Effects of Supplier and Customer Integration on Product Innovation and Performance: Empirical Evidence in Hong Kong Manufacturers

While the beneficial impacts of supplier and customer integration are generally acknowledged, very few empirical research studies have examined how an organization can achieve better product performance through product innovation enhanced by such integration. This paper thus examines the impact of key supplier and customer integration processes (i.e., information sharing and product codevelopment with supplier and customer, respectively) on product innovation as well as their impact on product performance. It contributes to existing literature by asking how such integration activities affect product innovation and performance in both direct and indirect ways. After surveying 251 manufacturers in Hong Kong, this study tested the relationships among information sharing, product codevelopment, product innovativeness, and performance with three control variables (i.e., company size, type of industry, and market certainty). Structural equation modeling with correlation and t‐tests was used to test the hypothesized research model. The findings indicate a direct, positive relationship between supplier and customer integration and product performance. In particular, this study verifies that sharing information with suppliers and product codevelopment with customers directly improves product performance. In addition, this study empirically examines the indirect effects of supplier and customer integration processes on product performance, mediated by innovation. This has seldom been attempted in previous research. The empirical findings show that product codevelopment with suppliers improves performance, mediated by innovation. However, the sampled firms cannot improve their product innovation by sharing information with their current customers and suppliers as well as codeveloping new products with the customers. If the adoption of supplier and customer integration is not cost free, the findings of this study may suggest firms work on particular supplier and customer integration processes (i.e., product codevelopment with suppliers) to improve their product innovation. The study also suggests that companies codevelop new products only with new customers and lead users instead of current ones for product innovation. For managers, this study has demonstrated that both information sharing and product codevelopment affect performance directly and indirectly. Managers should put more emphasis on these key processes, especially when linked with product innovation. Managers should consider involving their suppliers and customers in the early stages of design. Information sharing with suppliers is also important in product development. As suggested by this study, extensive effort on supplier and customer integration should be made to directly augment current product performance and product innovation at the same time.     

Customer and Supplier Involvement in Design: The Moderating Role of Incremental and Radical Innovation Capability

More and more firms are leveraging design as a resource to gain the upper hand in today's competitive business market. To this end, this study draws on the resource‐based view (RBV) of the firm to examine the relationship between customer and supplier involvement in the design process and new product performance. The research also extends the RBV to a contingency lens by introducing product innovation capability (incremental and radical) as a moderator to draw the boundary conditions of the impact of customer/supplier involvement in design on new product performance. Using data collected from Canadian high‐tech companies, the findings provide strong support for the hypotheses in that customer involvement in design helps new product performance under high incremental innovation capability but harms new product performance under high radical innovation capability. In contrast, supplier involvement in design was beneficial to new product performance under both high incremental and radical innovation capability. The managerial implications for the role of design under different innovation capabilities are discussed.     

The effects of service supply on perceived value proposition under different levels of customer involvement

Based on the resource-based view and service-dominant logic, this paper tries to examine how the process of offering product-centric or knowledge-centric services can integrate heterogeneous resources so as to create customer perceived value. In product-centric service supply, the tangible product itself is central to the provision of an integrated set of services, while in knowledge-centric service supply, intangible knowledge is central to the provision of an integrated set of services. The effects of the two dimensions on customer perceived value are quite different. This paper examines the specific conditions under which these effects arise by highlighting the important role of customer involvement as a way of mobilizing resources between the supplier and the customer. It adopts a large sample survey in the Chinese fine chemical industry. The results show that the two kinds of service supply can yield short-term economic value and technical value to buyers. Long-term relational value, however, can only be achieved through the mediating role of short-term value and only if customers can acquire knowledge-centric services. In addition, the effect of knowledge-centric service supply on technical value is stronger if the customer has a greater rather than lower extent of involvement.     

The Effects of Supplier Involvement and Knowledge Protection on Product Innovation in Customer–Supplier Relationships: A Study of Global Automotive Suppliers in China

Globalization drives firms to develop product innovation through their global supply chains. While innovations generated by supply channel members, as opposed to individual partners, are playing an increasingly important role in the success of all supply chain partners, there has been limited research on how supply chain relationships cultivate the process of such innovation generation, particularly in emerging markets. Correspondingly, this study explores how multinational suppliers can develop adaptive product innovation to create competitive advantage in emerging markets. Drawing on the knowledge‐based view and transaction cost economics, this study investigates the influence of supplier involvement and other factors on supplier innovation and performance. The results of a survey of 170 multinational automobile suppliers in China provide support for most of the hypotheses. Specifically, supplier involvement in codesign has an inverted U‐shaped relationship with product innovation. Furthermore, knowledge protection, trust, and technological uncertainty are all found to drive greater product innovation. In addition, the institutional environment moderates the effect of product innovation on performance. Overall, this study enhances our understanding of how MNEs can acquire local knowledge and develop adaptive products in emerging markets.     

Lifting the veil on the link between absorptive capacity and innovation: The roles of cross-functional integration and customer orientation

Drawing on the integration of organizational learning, contingency theory, and theory of jobs to be done, this study develops a moderated mediation model of how a firm's absorptive capacity influences innovation performance. We hypothesize that cross-functional integration may mediate the absorptive capacity-innovation performance link and that customer orientation may positively moderate the mediating effect of cross-functional integration. To test our hypotheses, we conducted a mail survey of manufacturing firms, obtaining 456 valid responses for data analysis. Regression and bootstrap analyses reveal that cross-functional integration partially mediates the effect of absorptive capacity on innovation and that customer orientation enhances the mediated effect. Specifically, the mediating effect of cross-functional integration is stronger and significant when customer orientation is high. In contrast, the mediating effect of cross-functional integration is weaker and insignificant when customer orientation is low. Overall, this study's findings contribute to advances in marketing theory on innovation by identifying cross-functional integration and customer orientation as two key factors that together explain why and under what conditions absorptive capacity affects innovation. The findings also advise managers that in addition to developing absorptive capacity, firms should cultivate a strong customer orientation, which directs cross-functional integration toward converting external knowledge into increased innovation performance.     

In Chains? An Empirical Study of Antecedents of Supplier Product Development Activity in the Automotive Industry*

In the literature on interorganizational collaboration in product development, considerable attention is given to supplier role classifications. Such classifications often link to a supplier's position in the overall supply chain, but the claim that this position has a substantial impact on its product development activities has seldom been empirically validated. The results from the present survey among Swedish automotive suppliers demonstrate that supplier product development activity is significantly affected by the position of the supplier in the supply chain and the supplier's strategic focus on innovation. While the latter has a stronger impact on product development activities, there is also an interaction effect implying that the effects of a supplier's innovation strategy are contingent on its supply chain position. Contrary to expectations, customer development commitment does not have any significant direct effect on supplier product development activities. Instead, this relation is fully mediated by supplier innovation strategy. These findings imply that, in contrast to conventional wisdom, product development activities are not strictly organized in “chains.” Although supply chains can be useful metaphors for understanding the distribution of regular production activities between firms, they arguably apply less to the distribution of product development activities.     

The Impact of Customer Involvement on New Product Development: Contingent and Substitutive Effects

More and more companies are actively involving their customers in the new product development (NPD) process. However, there is little consensus regarding the contribution of customer involvement to new product outcomes. A better understanding of this contribution can shed light on whether and when it is worthwhile to involve customers and thus provide firms better guidelines for making such decisions. This study examines the effects of two forms of customer involvement on new product outcomes: the traditional form of customer involvement as an information source (CIS) and the more active form of customer involvement as co‐developers (CIC). The authors offer a better understanding of whether customer involvement can lead to successful innovation by (1) identifying conditions that impact the effects of CIS and CIC on NPD outcomes, (2) contrasting the conditional effects of CIS and CIC to understand how they influence NPD outcomes differently, and (3) examining the potential substitutive relationship between CIS and CIC to understand their joint effects in improving innovation. They find that an experimental NPD approach that emphasizes trial and error learning moderates the relationship between customer involvement and new product outcomes. Specifically, the results reveal contrasting contingent effects of CIS and CIC: CIS is more beneficial for new product outcomes when firms take a more experimental NPD approach, whereas the effect of CIC is stronger when the NPD process is characterized with lower experimentation. CIS and CIC also substitute for each other in their contribution to new product outcomes. These findings suggest that each of the two forms of customer involvement has its unique advantages and is suitable for different conditions. When considering the adoption of CIC, firms should take into account their learning approaches as well as the effectiveness of CIS in the NPD process.     

Projective customer competence: Projecting future customer needs that drive innovation performance

Projective customer competence is the ability of a product development organization to both understand as well as shape the future needs of customers. To conceptualize this competence and establish its antecedents and performance implications, we draw upon the literature on inter-organizational relationships and innovation. Based on survey data from managers involved with business to business product development, validated with secondary financial data and in-depth interviews, we establish measurement properties for projective customer competence and demonstrate that this competence develops through customer relationships characterized by relational embeddedness, knowledge redundancy and interactivity. Projective customer competence is also shown to have positive implications for both innovativeness and financial performance. Surprisingly, relational embeddedness is shown to be the strongest predictor of projective customer competence, and, while knowledge redundancy helps build projective customer competence, it also has a negative impact on innovativeness.     

Customer involvement in new product development in B2B: The role of sales

Developing new products, and customer involvement in the process, have been frequent topics in the management literature. Focusing on the benefits and risks of customer involvement, prior research mostly black-boxed the process through which customers are involved. Little has been reported on the activities and timing related to customer involvement in new product development (NPD), and the literature provides limited guidance for how to orchestrate customers' involvement. Building on a longitudinal case study of the development of a new product over five years, we offer a comprehensive model of customer involvement in the NPD process, and elaborate on the role of sales in customer involvement. The contribution of this paper is threefold: first, we develop the concept of customer involvement as a pattern of interactions at the interface of the customer and supplier organizations. Second, we posit that NPD in a B2B context is an iterative process consisting of various parallel sub-processes. Third, we demonstrate that in a B2B context, sales function plays a central part in interfacing the supplier and customer organizations. Based on our findings we identify organizational capabilities critical for developing an effective customer-supplier interface.     

Supplier traits for better customer firm innovation performance

Previous research on embedded ties with suppliers in an innovation context has ignored the need for customer firms to assess and select suppliers on the basis of market orientation strategies and relationship marketing attributes. To address this void, this study investigates the effects of suppliers' downstream customer orientation and supplier-customer homophily (i.e., similarity of the supplier and the customer) on the customers' innovation performance. Data pertaining to new product development projects with contributions from supplier firms was collected on both sides of the supplier-customer dyad. The analysis shows that downstream customer orientation and supplier-customer homophily have a significant impact on the customer firms' new product efficiency (i.e., project cost and project speed) and new product effectiveness (i.e., innovativeness), which in turn positively influence new product performance in terms of profitability, market share, and growth.     

Integration planning for technology intensive acquisitions

Rapid technological change, growing technological complexity and shortening product life cycles increasingly force companies to source technologies externally. One means of building up competencies and fostering innovation based on external resources such as knowledge is through the acquisition of technology-based companies. However as literature and practice have shown, technologically motivated and intensive acquisitions are highly vulnerable to failure. One of the main reasons for this value destruction lies in the miscarried and inappropriate integration of the technology-based company after the acquisition.
Based on eight in-depth case studies on technology intensive acquisitions in multi-national technology-based companies this paper aims to identify the main causes of failure in internalizing external knowledge during the integration of technology intensive acquisitions. It was derived that a lack of integrative decision-making, of systemic processes and of a holistic change of both companies during the integration hinders successful knowledge sourcing through acquisitions. Based on these findings, a concept for integration planning which is tailored towards the specific characteristics of technology intensive acquisitions is proposed. This concept is embedded in the acquisition process and encompasses the development of an appropriate integration strategy and the determination, assessment and planning of the required integration projects thus fostering successful knowledge sourcing.     

The Role of Suppliers in Market Intelligence Gathering for Radical and Incremental Innovation*

Drawing on transaction cost economics theory, this study addresses the following research questions: (1) Does supplier involvement in market intelligence gathering activities have a greater impact on innovation success in predesign or commercialization activities? and (2) Does supplier involvement in market intelligence gathering activities have a greater impact on success in radical or incremental product innovation? Hypotheses are tested using both subjective and objective measures of success from a study of 205 incremental and 110 radical new product development projects. Results from the estimation of a two‐group path model suggest that this theoretical framework is useful in providing guidance as to when product developers should emphasize the gathering of market intelligence through suppliers. Consistent with conventional wisdom, the findings suggest that supplier involvement in market intelligence gathering activities are positively related to success in incremental innovations across predesign and commercialization activities. However, supplier involvement in market intelligence gathering activities is found to have no significant impact on market share and is negatively associated with perceived product performance in radical innovations in predesign tasks. Also, while there was no significant difference in market share for supplier involvement in market intelligence gathering activities between radical and incremental innovation in commercialization activities, supplier involvement in these activities did have a greater impact on perceived product performance in radical innovation than it did in incremental innovation. Although current practice suggests that teams allocate fewer resources to the gathering of market intelligence through their suppliers during predesign activities in incremental innovation projects compared with radical innovation projects, the findings in this study suggest that they should do the opposite. Shifting resources allocated for engaging suppliers in market information gathering activities in predesign activities from radical innovation projects to incremental innovation projects could increase the return on these investments. Alternatively, these resources currently allocated to the gathering of market intelligence through suppliers in predesign activities of radical innovation projects could also provide greater benefits if allocated to commercialization activities of radical innovation projects, where they have the greatest positive impact.     

A Model of Supplier Integration into New Product Development*

In many industries, firms are looking for ways to cut concept‐to‐customer development time, to improve quality, and to reduce the cost of new products. One approach shown to be successful in Japanese organizations involves the integration of material suppliers early in the new product development cycle. This involvement may range from simple consultation with suppliers on design ideas to making suppliers fully responsible for the design of components or systems they will supply. While prior research shows the benefit of using this approach, execution remains a problem. The processes for identifying and integrating suppliers into the new product development (NPD) process in North American organizations are not understood well. This problem is compounded by the fact that design team members often are reluctant to listen to the technology and cost ideas made by suppliers in new product development efforts. We suggest a model of the key activities required for successful supplier integration into NPD projects, based on case studies with 17 Japanese and American manufacturing organizations. The model is validated using data from a survey of purchasing executives in global corporations with at least one successful and one unsuccessful supplier integration experience. The results suggest that (1) increased knowledge of a supplier is more likely to result in greater information sharing and involvement of the supplier in the product development process; (2) sharing of technology information results in higher levels of supplier involvement and improved outcomes; (3) supplier involvement on teams generally results in a higher achievement of NPD team goals; (4) in cases when technology uncertainty is present, suppliers and buyers are more likely to share information on NPD teams; and (5) the problems associated with technology uncertainty can be mitigated by greater use of technology sharing and direct supplier participation on new product development teams. A supplier's participation as a true member of a new product development team seems to result in the highest level of benefits, especially in cases when a technology is in its formative stages.     

Inter-partner control,trust, and radical innovation of IJVs in China: A contingent governance perspective

International joint ventures (IJVs) in emerging markets need to develop radical innovation to compete successfully in the rapidly changing business landscapes there. Taking a contingent governance perspective, this study examines how formal and social governance mechanisms, namely inter-partner control and inter-partner trust, affect radical innovation development in IJVs through knowledge acquisition and integration, and how emerging market institutional governance structures moderate the effectiveness of the two internal governance mechanisms. Based on a sample of 181 IJVs in China, we find that both inter-partner control and inter-partner trust promote IJV radical innovation; moreover, legal enforceability weakens the impact of inter-partner control but strengthens that of inter-partner trust on IJV radical innovation; likewise, government intervention risk weakens the positive role of inter-partner control yet strengthens that of inter-partner trust. This study extends both the innovation and IJV governance literature by connecting governance mechanisms to IJV radical innovation and uncovering important institutional contingencies.     

Multiple dimensions of power influencing knowledge integration in supply chains

This study investigates how multiple dimensions of power each facilitate knowledge integration within innovation projects in supply chains and their interrelationships. Adopting a process perspective of knowledge, we offer an alternative to much of the existing debate, which has focussed on the possession of resources. We collected data from four case-study Original Equipment Manufacturers and six associated suppliers and analysed these using Template Analysis and cross-case analysis. Our findings reveal how the power of the system, operationalized through relative performance measures, performance measurement mechanisms and the individuals in-charge of them, provides a facilitative context within which other dimensions of power operate. Here, the power of resources (expert and legitimate power), processes (associated with raising issues, cross-functional teams, early supplier involvement and reviews) and meaning (creating legitimacy through reviews) interact to support knowledge integration within innovation projects in supply chains. This, we argue, emphasises the plurality of power dimensions deployed and importance of their interrelationships in facilitating knowledge integration within hierarchical supply chain networks.     

Help or Hindrance? Causal Ambiguity and Supplier Involvement in New Product Development Teams

Suppliers are increasingly being involved in interorganizational new product development (NPD) teams. Successful management of this involvement is critical both to the performance of the new product and to meeting the project's goals. Yet the transfer of knowledge between buyer and supplier may be subject to varying degrees of causal ambiguity, potentially limiting the effect of supplier involvement on performance. Understanding the dynamics of causal ambiguity within interorganizational product development is thus an important unanswered empirical question. A theoretical model is developed exploring the effect of supplier involvement practices (supplier involvement orientation, relationship commitment, and involvement depth) on the level of causal ambiguity experienced within interorganizational NPD teams, and the subsequent impact on time to competitor imitation, new product advantage, and project performance. The model also serves as a test of the paradox that causal ambiguity both inhibits imitation by competitors, but adversely affects organizational outcomes. Survey data collected from 119 research and development‐intensive manufacturing firms in the United Kingdom largely support these hypotheses. Results from structural equation modeling show that supplier involvement orientation and long‐term relationship commitment lower causal ambiguity within interorganizational NPD teams. The results also shed light on the causal ambiguity paradox showing that causal ambiguity during interorganizational NPD decreases both product and project performance, but has no significant effect on time to competitor imitation. Instead, competitor imitation is delayed by the extent to which the firm develops a new product advantage within the market. A product development strategy based upon maintaining interfirm causal ambiguity to delay competitor imitation is thus unlikely to result in a sustainable competitive advantage. Instead, managers are encouraged to undertake supplier involvement practices aimed at minimizing the level of knowledge ambiguity in the NPD project, and in doing so, improve product and project‐related performance.     

Do resource differences between manufacturers and suppliers help or hinder product innovation of manufacturers? The moderating role of trust and contracts

It is a common practice of manufacturers to involve suppliers in new product development (NPD). Extant literature indicates that supplier integration has mixed effects on manufacturers' NPD and the contradicting findings result from either the external contingent factors or the tactical integration practices. We argue instead that the mixed effects are rooted in resource differences between manufacturers and suppliers. Further, we examine the functions of trust and contracts as the resource integration and coordination mechanisms to manage the effects of resource differences on product innovation of manufacturers. Based on a survey among 189 manufacturing firms, our research shows that resource differences follow an inverted U-shaped effect on product innovation of manufacturers and that trust strengthens while contract complexity attenuates the curvilinear relationship. As such, our research extends the existing body of literature to account for the divergent outcomes of supplier integration from the perspective of resource differences. Moreover, it demonstrates the double-edged effects of trust and contracts as devices of resource integration and coordination. Our research offers useful research and managerial implications.     

How does green innovation affect supplier-customer relationships? A study on customer and relationship contingencies

As the demand for eco-friendly products arises, many suppliers have devoted significant effort to green innovation. Prior studies have investigated how green innovation influences product and firm performance; however, its influence on the relationship between suppliers and organizational buyers (customers) is still unknown. Organizational buyers' receptivity to green products is uncertain as they must adjust their current systems to accommodate the new products. As such, understanding how supplier green innovation effort affects the supplier-customer relationship is essential for green innovation success. Using data collected from 196 B2B customers, we find that the relationship between supplier green innovation effort and relational performance depends on several customer- and relationship-level contingencies. Specifically, green innovation benefits a relationship more if customer participation and relational embeddedness are high, or if customer risk aversion and customer-perceived product criticality are low. This research provides valuable guidance for the effective implementation of green innovation.     

Customer involvement in big data analytics and its impact on B2B innovation

Extant literature assumes that customers mainly serve as passive data providers and that firms take responsibility for big data analytics. In line with a current trend in real-world practice, this research, based on the open innovation literature, challenges this assumption and argues that customers can have more engagement in big data analytics. The authors distinguish two constructs: Customer as Data Provider (CDP) and Customer as Data Analyst (CDA). The former is consistent with the mainstream view that customers serve as the data source. The latter, on the other hand, sheds light on an active role customers play in big data analytics – that is, customers participate in a co-creation process where they acquire, analyze and act on big data. Using survey data of 148 Business-to-Business (B2B) innovation projects, the authors find that both types of customer involvement facilitate B2B product innovation. Furthermore, the authors examine moderation effects of customer need tacitness and customer need diversity. Results show that customer need tacitness negatively moderates the relationship between CDP and new product performance while customer need diversity yields a positive moderation effect. Customer need tacitness is also found to positively moderate the relationship between CDA and new product performance.