Open at birth? Why new firms do (or don’t) use open innovation

• Date: 01 September 2018
• Author: Anne Greul,Simon Bock,Joel West
• Published date: 01 September 2018
• DOI: http://doi.org/10.1002/sej.1282

SPECIAL ISSUE ARTICLE

Open at birth? Why new firms do (or don’t) use

open innovation

Anne Greul

1

| Joel West

2

| Simon Bock

3

1

TUM School of Management, Technische

Universität München, Munich, Germany

2

School of Applied Life Sciences, Keck

Graduate Institute, Claremont, California

3

TUM School of Management, Technische

Universität München, Munich, Germany

Correspondence

Joel West, School of Applied Life Sciences,

Keck Graduate Institute, Claremont, CA

91711.

Email: kgi@joelwest.org

Research Summary: Open innovation is about firms harnessing

knowledge flows across firm boundaries, but limited research has

examined the nature and antecedents of these flows for start-up

firms, as well as the interdependence of inbound and outbound

flows. From a new sample of start-up firms making 3D printers,

we show how their degree of openness for inbound and outbound

knowledge flows relates to the firms’initial capabilities and found-

ing intentions. From this, we suggest that the patterns of openness

are influenced more by initial factor endowments than a firm-

specific process of emergent strategy development.

Managerial Summary: Innovative firms often face trade-offs

between open and proprietary strategies, particularly in industries

and segments where online communities and other collaborations

provide a pool of shared knowledge for the entire industry. This

study illuminates these trade-offs by comparing the choices made

by the founders of 3D printer manufacturers. For products based

on modular systems, it shows the range of choices that firms have

on their degree of inbound openness (using external technology)

and outbound openness (sharing their own technology)—as well as

the interdependencies of these choices. Finally, it points to long-

term implications of early entrepreneurial decisions: firms that

leverage external technology can enter markets more quickly, but

their innovation options will be limited unless they have capabili-

ties for proprietary innovation.

KEYWORDS

competitive advantage, human capital, knowledge, modularity,

selective revealing

1|INTRODUCTION

Open innovation allows firms to profit from innovation when they lack the end-to-end vertically integrated capabili-

ties to create and commercialize innovations. By partnering with external organizations, firms can harness inbound

Received: 23 May 2015 Revised: 3 June 2017 Accepted: 20 June 2017 Published on: 03 April 2018

DOI: 10.1002/sej.1282

Copyright © 2017 Strategic Management Society

392 wileyonlinelibrary.com/journal/sej Strategic Entrepreneurship Journal. 2018;12:392–420.

or outbound knowledge flows to fill gaps in internal capabilities (Chesbrough, 2006; Lee, Park, Yoon, & Park, 2010).

However, openness carries with it certain risks and other costs (Dahlander & Gann, 2010; Enkel, Gassmann, & Ches-

brough, 2009).

Managers who embrace openness face the practical question of how open is open (or closed) enough—including

when, how, and how much to open, so they can satisfy the goals of both external partners and the ability of the

firm to capture proprietary returns (Balka, Raasch, & Herstatt, 2014; West, 2003; West & O’Mahony, 2008). An

important potential partner for open innovation strategies is an innovation community (Dahlander, Frederiksen, &

Rullani, 2008; West & Lakhani, 2008), which can provide external knowledge flows that enable entrepreneurial

entry (Dahlander, 2007; Gruber & Henkel, 2006). At the same time, when working with communities, firms must

decide whether to allow outbound flows of knowledge that might aid rivals (Alexy, George, & Salter, 2013; Hen-

kel, 2006).

Despite the recent popularity of open innovation research (Chesbrough & Bogers, 2014), important gaps

remain. First, there has been almost no research on how open innovation is practiced by new or young firms

(Brunswicker & van de Vrande, 2014; West & Kuk, 2016). Second, open innovation research has emphasized the

use of inbound knowledge flows rather than how firms consider simultaneously both inbound and outbound flows

(Burcharth, Knudsen, & Søndergaard, 2014; West & Bogers, 2014).

In this study, we ask two related questions: how do new firms utilize both inbound and outbound open

innovation—both in terms of degree and mechanism—and why do they make such choices. We ask these questions

in the context of the new industry of consumer 3D printers, products that integrate computer hardware and soft-

ware into an IT system. Our study draws on a new dataset of 144 3D printing start-ups, combining archival data

and interviews with founder-managers of young firms. We use that data to develop a series of propositions and a

conceptual model linking firm capabilities, intellectual property (IP) strategies, and founder intentions (as defined by

Shah & Tripsas, 2007) to a firm’s choice of inbound and outbound openness.

Our sample offers new insights into the Mintzberg (1978) conception of emergent strategy. Most of the firms

were similar in using an emergent approach for identifying market niches and building products to serve those

niches. However, they realized different trajectories that appeared influenced by two crucial pre-founding differ-

ences: the strength of the technical human capital of their founders and the motivations of the founders for launch-

ing their firms. Our study suggests that most of the firms launched based on inbound innovation are fundamentally

different from other firms, but that such inbound openness is an imperfect substitute for firm capabilities. From this,

we identify opportunities for future research on entrepreneurship and open innovation.

2|THEORETICAL BACKGROUND

Open innovation is defined as the intentional management of inbound and outbound flows of knowledge for firms

to advance their innovation strategies, by which firms leverage external partners both as sources of innovation and

paths for commercializing their own innovations. These knowledge flows may or may not require a monetary pay-

ment such as a royalty (Bogers & West, 2012; Chesbrough, 2003, 2006; Dahlander & Gann, 2010).

However, one major gap in open innovation research is understanding its use by small and new firms. The evi-

dence for open innovation was originally developed based on studies of large multinational firms, such as IBM, Intel,

and Procter & Gamble, that have long histories of success in creating and commercializing innovation (Chesbrough,

2003, 2006). Only more recently have scholars examined the use of open innovation practices in smaller firms

(Brunswicker & van de Vrande, 2014; van de Vrande, de Jong, Vanhaverbeke, & de Rochemont, 2009). Because

they lack complementary assets, such firms often need external commercialization partners, but face ongoing chal-

lenges winning these partners (Teece, 1986; Vanhaverbeke & Cloodt, 2006). Although the propensity for open inno-

vation increases with firm size, even medium-sized firms rarely seek to leverage outbound flows (Brunswicker & van

de Vrande, 2014).

GREUL ET AL.393