Networking capability in supplier relationships and its impact on product innovation and firm performance

Purpose The purpose of this paper is to propose and empirically investigate the concept of networking capability (NC) for the management of supplier relationships and their dynamics in order to leverage product innovations. NC in the context of supplier relationships is conceptualized based on dynamic capabilities aimed at relationship initiation, relationship development, and relationship ending. Furthermore, the study tests the interaction of NC with relationship proclivity as an organizational feature, and analyzes latent classes of NC affecting product innovation. Design/methodology/approach This study brings together prior research on company routines related to inter-firm networking, the dynamic capability approach to strategy, and literature on inter-firm innovation. The study utilizes multiple informant survey data gathered from 156 firms operating in the automotive parts industry in Iran. Data are analyzed with partial least square structural equation modeling, as well as latent class analysis using finite mixture modeling (FIMIX-PLS). Findings This research provides evidence for the positive influence of NC with respect to supplier relationships on firm product innovation, as well as overall firm performance. Relationship proclivity is shown to amplify this effect. At the same time, the research illustrates that NC may be applied in different combinations in the context of supplier relationship portfolio management. Two mechanisms are tentatively identified: firms using “static optimization” focus mainly on supplier relationship development capabilities, while those using “dynamic optimization” utilize supplier relationship initiation and ending capabilities. Research limitations/implications This research focuses on one setting (i.e. the automotive parts industry in Iran). Further studies need to broaden these findings to other industries and countries, specifically those which show a different cultural make-up from Iran. Furthermore, this research indicates the existence of two distinct mechanisms as to how different aspects of NC impact product innovation. While it is reasonable to identify these mechanisms as networking “strategies,” this study does not clarify whether this represents intended strategies by firms or relates to emerging capability patterns. Practical implications The study contributes to managerial knowledge by illustrating the need for a dynamic approach with regard to networking-related routines in supplier relationships in the context of product innovation. This study suggests that managers should devote equal attention to strengthening existing supplier relationships as well as to initiating new supplier relationships (e.g. screening for promising partners and signaling firm’s relationship value to attract new counterparts) and managing non-performing supplier relationships (e.g. by developing routines to exit from those supplier relationships). Originality/value The paper contributes to a better understanding of dynamic approaches to networking with suppliers and their impact on product innovation from the perspective of the focal firm. It furthermore provides a fine-grained understanding of different latent classes of firms in terms of how they utilize networking capabilities.