The concurrent effect of Open Innovation practices on both innovation and financial performance: empirical evidences from bio-pharmaceutical industry

Purpose – The research presented in this paper explores the effect of Open Innovation on firm performance in the biopharmaceutical industry. Specifically, although existing researches on Open Innovation effectiveness have separately investigated the effect of Open Innovation practices on innovation and financial performance, this study evaluates the concurrent effect of these practices on both such performance dimensions in a single framework. Design/methodology/approach – We measure firm performance and Open Innovation activities of companies listed on NASDAQ; specifically, the study focuses on 128 companies listed in the NASDAQ Biotechnology Index. This industry provides an ideal context for the research because it is dynamic, and knowledge required for research breakthroughs far exceeds the capabilities of any single firm, forcing firms to pursue Open Innovation strategies to obtain the necessary advantages. Since, the first dependent variable of this study, i.e. the innovation performance, is a countable variable, we utilize a negative binomial regression to overcome the problem of over-dispersion. Whereas, as regards to the second dependent variable, i.e. the financial performance, since it is a continuous quantitative measure, we use an OLS regression model. Originality/value – The first important finding is that although a lot of research works argue that Open Innovation processes bring benefits to both innovation and financial performance, we find that only 5 over 14 investigated OI practices affect both such performance dimensions and their concurrent effects have either different or same sign. Moreover, having investigated 14 different OI practices separately leads us to argue that using aggregate measures of OI implementation might bring to new findings concerning inbound, outbound and coupled OI processes. Practical implications – The findings have interesting implications for managers and practitioners who are adopting OI strategies for improving innovation and financial performance. Indeed, when designing OI strategy the manager should be well acquainted with the whole portfolio of possible practices she/he may adopt. Moreover, the results of such paper would help managers not only in selecting the most appropriate practice but also in evaluating the concurrent effects of these set of practices on both financial and innovation performance.