Dynamic Capabilities and Economic Crises: Has Openness Enhanced a Firm's Performance in an Economic Downturn?

Abstract

Many studies have attempted to investigate the potential benefits of open innovation. However, the long term effects of openness have yet to be demonstrated, even if few researchers hypothesised that high openness could increase firms’ dynamic capabilities and hence their resilience in the face of adversities, such economic downturns. Hence, this paper attempts to investigate this dynamic relationship between openness and firm performance with particular considerations addressing the recent financial crisis in 2008. Based upon the UK Community Innovation Survey (CIS) panel data collected between 2006 and 2012, this study finds evidence that supports the positive influence of openness on long-term firm performance. The results show that (1) increasing a firm's openness is an effective way of enhancing its dynamic capability and hence its resilience, and (2) of all the various configurations of openness, the collaboration with partners outside the firm's value chain and international partners have the highest impact on turnover recovery, as they will increase the chances of acquiring newer knowledge, which in turn will help firms to identify new opportunities to achieve sustainable growth. The findings of this paper have some practical implications for managers and policy makers.

Keywords: Open Innovation, Economic Crisis, Dynamic Capability, UK

JEL Classification: C23, O25, O32