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I can’t give everything away: how the importance of secrecy is dependent on a company’s visibility

Date:04 April 2018
Pedro de Faria is Associate Professor at the Faculty of Economics and Business of the University of Groningen
Pedro de Faria is Associate Professor at the Faculty of Economics and Business of the University of Groningen

Many companies make substantial investments in research and development activities with the objective of developing new technologies and, consequently, gaining a competitive advantage in the market. However, this competitive advantage is also dependent on the company’s ability to protect its knowledge from imitation.

Secrecy is a knowledge protection instrument used by companies in all industries to protect their knowledge from being imitated by competitors. Yet, despite its importance, there is limited understanding of how secrecy is implemented. In particular, it is unclear how firms balance increased requests for transparency with the creation of information barriers that allow the implementation of secrecy. In our recent study published in Research Policy we address this issue by exploring how the importance of secrecy as a knowledge protection instrument depends on how visible a company is to its competitors.

Using data from Germany, we find that companies that are legally required to share information with their shareholders attribute more importance to secrecy. These results provide evidence that companies that are obliged to share financial information try to keep their knowledge hidden from external parties since they face higher risks of imitation. Emphasizing the link between a company’s visibility and its use of secrecy, we find that this relationship between obligatory information sharing and secrecy is particularly relevant for companies located within a technological cluster and that make investments in fixed assets, like manufacturing or R&D facilities.

These results have important implications for how companies manage their innovation activities. They suggest that managers should pay attention to secrecy measures, such as restricting access to laboratories and databases, when their company is visible to potential imitators. This might be particularly challenging because companies need to find a balance between knowledge sharing associated to visibility and knowledge hiddenness associated to secrecy.

Further reading:

  • Sofka, W., de Faria, P. and Shehu, E. (2018) “Protecting Knowledge: How Legal Requirements to Reveal Information Affect the Importance of Secrecy”, Research Policy, 47(3), pp. 558-572. [92]
  • Bos, B., Broekhuizen, T. and de Faria, P. (2015) “A Dynamic View on Secrecy Management”, Journal of Business Research, 68(12), pp. 2619-2627. [58]