Open Service Innovation in the Global Banking Industry: Inside-Out Versus Outside-In Strategies

Abstract

The past several decades have witnessed the adoption and diffusion of open innovation processes across a variety of organizational and industry contexts. Despite significant scholarly investigation into open innovation's importance to firms' R&D strategies, a deep theoretical understanding of the open innovation framework remains elusive. This study contributes to this burgeoning literature by providing new theoretical and practical underpinnings of the open innovation framework. Specifically, we conduct a comparative case study of two global banks to articulate the theoretical underpinning of this approach in the micropractices and microfoundations of the two firms. Although all organizations practice some combination of internal and external sourcing of innovation, we find that there is a tendency for these practices to fall into two broad categories: inside-out open innovation and outside-in open innovation. Our comparative case study formalizes these two forms of open innovation as mechanisms to align global and local search in a service industry context. We found that the two banks' deployment of open innovation processes produced strong results including greater top-line growth and bottom-line efficiency gains, albeit by two distinctly different strategies, offsetting the many headwinds that crippled their peers during the past five years. We end this study by translating our results to possible avenues for future theoretical development and empirical investigation.

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