Governance Choice in Open Innovation: The Antecedent Role of External Source Choice

Governance Choice in Open Innovation: The Antecedent Role of External Source Choice

Mehdi Bagherzadeh (NEOMA Business School, France) and Sabine Brunswicker (Purdue University, USA)
Copyright: © 2018 |Pages: 22
DOI: 10.4018/978-1-5225-2956-9.ch010
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Abstract

To increase the incentive for external sources to form interactive relationships, some firms selectively reveal their internally developed knowledge for free. However, ‘selective revealing' is in conflict with the firm's interest in control over IP and challenges the governance of knowledge flows in open innovation. Taking a behavioral perspective, this paper proposes a complementary role of ‘selective revealing' and ‘behavioral control' and its relationship with a firm's source choice. We draw upon a sample of 125 large firms in the United States and Europe to statistically support the proposed complementarity. Results suggest that in value chain-centric and competitor relationships, firms may opt for guided revealing. In contrast, firms primarily engaged with universities are unable to establish guided revealing as a governance mechanism.
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Introduction

The flourishing literature on open innovation suggests that firms should transcend their organizational boundaries to propel their own innovation activities through purposive use of inflows and outflows of knowledge (Bagherzadeh Niri, 2016, (Chesbrough, 2003; West & Bogers, 2014; West, Salter, Vanhaverbeke, & Chesbrough, 2014; Wikhamn, 2013). Scholars have presented empirical evidence that this strategic choice is viable for many types of firms, but it is particularly adopted by large firms (Chesbrough & Brunswicker, 2014). The notion of open innovation relates to a variety of external actors, ranging from customers, suppliers, universities, to competitors (Laursen & Salter, 2006). To benefit from these actors, firms utilize a variety of ‘open innovation practices’, such as alliance relationships (Felin & Zenger, 2014) or innovation contests (Afuah & Tucci, 2012; Kathan, Hutter, Füller, & Hautz, 2015). When engaging in these practices, some firms give up control over innovation-related knowledge, and engage in what scholars refer to as selective revealing or selective sharing (Dahlander & Gann, 2010; Jarvenpaa & Välikangas, 2014). They decide to purposively and selectively share internal problem or solution-related knowledge, and accept that they will no longer maintain control over these critical resources.

The role of selective revealing1 is particularly important in light of the fact that open innovation is best conceptualized as an interactive problem solving process (West & Bogers, 2014). Taking a problem-oriented view, open innovation implies an interactive problem solving process with mutual knowledge flows between the focal firm and the external knowledge actors (Nickerson & Zenger, 2004). The shift towards selective revealing within such interactive problem solving relationships creates tensions in the governance of knowledge flows in open innovation, in particular with respect to two governance dimensions: control over the process of creating and utilizing intellectual assets, and incentives for knowledge creation and sharing (Majchrzak, Jarvenpaa, & Bagherzadeh, 2014). Selective revealing has negative effects on control, as the focal firm cannot exclude the external source from using the shared knowledge (Kathan et al., 2015). Selective revealing may also facilitate the process of governing knowledge flows. Sharing motivates external actors to engage more deeply in the knowledge exchange, to invest their own time and resources, or even to strategically align their own activities more closely with the focal firms (Alexy, George, & Salter, 2013).

In light of this contradictory logic, this paper complements the current discussion towards ‘control’, which is dominated by a focus on control over legal intellectual property rights (IPR), with a behavioral perspective. Taking an organizational control theory lens, we argue that there is an alternative control mechanism that is less concerned with the direct control of (potentially emerging or existing) know-how, and its usage through legal ownership and usage rights. Instead of controlling the ownership or usage of intellectual assets, firms may opt for behavioral control (Kirsch, 1996), which allows firms to mutually monitor, evaluate, and influence the routines, procedures, and activities carried out during knowledge exchange processes in open innovation.

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