Does Open Innovation lead to Faster Growth?

By: Paul Sloane

A recent study from the UK Innovation Research centre set out to examine how companies were using open innovation. The report makes a thought-provoking comparison of the innovation styles of companies. It indicates that those companies that are active in open innovation in both giving and receiving ideas achieve higher rates of innovation and of revenue growth.

Please read more about recent study by Andy Cosh and Joanne Jin Zhang the here.

A survey was sent to 12,000 UK companies and 1202 responded. The authors categorised the respondents as falling into one of three categories which had similar behaviours and practices:

1. Traditional companies made no external knowledge transfers and had few formal collaborations with other organisations in search of innovation.
2. Hunting-cultivating firms engaged in external sourcing of knowledge and had formal collaborations but made no external transfers.
3. Ambidextrous companies were defined as those that had engaged in hunting and cultivating but also transferred knowledge and technology externally. They are typically very engaged in partnering and collaboration.

Companies that serve local markets tend to traditional in their approach whereas national and international companies (whatever their size) show greater openness and ambidexterity. Traditional companies tended to have lower growth ambitions than hunter-cultivators or ambidextrous companies.

The ambidextrous firms had a higher percentage of employees with first or higher science or engineering degrees and a higher % of staff engaged in R&D. However, the hunting-cultivating firms spent the highest % of revenue on R&D. Despite this, it was the ambidextrous firms who introduced the most innovations. Furthermore although the hunting-cultivating firms grew significantly faster than the traditional firms, the ambidextrous types showed even faster growth. The researchers found no association between the choice of open innovation style and the size or age of the companies (although there were clear differences between sectors).

Companies in the study used a wide range of external sources including other firms, markets, public information services, universities and research bodies but by far the most popular sources were customers and users. Interestingly the primary reason given by most firms for engaging in open innovation activity was to enhance the firm’s reputation and most agreed that this had happened. The second most common objective was to improve development capabilities for new products, processes and services though many companies were not satisfied that open innovation had increased their speed to market.

There is a detailed review of outbound open innovation activities. Firms engaged in external transfers for both financial and non-financial reasons – enhancing reputation was a frequently cited motive. Different kinds of revenue sources were favoured by different size firms – larger firms preferred out-licensing, smaller firms preferred R&D contracts while micro-firms gained most external revenue from spinouts.

There are many detailed results and conclusions in this report. The clearest is that companies that choose an open style to internal and external exchange of information, ideas and technologies achieve the highest rates of product innovation and growth.

By Paul Sloane

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