Drawing on embeddedness theory, the purpose of this paper is to develop a comprehensive model that explains the incremental innovation process in the supplier‐manufacturer relationship.
Utilizing the partial least squared (PLS) technique, this study examines the incremental innovation process through the theoretical lens of the embeddedness perspective.
The overall picture emerging from this study indicates that establishing an embedded tie between a manufacturer and a primary supplier enables the creation of informal coordination mechanisms, including trust, joint problem‐solving, and commitment. These coordination mechanisms safeguard the transfer of knowledge and lead the partners to joint action. Such joint action provides an interactive forum for developing innovation capabilities that allow firms to enhance their incremental innovation performance.
From an academic perspective, this study is the first to examine the innovation process theoretically through the embeddedness perspective.
The evidence reported here is consistent with the finding that relational embeddedness plays a strong role in predicting better incremental innovation. In addition to engaging in their own trial‐and‐error experimentation to develop innovation capabilities, firms learn about innovation capabilities vicariously through embedded ties with primary exchange partners.
In essence, these results provide valuable insights for managers who wish to draw on knowledge from external sources in their innovation activities. Whereas previous studies have shown how a firm's incremental innovation is influenced by its internal resources, this paper illustrates that relational embeddedness also represents an important source of incremental innovation.
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