Open innovation and firm performance in high-technology industries

Abstract

The rise of open innovation (OI) has recently received increasing attention from researchers and practitioners. It is widely believed that the implementation of OI would lead to better innovation performance and competitive advantage of a firm. However, anecdotal evidence shows that firms may encounter challenges in the implementation, such as unfavorable internal coordination and ineffective knowledge integration. This makes the performance of OI uncertain. The existing literature concerning the investigation of OI implementation is limited. The fundamental questions of whether and how firms can gain innovation benefits from OI are under-researched. Accordingly, we conducted two empirical studies to address these questions. Our first study focuses on the impact of OI on firms' innovation performance (using number of patents as a proxy). Taking the knowledge-based view (KBV) of a firm, we argue that OI benefits firms by providing strategic knowledge for them to innovate. We collected data from 50 high-technology firms implementing OI between 2003 and 2016. Based on the collected data, we adopted an event study approach to examine the relationship between OI implementation and innovation performance. We find support that OI improves a firm's innovation performance. To further investigate the underlying factors that may affect the impact of OI on innovation performance, our second study examines the contextual factors of knowledge absorptive capacity (KAC) (using R&D intensity as a proxy) and alliance portfolio size (APS) (using the number of alliances as a proxy) in the relationship between OI implementation and innovation improvement. KAC and APS represent the ability to assimilate external knowledge and the availability of relevant knowledge and resources to help firms innovate, respectively. Given that the implementation of OI requires external knowledge acquisition and assimilation with internal knowledge for innovation, they act as facilitating factors for OI implementation. We also draw upon the KBV of a firm to postulate that KAC and APS have positive moderating effects on the relationship. A cross-sectional regression analysis based on the financial and alliance data of 37 high-technology firms is conducted. We find that higher KAC improves a firm's ability in knowledge integration when implementing OI, leading to higher innovation performance. Nevertheless, APS shows no moderating effect on the relationship between OI implementation and innovation improvement. Overall, our two studies suggest that the implementation of OI is beneficial to high-technology industries and the impact of OI on innovation performance is strengthened by KAC. These findings have significant implications to both researchers and practitioners. From the theoretical perspective, this research contributes to a more comprehensive understanding of OI by examining its positive impact on innovation performance based on the KBV of a firm and identifying the observable characteristics of OI implementation in firms. This research also provides managerial implications to firms when making decision related to the implementation of OI. By understanding the innovation benefits imposed by OI and the contextual factor that can amplify the innovation benefits of OI, firms are able to obtain valuable insights from our study to employ OI for gaining competitive advantage.