The Winning Combination:
External Sources, Complementarities
and Product and Process Innovation
Paola Criscuolo, Toke Reichstein and Ammon Salter
Tanaka Business School, Imperial College London
Keld Laursen
DRUID, Department of Industrial Economics and
Strategy, Copenhagen Business School
Structure of talk
•
•
•
•
•
Theoretical and empirical background
Hypotheses
Empirical methods
Results
Discussion and conclusions
The role of external sources in the innovation
process
•
•
•
•
•
•
•
•
•
Jewkes, Sawers and Stillerman (1958)
Freeman (1974)
Rosenberg (1969)
Rothwell and the ‘Project Sappho’ (1976)
Von Hippel – ‘lead users’ (1976), ‘sources of innovation’ (1990),
and ‘democratic innovation’ (2005)
Lundvall and Freeman – ‘innovation systems’ (1988)
Cohen and Levinthal – ‘absorptive capacity’ (1990)
Powell and others – ‘networks of innovators’ (1980-90s)
Coombs, Harvey and Tether (2003) – ‘distributed innovation
systems’
The Closed Innovation Model
• Many innovative firms now
spend little on R&D and yet
they are able to successfully
innovate by drawing in
knowledge and expertise
from wide range of external
sources
• The decline in the strategic
advantage of internal R&D is
related to the increased
mobility of knowledge
workers, making it difficult for
firms to appropriate and
control their R&D
investments
Source: Chesbrough, 2003
The Open Innovation Model
• Open innovators commercialise external
ideas by deploying outside (as well as
in-house) pathways to the market
• Firms become more porous and
embedding it loosely-coupled networks
of different actors, collectively and
individual working toward
commercialising the new knowledge
• Firms that are too focused internally are
prone to miss a number of opportunities
because many will fall outside the
organization’s current business or will
need to be combined with external
technologies to unlock their potential
Source: Chesbrough 2003
Closed vs. Open Innovators
Innovative search
Ahuja & Katila (2002)/Katila (2002) – based on
USPTO citations
• Innovative search strategies impact on
performance
– Search depth (re-use of existing knowledge)
– Search scope (explores new knowledge)
Our focus
• External search strategies – the use of external
sources of knowledge for innovation
– Combinations of sources – looking ’winning’ combination for
inducing differnet types of innovation
Hypotheses
• Hypothesis 1a: The openness of a firm to external
sources of knowledge in its search for innovative
ideas is conducive to that firm achieving a new
product innovation.
• Hypothesis 1b: A firm that searches too broadly in
its search for new innovative ideas will be less likely
to develop a new product innovation than those
firms who focus on several key sources
• Hypothesis 1c: Firms who achieve a process
innovation use fewer external sources of knowledge
than firms who achieve a product innovation.
Hypotheses
• Hypothesis 2: There are complementarities
among external sources which lead to a higher
success rate with reference to innovation
Hypotheses
• Hypothesis 3a: Drawing knowledge from
suppliers increases the ability of a firm to
achieve a process innovation
• Hypothesis 3b: Drawing knowledge from lead
users increases the ability of a firm to achieve
a product innovation
Search strategies
•
•
Focus on 15 external sources of information and knowledge of
innovative activities (removed consultants)
Aggregated these 15 into six source ‘bundles’
–
–
–
–
Suppliers
Clients and Customers
Competitors
Institutional (universities, government research org., private research
institutes, etc.)
– Conferences (professional conferences, meetings, trade associations, fairs,
exhibitions, etc.)
– Specialized (standards and regulations)
•
•
•
Each were converted into binomials leaving us with 64 (26)
combinations
Identifying the most popular combinations (at least 50
observations)
12 strategies emerged
The popular search strategies
Bundles
A
B
C
D
E
F
G
H
I
J
K
L
Number of observations
1330
83
52
116
58
71
90
82
123
87
153
170
Percentage of observations
57.1
3.6
2.2
5.0
2.5
3.0
3.9
3.5
5.3
3.7
6.6
7.3
Suppliers
Clients and Customers
Competitors
Institutional
Conferences
Specialised
Source: UK CIS 3
Analysis
• Multiple logistic regressions
• Dependent: new for the firm product/process innovation
• Innovation search variable
– Each strategy compared as a dummy (66 regressions for each type
of innovation)
• Control variables
–
–
–
–
–
Log of firm size (number of employees)
R&D intensity (% of sales)
Market orientation (local, regional, national, or international)
Innovation co-operations (0/1)
9 industry dummy
Results (product innovation)
Strategies
H
H
F
L
J
I
K
F
-0.06
0.94
L
0.18
1.20
0.22
1.25
J
0.16
1.17
-0.16
0.85
0.02
1.02
I
0.50
1.65
0.28
1.32
0.07
1.07
0.21
1.23
K
0.40
1.49
0.41
1.51
0.23
1.26
0.22
1.25
0.14
1.15
E
0.85
2.34
*
0.46
1.58
0.34
1.40
0.41
1.51
-0.03
0.97
0.27
1.31
G
0.65
1.92
*
0.64
1.90
*
0.57
1.77
C
0.98
2.66
*
0.97
2.64
*
0.49
1.63
D
0.72
2.05
**
0.52
1.68
B
1.40
4.06
***
0.92
2.51
A
***
2.81
2.81
16.61
16.6
***
2.61
13.60
*
***
*
E
G
C
0.63
1.88
*
0.35
1.42
0.20
1.22
0.29
1.34
1.05
2.86
**
0.55
1.73
0.54
1.72
0.29
1.34
0.08
1.08
0.27
1.31
0.27
1.31
0.01
1.01
0.08
1.08
0.38
1.46
0.09
1.09
0.66
1.93
**
0.92
2.51
**
0.44
1.55
0.97
2.64
***
1.09
2.97
**
0.75
2.12
*
0.85
2.34
**
0.5
1.65
2.34
10.38
***
2.19
8.94
***
2.23
9.30
***
2.15
8.58
***
2.25
9.49
Note: Stars signifies significance. *:p<0.1, **:p<0.05, ***: p<0.01
Note: Dummy variable indicate the strategy on the vertical axis (0) vs the strategy on the horisontal axis (1)
***
1.85
6.36
***
1.65
5.21
D
B
A
0.40
1.49
***
2.06
7.85
***
***
1.45
1.45
4.26
4.26
***
Results (process innovation)
Strategies
F
F
G
I
J
D
H
K
L
E
G
0.41
1.51
I
0.55
1.73
0.18
1.20
J
0.02
1.02
0.21
1.23
0.60
1.82
D
0.70
2.01
**
0.23
1.26
0.07
1.07
0.08
1.08
H
0.69
1.99
*
0.13
1.14
0.06
1.06
0.37
1.45
0.01
1.01
K
1.14
3.13
***
0.62
1.86
**
0.50
1.65
0.30
1.35
0.40
1.49
L
1.18
3.25
***
0.61
1.84
**
0.46
1.58
0.36
1.43
0.58
1.79
E
1.44
4.22
***
0.89
2.44
**
0.53
1.70
0.65
1.92
0.55
1.73
C
1.57
4.81
***
1.13
3.10
***
0.96
2.61
**
1.24
3.46
**
1.02
2.77
**
0.76
2.14
*
0.73
2.08
*
0.50
1.65
B
1.90
6.69
***
1.39
4.01
***
1.17
3.22
***
1.29
3.63
***
1.28
3.60
***
1.19
3.29
***
0.82
2.27
**
0.77
2.16
**
0.65
1.92
2.56
12.94
***
2.23
9.30
***
2.10
8.17
***
2.32
10.18
***
2.22
9.21
***
1.87
6.49
***
1.75
5.75
***
1.80
6.05
A
***
3.08
3.08
21.76
21.76
***
*
C
B
A
0.27
1.31
*
0.27
1.31
0.11
1.12
0.59
1.80
0.22
1.25
Note: Stars signifies significance. *:p<0.1, **:p<0.05, ***: p<0.01
Note: Dummy variable indicate the strategy on the vertical axis (0) vs the strategy on the horisontal axis (1)
0.18
1.20
0.20
1.22
0.16
1.17
***
1.26
3.53
***
***
1.21
1.21
3.35
3.35
***
Hypotheses
•
Hypothesis 1a: The openness of a firm to external sources of
knowledge in its search for innovative ideas is conducive to that firm
achieving a new product innovation.
– Supported: no external sources is the least effective strategy
•
Hypothesis 1b: A firm that searches too broadly in its search for new
innovative ideas will be less likely to develop a new product
innovation than those firms who focus on several key sources
– Partly supported: using all six source bundles not the most effective
strategy (especially for process innovation)
•
Hypothesis 1c: Firms who achieve a process innovation use fewer
external sources of knowledge than firms who achieve a product
innovation.
– Supported: 1) the winning combinations for process innovation holds less
sources than those for product: 2) using all six source ranks higher for
product that for process innovation
Hypotheses
• Hypothesis 2: There are complementarities
among external sources which lead to a higher
success rate with reference to innovation
– Supported: not only need firms to combine sources, but
they need to combine the right sources
• customers and regulations for process innovation
• suppliers and regulations for product innovation
Hypotheses
• Hypothesis 3a: Drawing knowledge from suppliers increases
the ability of a firm to achieve a process innovation
– Supported: lowest ranking strategies are those without
suppliers when considering process innovation
• Hypothesis 3b: Drawing knowledge from lead users increases
the ability of a firm to achieve a product innovation
– Supported: five out of the top six ranking strategies
when considering product innovation includes
customers as an external sources
Limitations and future research
• Limitations
– Imperfect measure of search – rough proxy
– Dependent variable is very simple
– Firms indicated that they draw knowledge from the sources, we
do not know when, how and why they did so
– We need more about the relationship the combinations and other
innovative activities, such as R&D
– No control for complexity of the innovation
• Future research
– What is the winning combination in services?
– Movement in the use of external sources over time (CIS 3 to CIS
4)
– Other performance variables – market share, survival and growth
with ONS linked data