Strategies for knowledge use in R&D and their implications for innovative performance

We argue that research on R&D strategy and on the use of external knowledge in R&D in particular should differentiate between distinct uses of external knowledge. We distinguish between uses of external knowledge for replication (using knowledge as is) vs. for compounding (building on acquired knowledge by combining it together with internally developed knowledge). We theorize about the respective innovative performance implications of these two strategies and compare them with a self-reliant strategy of internal R&D. We also elaborate contingencies for each strategy, pertaining to firm capabilities and cooperation. We test our predictions using a large sample survey of Dutch innovators in multiple industries. Our findings indicate that compounding firms perform better than replicating firms when the share of sales that consists of innovations that are new to the market is assessed, but they do not outperform firms with an internal R&D strategy. Furthermore, these differences disappear when the share of sales consisting of less novel innovations is studied. This research demonstrates the importance of distinguishing between R&D strategies that replicate vs. compound external knowledge.