Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An...

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Factors Influencing Firm Success with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University of Idaho November 9, 2012

Transcript of Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An...

Page 1: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Factors Influencing Firm Success with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships

Sanjay R. Sisodiya, University of Idaho

November 9, 2012

Page 2: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

New Product Development Pressures and Problems � Procter & Gamble � New product development problems ◦ Costly in general ◦ R&D ◦ Slow and cumbersome ◦  Ineffective

Sanjay R. Sisodiya, University of Idaho

Page 3: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

 

New Product Development Perspectives �  Traditional perspectives – Closed innovation

�  Alternative perspectives – Open innovation

�  Understanding Open innovation – seems intuitively appealing, but little is known beyond anecdotal. Is it a good idea? Does it work?

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Page 4: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Research Projects

Research Development

The Market

Source: Chesbrough (2003)

Boundary of the firm

Closed Innovation

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Page 5: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Research Development

Source: Chesbrough (2003)

Boundary of the firm

Open Innovation

Sanjay R. Sisodiya, University of Idaho

Page 6: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Research Projects

Research Development

Source: Chesbrough (2003)

Boundary of the firm

The Market

Open Innovation

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Page 7: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Open Innovation �  A deliberate, sustained and systematic practice of

engaging in external search for new product inputs such as knowledge, IP, technology, information, ideas, etc.

�  An explicit and purposive new product development approach as opposed to an incidental occasional use of external knowledge or technologies.

�  Underpinned by complex routines built to seek, access, and deploy external sources of ideas, knowledge, and technologies, and combine such externally sourced new product inputs with the firm’s extant R&D and IP (e.g., Chesbrough 2003; Narasimhan, Rajiv, and Dutta 2006)

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Page 8: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Research Questions �  What is open innovation in practice?

�  Does open innovation improve performance?

�  What else needs to be in place to improve success?

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Qualitative Study �  Not much empirical evidence to support the

benefits of open innovation

�  Different perspectives on what open innovation is and how it is measured

�  Interviews with managers ◦  Are you familiar with open innovation? ◦  What do you perceive the advantages are? ◦  What are the risks? ◦  What enables firms to be successful? ◦  Do the performance metrics need to change?

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Page 10: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

How to measure performance? �  Firm level, program level, project level?

�  Perceptual measures?

�  Objective measures?

�  Financial performance measures?

�  Does innovativeness matter?

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Page 11: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Theoretical Model

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Relational Proclivity

Proactive Market Orientation

Open Innovation Financial

Performance

Innovativeness

Network Centrality

H7 (+)

Network Density

H8 (+)

H1 (+)

H2 (+)

H3 (+) H4 (+)

H5 (-) H6 (-)

Page 12: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Theoretical Model

Sanjay R. Sisodiya, University of Idaho

Relational Proclivity

Proactive Market Orientation

Open Innovation Financial

Performance

Innovativeness

Network Centrality

H7 (+)

Network Density

H8 (+)

H1 (+)

H2 (+)

H3 (+) H4 (+)

H5 (-) H6 (-)

Page 13: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Theoretical Model

Sanjay R. Sisodiya, University of Idaho

Relational Proclivity

Proactive Market Orientation

Open Innovation Financial

Performance

Innovativeness

Network Centrality

H7 (+)

Network Density

H8 (+)

H1 (+)

H2 (+)

H3 (+) H4 (+)

H5 (-) H6 (-)

Page 14: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Theoretical Model

Sanjay R. Sisodiya, University of Idaho

Relational Proclivity

Proactive Market Orientation

Open Innovation Financial

Performance

Innovativeness

Network Centrality

H7 (+)

Network Density

H8 (+)

H1 (+)

H2 (+)

H3 (+) H4 (+)

H5 (-) H6 (-)

Page 15: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Theoretical Model

Sanjay R. Sisodiya, University of Idaho

Relational Proclivity

Proactive Market Orientation

Open Innovation Financial

Performance

Innovativeness

Network Centrality

H7 (+)

Network Density

H8 (+)

H1 (+)

H2 (+)

H3 (+) H4 (+)

H5 (-) H6 (-)

Page 16: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Firm Performance

�  Performance is multi-dimensional (Griffin and Page 1993)

�  Long-term oriented investments combined with pressures to highlight marketing activities (Griffin and Page 1993; Doyle 2000; Webster, Malter and Ganesan 2005) ◦  Financial performance ◦  Product innovativeness

�  Both can be indicators of the performance of NPD program

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Page 17: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Theoretical Model

Sanjay R. Sisodiya, University of Idaho

Relational Proclivity

Proactive Market Orientation

Open Innovation Financial

Performance

Innovativeness

Network Centrality

H7 (+)

Network Density

H8 (+)

H1 (+)

H2 (+)

H3 (+) H4 (+)

H5 (-) H6 (-)

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Methods - Data �  Context: High Tech (US) – pressures for new product

development, information rich (Narasimhan, Rajiv, and Dutta 2006; Sorescu, Chandy, and Prabhu 2007).

�  Data Collection

�  Data validation checks ◦  Response bias ◦  Key-informant qualification checks

�  Secondary data – CRSP database

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Page 19: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Measure Validation AVE Composite

Reliability

Relational Proclivity .717 .882

Proactive Market Orientation .576 .800

Network Centrality .688 .868

Network Density .824 .933

Open Innovation .662 .854

Financial Performance .919 .958

Innovativeness .702 .876

�  CFA: χ2 of 7.87 (d.f. = 2 and p = .02), NNFI = .933, CFI = .978, SRMR = .036, and GFI = .981.

�  Discriminant validity ◦  Reflective measures – square root of AVE > squared correlation in all cases (Fornell and Larcker

1981). ◦  Formative – Correlations significantly different than 1; most in .2 range, secondary and controls in .3

range with few higher. �  Common method bias check - Harmon’s one-factor test (Podsakoff and Organ 1986); the

largest component extracted accounted for only for 18.1% of the total variance Sanjay R. Sisodiya, University of Idaho

Page 20: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Relational Proclivity, Proactive Market Orientation, and Control Variables Main Effects � Relational Proclivity path estimate .193***

(Support for H1) � Proactive Market Orientation path

estimate = .152** (support for H2) � Control variables – age (-), sales (-),

employees(+), and technological turbulence (+)

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Interaction terms � H3: Network centrality positively moderates

the effect of relational proclivity on open innovation. (Path estimate = -.145*** ; No Support)

� H4: Network centrality positively moderates the effect of proactive market orientation on open innovation. (Path estimate = .155*** ; Support)

� H6: Network density negatively moderates the effect of proactive market orientation on open innovation. (Path estimate = -.129* ; Support)

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Page 22: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Open Innovation on Firm Performance � Open innovation on financial performance

path estimate = .119** (Support for H7)

� Open innovation on innovativeness path estimate = .220*** (support for H8)

� Control variables ◦  Financial performance: sales (+) ◦  Innovativeness: age (-) and technological

turbulence (+) Sanjay R. Sisodiya, University of Idaho

Page 23: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Recap & Implications �  Expected that that open innovation would

lead to firm level success. à Results suggest that firms following open

innovation outperform firms not following open innovation

� Anticipated the pivotal element would be

firm capabilities and interfirm relationships in order to seek out inbound inputs for innovation

à Support for relational proclivity and proactive market orientation

Sanjay R. Sisodiya, University of Idaho

Page 24: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Recap & Implications � Network centrality moderation is not

supported ◦  Access to inputs for innovation may not be

enough to enhance success ◦  Firms might need to be able to effectively seek

out and integrate these inputs

�  Support for the importance of low network

density, through the management of weak ties to identify inputs for innovation

Sanjay R. Sisodiya, University of Idaho

Page 25: Factors Influencing Firm Success with Open Innovation: An … · with Open Innovation: An Investigation of Relational Proclivity and Supplier Relationships Sanjay R. Sisodiya, University

Discussion �  These findings suggest that firms can benefit

while following open innovation. � More importantly, ◦  Firms must be willing and able to connect to

external inputs of innovation ◦  firms can achieve superior outcomes when

positioned within networks of relationships or even research communities.

�  The challenge managers may face is how to develop these capabilities and relationships

Sanjay R. Sisodiya, University of Idaho