Trading‐off innovation novelty and information protection in supplier selection for a new product development project: Supplier ties as signals

• Author: Tingting Yan,Sangho Chae,Yang Yang,Kevin Dooley
• Date: 01 October 2020
• DOI: http://doi.org/10.1002/joom.1079
• Published date: 01 October 2020

RESEARCH ARTICLE

Trading-off innovation novelty and information protection

in supplier selection for a new product development

project: Supplier ties as signals

Tingting Yan

1

| Yang Yang

2

| Kevin Dooley

3

| Sangho Chae

4

1

Department of Marketing & Supply

Chain Management, School of Business

Administration, Wayne State University,

Detroit, Michigan

2

Department of Marketing and

Management, College of Business

Administration, The University of Texas

at El Paso, El Paso, Texas

3

Department of Supply Chain

Management, W. P. Carey School of

Business, Arizona State University,

Tempe, Arizona

4

Management Department, College of

Business Administration, Marquette

University, Milwaukee, Wisconsin

Correspondence

Tingting Yan, Department of Marketing &

Supply Chain Management, School of

Business Administration, Wayne State

University, 5201 Cass Ave, Detroit,

MI 48202.

Email: tingting.yan@wayne.edu

Handling Editors: Subodha Kumar,

Sriram Narayanan, and Fabrizio Salvador

Abstract

A supplier's interorganizational ties can be a source of novelty as well as infor-

mation leakage risk when a buyer involves suppliers in a new product develop-

ment project. We use signaling theory to explain how supplier ties affect a

purchasing manager's perception of suppliers. Three types of supplier ties are

considered: ties with external innovation partners, with customers outside the

buying firm's industry, and with the buying firm's competitors. We posit that

managers use supplier ties as signals to indicate a supplier's potential in con-

tributing to innovation novelty or information protection. Results from two

scenario-based experiments with practicing managers support most of our

hypotheses. When innovation novelty is the goal, managers perceive other-

industry customer ties and external innovation ties as positive signals, while

competitor ties as a negative signal. When information protection is the goal,

all three types of ties are perceived negatively. When both goals are considered,

information protection has a greater influence than innovation novelty on the

final supplier selection likelihood.

KEYWORDS

behavioral experiment, conjoint analysis, information protection, innovation novelty, signaling

theory, supplier selection, supplier ties

1|INTRODUCTION

In order to leapfrog competitors through creating new

product innovations, buying firms are increasingly seek-

ing help from suppliers (Narasimhan & Narayanan,

2013). Suppliers can provide buying firms access to crea-

tive products, services, manufacturing processes, market

intelligence, or even new business model ideas (Yan,

Yang, & Dooley, 2017). When managers select a supplier

based on innovation potential, they will generally assess

the supplier's capability to innovate and access to innova-

tion resources, such as subject-matter expertise or intel-

lectual property (IP).

Managers may also consider the supplier's external

value network as a resource for innovative ideas and

competencies (Y. H. Kim, 2016; Yan & Azadegan, 2017).

Some automotive original equipment manufacturers

(auto OEMs) say that the many innovative features in

today's cars come from innovative components made by

non-traditional suppliers such as Microsoft or Google

(Muller, 2013). These non-traditional suppliers have cus-

tomers from different industry sectors, providing them

access to novel resources (Gassmann, Zeschky, Wolff, &

Stahl, 2010; Yan, Choi, Kim, & Yang, 2015). In addition,

a supplier could also access innovation resources pos-

sessed by the supplier's joint innovation partners. Fiat

Received: 17 August 2018 Revised: 9 December 2019 Accepted: 16 December 2019

DOI: 10.1002/joom.1079

J Oper Manag. 2020;66:933–957. wileyonlinelibrary.com/journal/joom © 2020 Association for Supply Chain Management, Inc. 933

Chrysler Automobiles (FCA)'s new Alfa Romeo Giulia

has a body that is 90 kg lighter than a comparable all-

steel body with better acoustics performance (Henkel

AG & Co. KGaA, 2017a). This innovation in material was

provided by FCA's supplier Henkel, who in turn

benefited from its relationships with its own innovation

partners such as Dow. (Henkel AG & Co. KGaA, 2017b).

Via Dow's innovative polymers and dispersions, Henkel

was able to create high expansion pillar fillers that can

improve the acoustics of cars (Henkel AG & Co. KGaA,

2017a).

A supplier's interorganizational ties, however, can also

be conduit through which IP or business intelligence

(e.g., information about marketing strategy, launch sched-

ules, pricing information, underlying technology, or cus-

tomer lists) can leak (Hernandez, Sanders, & Tuschke,

2015; Ho, 2009). This information leakage risk may be

especially high when a supplier supplies to the buyer's

competitor(s) (Pahnke, McDonald, Wang, & Hallen, 2015).

In a recent case, Samsung experienced leakage of proprie-

tary information within the bendable screen project. A

South Korean supplier, Toptec Co., Ltd., was caught trans-

ferring the 3D lamination technology to its customer who

is Samsung's competitor in China (S. Kim, 2018).

Despite awareness of the risk, it can be difficult for a

buying firm to fully prevent such leakage (Anand &

Goyal, 2009; Yan & Kull, 2015). In the Samsung example,

the buying firm had contractual (non-disclosure agree-

ment), legal (patenting the key technology), and rela-

tional (strong collaborative relationship) governance

mechanisms to prevent information leakage through the

supplier. However, proprietary information still leaked,

potentially making the buying firm lose first-mover

advantages in the market, and fail to secure critical sup-

plies, or increase innovation costs (Ho, 2009). Not sur-

prisingly, 64% of supply chain managers considered the

leakage of valuable information through suppliers to

competitors as one of the most significant threats to their

supply chain operations (Zhang & Li, 2006). As buying

firms are facing the pressure to develop novel products

with suppliers while facing the risks of information leak-

age through them, suppliers' ties can function as key sig-

nals for the buying firm in the selection process

(Figure 1). Therefore we ask two questions that have not

been directly addressed by the previous literature:

1. How does information about supplier ties affect a pur-

chasing manager's perception about the supplier's

potential contributions to innovation novelty and infor-

mation protection in a buying firm's new product devel-

opment (NPD) project?

2. How does a purchasing manager trade-off between a

supplier's perceived contribution to innovation novelty

and information protection when selecting suppliers for

a buying firm's NPD project?

To answer these questions, we develop hypotheses

using signaling theory, which concerns how signals can

serve as proxies to infer or predict attributes that are diffi-

cult or impossible to directly observe (Spence, 1974). In

our context, we suggest that managers will use informa-

tion about a supplier's interorganizational ties as a signal,

or an informational cue (Spence, 1974) in the decision-

making process. Using signaling theory, we develop

FIGURE 1 The conceptual model

934 YAN ET AL.