reconsidering the affective character of relationships

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1 Reconsidering the affective character of relationships: strong ties and innovation in supplier-customer relations 1 Cristina Boari Università di Bologna (Italy) [email protected] F. Xavier Molina-Morales Universitat Jaume I de Castelló (Spain) [email protected] Manuela Presutti Università di Bologna (Italy) [email protected] Abstract: Scholars have found contradictory effects of strong ties in interfirm relations. They are considered both beneficial and detrimental for knowledge acquisition and innovation. In consequence, the debate on this paradox is flourishing. We wish to contribute to the discussion using a construct –relational bonding- originally developed in studies on vertical interfirm relationships in business-to-business markets. The approach distinguishes between structural bonding and social bonding, which allows us to consider the two different components of tie strength put forward in Granovetter’s seminal work: respectively the behavioral -frequency of social interaction and reciprocal services characterizing the relationship - and the affective ones -the emotional intensity and the intimacy that characterize the tie. 1 Submitted to Technovation

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Page 1: Reconsidering the affective character of relationships

1    

 

Reconsidering the affective character of relationships: strong ties and innovation

in supplier-customer relations 1

Cristina Boari

Università di Bologna (Italy)

[email protected]

F. Xavier Molina-Morales

Universitat Jaume I de Castelló (Spain)

[email protected]

Manuela Presutti

Università di Bologna (Italy)

[email protected]

Abstract:

Scholars have found contradictory effects of strong ties in interfirm relations. They are

considered both beneficial and detrimental for knowledge acquisition and innovation. In

consequence, the debate on this paradox is flourishing.

We wish to contribute to the discussion using a construct –relational bonding- originally

developed in studies on vertical interfirm relationships in business-to-business markets. The

approach distinguishes between structural bonding and social bonding, which allows us to

consider the two different components of tie strength put forward in Granovetter’s seminal

work: respectively the behavioral -frequency of social interaction and reciprocal services

characterizing the relationship - and the affective ones -the emotional intensity and the

intimacy that characterize the tie.

                                                                                                                         1  Submitted  to  Technovation  

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By explicitly measuring and appreciating also the more neglected affective component of

tie strength, we show that strong ties with key customers - in their behavioral and affective

components- positively impact on innovation of SMEs located in an high tech cluster in

central Italy, with knowledge acquisition moderating the relation.

Key words: strong ties; innovation; knowledge acquisition; key customers

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INTRODUCTION

Over the last decades there is a considerable increase of attention on the impact of inter-

firm relationships on innovation of the individual organizations (Inkpen, 1998; Sammarra

and Biggero 2008). Supplier-customer relationships are recognized as strategic by

organizations for their impact on knowledge acquisition, innovation capability and

competitive advantage (Dyer and Singh 1998; Lorenzoni and Lipparini, 1999; Dyer and

Nobeoka 2000, Meschita et al, 2008).

In this study we particularly focus on the strength of the dyadic relationship between

supplier and customer, investigating its impact on organization’s knowledge acquisition

and innovation. Considering the seminal definition, tie strength is a combination of

affective components – the emotional intensity and the intimacy that characterize the tie-

and behavioral components - frequency of social interaction, and reciprocal services

characterizing the relationship (Granovetter, 1973, 1974). Strong ties are considered both

beneficial and detrimental for organizations: the same process that enables the firm to

develop innovation might restrict the identification of new opportunities and their

exploitation (Danneels 2003, Fredberg and Piller 2011).

Although previous research made a curvilinear prediction, empirical evidences are not

homogeneous both in innovation studies and in social capital studies (Uzzi 1996; Lowik et

Al, 2012, Rost, 2011; Yli-Renko et al 2001, Presutti et al 2007; Martines-Canas et al 2012).

More recently authors have addressed the controversy by conditioning the effect of strength

on organization to some specific conditions such as: the kind of innovation (Bonner and

Walker 2004) and of the relationship (Tomlinson and Fai 2016), the degree of customers

knowledge similarity (Bonner and Walker 2004) and the active or passive customer’s

involvement in the innovation process (Fredberg and Piller 2011).

We intend to contribute to this debate going back to the seminal definition of tie strength by

Granovetter and explicitly consider not only the behavioral components, but also the

affective ones, which are more often disregarded in empirical studies (Krackhardt 2003). In

fact, only recently scholars have started to appreciate the role of the affective components

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of tie strength and related it to individual actors’ change resistance (Battilana and Casciaro

2013).

The affective component of tie strength, originally defined at the interpersonal level, was

rarely measured and applied at the inter-firm level. We found an interesting exception in

the literature on supplier- customer relationships in business-to-business markets where the

construct “relational bonding” was originally developed and used to explain the stability

and success of the relationship (Wilson, 1995). We consider this approach particularly

suggestive because it explicitly considers and measures both the objective and behavioral

elements of strong ties, defined as structural bonding, and the affective elements, defined as

social bonding.

Using this conceptual approach we investigate both direct and indirect effects of the tie

strength with key customers (in their different components) on supplier innovation, also

considering the mediating role of knowledge acquisition. If the relationship among tie

strength, knowledge acquisition and innovation has already been explored, our aim is to go

further considering and disentangling the contributions of the two different components of

tie strength.

Our empirical setting is based on high-tech SMEs belonging to a geographical cluster

located in one of the most economically important areas in central Italy, the Tiburtina

Valley. We focus on vertical strategic partnerships between these firms and their key

customers located both within and outside the cluster. To identify these relationships we

follow previous studies addressing similar research questions (Yli Renko, Autio, Sapienza,

2001; Presutti, Boari & Fratocchi, 2007, 2016).

We expect and confirm a positive impact of tie strength on innovation - both in terms of

affective and behavioral components- with the mediating role of knowledge acquisition.

The paper has been structured as follows: first, we review previous research on the topic

and propose hypotheses. Then we describe the empirical setting and results. Finally,

findings are discussed, including implication for theory and practitioners, limitations and

future research.

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THEORETICAL FRAMEWORK

Innovation emerges through interactions (Ahuja, 2000) mainly based on external social

relationships (Phelps, Heidl, Wadhwa, 2012). The relationships of organizations with other

external actors have attracted a lot of attention as they might positively impact on firms’

knowledge acquisition and innovation (Powel et al 1996).

In particular, research on vertical relationships have shown how investing on and managing

these relationships benefit organizations in different ways, including innovation (Von

Hippel 1998, Antonelli and Fassio 2015), knowledge acquisition (Kotabe et al 2003;

Meschita et al 2008; Pirolo and Presutti, 2010) and competitive advantage (Dyer and Singh,

1998, Langfield-Smith and Greenwood, 1998; Lorenzoni and Lipparini, 1999; Dyer and

Nobeoka 2000, Meschita et al, 2008).

In this paper we focus on the strength of ties in explaining knowledge acquisition and

innovation by suppliers involved in downstream relationships with key customers.

Granovetter (1973, p.1361) defined tie strength, initially intended for interpersonal

relationships, as a “combination of the amount of time, the emotional intensity, the

intimacy (mutual confiding) and the reciprocal services which characterize the tie”. His

approach greatly influenced innovation studies where the role of tie strength is evaluated in

terms of knowledge acquisition and innovation of individuals and organizations, as it was

widely adapted to the inter-firm context

Strong ties enable the development of trust between buyer and supplier, benefit firms from

lowered transaction costs, greater commitment, collaboration, improves efficiency in the

relationship (Villena et al, 2016). Strong ties can favor the exchange of complex and tacit

knowledge, fine-grained information transfer and joint problem solving arrangements (Uzzi

1996). These advantages encourage companies to continue existing relationship (Kim, Oh,

& Swaminathan , 2006; Li, Madhok, Plaschka, & Verma, 2006).

However, these ongoing relationships can be counterproductive in many respects

transforming strong ties from assets to liabilities. In other words, there is a dark side in

strong ties. Sometimes, trust could cover or hide the supplier's misconduct. Alternatively,

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the buyer may fear a disruption due to its reputational consequences (Gulati, 1995). In

addition, the buyer/seller can tolerate the opportunism of suppliers/buyer if it is a less costly

response in comparison to the negative consequences of the breakdown of relations

(Seggie, Griffith, & Jap, 2013). Contrary to what happens for weak ties, strong ties might

restrict actions outside of the relation and constrain the access to other resources and

opportunities. Accordingly the risk to limit firm’s knowledge–base is also increased and the

innovation restrained. (Marsden & Campbell, 1984; Brown and Konrad, 2001).

With strong ties considered both as assets and as liabilities, some scholars found a

curvilinear relation with knowledge acquisition by firms (Uzzi 1996; McFadyen and

Cannella, 2004) theorizing the benefits of a dual network structure combining both strong

and weak ties (Capaldo, 2007; Tiwana, 2008). Other authors found evidences of a persistent

positive relationship between strong ties, at the dyad level, and knowledge acquisition, even

within networks rich of weak ties (Lowik et Al, 2012, Rost, 2011). Similar contrasting

results can also be found in studies based on the social capital approach to innovation

where Granovetter’s seminal contribution on tie strength was deeply assimilated (Yli-

renko et al 2001; Presutti et al 2007; Martinez-Canas et al 2012).

The paradox concerning both the beneficial and the detrimental impact of strong ties on

knowledge acquisition and innovation (Danneels 2003) has been addressed considering the

interactive role of different factors, such as the kind of innovation (radical and incremental)

(Bonner and Walker 2004), the relationship being downstream or upstream (Tomlinson and

Fai 2016), the customer knowledge similarity (Bonner and Walker 2004) and the active or

passive customer’s involvement in the innovation process (Fredberg and Piller 2011).

We intend to contribute to this debate going back to Granovetter’s definition of strong ties

also considering the more affective elements of strong ties and incorporating it in previous

studies. Two of the characteristics of strong ties, emotional intensity and intimacy, are

considered by Granovetter (1973) as strongly motivating actors to invest time and resources

in sharing any kind of knowledge. This makes organizational scholars recognize that the

informational and knowledge benefits of strong ties are a consequence of the affective link

between them. Krackhardt (2003, p. 217) asks for studies which appreciate both the

behavioral and the affective components of tie strength claiming that Granovetter’s theory

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draws on the psychological theory of balance but “we seldom see the affective dimensions

in the operationalization of strong ties”. There is a growing interest for the role of the

emotional intensity of strong ties. For example the affective component of strong ties is

found enabling actors to overcome change resistance (Battilana and Casciaro 2013).

With the affective component of tie strength originally developed at the interpersonal level,

we rarely find it applied to the inter-organizational level. For the context of our research we

propose a construct originally developed in the literature on supplier- customer

relationships in business to business markets and use it to analyze the impact of strong ties

on knowledge acquisition and innovation (Wilson, 1995) Accordingly with this perspective

the starting point for the development of a relationship between two firms is the

interdependence between them (Hakansson, 1982). Interdependence is based on the need to

access resources, knowledge and capabilities of other organizations, delivered in the form

of products or services (Pfeffer and Salancik, 1978). Within this framework, the

development of supplier-customer relationships can be seen as an evolutionary process in

terms of increasing experience, reduction of uncertainty, perceived commitment, formal

and informal adaptations and investments (Ford, 1980).

Incremental investments and adaptation activities may create relational bonding, between

supplier and customer (Han, 1991; Rodriguez and Wilson 2002). What is defined as

relational bonding describes the strength of a relationship (Easton and Araujo, 1986) and

can be considered as the degree of resistance of that relationship to disruption. Relational

bonding can thus be considered an expression of tie strength between collaborating

partners. Relationships based on high level of relational bonding are more likely to be

successful (Sarkar et al., 1998) and become more stable (Wilson and Mummalaneni, 1986).

We claim that relational bonding might also enhance the access and acquisition of

knowledge from collaborating partners.

We find this perspective particularly attractive because it clearly considers all the

components of strong ties. On the one hand two more objective and behavioral elements–

frequency of interaction and reciprocal services- defined as structural bonding and on the

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other one, two more affective elements –emotional intensity and intimacy- defined as social

bonding.

Although the two components are highly interrelated they may vary in different ways, and

it is therefore interesting to analyze them separately. This is particularly relevant in

business to business markets where interfaces (digital and/or personal) with customers play

a critical role in managing the relationship and, we claim, in allowing the creation and

maintenance of proper conditions for knowledge exchange and innovative performance.

We will use the relational bonding construct– in terms of structural and social bonding- to

rise separated hypotheses on the role of a firm’s tie strength with customer on its

knowledge acquisition and innovation.

Relational bonding and knowledge acquisition

Relational bonding develops at two different levels: the structural and the social levels.

Particularly, structural bonding is based on task interdependences between supplier and

customer and reflects investments, contractual conditions, obligations and expectations

(Han 1991). It represents the degree to which certain ties link and hold a customer and a

supplier in an economic, strategic, and organizational sense, regardless of personal or

emotional matters. Structural bonding in a supplier-customer relationship can come with

and from economic effects for that relationship. These effects are recognized to increased

efficiency and effectiveness in operations and value-creation shared by both partners

(Rodríguez and Wilson 2002).

We claim that a main performance implication for the involved organizations refers to the

knowledge access and acquisition, for two main reasons. Structural bonding may motivate

and enable an organization to access and acquire external knowledge. Structural bonding

with a customer motivates the supplier to address customer’s needs and therefore to

identify and access from that customer all the needed information and knowledge (Dyer

and Nobeoka 2000; Rowley, Behrens, and Krackhardt 2000). Moreover, as the firm

becomes highly interdependent with a customer, it also develops knowledge-enhancing

practices that favor the transfer, recombination and creation of knowledge. This was found

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true for different firms, both at the dyad and at the network level (Lipparini et al 2014). We

expect that the more structural bonding a firm develops with its customer, the more likely it

is to acquire knowledge from it. We express this in a formal way:

Hypothesis 1: The greater the level of structural bonding between a firm and its key

customer, the greater the knowledge the firm acquires from it.

On the other hand social bonding refers to the degree to which a relation between a buyer

and a seller is linked closely in a personal (emotional) sense through friendship,

familiarity, social support, staying in touch, self-disclosure and any other interpersonal

interactions (Han, 1991; Rodriguez and Wilson, 2002). In supplier-customer relationships

personal contacts occur between various individuals, groups and at different hierarchical

levels. Through these personal contacts information is exchanged, negotiations are

performed, adaptations are settled, crises are overcome and relational bonding develops and

so on.

Competitiveness has been found, to some extent, depending on how this interface with

customers is managed and how the human resources involved are distributed and

coordinated among different types of customers and among different members of their

purchasing decision-making unit. Buyers and sellers who have a strong personal

relationships are more committed to maintaining the relationship than less socially bonded

partners (Mummalaneni and Wilson,1991; Kachra and White, 2008). At the intra-

organizational level it was found that frequent contacts and emotional closeness among

product development team members enhance the amount of complex knowledge transferred

among team members (Hansen 1999).

Moreover, research on other intra-organizational settings shows that information and

knowledge exchange is highly dependent on the degree of emotional closeness among

social actors (Krackhardt, 1992). Commitment and trust may arise and may lower fears of

opportunism (Rindfleisch and Moorman 2001), expectation of reciprocity emerges (Kachra

and White 2008), and transfer of complex, sensitive and even tacit knowledge can easily

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occur (Hansen 1999; Reagans and McEvily 2003). Therefore we extend these reasonings at

the interorganizational level and expect that social bonding in a supplier-customer

relationship enables the knowledge access and acquisition from the customer. We can

express this proposition as follows:

Hypothesis 2: The grater the level of social bonding between a firm and its key customer,

the greater the knowledge the firm acquires from it.

Knowledge  acquisition  and  innovation

According to previous research, external knowledge acquisition provides opportunities for

integration with a firm’s already existing knowledge, thus creating new knowledge (Yli-

Renko et al. 2001), and increasing the relevant knowledge base in the firm (Galunic and

Rodan 1998). Thus, knowledge acquisition favors identification and assimilation of

relevant knowledge for firms, particularly new ideas that improve the ability to create

future innovations and to exploit them in a more effective and efficient way (Cohen and

Levinthal 1990). In fact, a number of recent studies have supported the positive effect of

external knowledge acquisition on innovation performance (for instance, Chen and Huang,

2009), particularly in terms of product innovation (Yli-Renko et al. 2001). Companies may

combine external knowledge with already existing knowledge with positive impact on

innovation (Dyer and Singh, 1998; Lane and Lubatkin, 1998; Larsson et al., 1998).

The positive implication of the acquisition of knowledge on innovative performance has

already been exhaustively proved in the literature (among others, Ahuja and Katila 2001;

Chen and Huang 2009; Yli-Renko et al., 2001). Although, we consider this causal relation

as a base-line hypothesis, it is important to propose it in order to complete our conceptual

framework. We express the positive implication of the external knowledge as follows:

Hypothesis 3: The knowledge acquired from key customer is positively associated with

firm’s innovative performance.

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The  mediating  effect  of  knowledge  acquisition  

According to our hypotheses 1 and 2 we are expecting that relational bonding in its two

components facilitates the exchange of knowledge between different partners of a

relationship However, relational bonding might not be sufficient condition to enhance the

innovation. In fact, bonding can be considered as a prerequisite for the innovation through

knowledge acquisition (Capaldo, 2007). Firms vary in terms of their ability to understand

and exploit the advantages of relational bonding. and exhibit various capacities to acquire

and learn from the valuable knowledge in the relationship. For instance, Fredberg and Piller

(2011) in a longitudinal study on customer relationships for innovation, argued that a strong

tie does not automatically lead to better innovation: it depends on the firm’s co-creation

capabilities.). Thus, we consider that acquired knowledge is a basic explanatory factor that

links relational bonding to innovative performance. We are expecting that relational

bonding has in fact an indirect effect on innovation through the acquisition of knowledge

from key customer.

This effect has been operationalized as the mediator effect (Baron and Kenny, 1986).

Accordingly, we formulate the following hypotheses for innovative performance and for

the two dimensions of the relational bonding, that is structural and social bonding.

Hypothesis 4: The knowledge that a firm acquires from it key customer positively mediates

the relationship between the level of structural bonding with the customer and its

innovative performance.

Hypothesis 5: The knowledge that a firm acquires from it key customer positively mediates

the relationship between the level of social bonding with the customer and its innovative

performance.

The Table 1 formalizes and summarizes the research’s hypotheses and Figure 1 describes

the hypothesized model

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Table 1 Research’s hypotheses

Hypothesis Expected effect

Direct effects

Structural bonding on knowledge

acquisition

H1 +

Social bonding on knowledge acquisition H2 +

Knowledge acquisition on innovative

performance

H3 +

Indirect effects

Structural bonding on innovative

performance through knowledge

acquisition

H4 +

Social bonding on innovative performance

through knowledge acquisition

H5 +

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Figure 1: The hypothesized model

METHODS

Sample and data

The field setting of this research consists of a geographical cluster of small and medium-

sized high-tech firms located in one of the most important economical areas in central Italy,

the Tiburtina Valley, which is approximately 14 kilometres from the centre of Rome. As in

Silicon Valley in the US, the high-tech firms located in this restricted urban context have

Structural  bonding  

Knowledge  acquisition  Bonding  Social  

Bonding  

Innovative  performance    

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created a homogeneous agglomeration that currently represents the most typical example of

a high-tech metropolitan cluster in Italy (Majocchi, Odorici, Presutti, 2016). This cluster is

also known for its high export rates also due to the presence of several important foreign

multinationals. The high number of specialised firms located in this small area has led to

the development of new businesses and the rapid diffusion of knowledge among local

actors.

At the beginning of our data collection (June 2015), the sectors represented in this area

were 1) electronics (370 firms); 2) media (250 firms); and 3) new economy (e.g.,

manufacturers of new hardware, firms in the information services industry, Internet access

providers, and telecommunication network managers; 350 firms). We focused on the

electronics sector, which, according to the definition of the National Federation of

Electronics Firms, consists of the computer industry, electronics in the strictest sense, and

telecommunications.

To ensure that all electronic firms in our sample were involved in innovation activities, we

checked their business descriptions in the source database provided by the Chamber of

Commerce of Rome. Electronic firms with no internal R&D activity or who only offered

non-technical services were excluded from the study. This process left a total of 275 firms,

130 of which accepted our request for a personal interview to complete the questionnaire

(47% response rate). A comparison of differences in the mean values of the responding and

non-responding firms revealed no statistically significant response bias in terms of their 3-

year average sales revenues, firm age, or number of employees. Our empirical research

focuses on the strategic vertical relationships between each high-tech SME located in the

cluster and its main customers. In this respect, we implemented Yli-Renko et al.’s (2001)

suggestion to give entrepreneurs the freedom to list their main customers, imposing a

maximum of 10 partners per company. The final relational map of the adopted sample (130

companies) is composed of 511 main customers spontaneously listed by the interviewed

entrepreneurs (3,9 customers on average).

The firms in our sample belong to the “specialized suppliers” category according to the

Pavitt classification in that they primarily produce and offer technology and services to

their industrial customers. In this case, customers also access technology through the

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acquisition of products from suppliers (Yanez et al., 2010). Thus, for both customers and

suppliers, firm knowledge acquisition and innovation processes depend to a great extent on

interactive learning between them. This situation encourages local firms to become

increasingly specialised, resulting in strong differentiation in their internal knowledge

bases. The R&D activity and the scope and extent of new products launched from these

firms are strongly conditioned by knowledge acquired from their customers because new

products need to be in line with customers’ specific requirements (Dyer and Sing 1998).

The data to test our hypotheses come from a direct survey using a specially designed

questionnaire. Our key informant was the entrepreneur. Firms were contacted by telephone

to obtain the names of potential respondents (the entrepreneurs) and to determine whether

they would agree to complete the survey through face-to-face interviews. Questionnaire

was pre-tested on five randomly selected sample firms. The data collection process strated

at the beginning of 2016 and lasted approximately five months. As the questionnaire

constitutes the primary data source for this research, in some cases, we even conducted a

second interview when necessary to complete the questionnaire.

Overall, the firms in the sample developed an average of 8 new products per year (range 1-

23). The average sales of the respondent firms amounted to €810,000, with an average age

of 18 years. In addition, the average R&D expenditure in relation to total sales was 3.5%

(range 0.01-15%). The key customers are similar in age to their suppliers (M = 18.16 years)

but were on average smaller (Msales = €510.15). Table 2 reports the descriptive statistics

for the untransformed variables.

Table 2. Descriptive statistics of the untransformed variables

Average S.D. Min Max

Innovative

performance

8 7.2 1 23

Firm Size 810.10 1108.95 100 10,000

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CustSize 510.15 542-34 121 3,000

CustAge 18.01 12.86 2 90

FirmAge 18 14.44 6 70

R&D expenditure

Structural bonding

Social bonding

3.5

5.5

5

3.04

4.9

4.5

0.08

1

1

0.15

7

7

7

Measures

The individual measurement items for the study’s dependent, independent, and control

variables are listed in Table 4; the construction of the measures is explained in the

following section. All statement-style items were measured on a scale from 1 = do not

agree to 7 = completely agree.

Dependent variable

Innovative performance

We measured innovative performance following the work of Rindfleisch and Moorman

(2001). Specifically 4 items assessed the firms’ opinion about the innovativeness of their

products developed as a result of the key customer relationships. The entrepreneurs were

asked to evaluate the extent to which the new products developed as a result of their key

customer relationships developed in the past three years were novel to the industry and

offered new ideas.

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Independent variable

Knowledge acquisition in the relationship

We measured knowledge acquisition with two statements reflecting the technological and

market knowledge that a firm may acquire from the key customer. The items were based on

Nooteboom et al. (1997) and Von Hippel (1988) and have previously been used effectively

by several authors (i.e. Simonin, 1997; Zander and Kogut, 1995; Zahra et al., 2000; Yli-

Renko and Autio, 1998).

Structural bonding

We adopted the Han’s (1991) definition of structural bonding as the degree to which certain

ties link and hold a customer and supplier in an economic, strategic, and organizational

sense, regardless of personal [emotional] matters. Structural bonding was assessed through

a two-item 7-point Likert scale according to Han (1991) and Koenig and Van Wijk (1991)

Social bonding

In this research we defined social bonding as the degree to which certain ties link and hold

a customer and supplier together closely in a personal [emotional] sense according to Han

(1991). Social bonding was assessed through a two-item 7-point Likert scale according to

Han (1991) and Sullivan and Peterson (1982).

Control variable

We included some control variables to isolate the effect of the independent variables in the

model. First, an important factor influencing innovation activity is the size of the involved

partners (Acs and Audretsch, 1991; Tsai and Ghoshal, 1998), in line with the idea that

larger firms may invest more resources in R&D activities. As several studies suggest (e.g.,

Kogut and Zander, 1992), both superior resources and economies of scale allow larger

firms to exploit external knowledge successfully for their innovation process. We controlled

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for the effects of size by including the total sales of both the firms (Size) and their

customers (CustSize).

Moreover, we included two additional control variables to evaluate the age of the firm

(FirmAge) and that of its customers (CustAge). We assume that these elements will have an

influence on the firm’s learning ability and its knowledge exploitation process (Zahra et al.,

1999). We computed the age of the firms and of the customers as the number of years since

their foundation. We used the log of these values to account for declining effects at higher

values. Finally, in the analysis we use R&D spending as a control variable for a firm’s

willingness to invest in absorptive capacities useful to its knowledge acquisition from its

key customer. Following other recent research on measuring absorptive capacity (e.g.,

Cohen and Levinthal, 1990; Meeus et al., 2001), this parameter was measured by

considering the log value of the average ratio between R&D expenditures and total sales for

the previous three years.

Table 3 reports the descriptive statistics of the variables and their correlations.

Table 2. Descriptive statistics and correlations

Variables 1 2 3 4 5 6 7 8

1. Firm size

2. Customer size 0.21

3. Firm age 0.40*

0.18

4. Customer age 0.15 0.15*

0.07

5. R&D spending 0.31*

0.04 0.14 0.11

6 Structural bonding 0.24 0.22 0.18 0.17 0.23

7. Social bonding 0.16 0.13 0.30 0.24 0.20 0.33*

8.Knowledge acquisition 0.15 0.08 0.12 0.03 0.28*

0.40**

0.27*

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9. Number of new products developed

0.11 0.13 0,01 0,03 0,03 0.28*

0.31*

0.45**

10. Innovative performance

0.01 0.03 0.01 0.22 0.13 0.31**

0.29*

0.40**

* p-value at the 10% level. ** p-value at the 5% level. *** p-value at the 1% level.

 

Reliability, validity and endogeneity

We took several steps to ensure data validity and reliability. First, we pretested the survey

with 5 entrepreneurs and asked them to closely review the survey. We then revised any

potentially confusing items following the received suggestions. Second, we used previously

validated measurement items wherever possible to help ensure the validity of our measures.

Third, multiple-item measures were used for most constructs to enhance content coverage.

We measured these items on the questionnaire using 7-point Likert scales. As a first step of

measure validation, to assess the unidimensionality of the research constructs (Churchill,

1979), we factor analysed the final scales using the principal axis method, positing a single

factor (exploratory factor analysis). After exploring the factor structure of the data, we

submitted the data to confirmatory factor analysis. The results of this analysis verify that

the measurement model performed well because the selected constructs demonstrate good

internal consistency and reliability: the standardised factors are all above the recommended

minimum of 0.40, and the average variances extracted are all above the recommended

minimum of 0.50 (range 0.55-0.69). All of our multiple-item constructs achieved Cronbach

alphas of 0.71 or higher, indicating strong internal consistency (Table 4).

Finally, we consider in this study also the endogeneity problem. In particular, to identify

the endogeneity of the explanatory variables, we use the Durbin–Wu–Hausman test

(Wooldridge, 2012). Table 5 illustrates the test results, which reveal that the two selected

explanatory variables do not suffer from an endogeneity problem when both knowledge

acquisition and product innovativeness are used as the dependent variables (Table 5).

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Table 4. Measurement model

Factor name Measurement

item

Standardised

loading

Cronbach’s

alpha

Average

variance

extracted

Structural bonding Since time your company needs

to have close relationship with

this customer, regardless of your

personal relationships?

In an economic sense, to what

extent does your company need

to have a close relationship with

this customer?

0.65**

0.70**

0.85

0.59

Social bonding On a personal sense, how close

are your relationships with this

customer?

I have excellent social

relationships with this customer

0.78***

0.71**

0.81 0.63

Knowledge

acquisition

Since we supply to this customer

we are able to obtain a

tremendous amount of market

and technical knowledge

We get most of our valuable

information on customer needs

and trends from this customer

0.76**

0.59*

0.85 0.69

Innovative

performance

The new product is very novel in

our industry

The new product offers new

ideas in our industry

This new product is creative

0.81***

0.61*

0.55*

0.78 0.55

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This new product is capable of

generating ideas for other

products

0.70**

∗∗∗p >0.001

Table 5. Results of Durbin–Wu–Hausman test.

Knowledge

acquisition

Innovative

performance

Structural bonding 183.5 125.6

Social bonding 160.1 164.2

Chi-square values are present in this table.

RESULTS

The hypotheses are tested using structural equation model. As the hypotheses involves the

testing of mediation effects, a series of nested models were compared to select the one with

the best fit. Nested model tests help internally validate a hypothesized model by comparing

the chi-squares of models that differ in the number of paths hypothesized; nested models

can be derived by adding or deleting paths. A significant difference in chi-square indicates

that the more complex model provides a better fit with the data. The three nested models

are (1) the direct effect model which consists of only the direct relationships among

variables; (2) the indirect model which considers only the indirect effects of social and

structural bonding through knowledge acquisition; 3) the hypothesized mediation model,

which includes both the direct effect of social, structural bonding on the dependent variable

and indirect effects through knowledge acquisition. The fit indices are shown in Table 6.

Based on the fit indices, all of the models showed reasonably good fit with the data. Model

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3 had the highest goodness of fit indices in general (Chi2 =423.28; Chi2 /df= 1.36, p<0.01;

RMSEA=0.06; CFI=0.94; IFI=0.94; TLI=0.92). Akaike’s information criterion revealed a

relatively better fit with the data for Model 3. A Chi-square difference test also suggested

that Model 3 had a significantly better fit than the direct effect model (Model 2) (∆Chi2 =

38.18 (2), p<0.01) and Model 1 ((∆Chi2 =12.13 (4), p<0.05). Therefore the results of

Model 3 are reported in Table 7 to test our hypotheses.

Table 6. Nested model testing sequence and difference tests

Models Chi2

(df)

IFI TLI CFI RMSEA AIC ∆Chi2

Model 1 461.45 0.901 0.881 0.911 0.069 581.32 38.18

(2)

Model 2 435.41 0.910 0.911 0.910 0.062 562.40 12.13

(4)

Model 3 423.28 0.941 0.921 0.941 0.060 553.13 -

Note: ∆Chi2 statistics are based on the comparing model 3 with the other two models.

Models 1 and 2 demonstrated significantly poorer fit than Model 3 (p<0.01).

Hypotheses 1 and 2 propose that structural and social bonding have a significantly positive

association with knowledge acquisition. The results indicate that the standardized

regression weights between structural and social bonding and knowledge acquisition were

significant and positive with coefficients of 0.58 (bias-corrected p<0.01) and 0.54 (bias-

corrected p<0.01) respectively (Table 7). Thus the two hypotheses are confirmed.

Hypothesis 3 is concerned with the relationship between knowledge acquisition and

product innovativeness. The results indicate that the standardized regression weights

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between knowledge acquisition and product innovativeness were significant and positive

with coefficient of 0.49 (bias-corrected p<0.01) . Therefore hypothesis 3 is supported.

H4 suggests significant indirect effects of structural bonding on product innovativeness. As

predicted, the indirect paths through knowledge acquisition from structural bonding to

product innovativeness (β=0.399, bias-corrected p<0.01) were significant. As no direct

effects of structural bonding on product innovativeness were found, full mediation of

knowledge acquisition in the relationships was in evidence, in support of hypothesis 4.

In a similar vein, the results disclosed no significant direct effect of social bonding on

product innovativeness, but social bonding had indirect significant effects through

knowledge acquisition on product innovativeness (β=0.31, bias-corrected p<0.01). Thus,

Hypothesis 5 was supported.

Finally, the only significant relationship between a control variable and our mediating

variable is the positive association between R&D and knowledge acquisition (Table 7). In

terms of innovation, we may observe that product innovativeness is positively related to

both R&D spending and firm size. The not significant effect of age variable can be

probably explained by the evidence that there are not differences of age among customers

and suppliers; moreover the evidence that all customers are quite smaller than their

suppliers can explain why the size variable is not significant in our model. The Figure 2

show the results of the model.

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Figure 2: Results of the model

 

0.19  

0.25  0.49  

0.29  

0.49  

Social bonding

Knowledge acquisition

Structural bonding

Innovative performance

0.58  

0.54  

0.31  

0.39  

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Table 7 Structural equation modelling results

Standardized estimate

P value Hypothesis

Direct effects

Structural bonding on innovative performance

0.17 n.s.

Social bonding on innovative performance

0.29 n.s.

Structural bonding on knowledge acquisition

0.58 <0.01 H1

Social bonding on knowledge acquisition

0.54 < 0.01 H2

Knowledge acquisition on innovative performance

0.9 < 0.01 H3

Indirect effects

Structural bonding on innovative performance via knowledge acquisition

0.39 <0.01 H4

Social bonding on innovative performance via knowledge acquisition

0.31 <0.01 H5

Control variables

Firm size on knowledge acquisition 0.19

Firm size on innovative performance

0.28 <0.01

Customer size on knowledge 0.33 n.s.

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acquisition

Customer size on innovative performance

0.19 n.s.

Firm age on knowledge acquisition 0.19 n.s.

Firm age on innovative performance

0.28 n.s.

Customer age on knowledge acquisition

0.21 n.s.

Customer age on product innovativeness

0.015 n.s.

R&D on knowledge acquisition 0.39 <0.01

R&D on innovative performance 0.5 <0.01

DISCUSSION

The strength of tie in supplier-customer relationships, and particularly its role on focal

firm’s knowledge acquisition and innovation has attracted a lot of attention in the last

decades. Although the seminal definition of strong ties contains a combination of different

elements (Granovetter 1973), the majority of later papers tend to overlook the affective

component (Krackhardt, 2003). We claim that by addressing this shortcoming we can

contribute to the debate about the role of strong ties on knowledge acquisition and

innovation in vertical relations. With this aim, we benefit from the literature on supplier-

customer relationships in business-to-business markets where the construct “relational

bonding” was originally developed and used. This approach distinguishes between

structural bonding -the more objective and behavioral elements of strong ties - and social

bonding –the more affective one.

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In this study we focused on the direct/indirect effects of structural and social bonding on

innovation by considering the mediating role of knowledge acquisition. We have

empirically analyzed the vertical partnerships between SMEs and their key customers.

Our results indicate that both structural and social bonding are positively related to

knowledge acquisition. We also find support for the mediating role of knowledge

acquisition between structural/social bonding and knowledge exploitation in terms of

innovation.

Our theory and findings advance the research on the role of tie strength on knowledge

acquisition and innovation. The positive correlation between structural bonding and

knowledge acquisition, sustains the role of interdependence between focal firm and its key

customers in motivating the supplier to fulfill customers’ need and develop useful routines

for learning. The positive association between social bonding and knowledge acquisition is

consistent with the assumptions that learning between different business partners is aided

by personal and affective relationships built through interpersonal exchange. With

reference to the relation with key customers we find that what was proved true at the

interpersonal level is also true at the inter-organizational level (Tsai and Ghoshal, 1998).

Both elements of tie strength -the behavioral and the affective- seem supporting knowledge

acquisition of focal firms involved in relationships with their key customers. This

contributes to address the recent request for more studies on how different level of

embeddedness between supplier and customers impact on knowledge and innovation

(Lipparini et al 2014).

In addition, our results also complement the more recent research that addressed the so-

called paradox of strong ties suggesting different factors (such as kind of innovation, of

relationship and of involvement in the innovation process and customer knowledge

similarity) that might interact with tie strength and produce different results in terms of

innovation (Bonner and Walker 2004; Fredberg and Piller 2011; Tomlinson and Fai 2016).

We suggest that the impact of tie strength can also depend on how we measure it. With

reference to key customers our study shows that strong ties, both in their behavioral and

affective components, represent for focal firms an opportunity in terms of knowledge

acquisition and innovation and the paradox fades away.

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We also show that knowledge acquisition mediates the relationship between

social/structural bonding and knowledge exploitation in terms of innovation, confirming the

essential role of knowledge acquisition in transforming the potential benefits of strong ties

into concrete innovation outcomes. While structural and social bonding inside vertical

relationships are unable to directly influence the innovation activity, our study highlights

the essential role of knowledge as a key mechanism by which the relationship with key

customers is leveraged for the development of new products. Accordingly, these results

confirm that knowledge is the most strategically significant resource of a SME for its

innovation activity, justifying a growing interest on how organizations can acquire

knowledge from their partners (Burgelman and Hitt, 2007; Davidsson, 2005; Smith and

Cao, 2007; Woolley and Rottner, 2008). Moreover we find a support to the idea that strong

ties with key customers represent an enabling environment for innovation, but routines and

other mechanisms have to be created to enable knowledge exchange and acquisition and

sustain the co-creation of innovation (Fredberg and Piller 2011)

The paper also contributes to social network studies, considering a larger set of tie strength

components, in particular operationalizing the affective element. We participate with the

idea that it is “not simply a question for the methodological curious. It is an important part

of the theory itself, since the theory itself makes a curvilinear prediction” and we need to

understand how different components count toward tie strength (Krackhardt (2003, p.216-

217). The fact that we did not find evidences of curvilinear relation could be ascribed, in

our opinion, to a combination of contingencies: the downstream relationships we observe

(Tomlinson and Fai 2016) and their role to sustain the incremental innovation that mainly

characterizes our firms (Bonner and Walker 2004).

We also provide new evidences of the beneficial effect of the affective component of strong

ties for knowledge search and acquisition at the inter-organizational level. This

complements evidences in social network studies on the informational benefits of strong

ties in affective bonding at the intra-organizational level (Hansen 1999). Finally, we

contribute to business-to-business studies showing that relational bonding between supplier

and key customers can have a positive impact not only on the efficiency and stability of the

relationship, but also in term of innovation.

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MANAGERIAL IMPLICATIONS, LIMITATIONS AND FUTURE RESEARCH

Apart from the theory contributions, in our opinion, a set of managerial implications arise

from this study. First, as relationships with key customers give access to resources and

knowledge not otherwise available for innovation, this implies a need of competence

coordinate and utilize a set of interrelated profitable relationships, that is, to derive value

from a differentiated set of customer relationships As key customer relationships are

specific and differ from one another, a supplier firm may have several relationships,

providing various experience, resources and skills, but the strength of the relationship is

likely to determine whether they are able to share each other’s resources and knowledge.

Furthermore, knowledge-exchanging relationships based on strength ties can form the basis

for profitable relationships that may eventually lead to even greater innovation

opportunities This requires management based on professional competences able to develop

networks characterized by strength ties with a significant number of key customers. Hence,

the ability of managers to leverage external strength networks can be considered as a core

competence

In summary, with reference to vertical relations in BtoB industrial markets, our study

suggests to suppliers to invest in strong ties with key customers, developing both task

interdependence and affective bonds with them to foster innovation. To do that,

organizations could establish and sustain ongoing interpersonal relationships with key

customers, if necessary involving different organizational levels.

Finally, our research also suggests that firms need to invest in routines and mechanisms to

enable the exchange and acquisition of knowledge with key customers to transform the

strong tie with them in a source of opportunities and resources for innovation.

Some limitations of our study must be discussed to pinpoint opportunities for further

research. First, our results refer to high-tech firms that are “specialized suppliers”. What we

find could not be generalizable to other industries and to less specialized firms. Second, our

definition of innovative performance is limited to the typology of products and services

developed by these firms, regardless of the drivers of innovation (customer, process,

design, etc.) and with no distinction between different types of innovation (i.e., disruptive

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and incremental). Third, we focused on the role of strong ties with key customers. We

cannot generalize our results for relationships involving less strategic partners.

In consequence, further research should try to overcome these limitations. Researchers

could also combine in their models other significant boundary conditions that might

influence the importance of strong ties- in their behavioral and affective components- for

knowledge acquisition and innovation.

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