Is it too complex? The curious case of supply network complexity and focal firm innovation

Abstract

Firms have increasingly relied on their supply network for improving their innovation performance. Although the relationship between the supply network structure and innovation has been investigated, the link between supply network complexity and a firm's innovation remains unexplored. By employing transaction cost economics and the concept of a recombinatory search, we propose that the complexity dimensions (horizontal, vertical, and spatial complexity) of a supply network impact the innovation performance of a firm and that such relationships are moderated by a strategic emphasis on value creation and the influence of the firm over the supply network. With a large-scale network data of 201 firms across six industries and 20 countries, we take a robust empirical approach that accounts for endogeneity, unobserved heterogeneity and intrafirm error correlation to test our theory. We find strong support for a nonlinear relationship (with diminishing growth) between both horizontal and vertical complexity with respect to innovation performance. We find that spatial complexity is negatively related to innovation performance. Additionally, we find that a firm's strategic emphasis and its influence indeed moderates the link between the complexity dimensions and innovation performance. Based on our findings, we offer specific managerial guidance for the effective implementation of sourcing practices.

The Role of Supply Chains in the Global Business of Forced Labour

“…Geographic dispersion among members within the supply chain/network (i.e., spatial complexity) (e.g., Romano, 2009; Sharma et al, 2020)…”

Outsourcing Supply Chain: Systematic Literature Review on Innovation Driver Factors Towards Collaborative Network

“…Information systems and Human Resource specialization which in turn have impacts on innovation activities. (Materia et al, 2017) Cloud computing supports the inter-organizational design and implementation of open innovation (Loukis et al, 2017) Green supply chain integration ((internal, supplier, and customer) has a positive impact on developing incremental environmental innovation (Dai et al, 2015) the level of inter-organizational fit is positively related to the environmental innovation of the organization (Shou et al, 2018) Horizontal, vertical, and spatial complexity in supply networks affected on organizational innovation performance (Sharma et al, 2020) Institutional pressure (regulators, market, and competitors) and organizational culture (top management support in utilizing all resources) results in green procurement with a network of suppliers, which in turn leads to continuous innovation. (Bag, 2017) The economic crisis reduces the intensity of supplier relationships, which results in reduced innovation (Mandják et al, 2017) The constitutive elements (interdependence, dynamic relationships according to changing market needs) of the innovation ecosystem with external organizations accelerate the creation of innovative products (Ferasso et al, 2018) Customer-supplier orientation, international customer control, and technological uncertainty among parties increase supplier innovation in international customer-supplier relationships.…”

Theorizing Supply Chains with Qualitative Big Data and Topic Modeling

“…Understanding supply chain emergence, functioning, and adaptation requires researchers to examine its nested, hierarchical structures: A focal firm’s plants form a manufacturing network (Ferdows, 2008), which are connected to buyers and suppliers to form strategic supply chains (Ireland & Webb, 2007) that are in turn nested into a multitiered supply network (Sharma et al, 2019). Cross‐level effects are important to recognize, as the behaviors and outcomes at one level of analysis (plant) may shape and be shaped by another (supply network).…”