Strengthening the Innovation Chain: The Role of Internal Innovation Climate and Strategic Relationships with Supply Chain Partners

• Author: Daniel I. Prajogo,Jayanth Jayaram,Adegoke Oke
• DOI: http://doi.org/10.1111/jscm.12031
• Date: 01 October 2013
• Published date: 01 October 2013

STRENGTHENING THE INNOVATION CHAIN: THE ROLE

OF INTERNAL INNOVATION CLIMATE AND STRATEGIC

RELATIONSHIPS WITH SUPPLY CHAIN PARTNERS

ADEGOKE OKE

Arizona State University

DANIEL I. PRAJOGO

Monash University

JAYANTH JAYARAM

University of South Carolina

In this study, we use blended theoretical arguments from resource depen-

dence theory, social capital theory, and the knowledge-based view to posit

that supply chain partner innovativeness enhances a firm’s innovation

strategy which in turn positively influences innovation performance. In

addition, we argue that the effect of supply chain partner innovativeness

on product innovation strategy could be further enhanced by innovation

climate and having strategic relationships with key supply chain partners.

Using data collected from 207 manufacturing firms in Australia, the find-

ings show that key supply chain partner innovativeness has a positive

effect on product innovation strategy. Further, the effect of supply chain

partner innovativeness on innovation strategy is enhanced when firms

have stronger strategic relationships with their key supply chain partners.

Finally, we find that the joint influence of innovation climate and strategic

relationships with key supply chain partners enhances the effect of supply

chain partner innovativeness on innovation strategy. The theoretical and

practical implications of the study are discussed.

Keywords: innovation climate; supply chain partner innovativeness; product

innovation

INTRODUCTION

Innovation is a key source of competitive advantage

(Bowonder, Dambal, Kumar, & Shirodkar, 2010;

Duane Ireland & Webb, 2007; Lengnick-Hall, 1992;

Tidd, Bessant, & Pavitt, 2005). Despite the many

problems of managing it, innovation has become

imperative for many companies. Research evidence

has identified a range of benefits for those companies

that have been able to successfully exploit innovation

strategies to realize higher profits and market share

(Cho & Pucik, 2005; Damanpour, Walker, & Avellane-

da, 2009). The question is no longer one of whether

or not to innovate but rather how to strategize for

innovation in order to achieve competitive advantage

for organizations. In particular, due to the complex

nature of innovation strategies, the roles of external

constituents such as suppliers and customers have

emerged to be vital to the success of the focal firm’s

innovation strategy (von Hippel, 1986; Vega-Jurado,

Guti

errez-Gracia, Fern

andez-de-Lucio, & Manjarr

es-

Henr

ıquez, 2008).

The attention of previous studies has been focused

on identifying internal antecedents of innovation

capability and performance. For example, the influ-

ence of leadership styles (Oke, Munshi, & Walumbwa,

2009), organizational processes (Jespersen, 2012;

Tyagi & Sawhney, 2010), and human capital

(Beugelsdijk, 2008; Chong, Eerde, Rutte, & Chai,

2012) on innovation performance has been

recognized. However, organizations are becoming

October 2013 43

increasingly networked with an increase in the num-

ber and intensity of collaborations for innovations

and new product development (NPD). Accordingly,

there is an emerging body of literature focusing on

antecedents of innovation in organizational networks,

most particularly supply chain networks (Pittaway,

Robertson, Munir, Denyer, & Neely, 2004). As such

there is a need to investigate the influence of supply

chain factors on a firm’s innovation performance

(Craighead, Hult, & Ketchen, 2009).

Previous studies have investigated the effects of inte-

grating suppliers into a firm’s NPD process (Jayaram,

2008; Petersen, Ragatz, & Monczka, 2005; Wagner,

2012). However, beyond full integration of suppliers

into the NPD process through their engagement with

key suppliers, firms may actually tap or learn from the

innovativeness of their suppliers. Similarly, focal firms

rely on the expertise of suppliers and customers to

weed out failing products. For example, Wal-Mart

shares key worldwide sales information with its strate-

gic suppliers such as Procter and Gamble. This helps

Procter and Gamble to decide on their own innova-

tion strategies as far as what is likely to sell and what

is not likely to sell (Hougland, 2007). Drawing from

resource dependency theory (Paulraj & Chen, 2007a;

Pfeffer & Salancik, 2003) and the knowledge-based

view (KBV) (Grant, 1996b), we argue that firms may

depend on and tap from the innovativeness of their

supply chain partners to strategize for innovation and

enhance their innovation performance (Azadegan &

Dooley, 2010). Limited capacity for innovation,

shorter time to market, and the need to share risks

associated with innovation development are driving

firms to seek innovations from their supply chain

partners (Koufteros, Rawski, & Rupak, 2010; Koufter-

os, Vonderembse, & Jayaram, 2005; Wagner, 2010,

2012).

In this study, our focus is on supply chain partners

that may include suppliers and customers in a firm’s

supply chain. We define a supply chain partner’s

innovativeness in terms of the extent to which the

supply chain partner possesses the ability to produce

new ideas and innovations. This ability has the poten-

tial to channel innovation pathways for focal firms as

well. This is so because increasingly the locus of fun-

damentally innovative ideas stem from the supply

chain. For example, the innovations part of the “Intel

inside” program benefitted many PC manufacturers.

The innovation in the business model of CHEP which

revolutionized global pallet management with the

“lease anywhere and return anywhere” concept had

important implications on supply chain design for its

customers. Thus, we argue that tapping innovative

knowledge from supply chain partners to strategize

for innovation will have an effect on a firm’s innova-

tion performance. More importantly, building on the

works of Azadegan, Dooley, Carter and Carter (2008),

Wagner (2012) and Azadegan (2011), we posit that

exploiting supply chain partner innovativeness to

strategize for innovation is contingent upon two key

factors. First, drawing from social capital theory (Law-

son, Tyler, & Cousins, 2008), we posit that building

strategic relationships and trust with key supply chain

partners will enhance the effective tapping and

exchange of knowledge with such firms (Bensaou,

1999). We define “strategic relationship with supply

chain partners” in terms of the extent to which the

relationship is enduring and on a long-term basis

(Choi & Hartley, 1996; Paulraj & Chen, 2007b). Due

to the risky nature of innovation efforts and the need

to protect intellectual properties in the innovation

process, suppliers are more likely to align with cus-

tomers for innovation if there is a long-term relation-

ship effort in place.

Second, we argue that a culture of innovation pro-

vides an environment where supply chain partner

innovativeness can be effectively tapped to implement

product innovation strategies (Azadegan, 2011). We

define innovation climate in terms of the extent to

which the firm encourages and builds a climate that

supports innovation (Cho & Pucik, 2005; Riordan,

Vandenberg, & Richardson, 2005). Finally, product

innovation strategy is defined in terms of the extent to

which the firm uses new components, new materials,

new technologies, and new product features in the

development of a product (OECD, 2005), while prod-

uct innovation performance is defined in terms of the

novel products and the number of new products actu-

ally produced or developed by a firm.

It is pertinent to note that in our study, product

innovation strategy and product innovation perfor-

mance are distinctly separate constructs. Product inno-

vation strategy relates to what a firm does in terms of

obtaining novel products (product innovation perfor-

mance) including the specific actions and activities

that are implemented in order to obtain improved

innovation performance. Thus, in our study, we

hypothesize product innovation strategy as an ante-

cedent of innovation performance. Taken together,

this study aims to investigate (a) the effect of supply

chain partner innovativeness on a firm’s innovation

strategy; (b) the separate and combined moderating

roles of the strategic relationship with a supplier and

innovation climate in enhancing the effect of supply

chain partner innovativeness on innovation strategy;

and (c) the effects of implementing a product innova-

tion strategy on a firm’s innovation performance. Our

study seeks to contribute to the extant literature on

developing and building firms’ innovation perfor-

mance through engaging with supply chain partners.

Specifically, while much is known about the link

between suppliers’ innovativeness and performance

Volume 49, Number 4

Journal of Supply Chain Management

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