Ambidextrous governance in supply chains: the impact on innovation and cost performance.
"We know from our history that while promotions may win quarters, innovation wins decades," Bob McDonald, CEO of Procter & Gamble (Brown & Anthony, 2011).
The paradigm that innovativeness positively impacts company performance seems to be true today more so than ever (Menguc & Auh, 2010). However, the combination of this paradigm with the increasing complexity and speed of new product development initiatives requires the integration of external partners with specialized knowledge and skill sets (Bercovitz & Feldman, 2007). The cradle for innovations is therefore often to be found in the supply base, which has progressively taken over more responsibilities for both product and process innovations (Simpson, Siguaw, & White, 2002; Tyndall, Gopal, Partsch, & Kamauff, 1998). To better manage and promote such interaction, companies aspire to engage in closer supplier collaboration, for example in the form of innovation alliances (Muller & Valikangas, 2002) and "open innovation" networks (Chesbrough, 2003). Together with the trend of companies to focus on their core competencies, this has elevated the supply chain management function, especially in terms of the procurement of new technologies and innovations, and positioned it as a key strategic element for the competitive performance of firms (Hill & Rothaermel, 2003; Nicholls-Nixon, 1995; Rothaermel & Alexandre, 2009). As such, the development of supply chain management capabilities focusing on innovation is seen as a key competitive weapon (Craighead, Hult, & Ketchen, 2009; Wynstra, van Weele, & Axelsson, 1999). This stands, however, in stark contrast to the traditional, more cost-focused approach of supply chain management, which may have penalized innovative suppliers for their higher cost structures (Verma & Pullman, 1998).
Recently, pursuing the objective of "getting the best of both worlds," the concept of ambidexterity has gained momentum not only as organizational ambidexterity on the firm level, but also in the area of supply chain management (Kristal, Huang, & Roth, 2010). The origin of ambidexterity research can be traced back to Duncan (1976) and Tushman and O'Reilly (1996), who put forward the notion that ambidexterity can help to unite two apparently contradicting objectives or capabilities for improved firm performance. The concept has been applied primarily in the area of organizational learning and organizational adaption and design (Raisch & Birkinshaw, 2008), where scholars focused on the trade-off situations of (innovation) exploration versus (innovation) exploitation (e.g, He & Wong, 2004; Levinthal & March, 1993; March, 1991) or the trade-off between efficiency and flexibility (e.g., Duncan, 1976; Thompson, 1967). Common to most of these studies, however, was their focus on a single organization, calling for an extension to examine organizational ambidexterity across company boundaries, that is, across the supply chain (Kristal et al., 2010; Raisch, Birkinshaw, Probst, & Tushman, 2009). The present study follows this call.
Early advances of placing ambidexterity within the wider context of supply chain management were made by Ern and Rai (2008), who looked at knowledge sharing in long-term supplier relationships, and by Kristal et al. (2010) and Tolcman, Richey, Marino, and Weaver (2007), who examined exploitation and exploration in supply chain management. In addition, the performance impact of ambidexterity in strategic alliance formations was investigated by Lin, Yang, and Demirkan (2007), and Rothaermel and Alexandre (2009) studied ambidexterity in technology sourcing. Recently, Patel, Terjesen, and Li (2012) investigated the role of ambidexterity with respect to manufacturing flexibility. Despite these recently added insights, the literature is still lacking an investigation of ambidextrous governance in buyer--supplier relationships impacting innovation and cost performance, as well as contingencies that may moderate this impact. We address this research gap with the present study.
Specifically, basing our arguments on complementarily theory as well as on transaction cost economics (TCE) and relational exchange theory (RET), we posit that to achieve innovation and cost performance, ambidextrous governance is essential in the buying organization. In delineating our expectations, we borrow from the research stream on governance mechanisms in supply chain management, which has shown that the simultaneous pursuit of multiple governance mechanisms, such as relational and contractual governance, can overcome trade-offs and lead to synergistic results (e.g., Bradach & Eccles, 1989; Cannon, Achrol, & Gundlach, 2000; Poppo & Zenger, 2002). We thus conceptualize the pursuit of both relational and contractual governance mechanisms as being indicative of ambidextrous governance. In combining the research streams on ambidexterity and governance mechanisms, we seek to answer the question of whether ambidextrous governance leads to higher levels of innovation and cost performance within a supply chain context.
We further integrate the notion that ambidexterity is a complex phenomenon that can manifest itself at the organizational level (Bledow, Frese, Anderson, Erez, & Farr, 2009). As such, we conceptualize organizational ambidexterity as the simultaneous pursuit of both innovation exploration and innovation exploitation. While the former refers to the pursuit of innovation practices, for example to enter new product domains, the latter considers the pursuit of practices increasing the market efficiency of existing products. Using this concept, we theorize about its contingent (moderating) role in the relationship between ambidextrous governance and performance dimensions.
Extending the contingency perspective to external contextual factors, we further theorize that there is a moderating impact of demand uncertainty and product complexity on the governance--performance relationship. Motivation to include these contingencies was provided by demand uncertainty representing a strong driver for innovation investments (Guiso & Parigi, 1999), and by product complexity being able to influence the effectiveness of governance mechanisms (Mesquita & Brush, 2008). We suggest that ambidextrous governance may be less effective under conditions of greater levels of demand uncertainty and product complexity.
We investigate these relationships with an empirical survey in the manufacturing industry. Our approach distinguishes itself by the solicitation of two respondents per firm, that is, the chief procurement officer and a procurement manager responsible for governance, enhancing the rigor of our research design. Within this context, the contributions of our study are threefold. First, we address ambidexterity from a firm-level and relationship-specific perspective and suggest ambidextrous governance to be an effective mechanism able to yield both innovation improvements and cost reduction benefits derived from suppliers. This complements earlier research on the complementarity of governance mechanisms, extends research on ambidexterity to the supply chain domain, and provides practitioners novel insight in the newly emerging field of innovation sourcing. It also addresses a research gap identified by Raisch and Birkinshaw (2008, p. 393), who noted that "despite the rapidly expanding number of studies referring to organizational ambidexterity, empirical tests of the ambidexterity--performance relationship remain scarce." Moreover, our data highlight the moderating role of organizational ambidexterity on the link between ambidextrous governance and innovation performance. The nonsupported findings for the link to cost performance provide intriguing interpretations, suggesting that organization- and relationship-specific ambidexterity influences innovation and cost differently. Finally, our study contributes to the literature by considering demand uncertainty and product complexity, two relevant contingencies, which may further enable or hinder the influence of ambidextrous governance on performance.
Ambidextrous Governance and Supply Chain Management
The concept of ambidexterity refers to how to solve trade-offs for superior performance, a talent that Rothaermel and Alexandre (2009, p. 759) described as the "individual's ability to use both hands with equal ease." Initially, Duncan (1976) framed ambidexterity as an ability to "unbend" the trade-off between alignment and adaptation through the establishment of dual organizational structures, each focusing on one of the extremes. Recent studies provide support for the notion that overcoming trade-offs with ambidexterity provides substantial benefits (e.g., Andriopoulos & Lewis, 2009; Gibson & Birkinshaw, 2004; He & Wong, 2004). As such, we focus in the present research on the concept of ambidextrous governance, which we conceptualize as the interplay between relational and contractual governance.
Contractual governance builds on the concept of TGE (Weyer, Wognum, Trienekens, & Omta, 2012; Williamson, 2008) and the consideration of a onetime agreement with no implications for a long-term buyer--supplier relationship (Macneil, 1978). Within this setting, a contract, mostly in written form, defines the agreement (Williamson, 1996). Such contracts are often characterized as being hard, explicit, formal, and written (Ferguson, Paulin, & Bergeron, 2005), and are settled by means of extensive bargaining and hard negotiations (Lusch & Brown, 1996). In doing so, contractual governance intends to reduce risks and uncertainty (Lee & Cavusgil, 2006; Lusch & Brown, 1996), and fosters compliance through explicit agreements about consequences (Heide, 1994; Lusch & Brown, 1996)
Relational governance is often described as "informal, self-enforcing governance" (Dyer & Singh, 1998), "relationalism" (Antia & Frazier, 2001; Gundlach, Achrol, & Mentzer, 1995; Noordewier, John, & Nevin, 1990), or "social embeddedness" (Uzzi, 1999). It fosters management mechanisms that rely on the complementarity of resources and the respective knowledge transfer between socially connected partners (Lavie & Rosenkopf, 2006; Uzzi, 1999). Relational exchange is therefore characterized by shared social norms and values, trust, moral control, and behavioral guiding principles (Brown, Dev, & Lee, 2000; Heide, 1994; Heide & John, 1992; Liu, Luo, & Liu, 2009). Zaheer and Venkatraman (1995) further developed the concept of relational governance to consist of structural and process components. Whereas structure considers a kind of quasi-integration indicating a stable, long-term relationship that provides the framework for continuous transactions, process refers to the joint action of the parties involved, comprising "process mechanisms that determine the terms of exchange between the members of the dyad" (Zaheer & Venkatraman, 1995, p. 367). This allows a more complete understanding of the complex phenomenon of relational governance even though both dimensions are connected (Zaheer & Venkatraman, 1995). Both dimensions are necessary in order for the underlying relationship to be characterized as "long-term-oriented, reciprocal, and extending beyond mere buying and selling" (Li & Dant, 1997, p. 202). We thus follow this conceptualization of relational governance.
Considering these two mechanisms of relational and contractual governance, existing research proposed that there may be a trade-off between these mechanisms (e.g., Lazzarini, Miller, & Zenger, 2004; Wuyts & Geyskens, 2005). One may, however, also suggest that both types of governance would benefit from a complementary amalgamation with each other (Poppo & Zenger, 2002). As such, relational governance's elements of continuance and cooperation can help to compensate for the inflexibility of contractual governance in the event of unforeseen changes or conflicts (Macneil, 1978; Poppo & Zenger, 2002) and can improve the actual agreements for an even stronger relationship (Poppo & Zenger, 2002). The complementarity of these two governance mechanisms has been empirically tested (Bradach & Ecdes, 1989; Cannon et al., 2000; Poppo & Zenger, 2002). We thus define ambidextrous governance as the joint pursuit of relational and contractual governance mechanisms.
Building on Duncan (1976), March (1991) initiated the current debate around the different concepts of exploration and exploitation within ambidexterity research (Raisch & Birkinshaw, 2008). Based on these early contributions, scholars developed various measures particularly for organizational ambidexterity, which in the most recent past mainly focused on innovation exploration and innovation exploitation (Cao, Gedajlovic, & Zhang, 2009; He & Wong, 2004; Jansen, Tempelaar, van den Bosch, & Volberda, 2009; Jansen, van den Bosch, & Volberda, 2006). Exploratory innovation aims at creating new products or even markets and at satisfying new customers, whereas exploitative innovation takes place incrementally and focuses on satisfying existing customer groups or markets (Benner & Tushman, 2003; Danneels, 2002). To the contrary, exploitative innovation relies on the development of already existing knowledge to further improve existing products and their supply chains (Abernathy & Clark, 1985). This has led to the increasingly popular notion that both types of innovation strategies, exploration and exploitation, can and should be viewed as complementary competencies (Im & Rai, 2008; Katila & Ahuja, 2002; Knott, 2002; Levinthal, 1997). Similar to earlier research, we model organizational ambidexterity as the interaction of exploitation and exploration (e.g., Jansen et al., 2009).
Demand Uncertainty and Product Complexity
The investigation of contextual variables has gained increasing interest, especially as theories become more refined and direct relationships become established notions. Following tenets of Dess and Beard (1984), who set the stage for the wide recognition of contextual variables influencing relationships, we investigate the moderating role of demand uncertainty and product complexity. Both contingencies represent major contextual variables determining the efficiency and effectiveness of supply chain management. For example, demand uncertainty was fundamental to the seminal work by Fisher (1997), which was extended by Lee (2002) to also incorporate complexity dimensions. As such, demand uncertainty, as generated by the supply chain's (end) customers, and product complexity, further crucially impacting the design of the supply chain, may serve as key influencing variables in the relationship between ambidextrous governance and performance. How these contextual external variables may influence the effectiveness of ambidextrous governance in generating performance benefits is thus investigated in the present research. The relevance and importance of these phenomena for supply chain management research in general are evidenced in recent research employing both dimensions. The ability of complexity (e.g., Bozarth, Warsing, Flynn, & Flynn, 2009; Choi & Krause, 2006; Novak & Eppinger, 2001; Vachon & Klassen, 2002) and uncertainty (Fisher, 1997; Lee, 2002) to impact supply chain practices and performance has been clearly established (Prater, Biehl, & Smith, 2001), offering substantiation for our inclusion of these dimensions.
Demand uncertainty, which refers to the inability to predict and forecast, has become one of the central pillars for investigating decision making in a supply chain context (cf. Fisher & Raman, 1996). As such, demand uncertainty significantly impacts not only the survival of firms (Anderson & Tushman, 2001), but also their innovation and investment behavior (Robertson & Gatignon, 1986; Zhou, 2006), and the choice of supply chain governance (Wathne & Heide, 2004).
Product complexity has been investigated in various fields. For instance, greater product complexity led to lower levels of supply chain performance (e.g., Closs, Jacobs, Swink, & Webb, 2008; MacDuffle, Sethuraman, & Fisher, 1996) and was also recognized as influencing governance mechanisms. Specifically, Novak and Eppinger (2001) found product complexity to be related to more hierarchical governance mechanisms. The relevance of product complexity as impacting the effectiveness of governance mechanisms was also alluded to in Mesquita and Brush (2008).
As ambidexterity refers to components which may have complementary effects, we are employing complementarity theory to develop our arguments. Complementarity theory offers ways to realize such dual focus. Complementarity as a concept has attracted a wide following in research (Porter & Siggelkow, 2008). Edgeworth (1881) introduced this theory in the context of mathematical physics. He defined activities as complements, if doing more than one activity increases the returns from doing the other activity (Choi, Poon, & Davis, 2008). Building on this concept, Milgrom and Roberts (1995) suggested that complementary actions in organizations allow for the mutual enhancement of their respective contributions. Interested readers are referred to Ennen and Richter (2010), who provide an elaborate overview on empirical research using the concept of complementarity across disciplines. Supply chain management and adjacent fields have also been borrowing from complementarity theory (Bendoly & Kaefer, 2004; Richey, Daugherty, & Roath, 2007; Swink & Nair, 2007).
As "complementarity theory, despite its many strengths, offers little prediction regarding the conditions under which complementarities are likely to emerge, or on the nature of the elements or factors [...] among which complementarities exist" (Ennen & Richter, 2010, p. 207), we consider supplemental theoretical perspectives, specifically TCE and RET, that are both relevant for our context and have been used for the joint investigation of governance mechanisms before (e.g., Zaheer & Venkatraman, 1995). In fact, prior research postulated TCE and RET as complementary perspectives (e.g., Poppo & anger, 1998; Williamson, 1999), fitting nicely within our overall framing of complementarity theory. Specifically, according to TCE, governance choices of firms should minimize the transaction costs in an economic exchange (Grover & Malhotra, 2003; Williamson, 2008). In addition, RET forwards the notion that entities are linked via implicit and explicit governance structures (Rylander, Stratton, & Pelton, 1997). The complementarity view of these theoretical domains helps us further to leave the terrain of using either/or distinctions, provoked by scholarly inquiry, as it allows to pay attention to real-life phenomena that emerge in pluralistic forms, particularly when it comes to governance in supply chains. Thus, we use this lens to pursue an amalgam of TCE and RET to explain how the supply base contributes to the focal firm's performance.
Building on this literature, we develop a set of hypotheses suggesting direct effects of ambidextrous governance on innovation performance and cost performance. The effect of ambidextrous governance is further complemented by the moderating effect of organizational ambidexterity and the contextual variables of demand uncertainty and product complexity. The overall research model is depicted in Figure 1.
Linking Ambidextrous Governance and Performance
When theorizing about the effect of ambidextrous governance on innovation and cost performance, the two theoretical underpinnings of TCE and RET provide different, yet potentially complementary effects. On the one hand, governance based on TCE explains performance according to compliance to clearly defined targets and contracts. TCE posits that firms seek to manage the cost of opportunism, uncertainty, transaction frequency, and asset specificity in buyer--supplier relationships to minimize transaction costs. In TCE, governance mechanisms are chosen so as to minimize the transaction costs in an economic exchange (Grover & Malhotra, 2003; Williamson, 2008). On the other hand, RET assumes that the emergence of relational rents is based on relational norms and is mainly reflected by, for example, reciprocity or flexibility, which eventually yields improved performance. Following these notions, one could argue that TCE and RET pursue formal and informal safeguards, respectively, to enable innovation and cost performance. Overall, the presence of clearly articulated contractual terms, remedies, and processes of dispute resolution, together with relational governance, may lead to complementary incentives for successful buyer--supplier relationships through enhanced cooperation (Poppo & Zenger, 2002).
For example, instead of following the logic of TCE only in instances where both parties agree upon a contract upfront and clearly specify the duties of each, its application may be particularly useful in long-term projects, for which it can be difficult to explicitly define every detail upfront (such as innovation and strategic cost-saving initiatives). Thus, formal safeguards might be ineffective and result in uncertainty for partners, leading to reduced relationship investments and eventually hurting overall performance. Furthermore, under the notion of ICE, the relationship of the business partners ends with the contract, and thus long-term investments into the relationship may be risky (as it may not continue after the fulfillment of the contract, potentially preventing the supplier from making proactive contributions for the buyer's innovation or cost improvement efforts). Here, the complementary logic of RET can be applied, as firms are less inclined to sacrifice short-term capital gains, and instead reciprocally assume that the other party will act in the best interest of the other side. This alludes to the notion that the emergence of relational norms, rather than contracts themselves, will prolong a relationship (Poppo & Zenger, 2002). This enables partnerships beyond the lifetime of a contract.
Additionally, when comparing the incentives under both the TCE and RET perspectives, it seems obvious that both governance mechanisms may act in a complementary fashion. Whereas under contractual governance parties have to use the existing contract to earn reputation through high performance, in order to, for example, qualify for future contracts, under RET glitches in short-term performance may be forgiven if the overall collaboration remains successful. Thus, complementary short- and long-term incentives based on contractual and relational governance might motivate the supplier to provide higher levels of performance, particularly as relational norms alone might also be based on ambiguity and misunderstandings (Weitz & Jap, 1995).
Furthermore, unexpected disturbances may endanger the performance of the relationship, specifically under TCE, as contracts can be incomplete or unfair (Williamson, 1975). Thus, it may be beneficial to have an informal safeguard present, also in case of unforeseen events. This ensures that the relationship continues as planned, as both partners can rest assured that the other party will not take advantage of the situation (Macneil, 1978). This also provides assurance to both parties enabling further investments in innovation and cost reduction efforts, potentially resulting in additional relational rents. According to Lee and Cavusgil (2006), relational mechanisms have a strong impact on stabilizing relationships, particularly when the relationship already exists, whereas contractual mechanisms mainly help aligning partners at the beginning of a relationship when uncertainty about the behavior of the other party is still high. Further support is provided by Cannon et al. (2000), who proposed that the mere articulation of a contract can sort out the "whys" and "why-nots" of a relationship, establishing common ground for realistic expectations by both sides.
These arguments are similarly important for the performance dimensions of both innovation performance and cost performance. Even though cost improvements may have been traditionally rather short-term oriented and price driven, the emergence of strategic procurement has led to the insight that major cost-saving potentials are a complex and long-term undertaking. Similar notions hold true for innovation performance. Here, complex capabilities and long-term efforts are equally necessary to improve performance, contributing to the need for complementarity of governance mechanisms.
Overall, we extend the notion of Poppo and Zenger (2002), who investigated whether contractual governance results in more relational governance, and forward the argument that ambidextrous governance will result in higher innovation performance and cost performance derived from the supply base. We thus follow earlier research of Carson, Madhok, and Wu (2006) who compared the effectiveness of both governance mechanisms; the authors found that the two mechanisms are not substitutes but rather complements. This illustrated the general complementarity of the mechanisms, without, however, tapping into the performance domain. Thus, we expect ambidextrous governance to allow for higher levels of innovation and cost performance and posit:
H la: Ambidextrous governance leads to innovation performance.
H lb: Ambidextrous governance leads to cost performance.
The Complementarity of Ambidextrous Governance and Organizational Ambidexterity
Ambidexterity is a phenomenon that constitutes itself at multiple levels of the organization. Earlier research has shown the concept to reside within the firm as organizational ambidexterity, as well as at the boundary of the firm, conceptualized here in terms of ambidextrous governance. Research on the complementarity of resources also widely demonstrated that the combination of internal and external resources or practices of a firm can be beneficial for the firm, for example with respect to alliances (Sarkar, Echambadi, Cavusgil, & Aulakh, 2001). Other scholars found that practices of the focal firm can be instrumental for creating complementarities with external resources across various contexts (Teece, 1996). We therefore hypothesize that ambidextrous governance will lead to higher performance benefits especially in firms with high organizational ambidexterity.
Firms pursuing innovations ideally require closer relationships with their suppliers, particularly if the supplier provides input to the innovation activities of the firm (Aoki, 1990). However, once innovations become more incremental, and thus more standardized (reducing uncertainty, asset specificity, but also coordination needs), the relationship may become more contractually driven (Ahmadjian & Lincoln, 2001; Zhou, Poppo, & Yang, 2008). Nevertheless, in both cases, the joint pursuit of both mechanisms is still necessary, particularly when compared with firms with lower levels of organizational ambidexterity. These firms are not simultaneously pursuing different innovation dimensions at the same time, allowing them to rely on simpler governance mechanisms with the objective of reducing transaction costs.
While innovation exploitation and exploration are oftentimes seen as being diametrically opposite (Lavie, Stettner, & Tushman, 2010), combining the perspectives of both TCE and RET may offer further theoretical substantiation for the complementary impact on the governance--performance relationship. On the one hand, TCE favors exploitation due to its objective to minimize cost via efficiency gains. On the other hand, RET speaks in favor of exploration, taking advantage of relational aspects, such as reciprocity and flexibility, which can include information sharing for the further joint exploration of new business opportunities. Given the hypercompetitive environment and intense competition firms are faced with today, it is, however, not necessarily sufficient any more to just pursue one objective or strategy (Melnyk, Davis, Spekman, & Sandor, 2010). It is more likely that firms pursue multiple objectives or strategies, but to different degrees (Schoenherr & Mabert, 2011), giving rise to the joint pursuit of both innovation exploration and exploitation. In this setting, the "best of both worlds" would be aimed for realizing efficiency benefits via innovation exploitation (consistent with TCE) and innovation exploration (consistent with RET). Hoang and Rothaermel (2010) extended this notion by suggesting that the combination of internal innovation exploration and exploitation at the boundaries of the firm is complementary, whereas internal innovation exploitation and external exploration harm a firm's performance. The authors conceptualized internal exploration/exploitation in their research as a moderating variable. Taken together, this research stream highlights that organizational ambidexterity and ambidexterity at the boundary of the firm (i.e., ambidextrous governance) need to be balanced and aligned. For example, firms need to be in a situation in which they are able to absorb the solutions and knowledge from their supply base in order to derive their benefit, a notion that follows closely the concept of absorptive capacity (Cohen & Levinthal, 1990; Kogut & Zander, 1992). Firms with high levels of organizational ambidexterity may thus be better prepared to benefit from solutions of the supply base stemming from ambidextrous governance. This environment offers a unique situation within firms, simply in terms of the ability of companies to combine these two dimensions. The capability of the joint pursuit may thus provide a fertile ground for the more effective realization of performance benefits emanating from an ambidextrous governance structure. We therefore posit:
H 2a: Organizational ambidexterity moderates the relationship between ambidextrous governance and innovation performance in such a way that higher levels of organizational ambidexterity enhance the influence of ambidextrous governance on innovation performance H 2b: Organizational ambidexterity moderates the relationship between ambidextrous governance and cost performance in such a way that higher levels of organizational ambidexterity enhance the influence of ambidextrous governance on cost performance.
The Moderating Impact of Contextual Variables
It is widely acknowledged that the context of a firm does not only influence the choice of governance mechanisms (Aguilera, Filatotchev, Gospel, & Jackson, 2008), but also the effectiveness of strategic choices (Sousa & Voss, 2008). For example, both Rindfleisch and Heide (1997) and Poppo and Zenger (2002) argue that the effect of governance mechanisms highly depends on the characteristics of exchange relationships. We thus theorize in a last set of hypotheses about the moderating role of externalities, specifically investigating the moderating role of demand uncertainty and product complexity. We suggest that these two dimensions are influential for the effectiveness of the exchange relationship, that is, the ability of ambidextrous governance to yield performance benefits. Motivation for the investigation of these contingencies is provided by Dess and Beard (1984), who stressed the need to investigate observed relationships with specific focus on the situation, as performance impacts may be contingent on the context. A delineation of contingencies is thus crucial (Sousa & Voss, 2008), as it can identify when and where theory applies (Whetten, 1989) and can take into account contextual dynamics (Svensson, 2005). With the consideration of these additional contingencies, we bring greater specificity in delineating under what conditions ambidextrous governance is most effective in generating innovation and cost performance benefits accordingly. As such, we provide insight into contexts in which complementary theory applies most. We specifically argue that demand uncertainty and product complexity reduce the positive impact of ambidextrous governance on innovation and cost performance due to the following reasons.
Let us first focus on demand uncertainty, which refers to the instability of consumer preferences and expectations. When markets are stable, and volume and mix changes are limited for the focal firm, the demand in terms of volumes and specific products should also be easier to be predicted for suppliers. This less constrained environment may offer more favorable avenues for effectively achieving performance from more complex governance mechanisms, as embodied in ambidextrous governance. We base this argument on the logic of uncertainty being associated with a greater number of contingencies, raising the expected costs of writing, and enforcing a contingent claims contract (Williamson, 1985). For example, additional strain may be placed on suppliers to provide new and innovative products (Fisher, 1997), giving rise to more collaborative forms of governance. Cost efficiencies may thus not be able to be pursued at the same time, preventing an environment suitable for an ambidextrous setting. The same may be true in instances characterized by severe demand swings. Again more collaborative approaches may have to be pursued with suppliers in order for them to be willing to offer such flexibility. This gives rise to more relational governance mechanisms, rather than ambidextrous ones. As such, higher levels of demand uncertainty are likely to diminish the ground that enables the emergence of complementarity effects of relational and contractual governance mechanisms. Similarly, uncertainty may result in maladaptation costs as well as information asymmetries. In developing our hypothesis, we follow Williamson (1985, p. 80), who argued that under the conditions of uncertainty, "transaction[s] may "flee" to one of the polar extremes as the degree of uncertainty increases." This statement also provides rationale for the ambiguous findings that high levels of uncertainty may lead to high levels of hierarchical relationships or high levels of market-based relationships in diverse industries (Sheng, Zhou, & Li, 2011). Thus, firms are likely to choose either relational or contractual governance under greater demand uncertainty, as this more constrained environment decreases the leeway of the buyer and thus likely limits the pursuit of governance mechanisms to less complex ones. As such, the pursuit of ambidextrous governance is expected to be less effective in yielding performance benefits under conditions of greater demand uncertainty.
The following discourse further bolsters these arguments. In markets with high demand uncertainty, firms must modify their products and services continually to meet changing customer preferences (Jaworski & Kohli, 1993). Supplier relationships provide valuable access to trustworthy information not available in the public domain (Li, Poppo, & Zhou, 2008) which can be used for developing new products (Rindfleisch & Moorman, 2001). However, if the change in customer preferences is very high, firms may need to develop new products that also require substituting existing suppliers, and thus potentially destroying the basis for relational exchange with the previous incumbents. Therefore, under high levels of demand uncertainty, the benefits of relational norms, flexibility, and mutuality constituent for the emergence of relational rents may be crowded out, as relationships cannot evolve over time. In addition, investments into these relationships cannot be recuperated, leading to asset specific investments that can be exploited by the other partner. The underlying notion can therefore be described as high levels of demand uncertainty not providing the basic conditions for the complementarity of ambidextrous governance to be most effective. Rather, we suggest that ambidextrous governance requires a sufficiently stable environment, enabling the benefits of complementarity to manifest most effectively (Clemons, Reddi, & Row, 1993; Kumar & Van Dissel, 1996). This further illuminates the notion that relational governance has its limitations when "switching to better alternatives in the event of radical changes in business contexts, goals, and priorities" becomes necessary (Mahapatra, Narasimhan, & Barbieri, 2010, p. 540). We therefore hypothesize a negative moderation effect of demand uncertainty on the governance--performance link.
Utilizing the arguments brought forward in the preceding paragraphs, we further argue for a negative moderation of product complexity on the governance--performance relationship. We base this contention on the following rationale. Complex products have been said to require relational governance mechanisms, as opposed to transactional ones (Bensaou, 1999). This is also in line with statements by Novak and Eppinger (2001), who argued that the need for control and coordination of complex products makes closer integration between partners necessary. Thus, in the case of complex products, more sophisticated forms of governance (i.e., ambidextrous governance) may be limited in their effectiveness due to the challenges imposed by greater product complexity. Therefore, parallel arguments, as noted above for demand uncertainty, can be brought forward. Complex products make it more difficult to monitor all suppliers, providing the ground for further uncertainty (e.g., behavioral uncertainty), in turn making it less likely that the supplier is providing the best performance.
We complement these arguments with the following logic. If products are less complex, the foundation for aligning suppliers is less challenging, and the possibility to excel in the joint pursuit of contractual and relational governance is more likely to be effective. The vast number of components, often inherent in complex products, usually requires interaction with more suppliers. Therefore, although the complementary effect of formal and informal safeguards may exist, firms are likely to have fewer resources for excelling particularly in informal safeguards, which may stifle the effectiveness of complementarities. For example, this may lead to suppliers not strongly believing that the relationship will continue after the end of the contract, resulting in lower levels of investments in the relationship. Furthermore, the complexity of products may promote a strong internal focus of the firm, making it more difficult to focus on relational and contractual governance mechanisms at the same time. As such, we suggest that product complexity negatively moderates the link between ambidextrous governance and performance. This is formally stated as follows:
H3: Demand uncertainty moderates the relationship between ambidextrous governance and (a) innovation performance and (b) cost performance in such a way that higher levels of demand uncertainty diminish the influence of ambidextrous governance on performance. H4: Product complexity moderates the relationship between ambidextrous governance and (a) innovation performance and (b) cost performance in such a way that higher levels of product complexity diminish the influence of ambidextrous governance on performance.
Similar to earlier studies on ambidexterity (e.g., Kristal et al., 2010; Rothaermel & Alexandre, 2009), data were collected via a survey methodology. The survey instrument included variables relating to firm-specific as well as relationship-specific constructs. Accordingly, given our objectives, we collected data from multiple respondents per firm. First, to assess firm-level variables including organizational ambidexterity and performance, we solicited responses from senior management in purchasing, that is, chief procurement/supply chain officers (CP0s) or vice presidents (VPs). We deemed these respondents as being able to offer specific strategic information on the overall firm level. And second, to assess relationship-specific aspects, including ambidextrous governance and contextual variables, we contacted the corresponding lower-level purchasing managers. These individuals were considered to be most knowledgeable about the strategic aspects of the interorganizational relationships, due to their daily interaction with the supplier. This multilevel data collection design enhanced the rigor of our research.
Potential respondents were identified from the Hoover's database. We selected all firms with manufacturing standard industrial classification codes, revenues >1 billion Euro, and more than 2,000 employees, from Germany, Austria, and Switzerland. This yielded a set of 238 firms. We specifically chose these selection criteria for several reasons. As such, it resembles the approach in prior studies on ambidexterity (e.g., Rothaermel & Alexandre, 2009). In addition, the manufacturing industry tends to rely more heavily on innovations, and thus, ambidexterity seems to be an important concept due to increased competition. We further focused on large firms due to the findings of Lin et al. (2007), which suggested that the need for excelling in ambidexterity is higher in large firms. In addition, small- and medium-sized firms may not have the necessary resources to pursue both dimensions inherent in ambidexterity at the same time. Specifically, the need for ambidexterity may be very low in small firms, and thus may potentially not be observed in this setting.
In commencing data collection, we first approached the chief procurement officers/vice presidents (CP0s/ VPs), who were then asked to suggest senior procurement managers with responsibilities in those spend categories for which both innovation and cost play a major role for the firm. Firm-level and relationship-specific variables were collected accordingly. All CP0s/VPs in the database were contacted by telephone to solicit their participation in the research project. Overall, we obtained a sample of 97 complete and useable response pairs from both the CP0s/VPs and the respective purchasing managers. As we did not have to discard any surveys because of incomplete data, we achieved a response rate of 41 percent. This leaves us with a slightly smaller sample size than similar research, albeit with a much higher response rate. This response rate is high in comparison with other research investigating related aspects (e.g., Chen & Paulraj, 2004; Narasimhan & Das, 2001). Our final sample size is further characterized by high quality responses and is comparable with similar studies (e.g., Wagner, 2012). Surveys were completed online or on paper. Data collection took place between July and December 2011. Table 1 provides an overview of our sample.
TABLE 1 Sample Overview Size (turnover) n (%) <10 bn Euro 25 (25.8) 10-50 bn Euro 51 (52.6) 51 100 bn Euro 19 (19.6) >100 bn Euro 2 (2.0) Industry Engineering equipment and industrial gases 20 (20.6) Consumer goods 21 (21.6) Automotive 21 (21.6) Chemicals 6 (6.2) Utilities 11 (11.3) Aerospace 5 (5.2) Manufacturing/Construction equipment 13 (13.4)
Theoretical constructs were adapted from previously established and tested scales. In addition, before data collection, the survey instrument was pretested to assess the face and content validity of the scales, as well as the adequacy of the research design. Feedback from six researchers and six practitioners was solicited. The questionnaire was revised until no further suggestions for improvement were voiced by the panel. The final items are listed in Table 2.
TABLE 2 Validation of Constructs Indicators Indicators Mean SD Loading (a) Contractual Governance (CA = .929; CR = .925; AVE = .767) We have formal written 3.84 1.22 .85 agreements outlining warranty policies. We have formal written 3.55 1.18 .83 agreements outlining how to handle complaints and disputes. We have formal agreements that 3.75 1.25 .93 detail the obligations and rights of both parties. We have formal written 3.44 1.27 .89 agreements that precisely state the legal remedies for failure to perform. Relational Governance (CA = .807; CR - .832; AVE - .492) This supplier is involved early 3.85 1.07 .72 in our new product development process. The relationship with this 4.36 .77 .72 supplier is characterized by close, personal interaction at multiple levels. It is common to establish joint 3.87 .89 .81 teams to analyze and discuss strategic issues. We regularly hold joint 3.37 1.06 .78 workshops with this supplier. This supplier is located close 3.55 1.15 .40 by or staff is continually present at our premises. Exploration (CA = .844; CR = .913; AVE = .663) Our firm accepts demands that 3.56 .99 .76 go beyond existing products and services. We invent new products and 3.96 1.22 .96 services. We commercialize products and 3.50 1.23 .70 services that are completely new to our firm. Exploitation (CA = .825; CR = .884; AVE = .620) We frequently refine the 3.44 .95 .84 provision of existing products and services. We regularly implement small 3.86 1.02 .77 adaptations to existing products and services. We introduce improved, but 3.74 .91 .75 existing products and services for our local market. Innovation Performance (CA - .501) .744; CR - .838; AVE = The supplier has contributed to improving our... ...product design. 3.05 1.08 .72 ...product quality. 3.54 .96 .60 ...ability to develop new 3.08 1.15 .79 products or technologies. Cost Performance (CA = .796; CR = .802; AVE = .593) The supplier has contributed to improving our... ...total cost reductions. 3.16 1.15 .91 ...product costs. 3.20 1.05 .76 ...process costs. 2.83 1.09 .61 CA, Cronbach's alpha; CR, composite reliability; AVE, average variance extracted. 'All standardized loadings are significant at p < .01.
Dependent Variables. The dependent variables are innovation performance and cost performance, measuring the contribution of the supplier to the focal firm's product innovation and cost performance improvement, respectively, over the last 2 years. Both constructs were measured reflectively. Established scales utilized in Carey, Lawson, and Krause (2011) were adapted to our context.
Independent and Contextual Variables. Organizational ambidexterity was measured with scales adapted from He and Wong (2004), which were also used by Cao et al. (2009). Organizational ambidexterity measures the joint pursuit of the strategies of innovation exploration and innovation exploitation. Innovation exploration captures the importance a firm assigns to entering new product domains, and innovation exploitation reflects the importance of improving the existing product market efficiency. These constructs thus measure "exploration of new possibilities" and "exploitation of old certainties" (He & Wong, 2004, p. 485). Both sub-constructs are measured reflectively.
In the development of the construct, we were further guided by extant ambidexterity literature, which offered different methods for assessing organizational ambidexterity. Organizational ambidexterity constructs have been built by multiplying (Gibson & Birkinshaw, 2004), adding (Lubatkin, Simsek, Yan, & Veiga, 2006), or subtracting (He & Wong, 2004) the two sub-dimensions. However, even though multiplying the two different dimensions has been used in earlier supply chain related research, Jansen et al. (2009), who were among the first to compare these operation-alizations, demonstrated the superiority of the additive approach, which we thus follow.
Ambidextrous governance was conceptualized based on the constructs of contractual governance and relational governance, and operationalized via the additive approach, consistent with organizational ambidexterity above. Contractual governance measures the extent to which legal ties were implemented in the exchange and is adapted from Carey et al. (2011) and Ferguson et al. (2005). We conceptualize relational governance to comprise items that reflect structural and process dimensions of relational governance following the logic of Zaheer and Venkatraman (1995). Specifically, for the structural dimension, we assess the involvement of the supplier into the new product development process and the extent to which the supplier locates its staff dose by or even at the focal firm's premises. For the process dimension, we assessed the extent of close, personal interaction at multiple levels, the degree to which strategic issues are jointly analyzed and discussed, and the extent to which regular joint workshops with the supplier are held (scales were adapted from Lawson, Tyler, & Cousins, 2008).
Demand uncertainty and product complexity were considered as contingency variables (Dess & Beard, 1984). Demand uncertainty captures the extent to which demand volumes change and taps into the predictability of the demand for the supplier's products. This is measured with the following two items (cf. Artz & Brush, 2000): "the market demand for the end product that uses this supplier's component is highly volatile" and "it is difficult to estimate the expected volumes for the supplier's component" (cf. Artz Brush, 2000). Product complexity measures the number of components and process steps, as well as the difficulty to combine these. The variable is measured as a three-item reflective construct (Mesquita & Brush, 2008). The items assess the extent to which the production involves (a) "a large number of subcomponents and/or process steps", (b) "sub-components which are hard to handle, insert or align," and (c) "process steps which are multifaceted, difficult, or time consuming."
Control Variables. Several control variables were included to account for extraneous influences. Specifically, we used the log-transformed relationship length in years with the key supplier, the country of the supplier's headquarters location (operationalized as a dummy variable indicating whether the headquarters were located insight or outside of Europe), as well as the log-transformed number of employees of the firm.
Although the response rate was relatively high, we rigorously assessed the existence of any nonresponse bias. First, following Armstrong and Overton (1977), we compared early and late responses. We split the final sample into two groups based on the dates the responses were received (early respondents: n = 63; late respondents: n = 34). This analysis included the demographic variables as well as one randomly selected indicator per construct. The Mann--Whitney U-tests performed on the two groups yielded no statistically significant differences (at p < .05). Finally, we contacted some of the nonresponding firms to record the reason for not participation in the study. Most of the firms declined to participate in the study due to the fact that (a) they did not have enough time to complete the survey, (b) the firm had a general rule not to respond to surveys due to the increasing number of survey requests, or (c) the data with respect to suppliers were confidential.
Common Method Variance
Even though we had multiple respondents per firm, which can by itself serve as an assurance that potential common method variance is not a serious concern, we conducted further methodological tests (Podsakoff, MacKenzie, Lee, & Podsakoff, 2003). More specifically, we employed exploratory factor analysis to test for common method variance (Harman, 1967). The assessment was performed on the first-order level of constructs and revealed 11 first-order factors with eigenvalues >1.0. These accounted for 84.4 percent of the variance, with the first factor accounting for only 13.2 percent of the variance. Given that a single factor did not emerge, and considering that the first factor did not account for the majority of the variance, common method variance is not considered to be of serious concern.
Data Analysis and Results
As we are using hierarchical regression analysis to test our hypotheses, we assessed the indicators' constant variance, the existence of outliers, as well as the normality of the data. Plots of residuals by predicted values, and statistics of skewness and kurtosis aided in this assessment. The maximum absolute values for univariate skewness and kurtosis were found to be 1.21 and 1.40, respectively, which are well below the suggested thresholds of 2 and 7, respectively (Curran, West, and Finch 1996). Multivariate normality was tested with the Mardia methodology, yielding a coefficient of 1.03 for our data, which is in the recommended range of -1.96 to 1.96 (Mardia, 1970). Having established the adequacy of all necessary assumptions, we proceed with the assessment of the psychometric properties of our constructs.
Confirmatory factor analysis (CFA) was used to establish construct validity and unidimensionality. The fit statistics are as follows: normed [x.sup.2](df) = 1.40 (244), CFI = .94, NNFI = .92, RMSEA = .065. The CFI and NNFI fit statistics were above the .90 criterion (Flu & Bentler, 1998), and the RMSEA value was below the .08 criterion. All loadings were significant (at p < .01) and above .5 in magnitude, except for one item used to assess relational governance. We, however, deemed this item to be crucially important from a content perspective, and thus opted for its inclusion. This is consistent with arguments in O'Leary-Kelly and Vokurka (1998), who advocate a minimum threshold value of .3; our item loading of .4 is above this threshold. Our choice to include the item is also in line with Chandrasekaran, Linderman, and Schroeder (2012), who included items with loadings lower than .5 due to their importance. The model fit indices illustrate that the model fits the data well, establishing unidimensionality. The standardized coefficients and t-values suggest that all indicators are significantly related to their underlying theoretical constructs, establishing construct validity.
Discriminant validity was assessed using two different approaches. First, we compared the squared conelation of two constructs with the respective estimates of the average variance extracted (AVE) of these constructs (Fornell & Larcker, 1981). If the squared correlation is less than the respective AVE, discriminant validity is established. This was the case for all the constructs in our research model. Second, we used the approach of Venkatraman (1989), according to which constrained CFA models for all possible latent construct pairs with a fixed correlation of 1.0 are build first. These constrained models were then compared with the originally unconstrained models. The unconstrained CFA was preferable in all instances, thus confirming the discriminant validity of our constructs.
Reliability was assessed using the internal consistency method via Cronbach's alpha (CA) and composite reliability (CR). All constructs had a CA and CR > .70 (see Table 2). This result establishes the reliability of all theoretical constructs. In addition, the AVE values for all constructs exceeded the threshold value of .50, except for relational governance with a value of .49. In summary, the results indicate that the theoretical constructs are reliable, valid, and unidimensional.
To avoid multicollinearity issues, constructs were mean-centered before multiplication, for example when we tested for moderation. The maximum variance inflation factor observed was 1.862. As this value is well below the value of 10.0 (above which multicollinearity might be a serious issue), we condude that multicollinearity is not a serious concern in our dataset.
The means, standard deviations, and correlations between the constructs are displayed in Table 3.
TABLE 3 Pearson Correlations of Constructs Factors Mean SD CG RG ER ET IP CP DU Contractual 3.64 1.12 1.00 governance (CG) Relational 3.15 .95 .40 1.00 governance (RG) Exploration 3.67 1.00 .08 .25 1.00 (ER) Exploitation 3.68 .82 -.09 .04 .42 1.00 (ET) Innovation 3.22 .87 .30 .50 .22 .11 1.00 performance (IP) Cost 3.06 .92 .24 .29 .13 -.03 .45 1.00 performance (CP) Demand 2.68 .82 .23 .02 .12 .14 .08 -.02 1.00 uncertainty (DU) Product 2.86 1.12 .29 .19 .13 -.11 .25 -.01 .17 complexity (PC) Firm size (3) 4.26 .63 .20 .21 .25 .62 .17 .09 .07 (FS) Supplier .18 .39 -.01 .14 .14 .06 -.05 -.11 .13 Location (6) (SL) Relationship .92 .43 .15 -.04 -.04 .07 .25 -.08 -.09 Length (c) (RL) Factors PC FS SL RL Contractual governance (CG) Relational governance (RG) Exploration (ER) Exploitation (ET) Innovation performance (IP) Cost performance (CP) Demand uncertainty (DU) Product 1.00 complexity (PC) Firm size (3) -.09 1.00 (FS) Supplier -.11 .01 1.00 Location (6) (SL) Relationship .18 .10 -.28 1.00 Length (c) (RL) (a) Logarithm of full-time employees of the buying firm. (b) Dummy variable. (c) Logarithm of the relationship length with the supplier in years. All correlations above |.2| are significant at p < .05 (two-tailed). All correlations above |.27| are significant at p < .01 (two-tailed).
Analysis and Results
The empirical results from the ordinary least squares regression analyses are depicted in Table 4. Models 1 through 3 report the results with respect to innovation performance, and Models 4 through 6 refer to cost performance. For both performance dimensions, a similar logic is imposed. Models 1 and 4 introduce the base models, including the control and contextual variables. Models 2 and 5 further include the main effects of our study, namely ambidextrous governance and organizational ambidexterity. In the final models (Models 3 and 6), moderation effects are introduced.
TABLE 4 Results of OLS Regression Analysis Determinants of Determinants of Innovation Performance Cost Performance M1 M2 M3 M4 M5 M6 Control variables Firm size .15 -.06 -.08 .10 -.05 -.04 Supplier .02 -.07 -.13 -.16 -.24 * -.24 * location Relationship .20 + .17 .08 -.13 -.16 -.15 length Demand .01 .00 -.04 -.04 -.04 -.03 uncertainty (DU) Product .22 * .08 .11 -.00 -.12 -.11 complexity (PC) Main effect Organizational .19 * .24' .09 .08 ambidexterity (OA) Ambidextrous .41 *** .47 *** .38 ** .34 ** governance (AG) Moderating effects AG x OA .29 ** -.06 AG x DU -.07 -.08 AG x PC -.20* -.10 [P.sup.2] .13 .28 .35 .04 .16 .19 Adjusted .07 .22 .27 -.02 .09 .09 [P.sup.2] Model F 2.44 ** 4.60 *** 4.25 .72ns 2.31 1.88 ** *** *** *p < .1; *p < .05; **p< .01; ***p < .001.
Results from Models 2 and 5 show that ambidextrous governance impacts innovation performance (H la: b = .41, p < .001) and cost performance (Hlb: b = .38, p < .01), providing support for hypotheses H la and H lb, respectively.
Model 3 confirms our theoretical expectation of ambidextrous governance and organizational ambidexterity exhibiting a complementary effect. Specifically, the results indicate that the impact of ambidextrous governance on innovation performance is higher if organizational ambidexterity is high, providing support for H2a (H2a: b = .29, p < .01). However, this moderation was not observed when considering cost performance in Model 6 (H2b: b = -.03, ns), offering no support for H2b. Mixed results were also obtained for the moderating effect of demand uncertainty and product complexity. Even though we did not find any statistical support for the moderating impact of demand uncertainty (H3a: b = -.07, ns; H3b: b = -.08, ns), product complexity had a negative moderating effect on the relationship between ambidextrous governance and innovation performance (H4a: b = -.20, p < .05), however not in the case of the relationship between ambidextrous governance and cost performance (H4b: b = -.10, ns).
As our sample is relatively small, we conducted a post hoc statistical power analysis. To possess sufficient statistical power (Cohen, 1988), the research model should have a statistical power of at least .8, which means that there is an 80 percent chance that a relationship really exists (Cohen, 1988). The analysis demonstrates that the statistical power is above .99 for Models 2, 3, and 5 of our analysis, including the control and main effect variables. This demonstrates that the sample size is sufficiently large to conduct multiple regression analyses. This can further be construed based on the effect sizes being relatively high. As such, we feel confident in our sample size and the derived results.
For our study, we hypothesized a model consisting of the relationship between ambidextrous governance and both innovation and cost performance. Potential moderating effects of organizational ambidexterity were theorized, as were the moderating effects of the contextual variables of demand uncertainty and product complexity.
Scrutinizing this model with empirical data, we offered support for the applicability of ambidexterity in a supply chain environment. Specifically, we addressed ambidexterity from a firm-level and relationship-specific perspective and demonstrated the direct impact of ambidextrous governance mechanisms on innovation and cost performance in the supply chain. We thus supported notions inherent in complementarity theory, in that ambidextrous governance mechanisms complement each other. This extends earlier findings by Poppo and Zenger (2002), who found that formal contracts and relational governance function as complements. Interestingly, ambidextrous governance is beneficial for cost performance and innovation performance at the same time, so that ambidextrous governance can help firms to excel in both performance dimensions.
We further identified the moderating role of organizational ambidexterity on the relationship between ambidextrous governance and innovation performance, to be at least marginally significant. However, we did not find support for positive moderation in the case of organizational ambidexterity with respect to cost performance. It seems that in the case of cost performance, an ambidextrous strategy of the firm, which might lead to consistent levels of ambidexterity across the firm, does not help further in achieving cost performance. This can be explained by cost performance having been the major credo in supply chain management, so that no matter how ambidextrous the rest of the firm is, supply chain managers can excel in this domain. It can further be argued that generating innovations within the supply base or benefitting from supplier innovations requires a more complex skill set. It seems then logical to suggest that this skill set has to be consistently distributed in the firm, due to employees needing to be knowledgeable and possessing higher levels of absorptive capacity, particularly when considering radical as opposed to incremental innovations.
In addition, we demonstrated demand uncertainty and product complexity to be important contextual variables that--at least in the case of product complexity--further influence the relationship between ambidextrous governance and performance. Specifically we found support for the negative moderating effect of product complexity when considering innovation performance. Interestingly, product complexity did not negatively impact the relationship between ambidextrous governance and cost performance, thus suggesting that firms will benefit--with respect to cost--equally well from ambidextrous governance no matter how complex the product is. This is, in some sense, counterintuitive as one would expect higher complexity leading to lower cost performance gains.
Nevertheless, this may be explained in several ways. On the one hand, one could argue that supply chain managers are quite familiar with cost improvements, also for complex products, so that product complexity does not, per se, constitute a hindering factor that minimizes cost improvements emanating from the supplier to the focal firm. In fact, a complex product may offer more cost improvement potential due to the likely intricate nature of its components and their interplay. On the other hand, cost performance was operationalized in this study as the extent to which the supplier has contributed to improving the cost improvements in the focal firm. It seems that other factors, such as competitive pressure, may serve as additional moderators, which were, however, not part of our investigation. Nevertheless, particularly intriguing is the fact that product complexity serves as a hindering factor for innovation performance. This is, however, in line with our earlier argumentation that innovation performance requires, particularly in the context of complexity, sophisticated practices that enable the focal firm to absorb innovations, as opposed to cost improvements, which seem to be generated more easily in a supply chain environment.
Finally, we did not find support for demand uncertainty impacting the relationship between ambidextrous governance and performance, neither for innovation performance nor for cost performance. Even the direct impact of demand uncertainty on innovation performance and cost performance was not significant. Thus, future investigations into the impact of demand uncertainty seem to be warranted. Nevertheless, it can be argued, following Lee (2002), that high demand uncertainty favors responsive supply chains, necessitating the pursuit of relational governance (e.g., flexibility). In the case of low demand uncertainty, efficient supply chains should be pursued, which may have a closer tie to contractual governance (e.g., lower transaction costs). However, as we consider ambidextrous governance, comprising relational and contractual elements, demand uncertainty may not have as dear of an impact as anticipated.
IMPLICATIONS FOR RESEARCH
The results of this study extend the existing literature in several significant ways. First, we add to the understanding of ambidexterity in supply chain management, which has received limited attention in extant research. Specifically, we developed a more detailed view on how to operationalize ambidexterity in a supply chain context. We further contribute to the research stream investigating the effects of ambidextrous governance on innovation and cost performance. While this link is of central focus in ambidexterity research (Raisch & Birkinshaw, 2008), its investigation has been limited (Lavie & Rosen-kopf, 2006; Lubatkin et al., 2006). We alleviate this shortcoming with the present research. In doing so, we rely on multiple performance criteria that are instrumental for the success of modem day supply chains, due to the pressure to constantly innovate, driven by increasingly demanding customers. With a mantra of "faster, cheaper, better," the dual pursuit of both innovation and cost performance has almost become a necessity. In the present research, we have provided avenues for how to successfully do so. With the inclusion of two rather opposite performance indicators, we avoid the risk of a one-dimensional, biased estimation of the contribution of organizational ambidexterity to performance (cf. Raisch & Birkinshaw, 2008).
Extending tenets forwarded in earlier research (Poppo & Zenger, 2002), and especially intriguing within the ambidexterity context, is our finding that ambidextrous governance is beneficial for both cost performance and innovation performance. The results thus suggest that ambidextrous governance may be instrumental in the simultaneous pursuit of these two--often contradictorily viewed--performance dimensions, we find support for our theoretical arguments based on complementarity theory. Specifically, the TCE framework, favoring contractual governance mechanisms with its emphasis on exchange efficiency, and RET, favoring collaboration and learning, as embodied in relational governance, are complementary. The dual application of both contractual and relational governance mechanisms thus enables the achievement of both innovation and cost performance. This finding provides encouraging support for firms that
aim to achieve both performance dimensions at the same time, but that were often faced with the option to only pursue one, based on the singular choice of a governance mechanism. We demonstrated that once governance mechanisms are combined in a complementary fashion, both performance dimensions are able to be achieved. This confirms, in a supply chain setting, the early arguments forwarded by Milgrom and Roberts (1995), in that complementary actions in organizations allow for the mutual enhancement of their respective contributions.
We are among the first to investigate the ambidexterity--performance relationship in a supply chain setting, being reflective of the relationship between manufacturing companies and their suppliers. This stands in contrast to extant research, which has investigated the relationship between ambidexterity and performance at the company or the business unit level (Raisch & Birkinshaw, 2008). By suggesting that ambidexterity, inherent to the buying firm, supports an ambidextrous performance of its suppliers, the present study not only contributes to ambidexterity research in an unprecedented way, but also to supply chain management research as the context under investigation.
Second, our research addresses ambidexterity research with a level of detail and sophistication called for by Raisch et al. (2009). The authors suggested the need to clearly distinguish where ambidexterity is established, as well as where the tensions of ambidexterity occur. They also encouraged multiple levels of analysis, with the objective of identifying their interaction. Our research contributes to such a detailed level of investigation, and thus addresses the call issued by Raisch et al. (2009). As such, our model clearly distinguished between ambidexterity at the buyer's organization and the supply chain. We further extend the research on governance mechanisms to the important construct of organizational ambidexterity. We also found partial support for the hypothesized moderation effect. We thus fill a void in supply chain management and organizational ambidexterity research.
Interestingly, neither the direct impact of organizational ambidexterity on cost performance (assessed as part of the moderation analysis) nor the moderation effect of organizational ambidexterity on the relationship between ambidextrous governance and cost performance is statistically significant. These nonsignificant findings suggest that the benefit of ambidextrous governance derived for cost performance follows pathways independent of organizational ambidexterity. This is, however, different for innovation performance, where complementary dynamics between ambidextrous governance and organizational ambidexterity are exhibited. Specifically, the effect on innovation performance increases in the presence of both ambidexterity phenomena, calling attention to the alignment of internal and external practices.
And third, from the investigation of contextual variables, demand uncertainty, and product complexity, it can be concluded that product complexity is detrimental for the ambidexterity--innovation performance link in supply chains. When faced with greater product complexity, firms are thus advised to not rely on ambidextrous governance mechanisms too much, but to pursue a sophisticated governance mode with an emphasis on a singular dimension. Most likely, the preferred choice consists of relational governance (Bensaou, 1999; Novak & Eppinger, 2001), which is further heightened due to the objective of bolstering innovation performance. Ambidextrous governance may discourage the supplier from contributing to innovation performance, which is especially crucial for complex products, confirming our above arguments for the negative moderation of product complexity. We note, though, that while product complexity diminishes the impact of ambidextrous governance on innovation performance, the impact is still positive.
Contrary to our expectations, our results did not provide evidence supportive of the moderating role of product complexity on the ambidexterity--cost performance link, and for the moderating role of demand uncertainty in the relationships. Contingencies have thus been shown to not be overly influential in hampering the effect of ambidextrous governance on performance. Ambidextrous governance can therefore be said to be a robust concept able to influence performance, largely independent of the context. These nonsignificant findings also contribute to contingency literature (Sousa & Voss, 2008) by our demonstration of the lack of an effect. Specifically, demand uncertainty poses no constraints on the effectiveness of ambidextrous governance in generating performance benefits. Demand uncertainty appears to not be detrimentally influencing the pursuit of complex governance mechanisms, and the simultaneous quest for relational and contractual relationships with suppliers is thus a feasible option under all levels of demand uncertainty. In addition, greater product complexity does not diminish the effect of ambidextrous governance on cost performance. Taken together with the significant moderation of product complexity on the governance--innovation performance relationship, these findings highlight the importance of differentiating between performance types, that is, innovation and cost, in our study. The result thus calls for the incorporation of several performance dimensions, considered independently, in extant research, rather than the consideration of a single performance dimension. Intricate dynamics may be overlooked by merely studying a singular dimension.
IMPLICATIONS FOR PRACTICE
The most important managerial implication of this study is that companies can benefit from ambidexterity not only within the firm itself, but also in a supply chain context. The combination of relational and contractual governance, which has been suggested to be complementary in achieving innovation and cost performance, can enable a competitive advantage in times of rising uncertainty and complexity. To achieve this effect, it is necessary to combine skills. We demonstrated the beneficial effects derived from combining contractual governance and relational governance. While this feat may demand a high skill set for managers, this can certainly pay off and lead to new product and process innovations, in combination with increased cost savings.
Practitioners can also learn that in the case of innovation performance, the interplay of overall innovation strategies (i.e., whether they are pursued in an ambidextrous fashion, as conceptualized via organizational ambidexterity) and ambidextrous governance is critical. Managers aiming to enhance their firm's innovation performance are thus encouraged to foster organizational ambidexterity, in order for ambidextrous governance to be most effective. However, in the case of cost performance, benefits derived from ambidextrous governance seem to be unaffected by organizational ambidexterity. Thus, firms focusing on cost advantages may benefit less from organizational ambidexterity, at least as it pertains to the pursuit of this particular objective.
Additionally, we learn that contingencies, such as demand uncertainty and product complexity, do not diminish the impact of ambidextrous governance in all situations. While this may have been true for one of the governance mechanisms itself, these contextual variables seem to leave the link between ambidextrous governance and performance largely unaffected. One moderation effect was, however, significant: when firms expect suppliers to excel in innovation performance, higher product complexity significantly constrains performance effects. Under conditions of greater product complexity, managers are thus advised to pursue a more relational governance approach, rather than experimenting with ambidextrous governance. Overall, our results suggest to practitioners that ambidextrous governance is not an easy-to-pursue approach, but that it can play a major role in overcoming challenging trade-offs.
With this study, we extend research on ambidexterity in the field of supply chain management, contributing also to the research stream of ambidexterity itself. Our results show that ambidexterity is a fruitful avenue for academics and practitioners alike, as ambidexterity can help overcome challenges. These were reflected in our case as the trade-off between innovation and cost. The successful management and overcoming of such trade-offs can become crucial in today's competitive environment. Our study provides first evidence for practitioners on how to enable ambidexterity through a mix of strategies and practices.
For researchers, the present study offers fruitful avenues for extensions, overcoming some of the inherent limitations. Specifically, even though firms in our sample were multinational, they still were predominantly of German origin. It would therefore be interesting to test our hypotheses in other countries and regions of the world. Furthermore, we only pursued a static perspective of ambidexterity, which may be limited, as firms adjust their ambidexterity strategies dynamically. Another shortcoming of the study is its limited sample size, in combination with the focus on very large firms. Despite having significant statistical power and representation of large firms in the manufacturing sector, generalizations, particularly to smaller firms or the service sector, cannot be drawn.
Additional further research extensions abound. For example, the concept of ambidexterity can be extended to further trade-offs in the supply chain management domain. Moreover, it may be interesting to investigate antecedents that enable the joint pursuit of governance mechanisms, also providing interesting opportunities for multilevel research, particularly as measurement scales in the domain of organizational culture are well established; supply chain related topics are, by and large, not reflected in this stream of research. Finally, knowledge on how to implement ambidexterity in supply chain management is limited, calling for further qualitative research. These efforts can be complemented by research focusing on further antecedents for ambidexterity in the supply chain domain. It is our hope that the present study provides impetus, motivation, and a starting point for the further investigation of ambidexterity in the supply chain.
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* The two first authors are listed in alphabetical order.
CONSTANTIN BLOME *
Universite Catholique Louvain
Michigan State University
Institute for Supply Chain Management--Procurement and Logistics (ISCM)
Constantin Biome (Ph.D., Technical University of Berlin) is the GSK Vaccinces Chair Professor in Strategic Sourcing and Procurement at the Louvain School of Management of the Universite Catholique de Louvain in Louvain-la-Neuve, Belgium. He also is affiliated with the Center of Operations Research and Econometrics (CORE) at the Universite. Dr. Blome's research currently is focused on sourcing and upstream supply chains, sourcing innovation, strategic sourcing, supply chain risk management, and the sustainability of upstream supply chains. His articles have appeared in numerous outlets, including the Journal of Supply Chain Management, the Journal of Business Ethics, the International Journal of Production Research, and the Journal of Business Logistics.
Tobias Schoenherr (Ph.D., Indiana University-Bloomington) is an associate professor of supply chain management in the Eli Broad College of Business, Department of Supply Chain Management at Michigan State University in East Lansing, Michigan. His research focuses on strategic supply management, with the pillars of strategic sourcing, leveraging the supply base, and strategic operations management. His work has appeared in Management Science, the Journal of Operations Management, Production and Operations Management, Decision Sciences, and the Journal of Business Logistics, among others. Dr. Schoenherr is an Associate Editor for the Journal of Operations Management and sits on several Editorial Review Boards, including that of the Journal of Supply Chain Management.
Matthias Kaesser (Dipl.Ing., Technical University of Munich and the Ecole Centrale Paris) is an external research assistant at the Institute for Supply Chain Management at the European Business School in Munich, Germany. His research is concerned with the development of supply chain organizations and possible options for future expansion of the organization, including the contribution of supply chain management to innovation within firms.
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|Author:||Blome, Constantin; Schoenherr, Tobias; Kaesser, Matthias|
|Publication:||Journal of Supply Chain Management|
|Date:||Oct 1, 2013|
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