International Journal of Industrial Engineering and Management (IJIEM), Vol.1 No 3, 2010, pp. 77 - 83 Available online at www.ftn.uns.ac.rs/ijiem ISSN 2217-2661 IJIEM Going More Open in Innovation: Does it Pay? Peter Fatur University of Primorska, Faculty of Management, Cankarjeva 5, Koper, Slovenia, peter.fatur@fm.upr.si Borut Likar University of Primorska, Faculty of Management, Cankarjeva 5, Koper, Slovenia, borut.likar1@guest.arnes.si Marko Ropret University of Primorska, Faculty of Management, Cankarjeva 5, Koper, Slovenia, marko.ropret@fm.upr.si Received (20.07.2010); Revised (30.09.2010); Accepted (10.10.2010) Abstract The research investigates into the relationship between the company’s innovation inputs and its performance. The research was carried out on the sample of 2503 Slovenian companies from manufacturing and selected service sectors. The results indicate a correlation between the revenues arising from innovations and the company's performance in terms of the financial ratios, in particularly ROE and growth of revenues from sales. Furthermore, it is shown that the distribution of innovation expenditures is related to the company’s innovation performance. The financial inputs related to external sourcing of ideas and knowledge (open innovation) have a positive correlation with the innovation performance. Key words: open innovation, performance management, productivity, R&D 1. INTRODUCTION According to the recent statistical indicators [1] the European Union (EU) is still losing ground in business exploitation of knowledge and creativity to the United States and Japan. In spite of the fact that several European countries can be found in the group of the world’s most innovative ones, the national innovation performances in Europe mainly remain poor. The European Innovation Scoreboard (EIS) groups the countries as follows [1]: (i) the innovation leaders (Denmark, Finland, Germany, Sweden and the UK); (ii) the innovation followers (Austria, Belgium, Cyprus, Estonia, France, Ireland, Luxembourg, the Netherlands and Slovenia); (iii) the moderate innovators (Czech Republic, Greece, Hungary, Italy, Lithuania, Malta, Poland, Portugal, Slovakia and Spain) and (iv) the catching-up group (Bulgaria, Latvia and Romania). In spite of having progressed from the moderate innovators to the followers group in the last year, Slovenia remains on the EU 27 average. Pursuant to the national statistical data [2] only 35.1% of Slovenian companies prove to be active in innovation, 41.2% of these in the manufacturing sector. What is more, an in- depth analysis evidently shows that the situation regarding innovation in Slovenian small and medium- sized enterprises (SME) is even worse whereat the large companies record approximately 50% more innovativeness as the medium-sized ones while the small companies even threefold less than the large ones. Apparently, the Slovenian industry needs an innovation push to catch up with the group of innovation leaders. Several studies have been carried out in this direction [3-5], while the open innovation concepts [6], [7] have received a very limited attention. Here, we intend to focus our contribution. The purpose of this research is to investigate a relationship between the innovation inputs and the company’s performance in achieving business results, with a focus on the inputs related to external sourcing of ideas and knowledge. A positive correlation between the ability to successfully launch new product/service and sustained economic performance has been confirmed in a number of studies. However, business performance is not an outcome due solely to innovation. It is dependent on a wide range of factors. In general, there is clear evidence that innovation play a crucial role to long term profitability and growth in firms [8-13]. What is the background of the effects of innovation to company performance? According to [14] there are two alternative views. The first view holds that the production of new products or processes strengthens a firm’s competitive position in relation to its rivals. But the profits and growth will be transitory and only last as long as the innovating firm can defend its position against rivals. The second view argues that the process of innovation transforms a firm fundamentally by