Open Innovation Practices and Sustainability Performance in Small and Medium Industries

Abstract

Sustainability performance is the achievement of an organization in economic, environmental, and social dimensions by considering the interests of stakeholders. Achieving a high sustainability performance is a challenge for not only large industries but also Small and Medium Industries (SMIs). In order to achieve high sustainability performance, an organization needs to innovate in its operations, especially in activities related to the environment, employees, society, and ethics. Conducting innovation needs resources, both financial and nonfinancial, which are very limited in the SMIs. To overcome the problem of limited resources, SMIs can implement open innovation that utilizes both internal and external resources. Open innovation has three types of practices which are inbound, outbound, and coupled. This study aims to identify the relationship between the three open innovation practices and sustainability performance in the SMIs. The respondents of this study are 125 SMIs which produce batik in Indonesia. The model is tested using the partial least square. The result shows a significant relationship between inbound open innovation and economic and environmental performance; outbound open innovation and environmental and social performance; and coupled open innovation and social performance.