Open innovation, or the process where R&D occurs outside of the commercializing firm, has become a boon for small businesses and entrepreneurs but the effects on new firms has not been fully studied. In this paper, ITIF Senior Analyst, Darrene Hackler utilizes the largest longitudinal study of new businesses, the Kauffman Firm Survey and finds high-technology firms disproportionately rely on open innovation networks.
The U.S. economy benefits greatly from the production of knowledge into economically useful innovations. However, a dramatic shift has occurred in how ideas are commercialized. Closed innovation, where internal research and development (R&D) labs of large companies control future discoveries, has faded.
Today, it is more common that innovations evolve externally of the commercializing firm because of open innovation activities like licensing agreements. The changes in dynamics of innovation can create large opportunities for small business and entrepreneurs, yet the research on how nascent entrepreneurs utilize open innovation and how the regional social and economic environment affects this process is understudied in our time of global and regional competition.
The paper examines open innovation strategy in nascent firms to explain how it varies in different technology industries, by a firm’s R&D capacity, an entrepreneur’s human capital and gender, and regional characteristics. The paper utilizes the largest longitudinal study of new businesses, the Kauffman Firm Survey (KFS). The results suggest that high-technology firms differ in terms of how firm and regional characteristics affect their likelihood of utilizing more open innovation strategies, and regional effects are consequential to all firms, but especially to high-technology firms.
The paper informs the body of entrepreneurship research addressing innovation and high-technology economic development and furthers regional policy development to support nascent open innovation dynamics.
The Information Technology and Innovation Foundation (ITIF) is a non-partisan research and educational institute – a think tank – whose mission is to formulate and promote public policies to advance technological innovation and productivity internationally, in Washington, and in the states. Recognizing the vital role of technology in ensuring prosperity, ITIF focuses on innovation, productivity, and digital economy issues.
High-Technology and Regions in an Era of Open Innovation (PDF document)