Inward or outward? Direction of knowledge flow and firm efficiency

Abstract

Open innovation literature has focused on the excellence of open innovation strategy, factor analysis of open innovation, and firms' performance measurement according to open innovation types. However, few studies have compared firms' technical efficiency in their opening direction when performing open innovation strategy. This study compared the technical efficiency of four different open innovation strategies (inward, outward, both, and closed) and analysed the associated factors. To measure the technical efficiency and technology gap ratio among the different strategic groups, we introduced stochastic frontier analysis and meta-frontier analysis in terms of open innovation. The results showed that, first, companies opening both directions hardly achieve higher technical efficiency than those with unidirectional (in-or out-wards) strategy, and second, an inward direction of knowledge flow changes companies to achieve high potential, whereas an outward direction of knowledge flow helps companies achieve high efficiency. Therefore, we insist that the direction of open innovation strategy conditions firms' technical efficiency. This study enriches the empirical bodies in the open innovation literature and provides managerial implications to corporate leaders who consider an open innovation strategy for productivity gains.