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IJIS
10,3 Leveraging supply chain
collaboration in pursuing
radical innovation
350 Erlinda N. Yunus
Operations Management, Sekolah Tinggi Manajemen PPM, Jakarta, Indonesia
Received 13 May 2017
Revised 18 August 2017
17 September 2017
Accepted 26 October 2017 Abstract
Purpose – The purpose of this study is to examine the relationship between supply chain collaboration and
innovation. It particularly investigates the effect of collaboration on radical innovation and highlights the
positive impact of innovation, both radical and incremental, on business performance.
Design/methodology/approach – A survey of 230 Indonesian firms was conducted and the instrument
was tested for reliability and validity to warrant its psychometric properties. The data were analyzed using
structural equation modeling.
Findings – This study reveals that collaboration with suppliers brings radical innovation, while
collaboration with customers brings incremental innovation. Contrary to this study’s conjecture, albeit
interesting, collaboration with customers negatively affects radical innovation. Both radical and incremental
innovations further exert a positive influence over firm performance.
Research limitations/implications – This study focuses on the relationships between supply chain
collaboration, innovation and firm performance. The results enhance our understanding of types of
innovation that are promoted by each dimension of collaboration. Further studies could extend the research
by using a more elaborate measure of innovation or perform a longitudinal examination.
Practical implications – Managers are encouraged to pursue innovation as it improves firm
performance. They could exploit their current partnership with customers to generate incremental innovation
or leverage their supplier network to develop radical innovation.
Originality/value – Studies that specifically investigate the impact of firms’ collaboration with their
supply chain partners on radical innovation are quite scarce. This empirical study is among the very few to
fill this void by providing an integrative assessment of customer, supplier and internal collaborations and
their impact on both radical and incremental innovation.
Keywords Firm performance, Supply chain collaboration, Radical innovation,
Incremental innovation
Paper type Research paper

1. Introduction
In recent years, firms have been constantly pressured to innovate to win over the hyper-
competitive business market (Rosenbusch et al., 2011). Oftentimes, it is insufficient for firms
to count on “me-too” products and competitor imitation or to merely launch progressive
improvements of their current products. Rather, firms have to depart from their existing
practices and offer more breakthroughs (Leifer et al., 2001). The case of Motorola provides
empirical evidence of how systematic and incremental improvements was not enough to

International Journal of Innovation

Science The author is truly grateful to the anonymous reviewers for their detailed and valuable feedback,
Vol. 10 No. 3, 2018
pp. 350-370 which improved the contents of this paper. The author would also like to extend gratitude to the
© Emerald Publishing Limited editor. The data collection was the project of the Center of Innovation and Collaboration at PPM
1757-2223
DOI 10.1108/IJIS-05-2017-0039 Manajemen, Jakarta, Indonesia.
sustain the aggressive competition, until the time it was acquired by Google (dos Santos Leveraging
Malachias et al., 2015). The rise of digital music player that gradually destroyed the analog supply chain
one, the online bookstore that suppressed the dominance of brick-and-mortar bookstores or
financial technology that slowly eroded the share of traditional banking are just examples of
collaboration
how radical innovations are increasingly necessary. Radical innovation becomes critical
(Dewar and Dutton, 1986; Keupp and Gassman, 2013; Sandberg, 2007; Story et al., 2014),
more so in the midst of a free-trade era wherein firms face not only local peers, but also
global competitors entering the open market. Radical innovation could also be a major factor 351
for new entrants to succeed in business (Henderson and Clark, 1990; Hamel and Ruben,
2000).
Developing a radical innovation – a completely new product on the market – is not an
effortless process. Several studies have attempted to investigate the drivers of radical
innovation (Herrmann et al., 2006; Keupp and Gassmann, 2013) as well as the barriers in
implementing or launching this type of innovation (Bakovi
c et al., 2013; Sandberg and
Aarikka-Stenroos, 2014; Story et al., 2014). Even in developing non-complex new products,
firms need to ensure that the characters, structures and cultures of the firms support the
development of innovation (Damanpour, 1991; Subramanian and Nilakanta, 1996;
Khazanchi et al., 2007).
Scholars further encourage firms to collaborate with external partners to sustainably
boost their innovation (Chesbrough, 2003; Cheng and Huizingh, 2014; Pouwels and Koster,
2017). Nevertheless, studies investigating the effect of collaboration on a firm’s ability to
produce radical innovation are still very rare. Studies routinely document the practices of
supply chain collaboration or innovation, yet they only partially cover customer or supplier
network of the firm (Sandberg, 2007; Bellamy et al., 2014; Mazzola et al., 2015; Sumo et al.,
2016) or fail to distinguish between radical and incremental innovations (Lau et al., 2010; Hui
et al., 2015; Kim et al., 2010; Atalay et al., 2017).
Therefore, notwithstanding that the field of supply chain management (SCM) is
becoming mature (Singhal and Singhal, 2012; Helmuth et al., 2015), radical innovation is
under-researched in SCM. Various questions about innovation capabilities, especially
radical innovation, remain unanswered. As Japanese management practices – known as
Kaizen – deploy suppliers to generate incremental innovations, pertinent questions remain:
could supply chain collaboration actually contribute to developing radical innovation, or
would this cooperation merely result in an incremental improvement? This naturally formed
cooperation, particularly between firms and their supply chain partners, has the capability
to provide more fruitful benefits than merely supplying raw materials and delivering
products along the supply chain.
This study attempts to bridge the gap emphasized by the aforementioned questions.
Using the theory of absorptive capacity in the context of inter-firm partnership, this study
predicts the positive impact of supply chain collaboration on innovation, both incremental
and radical. Specifically, two research questions guide this study:
RQ1. Would supply chain collaboration exert influence on radical and on incremental
innovation?
RQ2. Would both types of innovation positively influence firm performance?

The outline of this paper is as follows. The next section, Section 2, synthesizes extant
literature regarding supply chain collaboration, absorptive capacity in the context of inter-
firm partnership and innovation. A theoretical model is proposed at the end of this section.
Section 3 describes the research design and methodology of collecting and analyzing the
IJIS data. Section 4 details the results of this study and is followed by a discussion in Section 5.
10,3 This section also considers limitations that could be avenues for future research. The last
section, Section 6, briefly summarizes the study.

2. Literature review
2.1 Supply chain collaboration
352 In the past two decades, firms have acknowledged that their competitiveness could be
advanced by partnering strategically with their main customers or suppliers (Lummus and
Vokurka, 1999; Kim et al., 2010; Kohli and Jensen, 2010). Along with business practices,
supply chain collaboration has become a growing subject in the literature (Yunus and
Tadisina, 2016). Armistead et al. (2007) has noted that various terminologies such as
“partnership”, “integration”, “co-operation”, “alliances” or “inter-firm relationship” are often
used to express collaboration; therefore, this study uses these terms interchangeably. This
study draws a definition of supply chain collaboration from Lambert et al. (1996) as follows:
[. . .] [a] tailored business relationship based on mutual trust, openness, shared risk and shared
rewards that yields a competitive advantage, resulting in business performance greater that
would be achieved by the firms individually (Lambert et al., 1996, p. 2).
The literature has distinguished three elements that constitute supply chain collaboration:
customer collaboration, supplier collaboration and internal collaboration (Bowersox et al.,
2000; Flynn et al., 2010). The benefits of collaboration among supply chain partners were
further revealed by scholars, such as cost effectiveness (Davis, 1993; Kim et al., 2010; Kohli
and Jensen, 2010; Danese, 2013), lead time reduction and improved customer service and
satisfaction (Barratt and Oliveira, 2001; Kohli and Jensen, 2010), improved schedule
attainment (Danese, 2013), increased flexibility (Kim et al., 2010; Danese, 2013) and improved
profitability and competitiveness in the market (Barratt, 2004; Flynn et al., 2010; Kim et al.,
2010; Yunus and Tadisina, 2016).

2.2 Firm innovativeness and radical-incremental innovations

Schumpeter (1934) was one of the earliest to influence theories of innovation. Schumpeter
proclaimed that organizations would gain competitiveness in the market by replacing old
technologies with new and more efficient ones, a process he referred to as “creative
destruction”. He further posited the pertinent role of organized R&D activities within a firm
to ensure a continuous flow of innovations (both radical and incremental), which enables the
firm to be profitable and to outperform its competitors.
Drawing from Schumpeter’s works, a stream of research examined the impact of
innovations on firm performance (Hui et al., 2015; Atalay et al., 2017; Dambiski Gomes de
Carvalho et al., 2017; Jajja et al., 2017). Businesses and academics have acknowledged that
innovativeness is pertinent to the survival of a firm. For more than five decades, studies
(Damanpour, 1991) have examined innovation activities engaged by various organizations,
types of innovations being introduced, as well as the impact of innovation practices. Yet a
meta-analytic review of the extant literature on firm innovativeness and firm performance
revealed mixed findings regarding the effectiveness of firms’ innovation practices (Rubera
and Kirca, 2012). Thus, scholars called for more innovation research (Pouwels and Koster,
2017).
Radical innovation has recently attracted scholars’ attention, as it poses an important
contribution to firms’ growth and sustainability (Bakovi
c et al., 2013; Baker et al., 2014;
Philipson, 2016) and has become more critical in the past decade (Story et al., 2014). Radical
innovation implies a departure from existing practices within a firm, while incremental
innovation denotes slight improvements or adjustments from the current products or Leveraging
practices (Dewar and Dutton, 1986; Inauen and Schenker-Wicki, 2012). This study followed supply chain
Leifer et al., who defined radical innovation as:
collaboration
[A] product, process, or service with either unprecedented performance features or familiar
features that offer significant improvements in performance or cost that transform existing
markets or create new ones (Leifer et al., 2001, p. 103. Emphasis added).
Green and Cluley (2014) argued that radical innovation is generated by the interaction 353
among units or functions within a firm in collaboration. It requires significant drivers to
build radical innovation, such as knowledge and financial constraints (Keupp and
Gassmann, 2013; Woschke et al., 2017), a systematic framework (Van Lancker et al., 2015), a
specific business model (Philipson, 2016) and a particular leadership style (Domínguez
Escrig et al., 2016). Moreover, a study by Bakovi
c et al. (2013) showed that organizational
culture – in terms of autonomy, proactiveness and risk-taking – is pertinent in determining
radical innovation.
Regardless of these challenges, firms still pursue radical innovation because the rewards
outweigh the efforts. Firms acknowledge that radical innovation could improve their
business performance (Baker et al., 2014) and competitive advantage (Baumard, 2014;
Philipson, 2016).
Incremental innovation, on the other hand, offers minor improvements to the existing
product and basically “reinforces the dominance of established firms” (Henderson and Clark,
1990; p. 9). Incremental innovation could be driven by resource scarcity, especially in SMEs
(Woschke et al., 2017) or naturally by the strive-for-excellence culture shown in Japanese
firms (Choi and Liker, 1995). Continuously improved products served as an essential factor
for Japanese firms to lead the market for decades.
Unlike radical innovation, incremental innovation does not require a fundamental change
in firms’ technology (Dewar and Dutton, 1986). Henderson and Clark (1990) further
conceptualized that firms could sustain their core concepts and even reinforce their current
capabilities in launching or implementing incremental innovation. The firms’ current supply
network could be maintained using a performance-based contract to boost incremental
innovation (Sumo et al., 2016).

2.3 Absorptive capacity in the context of inter-firm partnership

The need for innovation leads firms to switch from orientations of purely transaction-related
business with their supply chain partners towards a long-term cooperation or strategic
alliance (Bowersox et al., 2000; Lee, 2000). Firms have utilized their partnership with supply
chain members while pursuing innovation (Lau et al., 2010; Hui et al., 2015; Sumo et al.,
2016). Supplier integration, or collaboration with firms’ main suppliers, could lower costs of
new product development, reduce engineering changes, reduce product defects, as well as
improve time to market (Monczka et al., 1998), whereas customer integration, or
collaboration with firms’ main customers, could reduce the overall development cycle time
(Callahan and Lasry, 2004).
Supply network – in terms of its accessibility and interconnectedness – is often exploited
as a source of innovation (Choi and Krause, 2006; Soosay et al., 2008; Bellamy et al., 2014). As
the supply chain relationship progressively proceeds from operational efficiency to in-depth
arrangements, both parties would focus on rich information exchange and knowledge
creation (Malhotra et al., 2005). Bellamy et al. (2014) recommended firms to seek innovative
supply chain partners, as they could contribute new ideas and engage in co-development of
IJIS products. Song and Di Benedetto (2008), as well as Sumo et al. (2016), further argued that
10,3 suppliers contribute significantly to both incremental and radical innovation.
Meanwhile, firms also take into account their customers in innovation processes (Lau
et al., 2010; Ryzhkova, 2015). As customers consume firms’ products or services, they often
wish for improvements, which they might share with the firms if they feel comfortable or see
the value of sharing these wishes. Von Hippel (1988) confirmed that customers could be
354 involved in predicting future trends, as they have knowledge about possible improvements.
Ryzhkova (2015) also showed that bringing customers in during the development of new
products would improve the probability of introducing innovation.
The progress of internalizing external know-how (either from supplier or customers) is
conceptualized as building absorptive capacity, which is defined as “a set of organizational
routines and processes by which firms acquire, assimilate, transform, and exploit
knowledge to produce a dynamic organizational capability” (Zahra and George, 2002,
p. 186). Supply chain collaboration involves information sharing and collective learning
between firms and their main suppliers or customers (Lee, 2000), which, by nature, would
increase firms’ interaction with their supply chain partners as well as their dependency on
these partners during new product or process development.

2.4 Hypothesis development

Scholars are generally positive about the relationship between innovation – both radical and
incremental – and firm performance (Hui et al., 2015; Atalay et al., 2017; Dambiski Gomes de
Carvalho et al., 2017; Jajja et al., 2017). Innovation could be measured in terms of market and
financial positions, stock-market value (Rubera and Kirca, 2012) or revenues obtained from
innovative products (Dambiski Gomes de Carvalho et al., 2017). Both radical and
incremental innovations might support firms in outperforming their competitors in this
dynamic market. Therefore, drawing from the literature, we would argue that radical and
incremental innovation would improve firm performance:
H1. (a) Radical innovation and (b) incremental innovation are positively related to firm
performance.
Studies have also established that collaboration with firms’ supply chain partners improves
their innovation (Hui et al., 2015; Iddris, 2016), as cooperation with external entities improves
organizational learning capacity (Soosay et al., 2008; Domínguez Escrig et al., 2016; Pouwels
and Koster, 2017). A strong partnership between two organizations would serve as a solid
platform to transfer knowledge and share critical resources, which are essential for
developing innovation (Atalay et al., 2017).
Further studies detailed determinants of supply chain collaboration in the context of
innovation capabilities. Hui et al. (2015) suggested that partnership selection, establishment
and sustention are three stages that are significant in pursuing supply chain collaboration,
whereas Sumo et al. (2016) suggested the importance of achievement-based contract with
suppliers to encourage firms’ innovation. They also offered evidence of performance-based
rewards in stimulating suppliers to support firms in developing not only incremental
innovation, but also radical innovation. Therefore, firms should utilize their existing
customer and supplier networks in pursuing innovation (Inauen and Schenker-Wicki, 2012;
Lau et al., 2010; Wirtz, 2011).
Drawing from these prior studies, the current study argues that the partnership between
firms and their main customers or suppliers will beneficially impact their innovation
performance:
 H2. Customer collaboration would be positively related to (a) radical innovation and (b) Leveraging
incremental innovation. supply chain
H3. Supplier collaboration would be positively related to (a) radical innovation and (b) collaboration
incremental innovation.
This study is distinct from previous studies, as it empirically investigated more dimensions
of supply chain collaboration, thus providing a more comprehensive assessment. Internal
collaboration indicates harmonized coordination and synchronized incentive schemes
355
among units within a firm in its logistic activities (Yunus and Tadisina, 2016). Internal
collaboration has been known to contribute to the development of innovation as new
product development traditionally uses internal R&D and successful innovation is
generated from a joint cooperation of cross-functional teams (Sethi et al., 2001).
However, we would argue that internal collaboration would be more likely to generate an
incremental innovation than a radical one. Radical innovation demands fundamental
changes, which firms could not simply build from their existing resources and capabilities
(Dewar and Dutton, 1986; Inauen and Schenker-Wicki, 2012). Radical innovation requires
different and complex skills (Leifer et al., 2001). It is necessary for firms to institute the most
fit organizational culture (Bakovi
c et al., 2013) and to have solid strategy and leadership
(Domínguez Escrig et al., 2016; Slater et al., 2014). Therefore, relying on the established
firms’ structures, as well as their current practices of communication and information
exchange, would not necessarily bring radical innovation.
We conjectured that:
H4. Internal collaboration would be positively related to incremental innovation.

The overall theoretical framework is depicted in Figure 1.

3. Methodology
3.1 The research context: Indonesia
Indonesia is an archipelagic country in Southeast Asia, the fourth most populous country in
the world. Indonesia also boasts the strongest economy in Southeast Asia, with an economic
growth rate of more than 6 per cent per year (The World Bank, 2015). The OECD
(Organization for Economic Co-operation and Development, which is the official economic
observer of the United Nations) reported that Indonesia experienced remarkable economic
progress after the Asian Crisis of 1998 (OECD, 2015). The economy started to slow down in
2012, and GDP growth fell below 6 per cent for the first time in 2013, but still outperformed
its ASEAN (the Association of Southeast Asian Nations, a group of ten countries that

Figure 1.
Theoretical
framework of the
relationships between
supply chain
collaboration,
innovation and firm
performance
IJIS includes Indonesia) counterparts. Indonesian economic growth continued to stabilize at the
10,3 rate of 5.0-5.9 per cent until 2016 (OECD, 2015).
However, some challenges are ahead. ASEAN countries have agreed to adopt a single
economic platform with the ASEAN Economic Community (AEC), which began earlier than
the original agreement as a collaborative endeavor to contend with the incessant invasion of
goods and services from China and Korea (Arifin et al., 2008). At the micro level, firms in
356 Indonesia have to confront the extraordinary challenges by their counterparts from ASEAN
neighbors (namely, Brunei, Cambodia, Laos, Malaysia, Myanmar, the Philippines,
Singapore, Thailand and Vietnam). Firms with a competitive advantage (i.e. the ability to
serve increasingly demanding consumers) would dominate the market. Companies offering
standard products or services will be easily replaced by innovative business rivals. Given
that a firm will not remain static but will instead constantly strive for better goods and
services, the ability to innovate is key (Tidd 2001; Rubera and Kirca, 2012; Atkinson and
Ezell, 2013). The literature is rich with studies examining the relationship between a
country’s innovation level and its competitiveness (OECD, 2013; Cainelli et al., 2004;
Rosenberg, 2004). These studies found that a high-performing country is characterized by a
strong national innovation system. This includes countries such as South Korea, which has
built a highly competitive economy from the ruins of war in the 1950s. It is a clear example
of the innovation-driven economy, which is built on high value-added and high-tech
industries, as well as on intensive research and development (Mazzarol, 2014; Noland, 2014).
Alas, Indonesia is still behind its ASEAN peers with regard to innovation. Global
Innovation Index, which is an annual publication that ranks a country’s economy based on
its ability to innovate, ranked Indonesia at number 87, a fall from 85 in 2013. Thailand and
Malaysia were ranked at 48 and 33, respectively.
Indonesia has the capacity to generate innovation that drives its economy towards the
ranks of developed countries (OECD, 2015). Yet firms in Indonesia must strive to develop
innovation capabilities that could surpass those of firms in neighboring countries. This
study contributes to this vision by providing empirical evidence of the relationship between
supply chain collaboration and innovations, both radical and incremental.

3.2 Sampling frame and survey procedure

The unit of analysis of the current study was that of Indonesian firms engaging in
collaboration with their supply chain partners. The data of the population were obtained
from Kompas Directory and PPM Database, both of which contain a list of firms in
Indonesia and their basic profile (such as type of industry, type of products or services,
number of employees and address). This study used both databases, as the newest version
of Kompas Directory, which is the main source, was two years outdated. We complemented
the sampling frame with a more accurate internal database, PPM Database and contacted
the firms.
The respondents were employees at the managerial level, ranging from managers to
CEOs and owners, who were deemed knowledgeable about innovation strategies and
collaboration practices in their organization.
The process of data collection was conducted in three stages. The first stage concerned
contacting the firms to ask for their willingness to participate, the second stage involved
sending the questionnaire and the third stage was a follow-up by email or phone. After a
seven-month data collection, this study contacted 1,482 firms and yielded a 230 usable, firm-
level data (a 15.5 per cent response rate).
Of the total respondents, the majority (or more than 60 per cent) was at the managerial
level or higher. Approximately 25 per cent served as a senior manager or GM (general
manager), and 2-3 per cent were director or owner of the company. Around 65 per cent had a Leveraging
tenure of more than years. More than 25 per cent of the respondents had more than 10 years supply chain
of experience. This profile indicated that the survey respondents are individuals who are
sufficiently competent to represent their respective company. The demographic profile of
collaboration
firms and respondents is presented in Appendix 2.

3.3 Measurement development

This study used an established measure of supply chain collaboration (Flynn et al., 2010;
357
Yunus and Tadisina, 2016) and the psychometric properties were thereby assured.
Specifically, collaboration was assessed in terms of the extent of partnership with customers
(customer collaboration, six items) and with suppliers (supplier collaboration, five items).
Aside from that, to have a comprehensive assessment, it also included internal collaboration
(five items). All items were measured using a five-point Likert scale, ranging from 1 (“not at
all”) to 5 (“intensive”).
The measure of radical and incremental innovation followed the scale suggested by the
OECD and Eurostat (2005). This measure was selected because the OECD, as the United
Nations Observer, aims to support world economy development and, thus, provides all-
encompassing economic and innovation indicators, which could be used across nations. Its
reference (that is, the OSLO Manual) has been used in OECD member countries, as well as in
other developing countries (Dambiski Gomes de Carvalho et al., 2017).
Radical innovation was operationally defined as “new or significantly improved
products introduced during the last three years that were new to your market”, while
incremental innovation was defined as “new or significantly improved products introduced
during the last three years that were only new to the firm”. As guided by the OSLO Manual
(OECD and Eurostat, 2005), both measures asked the respondents to provide the percentage
of each type of innovation of the total innovation turnover at the firm.
Revenue growth was measured using a forthright question, which asked the respondent
to assess the firm’s revenue growth in the past three years, ranging from 1 (“negative
growth”) to 10 (“more than 50 per cent growth”). Finally, firm age and size were incorporated
as control variables in the study. Firm age was calculated as the number of years since the
firm was established, whereas firm size was measured by total number of employees.
Before launching instrument in a full survey, the study was pre-tested by two professors
at a university and three research assistants. Several minor revisions were made to refine
and finalize the instrument.

4. Results
This study used two-step testing (Anderson and Gerbing, 1988) to evaluate the instrument
and test the theoretical model. Two-step testing was utilized to ensure that the instrument
has good psychometric properties and that the theoretical model, as proposed by the current
study, has acceptable goodness of fit. As such, we evaluated the instrument of this study as
the first step. After this initial approach, the theoretical model could be further tested to
provide support for the hypotheses (Anderson and Gerbing, 1988). This second step was
considered hypotheses testing. The results for each step are described below.

4.1 Instrument evaluation

This study used CFA (confirmatory factor analysis) using LISREL 9.1 (Jöreskog and
Sörbom, 1993) to assess the unidimensionality of each scale. After deleting three items
because of their poor loading, the results of the goodness-of-fit indices for the scale were as
follows x 2(51) = 67.18; x 2/df = 1.32; CFI = 0.982; NFI = 0.930; GFI = 0.958; NNFI = 0.972;
IJIS RMSEA = 0.037. The statistics indicated that all scales were unidimensional, as the
10,3 goodness-of-fit indices were above 0.90 and RMSEA was less than 0.08 (Gerbing and
Anderson, 1988).
Reliability and validity were then assessed to finalize the instrument evaluation. This
study computed the composite reliability for all variables, as presented in Table I. All of the
values exceeded the threshold of 0.70, indicating good reliability (Hair et al., 2006). In terms
358 of validity, this study measured two indicators: convergent validity and discriminant
validity. As previously mentioned, three items were deleted due to very poor loading
(specifically, Cust1, Cust2 and Cust6). After each deletion, the CFA was rerun with the
remaining items. All t-values were greater than the thresholds. Some of the factor loadings
were slightly below the 0.50 cutoff value (Anderson and Gerbing, 1988); however, we still
kept these items because they were considered important to measure their respective
variables (Chen and Paulraj, 2004; Flynn et al., 2010; Yunus and Tadisina, 2016).
Discriminant validity was then assessed using chi-squared difference tests (Bagozzi et al.,
1991; Raykov and Marcoulides, 2000). All x 2 differences were significant, indicating good
discriminant validity of the scales (as shown in Table II).
Furthermore, we performed a series of assumption checks on the data, specifically,
normality, homoscedasticity and multicollinearity assumptions. Before that, non-response
bias was diagnosed over all variables (Armstrong and Overton, 1977). We compared 10
per cent of the data gathered at the beginning of the survey (rounded up to 30 data points)
with 10 per cent of the data obtained at the end of the survey. The t-test showed insignificant
results (specifically, the p-values were 0.06, 0.31, 0.19, 0.53, 0.15 and 0.34, respectively, for
customer collaboration, supplier collaboration, internal collaboration, radical innovation,
incremental innovation and revenue growth). This approach confirmed that non-response
bias did not occur in this study.
Normality distribution was checked through skewness and kurtosis indicators. For all
the hypothesized variables, skewness and kurtosis fell below 61.5 (Keppel and Wickens,
2004), ranging from 0.012 to 1.042 for skewness and 0.055 to 1.189 for kurtosis, indicating a
normal distribution. A Levene test was then used to assess homoscedasticity. The Levene

First-order construct Items Loading t-value Composite reliability

Customer collaboration (CC) Cust1 Deleted – 0.765

Cust2 Deleted –
Cust3 0.783 9.42
Cust4 0.643 8.90
Cust5 0.734 9.96
Cust6 Deleted –
Supplier collaboration (SC) Sup1 0.720 8.50 0.804
Sup2 0.700 7.31
Sup3 0.662 8.84
Sup4 0.638 10.05
Sup5 0.634 7.79
Internal collaboration (IC) Inter1 0.835 9.52 0.766
Table I. Inter2 0.748 10.21
Inter3 0.557 8.29
Reliability and Inter4 0.480 9.08
validity of the supply Inter5 0.491 7.32
chain collaboration
constructs Note: Radical innovation, incremental innovation and firm performance are a one-item scale
 Age Size CC SC IC RI II Growth
Leveraging
supply chain
Age collaboration
Size 0.475**
CC 0.170* 0,169* 42.45**(a) 33.87**(a)
SC 0.128 0.084 0.597** 42.88**(a)
IC 0.092 0.098 0.590** 0.479**
RI 0.049 0.016 0.000 0.198** 0.134 359
II 0.125 0.025 0.030 0.078 0.085 0.094
Growth 0.051 0.157 0.033 0.139 0.089 0.296** 0.305**
Mean 26.30 4.00 4.15 2.95 3.69 25.86 27.74 5.06
SD 22.37 2.05 1.65 1.72 1.55 23.36 21.21 2.17

Notes: Legend: CC = Customer collaboration; SC = Supplier collaboration; IC = Internal collaboration; RI =

Radical innovation; II = Incremental innovation; **significant at the 0.01 level (two-tailed); *significant at
the 0.05 level (two-tailed). (a)Chi-square differences; only multi-item variables were assessed for discriminant Table II.
validity Correlations

statistic for all variables was not significant (specifically, ranging from 0.459 to 0.989),
showing no evidence of heteroscedasticity. The multicollinearity assumption was further
checked using Tolerance and VIF (Variance-Inflation Factor), using a cut-off of above 0.1 for
Tolerance and below 4.0 for VIF (Hair et al., 2006). The Tolerance statistics ranged from
0.560 to 0.661, while the VIF statistics ranged from 1.512 to 1.785, confirming that
multicollinearity was not an issue.
Furthermore, to detect a possible common method bias, this study performed Harman’s
single factor test (Podsakoff et al., 2003). The EFA (exploratory factor analysis) for all 19
items resulted in seven underlying factors with eigenvalue greater than 1.0. These seven
factors explained 67.46 per cent of the variance in the data. The first factor accounted for
21.52 per cent, which did not indicate a major factor explaining the variance (Podsakoff
et al., 2003).

4.2 Hypotheses testing

Figure 1 depicts the hypothesized research model. It was conjectured that each dimension of
supply chain collaboration would affect different types of innovation (i.e. radical innovation
and incremental innovation). A higher degree of customer collaboration or supplier
collaboration would be positively related to both radical and incremental innovations
launched by a firm, whereas internal collaboration would only be related to incremental
innovation.
This study performed hypotheses testing using LISREL 9.1 (Jöreskog and Sörbom, 1993).
The full model showed a good fit ( x 2(67) = 94.99; x 2/df = 1.42; CFI = 0.97; NFI = 0.90; GFI =
0.95; NNFI = 0.95; RMSEA = 0.043).
The results showed that firm age was the only control variable that asserted a significant
influence on innovation: particularly, on incremental innovation (t-values = 2.59, p < 0.05),
whereas firm age did not. Neither firm age nor firm size was significantly related to radical
innovation. The significant and positive relationship between firm age and incremental
innovation suggested that the more mature the firm (in terms of age), the more incremental
the innovation generated by that firm.
The first set of main hypotheses proposed a positive relationship between both radical
innovation and incremental innovation on firm growth. The results were significant and
IJIS positive, as conjectured (t-values = 3.90 and 4.70, p < 0.01, respectively). These results
10,3 supported H1a and H1b.
The second set of main hypotheses predicted that the degree of customer collaboration
(CC) would have a positive influence on innovation. The results showed that, contrary to
our conjecture, CC was significantly and negatively related to radical innovation (t-values =
–2.89, p < 0.05). This result failed to provide support for H2a. Yet, as expected, CC was
360 significantly and positively related to incremental innovation (t-values = 2.13, p < 0.05),
indicating support for H2b.
The third set of main hypotheses argued that supplier collaboration (SC) would be
positively related to radical innovation (H3a), as well as to incremental innovation (H3b).
The result confirmed the first hypothesis; that is, SC was positively related to radical
innovation (t-values = 3.31, p < 0.01), but failed to provide enough evidence for the
significant relationship between SC and incremental innovation (that is, no support for H3b).
Finally, the third set of main hypotheses was associated with internal collaboration (IC).
The analysis revealed that the relationship between IC and incremental innovation was not
significant. The result indicated no support for H4. All results are shown in Table III and
depicted in Figure 2.

5. Discussion
This study aims to examine the relationships between supply chain collaboration and the
extent of innovation launched by firms. It provides empirical evidence of firms in Indonesia,
which is an emerging country with a significant economic growth. The results imply an
essential underpinning for firms engaging in long-term partnerships with their main
customers and suppliers.
The first finding is related to the impact of firms’ characteristics on innovation. This
study confirmed previous studies on the positive impact of firm age on innovation (Wagner
and Hansen, 2005; Coad et al., 2016). As firms become more mature, they can sustain their
existence in the market by generating improvements of their current products. This could
happen naturally, hence the significant relationship. On the other hand, neither firm age nor
firm size brings significant impact on radical innovation. This finding is equally justified
because of the contrasting processes of radical innovation, as compared to that of
incremental innovation. Radical innovation requires systematic, structured and
sophisticated methodologies (Henderson and Clark, 1990; Leifer et al., 2001). Being large in
size and mature in age would not necessarily generate a breakthrough innovation for firms;
on the contrary, both attributes could hinder innovation as firms become more structured,

Path (From-To) (t-value) Conclusion

Radical innovation – Revenue growth 3.90** H1a supported

Incremental innovation – Revenue growth 4.70** H1b supported
Customer collaboration – Radical innovation 2.89* H2a not supported
Customer collaboration – Incremental innovation 2.13* H2b supported
Supplier collaboration – Radical innovation 3.31** H3a supported
Supplier collaboration – Incremental innovation (n.s.) H3b not supported
Internal collaboration – Incremental innovation (n.s.) H4 not supported
Table III.
Results of the Notes: Fit indices: x 2(487) = 94.49, x 2/df = 1.42, CFI = 0.97, NFI = 0.90, GFI = 0.95, NNFI = 0.95, RMSEA =
hypotheses testing 0.043; *significant at p < 0.05; **significant at p < 0.01; (n.s.) not significant
 Leveraging
supply chain
collaboration

361

Figure 2.
The result of
structural equation
modeling

hierarchical and formal (Blau, 1970) and, thus, difficult to transform (Wessel, 2012; Atalay
et al., 2017; Pouwels and Koster, 2017).
This study validates previous findings related to the positive relationship between
innovation and firm performance (Walker et al., 2015). Nevertheless, this study provides a
contribution to the literature, as it brings more empirical evidence of the current mixed-
result literature (Rubera and Kirca, 2012). This study further enriches our understanding on
the innovation practices of an emerging economy, especially the distinct impact of supply
chain collaboration on different types of innovation.
The main findings are related to supply chain collaboration. This study distinguishes
supply chain collaboration into its dimensions, that is, customer collaboration, supplier
collaboration and internal collaboration, as each aspect could bring different influence on
firms’ business practices (Yunus and Tadisina, 2016).
Customer collaboration refers to a close partnership between firms and their main
customers (Bowersox et al., 2000; Flynn et al., 2010). This alliance could bring fruitful
benefits for firms while developing innovation, particularly in the form of collaborative
creativity. Consumer knowledge is deemed an asset, and firms gradually embrace their
consumers when developing their latest offerings (Fidel et al., 2015). Yet consumer response
to new products could be counterintuitive, as radical innovation indicates a high level of
uniqueness, not only for firms, but also for the market. This study corroborates with
Gassmann et al. (2010) study by providing evidence for the negative impact of customer
collaboration on radical innovation. This negative impact implies that consumers react
unfavorably towards firms’ innovation (Stock and Zacharias, 2013). Certain customers are
conservative, and thus, they resist breakthrough products or radical changes to the existing
products (Heiskanen et al., 2007). Firms might not be willing to depart from or cannibalize
their existing products to generate radical innovation (Chandy and Tellis, 1998).
Engaging in a long-term, close partnership with firms’ main suppliers actually brings
leverage to generate radical innovation. This study provides empirical evidence of the
positive impact of supplier collaboration on radical innovation, as also conceptualized by
IJIS previous studies (Bellamy et al., 2014). However, we are puzzled by the contrary finding,
10,3 where supplier collaboration does not affect the extent of incremental innovation. This
departure from the hypothesis might because organizational cultures and industry types
play a role in the successful of developing new products or processes (Khazanchi et al., 2007;
Weerawardena et al., 2006). This study is not designed to investigate the industry effect,
which could alter the relationship between supplier collaboration and incremental
362 performance.
Furthermore, internal collaboration turns out to pose insignificant effects towards
incremental innovation. We would argue that close collaboration among departments within
a firm does not warrant innovation, but rather, it might support a close partnership between
the firm and its external supply chain partners. The paths leading internal collaboration to
customer collaboration and to supplier collaboration are merely hypothetical, yet this
postulation is worth further study.

6. Conclusion
6.1 Unique contribution to theory
This study contributes to the literature by providing empirical evidence of the positive
impact of supply chain collaboration on innovation. Specifically, collaboration between
firms and their main suppliers results in radical innovation, while collaboration with firms’
main customers brings incremental innovation. This study also affirms the positive
relationship between radical and incremental innovation on firm performance. It
particularly highlights the negative impact of partnering with customers on radical
innovation, as customers may resist drastically changed products that are beyond their
comprehension. These findings should extend our knowledge regarding supply chain
collaboration and radical-incremental innovations, building upon the existing Western-
context studies.

6.2 Implications for practice

These findings provide an essential foundation for managers to continuously create and
develop innovation, as it boosts their firm’s performance. In pursuing radical innovation,
managers are advised to consult with their suppliers. This study recommends that
managers develop a long-term partnership with their main suppliers to engage in a co-
development of new products or services. Their supplier network should be considered as an
asset, which could be constructively exploited for the firms’ benefit. The gain of radical
innovation would also be valuable for their main suppliers, in view of the fact that the
suppliers – who jointly develop the innovation – would obtain more customized orders from
the firm. Over time, as their relationship becomes stronger, both parties will trust each other
for more innovations, and thus, the collaboration would be sustainably rewarding.
In addition, customers might be able to give valuable insights into improvements of a
firm’s current products or services. Nevertheless, managers should be aware that
breakthrough ideas may meet with customers resistance. Managers should mainly involve
their customers in developing incrementally new products; otherwise, they should invest
time and effort in educating their customers to buy their ideas. As a matter of fact, if
communicated properly and convincingly, radical innovation might yield superior firm
performance, more than the improved performance obtained from incremental innovation.
Business practices are abundant with examples of successful radical innovation, such as the
first version of the iPod, the digital camera, Google or Twitter.
6.3 Limitations of the study and future research Leveraging
This study contributes to the literature by providing empirical evidence from Indonesia, a supply chain
fast-growing emerging country. The findings enhance our comprehension of supply chain
collaboration and innovation. However, this study acknowledges a few limitations, and thus,
collaboration
its findings should be interpreted with some caveats.
First, this study uses a single measure of radical and incremental innovation. While this
design is justified (OECD and Eurostat, 2005), using a more comprehensive measure would
bring value to future studies.
363
Second, this study only captures the impact of supply chain collaboration on innovation –
as well as the impact of innovation on firm performance – on a cross-section basis. Future
research should employ a longitudinal study to enhance the validity of the results.

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Further reading
368
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Appendix 1. Measures
Customer collaboration (composite reliability: 0.765; cronbach’s alpha: 0.709)
To what extent does your enterprise collaborate with key customers?
 Cust1.Your enterprise is connected to key customers through a network of information
systems (e.g. ERP/enterprise resource planning, EDI/electronic data interchange or a
joint-information system) (deleted).
 Cust2.Your enterprise has established a quick ordering system with key customers (i.e.
customers can order online) (deleted).
 Cust3.Your enterprise communicates regularly with key customers to ensure the
products or services meet the needs or demands of the customers (e.g. maintain contact
once a week, once a month, etc.) (Loading = 0.783; t-value = 9.42).
 Cust4.Your enterprise assigns a key account or a representative to manage the
relationship with each of your key customers (0.643; 8.90).
 Cust5.Your enterprise establishes long-term strategic partnerships with key customers
(0.734; 9.96).
 Cust6.Your key customers participate in your innovation processes (either product,
process, marketing or organizational innovations) (deleted).

Supplier collaboration (0.804; 0.771)

To what extent does your enterprise collaborate with key suppliers?
 Sup1.Your enterprise is linked to key suppliers through an information network (e.g.
ERP/enterprise resource planning, EDI/electronic data interchange or a joint-information
system) (0.720; 8.50).
 Sup2.Your enterprise has established a quick ordering system with key suppliers (i.e.
your enterprise can place raw-materials orders online) (0.700; 7.31).
 Sup3.Your enterprise communicates regularly with key suppliers to ensure that raw
materials meet your enterprise’s requirements (e.g. maintain contact once a week, once a
month, etc.) (0.662; 8.84).
 Sup4.Your enterprise assigns a key account or a representative to manage the
relationship with each of the key suppliers (0.638; 10.05).
 Sup5.Your key suppliers participate in your innovation processes (either product,
process, marketing or organizational innovations) (0.634; 7.79).
Internal collaboration Leveraging
To what extent the integration and coordination within your enterprise? supply chain
 Inter1.The entire units within your enterprise are linked through a network of collaboration
information-systems (e.g. ERP/enterprise resource planning or a company-built
information system) (0.835; 9.52).
 Inter2.Key units within your enterprise (e.g. finance, production and marketing) are
linked through a network of information systems (e.g. ERP or equivalent) that allows 369
online exchange of information (0.748; 10.21).
 Inter3.Your enterprise can access the level of inventory on-line and real time (0.557; 8.29).
 Inter4.Units within your enterprise coordinate periodically, either through a face to face
meeting or online (0.480; 9.08).
 Inter5.Your enterprise utilizes cross-functional teams (or interdepartments) to actively
contribute to the innovation processes (either product, process, marketing or
organizational innovations) (0.491; 7.32).

Appendix 2. Profiles of firms and respondents

Sector Frequency (%)

Financial and insurance activities 35 15.2

Information and communication 15 6.50
Manufacture of pharmaceuticals, chemical drug products and botanical products 13 5.60
Real estate activities 12 5.20
Manufacture of motor vehicles, trailers and semi-trailers 11 4.70
Education service sector 11 4.78
Construction sector 11 4.78
Transportation and storage 11 4.78
Mining and excavation sector 10 4.34
Manufacture of food products 8 3.47
Agriculture, forestry and fishery sector 7 3.04
Manufacture of computer, electronic and optical products 6 2.60
Electricity, gas, steam and air conditioning supply 6 2.60
Manufacture of rubber and plastics products 5 2.17
Other manufacturing 5 2.17
Human health and social work activities 5 2.17
Manufacture of chemicals and chemical products 4 1.73
Manufacture of machinery and equipment n.e.c. 4 1.73
Administrative sector, defense and social security service 4 1.73
Manufacture of other non-metallic mineral products 3 1.30
Manufacture of beverages 3 1.30
Wholesale and retail trade; repair of motor vehicles and motorcycles 3 1.30
Manufacture of fabricated metal products, except machinery and equipment 2 0.86
Manufacture of basic metals 2 0.86
Manufacture of wearing apparel 2 0.86
Manufacture of electrical equipment 2 0.86
Accommodation and food service activities 2 0.86
Manufacture of paper and paper products 1 0.43
Manufacture of tobacco products 1 0.43
Manufacture of coal and refined petroleum products 1 0.43
Manufacture of other transport equipment 1 0.43 Table AI.
Missing 24 Firms
IJIS (%)
10,3
Title
Owner 3.9
Director or equal 7.4
Senior Manager, General Manager or equal 25.7
Manager or equal 26.5
370 Supervisor 19.1
Staff 17.4
Tenure
Less than 3 years 37.0
3 to less than 5 years 17.0
5 to less than 7 years 10.4
Table AII. 7 to less than 10 years 8.3
Respondents 10 years or more 27.4

Corresponding author
Erlinda N. Yunus can be contacted at: erl@ppm-manajemen.ac.id

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