Selectivity in Search Strategies for Innovation – From Incremental to Radical, From Manufacturing to Services

Research has frequently shown that firm success in technology-driven industries critically depends on the ability to invent and commercialize innovative technology. In this respect, firms with the ability to create new technological knowledge have been praised for generating knowledge internally and combining it with external knowledge sources. However, the process of identifying knowledge to be integrated into the organization’s own knowledge base requires that firms deliberately search for and reach out to promising knowledge sources. Search has been characterized as the fundamental mechanism enabling firms to learn, evolve and refocus the organizational knowledge base. In fact, the search strategy, defining direction and priority of boundary-spanning search activities, has been found to substantially impact innovation performance. In this paper, we shed new light on the relationship between the search strategy of a firm and its innovation performance. We propose that innovation management requires a more nuanced understanding of the nature and effects of search strategies to implement them successfully. Our goal is to add to both academic and practitioner discussions along three major dimensions. First, research on the nature of these search strategies has largely focused on the dimensions of breadth and depth. We argue that the description of search strategies along their breadth and depth underestimates the degree of heterogeneity among the various knowledge sources they encompass. Instead, we argue that management will choose certain directions for the firms’ search strategies which target particular knowledge sources (product market, science, suppliers). Second, studies that analyze how firms search typically link search strategies to rather generic and broadly defined innovation outcomes, e.g. counts of patents or new product introductions, sales with new products, etc. We suggest that these targeted search strategies differ with regard to the type of innovation success (incremental vs. radical) they generate. Third, research has mostly concentrated on the manufacturing sector and, more specifically, on high-technology industries. Identifying how firms learn and how the knowledge evolves, though, should not be limited to manufacturing industries, particularly given the increasing importance of service sectors for most modern economies. Therefore, we highlight the distinct nature of innovation in service sectors and the effects they have on the effectiveness of particular search strategies. Our empirical study is based on a comprehensive dataset of more than 5,000 manufacturing and service firms from five European countries. We find that radical innovations can mainly be realized by science- and supplier-driven search strategies while incremental innovations can be achieved through a market-based search strategy. Innovation success in service firms predominantly benefits from market-driven search. These findings illuminate the searchperformance relationship and highlight the importance of a contingency view on open innovation activities of firms.

Köhler, Christian, Wolfgang Sofka and Christoph Grimpe (2009), Selectivity in Search Strategies for Innovation – From Incremental to Radical, From Manufacturing to Services , ZEW Discussion Paper No. 09-066, Mannheim, published in: Research Policy.