Open Innovation Paradigms and Firm Performance: An Empirical Analysis of the High-Tech Sector

Abstract

Within the context of a global and competitive knowledge economy, the open innovation paradigm has developed into a key strategy for companies trying to achieve a sustained competitive advantage. Though some literature has established its theoretical potential, an empirical understanding of how different open innovation modes affect firm performance, especially in the fast-changing high tech sectors, is still underdeveloped. The present study investigates two of the most discussed open innovation paradigms: inbound (external knowledge sourcing) and outbound (external commercialization of internal ideas) and firm performance, through the financial (return on assets, revenue growth) and innovation (patenting, successful new products) performance. Using a five-year longitudinal dataset of 250 high-tech companies, we demonstrate the existence of unobserved firm heterogeneity by using a fixed effects panel regression. Our study shows a strong statistically positive correlation between the practice of inbound open innovation and both dimensions, confirming the association of integrating external knowledge with innovation and financial performance. However, outbound open innovation practice reveals a different relationship with firm performance. Its positive association with innovation performance is quite strong while the relationship with short-term financial performance is, in some model specifications, statistically non-significant and slightly negative. This is an indication of a potential trade-off between the commercialization of knowledge and competitive advantage erosion. The findings also show that absorptive capacity is a vital moderating influence that enhances the beneficial impact of inbound practices. The research adds to the literature on strategic management by furnishing strong evidence from a large-scale study that articulates the performance consequences of diverse strategies of open innovation and provides high-tech managers with the information needed to fine-tune their innovation strategies to compete in a sophisticated environment.