Translating front-end supplier involvement orientation into firm innovation capability: The mediating role of outward-looking organizational practices

Abstract

In recent years, supplier involvement in the innovation processes of focal firms has evolved from a minor activity into a major element of company strategy. There has been a steady increase in supplier responsibility for development, leading to a shift in the supply base from purely delivering products to providing unmatched expertise from the very beginning. We regard this phenomenon as the motive force behind our study. Our aim is to investigate the consequent effects of orienting towards supplier involvement in the fuzzy front end (FFE), as well as purchasing and supply management (PSM) practices, on a focal firm’s innovation capability. We drew on the capability-based transactions theory, which looks at bounded innovation capabilities that are complemented by transactions. Data from 206 automotive firms and structural equation modeling (SEM) show that supplier involvement orientation in the FFE has a stronger positive impact on incremental innovation capability. In addition, we find significant effects regarding several PSM practices. Cooperation with non-value-chain partners supports both radical and incremental innovation. More PSM practices positively affect radical innovation – for example, early purchasing involvement and non-monetary incentives. The results generate advances for the capability-based transactions theory. For scholars, the differences between radical and incremental innovation capabilities are of interest while, for practitioners, the selection of good PSM practices in the FFE is an important concern.