Intellectual Property and Innovation in Business Services: Implications for the Management of Knowledge and Supply Relationships

This empirical study examines the dynamic incentive effects of controlling intellectual property. Focusing on the internal and external control of resources it asks whether the control rights to intellectual property have innovation implications. Findings suggest, first, that allocation of intellectual property rights between the service supplier and the client indeed has innovation performance implications. Therefore, in long term relationships, client firms should balance their own need to control outsourced activities with the suppliers’ incentives to invest in learning and innovation. Second, the firm is more likely to innovate if internal knowledge resources are organizationally controlled than if they are controlled by individual experts. It is suggested that organizational control of knowledge supports R&D activities as well as induces sharing of knowledge within the firm.