When would it be to an organization's advantage to use internal innovation rather than external innovation? When would it be best for an organization to use external innovation rather than internal innovation?

Question

What will be an ideal response?

Answer 1

If the organization has a strong set of skills and capabilities to innovate, it should focus on internal innovation. Organizations that have strong, intangible capabilities in a specific domain may be able to leverage these capabilities through a new internal venture when a related opportunity is perceived. But, if the organization identifies a significant, strategically-important, entrepreneurial opportunity, and the firm does not currently have the skills and capabilities to take advantage of the opportunity, then it must look to external options, e.g., cooperation with another firm or acquisition of another firm. If the organization wishes to rapidly develop the skills needed to take advantage of the opportunity, especially if there is significant uncertainty about whether the technology is available or whether the market will welcome the innovative product or service, then a cooperative venture is recommended. A cooperative venture allows the firm to share the risk with other organizations which have complementary skills. If the entrepreneurial opportunity is less uncertain and more speed is required to take advantage of it, it may be best for the organization to acquire another organization that already has expertise in the area of the perceived opportunity and has complementary capabilities.