Sources of Innovation Revisited: Patterns in Firms’ Usage of Internal and External Search

Recent open innovation literature has emphasized external knowledge search and the use of a diverse set of external innovation sources. But firms also have a diverse set of internal innovation sources, and we show that there are distinct patterns across external and internal sources that reflect differences in how firms create and capture value. Our analysis of the innovative activities of 256 large firms from seven countries and across seven industry sectors reveals two distinct innovation search strategies: “tech-focus,” which emphasizes exploration and is associated with more innovative outcomes, and “market-focus,” which emphasizes exploitation and is associated with higher market value. Finally, we show that characterizing innovation sourcing as tech-vs.-market better explains differences in firm performance than traditional measures such as openness.