Contingency fit between open innovation and product market strategy: Evidence from Japanese firms

Abstract

This research shows the contingency fit between open innovation and product market strategy. Prior research studies these two managerial concepts separately. This study combines these research streams and shows the contingency fit between them. To investigate open innovation in detail, this study analyzes open innovation from two aspects: external search breadth and depth. This study investigates the effects of these concepts on three research and development (R&D) outcomes: innovation performance, new product development (NPD) speed, and firm performance. This study uses questionnaires and archival data from Japanese firms. The results show that cost leadership strategy has a positive effect on firm profitability. Differentiation strategy has a positive effect on all three R&D outcomes. External search breadth barely has a positive effect on any of the R&D outcomes. External search depth has a positive effect on firm performance. When firms implement a cost leadership strategy, external search breadth has a positive and significant effect on both innovation performance and NPD speed. Under the same conditions, external search depth negatively correlates with innovation performance and firm performance. These results show that narrow and deep collaboration enhances R&D outcomes. Last, neither external search breadth nor depth has a significant effect on any of the R&D outcomes when firms implement a differentiation strategy. This study shows that open innovation by firms improves their R&D outcomes especially when firms select a cost leadership strategy. This research complements two prior research streams and indicates the possibilities and limitations of open innovation