Impacts of sporadic versus persistent openness
on firms’environmentalinnovation
Caroline Mothe
IREGE, University Savoie Mont Blanc, France
Uyen T. Nguyen-Thi
Luxembourg Institute of Socio-Economic Research (LISER), Luxembourg
Abstract
The antecedents of environmental innovationand the impact of openness on technological innovation have been well studied, yet the role of external knowledge search remains largely unknown. This study explores whether sixdimensions of open search (external R&D, acquisition, R&D cooperation, and three types of external information sourcing) enhance firms’ environmental innovation when used either sporadically or persistently.The results provide strong evidence of a positive impact of market sourcing and external R&D for environmental innovation. Radical environmental innovation benefits more from market sourcing and R&D cooperation, whereas incremental environmental innovation depends more on external R&D. A curvilinear relationship arises between the variety of open search strategies and environmental innovation. Finally,persistent open search strategiestend to have positive impacts on radical innovation, though only for firms with absorptive capacity.
Keywords: Absorptive capacity; Environmental innovation; Incremental/radical; Openness; Persistence.
- Introduction
A growing literature focuses on environmental innovation (EI) and its determinants, including both regulatory and institutional frameworks and supply- and demand-side factors (e.g., Cainelli et al., 2011, 2015; Del Rio Gonzalez, 2009; Horbach, 2008). Firms that are persistent innovation leaders encourage EI (Chassagnon and Haned, 2015);Fleith de Medeiros et al. (2014) identify four critical success factors for environmentally sustainable product innovation: market, law, and regulation knowledge; interfunctional collaboration; innovation-oriented learning; and R&D investments. Environmental product innovation in this context refers to market introductions of new or significantly improved goods or servicesthat reduce environmental harms (e.g., emissions, waste, energy).Despite considerable recent research on open innovation, empirical studies of the relationship between information sourcing and EI are scarce.
External knowledge search strategies may drive EI (De Marchi and Grandinetti, 2013; Triguero et al., 2013).Ghisetti et al. (2015),assessingthe relationship between the depth and breadth of knowledge sourcing anda firm’s propensity to introduce EI, show that knowledge sourcing enhances various types of EI performance, suggesting that intensive, broad interactions benefit EI, but deepening or broadening knowledge sourcing beyond a threshold level can be adverse. Cainelli et al. (2015) also consider the specific roles of internal, external, and hybrid resources and find that networkingthrough R&D cooperation (present and past) is more important for EI than for other types of innovation, as are hybrid innovation resources (e.g., acquisition of R&D services or developed machineries).
These analysesindicate a role of openness for EI, yet they fail to adopt a holistic view of openness that includes its variousforms. Ghisetti et al. (2015) focus on information sourcing,Cainelli et al. (2015) consider R&D cooperation and acquisition. An intertemporal perspective is also missing, largely due to the lack of data.Therefore, in an effort to extend extant research, we propose a more global approachin which access to external knowledge might occur through knowledge sourcing but also through R&D acquisition and sharing strategies. Similar to Lööf and Johansson (2010), we also integrate the notion of persistence in open search strategies to track the intertemporal impact of openness onfirms’ EI.
In so doing, we test the impact of various persistent openness strategies on different types of product EI (incremental/radical, clean technologies/end of pipe), in response to Cainelli et al.’s (2015) call for research into whether the impacts of various resources vary across EI types. As an underlying hypothesis, we predict that openness is a long-term process by which firms consolidate their competencies, so that persistent or continual open search strategies can enhance EI. The two major EI types we consider refer to the production stage (clean technologies) and the product’s final use stage (end of pipe). Previous studies show that end-of-pipe technologies typically represent responses to regulations, whereas cleaner production technologies get implemented to increase manufacturing efficiency and reduce operational costs (Arundel and Kemp, 2009). We also distinguish incremental from radical EI to determine if the type of openness varies withthe level of novelty of an EI.
Integrating these various notions produces a complex research question: “Should firmspersist in their knowledge sourcing to innovate environmentally, and if so, which types of knowledge sourcing are most beneficial for radical/incremental, clean technologies/end of pipe EI?”In an open world, inbound search strategies are the focus of both academic studies into on the role of openness and external knowledge acquisition on firms’ technological innovation performance (e.g., Laursen and Salter, 2006; Leiponen and Helfat, 2010) and of public policies (e.g., clusters, science parks). This increased attention to EI leads to our effort to determine the influence of being persistently open across various EIsearch strategies. We rely on data from the Community Innovation Survey (CIS) for periods 2004–2006 and 2006–2008 to do so.
- Literature review
Connecting with the external world through R&D acquisition, R&D cooperation, and external information sourcesshould enable firms to develop better knowledge-based capabilities and improve product EI(incremental or radical). Large, broad external searches should facilitate EI, especially of radical nature.
2.1.Environmental innovation and open search strategies
Firms make two important decisions about their strategies to search for external knowledge. First, they choose whether to use external knowledge. More openness enables them to leverage external research, complements internal R&Dand augments traditional R&D activities with external technologies (Chesbrough, 2006). Second, if they choose to search for external knowledge, firms select among different modes to access it: cooperation, information sourcingor acquisition.
Cooperation in R&D should increase internal absorptive capacities and EI. By engaging in external relations, firmscan reduce the duplicated R&D efforts, risks, and costs often associated with innovation as well as benefit from economies of scale or scope and access technology that is not available in the market (Hagedoorn, 1993). Collaboration enhances EI by enabling economies of scale, especially for firms in the same sector (Cainelli et al., 2011) and with industrial associations, public and private entities (Del Rio Gonzalez, 2009) and environmentally concerned stakeholders (Wagner, 2007). Empirical results also converge in suggesting that formal cooperation with external partners benefits EI even more than it does other types of innovations (Del Rio et al., 2013; De Marchi, 2012; Horbach, 2008).Cooperative networks with universities and public institutions drive EI (Cainelli et al., 2011; De Marchi, 2012; Triguero et al., 2013); Horbach et al. (2013) cite the significant influence of R&D cooperation during 2006–2008 in Germany, though only for innovations with environmental benefits for the firm (process innovations). In China, firms with more efficient, broad external networks (with suppliers, competitors, consumers, research institutes, environmental protection agencies, media, and local residents) conduct more EI (Cai and Zhou, 2014).One study did not find any significant influence of collaborationwith competitors, suppliers, or customers on EI (Cuerva et al., 2014), result which may reflect the study’s focus on low-tech SMEs.
External information sources are vast and varied, including customers, competitors, suppliers, and research institutions. Innovative firms seemingly connect to highly diversified sets of agents through technical networks and exchange useful information. When their innovation draws on many external sources of ideas and information, firms can increase their chances of success. Leiponen and Helfat (2010) demonstrate that broader innovation objectives and knowledge sources are associated with successful innovation, and successful innovators exhibit links to information and collaboration networks. Thus, open innovation likely involves multiple external sources of information, such as clients, suppliers, consultants, government agencies, government laboratories, and university research labs. In line with Ghisetti et al. (2015), we identify three sets of important external sources: market (competitors, customers, suppliers), institutional (universities, governments, public research institutes), and others (journals, professional standards).
The acquisition of embodied technology or external R&D also enables firms to access resources and knowledge from third parties.The influence of a strategy to acquire valuable resources or expertise from the marketplace (Dahlander and Gann, 2010) on EI is uncertain; extant results are mixed in relation to the acquisition of patents or other external knowledge. Some evidence indicates they are not significantly more important for EI than for other innovations (e.g.,Del Río et al., 2013; De Marchi, 2012; Horbach et al., 2012), whereas other studies offer the opposite empirical results (De Marchi and Grandinetti, 2013). According to these arguments, we test the following hypothesis:
Hypothesis 1: Open search strategies positively influence EI.
Although the role of openness varies according to the technological regime and industry maturity (Christensen et al., 2005), collaboration modes and external knowledge sources appear particularly important for EI adoption, relative to non-EI implementation. However, previous studies mainly focus on one type of openness, such as knowledge sourcing (Ghisetti et al., 2015) or collaboration with external partners (Cainelli et al., 2011; De Marchi, 2012; Triguero et al., 2013). Cainelli et al.’s (2015) comprehensive framework of internal, external, and hybrid resources for EI suggests that environmental innovators possess more extensive external relationships and acquire more equipment than non-environmental innovators. These various partners and information sources should contribute different resources and technological capabilities, which can improve and complement the firm's own innovation resources (Nieto and Santamaria, 2007). The more diverse knowledge and competences required to develop an innovation (as in the case of EI), the more the firm needs external resources, whether obtained by collaborating with external organizations, acquiring technology, or accessing diverse information sources (Cainelli et al., 2015).
However, open search strategies might benefit innovation only up to a certain point. Using patent data, Katila and Ahuja (2002) find a curvilinear, inverted U-shaped relationship between search depth and scope and innovative performance, such that they assert some firms “over-search.” With a large sample of industrial firms from the U.K. CIS and different measures of search strategies, Laursen and Salter(2006) confirm this result: Searching widely and deeply is curvilinearlyrelated to technological innovation performance.To the best of our knowledge, Ghisetti et al. (2015) are the only onesto have studied the effect of knowledge sourcing (breadth and depth) on EI. They indicate that the impact of depth is not bounded, but the benefits of a broad sourcing strategy stop increasing beyond a certain level. Some knowledge variety is required to achieve EI, but broadening the external search too much can expose the firm to negative results, with various theoretical explanations. For example, maintaining deep links with too many externalresources requires resources and attention (Laursen and Salter, 2006), and these resources also might be redundant or offer inconsistent information signals (Ghisetti et al., 2015).The intensive use of just a few, new sources of innovation also appearespecially important for radical innovation (Laursen and Salter, 2006). In line with the attention-based theory of the firm (Ocasio, 1997), too much knowledge sourcing may demand too much organizational and managerial energyor cognitive attention, which would hamperefforts toimplement EI especially (Ghisetti et al., 2015). This type of innovation is relatively new for many firms, so the complexity and distance of external knowledge required to support EI,and the relative absence of managerial competencesfor absorbing it,likely imposegreater stress on firms’ attentionresources. Accordingly, we posit:
Hypothesis 2: There is an inverted U-shaped relationship between the variety of open search strategies and EI.
Kesidou and Demirel (2012) find that recurrent investments enable important energy and material savings, for both end-of-pipe and integrated solutions. Horbach et al. (2012) add that machinery acquisition has peculiar effects on the propensity to introduce EI. Other studies find no significant effect (De Marchi, 2012), yet Cainelli et al. (2015), in a study of 4829 Spanish manufacturers, find that hybrid resources, such as equipment acquisitions (but not patents), are more relevant for EI than for non-EI.
This conceptual framework highlights the importance of considering different types of openness to explain EI capabilities. However, we know of no previous attempts to investigate them empirically within a single framework (cf. various information sources included by Ghisetti et al., 2015). Noting the importance of openness and external search strategies for firms, especially environmental innovators that require more diverse sources and partners (De Marchi, 2012), we seek a deeper understanding of the consequences of open search strategies for EI. Therefore, we integrate research into the persistence of innovation (Clausen et al., 2012; Lhuillery, 2014) and the impact of being a persistent innovator (Chassagnon and Haned, 2015) to argue that open search strategies must be persistent for the firm to reap their full EI benefits. For example, some search strategies might not exert an impact at one point in time t but could offer benefits when used persistently for a period of time.
In line with Lööf and Johansson’s (2010) analysis of the advantage of persistent R&D for firm growth, we posit that persistent searches for external knowledge increase the firm’s knowledge assets, in the form of scientific and technical solutions. This stock must be up to date at all times andrenewed constantly.With persistent open search efforts, a firm also builds skills, procedures, and routines for conducting innovation activities. That is, the development of routines for innovation activities provides capabilitiesfor both continuing external search efforts and absorbing knowledge flows. Such capabilities cannot be acquired through one-shot external search but instead develop over time in processesof learning and shaping of routines. We respond to Ghisetti et al.’s (2015) calls for further research on the impact of various knowledge providers on the introduction of different types of EI and explore whether knowledge search strategies have differentiated impacts, according to whether they are used sporadically or persistently. Thus:
Hypothesis 3: The more persistent the open search, the greater the firm’s capacity to develop EI.
2.2.Radical vs. incremental environmental innovation and openness
The impact of openness may differ according to the degree of innovation, which reflects the magnitude of change or degree of innovation novelty (Gatignon et al., 2002). The most common distinction cites incremental versus radical innovation and regards innovation as a continuous phenomenon. An initial, radical, innovative product launches, then subsequent improvements occur through incremental innovations, at the product or process level, to enhance diffusion (Lhuillery, 2014). Innovations areincremental when marked by slight improvements that use existing technologies and target existing markets. Radical innovations instead result in market or technology discontinuities, such as new technologies for existing markets or existing technologies for new markets.
Because radical innovation shifts the technological regime, it can lead to changes in enabling technologies. This type of innovation is often complex and likely to involve non-technological changes,as well as mobilize diverse actors and information sources. Radical EI might include the development of radical, breakthrough technologies or reconfigurations of product–service systems (e.g., closing the loop from resource input to waste output; OECD, 2012).Because radical innovation likely involves a greater degree of discontinuity in the sources of innovation, previously used knowledge sources may become obsolete. Therefore, Laursen and Salter (2006) predicts that a few new sources of innovation, usedintensively, benefit radical innovations. They show that more radical innovations reduce the effectiveness of external search breadth for improving innovative performance, whereas external search depth becomes more effective.This result has been confirmed for EI (though with no distinction between radical and incremental EI; Ghisetti et al., 2015), such that knowledge sourcing has a positive impact on EIperformance (i.e., probability of introducing an EI and extending the number of EItypologies adopted), but broad sourcing creates a threshold beyond which this propensity diminishes. However, we know of no previous analyses of the impact of openness on EI that distinguish radical from incremental innovation.
We assume that firms use open search strategies more for radical than for incremental EI. Previous research notes the limits of openness,in terms of cognitive constraints for processing knowledge inputs (Ghisetti et al., 2015), which might explain why open innovation is used particularly to foster radical innovations. Inauen and Shenker-Wicki (2012) reveal that companies that emphasize inside-out open innovation are more likely to create radical innovations and sell more new products. Companies pursuing closed innovation are more likely to exhibit better incremental innovation performance.O’Connor (2006: 26), in a qualitative study of 12 potential radical innovation projects by established, large firms, concludes that “radical innovation must be open innovation,” but for open innovation to encourage radical innovation, it needs to be managed in balance with internal capability developments. A company that wants to develop radical innovations, by definition, stretches the boundaries of what it knows. Thus, it needs access to diverse external sources. Previous research shows that EI requires more cooperation with external partners (Cainelli et al., 2015; De Marchi, 2012), more knowledge sourcing (up to a certain point, Ghisetti et al., 2015), and more hybrid resources (Cainelli et al., 2015); we go further to predict that these findings hold especially for radical EI. Firms make choices when designing open strategies that can be costly in terms of financial and human needs, as well as in cognitive and organizational terms, and the moreradical the innovation, the greater the associated uncertainty andrisk.Therefore:
Hypothesis 4: Open search strategies are more relevant for radical EI than for incremental EI.
2.3.Environmental innovationand absorptive capacity
Openness and boundary-spanning activities may be essential to speed up innovative processes and improve innovation performance (Laursen and Salter, 2006), but a firm still must be endowed with an adequate absorptive capacity to use the knowledge it has acquired effectively in its innovation processes. The ability to assimilate and exploit external knowledge is a critical component of innovative performance (Cohen and Levinthal, 1990), with two main benefits: This ability allows the firm to identify which specific external knowledge itneeds for its innovation and then assimilate that knowledge and employ it effectively. The transformation of external knowledge, as reflected in the concept of absorptive capacity (Cohen and Levinthal, 1990), creates the potential benefits of openness (Dahlander and Gann, 2010).From this perspective, external sourcing of knowledge cannot replace in-house R&D but instead complements the internal technology base. If absorptive capacity is inadequate, knowledge sharing offers fewer direct benefits for the firm’s innovation capability.