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 nature of innovation strategies, the roles of external

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
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

Journal of Supply Chain Management
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
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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

Supply Chain Partner Innovativeness
(e.g., Azadegan & Dooley, 2010; Lau, Tang, & Yam,
2010), little is known about the processes (e.g., prod-
uct innovation strategy in our study) through which
supply chain partners’ innovativeness relate to perfor-
mance. Our study fills this gap in the literature.
Further, the investigation of the influence of the
combined effects of internal innovation climate and
strategic relationships as moderators of the link
between supplier chain partners’ innovativeness and
product innovation strategy represents contributions
to and extends the body of work that focuses on
tapping innovation and knowledge from external part-
ners such as suppliers (Brown & Eisenhardt, 1995).
In the next section, we discuss the theoretical frame-
work and develop our hypotheses. Next, we present
the methodology. Following that we present and
discuss the results of the study and conclude by
discussing the theoretical and practical implications of
the study.
THEORY AND HYPOTHESES
Supply Chain Partner Innovativeness and
Product Innovation Strategy
In explicating the relationship between supply chain
partner innovativeness and product innovation strat-
egy, we first draw from resource dependency theory
(RDT) (Pfeffer & Salancik, 2003). According to
resource dependency theory, interorganizational links
can be described as a set of power relations based on
the exchange of resources (Pfeffer & Salancik, 2003).
As firms may not have all the resources needed for
competitiveness at their disposal, they will seek to
build relationships with others such as firms within
the supply chain that possess key needed resources
(Azadegan, Napshin, & Oke, 2013).
Innovativeness or the ability to develop new prod-
ucts and innovations is a vital resource that firms seek
to gain competitiveness (Avlonitis, Papastathopoulou,
& Gounaris, 2001; Cho & Pucik, 2005; Santos-Vijande
& Alvarez-Gonzalez, 2007). Firms lacking this vital
innovative capability will seek to tap innovative part-
ners. The examples of Intel and CHEP that were high-
lighted in an earlier section illustrate the connection
between supply chain partner innovativeness and a
focal firm’s innovation strategy. For example, supplier
innovativeness has become a key factor in supplier
evaluation and the prequalification process (Azadegan,
2011). Indeed, the process of aligning with the inno-
vative capabilities of suppliers is not only an initial
process (at the time of screening) but also an ongoing
process.
Engaging with innovative suppliers can expose buy-
ers to suppliers’ innovations that can increase the
buyer’s innovative capability (Azadegan, 2011). Inno-
vative suppliers are able to supply buying firms with
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components at the leading edge of technology which
the firms can integrate into their production process
(Hoetker, 2005). Similarly, a focal firm’s innovative
customers can be important resources for innovations
(von Hippel, 1986; Napolitano, 1991). The case stud-
ies of innovations in the fields of education, medi-
cine, and welfare using IT and multimedia technology
in Japan (Kodama, 2002) demonstrate the importance
of building strategic partnerships with customers who
are highly knowledgeable about the products and
services to create new business models as well as
reaching out to many other associated customers.
Customers are closer to the market and understand
the market well; thus, they are able to offer valuable
input into a firm’s innovative processes. Collectively,
this suggests the potential for an orchestration of a
knowledge network with each part fulfilling the role
assigned to them.
Resource dependency theory (RDT) views organiza-
tions as coalitions in which structures and patterns of
behavior are molded to acquire needed external
resources (Pfeffer & Salancik, 2003). RDT is an appro-
priate theoretical lens to employ to investigate the tap-
ping of partners’ innovativeness because according to
RDT, suppliers will try to increase the buyer’s depen-
dency on their operations by continuously offering
value in the form of innovations. On the other hand,
the buyer will attempt to decrease its dependence on
the supplier or customers by seeking to develop and
increase the vital resource—innovative capability—
which these supply chain partners offer. In other
words, organizations will alter their patterns of behav-
ior to reduce their dependence on others for vital
resources by implementing innovation strategies to
enhance their performance. This suggests that focal
firms that have neither the technical know-how nor
the intention to pursue innovations that are better
handled via outsourcing will likely increase their
dependence on their supply chain partners. Exposure
to supply chain partners that have innovative ideas
and offer new technologies and components will not
only drive firms to implement and utilize these new
technologies in product development (Lau et al.,
2010; Tan & Tracey, 2007) but also trigger them to
find ways of developing capabilities in innovation.
Second, we draw from the KBV (Grant, 1996b;
Nonaka, 1994) to further examine how supply chain
partners’ innovativeness links with a firm’s product
innovation strategy. The KBV is an appropriate theo-
retical lens to use because the transfer and flow of
knowledge is at the core of innovative activities and
the KBV considers the creation, integration, and appli-
cation of knowledge as the principal function of the
firm (Grant, 1996a; Nonaka, 1994). A key tenet of
the KBV is that organizations engage in routines
which help to enhance learning through repeated
45

Journal of Supply Chain Management
performance (Oke & Kach, 2012). Collaborations with
innovative supply chain partners enable a firm to be
consistently exposed to innovative behaviors of the
partners which the firm can acquire, learn, and inter-
nalize to strategize for innovation. In other words, a
firm can exploit and reconfigure external knowledge
to enhance its own internal capabilities for developing
product innovations.
Taken together, the theoretical arguments support
the notion that supplier chain partner innovativeness
can trigger firms to have innovation strategies, leading
to the following hypothesis:
H1: Supply chain partner innovativeness has a
positive relationship with the focal firm’s product
innovation strategy.
The Influence of Innovation Climate and
Strategic Relationship with Supply Chain
Partners on the Supply Chain Partner
Innovativeness–Innovation Strategy Link
The relationship between supplier innovativeness
and a buyer’s manufacturing performance and the
moderating roles of interorganizational learning,
supplier evaluation, supplier integration, and absorp-
tive capacity have been the focus of recent studies
(Azadegan, 2011; Azadegan & Dooley, 2010; Koufteros
et al., 2010; Wagner, 2012). Yet, the role of contin-
gency factors such as innovation climate (Bain, Mann,
& Pirola-Merlo, 2001) and strategic relationship with
supply chain partners as moderators of the relation-
ship has not been studied. To better utilize and tap
supply chain partner innovativeness, firms must
develop complementary skills and have an orientation
toward innovation by providing support for innova-
tion and fostering an environment where innovation
thrives (Amabile, 1998). Such an orientation toward
innovation increases the learning capability within
Innovative
climate
SC partner
innovativeness
Strategic
relationship
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firms and enables firms to better understand and ger-
minate partners’ innovative ideas that translate into
more efficient production processes. Indeed, suppliers
are more likely to offer innovative ideas to buyer firms
that have a culture of innovation and recognize the
value of such ideas and new technologies (Kodama,
2002; Lindgreen, Antioco, Palmer, & Heesch, 2009).
A similar argument can be made with respect to the
downstream part of the innovation network by
involving customers in the product innovation efforts
of focal firms (Koufteros et al., 2005). Such an
involvement is more likely to take place in focal firms
that have a strong internal climate for innovation.
Thus, an organizational environment that supports
cross-fertilization of ideas and stimulates creativity is
likely to provide a good fertile ground for supply
chain partners’ innovative offerings to firms (Su,
Tsang, & Peng, 2009). Indeed, according to the KBV,
when outside knowledge is “intertwined” with that
residing inside the organization and fostered by an
internal innovation climate, it can lead to learning
that can enhance innovation performance (Jones &
Macpherson, 2006; Morgan, Zou, Vorhies, & Katsik-
eas, 2003). In sum, the positive effect of supply chain
partner innovativeness on a firm’s use of innovative
offerings to develop new products (product inno-
vation strategy) is likely to be enhanced in an organi-
zational environment where innovation thrives,
which leads us to the next hypothesis which is stated
below. This posited interaction effect is also shown in
Figure 1:
H2: An innovation climate will positively moderate
the relationship between supply chain partner
innovativeness and product innovation strategy.
Social capital theory suggests that firms can more
effectively tap knowledge or capabilities from other
firms if they can successfully build social capital (in
FIGURE 1
Research Framework
Innovative
climate ×
Strategic
relationship
Product Product
Innovation Innovation
Strategy Performance
Volume 49, Number 4

Supply Chain Partner Innovativeness
terms of relationship and trust) with those firms (Kra-
use, Handfield, & Tyler, 2007). Under social capital
theory, strategic relationships need to be built as a cat-
alyst for tapping the innovative potential of supply
chain partners. As relationships with supply chain
partners become more enduring and long term,
mutual trust is developed and the partners become
more conversant with the focal firms’ patterns of
behavior and product offerings.
According to the KBV, such relationships enable end
customers and suppliers to be able to share and offer
the required expertise to a firm which the firm can
internalize and utilize in its product development.
Similarly, the focal firm gains more insight into
suppliers’ innovative processes and is able to tap from
suppliers’ knowledge, exploit, and reconfigure it in
order to increase its own innovative capability
(Knudsen, 2007). Within this relationship model,
joint projects may be undertaken that will inevitably
lead to the use of innovative offerings to develop new
products (product innovation strategy) (Lau et al.,
2010). Indeed, Azadegan (2011) argues that estab-
lished relationships with suppliers enable suppliers’
innovativeness to become a relational asset which can
be complementary and increase a firm’s performance.
Similarly, the works of Wagner and Buk
o (2005) and
Tan and Tracey (2007) have argued for collaborative
networks of NPD that involve customers as well.
Therefore, we posit here that strategic relationships
with key innovative supply chain partners will enable
firms to more effectively gain or tap innovative ideas
from these partners, thus enhancing the propensity of
a firm to implement innovation strategies (Van de
Ven, 1986). Thus, we offer the following hypothesis
and show this interaction effect in Figure 1:
H3: Strategic relationships with supply chain part-
ners will positively moderate the relationship
between supply chain partner innovativeness and a
firm’s product innovation strategy.
Synergistic Effects of Innovation Climate and
Strategic Relationships
In the following hypothesis, we argue for a joint
moderating influence of the interaction between orga-
nizational innovation climate and relationship with
supply chain partners on the link between supply
chain partner innovativeness and product innovation
strategy. The premise for this argument is that for
firms that have joint investments in both internal
organizational innovation climate and external strate-
gic relationships with suppliers, the effect of supply
chain partner innovativeness on product innovation
strategy is stronger than for firms without these invest-
ments. The study by Wagner and Buk
o (2005) shows
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that strategic relationships with supply chain partners
(customers and suppliers) in the form of knowledge
sharing is influenced (moderated) by organizational
resource commitment. Implicit in this notion is the
interaction between organizational innovative climate
and the innovativeness of supply chain partner in
influencing innovation strategy of the firm. This argu-
ment also stems from the matched domains argument
(Koufteros, Vickery, & Droge, 2012) and the innova-
tion chain precepts (Azadegan & Dooley, 2010; Wyn-
stra, von Corswant, & Wetzels, 2010). Both of these
precepts argue for an alignment in structures inter-
nally and externally to enhance joint innovation
progress.
Further, according to the KBV, firms are able to tap
from a supply chain partner’s innovativeness if they
are repeatedly exposed to the partner’s knowledge
base. Such exposure is possible only through enduring
or strategic relationships between the two entities.
Internal innovation climate enables a firm to effec-
tively tap, internalize, and exploit such external
knowledge to develop and improve innovation inter-
nally. Thus, strategic relationships with key supply
chain partners will combine with internal innovation
climate to enhance the exploitation of the supply
chain partner innovativeness to improve a firm’s
innovation capabilities. Accordingly, we present the
following hypothesis and show this interaction effect
in Figure 1:
H4: The joint interaction of innovation climate
and strategic relationships with supply chain part-
ners will positively moderate the relationship
between supply chain partner innovativeness and
product innovation strategy.
Linking Product Innovation Strategy to Product
Innovation Performance
Implementing product innovation strategies through
the use of new components and new materials in
product development enables the reconfiguration of
product architecture and composition of the final
product which could result in highly innovative and
novel products (Chen, Chen, & Vanhaverbeke, 2011;
Oke, Walumbwa, & Myers, 2012; Tsai, Hsieh, & Hult-
ink, 2011). Using new materials and components that
have a wide range of applications in product develop-
ment can also enhance the number of new products
produced as well as the overall performance of the
final products (Millson & Wilemon, 2008; Song, Song
& Benedetto, 2011). Newspaper wood is a set of novel
wood products that have resulted in novel furniture
and home products. These products that include
lamps, chairs, and other home products are developed
from new materials—in this case, recycled newspapers
47

Journal of Supply Chain Management
(not cut and dried wood) that have been meticulously
and individually glued together, rolled into a tight
“log” and left to dry, deform and harden just like liv-
ing trees would do. Thus, a strategy of using new
materials in product development can result in novel
products.
Similarly, firms can strategize for innovation using
new technologies that have a wide range of applica-
tions leading to novel products and an increase in the
number of new products derivable from those tech-
nologies (Judi & Beach, 2010). The introduction of
touchscreen technology has revolutionized many
products and changed many industries. Through the
use of touchscreen technology, novel products such as
personal computer tablets and smart phones, includ-
ing Apple’s I-Pad and I-Phone, have been developed.
Similarly, the use of gesture-based computer control
technology that allows active interaction with a com-
puter through natural human gestures has revolution-
ized the gaming industry leading to novel products
like Microsoft’s Xbox Kinect body sensor and Ninten-
do’s Wii handheld control sensor (Mitra & Acharya,
2007). In other words, implementing innovation strat-
egy through the use of technology in product develop-
ment offers opportunities for novel products and
improved innovation performance.
Taken together, we offer the following hypothesis:
H5: Product innovation strategy has a positive rela-
tionship with product innovation performance.
The Mediating Role of Product Innovation
Strategy
As we have previously noted, prior studies on tap-
ping supplier innovativeness or integration of suppli-
ers into the NPD process have considered the direct
influence of these factors on a focal firm’s manufactur-
ing performance (Parker, Zsidisin, & Ragatz, 2008;
Petersen, Handfield, & Ragatz, 2003). Similarly, the
effect of tapping customer innovativeness on innova-
tion performance has been examined in several stud-
ies (Blazevic & Lievens, 2008; Elofson & Robinson,
2007). Largely missing in these studies are the pro-
cesses by which the innovativeness of these supply
chain partners influence other performance outcomes.
Our first hypothesis in this study identifies the
implementation of product innovation strategy, com-
prising the use of new technologies, new product fea-
tures, and components in product development, as a
direct consequence of tapping supply chain partner
innovativeness. To develop this hypothesis, we draw
from resource dependence theory (Pfeffer & Salancik,
2003) and argue that firms strive to reduce their
dependencies on supply chain partners’ innovative-
ness by developing their own product innovation
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strategies to attain an improved innovation perfor-
mance. In addition, we argue that when firms imple-
ment specific innovation initiatives in product
development (product innovation strategy), an
improvement in product innovation performance can
be attained. Taken together, these arguments suggest
that a firm’s product innovation strategy is both a
consequence of supply chain partners’ innovativeness
and an antecedent of product innovation perfor-
mance. The implication of this is that product innova-
tion strategy is a process or a mechanism through
which supply chain partners’ innovativeness affects a
firm’s innovation performance. As we noted above,
prior research has mainly focused on the direct link
between external sources of innovation and a firm’s
innovation performance (Kodama, 2002; Lau et al.,
2010; Oke & Kach, 2012).
The direct link between external sources of innova-
tion and performance may be due to several factors
other than product innovation strategy. For example,
collaborating with an innovative supply chain partner
could enhance a firm’s learning and absorptive capac-
ity which may enhance the firm’s capability to
improve its innovation performance. In other words,
apart from product innovation strategy, other mecha-
nisms exist through which supply chain partners’
innovativeness relates to a firm’s innovation perfor-
mance. This suggests that product innovation strategy
is a partial mediator of the link between a supply
chain partner’s innovativeness and innovation
performance. Accordingly, we offer the following
hypothesis:
H6: Product innovation strategy partially mediates
the link between supply chain partner innovative-
ness and product innovation performance.
The research model tested in this study is presented
in Figure 1.
METHODS
Sample and Procedures
This study utilized a cross-sectional mail survey of a
sample of Australian manufacturing firms, encompass-
ing various sectors, including food, electronics, wood,
textiles, plastics, metal, and pharmaceuticals within
the scope of the Australia and New Zealand Standard
Industrial Classification (ANZSIC) codes under Divi-
sion C (Manufacturing). Table 1 shows the sample
distribution of the manufacturing sectors captured in
this study. In administering our survey, we specifically
requested in the cover letter of the survey that the
questionnaire be assigned to middle and senior
managers whose primary responsibilities are related to
strategic innovation activities of the firms. In total,
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Supply Chain Partner Innovativeness

TABLE 1 chain management literature (Chen & Paulraj, 2004;

Fynes, Voss, & de B
urca, 2005; Li, Rao, Ragu-Nathan,
Sample Distribution of the Manufacturing Sec-
& Ragu-Nathan, 2005) which emphasized the impor-
tors Based on Australia and New Zealand Stan-
tance of building long-term relationships and strategic
dard Industrial Classification (ANZSIC) Codes
collaborations with the firm’s most valuable supply
Manufacturing Sectors chain partners for mutual benefits. In measuring inno-
Based on ANZSIC Number Valid % of vative climate, we adopted the scale by Prajogo and
Codes of Firms the Sample Ahmed (2006) which includes several key practices
such as providing resources for employees to generate
Food, beverage, and 49 23.7 innovative ideas and to facilitate knowledge and idea
tobacco sharing through open communications. The scale for
Textile, clothing, 7 3.4 product innovation strategy was derived from Akg€ un,
footwear, and leather Keskin and Byrne (2009), Gunday, Ulusoy, Kilic and
Wood and paper 9 4.3 Alpkan (2011), and Yamin, Mavondo, Gunasekaran
Printing, publishing, 11 5.3 and Sarros (1997), and it reflects several key practices
and media that firms employ to develop new and innovative
Petroleum, coal, and 20 9.7 products, including the use of new components, new
chemical materials, and new technologies.
Nonmetallic mineral 5 2.4 Product innovation performance is measured in
Metal 12 5.8 terms of the quantity and innovativeness of new prod-
Machinery and 42 20.3 ucts developed and introduced to the market (Gopala-
equipment krishnan, 2000; Prajogo & Sohal, 2006; Spanjol,
Prefabricated building, 48 23.2 Qualls, & Rosa, 2011), for which we asked respon-
furniture, and others dents to assess their performance relative to the indus-
Construction 4 1.9 try average using 7-point Likert-type scale from 1
Total 207 100 (well below) to 7 (well above). The items used to cap-
ture each scale are presented in Table 2.

1,000 surveys were mailed out, and 207 usable
responses were received representing an effective
response rate of 20.7%.
Nonresponse Bias
To test for nonresponse bias, we compared the
responses of early and late waves of returned surveys
based on the assumption that the opinions of late
respondents are representative of the opinions of non-
respondents (Armstrong & Overton, 1977). Student’s
t-tests yielded no statistically significant differences
between early-wave and late-wave groups with respect
to firm’s size and several key variables, including busi-
ness performance. The results of the t-tests suggest that
nonresponse bias was not a problem in this dataset.
Measures
All measures used in this study were derived from
previous studies to secure their content validity. The
measure for supply chain partner innovativeness was
derived from the studies by Azadegan and Dooley
(2010) and Wang and Ahmed (2004). In addressing
this scale, we specifically asked respondents to focus
on the firm’s most valuable supply chain partner (i.e.,
the buyer or supplier with whom their firm conducts
maximum business in dollar terms). The measure for
strategic relationship was derived from the supply
RESULTS
Scale Validity and Reliability
As a first step, we performed validity and reliability
tests on the five measures used in this study using
confirmatory factor analysis (CFA). The results of the
CFA and measures of Cronbach’s alpha are presented
in Table 2. The normed chi-square value
(v2 = 201.01; df = 142) is <3. The fit indices
(NFI = .937, NNFI = .974, CFI = .978, GFI = .907)
are also above the cutoff score for an acceptable
model (.90) with most of the indices even exceeding
the cutoff score for a good model (.95). The RMSEA
value is .045, well below the recommended cutoff
point of .08. The overall model fit results suggest
acceptable unidimensionality and convergent validity
for the measures (Bagozzi, Yi, & Philips, 1991; Bollen,
1989; Carmines & McIver, 1981; Hoskisson, Hitt,
Johnson, & Moesel, 1993). The results also show that
all items loaded significantly on their respective con-
structs with standardized path loadings above .5. The
five scales also showed a strong reliability as indicated
by Cronbach’s alpha values which surpassed the
threshold point of .70 (Nunnally, 1978). We also
computed composite reliability using the standardized
loadings and the measurement error of each indicator,
and the results show that the five constructs have
composite reliabilities above .7 (Hair, Black, Babin,

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Journal of Supply Chain Management

TABLE 2
Scale Validity and Reliability

Standard
Factor Cronbach’s
Scales Items Loading Alpha
Supply chain Our supply chain partner adopts innovation as their primary .81 .90
partner’s strategy.
innovativeness Our supply chain partner uses cutting edge technologies in .77 (.91)a
the industry.
Our supply chain partner continuously produces new ideas. .86 (.66)b
Our supply chain partner gains a large portion of revenue .74
from new products.
Our supply chain partner is recognized as being innovative. .88
Organizational Our company provides time and resources for employees to .75 .78
innovative generate, share/exchange, and experiment with innovative
climate ideas/solutions.
Our employees are working in diversely skilled work groups .83 (.84)a
where there is free and open communication among the (.57)b
group members.
Our employees frequently encounter nonroutine and .75
challenging work that stimulates creativity.
Our employees are recognized and rewarded for their .69
creativity and innovative ideas.
Strategic We expect our relationship with the key supply chain .76 .78
relationships partners to last a long time.
with supply We collaborate with the key supply chain partner to .70 (.81)a
chain partners improve performance in the long run. (.51)b
The supply chain partner sees our relationship as a long- .81
term alliance.
We view our supply chain partner as an extension of our .57
company.
Product We develop or use new components. .78 .85
innovation We develop or use new materials (including green/recycled .68 (.85)a
strategy materials).
We develop or use new technologies in our products. .79 (.59)b
We develop or use new product features. .81
Innovation Novelty of new products .78 .78
performance Number of new products introduced .82 (.78)a
(.64)b
a
CR, composite reliability.
b
AVE, average variance extracted.
v2 = 201.01, df = 142, RMSEA = .045, NFI = .937, NNFI = .974, CFI = .978, GFI = .907.

Anderson, & Tatham, 2006). Next, we computed the
average variance extracted (AVE) for each construct
using the squared standardized loadings and the mea-
surement error of each indicator to further confirm
the scale validity; these results show that the AVEs for
the five scales are greater than the recommended value
of .50 (Fornell & Larker, 1981).
As the data were provided by a single respondent in
each responding firm, we needed to check whether
the responses would be affected by common method
bias using the Harmann’s single-factor test (Paulraj,
2011; Podsakoff, MacKenzie, Jeong-Yeon, & Podsak-
off, 2003). This test was run by loading all 19 items
into one factor as a competing model for the CFA
model. The common model produced a poor fit to
the data (chi-square (v2) = 1,828.88, df = 152,
RMSEA = .231). In addition, a large portion of the
indicators has poor factor loadings (.3 or below).
These results suggest that common method variance
was not a significant problem in the dataset.

50 Volume 49, Number 4


Supply Chain Partner Innovativeness
A discriminant validity test was performed to exam-
ine whether constructs were distinct from each other.
We followed the method used by Ahire, Golhar and
Waller (1996) by pairing each of the constructs and
subjecting them to two (CFA) measurement models.
All of the tests results passed the criterion for discrimi-
nant validity (p < .01).
The second step was to generate the composite
scores for the five scales which were used in the
regression analysis, using the mean score (Hair et al.,
2006). The normality of the five composite scores was
tested, and we found no violation of normality as
indicated by skewness and kurtosis values which are
within the accepted range (1 and <7, respectively).
As the data were obtained from different manufac-
turing sectors, we conducted a preliminary test using
MANOVA to check whether there was any difference
across the above five composite variables between
different manufacturing sectors. The MANOVA was
statistically significant (Pillai’s Trace F = 1.01, p < .05,
Wilks’ Lambda F = 1.01; p < .05, and Hotelling’s
Trace F = 1.01, p < .01). Following Tabachnick and
Fidell (2007), follow-up MANOVAs were conducted
using the Bonferroni test, and the results showed that
none of the five variables was significantly different
(at p < .05) between manufacturing sectors. Overall,
the results of MANOVA test suggest that it is appropri-
ate to pool the data in the analysis.
Prior to conducting the regression analysis, we per-
formed Pearson bivariate correlations between all vari-
ables included in this study (including organizational
size as a control variable). These correlations are pre-
sented in Table 3. Overall, the correlation coefficients
suggest there is no multicollinearity among these
variables which could affect the regression.
ANALYSIS
Structural equation modeling (SEM) was used to test
the hypotheses relating to direct and indirect effects.
We employed SEM because this approach allows esti-
TABLE 3
Correlation Matrix
Mean
Firm size 1 3.76
Organizational innovative climate 2 4.57
Supply chain partners innovativeness 3 3.96
Strategic relationship 4 5.61
Product innovation strategy 5 4.79
Product innovation performance 6 4.08
*p < .05, **p < .01.
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mation of all the relationships simultaneously to
account for any potential measurement error as
opposed to testing the model in a piecemeal fashion.
It is also pertinent to note that SEM approach pro-
vides the best balance of type I error rates and statisti-
cal power when testing direct and indirect effects
(James, Mulaik, & Brett, 2006; MacKinnon, Lock-
wood, Hoffman, West, & Sheets, 2002). We used hier-
archical moderated regression to test for interaction
effects. This approach helps to provide effect size
assessment and has been used in a similar way in
other research studies that include investigation of
moderator variables.
Structural Equation Modeling (Tests for H1, H5,
and H6)
We used SEM to test the relationships among the
supply chain partner’s innovativeness, strategic rela-
tionship, innovative climate, product innovation strat-
egy, and product innovation performance. The focal
firm’s size was used as a control variable for both
product innovation strategy and product innovation
performance. The results displayed in Figure 2 show a
good fit (v2 = 73.40, df = 49, RMSEA = .049, NFI =
.959, NNFI = .979, CFI = .985, and GFI = .944). Sup-
ply chain partner’s innovativeness has a positive effect
on product innovation strategy (b = .34 at p < .01).
Thus, H1 is supported. Furthermore, product innova-
tion strategy shows a positive relationship with prod-
uct innovation performance (b = .44 at p < .01),
supporting H5. The results also show that a supply
chain partner’s innovativeness has a direct, positive
effect on product innovation performance albeit rela-
tively weaker than the effect of product innovation
strategy (b = .18 at p < .05). This direct effect suggests
that product innovation strategy partially mediates the
influence of supply chain partner innovativeness
on innovation performance, which indicates support
for H6.
A further test was conducted by comparing this par-
tially mediating model with another model where the
SD 1 2 3 4 5
1.77 –
1.09 .04 –
1.14 .15* .15* –
.81 .17* .12 .27** –
1.15 .01 .47** .30** .20** –
1.23 .06 .33** .27** .10 .40**
51
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Journal of Supply Chain Management

FIGURE 2
Structural Equation Modeling Results

0.18*

SC partner Product Innovation Product Innovation

0.34** 0.44**
innovativeness Strategy Performance

0.03 0.10

Organizational
size

χ2 = 73.50, df = 49, RMSEA = 0.049, NFI = 0.959, NNFI = 0.979, CFI = 0.985, GFI = 0.944

direct paths between the three independent variables TABLE 4

(supply chain partner’s innovativeness, innovative cli-
mate, and strategic relationship) and the dependent Hierarchical Moderated Regression Analysis
variable (product innovation performance) were
removed (i.e., a fully mediating model). This model Product
produced a slightly higher chi-square value (78.18 Innovation
with df = 50). The chi-square difference between the Strategy
partial and the fully mediating models is 4.68 (df = 1, Organizational size .04 .01
p < .05). Thus, H6, which posits that product innova- Supply chain partner .30** .23**
tion strategy partially mediates the association innovativeness
between supply chain partners’ innovativeness and Organizational innovative climate .45**
innovation performance, is supported. Strategic relationships with .09
supply chain partners
Hierarchical Moderated Regression Analysis SC partner innovativeness 9 .04
(tests for H2, H3 & H4) innovative climate
In testing the hypotheses, we ran three different sets SC partner innovativeness 9 .21**
of multiple regression models. We consider organiza- strategic relationships
tional size as a control variable for all regression mod- SC partner innovativeness 9 .14*
els tested in this study. The first regression model innovative climate 9 strategic
aims to confirm the results of the SEM analysis pre- relationships
sented previously. These results are presented in R2 .10 .34
Table 4. Supply chain partner innovativeness shows a
positive effect on product innovation strategy (b = .23 *p < .05, **p < .01.
at p < .01).
The second regression model tests the moderation
hypotheses included in this study (H2, H3, and H4). cutoff of 10, confirming that multicollinearity is not a
In this regard, we calculated three interaction variables problem in our results.
that comprise two two-way interactions (i.e., between The results of the moderated regression analysis are
innovative climate and supply chain partner innova- presented in Table 4. The interaction between supply
tiveness and between supply chain partner innovative- chain partner innovativeness and innovative climate
ness and strategic relationship) and one three-way has no effect on product innovation strategy
interaction (i.e., between innovation climate, strategic (b = .04 at p > .05); thus, H2 is not supported. On
relationship, and supply chain partner innovative- the other hand, the interaction between supply chain
ness). Prior to this process, all variables involved were partner innovativeness and strategic relationship has a
standardized to minimize potential multicollinearity positive effect on product innovation strategy (b = .21
between the independent variables and their product at p < .01); thus, H3 is supported. Finally, the three-
terms (Tabachnick & Fidell, 2007). We also checked way interaction between supply chain partner innova-
for multicollinearity by examining variance inflation tiveness, innovative climate, and strategic relationship
factors (VIFs) for all the variables. All VIF values were has a positive effect on product innovation strategy
lower than 2, thus well below the recommended (b = .14 at p < .05); therefore, H4 is supported.

52 Volume 49, Number 4


Supply Chain Partner Innovativeness
DISCUSSION AND CONCLUSION
The precepts of resource dependence theory, the
KBV, and social capital theory were used to argue for
the links between supply chain partner innovative-
ness, the implementation of product innovation strat-
egy, and product innovation performance of a firm.
This is consistent with the work of Tan and Tracey
(2007) who found that involving customers and
suppliers in collaborative NPD projects had a positive
influence on performance. We find support for the
notion in this study that supply chain partner inno-
vativeness positively relates to product innovation
performance through product innovation strategy.
Firms depend on their supply chain partners for
innovative input. The dependency on supply chain
partners’ innovativeness triggers firms to implement
product innovation strategies of their own in order
to reduce the dependency. Further, a firm’s exposure
to and dependency on innovative partners enable the
firm to develop routines and garner relevant knowl-
edge that can be exploited and intertwined with
internal knowledge to implement its own product
innovation strategies including using new compo-
nents, materials, and new technologies in product
development.
While the theoretical arguments justify the key rela-
tionship that ties supply chain partner innovativeness
to the focal firm’s innovation strategy, we extend this
idea by addressing the “how” of this phenomenon.
For example, we argue that an appropriately designed
internal climate for innovation will further strengthen
the innovation chain that links supply chain partner
innovativeness to the innovation strategy of the focal
firm. Next, building strategic relationships with supply
chain partners to tap into the innovative base of these
supply chain partners sets the right external climate.
This is so because the foundation of knowledge shar-
ing across network partners cannot take place without
a climate of cooperation and trust across the entire
innovation chain (Wagner & Buk
o, 2005).
Taken together, our study is perhaps the first to
complement the innovation chain with the notion of
a climate chain. In other words, the internal climate
for innovation should align and blend well with
efforts made externally with key suppliers for tapping
into ideas for new innovations. However, these claims
were modified when our results found no support for
the moderating influence of internal innovation cli-
mate but found full support for the moderating influ-
ence of building strategic relationships with supply
chain partners. An explanation for the insignificant
finding is that at the margin, an appropriately
designed internal innovation climate is a “given” and
therefore does not further explain the positive influ-
ence of supply chain partner innovativeness on focal
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firm’s innovation strategy. In contrast, building trust
and relationships with external constituents serves as
a catalyst for tapping the innovative potential of sup-
ply chain partners. Strategic relationships enable focal
firms and their partners to become more conversant
with each other’s organizational processes and pat-
terns of behaviors, and more willing to share ideas
and innovative practices. This enhances the positive
influence of supply chain partners’ innovativeness on
a focal firm’s innovation strategy.
It is interesting to note that the joint investment in
internal innovation climate and building relationships
with supply chain partners moderates the relationship
between supply chain partner innovativeness and
product innovation strategy. In other words, the influ-
ence of innovative climate on supply chain partner
innovativeness will be more effective when there is a
strategic relationship between the focal firm and its
innovative supply chain partner. As we have noted
above, building strategic relationships appears to be a
key ingredient in enhancing a firm’s innovative capa-
bility from supply chain partner innovativeness. It is
conceivable that for many product and process tech-
nologies, the locus of innovation, at the margin, lies
with the external supply chain partners, which means
that building strategic relationships with partners is
more important than having an internal innovative
climate. Although an investment in internal innova-
tive climate by itself does not strengthen the innova-
tion chain, we find that such an investment is equally
not detrimental. In other words, both investments in
internal innovation climate and strategic relationships
with partners (external climate) are needed to
strengthen the innovation chain.
This study contributes to knowledge by extending
the notion of supply chains and value chains to
specifically understand what happens in innovation
chains. In particular, what mechanisms substantially
enhance supply chain partners’ efforts on the focal
firm’s efforts to innovate? Our results point to the
powerful combinatorial influence of two factors—one
internal and another external—that further strengthen
the innovation chain. Internal innovative climate fac-
tors specifically motivate firms to encourage “out of
the box” and lateral thinking, and promote employees
to engage in high-risk innovative ideas. For example,
firms such as Google, 3M, and AT&T have a long-
standing tradition of creating workplaces that foster
creativity. At the firm level, the use of appropriate
metrics motivates such behavior. For example, firms
such as Motorola and 3M specifically track innova-
tions (and sales from those innovations) from prod-
ucts that did not exist five years ago. This creates
a rejuvenating cycle of innovation that constantly
challenges existing models, modes, and processes.
53

Journal of Supply Chain Management
However, while these may be effective in generating
innovations from internal constituents, these efforts
must be combined with external efforts such as build-
ing strategic relationships with supply chain partners
in order for a firm to effectively tap supply chain part-
ner innovativeness.
Product innovation strategy shows a positive effect
on product innovation performance. This result is
consistent with the study of Azadegan and Dooley
(2010). The use of new technologies and components
in product development (product innovation strategy)
may offer various options and possibilities of develop-
ing novel products and increasing the number of new
products developed. For example, new technologies
can enable platform products to be built which then
offer the possibility of building derivative products
based on the platform product, thus increasing the
number of new products. Finally, it is important to
note that supply chain partner innovativeness had a
direct positive effect on product innovation per-
formance (see Figure 2). This suggests that product
innovation strategy represents only one mechanism
through which supply chain innovativeness affects
innovation performance in firms. The identification of
a mediating variable (product innovation strategy)
that links supply chain partner innovativeness to
innovation performance is a contribution to the litera-
ture that has largely focused on the direct link
between external sources of innovation and perfor-
mance. For example, supplier innovativeness and
performance (Azadegan, 2011; Azadegan & Dooley,
2010); outsourcing and operational innovation perfor-
mance (Oke & Kach, 2012), and customer innovative-
ness and performance (Kodama, 2002; Lau et al.,
2010). Indeed, our finding suggests that in addition
to innovation strategy, supply chain partner innova-
tiveness could lead to other factors including
increased organizational learning, absorptive capacity,
joint product development efforts, innovative process
implementation, and the like, which in turn could
lead to improved product innovation performance.
In terms of managerial implications, managers must
recognize the importance of supply chain partner
innovativeness as a key ingredient in fostering innova-
tive capability and strategy. Specifically, our study
shows that it is not sufficient to assume that a focal
firm will enjoy improved innovation performance if
its partners are innovative. What matters are the
actions that the focal firm takes as a result of being
involved with innovative partners. We show that part-
ners’ innovativeness are likely to trigger the focal firm
to implement innovation strategies (e.g., to develop
or use new components in product development)
which will in turn lead to improved innovation
performance (novel products). Thus, managers must
recognize the potential added benefits of supply chain
54 Volume 49, Number 4
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partner innovativeness and must put mechanisms in
place to implement specific product innovation strate-
gies (e.g., the use of new components, materials, and
technologies in product development) to exploit part-
ners’ innovative capabilities. Another important impli-
cation of our study is that while it is important to
build a culture and a climate that supports innova-
tion internally, managers must invest in strategic
relationships with supply chain partners because such
investments help firms to better tap partners’ innova-
tiveness. These relationships, combined with internal
innovation climate, help to effectively tap and utilize
partners’ innovative knowledge. Thus, organizational
processes and structures that facilitate the develop-
ment of such relationships are encouraged.
LIMITATIONS AND FUTURE RESEARCH
We offer several suggestions to expand upon this
study. First, it could be argued that our innovativeness
measure (supply chain partner’s innovativeness) which
captures the entirety of the relationships, a firm pos-
sesses with its supply chain partners, is a limitation of
the study. We specifically asked the respondents to
focus on the firm’s most valuable supply chain partner
(i.e., the buyer or supplier with whom the firm con-
ducts maximum business in dollar terms). In line with
Frohlich and Westbrook (2001), our intention was to
increase variance and widen the scope of these rela-
tionships, unlike previous studies that focus specifically
on either supplier innovativeness or customer innova-
tiveness. Indeed, we were not interested in the specific
source of innovation but whether an external source of
innovation triggers innovation activities within the
firm that lead to innovation performance in the firms.
Nevertheless, future studies can separate these supply
chain partners between upstream (suppliers) and
downstream (customers) to gain deeper insights.
Second, our findings are admittedly limited as the
information is exclusively based on the focal firms’
(manufacturers’) perspectives, and we relied on single
respondents in each manufacturing firm. Future stud-
ies might expand this study (albeit in a methodologi-
cally challenging fashion) using triadic data which
includes a supplier, the focal firm, and a customer.
Third, future studies can also improve the quality of
the data by incorporating secondary data rather than
perceptual data. Data on other control variables such
as the level of R&D expenditure and industry sector
should be collected in future studies to investigate the
effect of these constructs on the variables examined
in this study. Also, new contextual variables like
the stage in the product life cycle, research and
development expenditure, and country of origin (of
supply chain partners) effects on the innovation chain
relationships can be examined.

Supply Chain Partner Innovativeness
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Adegoke Oke (Ph.D., Cranfield University) is an
associate professor of supply chain management in
the Department of Supply Chain Management at the
W. P. Carey School of Business, Arizona State Univer-
sity in Tempe, Arizona. His current research interests
include innovation management in horizontal net-
works, supply chains and supply networks, the relative
effectiveness of different open innovation strategies,
and risk management strategies in supply chains. Dr.
Oke’s work has been published in the Journal of Orga-
nizational Behavior and the Supply Chain Management
Review, among other outlets, and he received the 2007
58 Volume 49, Number 4
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Best Reviewer Award from the Journal of Operations
Management.
Daniel I. Prajogo (Ph.D., Monash University) is an
associate professor in the Department of Management
at Monash University in Victoria, Australia. His
research focuses primarily on operations and supply
chain management, quality management and innova-
tion management. Currently, Dr. Prajogo’s work
examines inter-firm collaborative innovations within
supply chain networks. He also is building research
collaborations with industry partners in Australia.
Among the publications in which his articles have
appeared are the International Journal of Operations &
Production Management, the International Journal of Pro-
duction Research, the International Journal of Production
Economics, Supply Chain Management: International
Journal, the European Journal of Operational Research,
Technovation, R&D Management, the Journal of Small
Business Management, and the Journal of Cleaner Pro-
duction.
Jayanth Jayaram (Ph.D. Michigan State University)
is a professor of management science, and a Moore
Research Fellow, in the Department of Management
Science of the Moore School of Business at the
University of South Carolina in Columbia, South
Carolina. His research interests are in the areas of
sustainability, supply chain integration, new product
development, performance measurement and strategic
purchasing. Currently, he is working on projects
related to sustainability. Dr. Jayaram currently is serv-
ing, or has served, as an Associate Editor for the Jour-
nal of Operations Management, Decision Sciences, the
Journal of Supply Chain Management, and the Journal of
Business Logistics. He also serves as an editorial board
member for IEEE Transactions on Engineering Manage-
ment and the Journal of Integrated Supply Management.