Knowledge related activities in open innovation: managers' characteristics and practices

254 Int. J. Technology Management, Vol. 61, Nos. 3/4, 2013

Copyright © 2013 Inderscience Enterprises Ltd.

Knowledge related activities in open innovation: managers’ characteristics and practices

Alex da Mota Pedrosa* University of Southern Denmark, Niels Bohrs Allé 1, 5230 Odense M, Denmark and ESCE Paris, 10 rue Sextius Michel, 75015 Paris, France Fax: ++45 (0) 6550-7364 E-mail: [email protected] *Corresponding author

Margus Välling Rautakesko AS a Kesko Group Company, Estonia E-mail: [email protected]

Britta Boyd Department for Border Region Studies, University of Southern Denmark, Alsion 2, 6400 Sønderborg, Denmark Fax: ++45 (0) 6550-1779 E-mail: [email protected]

Abstract: Theory and practice both have recognised the importance of external knowledge to enhance organisations’ innovation performance. Due to organisations’ growing interest in effectively collaborating with external knowledge sources, research has investigated the importance of firm-external stakeholder interaction in open innovation. Despite valuable insights into the importance of the variety of external knowledge sources to enhance (open) innovation, research has overlooked so far that managers’ characteristics and practices are relevant for the absorption of external knowledge in open innovation. Thus, the purpose of this study is to explore how organisations’ absorptive capacity – exploration, transformation, and exploitation – becomes manifested in managers’ characteristics and practices in open innovation. This article reports on the findings obtained from four case studies of manufacturing and service organisations. Our findings show that the exploration, transformation, and exploitation of external knowledge are associated with a distinct set of managers’ characteristics and practices that capture the dominant pattern of processing external knowledge in open innovation.

Keywords: absorptive capacity; ACAP; open innovation; managers’ characteristics and practices; case study.

Knowledge related activities in open innovation 255

Reference to this paper should be made as follows: da Mota Pedrosa, A., Välling, M. and Boyd, B. (2013) ‘Knowledge related activities in open innovation: managers’ characteristics and practices’, Int. J. Technology Management, Vol. 61, Nos. 3/4, pp.254–273.

Biographical notes: Alex da Mota Pedrosa is a Researcher at the University of Southern Denmark and ESCE Paris (France). His research interests include service innovation development, absorptive capacity at the organisational and individual levels, and open innovation. He obtained his doctorate in 2008 from the European Business School, Germany. He was previously a Visiting Scholar in the Stephen M. Ross School of Business at the University of Michigan (USA). His previous research has been published in among others in Creativity and Innovation Management and International Journal of Physical Distribution and Logistics Management.

Margus Välling is a Product Manager at Rautakesko AS a Kesko Group Company. In 2011, he graduated from the University of Southern Denmark as a MSc in Innovation and Business. His thesis is focusing on absorptive capacity of a sales department by arguing about individual capabilities to enhance innovation creation within multinational companies. Also, he co-authored a conference paper for the 12th International CINet Conference in Denmark in September 2011.

Britta Boyd is an Associate Professor of Business Administration at the University of Southern Denmark. Her PhD on Sustainable Management in Long-Lived Family Businesses – A Resource-based Analysis of Northern German Builder’s Providers was awarded from the University of Flensburg in Germany. Her main research interests focus on family businesses, entrepreneurship strategy, international marketing and sustainable management. She has published in various journals and books such as the Family Business Review, International Journal of Entrepreneurship and Small Business, International Journal of Management Practice and Family Business Casebook Annual.

This paper is a revised and expanded version of a paper entitled ‘Individual level absorptive capacity to support open innovation’ presented at 12th International Continuous Innovation Network (CINet) Conference, Aarhus, Denmark, 11–13 September 2012.

1 Introduction

In today’s turbulent and competitive markets, organisations increasingly rely on external knowledge to foster the development of innovations and improve performance (Lichtenthaler, 2009). Extant literature indicates that innovation development benefits from integrating external knowledge sources (Nordhoff et al., 2011; Spaeth et al., 2010). In this regard, innovation literature stresses that open innovation is a key model to sustain innovation and thus represents an important foundation for competitive advantage (e.g., Laursen and Salter, 2006). At the same time, organisations seem to struggle to absorb external knowledge during open innovation (Lichtenthaler, 2011; Volberda et al., 2010).

Open innovation has been defined as the organisation’s “use of purposive inflows and outflows of knowledge to accelerate internal innovation” [Chesbrough and Spohrer,

256 A. da Mota Pedrosa et al.

(2006), p.1]. While the increasing number of conceptual and empirical work reflects the importance of open innovation, it has overlooked the role of managers in developing and implementing open innovation activities within an organisation. Instead, research mainly focused on the organisational level and the ways in which organisations could benefit from open innovation (e.g., Laursen and Salter, 2006). In this regard, organisations’ absorptive capacity (ACAP) of external knowledge emerged as a critical capacity for knowledge activities in open innovation.

More than twenty years ago, Cohen and Levinthal (1990) introduced the concept of ACAP, which refers to the recognition of valuable new knowledge, its assimilation, and application. Since then, ACAP received a lot attention in the literature as a central means for knowledge creation and achieving sustainable innovations (Fores and Camison, 2011; Volberda et al., 2010). So far, the vast majority of research focused on factors that enable organisations to absorb valuable external knowledge, such as the availability of knowledge sources (Kostopoulos et al., 2011; Laursen and Salter, 2006). However, literature has largely failed to consider and specify the role of managers in developing and maintaining an organisation’s ACAP and hence, in recognising the value of external knowledge, transforming it into the organisation, and applying it within the organisation (Lichtenthaler, 2011; Volberda et al., 2010). Moreover, literature in general agrees on the importance of understanding managers’ actions and behaviours underlying organisation-level phenomena such as ACAP (e.g., Foss, 2011; Lane et al., 2006), as they create, restructure, and apply new knowledge and hence form the basis of organisational knowledge creation (Argote and Ingram, 2000).

The objective of this study is therefore to explore the role of managers in absorbing external knowledge to develop new products and services in open innovations. This research is guided by the following research question: How does ACAP become manifested in managers’ characteristics and practices in open innovation? To answer this research question, we conducted four case studies in manufacturing and service organisations. The following section gives an overview of the relevant literature, followed by the description of methods used. The article concludes with the studies’ findings and their discussion.

2 Literature review

For organisations it is becoming nearly impossible to hold all capabilities that are needed to innovate, which forces them to engage in open innovation (Lichtenthaler, 2011; Chesbrough, 2003). However, open innovation requires organisations’ investment of resources to enable the absorption of external knowledge (Lane et al., 2006; Laursen and Salter, 2006). These investments are likely to increase organisations’ innovativeness and, hence, their performance (Chesbrough, 2003). At the same time, many organisations experience challenges to absorb external knowledge in open innovation (Laursen and Salter, 2006), which implies the need for a deeper understanding of how to absorb external knowledge (Lichtenthaler, 2011).

Open innovation literature emphasises the benefits of interacting with a great variety of external knowledge sources (Ollila and Elmquist, 2011; Spaeth et al., 2010). In this context, research predominantly focused on highlighting which external knowledge sources are important in innovation development (e.g., Laursen and Salter, 2006). Overall, this research shows that suppliers, customers, universities, and research institutes


are main sources of external knowledge (Minshall et al., 2007; Laursen and Salter, 2006). Yet, extant research does not explicitly consider how open innovation in organisations emerges from managers’ practices (e.g., Gupta et al., 2007). However, increasing our understanding of managers’ characteristics and practices underlying organisational-level phenomena such as open innovation is highly important, because managers can gain access to other organisations that hold relevant external knowledge and combine it with their organisational knowledge to increase performance (Lichtenthaler, 2011).

Opening up the innovation development process requires organisations’ ability to absorb external knowledge. Organisational ACAP is a well-established construct which refers to the absorption of external knowledge and has been investigated in several areas of management research (e.g., Lane et al., 2006; Zahra and George, 2002). The literature agrees that the components of ACAP represent processes that tend to follow a natural sequence, which is consistent with the notion of learning in the organisational literature (Lane et al., 2006; Grant, 1996). Although previous conceptualisations of the sub-components of ACAP share common ground, they tend to vary in the specific terminology and definition (Volberda et al., 2010; Todorova and Durisin, 2007). For example, Zahra and George (2002) proposed a two-dimensional view of ACAP which consists of potential capacity (acquisition and assimilation) emphasising an organisation’s receptiveness to new knowledge and realised capacity (transformation and exploitation) referring to the utilisation of new knowledge for performance improvements. Lane et al. (2006) conceptualised ACAP as a general knowledge creation process which comprises the three sub-component processes exploration (recognising and understanding external knowledge), exploitation (applying of assimilated knowledge), and transformation (assimilating and maintaining acquired knowledge) which links the two other processes.

In this paper, we follow this latter conceptualisation to answer our research question for two reasons. First, recent research has shown that these three sub-components represent critical processes in open innovation (Lichtenthaler, 2009). Second, Lane et al. (2006) highlight the important role of individual organisational members for the existence and development of ACAP at the organisational level. As such, their conceptualisation captures one important characteristic of ACAP, namely that an organisation’s ACAP depends on the ACAP of its individual members, such as managers (Jansen et al., 2005; Cohen and Levinthal, 1990).

Despite differences in the specific terminology and definition, literature tends to agree that exploration is the first learning process inherent in ACAP, while exploitation of that knowledge is being the final process. Exploration is defined as the identification and understanding of external knowledge domains (Lane et al., 2006). For example, organisations in the computer game and electronic industry explore user communities to identify new customer needs (Jeppesen and Molin, 2003). Exploitation refers to the use and application of external knowledge in organisations’ operations and innovation development (Lane et al., 2006). The literature further highlights the need to develop internal processes that link exploration and exploitation (Lane et al., 2006). In this regard, Todorova and Durisin (2007) proposed that transforming knowledge is necessary when companies do not possess knowledge that is related to the new knowledge, so that companies have to change existing cognitive structures in such ways that allow the integration of the new knowledge. Transformation refers to maintaining and sharing of new knowledge over time and combining the new knowledge with existing knowledge.


Literature more and more emphasises the importance of increasing our understanding of individuals’ actions and behaviours underlying organisational-level phenomena (Gupta et al., 2007; Lane et al., 2006), as organisation-level phenomena such as ACAP with regard to external knowledge for open innovation resides at the individual level (Felin and Hesterly, 2007; Chesbrough, 2003; Grant, 1996). Consequently, shedding light on the managers’ practices and characteristics seems to be essential, because disregarding the individual level limits the understanding of organisational-level phenomena (Foss, 2011; Gupta et al., 2007). In addition, managers create, restructure, and apply new knowledge and thus form the basis for organisational knowledge creation relevant in open innovation (Chesbrough, 2003; Okhuysen and Eisenhardt, 2002; Argote and Ingram, 2000). For example, managers often share new external knowledge in such a way that it can be used across the organisation (Dougherty, 1992). To date, however, a profound understanding of the role of managers in exploring external knowledge, transforming, and exploiting it to develop new products and services in open innovations is missing.

3 Methodology

We used a multiple case study design (e.g., Eisenhardt and Graebner, 2007), in which we explored managers’ practices and characteristics through which ACAP becomes manifested in open innovation development. Case studies are well suited for conducting exploratory research in a real-life context when the boundaries between phenomenon and context are not clear (Eisenhardt and Graebner, 2007; Yin, 2003). Furthermore, case study research enables exploration for a greater understanding given the limited knowledge about how managers engage into absorbing external knowledge (Volberda et al., 2010; Eisenhardt and Graebner, 2007). Finally, case studies are appropriate to investigate dynamic processes in organisations as they unfold, such as the exploration, transformation, and exploitation of knowledge (e.g., Maitlis, 2005). This study examines four organisations that represent the cases, and the sub-component processes of ACAP in open innovation within each case represent the unit of analysis.

The research was carried out in two manufacturing organisations and two service organisations, which were selected on the basis of their relevance and accessibility. Focusing on manufacturing and service organisations is appropriate for several reasons: First, by investigating open innovation development in manufacturing and service organisations, we avoided to identify manager’s practices and characteristics in developing and maintaining an organisation’s ACAP which might only be relevant in one industry. Second, including four cases from different industries enables us to produce more robust, generalisable and transferable findings (da Mota Pedrosa et al., 2012; Eisenhardt and Graebner, 2007). Third, including multiple cases allowed us to control for environmental variation (Eisenhardt and Graebner, 2007; Yin, 2003).

We theoretically sampled organisations that fit the aim of our research (Eisenhardt, 1989). In particular, we selected organisations that had implemented an open innovation model (i.e., the concept of open innovation was anchored in the innovation strategy and external knowledge source were systematically integrated) at least five years ago, which allowed for comparability of the findings. In addition, we interviewed managers who were familiar with the organisation’s open innovation model about how they absorb external knowledge in general. Likewise, literature emphasises that successful product and service innovation development highly depends on managers’ ability to absorb


external knowledge from e.g., customers and suppliers (e.g., ter Wale et al., 2011). We selected organisations that were profitable and highly experienced in interacting with external knowledge sources during open innovation. According to Zahra and George (2002), developing and maintaining ACAP increases organisations’ knowledge base and enhances their performance. Finally, the similarities of the companies allowed comparison while the differences in terms of size and industry specialisation between the organisations provided a reasonable basis for generalisability (Eisenhardt and Graebner, 2007). Table 1 provides an overview of the companies. Table 1 Case company overview

Companies Industry Types of offered products/services

Main external knowledge sources

relevant for innovation

Alpha Plant engineering and construction

• Motion control

• Compressors

• Floor heating

Customer, suppliers, consultants

Beta Plant engineering and construction

• Pumps Customer, suppliers, universities

Gamma Logistics services • Retail logistics

• Seaport logistics

Customers, suppliers

Delta Financial services • Saving accounts

• Credits

Customers, competitors, fairs

Years of using open innovation* Revenue** Employees

Alpha 11 €4.2 billion 23.000 Beta 6 €2.6 billion 16.000 Gamma 9 €0.9 billion 13.000 Delta 5 €11.2 billion 2.000

Notes: *All companies tended to use their open innovation model for any type of innovation. **For company Delta we did not receive the revenue but the total assets amount of the balance sheet.

Data collection lasted about 12 months and included interviews, field notes, observations, and organisation visits. We conducted 3–4 interviews with key informants from different departments within each organisation (e.g., marketing, R&D, business development managers) in each of the four organisations. Interviewing multiple managers from different departments within each organisation provided diverse sources of evidence and served as a means for validating and replicating findings. Further, we decided to focus on managers because they are more knowledgeable about how external knowledge is absorbed in general through the organisation in open innovation. We stopped interviewing key informants as soon as the information obtained appeared to become repetitive and no further contribution to our understanding of the research topic could be identified (Yin, 2003). For the interviews, a checklist was developed which aimed to capture how managers engage in exploring, transforming, and exploiting external knowledge in open innovation. The interviews lasted on average between 60 and 90


minutes, were tape-recorded, and immediately transcribed to ensure ‘truth-value’ (da Mota Pedrosa et al., 2012; Halldorsson and Aastrup, 2003).

All interviews were analysed according to the process recommended by Spiggle (1994). We began by reading all interviews and field notes and sorted out descriptions of external knowledge source exchange issues that arose within each organisation. Afterwards, we categorised all case study data into content themes related to absorbing external knowledge before abstracting the categories to higher-order conceptual constructs (Glaser and Strauss, 2006). To identify first-order concepts, we began by identifying patterns and differences in the descriptions of managers absorbing external knowledge. We also investigated contradicting statements within the same interview. Then we compared the first-order concepts in which managers engaged in absorbing external knowledge with those in which managers described the development of new knowledge without interacting with external knowledge sources. When issues were identified which did not differentiate knowledge exploration, transformation, and exploitation with external knowledge sources from each other, we disregarded them.

Figure 1 Data structure: practices of absorptive capacity

The first-order concepts offered general insights into how managers engage in absorbing external knowledge. To increase traceability of the first-order concepts, we asked a second coder to analyse independently the data regarding managers’ characteristics and practices of ACAP in open innovation based on the coding instructions provided (da Mota Pedrosa et al., 2012; Halldorsson and Aastrup, 2003). The results of both codings were compared and disagreements were solved through discussion between both coders. Afterwards, we collapsed the first-order concepts into higher-order conceptual constructs (Glaser and Strauss, 2006). Therefore, we searched for similarities


among the first-order concepts which would allow us to group them into a second-order construct. A major aspect of this process was the emergence of the second-order constructs from the data rather than from theory (Glaser and Strauss, 2006). Finally, we conducted a cross-case analysis by comparing the second-order constructs across companies and with relevant literature. Following Strauss (1998), it was important that the identified issues exist across all companies. Finally, we examined how the second-order constructs linked to the sub-component processes of ACAP which we identified in the literature (third-order dimensions). Figure 1 shows the data structure and describes the second-order constructs and the first-order concepts from which the second-order constructs were derived. Further, Tables 2–4, in the findings section, provides representative quotations from the study data which illustrate each of the first-order concepts.

4 Findings

The following section describes the results of the investigated case studies against the backdrop of ACAP (exploration, transformation, and exploitation). In each of the four organisations, managers’ characteristics and practices were associated with exploration, transformation, or exploitation. In the remainder of this section, we describe and discuss how ACAP in open innovation becomes manifested in the practices and characteristics of managers.

4.1 Exploration of new external knowledge

Exploration is the first sub-component process of ACAP during open innovation which refers to the identification and understanding of extern knowledge domains. In all cases, managers were highly motivated to learn about new technologies. Therefore, they were continuously on the lookout for new external technological knowledge which could be used for developing new product and/or service innovations1. For example, managers of Delta regularly visited other organisations and fairs to learn about new online security technologies. However, absorbing new knowledge depends on the individual managers’ ability to identify and understand potentially new valuable external knowledge (Todorova and Durisin, 2007). While prior knowledge is one important driver to identify valuable external technological knowledge (Cassiman and Veugelers, 2006), its full potential can only be realised when the functions that technological knowledge may fulfil are understood (Lichtenthaler, 2009). The managers involved in open innovation had high technological expertise, but they lacked market knowledge. Therefore, managers have to be self-motivated to engage in discussions with colleagues who regularly interacted with suppliers and customers in order to enhance their market knowledge and consequently to ease the identification and understanding of valuable external technological knowledge. As a business unit manager of Gamma explained “People participating in [open innovation] projects have to talk to sales people to get more detailed information about the market and its needs”. Through these discussions, managers were able to assess which external technological knowledge could address market needs. Thus, market knowledge helps to identify application and commercialisation opportunities of technological knowledge (Volberda, 1996; Teece, 2007).


Table 2 Representative quotations supporting exploration

First-order concepts Representative quotations

Visiting other organisations and fairs

• Sometimes customers just talk how competitors do certain things. Of course I take this information into consideration. I try to understand how this knowledge might help us in our business. (Marketing Manager of Gamma)

• You have to observe your competitors and see how you can do things better as they do. ... We go to the well known fairs to ‘explore’ our competitors. (Head of Discovery and Design of Alpha)

• I go to fairs to learn about new technologies. (Head of Marketing of Delta)

Engaging into discussions with colleagues holding market knowledge

• People participating in [open innovation] projects have to talk to sales people to get more detailed information about the market and its needs. (Business Unit Manager of Gamma)

• When participating in projects I talk directly with sales people to get some information from the market. (R&D Manager of Beta)

• You need to talk to colleagues holding external knowledge to receive some new inspiration [for new products]. (Business Unit Manager of Gamma)

• You have always to ask your colleagues [holding external knowledge] to increase your understanding of the market needs. (Director Corporate Back Office of Delta)

Engaging into discussions with external knowledge sources

• We interviewed customers to specify their needs. (R&D manager of Alpha)

• During this dialogue you should always try to develop your thoughts further and to get inspirations for new solutions. ... Do not expect to receive a solution but you might receive a very good hint [for a new technology]. (Business Unit Manager of Gamma)

• I and my colleagues’ negation with those [external] stakeholders about the objective of new products. (Sales Manager of Beta)

• I talk [directly] with people from competitors or insurance companies to be aware of the trends in our industry. (Customer Contact Manager of Delta)

Technological expertise

• We know our processes very well. You need this expertise to evaluate if you can implement new requirements in a new service. (Operations Manager of Gamma)

• You need expertise in a field to be able to identify new opportunities or new relevant knowledge. (Head of Marketing of Delta)

• You need some kind of prior [technological] knowledge to recognise the value of new knowledge. (Product Manager of Alpha)

Open minded • “... identifying and recognising new external knowledge requires visionaries” and further argued that managers with access to external knowledge sources “should never feel attacked personally.” (Customer Contact Manager of Delta)

• We have a very open culture. ... You have to be very open-minded and very honest to identify new external knowledge. (R&D Manager of Beta)

• In general, you have to open your mind as much as possible to understand external knowledge. (Marketing Manager of Gamma)


Although the managers perceived their interactions with colleagues having access to external knowledge sources as highly valuable, they felt that further exploring the functions which the new technological knowledge could fulfil would be worthwhile. Therefore, the managers approached customers and suppliers directly to explore the relevance of the new knowledge. An R&D manager of Alpha described “we interviewed customers to specify their needs”. These meetings increased their understanding of the applicability of technological knowledge. Besides, external knowledge sources (e.g., suppliers) asked managers to consider the application of specific technological knowledge they considered as highly valuable. The business development manager of company Gamma explained: “During this dialogue you should always try to develop your thoughts further and to get inspirations for new solutions. … Do not expect to receive a solution but you might receive a very good hint [for a new technology].” Such clear indications ease the evaluation of external technological knowledge and reduce potential negative effects of external knowledge acquisition excessively guided by internal resources (Gupta et al., 2006; Katila and Ahuja, 2002).

Managers were self-motivated to identify valuable external technological knowledge and worked hard to ensure that the new knowledge would address market needs. At the same time, managers had to be aware of the risk that identified insights might contradict their existing knowledge and beliefs. As the customer contact manager of Delta explained “identifying and recognising new external knowledge requires visionaries” and further argued that managers with access to external knowledge sources “should never feel attacked personally”. Therefore, the managers involved in open innovation projects had to be open-minded.

Exploration led to the development of new external technological knowledge that was valuable and potentially applicable in open innovation projects. Knowledge creation resulted from managers’ capitalisation of market knowledge to identify and understand the full potential of external technological knowledge which could be applied in open innovation. Similarly, Song et al. (2005) highlight that combining technological and market knowledge enables organisations to create higher value and consequently enhance organisational performance. Furthermore, the ability to engage in exploration is often connected with managers’ characteristic of being open-minded and technological expertise which enabled them to enhance their external knowledge and to consider new insights even though they are not consistent with their existing knowledge and beliefs. Such a micro foundational perspective extends studies stressing the importance of managers in implementing organisations’ capability to explore external knowledge (e.g., Volberda et al., 2010).

4.2 Transformation of new external knowledge

Transformation is the second sub-component process of ACAP during open innovation which refers to maintaining and sharing knowledge overtime and combining the new knowledge with existing knowledge, so that the organisation benefits from it by applying it in new ways. Although managers’ activities to explore external knowledge are worthwhile, organisations do not always benefit from it when external technological knowledge is not maintained and shared within the organisation (Todorova and Durisin, 2007; Jansen et al., 2005). Lane et al. (2006) argue that transforming external knowledge is particularly important for organisations because external knowledge might be


identified by one organisational member but used by another to create profit for the organisation. Across all cases, formal meetings were used to maintain and share explored knowledge within the organisation. However, the managers also engaged in informal meetings (e.g., talks in a coffee corner) to discuss and share explored knowledge with colleagues they considered as valuable knowledge processors. In general, those colleagues were regarded as experts in their specific area and well-known for their capability to combine new knowledge with existing organisational knowledge. Table 3 Representative quotations supporting transformation


Discussing explored knowledge with colleagues in informal meetings

• I [shared] several issues with colleagues from the technology department and business department because there is often a huge discrepancy between our customers’ needs and what our technology can satisfy. (R&D Manager of Beta)

• Through informal meetings you often receive a feeling about what works and what not. (Operations Manager of Gamma)

• I just talked [informally] to some of our internal engineers. Simply to keep them informed. (Project Manager of Alpha)

• Just at the coffee corner you discuss new insights with your project colleagues. (Director Corporate Back Office of Delta)

Organising formal meetings to maintain and share explored knowledge

• In scheduled workshops we define tasks and share new knowledge ... (Product Manager of Alpha)

• I have a number of scheduled meetings with colleagues from other departments. During those meetings we discuss the status quo of the project and we share new insights [explored knowledge]. (Sales Manager of Beta)

• I meet every Wednesday with colleagues [of the project] to discuss new knowledge and specify our next steps. (Marketing Manager of Gamma)

• In each project we define milestones. During those meetings we share new [explored] knowledge and try to combine it with our existing knowledge. (Customer contact manager Delta)

Constructing linkages between new and the existing knowledge of the organisation

• Through informal meetings you often receive a feeling about what works and what not. (operations manager of Gamma)

• Everybody in the team has to understand the objective of the project. If they don’t understand where they are going it is very difficult to get them understanding the new knowledge and to make them working together. (R&D Manager of Beta)

• I often have to give suggestions how the new knowledge would fit to our existing. (Head of Marketing of Delta)

Expertise about organisational expectations and capabilities

• You need some kind of prior [technological] knowledge to consider new technologies. ... We are good in using known things from outside the industry and transferring [them] into our business. (Product Manager of Alpha)

• You need to be familiar with the organisational capabilities to consider new [external] knowledge (Operations Manager of Gamma)

• You need expertise about the organisations capabilities to be able to combine new external knowledge with existing knowledge. (Sales Manager of Delta)


Table 3 Representative quotations supporting transformation (continued)


Being familiar with the organisational language

• Informing colleagues why the [new technical] feature adds value” is a key point to get one’s idea across to other colleagues and to enable the changing of existing cognitive structures. (Project Manager of Alpha)

• Take Susan [sales manager] and Max [product manager]. Of course, sales managers think about how to promote a product while product managers think about how to design products and develop them. Both ways of thinking are important. ... But it is also important to be able to combine and speak both languages in order to share new insights in meetings. (Product Development Manager of Beta)

• Each department is differently in our organisations. Hence, you need to provide them the same new knowledge in a different way. (Business Unit Manager of Gamma)

• You need to be able to translate new [external] knowledge into the languages of the different departments. (Customer Contact Manager of Delta)

During informal meetings, managers shared explored knowledge which was not related to existing organisational knowledge. As an R&D manager of company Beta explained: “I [shared] several issues with colleagues from the technology department and business department because there is often a huge discrepancy between our customers’ needs and what our technology can satisfy.” Moreover, all managers indicated that such unrelated or dissimilar, new explored knowledge could only be combined with existing knowledge and consequently shared effectively within the organisation via informal meetings. Due to the informal atmosphere in such meetings, the colleagues’ resistance to combine new knowledge with existing knowledge was lower. In addition, informal meetings allow for richer and more intensive communication which helps to change existing cognitive structures and hence to better integrate new knowledge into existing expertise. This also allows interaction partners to fathom and constructing linkages between the explored knowledge and the existing knowledge of the organisation, as described by the operations manager of Gamma: “Through informal meetings you often receive a feeling about what works and what not.” Being aware of such organisational challenges helps managers to combine incongruous sets of internal and external knowledge and facilitates knowledge transformation into the organisation (Zahra and George, 2002).

Managers highlighted that their expertise about the organisational expectations and capabilities facilitated further the transformation of explored knowledge. This was beneficial because as one product manager of Alpha explained “You need some kind of prior [technological] knowledge to consider new technologies. … We are good in using known things from outside the industry and transferring [them] into our business.” In addition, all managers emphasised the importance of a common language among colleagues as this eases the maintaining and sharing of new external knowledge. For example, as the product development manager of Beta explained: “Take Susan [sales manager] and Max [product manager]. Of course, sales managers think about how to promote a product while product managers think about how to design products


and develop them. Both ways of thinking are important. … But it is also important to be able to combine and speak both languages in order to share new insights in meetings.” Extant literature indeed argues that lacking organisational language familiarity is an obstacle to an effective sharing of new knowledge (Okhuysen and Eisenhardt, 2002; Szulanski, 1996). Besides enabling intensive communication, managers used a common language to shape their colleagues’ interpretations of the new knowledge. They did so by arguing about the benefits of the new external technological knowledge for the organisation. A project manager of Alpha explained that “informing colleagues why the [new technical] feature adds value” is a key point to get one’s idea across to other colleagues and to enable the changing of existing cognitive structures.

Transforming explored knowledge helps organisations to respond to technological and market developments to which they are not able to react based on their existing knowledge (Lichtenthaler, 2009; Cassiman and Veugelers, 2006). We found that the maintaining and sharing of explored knowledge for open innovations was facilitated by managers’ practices to engage into formal and informal meetings. According to existing literature, integrating new knowledge is the essence of an organisational capability as much as ACAP is to enhance innovation performance (Lichtenthaler, 2011; Grant, 1996). Nevertheless, managers’ expertise about organisational expectations and capabilities and being able to use the common language of the organisation were key characteristics for maintaining and sharing of explored knowledge relevant for open innovations.

4.3 Exploitation of new knowledge

Exploitation is the third sub-component process of ACAP during open innovation which refers to the use and application of external knowledge in organisations’ operations and innovation development. In particular, after successfully transforming external knowledge, organisations aim to convert the new knowledge into their operation and innovation activities (Lichtenthaler, 2009; Zahra and George, 2002). For this, managers organised formal meetings with colleagues from different departments to elaborate systematically on possibilities to apply transformed knowledge. An important effect of such a cross-functional interface is that it enables managers to critically rethink existing products and services and to combine existing knowledge with newly transformed knowledge (Jansen et al., 2005). Table 4 Representative quotations supporting exploitation


Organising formal meetings to elaborate application opportunities of transformed knowledge

• The value of it [meetings] is that you hear it from different angles. Everybody contributes with their knowledge and experience. Thus, these discussions are on a very high level in general. (Director Corporate Back Office of Delta)

• In meetings we put scenarios on the table which help to make the right decisions. (Product Development Manager of Beta)

• We organised meetings to discuss the different ways in which the new knowledge could be applied. (Business Unit Manager of Gamma)


Table 4 Representative quotations supporting exploitation (continued)


Promoting and clarifying applicability of new knowledge

• We explained to them how it [the idea] would support the sales [department]. (R&D manager of Alpha)

• I think we manage to see things from above and try to [identify application opportunities]. In this way departments are not looking on what is their [knowledge] or external knowledge. (Product Development Manager of Beta)

• By means of presentations we show how new knowledge could be applied in different ways. (Business Unit Manager of Gamma)

Outlining invested efforts to transform external knowledge

• People have to see that you did everything to fully understand the new stuff [external knowledge] because this provides the transferred knowledge with a flavour of internally developed knowledge. (Operations manager of Gamma)

• After finishing the analysis we knew everything. Then we agreed with the sales, marketing and other departments what they could expect from us and then we tried to find the red line for everyone. That is, what to do [with the new knowledge]. (R&D Manager of Alpha)

• In our organisation it is very important that you present new knowledge with self-confidence. People need the feeling that can help them to apply the new knowledge. (Sales Manager of Delta)

Abstracting transformed knowledge

• But decisions are made by taking a joint helicopter trip and looking at things from above. So to say: How do we solve this [identified challenge] from a holistic view that makes sense for our company and not only from your [the external knowledge explorer] perspective. (Product Development Manager of Beta)

• In your area you are deep into the details but details might not be important for the guys [colleagues]. Because they have to work on a specific task.... (Head Discovery and Design of Alpha)

• You start with a very abstract level but you have to come very fast to the point. Otherwise the new knowledge is not useful. (Operations Manager of Gamma)

• You need to be able to consolidate external knowledge so it can be used within the company. (Head of Marketing of Delta)

Indeed, participants considered cross-functional meetings as highly valuable, as the director corporate back office at Delta explained: “The value of it [meetings] is that you hear it from different angles. Everybody contributes with their knowledge and experience. Thus, these discussions are on a very high level in general”. Furthermore, during these formal meetings, managers developed innovation ideas which were based on the multiple perspectives of the participating managers. When managers are involved in cross-functional interfaces, a context is created in which they have to put themselves into the shoes of others, which benefits the exploitation of knowledge and the development of innovation (Mom et al., 2009; Jansen et al., 2006).

Nevertheless, managers across all case organisations noticed a certain level of reluctance among meeting participants, when they were asked to develop the innovation ideas which were generated based on the transformed knowledge. For this reason,


managers passionate about the transformed knowledge engaged in promoting and clarifying the applicability of the new knowledge, by outlining its benefits and value in the organised meetings. As an R&D manager of Alpha explained: “We explained to them how it [the idea] would support the sales [department]”. In addition, all managers indicated that during those meetings, they outlined various ways in which the transformed knowledge could be easily applied during innovation development. This further enabled managers to resolve some of their colleagues’ major doubts about the innovation idea and thus helped overcome the so-called ‘not-invented-here syndrome’. Similarly, extant literature indicates that managers’ reluctance to apply external knowledge might be a result of the not-invented-here syndrome (Cohen and Levinthal, 1990; Katz and Allen, 1982). An additional practice managers used to overcome this syndrome was to highlight the effort invested to understand and process the transformed knowledge. An operations manager of Gamma explained: “People have to see that you did everything to fully understand the new stuff [external knowledge]” because this provides the transferred knowledge with a flavour of internally developed knowledge. Literature indeed demonstrates that promoting external knowledge as internal helps to reduce reluctance and to enhance the possibility that it is implemented in innovations (Markham, 1998).

In parallel, managers needed to be able to further abstract transformed knowledge to encourage meaningful discussions and to shape their colleagues’ understanding of the appropriateness of this knowledge. As the product development manager of Beta described: “But decisions are made by taking a joint helicopter trip and looking at things from above. So to say: How do we solve this [identified challenge] from a holistic view that makes sense for our company and not only from your [the external knowledge explorer] perspective”. Although abstracting external knowledge enhanced its internal acceptance, managers also engaged in developing prototypes to ensure the applicability of the external knowledge. For example, managers of Delta developed and tested different service innovation concepts which were based on the transformed knowledge. By doing so, managers complemented their understanding of the external knowledge and further increased their self-confidence in its usefulness to the organisation.

Exploiting knowledge led to determining potential application opportunities of transformed knowledge in open innovations. We observed that decisions about applying transformed knowledge in open innovations were often made during formal meetings. Managers regarded these meeting as highly valuable because decisions were carried from different departments and thus open innovation development would receive enormous support from the entire organisation. Cross-functional interfaces support managers’ aspiration to enhance efficiency in achieving their goals such as the application of transformed knowledge in innovations (Lichtenthaler, 2009; Adler et al., 1999). Besides seeking overall support for applying transformed knowledge, managers needed to be able to promote new knowledge in such a way that it was mainly perceived as internally developed.

5 Discussion

In this article, we have investigated the absorption of external knowledge in four organisations to identify conditions associated with exploration, transformation, and


exploitation of external knowledge by managers in open innovation. The aim of this study was to explore how ACAP become manifested in managers’ characteristics and practices in open innovation. We found a set of managers’ practices and characteristics for exploration, transformation, and exploitation of external knowledge in open innovation used by managers.

The importance of exploring external relevant knowledge for organisations is undisputed in innovation research. Further, prior research highlights that it requires managers’ efforts to absorb knowledge and to create value from which organisations benefit (e.g., Lane et al., 2006; Grant, 1996). In our study, we found that managers who engaged in exploration practices relevant for open innovation were predominantly open-minded. Their lively interest in new technologies was highly important for manufacturing and service organisations to explore highly valuable technological knowledge. Technological expertise and open-mindedness were two important characteristics that stimulated managers to explore through indirect and direct interactions with external knowledge sources.

Extant literature emphasised that transforming knowledge is important in order to keep explored knowledge utilisable (Lichtenthaler, 2011; Lane et al., 2006). Further, prior research proposes that transformation is an alternative process which links exploration and exploitation of valuable external knowledge (Kostopoulos et al., 2011; Todorova and Durisin, 2007). Our findings suggest that transformation will be of higher relevance under the circumstance that explored knowledge is not in line with prior knowledge and therefore organisations have to change their cognitive structures. Engaging into transformation is the managers’ response to organisational members’ resistance to unfamiliar knowledge and uncertainty as to its applicability. Our findings suggest that managers engage in formal and informal meetings to overcome these challenges. Moreover, it was easier for managers to transform knowledge when they knew their organisation’s capabilities and language. This enabled managers with the opportunity to shape their colleagues’ interpretations of explored knowledge through the constructions of linkages between new and prior knowledge.

Cohen and Levinthal (1990) already noted that the organisational ability to exploit external knowledge is crucial for its innovation performance. We found that formal meetings created occasions for exploiting transformed knowledge. Together with colleagues, managers sought after application opportunities for the transformed knowledge in innovations. The main enabler of managers’ practices to exploit knowledge that we observed – abstracting transformed knowledge – suggests that managers’ characteristic is related to exploitation. This perspective suggests that exploiting knowledge in open innovation should be understood as a managerial practice that is also grounded in the specific characteristics of managers within specific situations. Although ‘storytelling’, for example, is considered to be important for the exploitation of knowledge (e.g., Maitlis and Lawrence, 2007), our findings propose that effective knowledge exploitation also requires from managers the ability to promote external knowledge as knowledge that has been internalised through transformation. Thus, although exploitation of knowledge is often simply linked to organisational practices, our study suggests that exploitation is facilitated by the practices in which managers engage and their characteristics.


6 Conclusions

Open innovation literature stresses the importance of integrating external knowledge sources during innovation development to enhance organisations’ competitive advantage (Laursen and Salter, 2006; Chesbrough, 2003). This case study research therefore intended to explore how ACAP becomes manifested in managers’ characteristics and practices in open innovation. The findings of the study show the importance of a set of managers’ characteristics and their practices that capture the dominant pattern of absorbing external knowledge. For example, exploring new external knowledge is characterised by managers’ self-motivation and open-mindedness. Having identified valuable external knowledge, managers set up informal and formal meetings to transform knowledge into the organisation. Finally, exploitation is characterised for instance by the manager’s practice to promote the applicability of new knowledge.

This study contributes to previous research which emphasises the importance of increasing our understanding of individuals’ characteristics and practices underlying organisational-level phenomena (Lichtenthaler, 2011; Foss, 2009; Lane et al., 2006), such as open innovation and ACAP. It reveals managers’ characteristics and practices which help to explain the exploration, transformation, and exploitation of external knowledge in open innovation (see Figure 1).

Organisations implementing open innovation should recognise the importance of their managers’ characteristics and practices in exploring, transforming, and exploiting external knowledge. In particular, our findings help to broaden managers’ perception of absorbing knowledge beyond organisational boundaries. In this respect, our findings suggest that organisations have to support their managers in developing knowledge related capabilities. In addition, the findings imply that implementing open innovation is not necessarily limited to exploring external knowledge. Rather organisations have to be aware of the fact that their managers also have to transfer and exploit the external knowledge to sustain innovation. Furthermore, our findings suggest that each sub-component process of ACAP is facilitated by a set of managers’ practices and characteristics. Knowing those characteristics of managers might help organisations to identify managers who are especially suitable to explore, transform, and exploit external knowledge. Knowing the relevant characteristics and practices might help organisations in designing and implementing appropriate work and open innovation processes as well as a supportive work environment.

Although this study provides new insights and results, it is not without limitations. First, this study aimed to explore how organisational ACAP in open innovation becomes manifested in the practices and characteristics of managers. Although we investigated how managers absorb external knowledge in open innovation in four organisations of two different industries, we cannot rule out that other organisational or environmental conditions might have affected our results. Therefore, future research should further investigate the role of organisational members in absorbing external knowledge in open innovation. A second limitation pertains to the single focus on managers’ characteristics and practices in absorbing external knowledge in open innovation. Other organisational members might also absorb external knowledge relevant for innovation development. It may even be the case that other organisational members with less strategic task focus, such as engineers, exhibit different practices and characteristics, when it comes to the absorption of specialised knowledge from external sources, as future research would need to explore.


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Notes 1 In the following product and/or service innovations will be referred to as innovations.

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Knowledge related activities in open innovation: managers' characteristics and practices