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Organizing for Open Innovation: Aligning Internal Structure with External Knowledge Search

Organizing for Open Innovation: Aligning Internal Structure with External Knowledge Search

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Published by: Crowdsourcing.org on Jan 25, 2013
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Electronic copy available at: http://ssrn.com/abstract=2164766
Organizing for Open Innovation:Aligning internal structure with external knowledge search
Christoph Ihl
*, Frank Piller 
, Philipp Wagner 
RWTH Aachen University, Technology and Innovation Management GroupKackertstrasse 7, 52072 Aachen, GermanyPhone: +49 (0)241 - 80 - 96356Fax: +49 (0)241 - 80 - 92367Mail: ihl | piller | wagner@tim.rwth-aachen.de*
Corresponding author
The authors are thankful for valuable comments made by the organizers andparticipants of the special issue conference “Open Innovation: New Insights andEvidence” held at Imperial College London, participants of the “10th InternationalOpen and User Innovation Workshop” held at Harvard Business School, andparticipants of the EURAM 2012 conference held at Rotterdam School of Management. The first author is grateful for generous financial support by the“Stiftung Industrieforschung” and the “Peter Pribilla Foundation”.
Electronic copy available at: http://ssrn.com/abstract=2164766
Organizing for Open Innovation:Aligning internal structure with external knowledge search
In the past decade, research on open innovation has brought renewed attention toways how firms can gain from the interaction with external sources of knowledge andinnovation. Complementary internal management practices, however, that explainwhy some firms benefit from open innovation more than others are still largelyunexplored. This study adopts the notion of open innovation as external knowledgesearch and investigates its mutual interdependence with internal organizationalstructures of a firm’s innovation function. Drawing upon behavioral theories aboutorganizational search and information processing, we hypothesize how structuraldimensions such as specialization, formalization and decentralization affect gainsfrom open innovation. Based on a sample of German manufacturing firms, we findhigher performance gains from open innovation by aligning internal organizationalstructures in terms of lower specialization as well as higher formalization anddecentralization. These organizational contingencies of open innovation are further emphasized in light of firms’ internal R&D intensity: (1) Low specialization isespecially beneficial for firms that try to align open innovation in a complementaryfashion with their high internal R&D intensity. (2) Higher formalization anddecentralization is essential for firms that try to substitute their low internal R&Dintensity by the means of open innovation.
Open Innovation, innovative search, external knowledge, R&D intensity,organizational structure
1. Introduction
Innovation has traditionally been located solely in the realm of firms’ internalactivities, such as research & development. Yet, in light of recent advances of technology and significant changes in business conditions, Chesbrough (2006) hasproposed that firms’ need to make more systematic or “purposive” use of externalknowledge in order to increase innovation performance. In light of this observation,Chesbrough (2003) introduced the term
open innovation 
to describe a concept inwhich firms increasingly access external sources of knowledge and technology(outside-in perspective) during their innovation process and bring in-house inventionsto markets via external paths (inside-out perspective).The outside-in perspective of open innovation, which is the focus of our paper, refersto firms’ exchanges with a diversity of external knowledge sources (Laursen andSalter, 2006; Grimpe and Sofka, 2009). Extant research has shown that firms canbenefit substantially from external knowledge integration and the utilization of adiverse set of external partners (e.g. Cassiman and Veugelers, 2006; Faems et al.,2010; Katila and Ahuja, 2002; Laursen and Salter, 2006). However, previousresearch also suggests that this kind of openness has limitations (e.g. Deeds andHill, 1996; Duysters and Lokshin, 2011; Rothaermel and Deeds, 2006). Theselimitations likely arise due to additional costs and new governance challenges firmsneed to manage in order to appropriate external knowledge and learn from it.Recently, a number of scholars have called to investigate the internal capabilities,processes, and skills which determine the extent to which firms can learn fromexternal knowledge sources (Dahlander and Gann, 2010; Van de Vrande et al.2010). With our research, we respond to this call and focus on the organizational

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