In Search of Complementarity in Innovation Strategy: Internal R&D and External Knowledge Acquisition

Abstract

Naamsestraat 69, 3000 Leuven, Belgium, European Commission (BEPA), and CEPR, reinhilde.veugelers@econ.kuleuven.ac.be E mpirical research on complementarity between organizational design decisions has traditionally focused on the question of existence of complementarity. In this paper, we take a broader approach to the issue, combining a "productivity" and an "adoption" approach, while including a search for contextual variables in the firm's strategy that affects complementarity. Analysis of contextual variables is not only interesting per se, but also improves the productivity test for the existence of complementarity. We use our empirical methodology to analyze complementarity between innovation activities: internal research and development (R&D) and external knowledge acquisition. Our results suggest that internal R&D and external knowledge acquisition are complementary innovation activities, but that the degree of complementarity is sensitive to other elements of the firm's strategic environment. We identify reliance on basic R&D-the importance of universities and research centers as an information source for the innovation process-as an important contextual variable affecting complementarity between internal and external innovation activities.

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