When Does Search Openness Really Matter? A ContingencyStudy of Health-Care Innovation Projects*Torsten Oliver Salge, Tomas Farchi, Michael Ian Barrett, and Sue Dopson
Given the growing popularity of the open innovation model, it is increasingly common to source knowledge for newproduct ideas from a wide range of actors located outside of organizational boundaries. Such open search strategies,however, might not always be superior to their closed counterparts. Indeed, widening the scope of knowledge sourcingat the ideation stage typically comes at a price given the substantial monetary and nonmonetary costs often incurredin the process of identifying, assimilating, and utilizing external knowledge inputs. Considering both the benefits andcosts of search openness, the authors develop a project-level contingency model of open innovation. This modelsuggests that search openness is curvilinearly (taking an inverted U-shape) related to new product creativity andsuccess. They hence assume that too little as well as too much search openness at the ideation stage will be detrimentalto new product outcomes. Moreover, they argue that the effectiveness of open search strategies is contingent upon thenew product development (NPD) project type (typological contingency), the NPD project leader (managerial contin-gency), and the NPD project environment (contextual contingency). To test these propositions empirically, multi-informant data from 62 NPD projects initiated in the English National Health Service (NHS) were collected. Theeconometric analyses conducted provide considerable support for a curvilinear relationship between search opennessand NPD outcomes as well as for the hypothesized contingency effects. More specifically, they reveal that explorativeNPD projects have more to gain from search openness at the ideation stage than their exploitative counterparts.Moreover, the project-level payoff from search openness tends to be greater, when the project leader has substantialprior innovation and management experience, and when the immediate work environment actively supports creativeendeavors. These findings are valuable for NPD practice, as they demonstrate that effective knowledge sourcing hasmuch to contribute to NPD success. In particular, pursuing an open search strategy might not always be the best choice.Rather, each NPD project is in need of a carefully tailored search strategy, effective leadership, and a supportiveclimate, if the full value of external knowledge sourcing is to be captured.
Introduction
S ourcing new and recombining old knowledge areactivities at the very heart of new product devel-opment (NPD) (Nonaka and Takeuchi, 1995).
Traditionally, the knowledge search processes required
have been limited to the focal organization and its imme-diate environment. With the recent emergence of the openinnovation model, however, innovative search increas-ingly goes beyond organizational and technologicalboundaries drawing on a diverse and distant set of exter-nal actors and knowledge sources (Rosenkopf andNerkar, 2001). As a result, suppliers, users, universities,and other external actors are now often understood asimportant partners for innovation (Chesbrough, 2003).Given the growing popularity of the open innovationmodel, it is paramount to understand the costs and ben-efits of open search strategies. Despite important recentresearch in this area (e.g., Almirall and Casadesus-Masanell, 2010; Laursen and Salter, 2006; Leiponen andHelfat, 2010), the literature is in need of development inat least three important ways.
First, open innovation research does not addressadequately the costs of search openness and its specificboundary conditions (Di Benedetto, 2010). This is notunproblematic, as recent studies have uncovered that the
Address correspondence to: Torsten Oliver Salge, School of Businessand Economics, RWTH Aachen University, Kackertstrasse 7, 52072Aachen, Germany. E-mail: [email protected]. Tel: + 49 (0) 234-3225722.
* We would like to thank the two anonymous reviewers, the editorialteam, Rajiv Kohli, Mark Taylor, Roberto Vassolo, Chander Velu, PhilipYetton, as well as participants of the 2010 Academy of Management AnnualMeeting in Montréal for their helpful comments on earlier versions of thispaper. All remaining errors and omissions are of course entirely our own.We are also most grateful to the regional National Health Service (NHS)innovation hub, its staff, as well as all participating respondents for theirtime and effort invested in this research project. This study was supportedin part by the Economic and Social Research Council (PTA-031-2006-00317), the National Institute for Health Research (NIHR) Collaborationsfor Applied Health Research and Care based at Cambridge and Peterbor-ough, UK, and the NIHR Biomedical Research Centre based at Oxford,UK.
value of open innovation depends on product complexity(Almirall and Casadesus-Masanell, 2010), productnovelty, and firm absorptive capacity (Laursen and Salter,2006), as well as industry membership (Grimpe andSofka, 2009). These initial findings suggest that the openinnovation model is all but uniformly superior to itsclosed counterpart and points to the need for a moresystematic exploration of key contingency factors(Huizingh, 2011). Second, empirical research on opensearch strategies and their effect on innovative perfor-mance has hitherto focused on the aggregate firm ratherthan the individual project. This is an important researchgap to address, as projects constitute not only the primaryengine of NPD (Shenhar and Dvir, 2007), but also thelocus where specific knowledge search strategies are typi-cally crafted and executed (Haas, 2010; Hansen, 1999).Moreover, project management scholars have long calledfor a management approach that is tailored to the specificnature and context of each individual project (Shenharand Dvir, 2007). Distinct projects are thus likely to differin their payoff from open search strategies, even when
they are located within the same organization. Contin-gency studies on open innovation are hence needed espe-cially at the project level. Third, previous empiricalstudies on the role and relevance of search openness werepredominantly located in high-tech industries includingrobotics (Katila, 2002), optical disks (Rosenkopf andNerkar, 2001), and manufacturing (Laursen and Salter,2006). However, open innovation principles have alsobeen adopted by private and public sector service provid-ers (Chesbrough, 2011). Empirical research on opensearch strategies in a broader range of settings includingservices is thus clearly warranted (Grimpe and Sofka,2009).
This paper addresses these gaps by developing aproject-level contingency model of open innovationtested in the context of public health-care services. Themodel proposes that the costs of open search will exceedits benefits at some point, such that the level of searchopenness will be curvilinearly related (taking an invertedU-shape) to new product performance. Moreover, theconceptual model distinguishes three project-level con-tingency factors expected to affect the payoff from searchopenness at the ideation stage, namely NPD project type(typological contingency), the NPD project leader(managerial contingency), as well as the NPD projectenvironment (contextual contingency). Drawing onmulti-informant data from 62 NPD projects initiatedwithin public health-care organizations of the EnglishNational Health Service (NHS), this study finds broadempirical support for these theoretical arguments. TheNHS is a complex institution consisting of severalhundred distinct organizations, many of which areactively involved in innovation activities. In 2006–2007,the 173 NHS hospital organizations alone conductedmore than 23,000 research and development (R&D)projects and attracted external R&D grants of over 730million British Pounds. The data set employed in thisstudy reflects the wealth of NPD efforts in the NHS andincludes projects related to the development of newdrugs, medical devices, clinical therapies, and diseaseprevention.
The remainder of this paper is organized as follows.The next section introduces the contingency model andpresents the theoretical arguments underpinning thehypotheses. The subsequent section describes the studydesign, the variable measurement, as well as the estima-tion procedures employed to test the propositions.Empirical results are then presented. The final sectiondiscusses the main findings and contributions of thisstudy, outlines a number of practical implications, andsketches several directions for future research.
BIOGRAPHICAL SKETCHES
Dr. Torsten Oliver Salge is a professor of technology and innovationmanagement at RWTH Aachen University, Germany. He received hisPh.D. from the University of Cambridge, U.K., where he completed hisdoctoral thesis on innovation in public services and conducted postdoc-toral research on open innovation in financial services. His currentresearch focuses on collaborative innovation, innovative search, andorganizational learning.
Dr. Tomas Farchi is an assistant professor of organizational behavior atthe IAE Business School, Argentina. He received his Ph.D. from theUniversity of Oxford, U.K. He is also a recipient of a National Institutefor Health Research grant to study novel forms of coordination inbiomedical research. His research interests include the epistemology ofexpert knowledge and the sharing of knowledge across boundaries,especially in the public and health-care sectors.
Dr. Michael Ian Barrett is a professor of information systems and inno-vation studies at the University of Cambridge, U.K. He holds a Ph.D.from the same university and is currently a member of the SteeringBoard of the Cambridge Service Alliances as well as a member of theManagement Executive Group of the Collaborations for Leadership inApplied Health Research and Care at Cambridge University. His currentresearch interests are among others service innovation in health care,collaborative innovation in financial markets, and social innovation inemerging economies.
Dr. Sue Dopson is a Rhodes Trust professor of organizational behaviorat the University of Oxford, U.K.; faculty dean at Saïd Business School,Oxford; and dean of Green Templeton College, Oxford. A former per-sonnel manager in the National Health Service, she is also a foundingdirector and current member of the Oxford Health Care ManagementInstitute. Her current research focuses on the personal and organiza-tional dimensions of leadership and transformational change, especiallyin the public and health-care sectors.
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Theory and Hypotheses
Open Innovation and Search Openness
The notion of permeable organizational boundaries liesat the heart of the open innovation model (Chesbrough,2003). Ideas, knowledge, and other resources canhence in principle flow in and out of organizations aspart of increasingly collaborative innovation processes.Today, organizations across a wide range of sectorsdemonstrate considerable levels of openness both intheir inbound (e.g., technology in-licensing or knowl-edge sourcing) and outbound (e.g., technology out-licensing or knowledge revealing) innovation activities(Dahlander and Gann, 2010). Openness in knowledgesourcing, or search openness as it is labeled in thispaper, is at the center of this study and can be under-stood as “the number of different sources of externalknowledge that each [organizational entity] draws uponin its innovative activities” (Laursen and Salter, 2004, p.1204). Search openness is particularly meaningful at theideation stage, where staff members search for new andpromising ideas for their next NPD project. Increas-ingly, such search for new ideas reaches beyond orga-nizational boundaries in an attempt to generate novelNPD ideas by leveraging, integrating, or recombiningthe ideas, discoveries, and knowledge of external actorssuch as customers, suppliers, competitors, or universi-ties. Despite the growing acceptance of the open inno-vation approach, there has been little researchexamining the project-level costs and benefits of searchopenness as well as its boundary conditions. For thisreason, this paper develops and tests a project-level con-tingency model of search openness and the associatedhypotheses pertaining to (1) the overall project-levelpayoff from search openness as well as to the moderat-ing roles of (2) the NPD project type (typological con-tingency), (3) the NPD project leader (managerialcontingency), and (4) the NPD project environment(contextual contingency).
Project-Level Benefits and Costsof Search Openness
Whereas previous research has focused on the benefits ofopen innovation, this paper builds on the assumption thatgreater search openness at the ideation stage of NPDprojects is likely to be associated with both substantialbenefits and costs. In particular, it is argued that themarginal costs of greater search openness exceedthe marginal benefits at some point, as a result of
which the relationship between search openness and keyNPD outcomes is likely to take a curvilinear shape.
Benefits. Search openness is commonly expected toenhance the quantity, quality, and diversity of informationthat can be accessed by the NPD project team(Chesbrough, 2003). Such information is likely to pertainto both unmet customer preferences (need information)and novel approaches to address them (solution informa-tion) (von Hippel, 1994). In health care, consultingpatients during the ideation phase might provide the NPDproject with relevant information on preferred attributesof clinical and nonclinical services. Interactions withmedical schools, professional associations, or key suppli-ers such as medical device manufacturers in turn arelikely to enhance the team’s access to solution informa-tion. This may be potentially useful for addressingexpressed or latent patient needs. It is precisely byopening up the ideation process that NPD project teamscan increase their exposure to complementary and het-erogeneous knowledge, providing more opportunities for“recombination of existing ideas from different sourcesinto new products” (Tschang, 2007, p. 989). Conversely,myopic search entirely constrained to the local context ofthe NPD project is likely to yield less novel and usefulrecombinations.
However, there are also monetary and nonmonetarycosts associated with greater openness. At stake area range of financial and human resources, requiredfor absorbing—that is, identifying, assimilating, andutilizing—external knowledge (Cohen and Levinthal,1990).
Identification costs. NPD projects face identificationcosts associated with (1) the access to and (2) theevaluation of external information inputs. First, NPDproject teams seeking to access external knowledge willhave to engage in resource-intensive search activitiesgiven that the external actors possessing relevant knowl-edge are often not known ex ante (Hansen, 1999; Hansen,Mors, and Løvås, 2005). In a health-care setting, suchboundary-crossing search efforts might involve forinstance the organization of patient workshops or bench-marking events or the participation in scientific confer-ences. A considerable investment of NPD project teams’attention, time, and money is required for this purposeand likely to increase with higher search openness. This isdue in part to the greater geographical, cognitive, andcultural distance that needs to be overcome between theNPD project team and the various external knowledgesources (Rosenkopf and Nerkar, 2001).
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Second, NPD project members will have to evaluatethe external knowledge inputs, as they might be irrelevantfor their particular project. Even worse, external ideasand information might be biased and misleading so as toadvocate the vested interests of the information senderrather than to help the information receiver (Haas, 2010).A supplier of a particular medical technology for instancemight share information with the intention of making itsown offerings indispensable. To detect such issue sellingbehavior and the associated influence risks (Dutton andAshford, 1993), NPD project teams will have to assessthe value of all external knowledge inputs. Especially inthe absence of formal intellectual property (IP) protec-tion, this is not easy, as the external actor might be selec-tive in revealing the content of the knowledge possessed.The complexity and costs of evaluation are expected toincrease with search openness given the need to assess agreater number and diversity of knowledge inputs.
Assimilation costs. NPD projects engaging in opensearch strategies will also be confronted with assimilationcosts. These pertain to (1) the transfer and (2) the inter-nalization of external knowledge. First, NPD projectmembers will need to persuade the external actor to fullyreveal its ideas and knowledge and to facilitate the trans-fer process (Hansen et al., 2005). The actual transfer oftacit, i.e., noncodifiable knowledge in particular is likelyto be further complicated by the problem of knowledgestickiness (von Hippel, 1994). It is often only by estab-lishing and maintaining direct and trusting relationshipsbetween the parties involved that this problem can beovercome (Hansen, 1999). Consider the example of asupplier with expertise in fast polymer molding technolo-gies. This knowledge might be beneficial for developinga new service that provides patients with a tailor-madehearing aid during a single session. However, much of theknowledge involved is tacit and can only be transferred tothe NPD project team through time-consuming learning-by-doing in close cooperation with the supplier. Thetransfer of external knowledge can thus be a complexendeavor associated with substantial costs. These areexpected to increase markedly with the number and diver-sity of external actors contributing knowledge at the ide-ation stage.
Second, external knowledge inputs need to be inter-nalized by all relevant NPD project members. Theso-called “not invented here” (NIH) syndrome, whichrejects external ideas as being inferior to internal ones(Katz and Allen, 1982), is likely to give rise to time-consuming negotiations and resistance within the team.Internalization costs can be increased even further if NPD
project members lack prior related knowledge. If theteam is to fully understand and assimilate external inputs,substantial investments in project team absorptive capac-ity will be required (Cohen and Levinthal, 1990). TheNIH syndrome and the problem of lacking prior relatedknowledge are both likely to occur more frequently withgreater quantity, distance, and diversity of externalknowledge inputs.
Utilization costs. Finally, NPD project teams willencounter utilization costs associated with (1) the inte-gration of diverse knowledge inputs and (2) the appro-priation of value. First, NPD project members will needto recombine and integrate external and internal knowl-edge inputs (Hargadon and Sutton, 1997). While diversityof knowledge inputs is essential to create novel combi-nations, excessive heterogeneity associated with highlevels of search openness tends to trigger considerableintegration problems. One likely challenge stems frompossible inconsistencies among the various externalinputs (Almirall and Casadesus-Masanell, 2010). In ahealth-care setting for instance, regulatory bodies,medical device suppliers, research institutes, or profes-sional bodies might provide ideas that could each helpsolve a particular problem, yet might be too diverse to beintegrated into a coherent concept.
Second, the focal NPD project team might be con-strained in its ability to appropriate returns from a specificcombination, even when the knowledge integration itselfwas successful (Teece, 1986). In particular, externalactors might not be willing to forfeit their IP rights, mightclaim that their IP has been misappropriated, or mighteven seek IP protection silently (Reitzig, Henkel, andHeath, 2007). In addition to problems potentially associ-ated with diffuse property rights, external actors mightwish to influence the development trajectory of the NPDproject not least to tailor it to their own interests, causingadditional coordination and potential opportunity costs(Almirall and Casadesus-Masanell, 2010). The likelihoodof potential appropriation challenges is expected toincrease with the number of external partners contribut-ing knowledge to a specific NPD project.
Table 1 provides a summary of the various costs asso-ciated with search openness.1
1 Some of these costs might be reduced, though not entirely eliminated,by outsourcing specific search activities to specialized entities. However,this is likely to come at the price of higher coordination costs, which willtend to increase with the scope of outsourced search activities. The authorswould like to thank one of the anonymous reviewers for highlighting thisimportant point.
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Search Openness, New Product Creativity,and New Product Success
The benefits and costs outlined above are expected toshape the impact of search openness on both new productcreativity and new product success. New product creativ-ity, that is, the extent to which a product or service isnovel and useful (Amabile, Conti, Coon, Lazenby, andHerron, 1996) is known to thrive on the recombination ofpreviously unconnected ideas (Woodman, Sawyer, andGriffin, 1993). When search at the ideation stage occursonly locally, knowledge inputs tend to lack the varietyneeded to trigger truly novel recombinations. However,not only too little, but also too much search openness canbe detrimental for new product creativity. This resultsfrom the fact that nonmonetary search costs are likely toincrease rapidly, as project members broaden theirsearch. In particular, the identification, assimilation, andutilization of more and more distant and heterogeneousknowledge inputs will be increasingly challenging(Laursen and Salter, 2006). NPD project members willhence have to dedicate ever more attention and time to themere absorption of external knowledge—scarceresources that might be lacking elsewhere in the creativ-ity process. Once a certain level of search openness hasbeen reached, external knowledge will also becomeincreasingly redundant, incompatible, and irrelevant, thusoffering decreasing marginal benefits. There might hencebe an optimal level of search openness with decrementsin new product creativity to either side of this point.
As for new product success, that is, the extent to whicha product or service is economically viable (Gatignon,
Tushman, Smith, and Anderson, 2002), a similar trade-off between exposure to and manageability of variety isexpected. In addition to the arguments advanced withregards to new product creativity, new product success islikely to be affected by the monetary costs associatedwith search openness. Such costs include among othersexpenses for additional staff, training, traveling, orin-licensing. These costs tend to increase notably withgreater search openness and will have an increasinglydetrimental effect on the overall economic viability of anNPD project. Overall, moderate rather than very low orvery high levels of search openness at the ideation stageof NPD projects should thus be most beneficial for newproduct creativity and new product success. Hence:
H1: Search openness will be curvilinearly associated(taking an inverted U-shape) with (a) new product cre-ativity and (b) new product success.
The Moderating Role of the NPD Project Type
It is well known that organizations will have to find adelicate balance between exploitation and exploration tosustain superior performance (March, 1991). Organiza-tions are hence advised to craft ambidextrous innovationstrategies that advocate the improvement of already exist-ing as well as the creation of entirely novel products,services, or processes (Tushman and O’Reilly, 1996).This can be achieved by adopting a portfolio approach toNPD (Cooper and Kleinschmidt, 1995), as innovationstrategies are translated into a number of exploitative andexplorative projects (Faems, Van Looy, and Debackere,2005). Consistent with insights from project management
Cost drivers Number of external sources Number of external sources Number of external sourcesDistance to external source Distance to external source Heterogeneity of knowledgeUnrelatedness of knowledge Unrelatedness of knowledge Incompatibility of knowledgeLevel of information asymmetries Tacitness of knowledge Resistance to changeRisk of influencing behavior Extent of NIH syndrome Risk of opportunistic behavior
Illustrative example Cost of conducting a patientworkshop to collect needinformation on nonclinical services
Cost of learning to use a novelmolding technique for the rapiddevelopment of hearing aids
Costs of integrating inconsistentknowledge inputs from a broad setof actors in health care
Selected studies Haas (2010) Hansen (1999, 2002) Carlile (2002)Hansen et al. (2005) Laursen and Salter (2006) Katila and Ahuja (2002)
Notes: Costs can be monetary as well as nonmonetary and include opportunity costs.NIH, not invented here.
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research highlighting the diverging requirements of dis-tinct project types (Shenhar and Dvir, 2007), exploitativeand explorative NPD projects are expected to have dis-similar demands in terms of the knowledge inputsrequired at the ideation stage.
Exploitative NPD projects focus on improving alreadyexisting products, services, or processes (March, 1991).As such, they strive for incremental innovations servingthe current needs of existing customers (Benner andTushman, 2003). Given their specific mandate, exploit-ative NPD projects might have little to gain from greateraccess to distant and highly diverse need and solutioninformation, calling for local rather than distant search(Stuart and Podolny, 1996). The financial, human, andcognitive resources dedicated to open search might thusfail to generate tangible returns for exploitative NPDprojects.
Explorative NPD projects in turn are dedicated to thediscovery of new opportunities by creating entirely novelproducts, services, or processes (March, 1991). Asexplorative NPD projects seek to uncover uncharted ter-ritories in search of radical departures from current offer-ings, related knowledge accessible through local search islikely to be of limited value. Instead, NPD project teamswill place a premium on identifying distant and diverseknowledge inputs to fuel their creative recombinationefforts (McGrath, 2001). Explorative NPD projects aretherefore expected to benefit from open search, makingthe commitment of financial, human, and cognitiveresources a viable investment.
Overall, it is argued that the contrasting purposes ofexploitative and explorative NPD projects have a notableeffect on the respective balance between the benefits andcosts of search openness. Exploitative NPD projects havelittle to benefit from greater exposure to diverse anddistant knowledge given their focus on incrementalrefinements of existing offerings. For explorative NPDprojects, in contrast, diversity of knowledge inputs is ofsubstantial value in that it fuels the creative recombina-tion processes that are often at the origin of more radicalinnovations (Tschang, 2007). As for the costs of searchopenness, exploitative NPD projects are likely to experi-ence substantial identification, assimilation, and integra-tion costs. These costs might be somewhat lower thanthose incurred by explorative NPD projects, provided thatthe members of exploitative projects are able to selectonly closely related knowledge inputs, thereby loweringsubsequent assimilation and utilization costs. On balance,however, the net payoff from search openness should behigher for explorative NPD projects than for exploitativeNPD projects. The NPD project type is hence expected to
play an important moderating role, such that search open-ness will be more valuable for explorative NPD projectsthan for their more exploitative counterparts both in termsof new product creativity and in new product success.Thus:
H2: The positive effect of search openness on (a) newproduct creativity and (b) new product success will bestronger for explorative NPD projects than for exploit-ative NPD projects.
The Moderating Role of the NPD Project Leader
A number of studies have highlighted the vital role of theproject leader in the NPD process (Norrgren and Schaller,1999), with the level of his or her prior experience beingparticularly salient (Marsh and Stock, 2003). This is dueto the assumption that NPD project leaders learn fromexperience (Verganti, 1997). As such, they are expected tocarry forward the knowledge, routines, and networksdeveloped in previous projects. Leaders’ effectiveness insteering NPD projects should hence increase with theirlevel of prior experience in managing projects in NPD andbeyond. As a result, NPD project teams guided by expe-rienced leaders should be better positioned to increase thebenefits and lower the costs of search openness.
NPD project leader experience is likely to benefit theteam’s ability to capture value from open search strate-gies in a number of ways. First, experienced projectleaders are expected to have better opportunity recogni-tion and knowledge recombination capabilities than theirless experienced peers, thereby contributing to the emer-gence of more novel and useful ideas (Marsh and Stock,2003). Second, experienced NPD project leaders tend tobe perceived as having higher expectations for creativity,as a result of which project members’ motivation for thecreative recombination of external knowledge inputs islikely to increase (Carmeli and Schaubroeck, 2007).Third, experienced NPD leaders might be more effectiveat helping their project teams navigate the uncertainties ofnew product commercialization (Verganti, 1997).
As for the costs of search openness, it is argued thatproject leaders’ prior experience will contribute to low-ering the identification, assimilation, and utilization costsassociated with absorbing external knowledge (Cohenand Levinthal, 1990). First, NPD projects led by experi-enced managers are expected to incur lower knowledgeidentification costs. More specifically, experienced NPDproject leaders are more likely to possess already a well-established network of external contacts willing to sharetheir knowledge and ideas (Ancona and Caldwell, 1992),hence reducing the cost of accessing external knowledge.
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Similarly, leaders’ ability to assess the value of externalknowledge tends to increase with prior experience(Marsh and Stock, 2003), thus reducing the cost of evalu-ating external knowledge. Second, experienced projectleaders can contribute to lower assimilation costs by cre-ating more effective knowledge processing and recombi-nation routines within the NPD project team (Thieme,Song, and Shin, 2003). In particular, project leaders’ priorexperience of interacting with external sources will helpestablish mutual trust, shared communication frames, andappropriate transfer mechanisms that can reduce the costsand challenges associated with transferring externalknowledge (Uzzi, 1997). In addition, project leaders’prior experience might enhance their appreciation ofexternal knowledge inputs as well as their stock of priorrelated knowledge required to process such stimuli(Cohen and Levinthal, 1990), thereby potentially lower-ing the cost of internalizing external inputs. Finally, aproject leader’s experience can boost NPD performanceby reducing knowledge utilization costs. Such cost reduc-tion can result in particular from using prior experience toestablish more effective management routines (Sarin andMcDermott, 2003). The latter in turn can facilitate thecombination of disparate knowledge inputs into a coher-ent idea or enhance the transparency of IP arrangements,which might be reflected in a lower cost of integratingexternal knowledge and appropriating the value thereof.
Overall, the experience of the NPD project leader islikely to play a crucial moderating role in the contingencymodel enhancing the ability of NPD project members totranslate greater search openness into more creative andsuccessful new products. Therefore:
H3: The positive effect of search openness on (a) newproduct creativity and (b) new product success will bestronger the higher the level of prior experience of theNPD project leader.
The Moderating Role of the NPDProject Environment
As the final contingency factor in the model, a supportiveNPD project environment is thought to amplify thepayoff from search openness at the ideation stage. Inparticular, it is suggested that NPD projects enjoyingstrong work group support will be able to increase thebenefits and lower the costs of search openness vis-à-vistheir less supported counterparts.
As for the benefits of search openness, high workgroup support is likely to have several potentially benefi-cial effects on project members’ ability to reap the fullvalue of their external knowledge sourcing efforts. First,
mutually supportive relationships among members of awork group tend to enhance the novelty and usefulness ofideas that result from the creative recombination ofdiverse knowledge inputs (Amabile et al., 1996). Morespecifically, supportive behaviors—such as encouragingidea development or providing useful feedback toimprove ideas—foster the intrinsic motivation of NPDproject members, which in turn promotes novel ways offraming and combining external and internal stimuli.Second and relatedly, work group support facilitatesfluid communication within the NPD project team. Indoing so, it contributes to the continuous sharingand constructive challenging of ideas among projectmembers—processes known to fuel divergent thinkingand the creative recombination of diverse knowledgeinputs (George and Zhou, 2001). Third, the supportprovided by coworkers will encourage NPD projectmembers to dedicate considerable motivational and cog-nitive effort to resource-intensive open search activitiesthat will often involve personal sacrifices such as longworking hours or extensive traveling.
As for the costs of search openness, a supportive workgroup can potentially help reduce the identification,assimilation, and utilization costs typically incurred byNPD project teams as part of their open search activities(Cohen and Levinthal, 1990). First, NPD projects withstrong work group support are expected to demonstratelower knowledge identification costs. In particular, thefluid communication and knowledge sharing amongmembers that characterize highly supportive NPDproject environments might well result in higher aware-ness of the opportunities and challenges related to thepool of external knowledge sources (George and Zhou,2001). This might constitute an important advantage thatis likely to translate into lower costs of accessing andevaluating external knowledge inputs. Second, support-ive behaviors might contribute to lower knowledgeassimilation costs. This proposition is based on the ideathat strong work group support facilitates a constructivedialogue on the value of specific external knowledgeinputs and the possible challenges associated with itsassimilation. Such collaborative interactions are likely todeepen project members’ understanding and acceptanceof external stimuli obtained through open search strate-gies, thus contributing to lower costs of transferring andinternalizing external knowledge inputs. Finally, highwork group support may reduce knowledge utilizationcosts. In particular, coworkers’ feedback can provideuseful information that improves the process of integrat-ing external and internal knowledge into novel andcoherent solutions.
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Overall, high levels of work group support areexpected to increase the project-level payoffs fromgreater search openness. Hence:
H4: The positive effect of search openness on (a) newproduct creativity and (b) new product success will bestronger the higher the level of perceived NPD workgroup support.
Figure 1 summarizes the proposed project-level con-tingency model of search openness.
Methods
Setting
This study is located in the context of public health-careservices provided by the English NHS. As a largely tax-funded system, the NHS provides all English citizenswith a full range of health services including primary,acute, and mental care, most of which are free of chargeat the point of delivery (Oliver, 2005). The NHS is ahighly complex institution consisting in 2008 of 10 stra-tegic health authorities overseeing the regional provisionof services; 152 primary care trusts holding 80% of theoverall NHS budget to commission health-care servicesfor their local population; 173 acute trusts, each of whichmanages up to 10 hospitals providing acute care services;as well as a number of mental health, ambulance, andother trusts. Innovation and NPD have become increas-ingly salient in the NHS, where the development of newproducts, services, and processes is perceived as a prom-
ising solution to the dual challenge of quality improve-ment and cost containment. The fact that the 173 NHShospital organizations jointly employ around 24,000 sci-entists in 50 disciplines and manage more than 23,000distinct R&D projects at any one time strikingly illus-trates the sheer scale of the innovation activities con-ducted in the NHS (Salge, 2011). It is therefore alsounderstandable that several innovation-supporting agen-cies such as the National Innovation Centre have beenestablished in the NHS.
Study Design
This study was conducted in cooperation with one of theeight regional innovation hubs overseen by the NationalInnovation Centre. Acting as technology transfer centersfor the NHS, these hubs have been set up to support NPDprojects within the NHS in developing, protecting, andcommercializing new product or service ideas. Collabo-rating closely with this NHS technology transfer center,the research team was able to identify a sufficiently largegroup of NPD projects distributed across nearly 30 NHSorganizations.
The data collection proceeded in three stages. In thefirst stage, 10 semistructured interviews with NPDproject leaders in the NHS were conducted to explore keythemes related to their own NPD experience. These inter-views provided important insights into the nature of NPDwithin the NHS that informed the adaptation of the mea-surement instruments to the specificities of the empiricalcontext. In the second stage, a pretested survey instru-
SearchOpenness
Contextual :Work Group
Support
New ProductSuccess
New ProductCreativity
H1a(∩)
H1b(∩)
H4a(+)
H4b(+)
ControlVariables
Typological :Exploitative versus
Explorative
H2a(+)
H2b(+)
Managerial :Project Leader
Experience
H3a(+)
H3b(+)
direct effect contingency effect
Figure 1. A Project-Level Contingency Model of Search Openness
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ment that was administered in late 2008 among theleaders of all 185 NPD projects that had completed theideation stage and were disclosed for formal review bythe hub between January 2005 and June 2008. The actualsurvey was preceded by an invitation letter from the chiefexecutive of the hub and was followed by two reminders.This procedure yielded useable responses for 62 of the185 NPD projects (33.5%). T-tests comparing respon-dents and nonrespondents as well as early and laterespondents provided no indication of a possible nonre-sponse bias (Armstrong and Overton, 1977). In the thirdstage, all 62 NPD projects were allocated among eightexpert staff members of the technology transfer center,who evaluated the projects in their respective area ofexpertise. This procedure was completed in 2009 andresulted in 62 completed assessments (100%) and excel-lent informant competency measures, indicating thatexperts had sufficient knowledge to carry out theassessment.
Although not immune to possible distortions, thismulti-informant design allowed for a more objectiveevaluation of new product outcomes than typically pos-sible via self-assessments by the NPD project leader.Moreover, using separate informants and instruments tomeasure dependent and independent variables notablyreduced the risk of a possible common methods bias.Overall, this research design and the additional validatinginterviews conducted with NHS innovation expertsincrease the robustness of the findings presented in thispaper.
Measures
Dependent variables. “New product creativity,” thefirst dependent variable in the model, was measured asthe simple arithmetic mean of three reflective items, eachcaptured on a 5-point Likert-type scale ranging from“strongly disagree” to “strongly agree.” The items are“The innovation is particularly creative,” “The innovationstands out in terms of both its novelty and usefulness,”and “The innovation is a very good example of a highlyoriginal solution developed in the NHS.” This instrumentwas adapted from Madjar, Oldham, and Pratt (2002) anddemonstrates high internal reliability with a Cronbach’salpha of .91.
Similarly, the second dependent variable, “newproduct success,” was captured as the simple arithmeticmean of three reflective Likert-type items adapted fromGatignon et al. (2002). The items are “The innovation islikely to be commercially successful,” “The innovationis likely to generate tangible benefits that outweigh its
cost,” and “The innovation is likely to be widely imple-mented.” With an alpha of .87, internal reliability of thisscale is high.
Independent variable. To measure “search open-ness,” an instrument originally introduced as part of theinfluential European Community Innovation Survey wasused. This instrument is meant to assess the importanceof various external knowledge sources in firms’ innova-tion activities and has been employed in several promi-nent open innovation studies (Grimpe and Sofka, 2009;Laursen and Salter, 2006; Leiponen and Helfat, 2010).This catalog of knowledge sources was adapted toaccount for the focus on search strategies at the ideationstage of NPD projects located in public health care. Thisprocess was informed by the initial interviews with NPDproject leaders and intensive discussions with expertsfrom the innovation hub, resulting in a list of 13 knowl-edge sources reported in Table 2. NPD project leaderswere asked to assess the importance of each source forthe actual emergence of their specific NPD project idea,employing a 5-point Likert-type scale ranging from “veryunimportant” to “very important,” with the additionalresponse category of “not used.” Following previousstudies (Laursen and Salter, 2006; Leiponen and Helfat,2010), the level of search openness was captured as thesimple count of the number of knowledge sources thatwere considered as being “important” or “very impor-tant” for the emergence of the specific NPD project idea.This formative indicator of search openness thus rangesfrom 0 to 13, with 0 indicating a closed and 13 indicatinga highly open search strategy.
Moderating variables. To examine the proposedmoderating role of the NPD project type, “exploitativeNPD projects” and “explorative NPD projects” needed tobe distinguished. To do so, all NPD projects in the samplewere positioned on a continuum from exploitation toexploration, assuming that—at the project level—a con-tinuity conception of both constructs would be moreappropriate than an orthogonality conception (Gupta,Smith, and Shalley, 2006). Two 5-point Likert-type itemsprovided the information required to enable such a posi-tioning. In particular, NPD project leaders had to indicatethe extent to which their project sought to (1) “createan entirely novel product, service, or process” or(2) “improve an already existing product, service, orprocess.” NPD projects were then positioned on the con-tinuum from exploitation to exploration as a function ofthe relative importance assigned to each objective. Usingthe median cutoff criterion employed by He and Wong
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(2004) for a very similar purpose, the 31 NPD projectsmost closely related to the exploitation end of the spec-trum were labeled as exploitative and the remaining 31NPD projects as explorative.
To assess the NPD project leader as a second possiblecontingency factor, two distinct measures of projectleader experience were employed. First, the level ofproject leader “NPD experience” as the number offurther new products, services, or processes developed inthe last three years was captured. Second, project leadersprovided information on the total number of staffmembers they managed within their focal organizationas a measure of their prior “leadership experience.” Thisapproach allowed examining the effects of leaders’direct NPD task experience and their more general lead-ership experience, two forms of prior experience thatmight differ in their impact on NPD leadershipeffectiveness.
Finally, to test the moderating role of the NPD projectenvironment, the level of “work group support” was cap-tured as the simple arithmetic mean of four reflectiveitems adapted from Madjar et al. (2002). These items are“Members of my work group are always available todiscuss with me my work-related ideas in order toimprove them,” “Members of my work group are alwayssupportive when I come up with a new idea about myjob,” “Members of my work group give me useful feed-back about my ideas concerning the workplace,” and“Members of my work group are always ready to supportme if I introduce an unpopular idea or solution at work.”An alpha of .89 indicates high internal reliability.
Control variables. As a range of factors other thansearch openness might influence new product outcomes,several potentially confounding variables were controlledfor. First, experts of the NHS innovation hub providedanswers to the item “The innovation is a highly complexproduct or service,” yielding an indicator for “projectcomplexity.” Technologically or architecturally complexnew products or services might be perceived as beingmore creative or successful. More substantially, thedesign of highly complex new products or services mightrequire consulting and integrating a greater number ofdistinct knowledge sources (Laursen and Salter, 2006).Similarly, differences in NPD “project age” measured asthe number of months since the formal disclosure of theNPD project to the hub were accounted for. Older projectsare likely to be more advanced in their development andmight therefore be evaluated more positively with regardsto both their creativity and success. The empirical modelalso included a set of “project category dummies” tocapture whether the project pertained to a new (1) product,(2) service, or (3) information technology. Last but notleast, a set of “organization type dummies” were includedto identify whether the NPD project was developed in a(1) general hospital, (2) specialist hospital, (3) singlespecialty hospital, (4) primary care trust, (5) mental healthtrust, or (6) any other NHS organization.
Analysis
The two dependent variables in the model are restricted tothe range from 1 to 5. As the levels of new product
Table 2. Patterns of New Product Search
Knowledge Source
Importancea
Not Used Very Low to Low Medium High to Very High
1. Colleagues within same department 29.0 9.7 4.8 56.52. Colleagues in other departments 32.3 6.5 11.3 50.03. Supplier of technology, equipment, or consumables 40.3 6.5 12.9 40.34. Service users and/or patients 14.5 6.5 9.7 69.45. Competitors and/or other health-care providers 38.7 17.7 24.2 19.46. External service providers 51.6 9.7 19.4 19.47. Universities and other higher education institutions 61.3 9.7 17.7 11.38. Public research institutes and other public sector institutions 62.9 9.7 21.0 6.59. Conferences, fairs, or exhibitions 50.0 11.3 17.7 21.0
10. Professional or trade associations 53.2 14.5 14.5 17.711. Academic, professional, or technical publications 45.2 11.3 21.0 22.612. Standards, regulations, or guidelines 29.0 11.3 14.5 45.213. Family or friends outside work 43.5 14.5 16.1 25.8
Notes: Data: 62 NPD projects.a Survey question: “How important for the actual emergence of your specific innovative idea were each of the following knowledge sources?” Figures aspercent of NPD projects.
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creativity and success below 1 and above 5 are not cap-tured adequately, the dependent variables are said to bedouble-censored. In case of a strong clustering of thedistribution of the dependent variables at 1 and 5, ordi-nary least squares (OLS) estimates are less appropriate.Similarly, ordered probit estimation is ruled out becauseof the fact that both dependent variables are not discretegiven that they were calculated as simple arithmeticmeans of three 5-point items. A double-censored Tobitestimator in addition to standard OLS is thus employed totest the hypotheses.
Results
NPD Project Overview
The final sample covers a broad range of relevant clinicaland nonclinical NPD initiatives. These pertain to thedevelopment of new products (56.5%), new informationtechnologies (25.8%), and new services (17.7%).Medical or nursing staff initiated 45 of the 62 projects,illustrating the importance of clinical leadership. As fortheir organizational origin, NPD projects emerged inNHS hospitals (74.2%), primary care (12.9%), and otherNHS institutions (12.9%). Specific NPD initiativesinclude a highly commended drug development projectthat seeks to make use of the antiscarring properties ofinsulin to help patients who have been disfigured follow-ing surgery, trauma, or burns. Another NPD project isdedicated to the development of an alternative, minimallyinvasive procedure for prominent ear correction. Thisnovel procedure involves the implantation of a small “earscaffold” made of nitinol to reshape the earflap withouthaving to undergo conventional surgery. With IP protec-tion already well underway, there are plans to exploitthis new technology through an independent spinoutcompany. The hearing aid project already introduced toillustrate the theoretical arguments is equally part of thesample, as is a range of more pragmatic NPD projects. Acase in point is a project dedicated to the developmentand commercialization of a beanbag that allows for amore comfortable elevation of the limbs followingsurgery.
Descriptive Analyses
Descriptive statistics and pairwise correlations for allcontinuous variables employed in this study are availablefrom the authors upon request. These reveal considerableinterproject variation with regards to all key variables andhighlight that the sample contains NPD projects with
completely closed as well as entirely open search strate-gies. It also becomes apparent that NPD project teamsdrew on an average of four distinct knowledge sourcesjudged as “important” or “very important” for the emer-gence of their initial idea. Correlations among indepen-dent and control variables as well as variance inflationfactors are low, suggesting no problems associated withmulticollinearity.
Table 2 depicts the importance of all 13 knowledgesources at the ideation stage of the 62 NPD projects thatconstitute the final sample. Customers—that is, serviceusers and patients—constitute the dominant source ofexternal knowledge and are considered to play an impor-tant role in the ideation phase of nearly 70% of all NPDprojects. This prominence of customers is consistent withearlier firm- (Laursen and Salter, 2006; Leiponen andHelfat, 2010), as well as project-level insights (Cooperand Kleinschmidt, 1986; Knudsen, 2007). Colleagueswithin the same and in other departments of their orga-nization are the second most prevalent knowledge source.Interestingly, standards, regulations, and guidelines areequally among the most important knowledge sources.While health care is known to be a highly regulatedindustry (Salge, 2011), Laursen and Salter (2006) drawsimilar conclusions with regards to manufacturing, wherehealth and safety regulations as well as technical stan-dards rank third and fourth on the list of most importantknowledge sources. Equally in line with prior research(Knudsen, 2007; Laursen and Salter, 2006), universityand other public research organizations are only consid-ered as relevant for a minority of NPD projects.
Regression Analyses
Table 3 presents results from Tobit regression analysesseeking to explain the variation in new product creativityand new product success.2 For each of these outcomevariables, four distinct models are presented. First, a basemodel (models 1 and 5) shows estimates for the controlvariables only. Second, a full model (models 2 and 6)containing the control variables along with the simple andsquared term of search openness is shown. Third, modelestimates based on the subset of exploitative NPDprojects (models 3 and 7) are depicted, followed by theresults based on the subset of explorative NPD projects(models 4 and 8).
H1 suggested search openness to be curvilinearlyrelated (taking an inverted U-shape) to (a) new product
2 For all hypotheses, coefficient estimates from OLS and Tobit regres-sion are qualitatively identical in terms of effect size and significance. Thisis due to the fact that only four observations in the sample are censored.
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creativity and (b) new product success. Coefficient esti-mates for search openness in models 2 and 6 were thusexpected to be positive with regards to the linear term andnegative with regards to the squared term. Consistentwith the theoretical argument, the coefficient estimatesfor search openness demonstrate both the expected alge-braic sign as well as statistical significance at the 10%level or better.3 H1a and H1b are hence supported.Figure 2 graphically depicts the estimated curvilinearlink between search openness and new product perfor-mance, which is more pronounced for new productsuccess than for new product creativity. Especially at lowlevels of search openness, the marginal performancebenefit associated with drawing on an additional knowl-edge source at the ideation stage is considerable. Thatsaid, Figure 2 also suggests that NPD performance isoptimized when six distinct knowledge sources play animportant role in the ideation phase of an NPD project.Beyond that point, the marginal effect of an additionalknowledge source is likely to be negative for both newproduct creativity and new product success.
As suggested by H2, explorative NPD projects wereexpected to benefit notably more from search openness
than exploitative NPD projects, both in terms of (a) newproduct creativity and (b) new product success. The esti-mated effect size for both the simple and the squared termof search openness should thus be greater for the subsetof explorative NPD projects than for the subset of exploit-ative NPD projects. In line with this expectation, models4 and 8 in Table 3 reveal that search openness is indeedstrongly and statistically significantly related to the cre-ativity and success of explorative NPD projects. Models 3and 7, in contrast, do not provide any evidence suggesting
3 Sixteen NPD projects in the sample (25%) relied on six or moresources. The common rule of thumb that at least 10% of all observationsshould be located on either side of the inflection point is thus not violated.That said, the findings are based on relatively few observations, which callsfor large sample replication studies. The authors would like to thank one ofthe anonymous reviewers for highlighting this important limitation.
Table 3. Search Openness, New Product Performance, and the Moderating Role of the NPD Project Type
New Product Creativity New Product Success
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8Base Full Exploitative Explorative Base Full Exploitative Explorative
Notes: We employed a double-censored Tobit estimator with robust standard errors and report marginal effects calculated at means.* p < .10; ** p < .05; *** p < .01; **** p < .001.NPD, new product development.
2
2.5
3
3.5
4
0 1 2 3 4 5 6 7 8 9 10 11 12 13Number of Sources
New
Pro
duct
Per
form
ance
New Product CreativityNew Product Success
Figure 2. Search Openness and New Product Performance
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that greater search openness is in any way beneficial forexploitative NPD projects. H2a and H2b are hence alsosupported.
Following H3, the positive effect of search opennesson (a) new product creativity and (b) new product successwas expected to increase with the level of prior experi-ence of the NPD project leader. To test this proposition,interaction terms of search openness on the one hand andNPD as well as leadership experience on the other wereintroduced. Consistent with standard practice, all inter-acting variables were standardized prior to calculating theproduct term. To support the theoretical arguments, theinteraction terms needed to be positive and statisticallysignificant. The estimation results are depicted inTable 4.4 With regards to new product creativity, the rel-evant interaction terms in models 9 and 10 are positive,but fail to achieve statistical significance for leadershipexperience. Only project leaders’ direct NPD experiencehence appears to strengthen the link between searchopenness and new product creativity. H3a is thus only
partially supported. With regards to new product success,the interaction terms in models 12 and 13 are both posi-tive and statistically significant. This indicates thatproject leaders’ specific NPD as well as general leader-ship experience affect the extent to which greater searchopenness can be translated into more successful newproducts. H3b is thus supported.
Finally, H4 suggested that the positive effect of searchopenness on (a) new product creativity and (b) newproduct success would become stronger with the level ofperceived NPD work group support. In line with thisproposition, the interaction effect between work groupsupport and search openness in models 11 and 14 ispositive. That said, it only achieves statistical significancewith regards to new product success. Work group supportthus appears to help NPD project members in translatinga broader search scope into more successful, though notnecessarily more creative, new products. H4a is thus notsupported, while H4b is.
Post Hoc Analyses
To substantiate these findings, a number of post hocanalyses were conducted. First, interaction terms in non-linear models need to be interpreted with special care, as
4 In line with previous open innovation research (Laursen and Salter,2006), only interaction effects with the linear search openness term arereported, as all interactions with the squared openness term remain statis-tically insignificant and do not improve the overall model fit. This suggeststhat the moderating variables affect the slope of the link between searchopenness and new product performance, but not its curvature.
Table 4. The Moderating Role of the NPD Project Leader and the NPD Project Environment
New Product Creativity New Product Success
Model 9 Model 10 Model 11 Model 12 Model 13 Model 14
Notes: We employed a double-censored Tobit estimator with robust standard errors and report marginal effects calculated at means. Search openness and allthree moderating variables have been mean-centered prior to calculating the interaction terms.* p < .10; ** p < .05; *** p < .01; **** p < .001.NPD, new product development.
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the value, sign, and statistical significance of their coef-ficient estimates do not always correctly reflect the trueinteraction effect (Wiersema and Bowen, 2009).5 Thispotential problem is expected to be less salient in thecase of this study, as the degree of nonlinearity in theempirical model is limited given that only four observa-tions in the sample are censored. That said, additionalanalyses were performed to check the robustness of theconclusions with regards to the moderating role of projectleader experience and work group support. Consistentresults emerged when the moderating hypotheses werereexamined by means of interaction analyses basedon (1) sample-splitting rather than interaction terms,(2) OLS rather than Tobit regression (Feinberg andGupta, 2009), and (3) dedicated nonlinear rather thanstandard linear techniques (Wiersema and Bowen,2009).6 Second, it was tested whether the results weresensitive to the inclusion of control variables. Thisyielded consistent results even when omitting all controlvariables. Third, a set of 13 dummy variables capturingthe specific number of knowledge sources used in eachproject was used to reexamine the hypothesis of dimin-ishing marginal returns to search openness (Leiponen andHelfat, 2010). In line with results from the quadraticregression models, the marginal effect peaks at sixsources and tends to decrease on either side of thatoptimum. Finally, it was examined whether the findingsare robust with regards to possible changes in the classi-fication of exploitative and explorative projects as well asin the measurement of search openness. As for theformer, consistent results emerged (1) when the cutoffcriterion was modified by replacing the median of thedistribution with the midpoint of the scale, (2) whenprojects were categorized solely based on either theexploration or the exploitation item, and (3) when inter-action terms were employed instead of a subsampleapproach. As for search openness, qualitatively identicalresults were obtained when (1) counting also those
sources judged as being “neither important, nor unimpor-tant,” and (2) excluding all knowledge sources locatedwithin the organization of the focal NPD project team.
Discussion and Conclusions
Much of the recent popularity of the open innovationmodel has been triggered by the belief in the performance-enhancing effects of boundary-crossing knowledgesearch (Chesbrough, 2003). The theoretical and empiricalbase supporting this assumption, however, has remainedsurprisingly narrow. To start addressing this limitation, aproject-level model of open innovation was developed. Inparticular, it was suggested that the value of search open-ness at the ideation stage is contingent upon the specificNPD project type (typological contingency), the NPDproject leader (managerial contingency), and theNPD project environment (contextual contingency). Asone of the first empirical studies adopting a contingencyview on inbound open innovation at the project level (cf.Bahemia and Squire, 2010), this study drew on multi-informant data from 62 NPD projects located in Englishpublic health-care services and provided broad supportfor the proposed theoretical model. Consistent with pre-vious firm-level studies, this research revealed an invertedU-shaped relationship between search openness andnew product performance. Going beyond prior work,this study also uncovered that, overall, the project-levelpayoffs from search openness tend to be higher (1) whenthe NPD project is explorative rather than exploitative innature, (2) when the NPD project is coordinated by aleader with more rather than less prior NPD and leader-ship experience, and (3) when the NPD project environ-ment is more rather than less supportive.7
Research Implications
These findings have several important implications forinnovation and NPD research.
Open innovation as a contingent phenomenon. First,this study provides theoretical arguments and empiricalevidence supporting a view of open innovation as a con-tingent phenomenon. In particular, it shows that, althoughbeneficial on average, open search at the ideation stage is
5 As Wiersema and Bowen (2009) point out, the value, sign, and sig-nificance of the true interaction effect might differ over the range of thepredicted values of the dependent variable.
6 More specifically, the procedures proposed by Wiersema and Bowen(2009) were applied to calculate the marginal effect of search openness atselected values of project leader experience and work group support. Fol-lowing common practice, these values were set to the mean, as well as toone standard deviation above and below the mean of project leader expe-rience or work group support. These analyses indicated in particular thathigher values of project leader experience and work group support increasethe impact of search openness on new product success. Bowen (2012) alsorecommended decomposing the total moderating effect in nonlinear modelsinto two components: one associated with the nonlinearity of the model(structural moderating effect) and the other associated with the true inter-action effect of interest (secondary moderating effect). This is less relevantin this study though, as the structural moderating effect in the model withvery limited nonlinearity is likely to approach zero.
7 It is worth noting that the moderating effect of work group support onthe link between search openness and new product creativity fails to achievestatistical significance. That said, the coefficient sign is positive and theeffect size substantial, such that studies based on larger samples might beable to show statistical significance for this relationship as well (cf.Amabile et al., 1996).
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not always the optimal strategy to pursue. Unless certainboundary conditions are present, the costs of search open-ness might even exceed its benefits.
Such costs and challenges are manifold and canpertain—as highlighted in this study—to the threesequential steps of absorptive capacity, that is, to theidentification, assimilation, and utilization of externalknowledge (Cohen and Levinthal, 1990). This process-based classification constitutes a meaningful conceptualcontribution in its own right. In particular, it adds to theextant literature by shifting the focus of attention from thebenefits to the costs of open innovation. This is important,as the treatment of cost issues has hitherto remainedrather partial and generic in the area of open innovation(Dahlander and Gann, 2010). This paper therefore soughtto go beyond extant research by starting to unpack thewell-known absorptive capacity problem to propose asystematic classification of the various costs associatedwith search openness (Laursen and Salter, 2006). Indoing so, this study highlighted that NPD projects facenotable costs and challenges not only when identifyingexternal knowledge, but also when trying to assimilateand utilize such knowledge. This classification mightserve as a useful reference point for future open innova-tion research and highlights that the latter has much tobenefit from a process-based conception of absorptivecapacity (Lane, Koka, and Pathak, 2006).
The finding of diminishing marginal returns to opensearch is relevant in this context in that it suggests that themarginal cost of identifying, assimilating, and utilizingan additional external knowledge input can become sub-stantial enough to exceed the marginal benefit. This isparticularly likely to occur when certain boundary con-ditions are absent. In particular, this study revealed thatdifferences in project type, project leader experience, andwork group support affect the delicate balance betweenthe costs and benefits of search openness. By uncoveringthis hitherto unexplored set of project-level contingencyfactors, this study complements initial insights fromstudies that have started to examine possible contingencyeffects (Almirall and Casadesus-Masanell, 2010; Grimpeand Sofka, 2009; Laursen and Salter, 2006). Consideringthe growing body of project-level and firm-level evi-dence, it becomes apparent that the payoff from openinnovation is likely to vary significantly both across orga-nizations as well as across NPD projects within the sameorganization. Contrary to popular discourse, an openapproach to knowledge search is hence not uniformlysuperior to a closed one. It is against this backdrop thatthis study explicitly points to the costs and contingenciesof search openness in an attempt to contribute to a more
realistic and balanced perception of the actual value ofopen innovation (Laursen and Salter, 2006). As the openinnovation model is increasingly seen as the “new para-digm for [. . .] innovation” (Chesbrough and Crowther,2006, p. 230), a more reflective approach appears neededto counteract the increasing risk of uncritical adoptionthat tends to be associated with paradigmatic status(Kuhn, 1962). NPD research has a key role to play in thiscontext, provided it considers both the costs and benefitsof openness and offers new and relevant insights into thecircumstances under which open innovation is mostlikely to pay off.
Open innovation as a project-level phenomenon. Sec-ond, this paper contributes toward understanding openinnovation as a project-level as much as a firm-level phe-nomenon. It thereby complements existing empiricalresearch that has hitherto examined the nature and ben-efits of search openness exclusively at the firm level.Adopting the individual NPD project as the unit of analy-sis, this study reveals that NPD projects differ in anumber of important ways, including their objective, theirleader, and their immediate environment. These differ-ences between NPD projects are not entirely surprisingconsidering previous insights from project managementresearch (Shenhar and Dvir, 2007), and the fact that orga-nizations tend to translate their multifaceted innovationstrategies into a portfolio of projects with diverging man-dates (Cooper and Kleinschmidt, 1995).
While highly salient in actual practice, such inter-project differences cannot possibly be investigated byfirm-level research. Yet, they are most relevant for openinnovation, in that they constitute important contingencyfactors that determine the effectiveness of open searchstrategies. In particular, this study found that search open-ness at the ideation stage is most beneficial for NPDprojects that are explorative in nature, have an experi-enced leader, or enjoy strong work group support. NPDprojects that are exploitative in nature and lack experi-enced leadership or work group support, in contrast, arelikely to have little if anything to gain from openness.These findings highlight that the value not only of indi-vidual external knowledge sources (Faems et al., 2005),but also of search openness as such is strongly contingenton key attributes of the NPD project. Search strategiestailored to the specific characteristics of each NPDproject are hence required. This important finding under-lines the relevance of the recurring call of project man-agement researchers to account more adequately for theapparent heterogeneity of projects (Shenhar and Dvir,2007).
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Open innovation as a context-specific phenomenon.Third, this study adds to our understanding of open inno-vation as a phenomenon whose nature and effectivenessis shaped by—and in turn shapes—the specific contextwithin which it is embedded (Grimpe and Sofka, 2009).This study makes a first step toward extending the narrowevidence base around manufacturing firms by examiningpublic health services in England.
The proposed contingency model of search opennesshas drawn on fundamental insights on the role of theproject type, the project leader, and the project environ-ment, which have emerged from studies located in a widerange of settings. The proposed conceptual model istherefore expected to be of broader applicability and thethree contingency factors to be meaningful outside ofhealth care and the public sector more generally. Thatsaid, the strength of each contingency effect might wellvary across settings. This calls for future studies adoptingcomparative cross-sectoral research designs, as part ofwhich scholars could also seek to reveal contextual dif-ferences in the frequency, scope, and organization ofexternal knowledge sourcing activities. That said, similarresults might emerge when studying other health care andstructurally similar public sector contexts. The firstreason for this assumption consists in the fact that healthcare and other public sector settings share a set ofattributes that are relevant in the context of open innova-tion. These include the high level of task complexity, thelimited exposure to competitive rivalry, as well as thesimultaneous need for quality improvement and cost con-tainment (Boyne, 2002). The second reason pertains tothe rapid diffusion of innovation models across health-care systems, which is facilitated by intensified interna-tional collaboration among individual NPD teams andinnovation agencies.
Despite the particularities of the health-care setting,this study also revealed a number of commonalities withprevious manufacturing-based research (Laursen andSalter, 2006; Leiponen and Helfat, 2010). In particular,this study revealed that open search strategies are adoptednot only in manufacturing industries, but also in publichealth services. Similarly, the finding of diminishing mar-ginal returns to search openness appears potentiallyrobust to changes in the sector, country, and unit of analy-sis (Laursen and Salter, 2006; Leiponen and Helfat,2010). This seems to hold as well for the customer as theknowledge source judged to be the most important one inthe NPD process (Cooper and Kleinschmidt, 1986;Knudsen, 2007). Further empirical research, however, isrequired to establish whether these insights equally holdin other public sector settings.
Managerial Implications
This study demonstrates that the effective design ofknowledge search strategies at the ideation stage of NPDprojects clearly matters and has the potential to improveNPD success. This is a complex undertaking, however, assearching not only too narrowly but also too widely canbe detrimental to NPD outcomes. NPD project leaders arethus well advised to adopt a balanced approach to searchopenness rather than simply striving for the greatest pos-sible level of search openness. Similarly, this study high-lights that greater search openness comes at a cost, as theidentification, assimilation, and utilization of externalknowledge inputs will often be challenging and resource-intensive. Managers need to understand and be aware ofsuch challenges. Only then can they succeed at evaluatingthe expected return from search openness and at craftingeffective search strategies. In this context, it is importantfor project leaders to recognize that the identification ofvaluable external knowledge is not the only challengethey are likely to face when adopting an open searchstrategy. Instead, substantial costs and challenges are alsolikely to arise at a later stage when external inputs need tobe assimilated and utilized. Moreover, the proposed con-tingency model points managers to the fact that knowl-edge search strategies need to be tailored to the specificcircumstances of each NPD project. More specifically,this study suggests that open search strategies are a viableoption primarily for explorative NPD projects that seek todevelop entirely novel products or services. Exploitativeprojects aiming at incremental improvements of existingofferings, in contrast, have little if anything to gain fromsearch openness. Last, this paper highlights promisingavenues for managers to increase the value NPD projectmembers can harness from search openness. In particular,decision makers might want to create a supportiveclimate within their organization and assign their mostexperienced project managers to lead those NPD projectsthat are most complex in terms of external knowledgesearch and absorption.
Limitations and Future Research
Several limitations of this study are worth noting. Firstand perhaps most importantly, NPD project type, projectleader experience, and work group support are important,though clearly not the only contingency factors that arelikely to affect project-level payoffs from search open-ness. Further research is thus required to explore a rangeof additional variables that might act as possible modera-tors. Second, this study focused exclusively on the role of
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search openness in the ideation phase of the NPD process(Cooper and Kleinschmidt, 1986). The relevance ofboundary-crossing knowledge search, however, is notrestricted to the idea generation stage (Di Benedetto,1999). Future research thus needs to examine the project-level costs and benefits of search openness in later NPDphases such as product design, prototyping, and testing.Third, the empirical results are based on data from thespecific setting of public health services. Although thetheoretical arguments were developed so as to be of widerapplicability, the empirical findings cannot easily be gen-eralized beyond public health care. Future project-levelstudies located in additional service settings both in theprivate and in the public sector are hence urgentlyrequired. Finally, future research might seek to addressthe methodological limitations of this study. In particular,it might be beneficial to assemble a larger set of NPDprojects, to use a broader set of items to inform theclassification into explorative and exploitative NPDprojects, and to capture realized rather than expectedNPD success. Pursuing any of these avenues will furtherinform the important and ongoing debate on the possibleproject-level payoffs from open innovation.
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