1. Firms are well-suited for innovation activities as they typically have greater resources than individuals and a management system to direct those resources towards a collective purpose. 2. In addition to in-house R&D, firms often collaborate with customers, suppliers, competitors and partners through alliances, joint ventures and other arrangements to jointly work on innovation projects and share information and resources. 3. While external sources are important, empirical evidence shows they are complements rather than substitutes for internal research and development within firms.