How to Manage the Downside of Deep Engagement with External Sources in Open Innovation Projects


There is a conundrum when a firm engages deeply with external sources in its open innovation projects. This conundrum is related to the simultaneous activities of knowledge sharing and knowledge protecting. Many studies about open innovation have focused on the role of legal formalization in the context of intellectual property (IP) control. But legal formalization around IP may not address more specific activities of the parties such as tacit knowledge of involved individuals that may lead to revealing too much knowledge. In this study, we introduce formality into the joint technology development process itself, an alternative form of formalization, to manage this conundrum. Moreover, we argue that as the firm attempts to solve more complex problems, the importance of the formal joint process increases. We test our argument based on a sample of 82 open innovation projects collected from large firms in the United States and Europe. Our results clearly indicate that to manage the conundrum of simultaneously engaging in knowledge sharing and knowledge protecting, formalizing the joint technology development process seems to have a positive effect on projects outcomes that gets stronger as the problem becomes complex. We contribute to external sourcing literature by suggesting that the process formalization may support the legal formalization of IP control to manage the knowledge sharing and protecting tension. Moreover, we make important theoretical contributions to literature regarding relational mechanisms in interorganizational collaborations through our assertion that the combination of formality and informality between the partners seems to be required to increase the likelihood of success of open innovation projects without the loss of critical intellectual property.