Searching Widely or Deeply? The Impact of Open Innovation on Innovation and Innovation Performance Among Indonesian Manufacturing Firms

Abstract

Since the term Open Innovation (OI) was coined by Henry Chesbrough in 2003, OI studies have been frequently conducted. Surprisingly, OI insights, in the context of Indonesian firms, are scarce. Furthermore, there are no existing OI studies that use data derived from innovation surveys. Hence, this study attempts to close the gap in the literature, by providing insights into Indonesian firms’ openness toward external knowledge, and its impact on innovation performance. The main aim of this study is to investigate the impact of OI practices on Indonesian manufacturing firms’ propensity to innovate (i.e. their product, process, organization, and marketing) and innovation performance. Product and process innovations are grouped under the term technological innovation, while organization and marketing innovations are classified as non-technological innovation. Data used in this study were derived from the Indonesia Innovation Survey (IIS) 2011 that covered the period from 2009-2010. Following Laursen and Salter’s (2006) study, OI indicators consist of external search breadth (i.e. the number of external sources or search channels that firms rely upon in their innovative activities) and depth (the extent to which firms draw deeply from the different external sources or search channels) in innovation process. Undertaking logistic and tobit regressions, this study shows that in general, both breadth and depth significantly and positively affect technological and non-technological innovation, as well as innovation performance. However, the over-search on external knowledge, measured by breadth squared and depth squared, negatively and significantly influence innovation and innovation performance. This indicates that too much external knowledge, sourced during the innovation process will diminish the return of innovation. This study also finds an indication of a complementary relationship existing between internal R&D and external knowledge; meaning that the implementation of one knowledge-sourcing strategy (either sourcing from internal R&D or external knowledge) increases the marginal returns from another. Lastly, important implications related to theoretical and innovation strategies are proposed.

Linking open innovation, innovation barriers and performance of Indonesian firms

“…This suggests that the depth of external sourcing information is positively associated with innovation performance. In the previous studies, both external search breadth and depth positively influence the share of product innovation new to the market of Indonesian manufacturing firms (Hartono and Kusumawardhani, 2018) as well as in the UK manufacturing firms (Laursen and Salter, 2006). While external R&D has a positive marginal impact on the share of product innovation new to the firms, the acquisition has a negative impact on the share of incremental innovation.…”

“…Studies on firm openness and innovation performance relationship in both developing and developed economies tend to support Laursen and Salter's (2006) work. An OI study using data from IIS 2011 found that firm openness, that is measured by external search breadth and depth, positively influence innovation performance of Indonesian manufacturing firms (Hartono and Kusumawardhani, 2018). However, decreasing returns in over searching on external search breadth and depth also can be found among Indonesian manufacturing firms.…”

Cash Holdings and R&D Intensity with Different Controlling Shareholders

“…Previous findings have extensively documented that cost is the most important feature of R&D (Hartono & Kusumawardhani, 2018;Brown et al, 2012;Himmelberg & Petersen, 1994). R&D activities are massive investments consisting of payments to highly skilled employees and extensive capital expenditure.…”

Pengaruh Inovasi Terbuka Terhadap Kinerja Inovasi Pada UKM di Indonesia

“…Dalam hal ini, Walsh et al, (2016) berpendapat bahwa kolaborasi heterogen (yaitu, universitas-industri) meningkatkan kualitas penemuan sementara kolaborasi vertikal (yaitu, kolaborasi dengan pemasok atau pelanggan) meningkatkan tingkat komersialisasi. Menurut Hartono & Kusumawardhani (2018) kerjasama dengan lembaga penelitian dan universitas juga berpengaruh positif terhadap inovasi.…”