Research paperThe “human side” of open innovation: The role of employee diversity in firm-level openness
Introduction
The innovation field increasingly highlights the sourcing of knowledge for innovation across the boundaries of the firm (Dahlander and Gann, 2010, West et al., 2014). In particular, the literature on “open innovation” stresses that firms’ openness to external sources of knowledge is an important driver of innovation performance (Laursen and Salter, 2006, West and Bogers, 2014). Much recent research explores the antecedents, processes, and outcomes of open innovation. Firm-level antecedents to open innovation include specific configurations of organizational design (Foss et al., 2011, Foss et al., 2013, Laursen and Salter, 2006, Leiponen and Helfat, 2010), absorptive capacity (de Faria et al., 2010, de Jong and Freel, 2010, Fabrizio, 2009), and culture (Burcharth et al., 2014; Dodgson et al., 2006, Herzog and Leker, 2010).
There is growing interest in assessing open innovation at a more micro level than the organization per se. Recent examples are Du et al.’s (2014) study of open innovation projects, Salter et al.’s (2015) study of individual-level openness and idea generation in R&D, Dahlander et al.’s (2016) study of elite boundary spanners, Ahn et al.’s (2017) study on the role of CEO characteristics in facilitating open innovation in SMEs, and Rangus and Černe’s (2017) study of the relationship between leadership, openness and innovation performance. In spite of such studies, the individual-level factors that determine firm-level openness—that is, the “microfoundations” (Felin et al., 2015) of open innovation—remain relatively ill understood (Bogers et al., 2017). As a result, most research on open innovation still “neglects the human side” (Gassmann et al., 2010: 218), so that “we still know little about how individuals who take up the open innovation role draw upon their networks to support them in this role” (West et al., 2014: 809).
The relative lack of focus on the individual-level attributes of open innovation is at odds with Chesbrough’s (2003) early argument that the availability of highly educated individuals and the mobility of skilled labor constitute key factors that are important for driving the shift toward open innovation. Indeed, extant literature has argued for a positive association between job mobility and innovation based on the argument that such mobility brings new human capital—that is, employees’ knowledge, skills and abilities obtained through education, training, experience, and so on (Becker and Huselid, 2006, Coff and Kryscynski, 2011, Hunter et al., 2012)—into the firm and increases the diversity of the firm’s knowledge bases (Cohen and Levinthal, 1990, Fleming and Marx, 2006). However, the specific mechanisms through which this diversity is established and enacted still need to be better understood (Gassmann et al., 2010, Østergaard et al., 2011, Talke et al., 2010). For example, in the context of open innovation, much attention has been given to absorptive capacity as being instrumental in integrating externally sourced knowledge (West and Bogers, 2014), but few studies provide a theory-grounded explanation of the connection between open innovation and absorptive capacity, and how they cut across individual and organizational levels of analysis (Bogers et al., 2017).
In this study, we relate to the open innovation phenomenon by offering a theory of how diversity in a firm affects its use of external knowledge in their pursuit of innovation. Specifically, we theorize how employee diversity affects openness to external knowledge sources at the firm level. Our logic builds on key work on human capital (Becker, 1962) and its strategic role (Campbell et al., 2012, Crocker and Eckardt, 2014, Huselid et al., 1997, Lepak and Snell, 1999, Youndt et al., 1996), the literature on learning and creativity in organizations (Amabile, 1988, Levinthal and March, 1993, March, 1991, Mumford and Gustafson, 1988) and absorptive capacity theory (Cohen and Levinthal, 1990, Lewin et al., 2011). We focus on work history diversity and educational diversity to explain how such diversity increase employees’ exposure to and ability to integrate external knowledge sources to enable overall openness at the level of the firm. Empirically, we exploit access to population-wide register employee data that allows us to construct strong measures of human capital. We match these data with a large-scale paired-respondent survey, which encompasses 480 firm-level observations, and we employ several robustness tests to validate our findings and meet possible endogeneity concerns due to potential omitted variable bias. While we find support for our hypothesized association between employees’ educational diversity and firm-level openness, we find no direct influence from employees’ work history diversity, although we do find a positive interaction effect between the two types of diversity with respect to their impact on openness. In our analysis, we therefore further explore how educational diversity may serve as a prerequisite for the relation between work history diversity and openness to external knowledge sources.
In sum, we directly address the “human side” of open innovation (Gassmann et al., 2010) by linking human capital antecedents to firms’ use of external sources of knowledge for innovation—thereby providing part of the missing microfoundations of open innovation. More generally, our findings contribute to the literature by more strongly connecting open innovation, absorptive capacity, human capital, and diversity—thereby responding to the call for more theorizing and multi-level research in this domain (Bogers et al., 2017). Our theory suggest that firms with a diverse human capital pool are at an advantage with respect to engaging in open innovation, as they can exploit existing diversity and may not have to create such diversity by means of hiring new employees. As such, our findings may help guide recruitment practices in firms that wish to support or expand open innovation strategies. However, the particular nature of the underlying relations needs to be carefully considered in order to make meaningful theoretical conjectures as well as managerial recommendations. We discuss our main contributions as well as key limitations of our study, paying particular attention to endogeneity concerns that may arise in this context.
Section snippets
Employees as a research gap in open innovation
Innovation involves knowledge recombination that may result in the creation and appropriation of economic value and possibly competitive advantage (Arora et al., 2016, Laursen and Salter, 2014, Zahra and George, 2002). Research on open innovation shows how firms rely on external sources of knowledge to accelerate the innovation process (Dahlander and Gann, 2010, West and Bogers, 2014). Research has shown that firms source external knowledge from a variety of sources (such as suppliers,
Human capital and open innovation: considering knowledge diversity
We build our theorizing in relation to the role of individuals in the open innovation process in terms of human capital, that is, the stock of knowledge (including knowledge of social relations, norms, routines, etc., as well as personality attributes) that gives an individual the ability to perform labor (Becker, 1962). This stock of knowledge is obtained through education, training, experience, etc. (Becker and Huselid, 2006, Becker, 1993, Coff and Kryscynski, 2011, Hunter et al., 2012,
Data sources
We test our hypotheses using a combination of two data sources. The first data sources stem from a large-scale double respondent survey of Danish firms. The survey comprised two different questionnaires, one addressed to the CEO and one to the senior executive HR manager. Our sample corresponded to Danish firms with 40 or more employees across different industries, producing a sampling frame of 3392 firms. Data collection began in November 2009 and ended in December 2009. The CEO questionnaire
Results
Table 1 presents pairwise correlations between the main variables. Table 1 does not indicate multicollinearity to be an actionable concern. The highest correlation is found between average tenure and tenure diversity. Although these variables are highly correlated (0.88), concerns about variable inflation are mitigated by the intuitive relationship between the variables. As average tenure increases, firms will increasingly replace workers, and thus tenure diversity is likely to substantially
Discussion
Our theorizing and findings point to the importance of considering the role of diversity in open innovation. Employee diversity, a fundamental aspect of firm’s human capital stock (Becker, 1962, Becker, 1993, Becker and Huselid, 2006), is related to innovation performance (cf. Østergaard et al., 2011). Our findings provide a more fine-grained picture of the relationship between employee diversity and innovation performance, given that this relationship involves the use of external knowledge
Contribution
Our study adds to the emerging literature on open innovation (Dahlander and Gann, 2010, Randhawa et al., 2016, West and Bogers, 2014) by focusing on human capital composition. We seek to fill an important gap in the literature by shedding more light on the relation between employee characteristics and external knowledge sourcing. The latter has been shown to be (to a large extent) associated with innovation performance in a wide variety of studies (e.g., Faems et al., 2010, Gruber et al., 2013,
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