Absorptive Capacity in Buyer–supplier Relationships: Empirical Evidence of Its Mediating Role

• Published date: 01 April 2014
• Date: 01 April 2014
• Author: Desirée Knoppen,Elena Revilla,Maríá Jesús Sáenz
• DOI: http://doi.org/10.1111/jscm.12020

ABSORPTIVE CAPACITY IN BUYER–SUPPLIER

RELATIONSHIPS: EMPIRICAL EVIDENCE OF ITS

MEDIATING ROLE

MAR



I



A JES



US S



AENZ

University of Zaragoza

ELENA REVILLA

IE Business School

DESIR



EE KNOPPEN

EADA Business School

Companies increasingly depend upon the knowledge of supply chain part-

ners to deliver superior value to customers with ever shifting preferences.

This transference requires absorptive capacity (AC), which allows an organi-

zation to identify external knowledge and convert it into value for the firm.

Based on an approach of dynamic capabilities, AC encompasses three

related learning processes: exploration, assimilation, and exploitation.

Within the particular context of buyer–supplier relationships (BSR), the aim

of this research is to examine AC, one of its most relevant antecedents —

organizational compatibility —and its outcomes. Two samples of 153 and

199 companies, operating as key suppliers of two focal buyers, a European

multinational retail chain and an American multinational spare parts

distributor, respectively, constitute the empirical base of the study. Results

derived from structural equation modeling and, more precisely, multi-group

confirmatory factor analysis and a formal test of mediation, strongly indi-

cate for both samples that AC mediates between organizational compatibil-

ity on the one hand and innovation and efficiency performance on the other

hand. Results also indicate that the mediating effect of AC related to innova-

tion increases with demand uncertainty. This paper thus suggests that

managers must be aware that the selection of supply chain partners based

on their compatibility alone is not enough. AC is necessary to achieve

sustainable performance improvement.

Keywords: Buyer–supplier relationships; organizational compatibility; learning pro-

cesses; absorptive capacity; efficiency; innovation; structural equation modeling

INTRODUCTION

Companies are increasingly aware that combining

their own critical expertise with that of their

supply-chain partners may provide a competitive

advantage (Flint, Larsson & Gammelgaard, 2008;

Paulraj, Lado & Chen, 2008). Take, for example, a

company like Procter and Gamble, which has

radically changed its innovation strategy from

developing new products internally to “opening up”

to key ideas from retailers who have a better under-

standing of the desires of final consumers (Huston &

Sakkub, 2006). Or consider Toyota, which established

consulting groups to help key suppliers improve

boundary-spanning processes and build better rela-

tionships with Toyota (Dyer & Hatch, 2004). Conse-

quently, the suppliers and Toyota jointly are able to

create superior value for the final customer (Barney,

2012). Similarly, engineers from Intel, Dell’s key sup-

plier, were taught “how to think like Dell,” to facili-

tate communication, coordination, and collaborative

innovation. The firms from these examples created

superior value by leveraging external knowledge

18 Volume 50, Number 2

stemming from buyers and suppliers with (in)direct

access to global factor or product markets, cutting-

edge technology and other sources of advantage

(Priem & Swink, 2012).

Although originally developed in an R&D context,

absorptive capacity (AC) has the potential to further

understanding of knowledge flows within buyer–

supplier relationships (BSR), as recent studies show

(Azadegan, 2011; Chen, Lin & Chang, 2009; Knop-

pen, S

aenz & Johnston, 2011; Malhotra, Gosain & El

Sawy, 2005). AC was introduced by Cohen and Levin-

thal as “the ability of a firm to recognize the value of

new, external knowledge, assimilate it, and apply it to

commercial ends” (1990, p. 128). According to the

dynamic capabilities perspective, AC encompasses

three learning processes: exploration, assimilation,

and exploitation (Lane, Koka & Pathak, 2006; Vol-

berda, Foss & Lyles, 2010). This approach is applica-

ble to the BSR context since purchasing and supply

focus on upstream acquisition and timely disposing

of resources from outside of the firm, while the mak-

ing, selling, and delivery of products or services

involve downstream acquisition of insights into

end-user preferences, in order to continuously adapt

supply to demand (Barney, 2012; Priem & Swink,

2012).

Application of AC in a BSR context implies narrow-

ing potential sources of external knowledge down to

selected buyers or suppliers. For example, a supplier

that engages in a supplier development program with

a selected buyer has the opportunity to develop AC

through exploration with that buyer, assimilation of

the new knowledge, and further exploitation of this

new knowledge. Consequently, supplier development

programs have the potential to develop capabilities of

suppliers and increase performance (Krause, Handfield

& Tyler, 2007). While research consistently shows that

AC improves firm performance, most studies have

analyzed the impact of AC on only a narrow range of

performance measures related to innovation (Malho-

tra et al., 2005; Zahra & George, 2002). They have

primarily analyzed the benefits of innovation,

described as change that can occur by introducing

new products or addressing new market strategies (Ko-

ufteros, Cheng & Lai, 2007; Sanders, 2008). However,

AC may lead to operational improvement in the sup-

ply chain, by reducing costs or using resources more

efficiently. Improvements in efficiency have been

understudied in the current AC literature, and recent

research calls for combining innovation outcomes

with other relevant operational performance outcomes

(Volberda et al., 2010), which are especially relevant

in BSRs. This leads to our first research question:

What is the impact of AC, expressed by exploratory,

assimilation and exploitation learning processes, on

innovation as well as efficiency in a BSR?

Volberda et al. (2010) highlight the existing research

gap around the role of interorganizational anteced-

ents, critical for gaining external knowledge from

selected partners. Several studies have analyzed the

degree to which partners may benefit from the com-

patibility of their respective organizational cultures or

the aligning of a set of relational norms (Cheung,

Myers & Mentzer, 2010; Kale, Singh & Perlmutter,

2000). Compatibility allows firms to strategically align

with partners to take advantage of knowledge flows

and maximize capability development (Dyer & Singh,

1998). The effect of organizational compatibility has

received limited empirical attention, however, as an

antecedent of AC (Volberda et al., 2010) and even

less so in a BSR context (as an exception, see Sarkar

et al. 2001). Therefore, we pose our second research

question: What is the impact of organizational com-

patibility on AC in a BSR?

Strong relationships depend on selecting suitable

partners to facilitate social interaction as well as joint

goal achievement (Parkhe, 1991). Lane, Salk and Lyles

(2001) and Sarkar, Echambadi, Tamer and Aulakh

(2001) have suggested that organizational compatibil-

ity may affect relationship performance indirectly and

that organizational routines aimed at partner selection

need to be supplemented with relationship-based

practices within the collaboration. However, Lane

et al. (2001) did not find empirical evidence of a

learning mediation effect between relationship perfor-

mance and the antecedents (p. 1156). Consequently,

we ask our third research question: Is the effect of

organizational compatibility on efficiency and innova-

tion in a BSR mediated by AC? We hypothesize that

AC mediates the positive impact of compatibility on

innovation and efficiency.

This paper advances understanding of the role of AC

as individual firm capability in BSRs with external

knowledge coming from selected partners, focusing

on specific learning processes that dynamically alter

the resource base of the company. The implications of

AC on performance are explored in terms of innova-

tion as well as operational efficiency. While most of

the studies on BSRs have focused on the buyers′

perspective about their suppliers (Tangpong, Michali-

sin & Melcher, 2008; Azadegan, 2011; Paulraj 2011),

the suppliers’ perspective is equally relevant because

suppliers are usually engaged in several supply-chain

dynamics, with different buyer expectations in differ-

ent settings. Consequently, this research provides

empirical evidence of the role of AC in BSR from the

supplier’s perspective.

The remainder of this paper is structured as follows:

The next section briefly reviews the literature on AC

and organizational compatibility in BSRs, which pro-

vides a theoretical backdrop to our proposed model

as well as the corresponding hypotheses. After that,

19April 2014

Absorptive Capacity in Buyer-Supplier Relationships