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TAPPING SUPPLIER INNOVATION

STEPHAN M. WAGNERSwiss Federal Institute of Technology Zurich

Tapping supplier innovation necessitates the effective management of thefuzzy front end of the new product development (NPD) process. Thisstudy considers the role of suppliers in the fuzzy front end and the influ-ence of supplier integration on the focal firms NPD outcomes. Project-level data with multiple informants indicate a strong positive relationshipbetween supplier integration in the fuzzy front end and NPD projectperformance. Furthermore, relationship-specific assets and supplierintegration in the firms NPD process moderate this relationship.

Keywords: new product development; supplier integration; fuzzy front end; buyer

supplier relationship; survey; regression analysis; innovation

INTRODUCTIONInnovativeness and the successful initiation and

implementation of new product development (NPD)

activities heavily influence the competitiveness of

firms in todays marketplace. Ever shorter time-to-

market demands and the vast technological know-

ledge required to develop new products causes firms

to rely increasingly on cooperative efforts with suppli-

ers during NPD (Koufteros, Rawski and Rupak 2010;

Wagner 2010; Azadegan 2011; Hong, Doll, Revillaand Nahm 2011; Thomas, Fugate and Koukova

2011).

Firms can tap suppliers innovation and product

development capabilities at different stages of the

NPD process. The NPD literature generally separates

the NPD process into two phases. First, in the FFE

(fuzzy front end) phase of NPD the firm conducts

early predevelopment work ranging from idea genera-

tion to project evaluation. This phase is characterized

by nonroutine and ill-defined processes, ad hoc deci-

sions, and high levels of dynamism, uncertainty and

equivocality (Zhang and Doll 2001; Kim and Wilem-

on 2002; Frishammar, Floren and Wincent 2011). Sec-

ond and subsequently, in the more formal and better

structured NPD phase of NPD the development work

is carried out with project management methods and

implemented through completion and implementa-

tion (Brown and Eisenhardt 1995; Tatikonda and

Rosenthal 2000; Cooper 2001).

Many scholars argue that an effective management

of the FFE phase determines the success of NPD pro-

jects (e.g., Langerak, Hultink and Robben 2004; Grif-

fiths-Hemans and Grover 2006). For example, Hauser,

Tellis and Griffin (2006) observe that there is no

doubt that the fuzzy front end of a PD process has a

big effect on a products ultimate success. Yet prior

research mainly focuses on NPD collaboration withsuppliers in the NPD phase (e.g., Koufteros,

Vonderembse and Jayaram 2005; Parker, Zsidisin and

Ragatz 2008; Hong and Hartley 2011) but neglects

the role of suppliers in the FFE phase. There is a grow-

ing body of knowledge on the process of idea genera-

tion (ideation) within the FFE phase, the tools and

methods that firms can apply to defuzzy the FFE

(e.g., through creative templates), the management of

creativity and incentives, or the role, composition and

management of cross-functional teams in the FFE

phase (e.g., Goldenberg, Mazursky and Solomon

1999; Toubia 2006; Raunier, Doll, Rawski and Hong

2008), as well as the influence of customers in this

phase (e.g., Qingyu and Doll 2001; Alam 2006; Haus-

er et al. 2006). In contrast, the literature has largely

neglected the role of suppliers in the FFE phase.

This study seeks to answer two broad questions.

First, does supplier integration in FFE have positive

effects on NPD outcomes? Second, if so, which factors

that firms can influence do either facilitate or impede

the positive impact of FFE integration of suppliers on

NPD outcomes? As such, this study contributes to the

literature by closing a gap in the research that will

help supply chain managers to better understand if

Acknowledgments: The author thanks Christian Rink for his

efforts in data collection. He acknowledges the helpful com-

ments of participants at the 2009 Academy of Management

Annual Meeting, Chicago. He also would like to thank the Co-

Editor-in-Chief and the anonymous associate editor and three

reviewers for their significant contributions to the improvement

of this article.

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and how they should work with suppliers in the FFE

phase to better take advantage of suppliers knowledge

and capabilities in NPD.

The remainder of this article proceeds as follows:

The next section provides a concise review of the liter-

ature on supplier integration in NPD and the FFE

phase. Afterward, we develop a set of direct andmoderating hypotheses. We then describe the ques-

tionnaire development and data collection procedure

and introduce the measures used in the survey. Next,

the results are presented and discussed. Finally, we

conclude by describing the limitations of the study

and an outlook for future research.

LITERATURE REVIEW

Supplier Integration in New ProductDevelopment

Supplier integration (also called supplier involve-ment) in NPD is the collaboration of a focal firm with

a supplier in the NPD process. Such collaborations

between buyers and suppliers in the NPD process are

characterized by a long-term and partnership-like

relationship between the firms, high levels of trust

and commitment and openness of communication (e.

g., Monczka, Handfield, Scannell, Ragatz and Frayer

2000; Koufteros et al. 2005; Van Echtelt, Wynstra and

van Weele 2007).

Supplier integration in NPD processes does not

necessarily improve NPD outcomes per se. Empirical

studies reveal both positive and negative associations

between supplier integration and various dimensions

of NPD performance.

Studies with Positive Effects. Some scholars argue

that involving suppliers in NPD leads to shorter devel-

opment times, lower development costs, or better

product quality (e.g., Clark 1989; Ragatz, Handfield

and Scannell 1997; Petersen, Handfield and Ragatz

2005). In a study of supplier integration in NPD,

prior authors find a higher degree of involvement

among Asian car manufacturers than by European

and U.S. firms, which resulted in shorter development

times (Clark 1989; Clark and Fujimoto 1989). Gupta

and Souder (1998) compare NPD projects with lowand high supplier integration and produce similar

results. Positive relationships also emerge regarding

the integration of suppliers in NPD and the manufac-

turability of the product and product quality (Primo

and Amundson 2002; Petersen et al. 2005), as well as

for early supplier involvement and innovation capa-

bilities of buying firms (Koufteros, Cheng and Lai

2007). Hong and Hartley (2011) recently showed that

some approaches that buyers use to manage the rela-

tionship with interdependent suppliers (e.g., interac-

tive teams, modular designs) are positively related to

product development outcomes.

Studies with No or Negative Effects. Despite the

expected positive effects of integrating suppliers,

empirical studies also reveal no or even negative

effects of supplier integration in NPD on development

costs, development time or product performance (e.g.,

Eisenhardt and Tabrizi 1995; Littler, Leverick and Wil-

son 1998; Kessler, Bierly and Gopalakrishnan 2000;von Corswant and Tunalv 2002).

In Hong and Hartleys (2011) study, the practice of

establishing a suppliersupplier connection (i.e.,

encouraging suppliers to communicate, coordinate

and mutually adjust) did not have any effect on prod-

uct development efficiency.

Hartley, Meredith, McCutcheon and Kamath (1997)

find that involved suppliers had minimal influence on

the success of NPD projects. Littler et al. (1998) indi-

cate that collaborative NPD projects increase costs and

development time and reduce the chances of achieving

a sustainable competitive advantage. Koufteros et al.(2005) also found negative effects of supplier integra-

tion and conclude that assigning more product devel-

oping responsibilities to suppliers may be having a

negative effect on the ability of the organization to offer

new products and features. It may lead to deterioration

in product innovation capabilities. Although NPD

with supplier involvement can result in a successful

NPD project, these processes often require more

resources and time (von Corswant and Tunalv 2002).

Kessler et al. (2000) suggest two reasons for these

negative associations. First, the focal firm needs time

to understand the technological knowledge of the

supplier. Second, employees of the focal firm might

reject the suppliers technological knowledge (i.e., the

not-invented-here-syndrome). Furthermore, Kessler

et al. (2000) argue that the competitive advantage is

not sustainable, because competitors also can access

the suppliers knowledge.

Synthesis. Mixed results emerge when the poten-

tial benefits of supplier integration in NPD on a stra-

tegic level do not materialize in the NPD project

(Ragatz et al. 1997; von Corswant and Tunalv 2002;

Hoegl and Wagner 2005; Koufteros et al. 2005). The

effort to identify critical success factors therefore

demands a conceptualization and analysis of supplierintegration at the project level; these critical success

factors may include the systematic management of

integration activities (Brown and Eisenhardt 1995; Lit-

tler et al. 1998; Hoegl and Wagner 2005), relational

factors such as trust and commitment (Ragatz et al.

1997; Walter 2003), the composition of the project

team (Wagner and Hoegl 2006) or the quality of the

collaboration between the buyer and supplier team

members (Hoegl and Wagner 2005).

The suppliers role in the FFE of the innovation

process also may explain some mixed results. Despite

common claims that suppliers should become

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involved as early as possible (Kessler et al. 2000;

Monczka et al. 2000; Petersen et al. 2005; Koufteros

et al. 2007), the questions of whether firms should

involve suppliers in the FFE and how such involve-

ment influences NPD project success remain

unanswered.

The Fuzzy Front End of the Innovation ProcessThe FFE phase of the NPD process encompasses the

period of time between the emergence of an initial

idea and the initiation of product development (Koen,

Ajamian, Burkart, Clamen, Davidson, DAmore, Elk-

ins, Herald, Incorvia, Johnson, Karol, Seibert, Slavej-

kov and Wagner 2001; Reid and De Brentani 2004;

Hauser et al. 2006). Due to the high dynamic, uncer-

tainty and equivocality that exist in this phase, the

tasks and decisions in the FFE phase are often ill-

defined, nonroutine and ad hoc, and therefore require

creativity and flexibility to cope with the inherentuncertainties (Moenart, De Meyer, Souder and

Deschoolmeester 1995; Khurana and Rosenthal 1998;

Kim and Wilemon 2002).

Cooper (2001, p. 84) states that more pre-develop-

ment work the homeworkmust be done before

product development gets under way. He also argues

that firms must decide early whether to terminate

deteriorating NPD projects, because when the project

enters the NPD phase, halting its progression is unli-

kely (Boudling, Morgan and Staelin 1997). By select-

ing the most promising ideas, firms can maximize the

probability of new product success (Koen et al. 2001).

The effective management of the FFE largely deter-

mines project and product success (Langerak et al.

2004; Griffiths-Hemans and Grover 2006). Therefore,

the decisions and approaches in the FFE phase are

critical for the success of NPD projects and have the

highest leverage (Hauser et al. 2006, p. 702) with

respect to the outcome of the NPD project.

As suppliers play increasingly important roles in

customers NPD efforts (e.g., Brown and Eisenhardt

1995; Ettlie and Pavlou 2006; Thomas et al. 2011),

expanding the hitherto limited knowledge on the role

and integration of suppliers in the FFE will be benefi-

cial for the outcome of the customers NPD projects.Only if firms also correctly do the homework (Coo-

per 2001, p. 84) in collaboration with the supplier in

the FFE phase, can they expect a positive relationship

between the predevelopment work in the FFE phase

and the outcome of the NPD project. However,

because the phases differ substantially, the body of

knowledge about the integration of suppliers in the

NPD phase that features a firm structure with a high

degree of formality (Hartley et al. 1997; Monczka

et al. 2000; Hoegl and Wagner 2005; Koufteros et al.

2005) does not transfer easily to the integration of

suppliers in the FFE phase.

Therefore, we subsequently develop and test a

research model and hypotheses that relate the integra-

tion of suppliers in the FFE to NPD outcomes and show

the impact of three contingency/moderating factors.

THEORY AND HYPOTHESESOur hypotheses draw primarily on organizational

learning theory, the literature on absorptive capacity

and transaction cost economics that is, manage-

ment theories that Hitt (2011) recently recommended

to use more intensively in supply chain management

research to predict the influence of supplier inte-

gration in the FFE phase of the NPD process under

certain contingencies, as summarized in the research

model (Figure 1).

Influence of Integrating Suppliers in the Fuzzy

Front EndThe resource-based and knowledge-based views of

the firm suggest that knowledge sharing in innovation

processes can generate new knowledge and sustained

competitive advantage (Kogut and Zander 1992;

Nonaka and Takeuchi 1995; Conner and Prahalad

1996). Firms can restrict the scope of their innovation

processes and the knowledge-sharing to internal actors

and develop knowledge on their own, or companies

can draw on external knowledge sources and extend

the innovation process beyond their own boundaries

(Chen and Lin 2004). Knowledge-generating processes

regularly and increasingly extend beyond firm bound-

aries and involve external partners (Sakakibrara 2001;

Thomas et al. 2011). As Cohen and Levinthal (1990,

p. 128) suggest, [t]he ability to exploit external

knowledge is thus a critical component of innovative

capabilities. Suppliers are potential external partners,

and the focal firm can capture their knowledge

through technology-sourcing routines (Nicholls-Nixon

and Woo 2003). Therefore, this study conceptualizes

the NPD process of the focal firm as a process of orga-

nizational learning in which knowledge is shared

between the supplier and the focal firm throughout

the FFE phase (Tatikonda and Stock 2003; Azadegan,

Dooley, Carter and Carter 2008).Research on interorganizational relationships indi-

cates that the process of interorganizational learning

produces results that would be impossible without

knowledge transfer (Dyer and Singh 1998; Dyer and

Hatch 2006). Although prior research often involves

buyersupplier relationships in general, these studies

also apply to knowledge transfer in the FFE phase of

the innovation process, during which partners define

the product concept and thus much of the product

costs (Droz 1992).

The supplier can contribute by providing knowledge

about the costs, technology and manufacturability

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of the product (Khurana and Rosenthal 1997) or

share knowledge about customers, competitors and

suppliers (Hong et al. 2011). If buying firms invite

collaboration in the FFE, the firms can exploit that

knowledge early and reduce time-consuming product

changes in the development phase (Kim and Wilemon

2002). Furthermore, early integration increases the

likelihood of innovative, jointly developed products,

because suppliers can contribute technologies that are

not available to the focal firm (von Hippel 1988).

The transfer of technical knowledge is a time-

consuming process (Kessler et al. 2000). By collabo-

rating in an early phase, the project team can build a

stronger and more collaborative relationship, and the

partners become familiar with the other partys

strengths and capabilities. Strong relationships and

aligned capabilities foster teamwork and have a posi-

tive effect on NPD project performance (Kim and

Wilemon 2002). Summarizing this discussion leads to

the following hypothesis:

H1: The higher the level of supplier integration inFFE, the higher NPD project performance.

Moderating EffectsA set of moderating hypotheses are next introduced,

with the objective of investigating the factors that

reinforce or hinder the positive influence of supplier

integration in the FFE phase on NPD project perfor-

mance. These hypotheses also suggest some important

recommendations for corporate practice.

Supplier-Specific Absorptive Capacity. The absorp-

tive capacity of a firm was initially conceptualized as a

firm-level construct that captures the ability to recog-

nize the value of new information, assimilate it, and

apply it to commercial ends (Cohen and Levinthal

1990, p. 128). The literature on absorptive capacity

shows that absorptive capacity is determined by a

number of managerial antecedents, intraorganization-

al antecedents and interorganizational antecedents, as

well as prior related knowledge (Volberda, Foss and

Lyles 2010).

While most empirical studies focus primarily on

prior related knowledge and ignore the other

dimensions of these multilevel antecedents (Vol-

berda et al. 2010), interorganizational issues are

most relevant for the present study of supplier inte-

gration in the FFE phase. Lane and Lubatkin (1998)

argue that absorptive capacity is a function of the

characteristics of both partners and depends, for

example, on the homophily of the partners, which

requires a dyadic conceptualization. Others propose

that absorptive capacity is partner specific (Dyer and

Singh 1998). If absorptive capacity is a dyadic, part-

ner-specific construct, the partner that receives the

knowledge must be able to assimilate and apply

that knowledge to its products during the NPD

process.

Absorptive capacity leads to better innovation and

financial outcomes (Volberda et al. 2010), such asalliance performance (Mowery, Oxley and Silverman

1996; Lane, Salk and Lyles 2001), the speed of inno-

vation, the rate of innovation and the level of innova-

tion (Tsai 2001). Innovation results from knowledge

sharing and learning processes (Kogut and Zander

1992), and absorptive capacity relates positively to the

innovation capabilities of a firm, as well as the ability

to assimilate external knowledge from the partner to

achieve successful NPD projects (Nicholls-Nixon and

Woo 2003; Azadegan et al. 2008). Without a suffi-

cient level of supplier-specific absorptive capacity, the

focal firm cannot exploit external knowledge or apply

Integration in

FFE

NPD project

performance

Absorptive

capacity

Specific

assets

Integration in

NPD

H1 +

H2 + H3 H4

Controlling for:

Technological turbulence

Firm size Relationship duration

Number of projects

FIGURE 1Research Model

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it to NPD processes to develop new products. There-

fore, we hypothesize:

H2: Supplier-specific absorptive capacity moderatesthe relationship between supplier integration inFFE and NPD project performance in such a fash-

ion that the positive effect of integration in FFEis stronger at higher levels of supplier-specificabsorptive capacity.

Relationship-Specific Assets. According to propo-

nents of transaction cost theory, relationship-specific

assets are associated with dependence and induce

additional costs because of potential opportunism

and bounded rationality (Williamson 1985; Noote-

boom 1993). If a firm possesses dedicated equipment

or machines that can only be used to handle or

convert materials or components obtained from a spe-

cific supplier, it cannot use these assets for handling

or converting material or components from othersuppliers. In this case, the buyer is dependent on the

supplier (Nooteboom 1993). For example, customers

of the Swedish firm Tetra Pak which is a supplier

of equipment and materials for the packaging of liq-

uids have to obtain filling equipment that can only

be fed with packaging material obtained from Tetra

Pak (Govindarajan and Gupta 2001).

The higher the specific investment, the more protec-

tion the firm needs. That is, a safeguard needs to be

put in place that helps protect the investment from

the partners opportunistic behavior (Heide and

Stump 1995; Williamson 2008). In a buyersupplier

relationship, the firms can choose from a number ofex ante and ex post safeguards to protect their sup-

plier-specific assets (e.g., partner verification, formal

contracts, pledges, joint decision making, joint

actions, joint planning, information sharing, quasi

integration or monitoring) (e.g., Heide and John

1990; Jap and Ganesan 2000; Subramani and Venkatr-

aman 2003).

The implementation of most of these safeguards will

create transaction costs (Williamson 1985; Stump and

Heide 1996; Caniels and Gelderman 2010). For exam-

ple, when establishing a contract between a buyer and

supplier to safeguard a buyers specific investment,both parties must share the negotiation costs; when

the contract exists, both parties exert effort to monitor

adherence to the contract (Williamson 1985). More

specific investments increase the costs of negotiating

the contract, especially for collaborations with suppli-

ers in the FFE, when critical knowledge transfers

demand protection to prevent leakage to competitors

and thus a loss of competitive advantage. As contracts

induce negotiation and monitoring costs, contracts (as

an exemplar for safeguards) also reduce the benefits

gained from early integration of suppliers in the FFE.

In line with transaction cost theory we hypothesize:

H3: Relationship-specific assets moderate the relation-ship between supplier integration in FFE andNPD project performance in such a fashion thatthe positive effect of integration in FFE is weakerat higher levels of relationship-specific assets.

Integration in NPD.While in the NPD processthe FFE phase is distinct from the NPD phase (Tatik-

onda and Rosenthal 2000; Cooper 2001), these

phases will not be independent of each other. These

subsequent phases can either follow a traditional

stage-gate approach where the NPD team assesses

the outcome of the preceding and initiates the

advancement of the subsequent stage (Brown and

Eisenhardt 1995), or follow a spiral approach where

the NPD team rotates quickly through the stages from

idea generation to product testing (Cooper 2008). The

first emphasizes robustness, the latter speed and quick

feedback.

Disregarding whether the NPD process follows atraditional stage-gate or a spiral approach between the

subsequent phases, these phases are intertwined.

Therefore, we also expect an interaction between sup-

plier integration in these two phases. When a firm

integrates suppliers in the NPD phase, it can still ben-

efit from the supplier firms ideas, knowledge and

capabilities that the supplier might have provided ear-

lier if it would have been integrated in the FFE. That

is, the strong lever of FFE integration is reduced, and

the efforts and investments needed for supplier inte-

gration in FFE are not, or are less, effective. Therefore,

we hypothesize:H4: Supplier integration in NPD moderates the

relationship between supplier integration in FFEand NPD project performance in such a fashionthat the positive effect of integration in FFE isweaker at higher levels of supplier integration inNPD.

METHODOLOGY

Data Collection and SampleThe test of the hypotheses pertains to the contribu-

tion of suppliers to NPD projects of buying firms. Wehave purposefully contacted 16 firms for our study. By

selecting these firms we aimed for engineering-

oriented manufacturing industries where innovation

and R&D are important, and firms that vary in size

and types of products offered. With the selected 16

firms we felt that we had enough variance to achieve

a reasonable degree of generalizability. The firms

came from the following industries: nine automotive,

four machine tools, two household appliances and

one electronics. The firms range in size from

U.S.$182 million to U.S.$33 billion in annual sales,

with an average of U.S.$7 billion. The number of

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employees varies from 435 to 59,000, with an average

of approximately 20,000.

The buying firms provided a list of supplier integra-

tion projects completed within the previous

18 months. In addition to basic information about

the supplier and the project, the list included contact

information for the project leader, a project-externalmanager (e.g., vice president of R&D), members of

the purchasing department and supplier members. To

increase the validity and reliability of the results and

minimize common source bias, data about the same

constructs came from multiple respondents (Kumar,

Stern and Anderson 1993; Wagner, Rau and Linde-

mann 2010) on both sides of the buyersupplier dyad

(Anderson, Hakansson and Johanson 1994; Hoegl

and Wagner 2005). The measure of the intensity of

integration in FFE used data from both buyer and

supplier members, and the NPD project performance

measure included data from buyer members and pro-ject leaders; however, the measures of the moderating

factors included buyer member data only, because

only buyers could offer valid information about their

specific investments in the supplier, for example. Data

from external managers helped validate the data that

the project leaders provided.

In total, this study includes data pertaining to 67

supplier integration projects in the 16 firms. The 166

questionnaires received came from 67 buyer members,

54 project leaders, 31 project-external managers and

14 supplier members.

Questionnaire and MeasuresThe data collection relied on a standardized ques-

tionnaire with seven-point Likert scales. To ensure face

validity, a two-step pretest was employed. First, five

academics from the relationship marketing, innova-

tion management and supply chain management

fields provided feedback on the measures. Second, 12

industry experts offered their impressions. The final

questionnaire contained the refinements suggested by

the interviewees. The reflective measures for the con-

structs included in the model mainly appeared in

prior studies and are listed in Appendix A.

Control VariablesThe model contains several important control vari-

ables. First, technological turbulence, that is, the extent

to which a firm perceives that technology in its indus-

try is in a state of flux (Jaworski and Kohli 1993), is

an environmental characteristic that might influence

product life-cycles, the need to search for new/disrup-

tive technologies or the depreciation of relevant

know-how, and therefore, influence organizational

learning and the value of innovation obtained from

suppliers in the FFE (March 1991). The three-item

operationalization was taken from Jaworski and Kohli

(1993). Second, as larger firms have more resources

than small firms (Boyer, Ward and Leong 1996) and

the size of the firm might influence supplier integra-

tion (Koufteros et al. 2007), firm size, operationalized

as the log transformation of the firms number of

employees, was used as a control. Third, we aimed to

investigate the influence of our focal constructs inde-pendent from the history of the buyersupplier

relationship. Therefore, relationship duration the

number of years the supplier had been doing business

with the buying firm was included as a control var-

iable. Fourth, prior experience in working together in

product development will influence the level and

speed of learning; therefore, we controlled for the

number of projects that the buyer and supplier have

conducted in the past.

DATA ANALYSIS AND RESULTS

Reliability, Validity, Interrater Agreement andDescriptive Statistics

Partial least squares (PLS) structural equation mod-

eling (Chin and Newsted 1999; Vinzi, Chin, Henseler

and Wang 2010) and reliability analysis in SPSS was

used to assess the dimensionality, reliability and valid-

ity of the reflective scales. Appendix A shows the mea-

surement analysis results, including loadings, t-values,

average variances extracted, Cronbachs (1951) coeffi-

cient a and Fornell and Larckers (1981) composite

reliability coefficient.

Item reliability and convergent validity are high for

all five reflective constructs (Hair, Black, Babin and

Anderson 2010). The loadings are all significant and

>0.70, ranging from 0.70 to 0.94. The values for average

variance extracted from each construct (ranging from

0.57 to 0.70) exceed the 0.50 threshold level. Reliability

coefficients are all larger than 0.70, with Cronbach a

coefficients ranging from 0.75 to 0.86, and composite

reliability coefficient ranging from 0.84 to 0.90.

Furthermore, the square root of the average variance

extracted (see diagonal of Table 1) is higher than all

latent variable correlations, supporting the discrimi-

nant validity of the scales (Fornell and Larcker 1981).

Due to the centrality of the construct Integration inFFE, we further validated the construct and aimed to

provide a valid alternative measurement in the form

of a formative construct (Diamantopoulos and Wink-

lhofer 2001; Diamantopoulos, Riefler and Roth

2008). In addition to the reflective measurement of

the construct (see Appendix A), the questionnaire also

tapped the degree to which the supplier participated

in the various activities in the FFE (such as idea gener-

ation, idea evaluation, product definition, etc.) (see

Appendix B). The buyer and supplier members rated

how intensively the supplier was integrated into these

activities.

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Because formative measures do not feature the same

assumptions as reflective measures (e.g., highly corre-

lated indicators; Rossiter 2002), different standard pro-

cedures serve to assess the validity and reliability of the

formative scale (Hulland 1999; Diamantopoulos and

Winklhofer 2001). The content validity assessment

relied on the item-sort task (Anderson and Gerbing

1991). As Appendix B shows, both the psa and csv indi-

ces were well above 0.7, in support of high content

validity. The variance inflation factor (VIF) and condi-

tion index (CI) values reveal that multicollinearity is

not a serious problem: The VIF is

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effect (Jaccard and Turrisi 2003, pp. 1112; Zedeck

1971). The latter is the case since model 4 explains

12.4 percent additional variance in NPD project per-

formance (significant at p < 0.05).

The hypothesized moderating effect was not signifi-

cant for absorptive capacity (0.034; p = 0.80). There-

fore, H2 is not supported. In contrast, the hypothesized

moderating effects were significant for specific assets(0.317; p < 0.05) and integration in NPD (0.328;

p < 0.05). Plotting the interactions is necessary for

interpreting the significant interaction effects.

The visual plot for the moderator specific assets

(Figure 2) shows a disordinal interaction where the

main effect (integration in FFE ? NPD project perfor-

mance) is positive; however, with an increasing level

of specific assets, the slope becomes smaller. That is,

high levels of specific assets switch off the positive

main effect. That is, the positive effect of integration in

FFE on NPD project performance is weaker at higher

levels of specific assets. Therefore, H3 is supported.

Likewise, the visual plot for the moderator integra-

tion in NPD (Figure 3) shows a disordinal interac-

tion where the main effect (integration in FFE ?

NPD project performance) is positive; however, with

an increasing level of integration in NPD, the slope

TABLE 2

Regression Analysis

Independent Variables Model 1 Model 2 Model 3 Model 4

b t-

Value

b t-

Value

b t-

Value

b t-

Value

ControlsTechnological

turbulence0.093 0.755 0.037 0.322 0.001 0.012 0.015 0.144

Firm size 0.124 0.937 0.155 1.267 0.043 0.321 0.137 1.038Relationship duration 0.316* 2.025 0.163 1.084 0.150 1.003 0.074 0.524Number of projects 0.127 0.844 0.060 0.433 0.020 0.146 0.036 0.271

Integration in FFE 0.423*** 3.511 0.168 1.113 0.329* 2.117Simple effects

Absorptive capacity 0.082 0.616 0.068 0.540Specific assets 0.056 0.449 0.007 0.064Integration in NPD 0.350* 2.315 0.176 1.066

Interaction effectsIntegration in

FFE9absorptivecapacity

0.034 0.256

Integration inFFE9specific assets

0.317* 2.565

Integration inFFE9integration inNPD

0.328* 2.609

R2 0.074 0.479 0.315 0.438D R2 0.074 0.156 0.085 0.124F 1.230 3.630** 3.329** 3.904***

F ofD R2

12.329***

2.410 4.040*

b = standardized regression estimates; *significant at the 0.05 level; **significant at the 0.01 level;***significant at the 0.001 level.

1

2

3

4

5

6

7

LowIntegration in FFE

HighIntegration in FFE

NPDprojectp

erformance

LowSpecific assets

HighSpecific assets

FIGURE 2Interaction Plot with Moderator Specific Assets

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becomes smaller. That is, high levels of integration in

NPD switch off the positive main effect. That is, the

positive effect of integration in FFE on NPD project

performance is weaker at higher levels of integrationin NPD. Therefore, H4 is supported.

DISCUSSION AND CONTRIBUTIONSThis study supports the main hypothesis that inte-

grating suppliers in the FFE enables the focal firm to

draw on supplier innovation and therefore relates

positively to the performance of an NPD project.

Contributions to the LiteratureThe findings of this study relate to and extend the

extant literature in several ways. First, the supply chain

literature has just begun to study how supply chainsand networks can facilitate learning processes and can

be used to gain access to knowledge and knowledge cre-

ation (Malhotra, Gosain and El Sawy 2005; Azadegan

et al. 2008). Extending this emerging stream of research

and in line with the open innovation literature (Chesb-

rough 2003), our research underscores that firm

boundaries should be open to suppliers and that firms

can benefit from collaborating with suppliers in the

NPD process through interorganizational learning and

knowledge sharing during the NPD process.

Second, it augments research that hints at the

criticality of the early phases of the NPD process forinnovation outcomes (e.g., Kim and Wilemon 2002;

Hauser et al. 2006) and underscores that firms should

in contrast with current practice (Johnsen, Phillips,

Caldwell and Lewis 2006) involve suppliers in the

very early stages of NPD, that is, the FFE phase. While

the influence of customers in the FFE phase are well-

understood (e.g., Qingyu and Doll 2001; Alam 2006;

Hauser et al. 2006), our research is the first to investi-

gate the role of suppliers in the FFE.

Third, the test of the moderating effects in the rela-

tionship between integration in FFE and NPD project

performance revealed several noteworthy insights. It

was argued but not supported by the data that

if the buying firm possesses a high degree of absorp-

tive capacity, it can better utilize the suppliers contri-

bution in the FFE phase and expect higher NPD

project performance. Rothaermel, Hitt and Jobe

(2006) relate absorptive capacity to outcomes if firms

balance vertical integration and outsourcing arrange-ments with suppliers, and Hitt (2011, p. 11) empha-

sizes that the influence of the relationship (from

vertical integration to outsourcing partnerships)

deserves further research by SCM scholars. As such,

by establishing new (even though not confirming)

insights into the influence of absorptive capacity when

suppliers are integrated collaboratively in the buying

firms NPD process, we followed this research call and

extended this stream of research.

With regard to the moderating effect of supplier-spe-

cific assets, we show that transaction cost theory pro-

vides a strong explanation for why specific assetshamper the exploitation of the suppliers contribution

in the FFE. The study data confirm a negative effect of

supplier-specific investments on NPD project perfor-

mance.

The negative influence of supplier integration in the

NPD phase in the relationship between integration in

FFE and NPD project performance underscores that

the FFE phase and the NPD phase are two distinct

phases that also must be conceptualized separately.

This supports the earlier distinctions of the phases

(e.g., Tatikonda and Rosenthal 2000; Cooper 2001),

but going beyond, it shows that the integration in the

FFE is less beneficial if the supplier is integrated inten-

sively in the NPD phase. This opens up new perspec-

tives for studying the interplay between the two

phases when firms aim to tap supplier innovation.

Contributions to Supply Chain ManagementPractice

By integrating suppliers early in the FFE phase of the

NPD process, buying firms can learn from suppliers and

suppliers can contribute specific knowledge to enhance

the performance of an NPD project. Based on the

intended performance outcome (i.e., the importance of

various competitive priorities such as quality, cost,delivery, flexibility or innovation to the buying firm),

the buying firms should consider the results of this

research when structuring and developing their pur-

chasing strategies, supplier portfolios and supplier strat-

egies (e.g., Pagell, Wu and Wasserman 2010; Terpend,

Krause and Dooley 2011). If innovation and the devel-

opment of new products is a competitive priority of pur-

chasing, operations and supply chain management, the

firm should invest in the identification of suppliers to

be integrated in the firms FFE phase of NPD.

In the NPD process, the timing of integration is a

key success factor. Firms should carefully plan the

1

2

3

4

5

6

7

LowIntegration in FFE

HighIntegration in FFE

NPDprojectperformance

LowIntegration in NPD

HighIntegration in NPD

FIGURE 3Interaction Plot with Moderator Integration in NPD

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stage at which to integrate the supplier and recognize

that suppliers can contribute significantly to the FFE

phase. However, if the supplier is also integrated

intensively in the later NPD phase (e.g., because the

suppliers responsibility is to design a product jointly

with the buying firm), FFE integration is less effective.

Firms might benefit from discussing projects infor-mally with suppliers before the concept development

stage. Prior research suggests integrating suppliers in

concept development (Clark 1989; Monczka et al.

2000); this study suggests that stage is too late. Sup-

plier integration contributes significantly to the evalua-

tion of ideas (w = 0.87; see Appendix B), because

suppliers offer hints about the concept that may make

the product easier and less costly to manufacture. Simi-

lar arguments apply to supplier integration in the prod-

uct definition and concept development phases

(w = 0.44, w = 0.72, respectively). Yet other forms of

integration have only minor or even negative effects,such as in a preliminary market study (w = 0.48) or

commercial concept evaluation (w = 0.69). Integrat-

ing the supplier in those activities has negative influ-

ences on outcomes; in other cases, integration activities

simply have minimal influences, such as integration in

the idea generation (w = 0.08) and product specifica-

tion (w = 0.03), so devoting resources to integrating

suppliers in these activities is not beneficial. Firms

should plan such integrations strategically.

Finally, if the buying firm has substantial supplier-

specific assets, a high integration of this supplier in

the FFE is less effective. In contrast, if specific assets

are low, supplier integration in FFE is more effective.

Firms should therefore integrate suppliers with high

specific investments late in the NPD process. More

generally, firms should critically evaluate asset specific-

ity in conjunction not in isolation with their

plans to work with suppliers along the NPD process.

IMPLICATIONS FOR RESEARCH ANDLIMITATIONS

This study underscores the need to conceptualize

supplier integration on a project instead of a firm

level, and to collect data from multiple project partici-pants on both sides of the buyersupplier dyad (Hoe-

gl and Wagner 2005; Gupta, Verma and Victorino

2006). With this approach, this study avoided com-

mon source bias (Wagner et al. 2010) and increased

the validity and reliability of the results. However,

resource demands associated with the data collection

limited the size of the project-level sample; collecting

data from four informants about the same projects

would be virtually impossible in a large and random

sample.

Moreover, the data collection occurred after the NPD

process finished and the product was in the market. A

longitudinal study could assess the impact of early in

contrast with later phases of an NPD process. Such a

study also might provide insights into the development

of key variables, such as supplier-specific assets, across

different phases of the NPD process.

This study includes several industries and therefore

is generalizable across those fields. However, theresults might differ for specific industries such as phar-

maceuticals, biotechnology, computers or electronics;

similar research in other industries seems worthwhile.

Further research should also verify the moderating

effect of absorptive capacity. A larger sample size and

power might be sufficient to accomplish this.

Finally, integrating suppliers in the FFE has a strong

influence, so more research should derive practical

advice about how to integrate suppliers into the early

phase of the NPD process (e.g., innovation workshops

with suppliers to generate and evaluate ideas for

future products). Recommendations about whichmethods best support integration also would be help-

ful. Considering the importance of such integration,

research might assess the antecedents that determine

the intensity of supplier integration.

In summary, short product life-cycles, unstable tech-

nology environments and changing customer needs

prevent firms from accruing all the knowledge they

need for product development on their own; they

must rely on their suppliers for specific knowledge

and capabilities. This research shows that if several

contingencies are taken into consideration integra-

tion of suppliers in the FFE is a fruitful avenue to be

followed.

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Stephan M. Wagner (Ph.D., University of St. Gal-

len) is a professor, holds the Kuehne Foundation

Chair of Logistics Management, and is Director of the

Executive MBA Program in the Department of Man-

agement, Technology, and Economics at the Swiss

Federal Institute of Technology Zurich (ETH Zurich),

Switzerland. Outside the academy, he has spent

almost 10 years as a manager and a management con-

sultant to international manufacturing firms. Dr. Wag-

ners research interests are in the areas of supply chain

management, logistics and transportation manage-

ment, and purchasing management. His particular

focus is on strategy, networks, relationships, behav-

ioral issues, risk and innovation. Dr. Wagner has pub-

lished more than 10 books and over 100 academic

and professional articles; some of the outlets in which

his papers have been published are the Academy of

Management Journal, the Journal of Management, the

Journal of Business Research, the Journal of Operations

Management, Decision Sciences, and the Journal of Busi-

ness Logistics. Dr. Wagner is an Associate Editor for the

Journal of Supply Chain Management.

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APPENDIX A

Reflective Measures

Constructs and Items Loading t-Value AVE a

Integration in FFE 0.70 0.86 0.90

The supplier contributed to the generation of the product idea 0.83 21.07The ideas of the suppliers were used in the product specification 0.86 18.78The supplier was involved in the evaluation of the product ideas 0.86 27.86The supplier was involved in developing the concept 0.79 10.48Absorptive capacity (adapted from Ettlie and Pavlou 2006) 0.62 0.80 0.87We are able to identify and utilize relevant knowledge from this

supplier0.68 5.66

We have adequate routines to analyze external knowledge 0.80 8.50We can successfully combine new knowledge obtained from this

supplier with existing knowledge0.89 7.24

We can successfully exploit the new knowledge in concreteapplications

0.77 4.55

Specific assets (adapted from Ganesan 1994) 0.57 0.78 0.84If we switched from this to an alternative supplier, we would losesubstantial investments

0.72 3.41

We have invested substantially in personnel dedicated to thissupplier

0.72 3.38

If we switched from this to an alternative supplier, we would loseknowledge related to the processes of this supplier

0.71 3.70

Investments in this supplier could not be reversed in case ofsupplier switching

0.87 4.26

Integration in NPD 0.69 0.77 0.87Product development 0.94 22.33Process development 0.70 5.63Product testing 0.84 17.14

NPD project performance (adapted from Petersen et al. 2005) 0.58 0.75 0.84The collaboration with this supplier resulted in a better quality of

the procured component0.74 6.22

As a result of the collaboration with this supplier, the componentcould be better integrated into the overall product

0.83 18.25

As a result of the collaboration with this supplier, the componentcould be developed faster

0.76 7.29

The collaboration with this supplier resulted in a better design ofthe overall product

0.70 7.91

Technological turbulence (adapted from Jaworski and Kohli 1993) 0.57 0.75 0.79The technology in our industry is changing rapidly 0.64 2.61Technological changes provide large opportunities in our industry 0.62 2.59

Many new products in our industry were possible due totechnological breakthroughs 0.96 3.62

Stem question for Integration in NPD: Please indicate the extent to which the supplier was involved in the

following phases of the NPD process:, items anchored by not at all (1) and very intensively (7); all other items

anchored by strongly disagree (1) and strongly agree (7); AVE = average variance extracted; a = Cronbachs

(1951) alpha coefficient; = Fornell and Larckers (1981) composite reliability coefficient.

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APPENDIX B

Formative Measures

Construct and Items w t-Value psa csv

Integration in FFE

Idea generation

0.08 0.52 1.00 1.00Commercial idea evaluation 0.87 3.49 0.85 0.70Technical idea evaluation 0.19 0.90 0.95 0.90Preliminary market study 0.48 2.24 0.90 0.80Product definition 0.44 1.57 0.90 0.80Definition of specifications 0.04 0.19 0.90 0.80Concept development 0.72 3.04 0.90 0.80Commercial conceptevaluation

0.69 2.11 0.90 0.80

Technical concept evaluation 0.19 0.76 0.90 0.80

Stem question: Please indicate the extent to which the supplier was involved in the following phases of the

NPD process:, items anchored by not at all (1) and very intensively (7); w = PLS outer weight; psa = proportion

of substantive agreement; csv = substantive-validity coefficient.

Journal of Supply Chain Management