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INSEAD Working Paper 2013/48/ST
It is broadly recognized that sourcing external knowledge has a positive impact on firm innovation performance. However we know very little about the firm-level conditions under which this relationship holds. In this paper, we identify two sets of firm-level factors, a lack of financial and human resources and a secretive behavioral orientation, that we predict will hinder a firm’s ability to transform knowledge sourced externally into innovation outputs, measured in terms of products new to the firm’s market. Using responses from 12,152 firms to the fourth and fifth UK versions of the Community Innovation Survey (CIS), we generate findings consistent with our arguments. These findings help to define some of the limitations to “open innovation”: rather than assuming that more external knowledge is necessarily a good thing, we show there are important internal factors that are necessary for firms to transform external knowledge into innovation outputs.