The resource-based view of the firm suggests that internal knowledge, embodied within a firm’s resources is an important source of competitive advantage (Barney, 1991). The firm itself is often the source of much of the knowledge used in innovation. However, few firms possess all the inputs required for successful and continuous innovation. This is partly due to technological dynamism, reflected in an environment punctuated by competence destroying or altering technologies, that has forced firms to maintain a wide range of technological knowledge and skills (Tushman and Anderson, 1986). Very few firms can independently develop and master the wide range of knowledge and skills needed to compete in ever-changing innovative environments (D’Aveni, 1994; Lane and Lubatkin, 1998). Consequently, most organizations will develop a deficit within their boundaries as regards the critical knowledge needed to prosper and grow (Dussauge et al., 2000). Thus, although a firm’s own research efforts play an important role in innovation, firms must turn to external sources of knowledge to maintain their innovative processes.
The notion that firms must often turn to external sources to fulfill their knowledge requirements is hardly new and dates back over fifty years (Jewkes et al., 1958). Early research identifies that major contributions to a firm’s knowledge base often come from outside sources. In a classic study of seventeen research and development laboratories, Allen and Cohen (1969) found that vendors, ‘unpaid outside consultants,’ and informal contacts with government bodies and universities are important sources of research and development knowledge. Research of major product and process innovations at Du Pont between 1920 and 1950 by Mueller (1962) showed that the original knowledge sources of the most critical inventions were outside the firm. More recent research in strategy supports these arguments, suggesting that knowledge existing outside a firm’s boundaries may be critical to success (Cassiman and Veugelers, 2006; Escribano et al., 2009; Menon and Pfeffer, 2003). Access to a broader knowledge base through external learning increases the flexibility of the firm, critical in a dynamic environment (Grant, 1996). The ‘Yale’ survey on appropriability, the results of which have been discussed in a series of papers by Klevorick et al. (1995), addresses the issue of external learning by examining inter-firm knowledge spillovers. In their survey of 650 research and development executives, the authors found that though own research and development was rated the most important channel of learning, external knowledge was also extremely important in most industries. Theoretical approaches are also being extended to incorporate the importance of external knowledge; the resource-based view of the firm, which originally focused on the role of internal capabilities, now encompasses resources that span firm boundaries—often embedded in inter-firm relationships (Dyer and Singh, 1998; Zollo and Winter, 2002).