Orchestrating Heterogeneous Knowledge: The Effects of Internal and External Knowledge Heterogeneity on Innovation Performance

Heterogeneous knowledge sources may have decreasing returns for innovation performance. While scholars have widely examined the effect of knowledge heterogeneity (KH) on innovation performance, little has been done to explore the differences between external and internal KH, and to integrate these two sources of KH. This study examines the independent and combined effects (the multiplicative and balanced effects) of internal and external KH on innovation performance. Using survey data on 261 firms in technology-intensive industries in China, our study shows an inverse U-shaped relationship between external KH and innovation performance. This differs from the relationship between internal KH and innovation performance, which has a linear rather than curvilinear effect, indicating that internal and external KH have varying influences on innovation performance. By combining the two effects, we find that both the complementary and balanced effects of internal and external KH on innovation performance are significant and positive. The findings indicate that managers should not only put an emphasis on developing internal and external KH, but also identify the means to combine the two types of KH to increase innovation performance.