Impact of Openness, R&D Capacity, Cross Functional Cooperation and Incentive System on Innovation Performance in Defense Firms

Recently, the need for more innovations on the one hand, and prescription of networking policy on the other hand, have urged these closed firms to open up and interact with others. Due to security issues, openness imposes cost on defense firms. As a result, policy makers and managers have long been facing the question of whether innovation performance of defense firms depends on their openness.To investigate this issue, innovation performance as dependent variable and openness as independent variable were measured using questionnaire in 99 defense firms. Following the literature, research capacity,incentive system and cross functional collaborations were also measured as independent variables influencing innovation. Resulting data was then analysed using structural equation modeling. The results unexpectedly showed that the direct effect of openness on innovation performance is negligible. Nevertheless, indirect effect of openness, via research capacity, on innovation performance was considerable. Besides, incentive system and cross functional collaborations had no meaningful effect on innovation performance of defense firms.