The Paradox of Openness and Value Protection Strategies: Effect of Extramural R&D on Innovative Performance

The e mphasis in firms on extramural research and development ( R&D ) , involv ing increased engagement with external entities in the conduct of research , can also result in knowledge leakage . Knowledge leaks can undermine firm competitiveness and to prevent this, firms deploy various isolating mechanisms to protect their knowledge. Integrating i nsights from the resource based view and evolutionary theory, we hypothesize an inverted curvilinear relationship between extramural R&D and innovation, and explain why the value protection strategies employed by firms change the relationship at various de grees of external knowledge sourcing. We test our hypotheses on a sample of 506 French manufacturing firms using data from three surveys conducted in the period 1998 to 2006. We find an inverted - U shaped relationship between extramural R&D and innovation p erformance . This relationship is moderated by employee retention and secrecy such that the benefits of extramural R&D are weakened at low er degrees of extramural R&D while its downside s are mitigated at high er degrees of extramural R&D. Our work thus sugge sts boundary conditions to the paradox of openness