J PROD INNOV MANAG 2014;31(5):

2014 Product Development & Management Association

DOI: 10.1111/jpim.12148

When Is Open Innovation Beneficial? The Role of

Strategic Orientation
Colin C. J. Cheng and Eelko K. R. E. Huizingh

Various scholars have accomplished a great deal to better understand open innovation effectiveness. Case studies have
detailed its performance effects, while other studies showed the effectiveness of an aspect of open innovation, such as
collaboration with third parties, external technology commercialization, and cocreation. Though most studies report a
positive relation between open innovation and innovation performance, some studies indicate possible negative effects.
This has resulted in a call for research on what kind of organizational context suits open innovation best.
This study therefore addresses two questions: (1) does performing open innovation activities lead to increased
innovation performance, and to which aspects of innovation performance is open innovation most strongly related?
(2) what is the moderating impact of various kinds of strategic orientation on the relation between open innovation and
innovation performance? In this study, we investigate three types of strategic orientations: entrepreneurial orientation,
market orientation, and resource orientation.
In a survey among 223 Asian service firms, we first develop and test a comprehensive measurement scale for open
innovation that captures the entire range of open innovation activities, including outside-in activities, inside-out
activities, and coupled activities. The final scale comprises of 10 items and indicates to what extent a firm has
implemented open innovation activities.
Next, we study the relation between open innovation and innovation performance. The results indicate that per-
forming open innovation activities is significantly and positively related to all four dimensions of innovation perfor-
mance: new product/service innovativeness, new product/service success, customer performance, and financial
performance. The impact of open innovation is not limited to a particular aspect of innovation performance; it
positively affects a broad range of innovation performance indicators. Though open innovation is positively related to
all four dimensions of innovation performance, the effect sizes are not equal. The impact on new service innovativeness
and financial performance is relatively stronger.
Regarding the influence of a firms strategic orientation, we find that all significant moderation effects are positive.
This suggests that, in general, having a more explicit strategic orientation enhances the effectiveness of open
innovation. When comparing the three strategic orientations, entrepreneurial orientation strengthens the positive
performance effects of open innovation significantly more than market orientation and resource orientation do. In turn,
market orientation has a significantly stronger moderation effect than resource orientation. These findings provide
empirical evidence of the context dependency of open innovation. Especially an entrepreneurial orientation, which is
associated with proactive and entrepreneurial processes, seems to create a fertile setting for open innovation.

Introduction various themed conferences, review articles, and special

journal issues (e.g., Dahlander and Gann, 2010;

O
pen innovation refers to the use of both inflows
and outflows of knowledge to improve internal
innovation and expand the markets for external
exploitation of innovation (Chesbrough, 2003). Recently,
both in academia and in practice, the interest for open
innovation has grown substantively, as witnessed by
Address correspondence to: Eelko K. R. E. Huizingh, Innovation Man-
agement & Strategy, University of Groningen, Nettelbosje 2, 9747 AE
Groningen, The Netherlands. E-mail: k.r.e.huizingh@rug.nl. Tel: +31 50
363 3779.
Gassmann, Enkel, and Chesbrough, 2010; Huizingh,
2011). Various case studies (e.g., Huston and Sakkab,
2006; Remneland-Wikhamn, Ljungberg, Bergquist, and
Kuschel, 2011; Rohrbeck, Hlzle, and Gemnden, 2009)
and surveys (e.g., Vrande, Jong, Vanhaverbeke, and
Rochemont, 2009) have emphasized the attractiveness of
open innovation. However, other studies have reported
possible negative results in implementing open innova-
tion activities (e.g., Faems, De Visser, Andries, and Van
Looy, 2010; Laursen and Salter, 2006), pointing at pos-
sible limitations of the open innovation concept. In this
2 J PROD INNOV MANAG
2014;31(5):
paper, we focus on the relationship between open
innovation and various dimensions of innovation perfor-
mance and how these relationships are moderated by
strategic orientation.
Studying the open innovationperformance relation-
ship is not straightforward because open innovation is a
broad concept that comes in many different forms
(Dahlander and Gann, 2010; Huizingh, 2011) and has
been studied from multiple perspectives (Lichtenthaler,
2011). The same applies to innovation performance. For
example, studies found that open innovation leads to
increased firm performance in terms of profitability (e.g.,
Chiang and Hung, 2010; Lichtenthaler, 2009), R&D per-
formance (Chiesa, Frattini, Lazzarotti, and Manzini,
2009), customer satisfaction (e.g., Chesbrough, 2011;
Wagner, 2010), product innovativeness (e.g., Laursen and
Salter, 2006), and new product success (e.g., Rohrbeck
et al., 2009). Other studies have focused on the relation-
ship between a certain aspect of open innovation and
performance, such as collaboration with third parties
(e.g., Chesbrough and Prencipe, 2008), external technol-
ogy commercialization (Lichtenthaler, Ernst, and Hoegl,
2010), and cocreation with customers (Fang, Palmatier,
and Evans, 2008). Not all empirical research has found a
positive relationship, some studies have indicated pos-
sible negative open innovation effects in terms of search-
ing cost for external sources of knowledge (e.g., Laursen
and Salter, 2006; Rothaermel and Deeds, 2006), the share
BIOGRAPHICAL SKETCHES
Dr. Colin C. J. Cheng is assistant professor of department of marketing
and distribution management at National Kaohsiung First University of
Science and Technology. He received his Ph.D. in Commerce from The
University of Birmingham, United Kingdom. His primary research
interests include open innovation, new product/service development,
and strategic orientation. His research papers have been published in
Technovation and Journal of Business Research, among others.
Dr. Eelko K. R. E. Huizingh is associate professor of innovation man-
agement at the University of Groningen, the Netherlands. His research
focuses on the intersection of innovation, marketing, and information
technology. He is involved in projects on open innovation, business
model innovation, entrepreneurship, creativity, corporate foresight,
design thinking, online innovation contests, and online advertising. He
has coauthored over 300 articles in a broad range of journals, including
Marketing Science, International Journal of Research in Marketing,
Journal of Retailing, Technovation, Organizational Behavior and
Human Decision Processes, International Journal of Innovation Man-
agement, and Marketing Letters. He has served as guest editor of over 20
special issues of journals and coauthored numerous textbooks. Dr.
Huizingh is Vice President Scientific Affairs of ISPIM (International
Society for Professional Innovation Management). He was a Visiting
Professor at the University of Otago, New Zealand (2005, 2003) and at
Penn State University, USA (2000).
C. C. J. CHENG AND E. K. R. E. HUIZINGH
of personnel costs in the added value (Faems et al., 2010),
the power to control knowledge assets (Torkkeli, Kock,
and Salmi, 2009), and attitudes toward open innovation
(Lichtenthaler et al., 2010). Therefore, our understanding
of the open innovationperformance relationship is still
fragmented and limited. Previous research often provides
anecdotal evidence of open innovation success, or con-
centrates on only one aspect of open innovation or one
aspect of performance. Some studies point at possible
negative effects, but even when in general there is a
positive relation with performance, it is unlikely that open
innovation activities will be equally effective for any firm.
One of the main characteristics of open innovation is
the involvement of external parties in the innovation
process. This implies that open innovation requires an
outward looking focus (Huizingh, 2011; Malik and Wei,
2011), which may be a reason why open innovation fits
better some organizations than others. While in the tradi-
tional innovation literature, organizational focus has been
studied as an important context factor influencing inno-
vation performance (e.g., Zhou, Yim, and Tse, 2005),
there have been few, if any, attempts to investigate what
kind of organizational context suits open innovation best.
Several authors have identified this issue recently as an
important open innovation research issue (e.g., Di
Benedetto, 2010; Huizingh, 2011; Lichtenthaler, 2011).
In this paper, we address this issue by investigating the
impact of strategic orientation on the open innovation
performance relationship.
The overall objective of this study is to determine the
relation between open innovation activities and innova-
tion performance. More specifically, we address the fol-
lowing two research questions. First, does performing
open innovation activities lead to increased innovation
performance, and to which aspects of innovation perfor-
mance is open innovation most strongly related? Second,
what is the moderating impact of various kinds of orga-
nizational focus on the relation between open innovation
and innovation performance? The second research ques-
tion is motivated by the context dependency of open
innovation, implying that organizational focus likely
affects the effectiveness of open innovation activities.
This study operationalizes organizational focus as three
types of strategic orientations: entrepreneurial orienta-
tion, market orientation, and resource orientation. Entre-
preneurial orientation is considered because it has long
been recognized as the key for the growth of firms and
initiating innovative activities (Lumpkin and Dess, 1996;
Rauch, Wiklund, Lumpkin, and Frese, 2009). Market ori-
entation is considered because it is a central element of
organizational response to markets (Narver and Slater,
WHEN IS OPEN INNOVATION BENEFICIAL?
1990; Ruekert, 1992), which reflects market change and
shows a positive relationship with innovation success
(Baker and Sinkula, 2007; Hooley et al., 2003; Kirca,
Jayachandran, and Bearden, 2005). Resource orientation
also deserves consideration because it attempts to effi-
ciently use the firms internal resources while attempting
to maximize market values (e.g., Barney, 1991; Paladino,
2007, 2008). This study formulates and tests hypotheses
with regard to the moderating impact of each strategic
orientation on the relation between open innovation and
the various performance dimensions.
This study develops and tests a model that links open
innovation activities, strategic orientations, and innova-
tion performance. It contributes to the literature in the
following ways. First, this study develops and validates a
comprehensive open innovation measurement scale that
incorporates a wide range of aspects of open innovation.
Second, we systematically investigate the relation
between open innovation activities and various innova-
tion performance dimensions, such as new product
innovativeness and financial performance. This leads to
more generalizable insights regarding open innovation
effectiveness. Third, following suggestions that open
innovation effectiveness is context dependent (e.g., Di
Benedetto, 2010; Huizingh, 2011; Lichtenthaler, 2011),
we determine the importance of strategic orientation,
an often used aspect of the organizational context in inno-
vation studies, by systematically investigating the mod-
erating impact of three well-known strategic orientations.
Finally, by using data drawn from major service firms in
Taiwan, we address the empirical criticism that open
innovation has been studied mostly in Western countries
and not in other parts of the world (Chesbrough and
Crowther, 2006; Lecocq and Demil, 2006).
This paper is structured as follows. The next two sec-
tions review previous research on open innovation activi-
ties, strategic orientations, and innovation performance
and present the hypotheses. The research methodology is
then discussed with special attention to the development
of the operational constructs for open innovation activi-
ties, followed by a presentation of the results of the
empirical study. This paper concludes with the implica-
tions for both academics and practitioners, and areas for
further research.
Background
Open Innovation
When Henry Chesbrough coined the term open innova-
tion in his 2003 book, he assigned a single term to a
J PROD INNOV MANAG 3
2014;31(5):
collection of ongoing developments. Some of the more
classic ones include the Not Invented Here (NIH) syn-
drome of Katz and Allen (1982), the lead user concept
(von Hippel, 1986), complementary assets (Teece, 1986),
and absorptive capacity (Cohen and Levinthal, 1990).
Changes in both external and internal environments made
firms consider opening up innovation processes as a way
to leverage their R&D investments. Firms using open
innovation can complement their R&D efforts with those
of outside partners and can monetize (intermediate) inno-
vations through licensing. Three main types of open inno-
vation activities include outside-in activities, inside-out
activities, and coupled activities (Gassmann and Enkel,
2004).
Outside-in activities (or inbound activities) refer to the
ability to gain and explore knowledge from external part-
ners. These partners may include suppliers, customers,
competitors, consultants, research institutes, universities,
or governments (Faems, Van Looy, and Debackere, 2005;
Tether and Tajar, 2008). Research regarding outside-in
activities has covered the integration of external partners
(Dittrich and Duysters, 2007; Enkel, 2010) and new
sources of innovative ideas (Piller and Fredberg, 2009).
Inside-out activities encompass activities involved in
external exploitation of internal ideas, for example by
licensing out, selling of knowledge, and divestment of
parts of the firm, such as spinning off innovation projects
into new create innovative firms (Lichtenthaler and Ernst,
2009). Previous studies on inside-out activities mainly
cover contractual, cooperation, partnerships, alliances,
licensing (Lichtenthaler and Frishammar, 2011; Un,
Cuervo-Cazurra, and Asakawa, 2010), and the commer-
cialization of own technologies in new markets (Enkel
and Gassmann, 2010).
Coupled activities refer to collaborative activities
between different actors in the innovation system and
which combine outside-in and inside-out activities
(Gassmann and Enkel, 2004). They include cocreation
with complementary partners through alliances, coopera-
tion, and joint ventures. In doing so, companies can
jointly develop and commercialize innovations (Bahadir,
Bharadwaj, and Parzen, 2009; Nieto and Santamaria,
2007). Coupled activities have been widely studied, such
as the integration of internal and external innovative infor-
mation (West and Gallagher, 2006) and the coordination
of coupled activities among partners (Fang et al., 2008).
As open innovation includes a wide range of activities
(outside-in, inside-out, and coupled), and each of these
activities can be more or less open (Huizingh, 2011), this
study conceptualizes open innovation as encompassing
all three categories of activities and focuses on the
4 J PROD INNOV MANAG
2014;31(5):
relationship between this broad concept and innovation
performance.
Innovation Performance
Innovation performance refers to the degree of success
attained by firms in achieving goals related to new prod-
ucts or services (Henard and Szymanski, 2001;
Montoya-Weiss and Calantone, 1994). Previous studies
used a wide range of innovation performance measures,
such as new products or service innovativeness, the
degree to which new products or services succeed,
customer services, and the percentage of sales (e.g.,
Atuahene-Gima and Wei, 2011; Baker and Sinkula, 2007;
Blazevic and Lievens, 2004; Im and Workman, 2004;
Salomo, Talke, and Strecker, 2008). Following recom-
mendations in previous research (Henard and Szymanski,
2001; Im and Workman, 2004), this study applies mul-
tiple performance measures to assess different aspects
of innovation performance. This study focuses on the
following four dimensions: new product/service in-
novativeness, new product/service success, customer
performance, and financial performance. New product/
service innovativeness refers to the level of novelty
of the resulting innovations (Salomo et al., 2008).
New product/service success reflects the ability of a new
product/service to compete in the marketplace (Baker and
Sinkula, 1999). Customer performance covers areas such
as customer satisfaction and customer loyalty (Blazevic
and Lievens, 2004). Finally, financial performance refers
to the financial success of innovations, e.g., in terms of
profitability and return on investment (Im and Workman,
2004).
Hypotheses Development
Many initial open innovation studies highlight the poten-
tial positive impact of the concept. This is not surprising,
as with any new concept, initial studies tend to focus on
successful early adopters (Huizingh, 2011). Case studies
provided evidence of the positive effect of open innova-
tion (e.g., Huston and Sakkab, 2006; Remneland-
Wikhamn et al., 2011; Rohrbeck et al., 2009), other
studies focused on an aspect of open innovation. For
instance, Lichtenthaler et al. (2010) find a relationship
between inside-out activities (e.g., external technology
commercialization) and firm performance. Chesbrough
and Prencipe (2008) show that outside-in activities enrich
a firms knowledge base through the integration of exter-
nal knowledge sources, and according to Fang et al.
(2008), successful cocreation, a form of coupled activi-
C. C. J. CHENG AND E. K. R. E. HUIZINGH
ties, facilitates the start of new product development
projects. A few recent studies investigate potential disad-
vantages of open innovation. Lichtenthaler (2010) iden-
tifies the costs and risks of the open innovation, and
Torkkeli et al. (2009) show that open innovation can
reduce the rarity of firm knowledge assets.
From this discussion, we can conclude that there is
ample evidence that supports an overall positive relation
between open innovation and innovation performance. To
further understand the effect of open innovation, we use
three main open innovation activities (outside-in, inside-
out, and coupled) to develop theoretical explanations for
this effect.
First, firms cannot possess all types of knowledge
and capabilities to create the innovations they want
(Cassiman and Veugelers, 2006; Chesbrough, 2007;
Lichtenthaler and Lichtenthaler, 2009). However, they
can acquire needed knowledge from third parties
(outside-in activities). Firms search among customers
and competitors to increase their understanding of the
market, and among universities and other research insti-
tutes for new directions to explore. The acquired knowl-
edge allows firms to create new offerings based on new
combinations of technologies and markets, and can thus
lead to greater innovation performance.
Second, internal R&D capabilities and the ability to
access external knowledge affect innovation performance
(Veugelers, 1997), because R&D investments facilitate
new knowledge creation and improve the absorptive
capacity to exploit external knowledge (Cohen and
Levinthal, 1990). In addition, firms that develop new
knowledge can produce superior innovation performance
by transferring new ideas (inside-out activities) to
their collaboration partners (Lichtenthaler, 2005). For
example, inside-out activities can take the form of exter-
nal commercialization of technological knowledge or
licensing.
Third, building on strong ties with innovation network
partners and codevelopment, partnerships (coupled
activities) can also lead to improved innovation perfor-
mance. This is because firms can combine inflows and
outflows of knowledge to efficiently accelerate internal
innovation. An example is cross-licensing agreements, in
which firms transfer some of their own technology to
acquire external knowledge (Lichtenthaler, 2008). Both
Bahadir et al. (2009) and Nieto and Santamaria (2007)
find that firms embedded in collaborative activities are
likely to have greater innovation performance. To con-
clude, although some studies point out possible disadvan-
tages of open innovation, most previous research
underscores the importance of firms open behavior
WHEN IS OPEN INNOVATION BENEFICIAL?
in increasing innovation performance. Therefore, we
hypothesize that:
H1: Open innovation activities (outside-in activities,
inside-out activities, and coupled activities) positively
impact innovation performance.
The Moderation Effect of Strategic Orientations
Strategic orientations are defined as the strategic direc-
tions implemented by a firm to create the proper behav-
iors for the continuous superior performance of the
business (Gatignon and Xuereb, 1997, p. 78). They are
among the most important firm resources (Barney, 1991).
Strategic orientations reflect how aggressive firms intend
to compete in the market and their willingness to explore
and develop competencies, products, or markets. Differ-
ent strategic orientations involve different investments in
organizational resources. As such, strategic orientations
form an essential part of the organizational context in
which open innovation activities are performed.
Strategic orientations may moderate the relation
between open innovation and innovation performance
because the accomplishment of competitive advantages
may rest upon strategic orientations in utilizing distinc-
tive innovation capabilities (Peteraf, 1993; Walker and
Ruekert, 1987). In this study, we focus on three types of
strategic orientation: entrepreneurial orientation, market
orientation, and resource orientation. These types are
selected as they have been quite often studied (e.g., Keh,
Nguyen, and Ng, 2007; Paladino, 2007; Zhou et al.,
2005) and because each of them assigns a different value
to openness of the organization, which may influence
their moderation ability.
Entrepreneurial Orientation
Entrepreneurial orientation is a firms attempt to pursue
new market opportunities and to renew existing areas of
operation (Hult and Ketchen, 2001). Its values and beliefs
are highly proactive toward market opportunities, tolerant
of risk, open to innovative ideas, and actively and inten-
sively supporting the innovation process (Keh et al.,
2007; Matsuno, Mentzer, and zsomer, 2002). Firms
with strong entrepreneurial orientation tend to constantly
scan and monitor their environment to identify new
opportunities to strengthen their competitive positions
(Covin and Miles, 1999; Lumpkin and Dess, 1996). As
part of their environment scanning and monitoring activi-
ties, an entrepreneurial oriented firm looks for new infor-
mation that can help them better meet the needs of their
J PROD INNOV MANAG 5
2014;31(5):
customers, manage their risk taking, and challenge their
competitors (Keh et al., 2007).
Due to their willingness to adopt innovative ideas and
constant searching for new information, entrepreneurial
orientated firms performing outside-in activities can
explore more external sources in greater depth, which
advances innovation development and may lead to
greater innovation performance (Keh et al., 2007). In
addition, because of being more open to new ideas,
entrepreneurial-oriented firms performing inside-out
activities are more willing to use new approaches, such as
transferring internal innovations to external parties,
which is an alternative way to increase firm revenues.
Furthermore, the entrepreneurial orientation is related to
risk tolerance; this attitude could help overcome some
barriers in performing open innovation, such as integrat-
ing different but related knowledge bases among alli-
ances. As a result, we expect entrepreneurial orientation
to foster the effect of open innovation on innovation
performance.
H2: Entrepreneurial orientation positively moderates the
relationship between open innovation activities and
innovation performance.
Market Orientation
Market orientation refers to the organizational culture
that most effectively and efficiently creates the necessary
behavior for the creation of superior value for buyers
(Narver and Slater, 1990). Openness plays an important
role in market orientation. The core of the concept con-
sists of acquiring, disseminating, and using market infor-
mation (Kohli and Jaworski, 1990). Firms with a stronger
market orientation have better insights in customer needs,
and offerings and strategies of competitors. For example,
when performing inside-out activities in the idea genera-
tion stage, a market-oriented firm may more actively
collect and analyze market information. Deeper market
insights may strengthen the effect of open innovation, as
better knowledge of what solutions are needed in a
market enables a firm to improve its external search for
the knowledge needed to provide these solutions. For
example, Zhou et al. (2005) find that market orientation
facilitates innovations that offer greater benefits to main-
stream customers. Narver and Slater (1990) also stress
the importance of inter-functional coordination, referring
to improved exchange and use of market knowledge
within the firm, which could strengthen the effect of
performing coupled activities. For these reasons, market
orientation may increase the effectiveness of open inno-
vation activities.
6 J PROD INNOV MANAG
2014;31(5):
However, not all aspects of market orientation may
necessarily be beneficial to open innovation. For
example, R&D collaboration with customers was found
not to affect product innovation (Un et al., 2010). Though
both market orientation and open innovation stress the
importance of collecting information in the external envi-
ronment, market orientation tends to focus the external
information search on existing markets and customers,
following its drive to provide superior value to current
customers. Although market-oriented firms should not be
customer led (Slater and Narver, 1998), market orienta-
tion tends to inhibit innovations targeting emerging
market segments (Zhou et al., 2005). Environmental
scanning in open innovation has not only a broader scope,
and it is also not limited to identifying opportunities in
current markets. In particular, inside-out activities may
lead companies to exploring and identifying opportuni-
ties in markets that are distinct to its own markets. In
summary, market orientation may strengthen the relation-
ship between open innovation and innovation perfor-
mance, but its moderating effect will be less strong than
that of entrepreneurial orientation.
H3: Market orientation positively moderates the rela-
tionship between open innovation activities and innova-
tion performance.
Resource Orientation
Resource orientation addresses how firm resources drive
firm performance in dynamic competitive environments
(Collis and Montgomery, 1995). The ultimate objective is
to increase firm performance by deploying unique and
costly resources to exploit environmental opportunities or
to neutralize threats (Peteraf, 1993; Teece, Pisano, and
Shuen, 1997). Compared to the other two strategic orien-
tations, resource orientation is more internally oriented
because its focus lies on the deployment of unique
bundles of firms internal resources. In addition, it is
concerned with accumulating a unique resource base that
is immobile and heterogeneous (Barney, 1991). Thus, a
firm with a strong resource orientation will engage in
careful analysis and planning of its investments in inter-
nal resources so as to gain greater returns.
Despite this primarily internal focus, a resource orien-
tation may fit well with open innovation for various
reasons. First, since the resource orientation assumes that
each firm has unique resources, a firm may realize when
developing an innovation that another firm has better
resources to create the knowledge needed to develop the
innovation. Open innovation (outside-in activities) may
then speed up the innovation project, improve its output
C. C. J. CHENG AND E. K. R. E. HUIZINGH
and/or decrease costs. Second, the successful commer-
cialization and marketing of a technological innovation
requires complementary assets (Teece, 1986). Also, these
assets may be heterogeneously distributed among firms,
making open innovation effective. Third, due to its focus
on internal knowledge development (Maier and Remus,
2002) and efficient resource use (Paladino, 2007), the
resource orientation stimulates firms to efficiently and
fully explore internal knowledge, leading to greater per-
formance in terms of patents or copyrights. In an open
innovation context, this may enable them to exploit such
unique internal resources also externally, e.g., through
licensing out. As a result, resource orientation may
increase the effect of open innovation on innovation
performance.
H4: Resource orientation positively moderates the rela-
tionship between open innovation activities and innova-
tion performance.
Although we expect that all three strategic orientations
strengthen the effect of open innovation on innovation
performance, we do not expect the moderation effects to
be of similar magnitude. Since entrepreneurial orienta-
tion is the strongest outward-looking strategic orienta-
tion, followed by market orientation, and resource
orientation is the most inward looking one of these three
strategic orientations, we expect the rank order of the
moderation effects to be in this sequence. The configura-
tional approach provides theoretical logic for such a rank
order, as this approach assumes that firms need to align
certain attributes, such as strategy, structure, process, and
environment, into internally consistent configurations
(Meyer, Tsui, and Hinings, 1993). In terms of our
research model, better alignment between a strategic ori-
entation and open innovation should be reflected in stron-
ger moderation effects.
First, a central proposition of entrepreneurial orienta-
tion is that firms performing entrepreneurially are better
able to adjust their operations in dynamic environments
(Covin and Slevin, 1991; Lumpkin and Dess, 1996). This
matches very well with open innovation that also thrives
in dynamic environments (Hung and Chiang, 2010).
In addition, entrepreneurial-oriented firms are more
willing to try out new offerings and markets (Covin and
Slevin, 1991). Entrepreneurial orientation has often been
conceptualized as a combination of innovativeness,
proactiveness, and risk taking (Wiklund and Shepherd,
2005). The innovativeness dimension reflects a tendency
to engage in and support new ideas, novelty, experimen-
tation, and creative processes (Lumpkin and Dess, 1996),
while the risk-taking dimension reflects the willingness to
WHEN IS OPEN INNOVATION BENEFICIAL?
break away from the tried-and-true and venture into the
unknown (Wiklund and Shepherd, 2005). Such a climate
seems to fit very well with open innovation, as developing
new offerings, markets, and processes based on both inter-
nal and external knowledge also involves risk taking,
exploring new opportunities, and overcoming the NIH
syndrome (Chesbrough, 2003). Eentrepreneurial-oriented
firms performing open innovation activities have also
been found to have greater firm performance (Hung and
Chiang, 2010). Therefore, we expect this high level of
alignment between entrepreneurial orientation and open
innovation to be reflected in strong moderation effects.
Second, market orientation has been related to the
organization-wide generation and dissemination of
market information and the response to that information
(Kohli and Jaworski, 1990). Market orientation enables
firms to better understand current market needs by listen-
ing to customers. This creates the dilemma whether firms
need to be customer led or market led (Slater and Narver,
1998), in order to prevent falling into the trap of focusing
too much on only current customers. Market orientation
stresses the importance of innovation (e.g., Grinstein,
2008; Kirca et al., 2005). However, in practice it more
strongly encourages innovations that use advanced
technology and offer greater benefits to mainstream cus-
tomers than innovations that target emerging market seg-
ments (Zhou et al., 2005), which is in line with the
distinction between market-driven behavior and market-
driving behavior (Kumar, Scheer, and Kotler, 2002). This
implies partial alignment with open innovation. The
alignment, in terms of the configurational approach,
between market orientation and open innovation is strong
when open innovation activities are geared toward new
ways to better fulfill the needs of current markets. The
alignment may be weaker for open innovation activities
aimed at creating new markets, while for outbound open
innovation activities, the alignment is even less. To con-
clude, compared to entrepreneurial orientation, the align-
ment between market orientation and open innovation is
weaker, and therefore we expect less strong moderation.
Third, resource orientation is related to the resource-
based view, which assumes that firms achieve superior
performance by means of their valuable, rare, and inimi-
table resources (Barney, 1991). Exploitation of a firms
own unique resources determines its competitive strength
(Peteraf, 1993). Exploitation is thus mainly an internal
process, though collaboration as in open innovation can
be important in further exploiting a firms unique
resources, as the resources of different firms can comple-
ment each other, leading to new offerings based on
bundles of different sets of unique resources (Parkhe,
J PROD INNOV MANAG 7
2014;31(5):
1993; Teece, 1992). In addition, innovation as explora-
tion is important for a resource orientation, because inno-
vation can improve both the property-based and the
knowledge-based inputs of a firms production process
(Miller and Shamsie, 1996), thereby ensuring competi-
tive advantage over longer periods of time. Collaboration
with external partners in explorative innovation is
however less obvious, since central to firm success is
having superior resources (Peteraf, 1993), as resource
bundles differ across firms in terms of efficiencies which
determines value creation (Foss and Knudsen, 2003).
Therefore, it is crucial to protect the resources unique-
ness against imitators to ensure continued success
(Aharoni, 1993). This implies that possible disadvantages
of open innovation, such as the fear of diffusing relevant
knowledge (Rivette and Kline, 2000) and to give away
corporate crown jewels (Kline, 2003) are serious
threats for a resource orientation. The alignment between
resource orientation and open innovation is therefore
limited for exploitative innovation, and even less for
explorative innovation. Consequently, the moderation
effects between resource orientation and open innovation
will be of limited magnitude.
In summary, we expect the strongest positive modera-
tion effect for entrepreneurial orientation, less strong
positive moderation for market orientation, and the least
strong positive moderation for resource orientation.
H5: Entrepreneurial orientation moderates the relation-
ship between open innovation activities and innovation
performance most strongly, followed by market orienta-
tion, followed by resource orientation.
Figure 1 provides an overview of the relationships to be
tested. Model concepts include (1) open innovation
activities, comprising outside-in, inside-out, and coupled
activities, as the exogenous concept; (2) strategic
orientations as moderators, comprising entrepreneurial,
market, and resource orientations; and (3) the four
innovation performance indicators as consequences of
open innovation activities, namely new product/service
innovativeness, new product/service success, customer
performance, and financial performance. Finally, the
model includes a number of control variables that have
been shown relevant in previous research.
Research Design
Open Innovation Scale Development
Due to absence of a comprehensive open innovation
measure, we developed one for this study. Following the
8 J PROD INNOV MANAG
2014;31(5):
Strategic orientation
l Entrepreneurial orientation
l Market orientation
l Resource orientation
H2, 3, 4, 5
Open innovation
activities
l Outside-in activities
l Inside-out activities H1
l Coupled activities
Figure 1. The Conceptual Model
framework proposed by Churchill (1979), Gerbing and
Anderson (1988), and Adams, Bessant, and Phelps
(2006), we generated an initial pool of items after an
exploratory study and a review of extant measures. The
exploratory study involved 24 in-depth interviews with
senior managers who had experience in open innovation.
One of the authors interviewed them concerning their
view and examples of open innovation, asking a series of
probing questions regarding each open innovation activ-
ity, and how it differed from other similar open innova-
tion activities. After carefully examining the transcripts,
the author and two other academics manually and elec-
tronically (NVivio 8, 2008) converted interviewees
open-ended responses into initial scale items.
To ensure that we generated a comprehensive list of
open innovation activities items, we also reviewed related
measures that assess open innovation (e.g., Laursen and
Salter, 2006; Vrande et al., 2009). Based on Gassmann
and Enkel (2004), we then grouped the potential items
into three categories of open innovation activities:
(1) outside-in activities, (2) inside-out activities, and
(3) coupled activities.
To assess face and content validity, we performed a
pilot study (Churchill, 1979). The research team care-
fully selected a convenience sample of 39 senior manag-
ers, based on their working experience in new product/
service development and open innovation areas. The
managers were presented with the list of items and asked
to assess the extent to which each sentence represented
the right meaning. This process resulted in slight modi-
C. C. J. CHENG AND E. K. R. E. HUIZINGH
Innovation performance
l New product/service innovativeness
l New product/service success
l Customer performance
l Financial performance
Control variables
l Market turbulence
l Technological turbulence
l Competitive intensity
l Firm size
l Industry
fication and refinement of few items. As a result, the final
open innovation activities scale contains 12 items repre-
senting each of the three dimensions (outside-in activi-
ties: five items; inside-out activities: four; and coupled
activities: three).
Measures
The strategic orientations are measured with scales
from previous research. Entrepreneurial orientation is
assessed using four items from Zhou et al. (2005),
market orientation with six items from Baker and Sinkula
(2007), and resource orientation with fifteen items from
Paladino (2007). To measure the four dimensions of
innovation performance, we also used existing scales.
These are scales for new product/service innovativeness
(Salomo et al., 2008), new product/service success
(Baker and Sinkula, 1999), customer performance
(Blazevic and Lievens, 2004), and financial performance
(Im and Workman, 2004). Where necessary, the wording
of the items was adapted to reflect our research context.
To account for the effects of extraneous variables, firm
size is included as a control variable, since there is a
widespread belief of a positive relationship between firm
size and innovation (Shefer and Frenkel, 2005; Wagner
and Hansen, 2005). In the analyses, the logarithmic trans-
formation of the number of full-time employees is used to
measure firm size (Menguc, Auh, and Shih, 2007). In
addition, market turbulence (Han, Kim, and Srivastava,
1998), technological turbulence (Citrin, Lee, and
WHEN IS OPEN INNOVATION BENEFICIAL?
McCullough, 2007), and competitive intensity (Zhou
et al., 2005) are included as control variables, because
these variables were found to influence innovation-
related performance in previous research (Atuahene-
Gima and Wei, 2011; Zhou et al., 2005).
Since the field work was done in Taiwan, and all items
were originally written in English, a double-translation
method was applied to derive Chinese items with concep-
tual equivalence (Cheng and Shiu, 2008; Song and Parry,
1996). One of the authors translated the items into
Chinese, and two other academics translated them back
into English. The original items and the back-translated
items were compared by two other academics to check
for translation consistency. The translation was confirmed
by a fifth academic.
Sampling and Data Collection
The sampling frame consists of the top 1000 service
companies in terms of total revenue operating in Taiwan
as compiled by the China Credit Information Service
2009. Taiwans service industry is selected, because it has
been growing at a very fast rate over other industries in
recent years, which makes it an interesting area for inno-
vation research. For example, the percentage of service
sectors in gross domestic product increased from 52.8%
in 1989 to 69.2% in 2009 (IMF, 2010). This percentage is
comparable to those of developed countries, such as
76.9% in the United States, 72.3% in Germany, 76.5% in
Japan, and 75% in the United Kingdom (IMF, 2010).
As in related studies (e.g., Baker and Sinkula, 2007;
Gatignon and Xuereb, 1997; Zhou et al., 2005), senior
managers who take responsibility for the development of
new services and make decisions about strategic orienta-
tions are selected as key respondents. Excluding firms
that had closed down, whose rights had been suspended,
and that had not introduced at least two new services over
the past three years, a total of 842 questionnaires were
mailed along with preaddressed postage-paid envelopes
and a cover letter explaining the studys purpose. In total,
224 questionnaires were returned. Due to a missing page,
we removed one questionnaire, yielding 223 usable ques-
tionnaires, which represent a response rate of 26.5%.
With respect to firm characteristics, 21.5% have fewer
than 1000 employees. The responding firms are from four
service industries, namely finance (30.0%), information
and electronics (28.7%), retail and logistics (21.5%), and
others (19.7%).
Because nonrespondents have been found to resemble
late respondents (Armstrong and Overton, 1977),
nonresponse bias is assessed by comparing early and late
J PROD INNOV MANAG 9
2014;31(5):
respondents. Using a t-test, there is no significant differ-
ence at the .05 alpha level between early respondents
(50.5%, who replied prior to sending the reminder mail)
and late respondents in terms of years of working expe-
rience and each variable of the open innovation scale.
As the measures for the independent and dependent
variables are collected in the same way from the same
respondents, there is a potential for common method
variance (Podsakoff, MacKenzie, Lee, and Podsakoff,
2003). If common method variance exists, a confirmatory
factor analysis containing all constructs should produce a
single method factor (Podsakoff and Organ, 1986). In
addition, Harmans one-factor test is also used, where all
variables are simultaneously entered into an exploratory
factor analysis through principal components without
rotation (Burnett, Williamson, and Bartol, 2005). Both
tests do not provide evidence of common method variance.
Data Analyses
Validation of Measures
To investigate the factor structure and measurement
quality of the open innovation scale, principal component
analysis with varimax rotation and evaluation of the
eigenvalues was used to identify the number of factors to
retain. Before doing so, we employed the KaiserMeyer
Olkin (KMO) measure to test sampling adequacy and
Bartletts test of sphericity to test correlation matrix. Both
tests yield satisfactory results, with a KMO value of .848
exceeding the recommended value of .60 (Kaiser, 1974)
while the Bartletts test reached significance at .00 level.
As for the exploratory factor analysis, an item was
removed if (1) the factor loading was lower than .5,
(2) the item loaded on two different factors, or (3) the
item did not load in a group to which it belongs (Hair,
Tatham, Anderson, and Black, 2010). Throughout this
process, two open innovation items (outside-in activities
5 and inside-out activities 4, see Table 1) are removed,
due to factor loadings less than .5 and cross-loading on
other factors. All initial eigenvalues are greater than one.
The remaining items explain 68.4% of the variance, and
all items load on the right factor, with in general quite
high factor loadings (see Table 1). The reliability analy-
ses show Cronbachs alpha values that are well above the
threshold value of .7 (Nunnally, 1978).
Measurement Models
Following previous research (Baker and Sinkula, 1999;
Hult, Hurley, and Knight, 2004), we divide the variables
10 J PROD INNOV MANAG C. C. J. CHENG AND E. K. R. E. HUIZINGH
2014;31(5):

Table 1. Results of the Exploratory Factor Analysis for the Open Innovation Measurement Scale
Cronbachs % of
Construct Name Items Loading Alpha Variance

Outside-in activities OIA1. External partners, such as customers, competitors, research institutes, .594 .750 68.364
(OIA) consultants, suppliers, government, or universities are directly involved in all
our innovation projects.
OIA2. All our innovation projects are highly dependent upon the contribution of .750
external partners, such as customers, competitors, research institutes,
consultants, suppliers, government, or universities.
OIA3. Our firm often buys R&D-related services from external partners, such as .734
customers, competitors, research institutes, consultants, suppliers, government,
or universities
OIA4. Our firm often buys intellectual property, such as patents, copyrights, or .719
trademarks, from external partners to be used in our innovation projects
OIA5. Our firm invests in other firms because we would like to obtain synergies
that are beneficial to our innovation projects*
Inside-out activities IOA1. Our firm often sells licenses, such as patents, copyrights, or trademarks, to .645 .804
(IOA) other firms so as to better benefit from our innovation efforts
IOA2. Our firm often offers royalty agreements to other firms to better benefit .814
from our innovation efforts
IOA3. Our firm strengthens every possible use of our own intellectual properties .766
so as to better benefit our firm
IOA4. Our firm founds spin-offs to better benefit from our innovation efforts*
Coupled Activities CA1. In innovation projects, our firm usually integrates all internal and external .845 .877
(CA) partners information
CA2. In innovation projects, our firm coordinates the activities of exchange of .886
information among partners
CA3. In innovation projects, our firm keeps internal and external partners updated .832
about new information
* Items are removed due to low factor loadings.

into four related groups (open innovation activities, stra- Discriminant validity is assessed by using the Fornell
tegic orientations, innovation performance measures, and and Larcker (1981) procedure and an alternative proce-
control variables) and use the raw data as input to the dure that Anderson and Gerbing (1988) and Netermeyer,
maximum likelihood-based estimation procedure. Each Johnston, and Burton (1990) recommend. As shown in
item is set to load only on its respective latent construct, Table 3, for each construct the value of the square root of
and the latent constructs are allowed to be correlated each average variance extracted is greater than the values
(Gerbing and Anderson, 1988). The results indicate that
the items load as expected and that the constructs fit the
data satisfactorily (see Table 2 for the open innovation Table 2. Results of Measurement Model Fit for the Open
Innovation Activities
construct and the Appendix for the other constructs). All
factor loadings are significant (p < .01) and well above Construct Factor
the recommended value of .45 (Joreskog and Sorbom, Construct Name Identifier Items Loading t-value
1993). Outside-in activities OIA OIA1 .47
OIA2 .61 5.56
OIA3 .81 6.20
Convergent and Discriminant Validity
OIA4 .73 6.10
Inside-out activities IOA IOA1 .65
To establish construct validity, we examine both conver- IOA2 .73 8.75
gent and discriminant validity. Composite reliability is an IOA3 .85 9.15
indicator of the shared variance among the set of Coupled activities CA CA1 .84
observed variables used as an indicator of a latent con- CA2 .93 16.62
struct (Fornell and Larcker, 1981). The results of all indi- CA3 .84 15.21
cators exceed the usual .70 benchmark (Hair et al., 2010). 2/d.f. = 3.86; CFI = .91, GFI = .90; TLI = .87; IFI = .91; RMSEA = .10.
WHEN IS OPEN INNOVATION BENEFICIAL? J PROD INNOV MANAG 11
2014;31(5):

Table 3. The Descriptive Statistics and Correlation Matrix

Mean SD OIA IOA CA EO MO RO NI NS CP FP MT TT CI

OIA 2.509 .949 .67

IOA 2.356 1.008 .50 .75
CA 3.278 .867 .36 .41 .87
EO 3.650 .890 .07 .07 .39 .82
MO 2.257 .926 .16 .13 .18 .15 .76
RO 3.398 .920 .07 .10 .38 .18 .16 .82
NI 3.112 .990 .35 .44 .31 .02 .36 .26 .78
NS 3.627 .850 .09 .17 .36 .23 .44 .37 .42 .75
CP 3.606 .884 .11 .05 .36 .33 .52 .38 .24 .52 .84
FP 3.508 .917 .13 .16 .24 .24 .41 .24 .24 .51 .54 .81
MT 2.860 1.047 .10 .30 .21 .25 .26 .30 .26 .17 .34 .41 .84
TT 3.030 1.004 .04 .14 .22 .11 .04 .09 .03 .09 .17 .16 .22 .78
CI 3.454 1.023 .19 .35 .19 .07 .07 .02 .16 .08 .38 .12 .19 .15 .84
FS 4.620 1.170 .10 .09 .18 .04 .05 .16 .09 .04 .03 .10 .12 .14 .07
S.D.: standard deviation; Bold figures on the diagonal are the square root of the AVE.
CA, coupled activities; CI, competitive intensity; CP, customer performance; EO, entrepreneurial orientation; FP, financial performance; FS, firm size; IOA,
inside-out activities; MO, market orientation; MT, market turbulence; NI, new product/service innovativeness; NS, new product/service success; OIA,
outside-in activities; RO, resource orientation; TT, technological turbulence.

of the inter-construct correlations. In addition, the uncon-
strained models outperform the constrained models in all
cases. Because both approaches criteria are satisfied, an
inference error of multicollinearity is unlikely (Grewal,
Cote, and Baumgartner, 2004).
The Structural Model
To assess the structural model, the items for each scale
are averaged to create single indicators for each latent
variable (Jap, 1999), which corrects for random measure-
ment error and reduces model complexity. Following
Bagozzi and Yi (1988), we compare the main effect
model without interaction terms with the moderation
model that includes such terms. The R2s for both models
are: (1) .204 and .239 for new product/service innova-
tiveness, (2) .217 and .255 for new product/service
success, (3) .195 and .294 for customer performance, and
(4) .122 and .178 for financial performance. As the main
effect model is nested within the moderation model, we
conduct an F-test to determine whether the fits signifi-
cantly improve (Cohen, Cohen, West, and Aiken, 2003).
For each innovation performance measure, the R2 incre-
ment is significant (p < .05), implying that all four R2
values in the moderation model are significantly higher.
Therefore, we report and discuss the results of the mod-
eration model.
Based on the fit indexes, the model fit is quite accept-
able: 2/d.f. = 3.04; comparative fit index (CFI) = .91,
goodness of fit (GFI) = .90; TuckerLewis index
(TLI) = .90; incremental fit index (IFI) = .89; root mean
square error of approximation (RMSEA) = .09. Table 4
shows the path estimate results with t-values. First, the
main effect for the open innovation construct has a posi-
tive and significant impact on all four innovation perfor-
mance measures, new product/service innovativeness
( = .317, p < .000), new product/service success
( = .196, p < .01), customer performance ( = .183,
p < .05), and financial performance ( = .236, p < .01),
supporting H1.
Second, the moderating effects of strategic orienta-
tions constructs are modeled as mean-centered interac-
tions to reduce multicollinearity (Aiken and West, 1991;
Jaccard, Turrisi, and Wan, 1990). When an interaction
effect is statistically significant, it is interpreted as a con-
ditional effect on the main effects (Jaccard et al., 1990).
That is, the path coefficients represent the conditional
impact of one effect when the other effect is at its mean.
The results show that entrepreneurial orientation has
positive moderating effects in terms of new product/ser-
vice innovativeness ( = .127, p < .05), new product/
service success ( = .124, p < .05), and financial perfor-
mance ( = .153, p < .01). Thus, H2 is supported for three
of the four performance indicators. Market orientation
significantly enhances only the effect of open innovation
on financial performance ( = .502, p < .000), while
resource orientation also shows significant interaction for
only one performance indicator, new product/service
success ( = .290, p < .000). Thus, the support for H3 and
H4 is rather limited.
12 J PROD INNOV MANAG C. C. J. CHENG AND E. K. R. E. HUIZINGH
2014;31(5):

Table 4. Results for the Moderation Model: Main and Interaction Effects
New Product/Service New Product/Service Customer Financial
Innovativeness Success Performance Performance
Innovation Performance R2 = .239 R2 = .255 R2 = .294 R2 = .178

Antecedents
H1 Open innovation activities .317*** (5.678) .196** (2.645) .183* (2.468) .236** (2.780)
H2 Open innovation activities EO .127* (2.927) .124* (1.980) .029 (1.869) .153** (3.602)
H3 Open innovation activities MO .012 (.881) .017 (.935) .037 (1.889) .502*** (9.921)
H4 Open innovation activities RO .021 (1.799) .290*** (6.150) .024 (1.833) .029 (1.581)
Control variables
Market turbulence .108* (2.087) .504*** (7.103) .182* (2.474) .320*** (3.911)
Technological turbulence .211*** (5.489) .012 (.212) .002 (.014) .063 (1.409)
Competitive intensity .059 (1.589) .061 (1.187) .007 (.167) .153** (2.637)
Firm size .052 (1.14) .083 (1.49) .042 (.79) .058 (.98)
Industry finance .054 (1.20) .041 (.75) .030 (.74) .047 (.79)
Industry information & electronics .044 (.89) .034 (.65) .022 (.14) .027 (.29)
Industry retail & logistics .067 (1.49) .075 (1.61) .039 (.74) .036 (.67)
* p < .05; ** p < .01; *** p < .000.
EO, entrepreneurial orientation; MO, market orientation; RO, resource orientation.

Finally, to compare the relative strengths of these Conclusion

three strategic orientations, we run chi-square difference
tests between a model with paths of all direct and inter- The objectives of this study are to determine the relation
action effects and a model without one of the interaction between open innovation activities and innovation perfor-
effects. For example, to obtain the chi-square value of mance, and to investigate the moderating role of strategic
the interaction effect of entrepreneurial orientation, orientation. The study contributes to the literature in the
the first model includes the paths (1) open innova- following ways. First, it extends previous research on
tion activitiesnew product/service innovativeness, open innovation by developing and empirically testing a
(2) entrepreneurial orientationnew product/service measurement scale for open innovation activities. To our
innovativeness, (3) market orientationnew product/ best knowledge, no comprehensive construct exists in the
service innovativeness, (4) resource orientationnew literature that captures the entire range of open innovation
product/service innovativeness, (5) open innovation activities (outside-in activities, inside-out activities, and
activities entrepreneurial orientationnew product/ coupled activities). By using data collected from 223
service innovativeness, (6) open innovation activities
market orientationnew product/service innovative- Table 5. Results for the Relative Strengths of Path
ness, and (7) open innovation activities resource Coefficients
orientationnew product/service innovativeness. Then,
Innovation Performance Comparisons Chi-square Difference
the second model is run without the fifth path in the first
model. As such, we obtain a chi-square difference value New product/service EO versus MO 7.57**
between these two models in terms of entrepreneurial innovativeness EO versus RO 6.02*
orientation. The same procedures are repeated for market MO versus RO 1.55
New product/service EO versus MO 7.41**
and resource orientations. Based on these chi-square success EO versus RO .74
values, we run chi-square difference tests to compare the MO versus RO 8.15**
moderating effects of the three strategic orientations. The Customer performance EO versus MO .99
results in Table 5 show that entrepreneurial orientation is EO versus RO .85
the strongest moderator of the relationship between open MO versus RO .14
Financial performance EO versus MO 3.81
innovation activities and four different dimensions of
EO versus RO 7.69**
innovation performance, followed by market orientation MO versus RO 11.50***
and resource orientation. This finding is not surprising,
* p < .05; ** p < .01; *** p < .000.
given the results reported in Table 4. It implies that H5 is EO, entrepreneurial orientation; MO, market orientation; RO, resource
supported. orientation.
WHEN IS OPEN INNOVATION BENEFICIAL?
service-related firms in Taiwan, the scale forms a vali-
dated and actionable measurement that indicates to what
extent a firm has implemented open innovation activities.
Second, we find that performing open innovation
activities is significantly and positively related to all four
dimensions of innovation performance: new product/
service innovativeness, new product/service success, cus-
tomer performance, and financial performance. These
findings support the claim of open innovation proponents
that open innovation activities enhance innovation perfor-
mance (e.g., Lichtenthaler and Frishammar, 2011; Un
et al., 2010). Extending previous conceptual works
(Chesbrough, 2003; Gassmann and Enkel, 2004), our
study provides empirical evidence that the impact of open
innovation is not limited to a particular aspect of innova-
tion performance, but that it positively influences a broad
range of innovation performance indicators. It also
extends the support for the open innovation claim since
the data are from Asian service companies operating in a
broad range of industries (Chesbrough, 2011). It seems
that the effectiveness of open innovation is neither limited
to product industries nor to the western part of the world.
Though open innovation is positively related to all
four dimensions of innovation performance, the effect
sizes do not seem to be equal. This study finds the stron-
gest effects for new service innovativeness and financial
performance. The former insight is in line with the
finding that a broad search for external knowledge is
positively related to radical innovation performance
(Chiang and Hung, 2010). A broader search implies
searching in more sources, which makes it more likely to
find solutions that are more innovative. The strong rela-
tionship with financial performance is consistent with
Lichtenthalers (2009) finding that inside-out open inno-
vation activities have a positive effect on financial firm
performance. Our study extends this finding to open inno-
vation activities in general, including other than inside-
out activities.
Third, our study builds on extant research that focuses
on the generic effects of the strategic orientations on
innovation performance (e.g., Baker and Sinkula, 2007;
Paladino, 2008; Spanjol, Qualls, and Rosa, 2011). Spe-
cifically, we examined the contingency effects of strategic
orientation, an organizational characteristic that has often
been used in innovation studies, but until now has seldom
appeared in open innovation studies. This study includes
three strategic orientations, entrepreneurial orientation,
market orientation, and resource orientation, as modera-
tors in our model. All significant moderation effects are
positive, which suggests that, in general, having a more
explicit strategic orientation enhances the effectiveness of
J PROD INNOV MANAG 13
2014;31(5):
open innovation. When comparing the three strategic ori-
entations, the findings show that entrepreneurial orienta-
tion has the strongest moderation effect on the relation
between open innovation and innovation performance.
An entrepreneurial orientation is associated with proac-
tive and entrepreneurial processes and, as expected, this
seems to create a fertile setting for integrating external
knowledge in internal innovation process and searching
for external opportunities for internally developed inno-
vations. Both concepts seem to benefit from situations
with rapid change and shortened product and business
model lifecycles (e.g., Rauch et al., 2009). For both
market orientation and resource orientation, only one out
the four tested moderation effects is significant. Market
orientation enhances the effect of open innovation on
financial performance, while resource orientation has a
similar effect on the relation with new service success.
These findings suggest that both market orientation and
resource orientation are less effective in strengthening the
positive effect of open innovation on innovation perfor-
mance. Market orientation is an outward-looking strate-
gic orientation which seems to be positive for open
innovation, but maybe the range of focal outside entities
(mostly customers and competitors) is too limited for
strengthening the effect of open innovation on the other
indicators of innovation performance. Open innovation
deals with scanning the environment in a much broader
and intensive way than a market orientation suggests to
do. Resource orientation is more of an inward-looking
orientation and was expected to have much less effect on
the success of open innovation. Nevertheless, it strength-
ens the effect of open innovation on new service success,
implying that firms actively managing and exploiting
their resource base are more successful in using open
innovation to develop and launch attractive new services.
A possible explanation is that a better understanding of
their own resources and the associated limitations may
provide focus to the search for additional external knowl-
edge. Previous research suggests that a resource orienta-
tion results in greater new product success (Paladino,
2007), we find that it is also able to increase the impact of
open innovation on this innovation performance indica-
tor. However, while Paladino (2007) also found positive
direct effects on other innovation performance indicators,
we find that the significant moderating effect does not
extend to the other innovation performance indicators.
This implies that the additional effect of combining a
resource orientation with an open innovation strategy is
limited.
This study offers several implications for practitio-
ners. First, by showing the positive effects of open
14 J PROD INNOV MANAG
2014;31(5):
innovation on multiple innovation performance indica-
tors, this study supports managers who intend to (further)
open their innovation processes. The recent intense inter-
est for open innovation may have some characteristics of
a hype, but our study provides clear evidence of its effec-
tiveness in practice. Opening innovation processes, e.g.,
by involving external parties in innovation projects,
acquiring or exploiting intellectual property, and actively
managing the various collaboration links of a firm,
seems to be an effective means to increase innovation
performance.
Second, in our study we have explicitly accounted for
the fact that innovation performance is a multidimen-
sional phenomenon, by including four different measures
of innovation performance. Interestingly, open innovation
is positively and significantly related to all these mea-
sures. This implies that the managerial choice of how
much to open innovation processes is much less influ-
enced by the firms innovation goals. Nevertheless, our
findings suggest that managers may expect the largest
benefits when they are more concerned about the degree
of innovativeness of their new products and services.
Third, our finding of the positive moderating effects of
all three tested strategic orientations (albeit to a different
degree), underscores once more the importance of having
a clear strategic orientation. Previous research has shown
that a distinct strategic orientation strengthens innovation
performance directly, in addition our study points at an
indirect effect, by strengthening the effect of open inno-
vation. This underscores the importance of balancing
various management approaches, as performance is the
result of the entire combination of approaches and not so
much of a single managerial act. A distinct strategic ori-
entation serves as a clear organizational focus, which
enables alignment with an appropriate innovation strat-
egy. This may also mean balanced implementation of the
open innovation approach, for example, firms with a
strong resource orientation may apply open innovation
activities more often for exploitative innovation than for
explorative innovation. Alignment ensures complemen-
tarity of various actions, which is essential for managerial
success.
Fourth, managers should be aware of the unequal indi-
rect performance effects of strategic orientations on open
innovation activities. More specifically, in line with
previous research (e.g., Zhou et al., 2005), we find the
strongest positive indirect effects for entrepreneurial
orientation. As an entrepreneurial orientation entails
innovativeness, proactiveness, and risk taking, this orien-
tation matches quite well with open innovation. Better
alignment implies that the effects of both approaches
C. C. J. CHENG AND E. K. R. E. HUIZINGH
strengthen each other more strongly. The alignment is
less in case of the other two strategic orientations. For
example, market orientation tends to concentrate on
current customers, making the orientation less compat-
ible with for example outbound open innovation which
focuses on exploiting intermediate innovation outputs by
licensing to other producers. Though marketing orienta-
tion strengthened only one open innovationinnovation
performance relation, our study suggests support for
Zhou et al.s conclusion that especially a combination of
an entrepreneurial orientation and marketing orientation
may be effective to increase innovation performance.
Next, knowledge about the strategic orientation of a
potential partner firm may also be helpful for managers in
evaluating how beneficial open innovation is for a
partner, which is an important judgment to be made in
partner selection processes.
Limitations and Future Research
As with most studies, the design of this study is subject to
limitations, which opens up opportunities for future
research. First, though we find that open innovation sig-
nificantly affects all four innovation performance indica-
tors, the magnitude of these effects is not equal. Our
study identifies these differences, but our data set does
not allow us to determine why open innovation has a
larger impact on one performance measure than on
another. Future research could focus on this issue, and
enlarge our understanding of when and why these effects
are of a different magnitude. Second, our study investi-
gates the strength of the moderation effect of three stra-
tegic orientations. Further research could elaborate on the
differences we find. Why and how do different strategic
orientations influence the extent to which open innova-
tion increases innovation performance? A related issue is
the combination of strategic orientations. This study
seems to suggest that especially the combination of entre-
preneurial orientation and marketing orientation is effec-
tive in increasing open innovation effectiveness. Future
research could focus on why this is the case, what specific
actions managers can take to increase open innovation
performance, and in what contexts which combination of
strategic orientations is most effective in enhancing open
innovation success.
This study follows a call for open innovation research
in non-Western settings. The positive effects we find
suggest that the effectiveness of open innovation is not
limited to the western part of the world. However, this
does not mean that the effects are equally strong. Much
research has underscored the importance of relationships
WHEN IS OPEN INNOVATION BENEFICIAL?
for doing business in Asia (Kawakami, Durmusoglu, and
Barczak, 2011; Song, Kawakami, and Stringfellow,
2010). Especially in Asia, firms need to invest in relation-
ship building before they can gain from these new rela-
tionships. This may imply that the effectiveness of open
innovation is lower in business cultures where substan-
tially resources (e.g., time and effort) need to be invested
in building and maintaining relationships. In such cul-
tures, firms can have only a limited number of relations
and/or valuable resources get lost due to relationship
building. Future research can investigate this issue by
comparing the effectiveness of open innovation in coun-
tries with varying degrees of relationship cultures.
Future research could also aim at overcoming a few of
our methodological limitations. First, single informant
bias could be a concern as only senior managers com-
pleted the survey. Future research could attempt to avoid
such concerns by recruiting multiple informants, e.g.,
R&D managers, marketing managers, and/or new service
development managers. Second, this study is primarily
based on the subjective assessment of the key informant,
so the evaluation of innovation performance is inclined
toward subjective biases. Future research that combines
the diversity of viewpoints (e.g., objective data) can
potentially overcome such biases. Finally, consistent with
Vrande et al. (2009), this study focuses on a full set of
open innovation activities (outside-in, inside-out, and
coupled). Lichtenthaler (2011), however, suggests to
focus research on each open innovation activity sepa-
rately and especially on inside-out activities. In line with
his plea, future research could, based on our general open
innovation scale, develop more refined measures for each
of the open innovation activities so as to further enrich
our understanding of open innovation effectiveness.
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Appendix

Factor Loading t-value

Strategic orientations, 2/d.f. = 2.04; CFI = .91, GFI = .90; TLI = .92; IFI = .91; RMSEA = .06
Entrepreneurial orientation (EO)
EO1. We actively build our capacity to react effectively to market changes .85
EO2. We ensure that our advantages can withstand changes in the industry .82 13.67
EO3. We actively prepare for the changes brought by governments policies .79 12.96
Market orientation (MO)
MO1. We are slow to realize the need of customers in product design .62
MO2. We frequently review the likely effect of changes in our business environment on customers .47 4.49
MO3. When something important happens to a major customer or market, the whole organization is .52 5.29
informed about it within a short period
MO4. When one department finds out something important about competitors, it is slow to alert other .85 6.21
departments
MO5. For one reason or another, we tend to react slowly to changes in our customers product or service .64 6.32
needs
Resource orientation (RO)
RO1. We constantly strive to ensure that our resources cannot be easily identified by competitors .82
RO2. We constantly strive to ensure that our resources cannot be easily imitated by competitors .85 6.26
RO3. We have dedicated much time and effort to ensure that it would be difficult for another company to .83 6.28
acquire the same resources we have
RO4. We constantly strive to ensure that it would be almost impossible to use our combination of resources .81 6.44
in another corporation
RO5. We monitor our key resources to determine if competitors would be able to replicate them .64 5.38
RO6. Our strategy is geared toward ensuring competitors would find it difficult to imitate our resource base .68 4.95
RO7. We try to make certain that our competitors find it difficult to determine the resources that may lead to .69 5.94
our success
RO8. We share key resources across departments to ensure they lack a clearly identified owner .83 8.31
RO9. We work to ensure our resources span, or provide benefits, to several departments .94 8.98
RO10. We work to ensure our resources span, or provide benefits, to different levels within the company .94 9.00
RO11. We integrate a number of resources to increase our efficiency and effectiveness .81 8.63
RO12. We work to ensure our resources act as triggers for collective learning within the company .90 9.06
RO13. We work to ensure our resources act as triggers for innovation within the company .86 8.71
RO14. We work to ensure our resources act as triggers for collective problem solving with stakeholders .91 8.97
RO15. Our resources are the principal drivers used to develop strategies that enable us to achieve efficiency .66 7.61
or effectiveness
Innovation performance, 2/d.f. = 2.4; CFI = .93, GFI = .86; TLI = .92; IFI = .93; RMSEA = .08
New product/service innovativeness (NI)
The majority of our innovations
NI1. Are based on substantially different core technology .66
NI2. Involve technologies that make old technologies obsolete .70 3.83
NI3. Use new technologies that permit quantum leaps in performance .86 3.93
NI4. Use technologies that have an impact on or cause significant changes in the whole industry .89 3.94
New product/service success (NS)
How did our firm perform during the last three years, with respect to
NS1. New service introduction rate relative to the largest competitor .83
NS2. New service success rate relative to the largest competitor .82 13.65
NS3. Degree of new services differentiation .78 12.76
NS4. First to market with new applications .78 13.00
NS5. New service cycle time (e.g., inception to rollout) relative to the largest competitor .54 8.16
NS6. Acquiring the image of an innovative supplier relative to the largest competitor .71 11.47
WHEN IS OPEN INNOVATION BENEFICIAL? J PROD INNOV MANAG 19
2014;31(5):

Appendix Continued

Factor Loading t-value

Customer performance (CP)

Relative to the largest competitors during the last three years, our firms new services performance is, with
respect to
CP1. Customer satisfaction .77
CP2. Customer loyalty .66 10.36
CP3. Reputation .96 16.21
CP4. Perceived image .93 15.68
Financial performance (FP)
Relative to competing new services during the last three years, our firms new services performance is, with
respect to
FP1. Return on investment .86
FP2. Sales .84 15.35
FP3. Market share .74 12.31
FP4. Profitability .81 14.99
Control variables, 2/d.f. = 1.42; CFI = .95, GFI = .96; TLI = .94; IFI = .94; RMSEA = .04
Market turbulence (MT)
MT1. Extent of market turbulence in the market .82
MT2. Frequent changes in customer preferences .80 10.88
MT3. Ability to reduce market uncertainty .89 13.58
MT4. Ability to respond to market opportunities .86 12.54
Technological turbulence (TT)
TT1. The technology in this industry is changing rapidly .72
TT2. Technological changes provide big opportunities in our industry .79 8.97
TT3. A large number of new service ideas have been made possible through technological breakthroughs .82 9.17
Competitive intensity (CI)
CI1. There are too many similar services in the market; it is very difficult to differentiate our brand .86
CI2. This market is too competitive; price wars often occur .81 11.22