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Keywords:

  • external technology sourcing;
  • diversity;
  • sourcing portfolios;
  • technological proximity;
  • innovation

With external innovation becoming more and more important, many firms struggle with the question of how to balance their technology-sourcing portfolio. This study addresses this issue by looking at the effects of portfolio diversity on performance outcomes and the conditions under which diversity is most likely to materialize. Using a dataset of strategic investments by pharmaceutical firms, the results show that the variance in relative technological proximity between the focal firm and its partners exhibits an inverted U-shaped relationship with innovative performance and that this relationship is affected by the diversity of the external sourcing modes used in the portfolio.