There is considerable evidence on the benefits to firms of what has been called 'open innovation'. Open innovation suggests that in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own knowledge to generate innovation. Instead, they also need to draw on knowledge outside the firm and combine this with internal knowledge to develop new innovations.
In this project we aim to test the hypothesis that the benefits of increased open innovation stretch well beyond an individual firm. For example, more widespread adoption of open innovation may lead to more effective knowledge sharing between firms and creating new applications and income streams. Second, more widespread adoption of open innovation may lead to demonstration or learning effects, which could enhance the effectiveness of individual firms' implementation of open innovation. Either mechanism may generate positive industry-level benefits, effects which are likely to be stronger the more widespread the adoption of open innovation in an industry.
Economists call this type of effect 'positive externalities' - positive effects which benefit society but which would not be taken into account by individual firms in their decisions about whether or not to adopt an open innovation model. At a national level, this could lead to a relatively low level of openness in innovation which is seen as optimal by each firm but does not maximise the total benefits to the economy as a whole. Evidence of externalities would provide a justification for policy intervention to promote 'openness' and national innovation performance.
Testing our hypothesis about these positive externalities requires data on the dynamics of open innovation. This would enable us to consider, for example, whether open innovation become more common through time and how this has influenced firms' innovation performance and the extent of any positive externalities. Over the last two decades the applicants - with others - have built a unique longitudinal or dataset on individual firms' innovation organisation and performance in Ireland and Northern Ireland. This covers the period 1991 to 2009 and comprising information from six representative postal surveys including a total of around 5,000 observations. The data includes information on two key aspects of open innovation; the extent and nature of external knowledge sources in innovation; the extent and nature of internal knowledge sharing within the firm, through the use of cross-functional skill groups in innovation.
The longtitudinal nature of our data will enable us to evaluate the firm-level benefits of open innovation and to test our hypothesis relating to positive externalities from increased 'openness'. The results will have practical benefits both for firms and for public policy. Understanding the firm-level dynamics of open innovation will lead to ideas for upgrading managerial practice to maximise the private benefits of open innovation. If the 'spillover' dynamics of open innovation prove positive, this would provide support for new public policy agendas around the active promotion of openness in innovation.