Who Captures Value from Open Innovation — The Firm or Its Employees?

Abstract

Abstract. We apply the bargaining power lens on strategic management to analyze the risk related to potential extraction of value by company employees working on open innovation (OI) in the firm. OI exposes individuals to various opportunities, provides a better awareness of the value of their knowledge in other contexts, and makes them more visible externally. OI activity allows access to critical firm knowledge enabling negotiation and engagement with external parties. All of these factors increase the likelihood that these individuals will exit the firm, taking with them valuable proprietary knowledge, while these attractive exit options endow them with significant bargaining power internally. The firm may try to counter this by the imposition of contractual obligations and intellectual property protection using mechanisms which often are only partly effective. This can result in a trade-off between staffing positions related only to OI tasks with individuals that are the best fit from a value creation point of view, thus giving more weight to value capture. We argue that the choices involved in balancing this trade-off will depend on the specific appropriation regime combined with the generality of the knowledge involved. We posit that that in some cases firms may appoint employees with high levels of probity rather than the greatest OI competences.