Organizing for Inbound Open Innovation: How External Consultants and a Dedicated R&D Unit Influence Product Innovation Performance

Firms increasingly acquire technological knowledge from external sources to improve their innovation performance. This strategic approach is known as inbound open innovation. The existing empirical evidence regarding the impact of inbound open innovation on performance, however, is ambiguous. The equivocal results are due to moderating factors that influence a firm's ability to acquire technological knowledge from external sources and to transform it into innovation outputs. This paper focuses on a relevant yet overlooked category of moderating factors: organization of research and development (R&D). It explores two organizational mechanisms: one informal and external-oriented (involvement of external consultants in R&D activities) and one formalized and internal-oriented (existence of a dedicated R&D unit), in the acquisition of technological knowledge through R&D outsourcing, a particular contractual form for inbound open innovation. Drawing on a capabilities perspective and using a longitudinal dataset of 841 Spanish manufacturing firms observed over the period 1999-2007, this paper provides a fine-grained analysis of the moderating effects of the two organizational mechanisms. The involvement of external consultants in R&D activities strengthens the impact of inbound open innovation on innovation performance by increasing marginal benefits of acquiring external technological knowledge through R&D outsourcing. Moreover, it reduces the level of inbound open innovation to which the highest innovation performance corresponds. Instead, the existence of a dedicated R&D unit makes the firm less sensitive to changes in the level of inbound open innovation, by reducing marginal benefits of acquiring external technological knowledge through R&D outsourcing, and increases the level of inbound open innovation to which the highest innovation performance corresponds. The results regarding the role of informal and formalized R&D organizational mechanisms contribute to research on open innovation and absorptive capacity, and also inform managers as to what organizational mechanism is recommended to acquire external technological knowledge, depending on the objectives that the firm pursues.