The diversity of knowledge sources and its impact on firm-level innovation: Evidence from Germany

The combination of different knowledge sources has been considered conducive for innovation performance. While the literature has advanced regarding the combination of knowledge inputs as in internal and external research and development (R&D), the evolvement of knowledge blend from customers and competitors has also received substantial attention. The purpose of this paper is to delineate the sources of information from the customers into private and public and examine their direct effect on firm-level innovation. While the extant literature is mixed regarding this, no clear-cut results have emerged yet on the effect of knowledge combination from the private and public customers with internal R&D and human capital on innovation activities. This study, however, shed more lights on the inconclusiveness of the effect of knowledge diversity on firm-level innovation.

Using the microdata from the German Community Innovation Survey 2013, the authors employ a binary instrumental variable treatment model with Heckman selection, a suitable strategy to estimate binary variables to cope with a possible endogeneity issue.

The paper demonstrates that knowledge from customers in the private and public sector, and competitors are positively and significantly associated with innovation. The authors find evidence of a positive and significant effect of the combination of firm internal knowledge competencies with information from the public sector. In contrary, the blend of knowledge competencies with information from customers in the private sector and information from the competitors results in decline to innovation. The results also show that the blend of internal R&D with knowledge source from the customers in the public sector appears to have a stronger influence in the manufacturing sector than services. The results offer strong evidence of the positive link between knowledge diversity and firm-level innovation performance.

The results have significant managerial implications on the role of the blend of different sources of information in supporting a compelling internal knowledge development to optimise innovation performance.

This study is foremost to focus on knowledge sources from the customers in the public and private sector and its relationship with R&D and human capital in supporting a successful introduction of innovation.