The paradox of open innovation in Slovenian firms

• DOI: https://doi.org/10.13169/prometheus.38.3.0292
• Pages: 292-309
• Published date: 20 December 2022
• Date: 20 December 2022
• Author: Daša Farčnik,Tjaša Redek,Sonja Šlander

Prometheus 292

RESEARCH PAPER

The paradox of open innovation in Slovenian firms

Daša Farčnik, Tjaša Redek and Sonja Šlander*

School of Economics and Business, University of Ljubljana, Slovenia

ABSTRACT

Innovation and open innovation are expected to strengthen firm performance. The learning pro-

cess and inbound activities are particularly important for catch-up countries and firms. The

empirical evidence, though, is incomplete and provides inconclusive results. This paper studies the

role of open innovation activities in a sample of Slovenian firms. Using a combination of survey

data and official registry financial statements data, we investigate the differences in the role of

open innovation across firms with different productivity. The results show that open innovation is

more important in less productive firms. This is consistent with the theoretical ideas that stress the

role of learning, capacity building and knowledge transfer. However, these firms also invest less in

open innovation activities, which is a paradox in itself, introducing an important challenge for man-

agers as well as questions for future research.

Introduction

This paper explores the relationship among open innovation in firms, their innovative performance

and productivity in Slovenia. The concept of innovation, where companies rely primarily on their

internal sources and R&D to support their development process, has changed over the last 15 years,

with open innovation increasingly gaining in importance. The paradigm of open innovation was

first introduced by Chesbrough (2003) to emphasize the importance of using external sources to

stimulate the internal growth of a company. External factors, such as cooperation with partners, the

search for externally available sources or scanning for new technologies are seen as important

inputs for innovative performance (see Paasi et al., 2013). In open innovation theory, the contribu-

tion of such external factors to firm-level innovation is referred to as inbound open innovation

activities. While it is characterized mainly by relationships among businesses, it also has clear

implications for firms that search for relevant knowledge inputs in relationships with universities

(Hughes, 2011). Chesbrough et al. (2006) stress the role of outbound activities, where firms can

distribute their unused technology, share knowledge or license to promote innovation activity in

other firms.

Open innovation is gaining increasing attention in the literature (Bogers et al., 2017), most

concentrating on its impact on innovative performance (Zhao et al., 2016). However, empirical

research indicates that its complexity and heterogeneity make the effects of open innovation on firm

performance hard to investigate (Ahn et al., 2015). In theory, open innovation in firms will increase

their overall innovation performance, which either increases value added through better products

(product innovation) or lower costs (process innovation). Consequently, open innovation is expected

to impact firm productivity positively. Yet, empirical results have been far from unanimous and the

topic requires further research (Lopes and de Carvalho, 2018).

*CONTACT: sonja.slander@ef.uni-lj.si

ACCEPTING EDITOR: Martin Meyer

DOI:10.13169/prometheus.38.3.0292

Daša Farčnik, Tjaša Redek and Sonja Šlander293

The goal of this paper is to broaden the existing literature by studying the role of the open

innovation activities of firms in Slovenia1 and their relationship with general innovative perfor-

mance and productivity. Our analysis draws on a survey of open innovation in 220 Slovenian firms.

The data were merged with data from registry-based financial statements to obtain a full overview

of firm performance. The study examines (1) the characteristics of open innovation in Slovenian

firms and possible effect of open innovation activities on firms’ general innovative performance,

and (2) the effect of open innovation on firm productivity.

The results show that the impact of open innovation on productivity differs by productivity

class, with less productive firms exhibiting a larger impact. The results are consistent with the

catch-up model: the less advanced have more to learn (see Prašnikar, 2010, for a discussion on

Slovenia). Interestingly, these less productive firms also invest less in open innovation activity.

The remainder of the paper consists of five sections. First, we outline the relationship of

open innovation, innovation and productivity, based on the review of the existing empirical litera-

ture. Then we examine the links among open innovation, innovative performance and productivity

of firms in Slovenia. To do this, we first explain the methodology and present some characteristics

of the open innovation model in Slovenia. This is followed by the discussion of the empirical model

and results on the impact of open innovation on productivity in Slovenia.

Open innovation, innovation and productivity

The impact of open innovation on the capacity of firms to innovate and grow has been a flourishing

research topic over the last decade. In this section, we outline the state of research to date. This will

serve as the baseline for the development of our model and hypothesis.

The relationship between open innovation and innovation performance

First, we want to analyse the relationship between open innovation and firm innovation perfor-

mance. Firm innovation performance refers to the success obtained by enterprises through such

innovations as new products, technologies and services (Baregheh et al., 2009). A considerable

body of literature covers this topic, but the results are mixed. For example, Greco et al. (2016) find

diminishing marginal returns to open innovation in industrial and economic innovation; Hernandez-

Vivanco et al. (2018) suggest that open innovation might even hinder innovation efficiency.

Analysing data on inbound and outbound open innovation (OI) processes and performances of 110

worldwide top R&D spending bio-pharmaceutical firms, Caputo et al. (2016) report a negative

effect of open innovation on R&D productivity and revenues to patents (as measures of innovation

performance). Patent growth is not influenced by open innovation or its components. Mixed results

were also reported by Cheng and Shiu (2015), who estimate a positive impact of inbound activities

on radical innovation, but a negative one on incremental innovation, as well as Lazzarotti et al.

(2010) and Wagner (2013). who estimate the effect of several sources of open innovation on innova-

tion performance. Similarly, Vanhaverbeke et al. (2016) discover that OI modes are not always

beneficial in enhancing innovation performance.

The relationship between OI and innovation performance is also shown to be non-linear.

This means open innovation increases innovation performance only up to a certain point because

relying heavily on external technology sourcing also increases costs of search and coordination

(e.g., Katila and Ahuja, 2002). Laursen and Salter (2006) confirm in their study of 2707 British

manufacturers that there may be a cut-off point at which openness can generate a negative impact

1Slovenia is a small open economy which has relied on the export-led model of growth since gaining its

independence in 1991. Exports were roughly 86% of GDP in 2020 (Statistical Office of the Republic of

Slovenia, 2021).