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OEM implementation of supplier-developed component innovations: the role of supplier actions

  • Original Empirical Research
  • Published:
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Abstract

For suppliers to secure a positive return on their investment in the creation of component innovations, they must ensure that original equipment manufacturers (OEMs) implement these component innovations. The objectives of this study are to (1) identify the activities that suppliers undertake to foster innovation implementation, (2) articulate the theoretical mechanisms that mediate the impact of these activities on innovation implementation, and (3) establish the inter-related effects of these mediating theoretical mechanisms on innovation implementation. The results from a survey of 173 supplier–OEM dyads reveal that functional advantage is the theoretical mechanism that mediates the impact of two supplier actions—knowledge acquisition and installation support—on innovation implementation. The results also show that reputational advantage mediates the effect of innovative OEM endorsement and that relational advantage mediates the effects of supplier asset specificity and supplier innovativeness on innovation implementation. In terms of the inter-related effects of the mediating mechanisms on innovation implementation, the results indicate that relational advantage complements the positive impact of functional advantage on innovation implementation. In addition, the results reveal that innovation implementation has a positive impact on the financial performance of component innovations.

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Notes

  1. Unless otherwise indicated, all scale items were measured on a seven-point rating scale that was anchored by 1 = Strongly Disagree and 7 = Strongly Agree.

  2. Adapted from = Adapted from an existing scale in the indicated study; Based on = Based on the conceptual scholarship in the indicated study; Source = Items are extracted from the indicated study.

  3. Standardized loading. Note that all loadings are significant at the p < .001 level.

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Authors and Affiliations

  1. Schulich School of Business, York University, Toronto, ON, M3J 1P3, Canada

    Ashwin W. Joshi

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Correspondence to Ashwin W. Joshi.

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Raji Srinivasan served as Area Editor for this article

Appendix

Appendix

Scale itemsFootnote 1

Innovation Implementation (OEM Data) (Adapted fromFootnote 2: Rai and Patnayakuni 1996; Wu et al. 2003)

  1. 1.

    We have fully integrated this component innovation into the product that we manufacture. (.69)Footnote 3

  2. 2.

    We have made all the product design changes that were needed to effectively incorporate this component innovation into our product. (.79)

  3. 3.

    We have made the necessary changes to our production and operating systems in order to effectively incorporate this component innovation into our product. (.92)

  4. 4.

    All the logistical issues involved in incorporating this component innovation into our product have been worked out. (.86)

  5. 5.

    This component innovation has been effectively integrated into our product. (.61)

  6. 6.

    All the necessary internal approvals to make this component innovation a part of our product are in place. (.94)

  7. 7.

    Any internal disagreements regarding the incorporation of this component innovation into our end product have been resolved. (.86)

  8. 8.

    The component innovation is now an established feature in our product. (.73)

  9. 9.

    Replacing this component innovation from our end product will not be an easy task. (.74)

Functional Advantage (OEM Data) (Adapted from: Flint et al. 2002; Ulaga and Chacour 2001)

The following items pertain to your assessments of the component innovation during the trial-and-evaluation stage:

  1. 1.

    Our product’s performance improved as a result of incorporating this component innovation. (.88)

  2. 2.

    This component innovation made our product more effective. .65)

  3. 3.

    Incorporation of this component innovation gave our product a competitive advantage. (.80)

  4. 4.

    Taking both the functional benefits and economic costs into account, we came out ahead as a result of incorporating this component innovation. (.67)

  5. 5.

    This component innovation generated greater performance benefits for our product relative to the corresponding component in our key competitor’s product. (.65)

Reputational Advantage (OEM Data) (Adapted from: Homburg et al. 2013; Rindova et al. 2005)

The following items pertain to your assessments of the component innovation during the trial-and-evaluation stage:

  1. 1.

    Integrating the component innovation into our product enhanced our product’s reputation in the industry. (.67)

  2. 2.

    Our customers regarded our product more favorably because it incorporated the component innovation. (.84)

  3. 3.

    Our competitors began to incorporate the component innovation into their products as well. (.65)

  4. 4.

    Integrating the component innovation into our product made our industry partners (e.g., distributors) regard our product more favorably. (.88)

Relational Advantage (OEM Data) (Adapted from: Jap and Anderson 2003)

The following items pertain to your assessments of the supplier relationship based on your experiences with the supplier during the trial-and-evaluation stage:

  1. 1.

    We expected that our relationship with the supplier of the innovative component would last far into the future. (.80)

  2. 2.

    We expected that we would continue working with the supplier of the component innovation on a long-term basis. (.67)

  3. 3.

    We expected that the supplier of the component innovation would stand behind their product for the foreseeable future. (.85)

  4. 4.

    We did not expect that our relationship with the supplier of the component innovation would terminate anytime soon. (.62)

  5. 5.

    We believed that the supplier of the component innovation would continue supplying us with the component in the foreseeable future. (.64)

Knowledge Acquisition (Supplier Data) (Based on: Jaworski and Kohli 1993)

As part of our approach to this OEM…

  1. 1.

    We had developed a good understanding of the architecture (or overall design) of this OEM’s product. (.60)

  2. 2.

    We became knowledgeable about the manner in which the various components in this OEM’s product were inter-linked. (.67)

  3. 3.

    We had developed a good understanding of the logistical systems used by the OEM to acquire components. (.85)

  4. 4.

    We had developed a good understanding of the operational systems used by the OEM to assemble components to create their product. (.68)

  5. 5.

    We had learned the administrative systems used by the OEM to manage the flow of components. (.84)

Installation Support (Supplier Data) (Adapted from: Athaide and Klink 2009)

During the trial-and-evaluation stage….

  1. 1.

    We worked with the OEM to ensure that our component innovation was integrated effectively in their product. (.90)

  2. 2.

    We were on hand to address any challenges encountered by the OEM in integrating our component innovation into their product. (.94)

  3. 3.

    We provided on-site support to the OEM during the period when they were integrating our innovative component into their product. (.78)

  4. 4.

    We partnered with the OEM to ensure that the logistical systems were in place to ensure seamless supply of our innovative component. (.74)

  5. 5.

    We provided all the operational and logistical information for the innovative component that the OEM needed in order to plan their production schedule. (.61)

Innovative OEM Endorsement (Supplier Data) (Based on: Rindova et al. 2005)

As part of our approach to this OEM…

  1. 1.

    We secured endorsements for the component innovation from other manufacturing firms that are regarded as being among the most innovative in this OEM’s industry. (.77)

  2. 2.

    We pilot-tested our component innovation with other manufacturing firms that are regarded as being among the most innovative in this OEM’s industry. (.81)

  3. 3.

    We established agreements with the most innovative firms in the OEM’s industry that they could use them as references for this component innovation. (.63)

  4. 4.

    We made it known that other leading OEMs in their industry had expressed an interest in adopting this component innovation. (.72)

  5. 5.

    We expressed our willingness to link this OEM with other firms in their industry that had experience with the component innovation. (.71)

Institutional Third-Party Endorsement (Supplier Data) (Based on: Rindova et al. 2005)

As part of our approach to this OEM…

  1. 1.

    We secured reviews for our component innovation from trade magazines. (.63)

  2. 2.

    We worked hard to ensure that industry experts knew about our component innovation. (.67)

  3. 3.

    We encouraged industry experts to communicate their assessment of the component innovation within the industry. (.92)

  4. 4.

    We cited trade magazine reviews of our component innovation. (.87)

  5. 5.

    We cited what industry experts had said about our component innovation. (.60)

Specific Asset Investment (Supplier Data) (Adapted from: Heide and John 1992)

During the trial-and-evaluation stage….

  1. 1.

    We made significant investments in tooling and equipment dedicated to customizing our component innovation for this OEM. (.81)

  2. 2.

    This OEM had some unusual technological norms and standards, which required adaptation to the component innovation. (.79)

  3. 3.

    Our production system for the component innovation had to be tailored to meet the requirements of dealing with this OEM. (.83)

  4. 4.

    Our outbound logistical process for the component innovation had to be tailored to meet the requirements of dealing with this OEM. (.81)

  5. 5.

    Gearing up to deal with this OEM for this component innovation required highly specialized tools and equipment. (.87)

Supplier Innovativeness (Supplier Data) (Based on: Chandy and Tellis 1998)

During the trial-and-evaluation stage…

  1. 1.

    We continued to develop this component innovation. (.61)

  2. 2.

    Our R&D associated with this component innovation was on-going. (.64)

  3. 3.

    We sought to develop newer versions of this component innovation for the future. (.84)

  4. 4.

    We invested resources in building on this component innovation. (.81)

  5. 5.

    We were focused on improving this component innovation. (.63)

Component Innovation Financial Performance (Supplier Data) (Adapted from: Noordhoff et al. 2011)

Please rate the extent to which the component innovation has achieved the following outcomes with respect to this OEM (1 = Far Below Stated Objective and 5 = Far Above Stated Objective):

  1. 1.

    OEM share relative to stated objective. (.64)

  2. 2.

    Sales revenues relative to stated objective. (.83)

  3. 3.

    Return on assets relative to stated objective. (.79)

  4. 4.

    Profit margin relative to stated objective. (.86)

  5. 5.

    Return on investment relative to stated objective. (.83)

Control variables

Compatibility (OEM Data) (Based on Tornatzky and Klein 1982; Moore and Benbasat 2001)

  1. 1.

    Integrating the component innovation into our product did not require significant changes to the design of our product.

Complexity (OEM Data) (Based on Tornatzky and Klein 1982; Moore and Benbasat 2001)

  1. 1.

    It took us a long time to understand how the component innovation worked.

Trialability (OEM Data) (Based on Tornatzky and Klein 1982; Moore and Benbasat 2001)

  1. 1.

    We were able to utilize the component innovation on a trial basis to assess its fit with our product.

Buyer Receptivity (OEM Data) (Based on Jaworski and Kohli 1993)

  1. 1.

    We had expressed a need for this component innovation to this supplier.

Buyer Resources (OEM Data) (Based on Frambach et al. 1998)

  1. 1.

    We have the resources needed to integrate this component innovation into our product.

Buyer Environmental Turbulence (OEM Data) (Source: Jaworski and Kohli 1993)

  1. 1.

    In our business, customers’ product preferences change quite a bit over time.

Other variables

Supplier Trustworthiness (OEM Data) (Source: Ganesan 1994)

  1. 1.

    This supplier cares about the well-being of our company.

Length of Business Relationship (OEM Data) (Adapted from: Homburg et al. 2013)

  1. 1.

    For how many years have you procured components from this supplier? (1 = less than 1 year; 2 = between 1 year and 3 years; 3 = more than 3 years and less than 5 years; 4 = between 5 years and 7 years; 5 = more than 7 years)

Supplier Respondent Knowledgeability (Supplier Data) (Source: Kumar et al. 1993)

  1. 1.

    How knowledgeable are you about the issues raised in this survey? (1 = not at all and 7 = highly)

OEM Respondent Knowledgeability (OEM Data) (Source: Kumar et al. 1993)

  1. 1.

    How knowledgeable are you about the issues raised in this survey? (1 = not at all and 7 = highly)

Component Importance (OEM Data) (Based on: Stump and Heide 1996)

  1. 1.

    How important is this component for your product? (1 = Not at all important and 7 = highly important)

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Joshi, A.W. OEM implementation of supplier-developed component innovations: the role of supplier actions. J. of the Acad. Mark. Sci. 45, 548–568 (2017). https://doi.org/10.1007/s11747-016-0506-5

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