INNOVATING WITH DOMINANT SUPPLIERS: LESSONS FROM THE RACE FOR LASER LIGHT

Abstract

Traditionally, manufacturers could usually choose from several suppliers who would be more than willing to engage in innovation processes with them. However, more often the situation arises that a supplier has a dominant position because of a clear leadership or even exclusivity in a certain technology. How should the buying companies handle such situations when a supplier can choose the customer to collaborate with, rather than cueing in front of the customer’s door? This paper focuses on how a buying company may best handle this situation of innovating with dominant suppliers. The methodology used is a case study that compares, from an original equipment manufacturer’s perspective, two implemented supplier innovations with different expirations — a success case and a failure. Findings lead to three main propositions: First, firms may benefit from carefully analysing and designing the buyer–supplier constellation in innovation processes and not only the quality of the innovation. Drawing back on attractiveness theory grounded in social exchange theory may provide clues on how to do so. Second, in case of a dominant supplier situation, traditional innovation management processes may fail and need to be amended by a dedicated innovation process with a different order of steps. In the case of supplier dominance, it is essential to first analyse the supplier constellation, and then make the decision for the innovation path to follow — and not the other way around. Third, in the fight for getting access to a supplier’s innovation, a speed-up process with the buying company may be a tool for outperforming other buyers competing for the same supplier.