Performance of Australian biotech SMEs: the impact of formal open innovation, absorptive capacity and innovation

Abstract

The Australian biotechnology (biotech) industry is mostly comprised of small and medium-sized enterprises (SMEs), a global leader in innovation where inter-organisational collaboration is common, and high performing. In the extant literature, formal open innovation, absorptive capacity, and innovation are established organisational practices and capabilities which enhance biotech firm performance. However, these performance drivers have not been statistically tested to determine their impact on Australian biotech SME performance, as is done in this thesis. Senior management surveys from 58 biotech SMEs were performed, representing approximately 16.9 per cent of the population. Multiple linear regressions show that absorptive capacity (ability to acquire, assimilate, transform, and exploit knowledge) positively impacts performance (sales and profit growth). This finding is expected, as biotech SMEs would have high levels of absorptive capacity. The regressions also provided mixed results for innovation types and novelty. New-to-Australia service innovation and new-to-world, new-to-Australia, and overall process innovations are associated with performance improvement, most likely due to increased effectiveness and efficiency of organisational actions. New-to-world product innovation negatively impacts profit growth and this finding may be as a consequence of the high costs involved. Contrary to findings in other contexts, formal open innovation (in-licensing, out-licensing, joint R&D, and joint commercialisation activities) is negatively associated with performance. However, formal open innovation is positively correlated with absorptive capacity. Thus, the cross-sectional research design of this thesis limits the long-term impact of formal open innovation on performance. As innovation is a long-term investment for biotech companies, perhaps the negative impact of formal open innovation on performance is short-term where these companies may only reap economic benefits in the long-term. Other factors may include formal innovation collaboration with competitors, increased costs of innovation development, the time lag associated with returns on innovations, asymmetrical partnerships in formal open innovation engagement, and disadvantages of licensing agreements. This thesis informs the literature of the importance of absorptive capacity as being more ideal than formal open innovation for Australian biotech SMEs to enhance performance. This thesis also informs the literature and managerial practice on the importance of formal open innovation in developing absorptive capacity, and cautions Australian biotech SMEs against reliance on formal open innovation to enhance innovation outputs and performance. Instead, biotech SMEs should direct their resources towards formal open innovation engagement to develop absorptive capacity, which in turn enhances performance. Biotech SMEs should also direct their resources to develop new-to-Australia service and new-to-world process innovations as opposed to new-to-world product innovation. Furthermore, the Australian Federal Government should initiate measures to promote the performance benefits of absorptive capacity to biotech SMEs and help these firms develop it. The Federal Government should also promote the performance benefits of new-to-Australia service innovation and new-to-world process innovation and create awareness of the performance risks of formal open innovation engagement and new-to-world product innovation to biotech SMEs.