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

The emphasis in firms on extramural research and development (R&D), involving 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 insights 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 degrees 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 performance. This relationship is moderated by employee retention and secrecy such that the benefits of extramural R&D are weakened at lower degrees of extramural R&D while its downsides are mitigated at higher degrees of extramural R&D. Our work thus suggests boundary conditions to the paradox of openness.