Creating value in supply chains : suppliers' impact on value for customers, society and shareholders

This dissertation deals with the question how suppliers contribute to creating value in supply chains. The last decades have been characterized by increased specialization of business activities and, consequently, firms have outsourced between 50% and 80% of their business activities to suppliers. Accordingly, purchasing and supply management receives growing interest from both managers and academics. Traditionally, the focus of purchasing and supply management was on attaining superior cost reductions from suppliers. However, today companies increasingly acknowledge suppliers as a source of competitive advantage. Suppliers not only determine the firm’s cost position, they are also crucial for matters such as innovation, reduction of their ecological footprint and improved customer value propositions. Suppliers thus have become important facilitators of value creation processes necessary to effectively compete in a global market. Despite the value potential of suppliers, the understanding of how suppliers contribute to the value creation processes of a firm is still poorly defined. The first challenge is to define the concept of value. In this dissertation we have explained that the value concept can be differentiated into three sub concepts i.e. customer value, societal value and shareholder value. Firms need to respond to ever changing customer demands. Also, firms need to compete for the acquisition of scarce (natural and social) resources, and are expected to operate in a sustainable and socially responsible manner. Next, shareholders and investors want to see satisfactory financial returns. Business practitioners thus face an intriguing challenge how to cope with the complexity and dynamics of satisfying different stakeholder requirements and expectations in parallel. Today, firms cannot cope with these challenges individually. They need to do this in close collaboration with the partners that make up their supply chains. In this dissertation, we investigate how firms create value together with their suppliers. For this purpose we use insights from the resource dependence theory, the resource-management view and the stakeholder theory. Inspired by stakeholder theory, we have identified three important stakeholder groups: customers, society and shareholders. Next, we have used the resource management theory, a recent offspring of the resource-based theory, to describe the mechanisms through which a firm creates value and satisfies these three stakeholder groups. Finally, with the resource dependence theory we have described the role of suppliers in the efforts to create value. Accordingly, the central research question in this dissertation is: What is the impact of suppliers on the ability of a focal firm to satisfy its customers, society and shareholders? We investigate this research question by means of three studies, each representing a different stakeholder perspective, theoretical focus and research objective. In the first study we examine how firms realize customer satisfaction through market orientation and innovativeness. The second study examines the effects of Corporate Social Responsibility (CSR) and innovativeness on a focal firm’s CSR reputation and customer satisfaction. The third study addresses the shareholder perspective by looking at the interaction effects of market orientation, CSR orientation and supplier orientation in relation to current and expected financial firm performance. The research objective and research question calls for a unique research design that examines multiple parties operating in a supply chain. By means of a survey, data were collected from three members along a coherent supply chain: a supplier, a focal firm and a customer. In total 88 sets of these supply chains have been used for this research. The results contribute to the understanding of value creation in supply chains. Creating Customer Value through Market Orientation and Innovativeness The objective of the first study was to understand how suppliers enable a focal firm to realize customer satisfaction by means of market orientation and innovativeness. We have introduced the concept of a supplier’s end-user orientation to describe the supplier’s processes and activities directed at satisfying the customer of the focal firm (in this study referred to as the end-user) through continuous needs assessment. By doing so, the first study aimed to understand whether a supplier’s end-user orientation and a supplier’s innovativeness increase customer satisfaction, either directly or indirectly. The research question of the first study was: What is the impact of a supplier on the ability of a focal firm to achieve customer satisfaction through market orientation and innovativeness? Based upon our research results, the direct effects of market orientation on customer satisfaction seem rather limited. Within the focal firm, market orientation clearly is a driver of innovativeness. Our results show that the focal firm’s market orientation and the supplier’s end-user orientation do not relate to each other. Neither did we find a relationship between a supplier’s end-user orientation and a supplier’s innovativeness. However, a supplier’s innovativeness positively contributes to the focal firm’s innovativeness and the focal firm’s innovativeness positively contributes to customer satisfaction. In conclusion, it seems that a market orientation is primarily an enabler of innovativeness at the level of the individual firm, rather than at the level of supply chain relationships. Next, supplier innovativeness acts as a driver of a focal firm’s innovative response to its customers. The first study thereby stresses the strategic relevance of developing relationships with innovative suppliers, especially when the focal firm seeks opportunities to strengthen its innovative capabilities. Creating Societal Value: Corporate Social Responsibility and Innovativeness The second study of this dissertation examined the question how firms realize societal value through Corporate Social Responsibility (CSR) and innovativeness. Societal value is a difficult concept to grasp because it encompasses considerations of governments, consumers, action groups and local communities. For the purpose of this dissertation, we assess societal value by an evaluation of the focal firm’s CSR reputation by the customer. The study was aimed at assessing whether, and to what extent, CSR drives innovation, both at the individual company level and at the supply chain level. The positive effects of CSR on the firm’s innovation processes had been suggested by other researchers, but were not empirically investigated yet. We expected that the CSR orientation and innovativeness would affect both customer satisfaction and the firm’s CSR reputation at the customer. The research question of the second study therefore was: What is the impact of a supplier on the ability of a focal firm to act socially responsible and foster its CSR reputation and customer satisfaction? The results suggest that CSR orientation and innovativeness are strongly related, within both the focal firm and the supplier firm. Adopting a CSR orientation raises the focal firm’s CSR reputation which, similarly to the firm’s innovativeness, accounts for increased customer satisfaction. Also in this study we found that a supplier’s innovative capabilities foster the focal firm’s innovative capabilities. However, we did not find a relationship between supplier’s CSR orientation and the focal firm's CSR orientation. During our analysis, we found an unexpected negative relationship between a supplier’s CSR orientation and a focal firm’s innovativeness. Although this relationship warrants more research, it seems that managing for supplier CSR compliance only, does not allow for an exchange of information, knowledge and new ideas, as is often seen with rigid supplier codes of conduct. While the direct effect is negative, the indirect effect via a supplier’s innovativeness turns out positive. The indirect relationship seems to allow for a richness of information and exchange of new ideas that benefit the focal firm. With respect to the research question underlying the second study, we may conclude that adopting a CSR orientation, both internally and externally, may work out positively on the firm’s innovativeness. CSR orientation impacts the focal firm’s CSR reputation in a direct way. Firm Performance: Managing for Multiple Stakeholders The third study of this dissertation combined insights from the first two studies to examine market orientation, CSR orientation and supplier orientation in relation to a firm’s current and expected financial performance. The concept of a focal firm’s supplier orientation was introduced to describe the focal firm’s activities directed at developing and operating an excellent supply base. Based upon stakeholder theory, we examined the interaction effects of market orientation, CSR orientation, and supplier orientation on innovativeness and financial performance. The research question of the third study was: What is the impact of multiple orientations at a focal firm and its suppliers on the ability of a focal firm to achieve current and expected firm performance? The results of the third study showed that external orientations mediate – instead of interact – at the level of the individual firm. That is, they affect each other instead of influencing the impact on innovativeness or performance. We found (again) that the external orientations affect the individual firm, while innovativeness connects supply chain partners. The answer to the third research question is that two variables influence superior firm performance: a focal firm’s supplier orientation impacts current performance, and a focal firm’s innovativeness affects expected future performance. Supplier’s innovativeness fosters focal firm’s innovativeness and indirectly affects expected future performance. It thus seems that a firm’s collaboration with suppliers will support the firm to achieve financial returns today, as well as achieving good financial results for the future. General Outcomes Based upon the outcomes of the three studies, we are able answer the overall research question of this dissertation: What is the impact of suppliers on the ability of a focal firm to satisfy its customers, society and shareholders? On the one hand, we found no evidence for a direct impact of suppliers on the value created for the different stakeholders targeted. On the other hand, we found positive evidence for a supplier’s impact on the focal firm’s ability to respond to different stakeholders. Three observations are essential for reflecting on the overall research question. Firstly, in each of the studies we found that supplier’s innovativeness is a key driver of the focal firm’s innovativeness. Through innovativeness, the focal firm is able to serve customers better and realize superior financial performance. The results thus seem to suggest that a supplier’s innovativeness increases the focal firm’s ability to deliver value to customers, society and shareholder. Because the effects of the supplier are input for the focal firm, the results assign a crucial role to the focal firm to enable, facilitate and leverage supplier’s innovativeness. Secondly, we have found that the attitude of the focal firm towards its suppliers, i.e. the focal firm’s supplier orientation, affects the firm’s current financial performance. The role of suppliers and supply management thus seems important and is twofold. The firm’s supply management practices allow a firm to realize superior firm performance today. At the same time these suppliers are a source for innovation that can anticipate future developments and assure future performance. Thirdly, our findings suggest where we should not search for added value in supply chain relationships. The results indicate no relationship between a focal firm’s market orientation and a supplier’s end-user orientation; neither do we see that CSR-oriented firms relate to CSR-oriented suppliers. In contrast to the concept of strategic fit suggested by other researchers, we found that market orientation, CSR orientation and supplier orientation seem more relevant for innovation within the firm rather than in buyer-supplier relationships. We may conclude that a combination of external orientations and supplier’s innovativeness allow a firm to realize value for customers, society and shareholders. Contribution to academic research The dissertation theoretically contributes to academic research in several ways. The first theoretical contribution stems from the use of three complementary theoretical perspectives: the resource dependence theory, the resource management view and the stakeholder theory. Especially the resource management view has proved valuable to explaining how firms create value for customers, society and shareholders. The research results provide an extension of the resource management view with two additional considerations. The first extension is the further specification of the external orientations that guide internal resource management practices. Firms benefit from adopting multiple external orientations, such as market orientation, CSR orientation and supplier orientation. These external orientations foster different qualities of the firm and thereby jointly increase overall firm performance. The second extension of the resource management view, based on our results, is that while individual external orientations are an internal driver of innovativeness, our results have demonstrated another, external, driver of focal firm’s innovativeness, i.e. supplier’s innovativeness. The second contribution to academic research relates to the pivotal role of innovativeness in the research results. The results build a strong case for the concept of open innovation. The central idea behind open innovation is that knowledge has become so widely distributed that firms cannot afford to rely entirely on their own resources for their innovation strategies. The results demonstrate that, next to internal sources of innovation, external sources of innovation help to attain competitive advantage. Supplier’s innovativeness emphasizes the role of suppliers in the concept of open innovation. The third theoretical contribution is to the field of purchasing and supply management. The results have shown that suppliers do not directly affect the customer. Suppliers, though, prove to be valuable to the innovation processes of the focal firm. Also, a supplier orientation has shown a valuable concept for boosting a firm’s current performance. The research results show that a value-orientation in purchasing and supply management contributes to realizing current and future firm performance. Implications for practitioners For business practitioners our findings emphasize the importance of innovativeness in satisfying customers and in achieving superior performance. A firm’s innovativeness is driven by two sources: internal as well as external sources. Internally, innovativeness is triggered by a firm’s external orientations such as market orientation and CSR orientation. Externally, a firm’s innovative capability is affected by the innovative capability of the suppliers the firm lines up with. We briefly explain the internal and external sources for innovation. Our results have shown that combining different stakeholder perspectives and requirements in business activities positively contributes to overall firm performance. Although market orientation has become fashionable among practitioners, CSR orientation and supplier orientation are not yet common practice. Based on the outcomes of this dissertation, we recommend investing in CSR as a driver of innovation. Next, supplier relationship management is essential to increase the competitiveness of the firm. The results of the dissertation suggest it is worth pursuing all these different stakeholder orientations at the same time. If firms want to actively pursue an innovative strategy, it is vital to initiate relationships with suppliers that have superior innovative capabilities. Establishing relationships with innovative suppliers may require a different attitude with regards to supplier selection and supplier relationship management. Firms seem better off establishing sophisticated selection processes that are not primarily driven by achieving lowest transaction costs. Rather, firms should prefer to cooperate with suppliers that are innovative and that are willing to share skills, and abilities. Next, after contracts have been put in place, practitioners need to continue their efforts to enable suppliers to share their best and most up-to-date knowledge with the focal firm. A contract, however, will not assure the supplier’s best efforts. Not only purchasing and supply management, but all disciplines that potentially benefit from supplier knowledge, have to invest in the buyer-supplier relationship. As our research has demonstrated, new ideas from suppliers are an important external trigger for developing more innovative customer solutions, environmentally friendly business processes and, hence, a solid basis for future firm performance.