Ana Burcharth

This thesis addresses the question of why some small and medium-sized companies (SMEs) are better at utilizing external knowledge in their innovative activities than others. The aim of the thesis is to investigate organizing practices that affect the realization of activities related to external knowledge acquisition, assimilation, transformation and exploitation.

The research is designed against the current context of intense global competition and technological dynamism, in which SMEs have become more and more reliant on their competency to utilize external technological knowledge and to transform this knowledge into successful new products or services and efficient processes. Knowledge sourcing is thus an important means by which SMEs can compensate for their resource deficiencies – whether financial, know-how or skills – enabling them to speed up innovative activities, reduce costs and access competencies otherwise unavailable. The thesis is based on the premise that companies cannot (and need not) develop everything internally, but can (and indeed should) reutilize ideas and technologies available from others.

While some pioneering companies have achieved substantial benefits, many others have experienced difficulties in capturing value from external inflows of knowledge and information. In addition to the economic drivers related to the high costs of assessing external vs. internal knowledge (due to high transaction costs, inappropriate incentive systems, imperfect appropriability regimes, and asymmetric information), two key organizational difficulties have been associated with learning from external knowledge: the lack of ability and willingness. A company may not be able to identify and employ useful ideas and technologies from outside due to the intrinsic difficulties of the task. For example, there may be boundaries to overcome, depending on the nature and complexity of the knowledge, including its stickiness and the key people involved. Moreover, even if the company has the ability, it may be unwilling to do so, perhaps because of an intraorganizational atmosphere of resistance to novelties or lack of incentives and trust. From an organizational perspective, there are thus two fundamental explanations for why there may be a problem in sourcing and exploiting external knowledge: lack of ‘absorptive capacity’ and the ‘not-invented-here’ (NIH) syndrome.

The main focus of this thesis is on these two organizational difficulties. More precisely, it investigates their organizational antecedents in order to understand how they arise and, by implication, how they can be avoided. Accordingly, the thesis addresses the following research questions: i) Why do some SMEs have a higher level of absorptive capacity? and ii) Why do some SMEs have a higher level of protective attitudes to external knowledge (i.e. the NIH syndrome)?

The first question addresses the development of the ability of a firm to learn from external sources, i.e. its absorptive capacity. While there is a rich body of conceptual and empirical work on this concept, there exists limited knowledge about how companies actually develop and maintain the ability to absorb extra-organizational knowledge, especially outside the context of large, established companies. On the one hand, it is argued that this is because research on absorptive capacity has barely looked at SMEs as an attractive research population. On the other hand, existing research has only started to reconcile the lagged and path-dependent developmental perspective of the concept with recent contributions, which suggest introducing dynamics into the equation. Although absorptive capacity has generally been perceived as a ‘passive’ outcome of R&D investments, there has recently been a renewed interest in its ‘proactive’ dimensions. This thesis taps into this development and empirically examines a new subset of antecedents associated with the dynamic properties of absorptive capacity in the context of SMEs. Specifically, it posits that organizational practices and attributes related to the diversification of a firm’s knowledge base, such as ‘slack resources’, ‘tolerance for failure’, ‘willingness to cannibalize’ and ‘external openness’, can leverage knowledge absorption activities by counterbalancing path-dependent cycles.

The second question concerns the formation of the unwillingness to draw on extra-organizational knowledge, i.e. the NIH syndrome. Resistance to the adoption of external knowledge has been documented in a variety of settings, and has been acknowledged as a widespread phenomenon affecting the technical performance of many firms. Nevertheless, despite its recognized importance, not much yet is known about why this type of attitude emerges and becomes predominant in organizations. The thesis addresses this issue, examining specifically the role of one organizational antecedent, i.e. socialization practices, in employees’ valuation of external knowledge. Socialization practices are particularly fascinating antecedents because they are believed to result in contradictory benefits. Although they have been identified as a source of various benefits in the management literature, ranging from incentives alignment to greater coordination and corporate identity, socialization practices are also expected to contribute to a greater reluctance to adopt external knowledge by increasing the distance between internally and externally developed knowledge. This idea is further developed through the investigation of the circumstances under which the relationship between socialization practices and the NIH syndrome grows weaker or stronger.

Empirically, this thesis takes a combined research approach to answering the formulated research questions, where qualitative and quantitative research designs were implemented sequentially within the premises of post-positivistic thinking. Qualitative data, in the form of semi-structured interviews (n=15), was gathered in an exploratory pilot study and used to frame the research questions and generate initial ideas for theoretical development. It also provided interesting anecdotal evidence that contributed to the interpretation of the statistical relationships found. Quantitative data, encompassing multi-informant survey data of industrial SMEs in medium high-tech and high-tech sectors in Denmark (n=169), was used for hypothesis testing, and also contributed to making the results more generalizable.

The findings indicate that some SMEs have a greater absorptive capacity because they are better able to change and/or diversify their learning processes to accommodate new trajectories for knowledge absorption. The findings thus suggest that gaining access to external knowledge requires a firm to hone its capabilities for adaptation. This capability for adaptation translates into three organizational practices or attributes: i) the existence of slack (or “excess”) resources, ii) the willingness to cannibalize current assets, and iii) openness to a broad range of external network relations. In addition, the results show that some SMEs tend to undervalue external knowledge because they lack prior experience and because they have adopted socialization practices which foster a strong corporate identity and encourage new employees to conform to the rules and values of the organization (i.e. groupthink). In terms of the development of the NIH syndrome, this practice has less detrimental effects for technologically highly specialized companies, but it is particularly damaging for technologically sophisticated ones.

In terms of practical implications, the thesis identifies specific tactics which managers of SMEs can use to compensate for limited resources in the process of developing absorptive capacity, and thus improve their chances of benefiting from extra-organizational knowledge. It also describes in detail each stage of the knowledge absorption process, specifying the suitability of organizing practices for the acquisition, assimilation, transformation and exploitation of external knowledge. In addition, by showing that there is a clear trade-off involved in the development of strong corporate identity, it draws the attention of managers to the reflective inquiry about the way in which they integrate newcomers into their organizations.

In conclusion, by studying the organizational difficulties SMEs experience in utilizing external knowledge, this thesis offers significant insights into practices that should either be encouraged or avoided for the successful implementation of open innovation strategies.