowdsourcing to highlight how these archetypes differ in terms of their purpose and underlying managerial processes. Multi-business firms regularly rely on internal practices due to lower transaction costs and for stimulating a collaborative culture. We conclude that internally applied OI practices are effectively stimulated by a combination of non-monetary reward systems and purposive integration mechanisms.     

The many shades of ‘openness’: an application of item response theory to open innovation research

This study addresses one of the most basic research questions investigated in the Open Innovation (OI) literature: how open are firms? This question has remained partially unanswered given the challenges encountered by empirical research in assessing the relevance of specific OI practices within the OI model, as well as the types of activities perceived by managers as OI benefits or concerns. To provide an answer to this question, we suggest a framework using Item Response Theory to improve over current measures of firms' openness and test it on a sample of 383 technology‐based SMEs. Our theoretical model conceives openness as an instance of how firms make decisions regarding the adoption of different OI practices based on their evaluation of OI benefits and concerns. Focusing on the relationship between firm‐level differences in terms of openness and the types of OI practices adopted by these firms, we show that significantly different levels of ‘OI maturity’ are required to broaden the scope of external partnerships and to shift from non‐pecuniary OI modes (relation‐based approaches) toward pecuniary (transaction‐based) practices. Our results have relevant implications for the OI literature and provide new managerial insight into OI adoption.     

Balancing the Two Knowledge Dimensions in Innovation Efforts: An Empirical Examination among Pharmaceutical Firms

This study investigates the relationships between the two knowledge dimensions (knowledge breadth and knowledge depth) and two types of innovations (radical innovation and incremental innovation). While existing literature identifies knowledge in general as an important driver of innovation, the exact relationships between knowledge breadth/depth and incremental/radical innovations are not clear. Drawing from the knowledge‐based view, this study advances the understanding of the relationships between knowledge dimensions and types of innovations by hypothesizing a nonlinear relationship between knowledge breadth and radical innovation as well as a nonlinear relationship between knowledge depth and incremental innovation. Furthermore, the moderating effects of the interaction between knowledge breadth and knowledge depth on the above‐mentioned relationships are also examined. Due to the different natures of the two types of innovations, it is hypothesized that knowledge depth positively moderates the relationship between knowledge breadth and radical innovation while knowledge breadth negatively moderates the relationship between knowledge depth and incremental innovation. To empirically test the hypotheses, secondary data from multiple sources were collected on 64 pharmaceutical firms over 15 years. Due to the panel data structure and observed dispersion issues in the dependent variables, negative binomial random effects models were formulated to test the hypotheses. The statistical results largely support the proposed hypotheses. The results demonstrate that while knowledge breadth positively contributes to the development of radical innovations and knowledge depth positively contributes to the development of incremental innovations, both relationships are subject to diminishing returns. Furthermore, while the finding did support the negative moderating effect of the knowledge breadth on incremental innovation, the positive moderating effect of knowledge depth on radical innovation is not supported. While the effect is not explicitly hypothesized, knowledge breadth seems to have a direct impact on incremental innovation as well.     

How to leverage the impact of R&D on product innovation? The moderating effect of management innovation

Although research and development (R&D) is a key indicator of (technological) innovation, scholars have found mixed results regarding its effect on product innovation and firm performance. In this paper, we claim that variations in R&D effectiveness can be explained by changes in a firm’s social system, in particular in its management innovation. It is still unclear how management innovation influences R&D effectiveness in terms of product innovation. In this study, we address this theoretical and empirical gap in the innovation literature. Our theoretical arguments and findings from a large-scale survey among Dutch firms show that R&D has a decreasingly positive relationship with product innovation, particularly for firms with low levels of management innovation. However, in firms with high levels of management innovation, this relationship becomes more J-shaped, especially in small and medium-sized firms. Our findings also appear to indicate that management innovation may be more important for competitive advantage than just R&D. Overall, our insights reveal that management innovation is a key moderator in explaining firms’ effectiveness in transforming R&D into successful product innovation.     

The effect of board capital and CEO power on strategic change

We develop the construct of board capital, composed of the breadth and depth of directors' human and social capital, and explore how board capital affects strategic change. Building upon resource dependence theory, we submit that board capital breadth leads to more strategic change, while board capital depth leads to less. We also recognize CEO power as a moderator of these relationships. Our hypotheses are tested using a random sample of firms on the S&P 500. We find support for the effect of board capital on strategic change, and partial support for the moderating effect of CEO power. Copyright © 2010 John Wiley & Sons, Ltd.     

The Transformation of the Innovation Process: How Digital Tools are Changing Work,Collaboration, and Organizations in New Product Development*

Over the past several decades, digitization has invaded all areas of human activity, including innovation. The result of digitization of existing tools for design and collaboration, and the introduction of entirely new digital tools, is a far more substantive change of innovation than previous generations of tools enabled. It affects not only the quality of the output and speed of its generation, but it affects the innovation work itself, changes work content, collaboration patterns, decision authority, organizational set‐ups, governance structures, firm boundaries, and ultimately entire ecosystems. In this paper, the digitization of New Product Development (NPD), a subset of innovation, is studied to pursue two research questions: (1) How has the digital tool landscape in NPD changed over the past 15 years, and (2) how have these changes affected how firms innovate? This research uses a longitudinal multi‐method, qualitative approach to deep dive into actual use cases of digital design tools such as computer‐aided design CAD and new tools such as collaborative information technology (CIT). The changes in these tools and observations into how these tools are transforming the very nature of how things are designed is the research focus of this study. These tools have become increasingly more sophisticated while being easier to use and are integrated earlier in the design process. As a result, digital tools have a far broader reaching impact than previous generation of tools. Not only do they affect output and process efficiency, but they also increase depth and breadth of the work of individual innovators, they lead to rearrangement of the entire innovation processes, enable new configurations of people, teams, and firms, and rewrite the rules on how knowledge management acts as a critical competitive capability. The progression of digitization is laying the groundwork for changes to what firms are and do and points to different ways of organizing, specializing, and training for NPD professionals.     

Growing pains: Pre‐entry experience and the challenge of transition to incumbency

We examine how entrepreneurial entry by diversifying and de novo firms in new industries leads to different levels of performance. We propose that these types of firms differ in dynamic capabilities, which help them overcome growth impediments and transition to incumbency in the industry. Growth impediments arise at larger size, older tenure levels in industry, and after technological discontinuities. Because of their prior experience, diversifying firms are better equipped to handle the challenges of impediments to growth. Meanwhile, de novo firms, ostensibly tailor‐made for the targeted industry, are more likely to stumble over these growth challenges, and eventually lag behind diversifying firms. We find support for our hypotheses using a near census of firms in the U.S. wireless telecommunications industry over the 1983–2004 period. Copyright © 2011 John Wiley & Sons, Ltd.     

How mergers affect innovation: Theory and evidence

This article analyses how horizontal mergers affect innovation of the merged entity and its non-merging competitors. Using data on horizontal mergers among pharmaceutical firms in Europe and applying propensity score matching estimators, we find that average patenting and R&D of the merged entity and its rivals declines substantially in post-merger periods. We show that this result is consistent with the predictions from an oligopoly model with heterogeneous firms, as well as a patent race model, when pre-merger R&D intensity is sufficiently high. Consistent with our theoretical model, we find that negative effects of mergers on innovation are concentrated in markets with high R&D intensity and in technology classes with overlap in pre-merger innovation activities of merging and rival firms.     

Understanding the Antecedents,Contingencies, and Performance Implications of Process Innovation: A Dynamic Capabilities Perspective

This paper examines one of the most important sources of competitiveness in dynamic industries—the capability of firms to introduce process innovations. While the management of product innovation has received considerable theoretical and empirical attention in the literature, our knowledge about how firms become process innovators—and why many firms fail to do so—remains underdeveloped. In order to provide novel insights into the configuration of firms' process innovation activities and their performance implications, this paper draws on the dynamic capabilities approach. More specifically, this study aims to shed light on the antecedents, contingencies, and performance consequences of interfirm differences in process innovation success, that is, firms' propensity and effectiveness of implementing new production, supply chain, or administrative processes. Particular emphasis is placed upon the analysis of potential complementarities or substitution effects between innovation activities such as internal and external research and development, prototyping, external knowledge acquisition, and employee training. Cross‐sectional data from a large‐scale survey of German manufacturing and service firms serves as the basis for testing the hypotheses advanced in this paper. Findings suggest that by engaging in a broad range of different innovation activities, firms can indeed increase the likelihood of achieving process innovation success, which is in turn positively related to firm financial performance. Yet decreasing marginal returns to innovation activities have to be considered as process innovation propensity was found to increase with the number of activities pursued simultaneously only up to a point, after which negative marginal returns set in (inverted U‐shaped relationship). Furthermore, while environmental turbulence was found to have surprisingly little influence when it comes to translating process innovation success into firms' subsequent financial performance, industry membership as well as the nature of the innovation process (i.e., internal generation, external adoption, or cocreation of an innovation) emerged as key contingency factors. These findings have important theoretical as well as practical implications for managing new process introductions.     

Managing business-to-business open innovation: A project-level approach

Embracing business-to-business open innovation (B2B OI) can enable firms to remain competitive in an increasingly saturated business environment. Whilst B2B OI is generally undertaken to serve the needs of a specific innovation project, previous research has mainly studied it from the firm-level perspective. Accordingly, the number of project-level studies on B2B OI, especially empirical, remains limited, resulting in an incomplete understanding of B2B OI management. In this editorial, we briefly review the B2B OI literature, discuss the importance of studying B2B OI at project level, and describe how each of the six articles included in our special issue contributes to this field. Moreover, we suggest future research opportunities with regard to issues and topics that remain largely under-investigated in project-level B2B OI, but which also open up to a multilevel perspective.     

Opening up the innovation process: the role of technology aggressiveness

Besides acquiring external knowledge, many firms have begun to actively commercialize technology, for example, by means of out-licensing. This increase in inward and outward technology transactions reflects the new paradigm of open innovation. Most prior research into open innovation is limited to theoretical considerations and case studies, whereas other lines of research have focused either on external technology acquisition or exploitation. In an integrative view, we consider inward and outward technology transactions as the main directions of open innovation. Moreover, technology aggressiveness, which constitutes an important dimension of technology strategy, is identified as a major determinant of open innovation. Data from a survey of 154 industrial firms are used to test three hypotheses relating technology aggressiveness, external technology acquisition, and external technology exploitation. In addition, clusters of firms with homogeneous strategies regarding technology aggressiveness and open innovation are identified.     

How Information Technology Assimilation Promotes Exploratory and Exploitative Innovation in the Small‐ and Medium‐Sized Firm Context: The Role of Contextual Ambidexterity and Knowledge Base

This research sheds new light on how information technology (IT) assimilation affects exploratory and exploitative innovation in the context of small‐ and medium‐sized firms (SMEs). This contextualization is important in establishing the boundary conditions for the theory, as well as generating specific managerial insights for SME managers. A sample of 248 U.K.‐based SMEs in the manufacturing industry demonstrates contextual ambidexterity (CA) mediates the relationship between IT assimilation and two types of innovation. This finding highlights that IT assimilation does not automatically promote innovation. Instead, IT assimilation represents a critical resource that enables the effective implementation of CA, which in turn affects innovation. This implies that SMEs cannot fully realize the potential of their IT assimilation and use it to enable innovation without implementing CA. Furthermore, this study differentiates between two different dimensions of knowledge base: knowledge breadth and knowledge depth. This study finds that knowledge breadth moderates the indirect IT assimilation–exploratory innovation relationship by influencing the effect of CA on exploratory innovation. Knowledge depth, on the other hand, moderates the indirect IT assimilation–exploitative innovation relationship by influencing the effect of CA on exploitative innovation. This finding implies that SMEs can benefit from their IT assimilation that enables them to engage in CA, which in turn allows them to perform innovation. However, it is apparent that the dimension of knowledge that SMEs hold internally can determine what types of innovation that they are able to perform.     

Resource allocation strategy for innovation portfolio management

Our study demonstrates empirically that the choice of resource allocation strategy affects innovation performance. Allocating resources to a broader range of innovation projects increases new product sales, an effect that appears to outweigh that of resource intensity. In addition, we find that the performance benefit of breadth is higher for firms that allocate resources selectively at later stages of the innovation process. This breadth‐selectiveness effect is greatest for firms intending to create relatively more novel products, departing further from their knowledge base. Based on these results, we theorize that breadth increases performance because it spreads firms' bets on unproven innovative endeavors. Limiting resource commitments by selecting out deteriorating projects prevents an escalation in the costs of breadth. This advantage increases with the uncertainty implicit in greater innovative intent. The paper thus contributes to theory of how resource allocation strategies influence performance outcomes of innovation project portfolios. Copyright © 2013 John Wiley & Sons, Ltd.     

Using R&D portfolio management to deal with dynamic risk

We develop a theoretical framework for understanding why firms adopt specific approaches for the management of innovation project portfolios. Our theory focuses on a key contingency factor for innovation, namely the dynamics of competitive environments. We use four dimensions to characterize the patterns of environmental dynamics: velocity, turbulence, growth and instability. The paper then proposes the concept of dynamic risk as a determinant of portfolio management processes. Dynamic risk results from second‐order learning by a firm confronted with a specific dynamic pattern in its environment. This learning concerns the likely nature of threats and the required updating of cognitive frameworks in such environments. Attempts to deal with dynamic risk enable various actors inside the firm to understand what kind of dynamic capabilities are needed in their innovation portfolio management processes. As a result of this diffuse learning, firms tend to favor certain common characteristics in their concrete portfolio management activities. To advance the theorizing of these characteristics, the paper also proposes four dimensions of portfolio management: structure, commitment, emergence and integration. Based on arguments inspired by the dynamic capability and related literatures, we advance a series of hypotheses, that relate environmental dynamics dimensions and portfolio management dimensions. These hypotheses are tested based on a survey of 795 firms in a variety of sectors and on four continents, using original scales and structural equation modeling methods. The results show, among other findings, that high‐velocity environments favor structured as well as integrated portfolio management approaches, while high‐growth environments favor approaches that are structured but commit significant resources to each project as well. Turbulent environments favor approaches that are emergent, but also, contrary to our expectations, have high resource commitment levels. Finally, firms in unstable environments have a marginal preference for emergent approaches. Results could help advance the dynamic contingency theoretical perspective on dynamic capabilities, as well as improve the practice of innovation portfolio management.     

Drivers of green cooperation between Chinese manufacturers and their customers: An empirical analysis

Although green customer cooperation can help manufacturers increase their overall performance, it is difficult for manufactures to effectively achieve green customer cooperation. This paper discusses how manufacturers can achieve green customer cooperation through the theoretical lens of capability-based view. It suggests that internal green process innovation and learning from their customers can lead to green customer cooperation and such positive relationships are dependent upon senior management's calculative and affective commitment towards the customer firms. Using multi-respondent data collected from 217 Chinese manufacturing firms, the results show that both green process innovation and learning from customers drive green customer cooperation. However, affective commitment counter-intuitively diminishes the positive effect of learning from customers on green customer cooperation, while calculative commitment further strengthens this effect. This paper contributes to green supply chain management literature by conceptually explaining and empirically proving the effects of green process innovation and learning from customers on green customer cooperation and the moderating role of calculative and affective commitments. Based on the research findings, the paper gives practical suggestions to Chinese manufacturers and their customer firms regarding green cooperation and the dynamics of senior management's commitment towards the customer firms.     

Crowdsourcing without profit: the role of the seeker in open social innovation

Crowdsourcing has increasingly been studied as an open innovation (OI) mechanism by which organizations (seekers) engage with an external crowd of potential solvers. Previous crowdsourcing research has focused on solvers and their individual motivations, providing few insights as to why and how seekers use crowdsourcing, and how these choices affect the value that might be realized from these efforts. Prior research has also emphasized profit‐seeking firms, despite the use of OI practices by public sector organizations to achieve societal benefits. This paper examines the organizational and project‐level choices of government agencies that crowdsource from citizens to drive open social innovation, and thus develop new ways to address societal problems, a process sometimes termed ‘citizensourcing.’ Using rich data from 18 local government seekers that use the same intermediary, we develop a model of seeker crowdsourcing implementation that links a previously unstudied variance in seeker intent and engagement strategies to differences in project team motivation and capabilities, in turn leading to varying online engagement behaviors and ultimately project outcomes. Our study compares and contrasts governmental and corporate crowdsourcing to reveal that the non‐pecuniary orientation of both seekers and solvers means that the motives of government crowdsourcing are fundamentally different from corporate crowdsourcing, but the process in our sample more closely resembles that of a firm‐sponsored community rather than government sponsored contests. More generally, we show how seeker organizational factors and choices shape project‐level implementation and success of crowdsourcing efforts, as well as provide insights for OI activities of other smaller, geographically bound organizations.     

Learning from openness: The dynamics of breadth in external innovation linkages

We explore how openness in terms of external linkages generates learning effects, which enable firms to generate more innovation outputs from any given breadth of external linkages. Openness to external knowledge sources, whether through search activity or linkages to external partners in new product development, involves a process of interaction and information processing. Such activities are likely to be subject to a learning process, as firms learn which knowledge sources and collaborative linkages are most useful to their particular needs, and which partnerships are most effective in delivering innovation performance. Using panel data from Irish manufacturing plants, we find evidence of such learning effects: establishments with substantial experience of external collaborations in previous periods derive more innovation output from openness in the current period. © 2013 The Authors. Strategic Management Journal published by John Wiley & Sons Ltd.     

Do not miss the boat to outside-in open innovation: Enable your employees

In a highly competitive business environment, firms are increasingly opening up to external partners and gathering their knowledge to improve internal innovation processes. Although researchers have found that outside-in open innovation (OI) has a multitude of positive outcomes (e.g., improved innovation performance), few have studied its antecedents, and especially the “softer” ones. Thus, this study aims to empirically examine three “softer” drivers of outside-in OI (i.e., entrepreneurial culture, OI support, and OI enablement), based on a cross-industry sample of 104 firms. The results show that the relationship between entrepreneurial culture and outside-in OI is fully and positively mediated by OI enablement, whereas the mediating role of OI support in such relationship is not significant. This implies that entrepreneurial culture is unlikely to increase the level of outside-in OI, unless firms enable their employees, through systematic training and the deployment of teams, to effectively gather relevant knowledge from external partners.