The impact of deep vertical supply chain relationships upon focal-firm innovation performance

Managers increasingly invest in relationships with suppliers and customers to stimulate innovation. Existing literature has demonstrated the potential for diminishing returns to the breadth of relationships but less attention has been paid to the depth of relationships. We combine resource based theory with social capital perspectives to consider the depth of vertical inter-firm relationships and their impact on innovation for a focal firm. Using multivariate analysis to examine supplier-led and user-led innovation across firms in five UK industries (aerospace, ceramics, information technology, medical equipment and textiles) we find that embedded relationships in either direction can lead to both product and/or process innovation. However, with further depth of embeddedness, simultaneous and varied effects on product and process innovations occur. Our findings suggest that managers need to understand the unique dynamics of relationship depth (in addition to breadth) upon product and process innovation otherwise the focal firm may waste managerial effort and resources in relationship building.