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Innovation: Balancing Secrecy and Openness

Innovation : entre le secret et l’ouverture
Published on
26 March 2018

In today’s competitive markets, innovation and R&D are crucial to the survival of many companies. As a result, businesses develop a wide variety of strategies to protect their R&D and avoid the leakage of knowledge. However, as technology becomes more complex and projects require external collaboration, successful innovation often means relying on external partners. Herein lies the conundrum as collaborating with external partners means communicating and divulging company data. Yet recent research confirms that despite the obvious risks of open collaboration, the benefits outway the costs.

Isabel-Maria Bodas-Freitas is an associate professor in the department of management and technology at Grenoble Ecole de Management. In collaboration with her colleagues, she recently completed a study with two goals: first, to understand the effects of outsourcing R&D on innovation performance, and second to explore how organizational structures that foster employee retention and enhance secrecy can impact this relationship.

Outsourcing R&D: a positive effect

"Our study confirms that outsourcing R&D generally has a positive effect on innovation performance. However, after a certain point, the more you outsource the smaller the returns," asserts Isabel-Maria. With this in mind, the next factor to consider is how organizational protection strategies that limit leakage can impact the positive effects of open innovation.

"Our central finding was that knowledge protection strategies weaken the benefits of external R&D. This is due to the fact that such strategies increase costs of integrating valuable external and internal knowledge and limit a company's ability to appropriate outside knowledge. An organizational structure organizational incentives for employee retention and strict boundaries in term of secrecy will prevent a company from leveraging knowledge spillovers from other partners and even hamper their ability to integrate and use external knowledge they have paid to acquire!" exclaims Isabel-Maria.

The results of this study underline the point that companies that are too fearful of leakage and focus primarily on protecting their knowledge will not be able to reap the benefits of open innovation. However, for companies with high levels of external R&D, these same organizational protection strategies may limit the downsides of excessive outsourcing by retaining important tacit knowledge within the company and decreasing cognitive overload.

Finding the balance between secrecy and openness

“These findings highlight the fact that managers need to consider external sourcing and knowledge protection in an integrated manner. You cannot set one strategy without taking into consideration the other,” explains Isabel-Maria. Each company has a unique set of characteristics. As a result, it’s impossible to set a rule in terms of how companies should balance secrecy and openness. However, Isabel-Maria did note that, in general terms, if you have low levels of R&D outsourcing there is little reason to fear leakage and this should be less prioritized. For companies with high levels of R&D outsourcing, knowledge protection strategies can be beneficial if they’re implemented in a manner that still enables the company to take advantage of the external flow of knowledge.

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