The Effects of Open Innovation on Firm Performance: A Capacity Approach

Abstract

Although open innovation (OI) has been an important research theme for over a decade, its theoretical framework has been relatively under-researched. As OI involves a wide range of innovation activities, a firm’s capacities in the use of the various firm resources play a critical role in OI implementation. However, it is unclear how they affect firms’ performances for little is known of OI capacities. Based on a theoretical framework derived from the literature, this study looks into the relationships between six OI capacities (inventive, absorptive, transformative, connective, innovative, and desorptive) and financial performance using the Korean Innovation Survey (KIS) 2008 data. The research model was tested using structural equation modelling (SEM) while potential differences in capacities between different firm groups were also investigated. The results indicate that 1) OI capacities are significantly associated with firms’ financial performance; 2) capacities are highly correlated with one another; and 3) some capacities are differently configured between different types of firms. Findings suggest that policy makers should pay more attention to helping firms enhance OI capacities and attempt to develop relevant policies in order to complement inadequate capacities.

Keywords: Open innovation, capacity, structural equation modelling, Korea

JEL Classification: O32, O38, O53