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This study aims to explore the extent to which inter-organizational hybrid governance manages the micro design for optimum reverse knowledge transfer in the open innovation context. The authors use two essential facets of micro design in hybrid governance: product adaptation and integration mechanism.

Data for this study were collected from franchisees through structured questionnaires in Indonesia.

Results indicated that product adaptation has a positive relationship with reverse knowledge transfer. This study also found that the formalization strengthens the relationship between product adaptation and reverse knowledge transfer. However, the socialization does not have a moderation effect.

This research estimates the knowledge transfer from the agent’s side only. Therefore, further research is expected to estimate the reverse knowledge transfer in dyads (from agent and principal) to get a detailed understanding of reverse knowledge transfer.

This study offers guidelines to managers, especially in inter-organizational hybrid governance. The authors suggest reverse knowledge transfer as a form to manage the dispersed knowledge from their agents. Governing institutions should change their view that agents have diverse knowledgebase from experience adapting to local conditions and can improve their open innovation through reverse knowledge transfer. From the results, it is found that giving agents the flexibility to adapt products can boost reverse knowledge transfer to support open innovation.

This study provides an understanding of the utilization of external knowledge sourcing in the context of open innovation from agent to principal in hybrid governance through reverse knowledge transfer, which has thus far been empirically under-researched.