Is open innovation beneficial to service innovation? A multilevel approach

Open innovation in services has received little scientific attention despite the prevalence of open innovation and the predominant status of the service sector. We utilize a multilevel approach (firm and industry levels) and two perspectives (comparative and contingency perspectives) to explain the link between open innovation and service innovation. Specifically, we decompose the open innovation into different dimensions: informal and formal, and further investigate the costs and benefits of informal and formal open innovation in relation to service innovation. We also explore how the impact of open innovation is shaped by cross-level interactions, namely industry munificence and dynamism in this study. Based on the UK Innovation Survey and ORBIS database, empirical results show that informal open innovation helps enhance service innovation, and formal open innovation hinders service innovation. More importantly, service firms benefit more from informal open innovation when they are in munificent and stable industries. Costs of formal open innovation are diminished when they are in munificent and dynamic industries. The findings both yield significant insights into the multiple attributions of the open innovation concept, and as well as point to the significance of applying multilevel approach in studies of open innovation. The findings suggest that managers in services should consider both the external knowledge sourcing strategy and the industry environment when pursuing service innovation.