How does openness affect the importance of incentives for innovation?

When firms open up to external resources for innovation, do internal incentives still matter? This paper investigates the moderating effect of open innovation on the relationship between incentives and innovation using a survey database of British firms. Whilst both openness and incentives are positively associated with innovation efficiency, a substitution effect is found between openness and incentives. Whilst long-term incentives appear to enhance efficiency to a greater extent than short-term incentives, the substitution effect of openness is stronger regarding long-term incentives.

► This paper investigates how openness in innovation affects the importance of incentives for innovation. ► While both openness and incentives are positively associated with innovation efficiency, a substitution effect is found between openness and incentives. ► While long-term incentives appear to enhance efficiency to a greater extent than short-term incentives, the substitution effect of openness is stronger regarding long-term incentives. ► The percentage of sales due to new or significantly improved-products picks up most of the quantity and quality aspects of an organisation's innovation performance.