This paper studies how human capital can affect the relationship between open innovation and the financial performance of firms. The results demonstrate that there is an inversed U-shape relationship between open innovation and firm profitability. We also indicate how human capital (both quality and structure) will differently moderate above relationship: generally, higher the education level of employees will amplify the positive effect of open innovation, but for production-oriented firms, such argument does not hold; in technology-oriented firms, as the ratio of technical staff to production staff increases, the financial performance of firms improves as a result of the implementation of an open innovation strategy. However, in production-oriented firms, the moderating role is negative.
Chesbrough (2003) first introduced the concept of “open innovation” to contrast with what is called “closed innovation.” Open innovation emphasizes that companies that “generate their own ideas, develop them, build them, market them, distribute them, service them, finance them and support them on their own” should take advantage of external ideas, resources, and market channels to advance technology and provide new products. It enhances firms’ technological capabilities, as well as their overall competitiveness, by combining internal and external ideas in innovative activities. The direct or indirect impact of open innovation activities on a firm’s performance have been extensively studied by researchers, most of which are related to firms’ innovation performance, including R&D cost effectiveness(Caloghirou et al., 2004), the production of patent (Rothaermel and Alexandre, 2009), and the proportion of new products (Grimpe & Sofka, 2009; Laursen & Salter, 2006; Atuahene-Gima, 2005). Researchers have reached something of a consensus that open innovation enhances firm innovation performance (Miotti & Sachwald, 2003; Pisano,1990), though some have suggested that excessive dependence on external knowledge may not benefit a firm’s innovativeness (Laursen & Salter, 2006；Koput, 1997; Ocasio, 1997). According to research on the process of open innovation West & Bogers, 2014; Chesbrough & Appleyard 2007), value creation through innovation and value capture through commercialization are regarded as two important processes for the success of open innovation. However, we noticed that above researchers focus on value creation, with an emphasis on innovation outcomes from openness, but less on value capture, i.e. the commercialization of innovation. In the view of Chesbrough and Appleyard (2007) “effective open strategy should balance value capture and value creation, instead of losing sight of value capture during the pursuit of innovation.” Value capture is highly related to the sustainability of open strategy, and it calls for a strategic perspective of trade-off between the benefits and cost of open innovation. This draws our attention to the profitability of open innovation, which is usually taken as the reflection of value capture in open innovation (Rothaermel & Alexandre, 2009; West & Bogers, 2014). It is a complementary and further-step research to the often studied relationship between openness and innovation performance. While firms often adopt open strategies for better competitive advantages, they differ in their ability and context characteristics to capture value in open innovation. (Chesbrough, 2006; Chesbrough & Appleyard 2007). Therefore, the next core question becomes the conditions under which open innovation can contribute positively to firm profitability.