Exploring the impact of open innovation on firm performances

Abstract

Purpose – The purpose of this paper is to explore the relationships between the openness of firms and their innovation and financial performances. Design/methodology/approach – In order to investigate such relationships, data on inbound and outbound open innovation (OI) processes and performances of 110 worldwide top research and development (R & D) spending bio-pharmaceutical companies are collected via the consolidated annual reports and the PATSTAT database. The time period of the analysis is 2008-2012. Findings – Regarding innovation performances, R & D productivity and revenues to patents ratio decrease with openness, whilst patents growth is not influenced by OI adoption. As to financial performances, sales growth exhibits a positive trend with openness, while operating profit and turnover decrease with OI adoption. Particularly, an inverted U-relationship with inbound and a U-shape one with outbound are observed as of operating profit. Research limitations/implications – The study adds to the knowledge about the effect of openness on firms’ performances, a topic of increasing interest to academics, managers and policy makers. Both inbound and outbound facets of the phenomenon are taken into account. Practical implications – Understanding how openness affects performances enables more informed decision making by managers, leading to a more effective use of OI activities. Originality/value – The work provides new insights as to what “being open” means for a company, gauging both inbound and outbound transactions after a pecuniary perspective. Employing objective and continuous measures, the relevance of OI for the whole business of firms can be identified.