Research Policy 31 (2002) 159–182

Strategic management of supplier–manufacturer relations

in new product development
Maurizio Sobrero a,∗ , Edward B. Roberts b,1
a Department of Management, University of Bologna, Piazza Scaravilli 2, 40125 Bologna, Italy
b Alfred P. Sloan School of Management, Massachusetts Institute of Technology, E52-535, 50 Memorial Drive, Cambridge, MA 02139, USA
Received 7 August 2000; received in revised form 6 November 2000; accepted 1 December 2000

Abstract
This paper discusses the role of contractual and organizational arrangements for the governance of supplier–manufacturer
relationships in new product development projects. We present cross-sectional project level data from 50 manufacturer–supplier
relations in new product development in the European Major Home Appliance industry using a single dyadic interaction as
the unit of analysis, to combine institutional decisions driving the governance of inter-firm relations and their organizational
implementation. Our results show that (a) relational outcome depends on the type of joint activities, (b) it can be decomposed
into short term (efficiency) and long term (learning) effects, (c) less articulate types of joint development activities increase
efficiency, while more articulate joint development activities increase partner’s learning, and (d) inter-organizational struc-
turing decisions are significant explanatory variables to understand relational outcome. Implications for the organization of
vertical collaboration in new product development projects are derived focusing on the emerging trade-off between short and
long term objectives as a central issue in guiding relational strategies. © 2002 Elsevier Science B.V. All rights reserved.
Keywords: Innovation; Inter-organizational relationship; New product development; Supply chain management

1. Introduction relations (Hamel, 1991; Kogut and Zander, 1992;

The attention paid to inter-firm relations has
been constantly increasing during the past 15 years.
Research has in turn emphasized the strategic appro-
priateness (Roberts and Berry, 1985; Porter and Baden
Fuller, 1987; Harrigan, 1988; Lorenzoni and Baden-
Fuller, 1995), the economic advantages (Williamson,
1979; Contractor and Lorange, 1988; Kogut, 1988),
and the learning implications of inter-organizational
∗ Corresponding author. Tel.: +39-051-2098076;
fax: +39-051-2098074.
E-mail addresses: mau@economia.unibo.it (M. Sobrero),
eroberts@mit.edu (E.B. Roberts).
1 Tel.: +1-617-253-4934; fax: +1-617-253-2660.
Gulati, 1998). The central argument of this growing
literature is that individual organizations can no longer
rely on their own resources to compete in today’s
world. Rather, they should look for strategic interac-
tions allowing them effectively to leverage internal
resources by investing in some core competencies and
contracting out other knowledge domains.
The analysis of innovation development processes
is frequently pointed out as a prototypical example for
the need to rethink organizational boundaries (Arora
and Gambardella, 1991; Freeman, 1991). The speed
of technological progress, the increasing amount of
resources needed to control fully the process and the
shortening times for investment recovery are common
phenomena in many industries. Changes in the drug

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160 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
development process (Henderson, 1994), as well as
in cars (Clark and Fujimoto, 1991; Nobeoka, 1993),
mainframes (Iansiti, 1995; Iansiti and Khanna, 1995),
and personal computers (Pine, 1993) are often used as
examples.
While the key aspect of networking processes is
identified in the organization of the interaction among
the partners, the empirical analysis is largely focused
on the structural context of exchange. Both overde-
termined and underdetermined approaches to the
study of joint product development activities examine
the mutual exchange of rights between the parties
involved. On the one hand, the agents involved are
modelled as rationally optimizing the contractual
form of exchange in a typical market/hierarchy con-
tinuum. Different characteristics of the development
work and of the partners’ resource set guide the choice
among alternative forms such as long term contracts
(Monteverde and Teece, 1982; Ouchi and Bolton,
1988; Pisano, 1991), strategic alliances (Roberts and
Berry, 1985; Ciborra, 1991; Hamel, 1991), or R&D
consortia (Ouchi and Bolton, 1988; Watkins, 1991;
Tripsas et al., 1995). On the other hand, higher level
institutional conditions idiosyncratic to the locus of
interaction determine the predominant form of ex-
change and the set of norms and rules governing
the relationship. Several studies performed in Japan
(Dore, 1986; Fruin, 1992; Nishiguchi, 1995) and in lo-
calized communities such as Silicon Valley (Saxenian,
1994) or the European industrial districts (Piore and
Sabel, 1984; Best, 1990; Harrison, 1994) describe the
reliance on trust among the partners as a substitute
for more stringent legal protection mechanisms.
This paper goes into the “black box” of inter-partner
exchanges in innovative activities to develop theoret-
ically and document empirically the complementary
role of the organization of the interface. Building
on some recent studies at the information processing
level of inter-organizational relationships in new prod-
uct development activities (Clark, 1989; Liker et al.,
1995; Bidault, 1998; Sobrero and Roberts, 2001) we
analyze 50 manufacturer–supplier relations in new
product development projects performed by three
different business units, operating in two different
countries, of one of the largest European Major Home
Appliance manufacturers. We distinguish between the
legal definition of the exchange and the operational
mechanisms used to integrate the flow of information
between the parties during the development work.
Data show invariance in the specificity and extension
of the contracts governing the relationships. On the
contrary, differences in the type of mechanisms used to
exchange information and the extent of their use dur-
ing the project are significantly related to the degree
of supplier involvement. Choices along integration
dimensions are associated with different evaluations
by the manufacturer of the specific relationship. Less
articulate solutions with later involvement of suppliers
and their use as pure subcontractors of pre-specified
development work are considered by the manufac-
turer as positively affecting project efficiency, but not
as opportunities for learning. On the contrary, higher
level of communication, earlier supplier involvement
in the project and a higher level of design responsi-
bility assigned to the supplier seem to generate higher
coordination costs, but also provide the opportunity
for effectively accessing external knowledge whose
consequences are spread in future projects.
This research offers several theoretical and policy
contributions to the understanding and management
of inter-organizational relationships in innovative
activities. First, institutional decisions driving the gov-
ernance of inter-firm relations and their organizational
implementation are recomposed. The contractual per-
spective of Transaction Cost Economics is comple-
mented with the information processing interpretation
of organizational exchange. Second, the operational
mechanisms available to structure inter-unit flows are
extended to inter-organizational relations and related
to the nature of the joint work, using the dyad as the
unit of analysis. Third, the distinctions among differ-
ent relational outcomes point to the trade-off between
short and long term objectives as a central issue in
guiding relational strategies.
From a strategy perspective, these results suggest
the centrality of a planned effort on the organizational
implementation of inter-organizational relations,
which should synchronically complement contrac-
tual negotiations, rather than sequentially supplement
them. In addition to that, the empirical results directly
suggest a careful examination of partners’ objectives
to determine the task-domain in which to interact
and how to organize the joint work. Despite all the
emphasis on the benefits of networking, in fact,
inter-organizational relations are not free, and a rush
toward the currently hot boundary spanning strategy
 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
might prove costly, especially when technological
innovation is at stake.
The paper is organized as follows. In Section 2, we
review the different approaches to inter-organizational
relationships in technology development and the in-
formation processing view of the organization of
innovative work, deriving the complementarity of
the contractual and organizational structuring of the
relationship. In Section 3, we introduce the study
designed to examine these complementarities in the
context of supplier–manufacturer relationships in new
product development, describing the methodology
used and the industrial setting chosen. In Section 4,
we present the results and discuss their implications
for the management of supplier relationships in new
product development projects. In Section 5, we con-
clude by interpreting these results for the more general
problem of the organization of information flows in
inter-organizational relationships, discussing the lim-
its and potentiality for further extension of this work.
2. Theoretical premises
2.1. Inter-firm relationships and innovative processes
The empirical observation of the increasing
importance of interactions among legally distin-
guished units challenged the traditional image of an
organization as an entity with well-defined bound-
aries (Contractor and Lorange, 1988). Clearly, one
crucial activity influenced by these changes is the
development of innovation (Roberts, 1980). Follow-
ing Kogut (1988), we can identify three theoretical
approaches for the analysis of inter-firm relations: a
transaction–cost based approach, a strategic approach
and an organizational learning approach.
Studies based on the assumptions and proposi-
tions of transaction cost theory (Williamson, 1975,
1985) focus on the characteristics of the interactions
involved in the development of innovation (Ouchi
and Bolton, 1988). Given actors’ characteristics
(propensity to opportunistic behavior and bounded
rationality), task related factors (asset specificity and
uncertainty) are used to identify the appropriateness
to engage in interactions with other subjects and to
determine the optimal governance structure (Pisano,
1990). Accordingly, research has been addressing the
161
conditions under which the sum of production and
transaction costs will be minimized through inter-
nalization (Pisano, 1991), market driven transactions
such as licensing, or other intermediate forms of gov-
ernance structure such as joint ventures (Hladik, 1988)
and consortia (Watkins, 1991; Tripsas et al., 1995).
Complementary to the inward focus on efficiency
achievements, the strategic perspective on organiza-
tional interactions stresses how, by pooling their re-
sources and efforts towards innovation, all the partners
involved would improve their competitive position-
ing (Gulati, 1998). Collaborative activities become
a way to overcome asymmetries in the resource en-
dowments and spread the risks associated with inno-
vative activity (Combs, 1990), to control spillovers
(Katz, 1986), or to limit the opportunities for new
entrants in the market by indirectly raising barriers
to entry (Katz, 1986; Katz and Ordover, 1990). Once
the determinants for collaboration in innovation pro-
cesses are set, the possible alternatives (e.g. joint ven-
tures, acquisitions, licensing) are examined through
an analysis of either environment specific conditions
such as, for example, the “appropriability regime”
(Teece, 1986), or the firm resource set (Roberts and
Berry, 1985).
The organizational learning explanation departs
from the economic nature of the determinants of a
positive role of inter-organizational relationships in
the development of innovation (Kogut, 1988). In par-
ticular, it claims that R&D activities are “interacting
heuristic search processes” (Nelson and Winter, 1977,
p. 52) and that the very knowledge being developed
is organizationally embedded. Therefore, its trans-
fer cannot be achieved through a market transaction
because it is partly tacit (Polanyi, 1967). However,
organizations cannot rely simply on their own internal
knowledge base since the routines developed around
it become embedded, constraining departures from
well-known and explored paths (Nelson and Winter,
1982) and acting as filters to the introduction of inno-
vation (Henderson and Clark, 1990). On the contrary,
by widening the sources of knowledge to include
external organizations, resistance created by internal
structural filters would be overtaken (Kogut and Zan-
der, 1992). Moreover, the use of collaborative arrange-
ments allowing for mutual access to internal processes
will facilitate both the development and the transfer
of tacit knowledge (Hamel, 1991; Gulati, 1998).
162 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
Regardless of the differences in the approach to
the analysis of inter-organizational relations, the three
streams of research mainly focus on the conditions
under which it would be appropriate for firms to
engage in cooperative actions to pursue innovation.
Much less attention, on the contrary, is given to the
role that alternative organizational forms of coordi-
nation and integration among the partners might have
in determining the outcome of the relation (Roberts
and Berry, 1985). The emphasis is on the definition
of the conditions for the interaction to occur, rather
than on how the relationship is then managed and
the actual contacts among the partners are opera-
tionally implemented. To emphasize the necessary
complementarity of such aspects required to make the
relationship work, in the next section, we discuss the
role of organizational design in innovative activity.
2.2. Organization structure and innovative processes
Albeit almost neglected in the particular context
of inter-organizational relations, the importance of
organizational structures and processes and their in-
teraction with task characteristics are strongly rooted
in the organizational theory literature. Starting from
the seminal works of Burns and Stalker (1961),
Woodward (1965), and Lawrence and Lorsch (1967),
the contingency school developed both at the macro
level, exploring the concept of fit between organiza-
tional and environment characteristics (Aldrich, 1972;
Duncan, 1972, 1976), and at the micro level, investi-
gating the relationship between nature of the task and
structural characteristics (Perrow, 1967; Allen, 1986;
Larson and Gobeli, 1988).
Burns and Stalker (1961) first proposed that an
organization’s characteristics are a function of envi-
ronmental uncertainty. Lawrence and Lorsch (1967)
continued in this direction by showing how environ-
mental conditions, and hence organizational structure,
could vary within the same organization among its dif-
ferent units. Organizational design therefore became
central, and detailed work was conducted in deter-
mining in more depth the effectiveness of different
organizational forms (Galbraith, 1973, 1977).
Innovation development activities, i.e. activities
characterized by ill-defined tasks in uncertain envi-
ronments, started to attract researchers’ attention. The
unit of analysis was therefore shifted to a lower level,
usually the single project, focusing on the differ-
ences in effectiveness of alternative solutions in the
functional/project spectrum (Marquis and Straight,
1965; Larson and Gobeli, 1988; Roberts, 1988), the
influence of patterns of communication on the final
outcome (Marquis and Straight, 1965; Allen, 1977;
Tushman, 1978; Allen and Katz, 1986; Allen and
Hauptman, 1987), and the role of human resource
management practices (Katz and Allen, 1985; Allen
and Katz, 1990).
Only recently have researchers turned their attention
to the analysis of the different organizational coor-
dination mechanisms in inter-organizational relation-
ships. At a macro level, for example, Rebentish and
Ferretti (1995), studying technology transfer within
international joint ventures in the chemical and steel
industry, develop a model where the characteristics of
the object being transferred (transfer scope) and the
characteristics of the organizational structure used to
achieve the transfer (transfer method) concur in deter-
mining the success of the transfer. Similar arguments
are developed by (Hakansson, 1987, 1989) who pro-
vide evidence through different case studies about how
the strengths of certain Swedish industries are based
on specific investments in the organizational coordi-
nation of a nexus of relationships at the industry level.
Imai and colleagues’ (1985) work on supplier–
manufacturer relationships in new product develop-
ment presents evidence from five in-depth case stud-
ies of Japanese firms. Their research covers different
industries, from electronics (Epson dot-matrix printer,
NEC PC8000, Fuji FX-3500 paper copier) to pho-
tographic equipment (Canon Auto-Boy lens shutter
camera), to automobiles (Honda City). Suppliers’
early involvement in the development process and the
intense patterns of communication flows are indicated
as driving forces for faster releases of new devices
and prompt responses to competitors’ moves. Simi-
lar conclusions are supported by subsequent research
in the world auto industry (Clark, 1989; Clark and
Fujimoto, 1991), showing lower costs and shorter
lead-time associated with higher levels of supplier
involvement and higher use of off-the-shelf parts, con-
trolling for industry, project and geographical level
characteristics. Overall, greater supplier involvement
accounts for roughly one-third of the Japanese ad-
vantage in engineering hours and 4–5 months of their
lead time advantage.
 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
More detailed analyses of the micro-organizational
mechanisms used to coordinate suppliers’ participa-
tion in new product development extend these results.
In two other studies (Sobrero and Toulan, 2000;
Sobrero and Roberts, 2001) of supplier–manufacturer
relationships in new product development projects, we
showed that the type of knowledge being partitioned
and its level of interdependency with the rest of the
project are important predictors of performance out-
comes of the relationship, controlling for contractual
differences. Further, the analyses demonstrate a clear
trade-off between short term efficiency-increasing and
longer term learning-enhancing outcomes. While firm
(Dyer and Ouchi, 1993; Dyer, 1996; Nishiguchi and
Ikeda, 1996) and country level (Helper, 1991; Liker
et al., 1995; Nishiguchi, 1995) differences seem to be
time-dependent and to show convergent patterns, all
these works independently support the importance of
adequate investments in the organizational structuring
of exchange flows according to the characteristics of
the tasks jointly performed. Choices along the fre-
quency of communication between the partners, the
type of communication channels used, the timing of
partners’ involvements in the problem solving process
and the assignment of specific design responsibility
must be accurately balanced to have a positive impact
on project outcomes.
2.3. The research framework
These two different research approaches to the
analysis of inter-organizational coordination mech-
anisms stress separate albeit complementary aspects
of the same problem (Sobrero and Schrader, 1998).
On the one hand, strategic approaches examine the
institutional governance mechanisms necessary to
define the rule set agreed upon by the partners. The
focus is on the mutual exchange of rights among the
parties involved. On the other hand, organizational
approaches highlight the informational characteris-
tics of the interaction. The focus is on the possible
alternatives to put into place the mutual exchange of
information among the partners.
The choice along both dimensions is related to the
characteristics of the tasks performed in the relation-
ship. Combining the different perspectives reviewed,
the task domain can be articulated focusing on three
aspects: asset specificity, means uncertainty, and goal
163
uncertainty. Asset specificity determines the extent
to which the activities performed in the relationships
have some economic value per se or not (Williamson,
1979). The higher the asset specificity, the lower the
chances for the partners to benefit from their activities
outside the relationship. The level of task uncertainty
can be referred to the action or to the goal domain
(Thompson, 1967). In the first case, the partners have
agreed on the objective of their relationships but
have multiple options to achieve the goal. Ring and
Rands (1989), for example, document how NASA
and 3M were able to specify up front their goal for
common projects on microgravity experiments and
subsequently worked through the implementation of
their collaboration. In the second case, the goal itself
is unclear. These situations have been documented in
many studies of collaborative R&D projects, when
the partners might initiate the relationship for some
generic strategic reason but lack an operational objec-
tive (Brockhoff, 1992; Kleinknecht and Reijen, 1992;
Tripsas et al., 1995).
Given different characteristics of the tasks to be
performed within the relationship, the partners can
structure the interaction by (a) articulating the legal
conditions governing the transaction and (b) identi-
fying the mechanisms to transfer information among
them to implement the transaction. Contractual
coordination mechanisms are used to define the legal
boundaries of the relationships. They involve the
choice of the legal form governing the agreement (e.g.
joint venture or strategic alliance, equity and non-
equity joint venture), the length of the agreement, the
extent to which partners are bound to the agreement
(e.g. exclusivity clauses, penalties) and the degree to
which these choices are specific to the agreement or
not (e.g. standardized versus personalized contracts).
Research shows the impact on relationship perfor-
mance of these choices. Studying strategic alliances,
for example, Parkhe (1993) documents how the def-
inition of contractual safeguards positively affected
the fulfillment of partners’ strategic objectives. Simi-
larly, in a sample of Scandinavian collaborative, R&D
ventures Hakanson (1993) finds that a clear contrac-
tual definition of ex-ante safeguards decreases the
likelihood of anticipated termination of the venture.
Information transferring mechanisms are used as
an alternative way to put into place the relation-
ships within the institutional boundaries defined by
164 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
means of the contractual coordination mechanisms
chosen. They are targeted to the structuring of in-
formation flows between the partners. Decisions on
the frequency, timing, directionality of information
flows, as well as the means through which these flows
occur identify the operational dimensions of procedu-
ral coordination mechanisms. For a given institutional
setting defined by a specific combination of contrac-
tual coordination mechanisms, alternative choices of
information transferring coordination mechanisms are
going to impact the outcome of the relationship dif-
ferently. Carter and Miller (1989), for example, show
how frequent and bilateral communication between
vendors and buyers sensibly limited the occurrence
of quality problems in the materials delivered. Dyer
(1996) reports that higher levels of face to face com-
munications between suppliers and manufacturers
contribute to reduce new model cycle time. Hakan-
son (1993) documents the positive impact of the
coordination procedures used by the partners on the
survival of collaborative R&D ventures, provided that
managerial autonomy is granted by avoiding detailed
specification of implementation procedures within the
contractual arrangement.
To examine fully how partners should organize
their relationships to achieve the intended goals, both
Fig. 1. The theoretical framework.
dimensions must therefore be considered (see Fig. 1).
First, choices on both dimensions are linked to the
characteristics of the tasks jointly performed. Second,
they both independently account for the performance
of the relationship. Third, their combination might
in and of itself be a strategic lever to be used by
the partners. In the next sections, we present a study
of supplier–manufacturer relationships designed to
include in the analysis all these aspects, to deepen
our understanding of the implications of structuring
decisions in innovation processes.
3. The study
We studied the whole population of 50 different
supplier–manufacturer relationships for the develop-
ment of new components or new equipment in three
development projects performed between 1993 and
1995 by three business units (SBUs) of one of the five
largest European groups in the Major Home Appli-
ances industry. The existence of an established body
of research on supplier–manufacturer relationships
provides a valuable opportunity to anchor the empir-
ical analysis to a policy domain where the strategic
relevance of the problem examined can be easily
 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
appreciated. The Major Home Appliance industry is
characterized by complex assembled products made
of parts and subsystems requiring the combination
of different knowledge domains, from mechanics to
electronics to plastic molding. The evolutionary pat-
terns of this industry in Europe show how cyclical
interactions between product and process innovation
have converged towards highly fragmented and tem-
porarily unstable patterns of consumption, generating
at the same time the constraints of large scale man-
ufacturing and the opportunities for creative product
differentiation (Sobrero, 1995).
Firms’ successful responses to these challenges
have been a constant shaping of internal structures
around the technological base. Failures of these
strategies resulted in exits at different times (Goshal
and Haspeslagh, 1990). The contemporary need for
size and scope has not been achieved merely by
functional or geographical separation, but rather
fostered through increased inter-unit coordination
(Baden-Fuller and Stopford, 1991). Specific activities,
such as product development, where different and
frequently contradictory task characteristics are con-
veyed, became the institutional environment to shape
the internal and external structure of the organization
and to adapt it to the changed nature of the external
environment.
Within this context, suppliers are being called
upon to play an ever increasingly important role. The
strategic relevance of product–process interaction,
the shortening product life cycles, and the need to
balance volumes with product differentiation require
home appliance manufacturers to focus on processes
and product architecture knowledge. Such knowledge,
though, cannot successfully be exploited without
also utilizing components-related knowledge. Exter-
nal sources are used more and more to complement
internal competencies, subcontracting the control of
parts-related knowledge domains. The internal re-
organization is hence accompanied by the need to
appropriately structure the supplier chain within new
product development activities.
3.1. Methodology
The study uses a multi-case and multi-unit of analy-
sis approach to explore if (a) the characteristics of the
object of the relationships affect structuring decisions,
165
and if (b) the relationship structuring decisions affect
the relationships outcomes. This design is particularly
advantageous to approach these research questions
(Yin, 1994) because (1) the phenomena investigated
are recent or even contemporary, (2) the phenomena
investigated are analyzed within a specific context,
(3) the research is focused on “how” and “why”
aspects, and (4) the researcher has limited control
over the phenomena.
Multiple sources of information are used to avoid
typical potential sources of bias deriving from organi-
zational role, individual’s memory failure, protection
mechanisms and the like. The a priori identification
of multiple units of analysis allows the structured col-
lection of a larger amount of information. Finally, the
stratification of the units of analysis and sources of
information allows mapping the within-case sources
of variance and determines a base of comparison for
multi-case analysis. Specific actions were taken to
avoid threats to validity (Yin, 1994; Stake, 1995).
To control for the construct validity of the results,
we triangulated different sources of information and
confronted the fit between the analytical categories
selected and the data representation derived. This pro-
cess is also suggested to control for internal validity
biases, as introducing possible alternative sources of
variance and forcing the analysis to resolve incon-
gruencies between sources. To further strengthen the
internal validity of the study, data were collected at
three different levels of analysis: the business unit,
the project, and the relationship between a supplier
and the SBU manufacturer.
Multiple cases were selected to strengthen the
external validity of the results. It is important, how-
ever, to define properly the generalizability domain
(Eisenhardt, 1989). Within case-studies, in fact, gen-
eralizability refers to the analytical level and not, as
is more usual, to the statistical level. In the first case,
the discriminant criterion lies in the adherence of the
selected observation to the logical categories defined
up front, and it suffices to define certain dimensions
and find matches between them and the selected cases.
In the second case, instead, representativeness is
defined by the attributional properties of the sam-
ple with respect to the larger population of which
it is a part, which has to be defined up front to
devise the appropriate sampling strategy. The goal
here was to achieve analytical representativeness of
166 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182

inter-organizational relationships in the development
of innovation.
3.2. Case selection
Three separate SBUs of one of the five largest
European Major Home Appliance groups agreed to
participate in the study. The group has facilities lo-
cated all around Europe and operates in different
countries both with multiple brands and as the OEM
for large retailers. It produces the whole product line
of major home appliances, from refrigerators (“cold”
line) to washing machines (“wet” line) and kitchen
stoves and ovens (“hot” line). The SBUs selected
operate in two different countries. Two SBUs produce
and develop different ranges of products in the “wet”
line and the third one develops and produces the
whole “cold” line. All of them produce for all group
brands.
Within each unit, we selected one new product
development project with the aid of top managers,
namely the chief executive officer (CEO), the group
managing director and the group R&D director.
Top managers were considered the most appropriate
informants because of their overall knowledge of the
project portfolio, the impact of each project on the
SBU and the group marketing strategy, and an indirect
involvement in the project. The selection process
was guided by the following three criteria (see also
Table 1).
3.2.1. Degree of innovativeness
Focusing on a new product development project,
the first necessary step is to define the extent to which
the project represents major or minor departures
from the SBU’s existing competencies. Innovative-
ness is therefore defined here as change with respect
to the established knowledge base of the observed
unit (Henderson and Clark, 1990). The knowledge
base itself is articulated into a technical and market
knowledge base (Abernathy and Clark, 1985; Roberts
and Berry, 1985). Working with the top management,
three projects were selected to span across the inno-
vativeness domain, assessing the extent to which the
specific project represented a departure from existing
market and technological competencies at the given
SBU level. One case is about a radical departure from
existing competencies, another one is about incre-
mental departure, and the third one lies somewhere in
the middle.

Table 1
Informants, selection criteria and rationale for the identification of product development projects
Informant Selection criteria Rationale
Top management Degree of internal market and technological To partition ex-ante the projects within
innovativeness (one radical, one incremental homogeneous classes
and one in between the two) To identify an internal benchmark with
respect to an external one in order to
circumstantiate change within a specific
reality
To map the widest possible range of
innovative projects
To recognize the complementary nature
of market and technological newness
Recency (finished not more than 1 year prior To avoid memory retrieval problems
to beginning of research) To limit ex-post rationalizations embedded
in the shared organizational memory
To take into account typical development
times in the industry
Representativeness (prototypical of certain To minimize between case variance within
class of projects) homogeneous classes
To avoid rare cases or outliers
 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182 167

3.2.2. Recency
The second requirement for project selection was
the timing of its completion. In addition to consider-
ing typical memory retrieval problems in the analysis
of past events, the issue of timing needs to account for
industry specific development cycles (Baden-Fuller
and Stopford, 1991; Sobrero, 1995). Following both
methodological and context specific considerations,
the selection criteria required the project not be ended
earlier than 1 year prior to the beginning of the study.
3.2.3. Representativeness
The third criterion is related to the first and reflects
the intention, within the study, not to sample outliers.
Although this is considered a common research strat-
egy whenever using case-design, the intention here
was to avoid either rare or peculiar cases. Rather, to en-
sure analytical representativeness, the project selected
must have been considered typical of its own innova-
tiveness category.
3.3. Data collection
To address the usual concerns on the reliability of
the data gathering process in qualitative research, we
used a priori developed data protocols (Yin, 1994).
These protocols identified a set of items to be covered
in the data collection and their logical relationships.
They were used to guide the field research, to provide
a standard format for data coding, and as a device to
be challenged with new evidence emerging from the
analysis. Whenever new elements not initially consid-
ered were included, old notes were re-elaborated to
address the new aspects and further data collection
followed if data were not available.
Data were collected between March 1995 and Jan-
uary 1996 through direct interviews, the analysis of
internal records, and public sources such as industry
specific newsletters, consumer reports and business
press. After selecting the projects, a first round of
interviews was conducted with “top management” to
gather general data at the group level (see Table 2).
In addition to an historical account of the group evo-
lution and growth during the years, and its current
positioning in the European markets, some specific
issues were covered with the group R&D director
and the group purchasing director. With the first, to-
gether with each unit R&D manager, we examined
the evolution of the product families at the “unit”
level. With the second, the general purchasing strate-
gies and objectives were discussed at length. The goal
here was two-fold. First, we wanted to place each
project within the proper product and market related
context. Second, we wanted to identify the general
environment in which the relationships with suppliers
we were going to study were being activated.

Table 2
An account of the interviewing activity: number of interviews by round, unit and informanta
Round Purpose Informant Unit

A B C

1 To select the projects Group CEO, group CTO, 5 5 4

To obtain an historical account of the company and of each unit group CPO
To define the technical and market evolution of the company’s products
To determine the company’s purchasing strategies
2 To confirm the evidence collected in the previous round Unit CTO 7 7 6
To reconstruct the history of the project examined
3 To confirm the evidence collected in the previous round Unit CPO, PM, designers, 7 7 8
To reconstruct the history of the project examined engineering, director
To identify specific instances of interactions with suppliers
4 To confirm the evidence collected in the previous round Unit CPO, PM, designers, 7 6 5
To analyze each relationship with suppliers engineering, director
Total 26 25 23
a CEO: chief executive officer; CTO: chief technology officer; CPO: chief purchasing officer; PM: project manager.
168 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
The second round of interviews was conducted at
the “unit” level. With the R&D manager, we recon-
structed an historical account of each project, both
directly through his descriptions, and indirectly by ac-
cessing internal reports, budgets and product planning
documents. Typically, after a first meeting organized
along these lines, we were granted access to archival
documents that we used to triangulate the information
collected during the interview. For each project, we
identified the different phases, their timing and costs,
an articulation of the different dimensions of the
problem solving activities, which organizational units
were involved and responsible during the different
phases, major difficulties encountered and unresolved
issues, and a judgment on the overall performance
of the project both financially and organizationally.
We then prepared a summary of the evidence col-
lected and of the discrepancies that had emerged.
This summary was used as the basis of a subsequent
discussion, after which the process was repeated one
more time, for a total of three interviews which lasted
between 2 and 4 h each.
During these interviews, in addition to deepening
the understanding of the project, particular attention
was given to the identification of other key informants,
with whom a third set of interviews was conducted.
The purpose was to confirm the evidence collected
on the project and to go into greater depth about the
specific interactions with suppliers. The interviewees
were the Project Manager, some designers, key peo-
ple from the Engineering Department, and the Unit
Purchasing Director. The interviews with each person
lasted between 1 and 2 h and covered their individ-
ual role in the project and any account of specific
interactions with suppliers.
Working with the Project Manager and the Unit
Purchasing Director, we developed a list of all the
suppliers that were involved at some stage of the
project. This list was used as a basis for further dis-
cussion with the project members about each single
relation with the supplier through a fourth round of
direct interviews. First, we discussed at length the
characteristics of each single interaction (e.g. what
was the supplier called to do, at which stage was it
involved, what type of communication channels were
used), and the responses collected were reviewed
with the informants to resolve any major inconsis-
tencies. Then, we distributed to the project manager
a structured questionnaire to obtain a judgmental
indication of each single relationship’s performance.
4. Data analysis
4.1. The context
The three SBUs selected can be considered
representative of strategic players operating in today’s
mature mass markets. They are focused on spe-
cific product segments within which they support
all group brands. The export share is therefore quite
high (see Table 3), even for unit C, which offers a
geographically-specific product. Productivity levels,
measured in number of pieces per employee, are
within industry average (Paba, 1991), and so are the
number of different product codes recorded in the pro-
duction plan. Overall, these data offer more specific
evidence for the general characteristics of fragmenta-
tion of consumer preferences and excess of installed
manufacturing capacity, pushing for technical sepa-
ration of product responsibilities into separate units,
able to serve the whole set of brands used by the
group both in local markets and all around Europe.
Suppliers participate intensively in this organization
of production. Total purchases account for between
26 and 65% of each SBU’s sales. Even the lower 26%
value for unit A is fairly high, considering the level
of vertical integration of refrigerator plants. Despite
this key role, purchasing strategies are quite different
from one unit to another. Unit C uses formal ven-
dor rating procedures and has initiated a program to
reduce the number of suppliers and introduce a qual-
ity certification system. Units A and B, in contrast,
lack any strategic action on supply management. The
Table 3
Main characteristics of the three SBUs: mean yearly values
1990–1994
A B C
Product segment Cold Wet Wet
Productivitya 564 613 587
Export (%) 40 30 14
No. of models produced 600 600 150
Purchasing costs (%)b 26 60 65
a Number of pieces per employee.
b As a percentage of total SBU sales.
 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
purchasing office is organized in two second level
units, one for components and materials and the other
for manufacturing equipment. There are some attem-
pts to monitor suppliers’ capability to respect some
given quality levels, but attention is primarily given to
manufacturing activities and does not take into con-
sideration a more integrated vision of vertical relation-
ships to include new product development activities
as well.
Within these specific contexts, the three projects
were selected by design to represent different inno-
vation efforts. The first project, developed in unit A,
was targeted to the introduction of new models in an
existing product family (different sizes in a line of
refrigerators). The second project, developed in unit
B, was centered around the re-engineering of a key
subsystem (the washing group in a washing machine).
The third project, developed in unit C, was targeted to
the complete redesign of a new product platform and
the corresponding changes in the manufacturing plant.
Due to confidentiality reasons, projects cannot be
compared using financial data. Yet some other quite
informative dimensions can be used instead (see
Table 4). Total development time from the official
launch of the project to the beginning of production
is 13 months for project A, 30 months for project
B, and 50 months for project C. The targeted cost
reduction, measured in real values with respect to the
corresponding previous product generation is about
2.5% for project A, 3% for project B and a high 10%
for project C. The expected product life is more sen-
sitive to the specific product–market conditions, with
a low of 3 years for project B, a high of 10 years for
project C, and 5 years for project A.
The percentage of new components with respect
to previous products is in general fairly high, despite
Table 4
The three projects: main characteristics
A B
New components (%)a 90 55
Development time (months) 13 30
Components reduction (%)a 25 27
Cost reduction target (%)b 2.5 3 10
Expected product life (years) 5 3
a In comparison with previous product generation.
b Real values, relative to previous product generation.
169
between-project differences, indicating how central is
the overall product architecture engineering to harmo-
nize the technical subsystems included in the product.
For this reason, all projects are also targeted to high
levels of components reduction, reflecting the type of
innovative efforts performed. In project A, the value is
the highest, with a target of 27% fewer components.
In project C, on the contrary, the value is the lowest,
with a target of 20%, and project B somewhere in the
middle, with a target of 25%. The more the innova-
tive activity is limited in its scope, the more the efforts
are focused on more stringent product rationalization
plans, with rather limited direct opportunities on the
manufacturing side. Product simplification, in fact, po-
tentially determines at the same time a reduction of
material costs and of direct costs through the elimi-
nation of manufacturing activities. In contrast, more
innovative projects like project C can specifically in-
corporate in the new design radical intervention on the
process side, and leave to future projects more focused
actions on the overall product architecture.
4.2. Characteristics of the tasks jointly performed
Within all three projects, suppliers played a central
role in the development of new solutions. Overall,
11, 18, and 21 suppliers of components or dedi-
cated equipment were involved at some stage of the
development process and assigned specific design
responsibilities in projects A, B, and C, respectively.
Their activities accounted for about 25% of the final
manufacturing cost for project A, 20% for project B,
and 27% for project C. These are quite large values,
if one takes a closer look at their economic implica-
tions. In the case of washing machines, for example,
the full manufacturing cost is around US$ 170 per
unit. If the project target is to reduce such cost by
3%, this means to save in real terms US$ 5.40 per
unit. A clear distinction of the activities performed by
suppliers and how these relationships are structured
C therefore becomes a key strategic issue to be managed
by the manufacturer, not only ex-post on the produc-
95
50
tion side, but also ex-ante during the development
20 process itself. Extensive interviews were conducted
with each Project Manager to distinguish what kind
10 of development work was assigned and what kind of
design autonomy and responsibility was granted to
each supplier. After an initial round of interviews, a
170 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
first classification of the relationships discussed was
provided to the interviewee, together with an account
of the evidence that emerged during previous meet-
ings. Possible disagreements were resolved during an
additional round of interviews and through the use of
internal documents.
Four typologies of interactions were identified
through this process (Sobrero and Roberts, 2001). In
the first case, all design work and related problem
solving was done internally. The supplier received
detailed drawings and technical specifications to be
met for a component which was not considered to
critically affect other parts of the overall project.
The supplier’s action domain was therefore limited
to meet these technical specifications. This group
represents the traditional subcontracting approach in
new product development and is therefore labelled
“traditional subcontracting” parts.
In the second case, suppliers were involved in the
design of components, which might critically impact
other parts of the project. The control over suppliers’
design freedom was imposed indirectly by the up-front
definition of the interface specification provided. In
this type of relationship, suppliers were recognized
as an important source of knowledge, but the char-
acteristics of the component suggested limiting their
freedom in problem solving activities. In a way, they
are integrated into the manufacturer’s problem solv-
ing logic and process. We label this group “integrated
subcontracting” parts.
In the third case, suppliers worked on components
with low interdependency with the rest of the project.
The manufacturer here limited its own activities by sel-
ecting an area of the project and delegating it entirely
to the supplier. The supplier domain of action was
therefore widened, albeit limited to areas of potentially
low influence on the overall project. In this type of
relationship, the manufacturer tried to access a specific
knowledge domain of the supplier, without limiting its
potential outcome by a predetermined set of solutions.
We called this group “advanced subcontracting” parts.
In the fourth case, suppliers were responsible for
the whole problem solving activity for highly critical
components. Despite the potentially high influence on
the overall project, suppliers were given freedom to
define the solution starting from the concept design
domain and then moving to the functional parameter
domain (Alexander, 1964; Clark, 1985). This practice
has been highly documented in Japanese firms as a
way to reduce the overall product development time
and costs (Imai et al., 1985; Clark, 1989). Components
developed according to these arrangements have been
identified as “black box” parts which term we there-
fore adopted as our label.
Fig. 2 reports data on the economic impact of each
category of relationships for the three projects studied,
measured as the percentage of full manufacturing cost
accounted for by externally developed components.
Suppliers’ involvement goes well beyond the mere
design of already well-defined engineering solutions
typical of “traditional subcontracting” parts. Rela-
tionships requiring specific interactions to integrate
external solutions in the overall product architecture
are at the core of the economic impact of suppliers on
the project. Most of the outside involvement is cen-
tered on “integrated subcontracting” and “advanced
subcontracting” parts, while reliance on “black box”
parts seems fairly limited with respect to what has
been observed in other studies (Clark and Fujimoto,
1991; Liker et al., 1995; Dyer, 1996).
This can partly be explained by the nature of the
technology involved. Innovation in major home appli-
ances comes from investments in product architecture
and process flexibility, rather than from the inclusion
of sophisticated components or subsystems alone. On
the one hand, it would be hardly perceived by the con-
sumer; on the other hand, the different technologies
used tend to be rather mature. Even the most recent
efforts towards the production of “intelligent”
machines relying on fuzzy logic programmed micro-
processors are based on the integration and adapta-
tion of knowledge already used in other industries.
External sources therefore become potentially useful
in the process as long as the manufacturer controls
and masters their coordination and integration in the
process. In the next paragraphs, we therefore turn the
attention to the contractual and information transfer
mechanisms used in the sample observed.
4.3. Contractual coordination mechanisms
To evaluate the extent to which each one of the mul-
tiple interactions activated within the three projects
was governed by a set of contractual coordination
mechanisms explicitly articulated for that specific rela-
tionship, we asked each unit’s purchasing manager
 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
Fig. 2. Total value of supply by type and group (% of full manufacturing cost).
two different questions: first, if the contract negoti-
ated with the supplier included elements regulating
a set of 10 items 2 derived from previous research
on European purchasing activities (Zanoni, 1984);
and second, for each of these items, to indicate on
a 5-points Likert scale their positioning between re-
lying on standard contracts (1) and negotiating a
specific agreement (5). In this way, information on
the breadth of the contractual arrangement and on its
specificity was collected for each one of the 50 dyadic
relationships (Cronbach’s α = 0.78). The scores on
each item were then added up and divided by 10 (for
the 10 items), generating a final index between 0 (no
element included in the contract) and 5 (all elements
explicitly negotiated for that specific relationship
included in the contract).
Fig. 3 reports the values of this index measuring
the extent of use of contractual coordination mecha-
nisms for each project, distinguishing different types
of supply. Clearly, the attention paid to the contrac-
tual definition of several contingencies is limited.
2 The items were price, quantity, quality levels, lead time, vol-
ume elasticity, order activating procedures, penalties and fines,
exclusivity, control mechanisms, renewal.
171
While there are no statistically significant differences
among supply types (F3,44 = 0.32, n.s.), the use of
contractual coordination mechanisms varies among
projects (F2,44 = 11.26, P < 0.001). A closer look
at the use of each of the items considered for a con-
tract, however, limits the substantial implications of
inter-project differences along the contractual coordi-
nation dimension (see Fig. 4).
Only quantity and price items are included in all
contracts, while more sophisticated items such as some
kind of agreement governing volume elasticity, how
orders are activated, the possibility to rely on penalties
or fines, and ex-ante options to renew the contract are
never present in any of the relationships observed. The
detected differences are explained by the inclusion of
specific clauses regulating suppliers’ quality levels,
the mechanisms to control such levels and exclusiv-
ity agreements in 5 contracts out of 11 in project A.
Contracts are here used as a substitute for more elab-
orated form of supplier management such as the one
being introduced in unit C, where the certification and
definition of specific vendor rating procedures make
individual negotiations on these aspects redundant.
Previous research suggested the importance of
repetitive interaction among the partners to foster
172 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182

Fig. 3. Contract specificity by supply type and project.

mutual reliance, favor inter-partner knowledge and
limit the need for leveraging on contracts (Hamel,
1991; Heide and Miner, 1992; Powell and Brantley,
1992). The percentage of suppliers involved in the
project which had already interacted with the different
units in the past is quite high (see Table 5), ranging
from 72% for project A to 86% for project C and
with no statistically significant difference among the
projects (F2,47 = 0.41, n.s.). This evidence for a repet-
itive interaction effect to explain the low investment
in contractual coordination mechanisms, however, is
challenged by the absence of a significant correlation
between the existence of a previous relationship and
the level of contractual specification used to govern
the interaction observed. There is inconsistency in
the sign, the size and the significance level of the

Fig. 4. Contract items by cases of use.

M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182 173
174 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
coefficients computed for each project, with appar-
ently supporting evidence emerging only in the case
of project B. A comparison of the three correlation
coefficients standardizing the magnitude differences
and taking into account the unequal sample sizes,
however, does not detect any statistical heterogeneity
among them (χ 2 -test = 3.72, d.f. = 2, n.s.).
Similar results are also obtained when linking the
economic value of the activity performed within the
relationship and the level of contractual specification.
Different authors have used cost-based measure of
dyadic interaction to operationalize asset specificity,
indicating that high levels of asset specificity justify
investments in contractual coordination mechanisms
(see, for example, Joskow, 1987). Yet the correlation
between the value of the component developed en-
tirely or in part by the supplier, measured as a percent-
age of the cost of the component over the total cost of
the final product, and the level of contract specificity
does not support this conclusion. While this seems
to be true in the case of project B, the correlation is
negligible for project C and reversed for project A.
Moreover, these apparent differences are not statisti-
cally confirmed by the numerical comparison of the
three coefficients (χ 2 -test = 4.07, d.f. = 2). Finally,
we examined the examined the relationship between
supply type and the level of contractual specification,
controlling for possible inter-project differences. A
two-way ANOVA did not show any significant sup-
ply type effect (F3,40 = 1.1, n.s.) or any significant
interaction between supply type and inter-project
differences (F4,40 = 0.651, n.s.).
In general, therefore, despite quite substantial dif-
ferences in the type of activities performed within the
relationships examined, there seem to be no particular
investments in contractual coordination mechanisms.
Contrary to previous evidence, neither a trust-based
explanation focusing on repetitive contact among the
partners, nor a transaction cost-based explanation fo-
cused on the economic value of the interaction can
be exclusively used to account for these choices. Pos-
sible influences of a group-level policy towards the
form of legal agreements with external actors are also
not supported by the recorded differences in the three
SBUs’ purchasing strategies and procedures described
before. Differences in geographical location of both
the units and the suppliers are not helpful either to
assess a predominant role of the external context,
and underdetermined explanations should rather rely
on some general patterns of interaction at the whole
industry level (Granovetter, 1985; Cusumano and
Takeishi, 1995). Contrary to what we expected, how-
ever, in the sample studied, there are no significant
differences in the use of the contractual leverage ac-
cording to the object of the exchange. This absence of
a strong link between two variables that are oftentimes
presented as critical areas for strategic decision mak-
ing whenever approaching potential collaboration is
particularly interesting if we consider that the presence
of previous relationships between the partners does not
emerge as a significant intervening variable in our data.
Previous research suggested that information trans-
ferring mechanisms can be used as substitutes for con-
tractual coordination mechanisms (Piore and Sabel,
1984; Granovetter, 1985; Best, 1990). Repetitive in-
teractions generate inter-partner learning, fostering
trust and facilitating communication processes. The
investments necessary for these changes may already
sufficiently commit the relationship partners to each
other (Heide and Miner, 1992). Consequently, addi-
tional contractually based commitment mechanisms
might not be necessary anymore. In other words,
while the task characteristics may suggest that the
partners should establish a high level of contractual
coordination, it may actually be unnecessary to do so
if the partners have already committed to each other
through previous investments in procedural coordina-
tion mechanisms, which contribute to steer decisions
on the legal and organizational arrangements chosen
to govern subsequent interactions.
This evidence suggests the limits of contractual
coordination mechanisms as the main leverage for
structuring inter-organizational relationships, and the
need for a complementary analysis of the information
transfer mechanisms used in the different cases.
4.4. Procedural coordination mechanisms
For each one of the 50 relationships identified we
gathered data to determine (a) how early the supplier
was involved in the project, (b) the extent to which
the manufacturer and the supplier worked sequen-
tially or in overlap during the project, (c) how often
they exchanged information, and (d) what kind of
information media they used to exchange informa-
tion. The first two dimensions take into consideration
 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
Table 6
Use of Information transfer mechanisms by type of supply: mean values and inter-group comparisons
Dimension of evaluation
Traditional
Early involvement 0.62
Degree of overlap 0.28
Communication frequency 1.20
Richness of information media 1.80
∗ P < 0.05.
∗∗ P < 0.01.
the results of numerous studies on effective ways
to accelerate product development (for a review, see
Brown and Eisenhardt, 1995). To measure early sup-
plier involvement, we computed the difference in days
between the date of first contact with the supplier in the
project and the end of the project, normalized by the
total length of the project. The index varies between
0 (latest involvement) and 1 (earliest involvement).
To measure the degree of overlap in develop-
ment activities, we computed the difference in days
between the date the contract was signed and the
date of first contact with the supplier, normalized
against the longest time span within each of the three
projects. The longer this span, the more both parties
had a chance to overlap their activities. The index
therefore varies between 0 (perfectly sequential) and
1 (completely overlapping).
The other two dimensions tackle the role played by
frequent and rich information transfer for faster and
more effective problem solving activities (Allen, 1977;
Bastien, 1987; Orlikowsky, 1993). In the first case, we
measured how often the supplier and the manufacturer
interacted during the project. Communication fre-
quency was coded using a 3-points Likert scale (1 =
less than once a month, 3 = information more than
once a month), determining the appropriate anchoring
lag through several in-depth interviews. In the second
case, we measured what kind of information me-
dia was used predominantly in the relationship. Five
options ordered hierarchically following a Gutman
scale logic were derived from previous research on
communication (Rogers and Agarwala-Rogers, 1983)
to form a “media type” index for each relationship
ranging between 1 and 5: (1) drawings, (2) faxes,
(3) meetings, (4) personal communication among the
project members and (5) electronic data exchange.
175
Supply type Kruskal–Wallis χ 2
Integrated Advanced Black box
0.57 0.61 0.71 2.68
0.64 0.50 0.44 7.99∗
2.28 1.92 1.75 16.08∗∗
2.61 2.38 2.75 8.30∗
Table 6 reports the average values of the four indi-
cators of procedural coordination mechanisms, distin-
guishing by type of activities. In general, all classes of
suppliers are involved fairly early in the project. The
values of the “early involvement” index are all above
0.5, indicating that initial contacts with suppliers were
always established in the first half of the project life.
The difference among the various classes are not stati-
stically significant and the largest value is recorded for
“black box” parts, signalling an earlier involvement of
suppliers in the project for these type of activities.
The analysis of the timing of information transfer
within the relationship provides statistical support
for differences among relationships types, suggesting
higher levels of overlapping for those activities req-
uiring a more direct involvement of suppliers in the
design phase. The largest value (0.64), however, is
recorded for “integrated subcontracting” parts, indi-
cating that the higher level of overlap occurs for acti-
vities where the supplier is still quite strongly bound
to specific engineering indications communicated
by the manufacturer. Considering how the index is
constructed—i.e. the normalized difference between
the date when the contract was signed and the date
of first contact—the results might be suggesting that
in these cases it takes longer to “freeze” the design
of the component. With this interpretation in mind,
larger values could also signal more intensive infor-
mation exchange processes needed to jointly define
the preferred solution.
These intuitions are confirmed by a closer look at
the values of the indicators of frequency and richness
of information transfer. In general, differences among
the four type of relationships identified on the basis
of the design work performed by the parties involved
are statistically confirmed in both cases. Moreover,
176 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
relationships with suppliers for the development of
“integrated subcontracting” parts require on average
more frequent communication and use more elabo-
rate type of information transfer mechanisms. The
increasing level of investment in the type of me-
dia used to transfer information is also observed in
general for more sophisticated type of relationships.
Differences in communications frequency, on the
contrary, are less evident when focusing on specific
comparisons between pairs of relationships. “tradi-
tional subcontracting” parts are clearly characterized
by the lowest value, but the differences between “ad-
vanced subcontracting” parts and “black box” parts
are negligible.
The analysis of procedural coordination mecha-
nisms offers some elements to unveil the interaction
processes behind the different types of relationships.
In general, we observe that whenever suppliers are
assigned problem solving responsibilities, they tend
to work in overlap, focusing on a part of the problem
which then needs to be linked through more fre-
quent interactions, using more sophisticated ways of
transferring information. However, if this freedom is
limited to the identification of a solution within well
pre-specified boundaries, as is the case with “inte-
grated subcontracting” parts, the interaction process
seems to require more resources and a larger coordi-
nation effort. In these cases, the access to an external
knowledge pool seems to be nominal, as it is con-
fined within boundaries pre-specified internally by
the manufacturer. The manufacturer is constraining
the development of functional parameters, with the
identification of a design concept developed internally
using an inappropriate knowledge base.
These differences in the interaction patterns,
reflected in alternative use of procedural coordination
mechanisms, are likely to be reflected in different
relationship outcomes. More sophisticated types of
interactions might be establishing the conditions to
leverage external knowledge sources, but certainly
require higher levels of organizational investments,
which are reflected in more intensive and frequent
interactions. Similarly, outsourcing decisions might
speed up the whole process by efficiently using exter-
nal resources to subcontract part of the development
activity, but a lack of clarity on the goals or a mispec-
ification of the initial problem might generate a costly
trial and error adjustment process. It is therefore
important to conclude this analysis by looking at the
performance implications of the use of different types
of relationships.
4.5. Relationship outcomes
Inter-organizational relationships can be activated
for different reasons (Sobrero and Roberts, 2001).
Efficiency-increasing goals are based on the assump-
tion that economic activities could indifferently be
organized through internal integration or through the
combination and coordination of the work of sepa-
rate economic agents, and the outsourcing decision
is cost driven. Learning-enhancing arguments, on the
contrary, focus on the characteristics of the knowl-
edge being transacted. While explicit knowledge can
easily be codified and transferred among different
actors, tacit knowledge is embedded in its owner.
Inter-organizational relationships therefore become
the necessary structuring solution to overcome the
difficulties of trading knowledge-based assets, by pro-
viding the opportunities to establish direct contacts
with the sources of knowledge and their development
environments.
To distinguish between these two possibly contrast-
ing relationship outcomes, we distributed a eight-item
questionnaire to the three Project Managers, asking
them to evaluate each supplier involved in the de-
velopment project by expressing a judgment on a
5-points Likert scale associated with each item. Six of
the eight items were typical operationalization of effi-
ciency such as the adherence to time, cost and quality
levels, respect for initial agreements and the expected
level of competencies, and a general judgment of
satisfaction (efficiency Cronbach’s α = 0.91). The
other two items asked whether the supplier developed
some new solutions that were used in other occasions
(e.g. other product lines, other projects), and whether
they felt they had learned something during the in-
teraction (learning Cronbach’s α = 0.72). To further
support the results of the reliability analysis, we ran
a “principal components” analysis using the whole
set of items. The first two eigenvalues accounted for
75% of the variance (50 and 25%, respectively). The
efficiency items all loaded strongly and positively on
the first eigenvalue (component loadings varied from
0.75 to 0.93) and not on the second (component load-
ings varied from −0.20 to 0.20), while the “learning”
 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
Table 7
Evaluation of relationship by type of supply: mean values and inter-group comparisons
Relationships outcome
Traditional Integrated
Efficiency 0.181 −0.455
Learning −0.853 0.072
∗∗∗ P < 0.001.
items loaded strongly on the second eigenvalue (com-
ponent loadings 0.85 and 0.91) but not on the first
(component loadings −0.04 and 0.08).
We used the results of the “principal component”
analysis to create the two output indicators. For the
“efficiency” indicator, for each relationship, all the
responses to the six items described above were
summed, weighted by their corresponding component
loadings on the first eigenvalue. For the “learning”
indicator, the same procedure was applied, using the
other two items and their corresponding component
loadings on the second eigenvalue instead. Both indi-
cators were then standardized to make between-case
comparison more meaningful and more easily inter-
pretable.
Several elements of interest emerge comparing
the average standardized “efficiency” and “learning”
outcome levels focusing on the type of development
work characterizing the interaction (Table 7). First,
in both cases, there are clear differences in the out-
come depending on the characteristics of the activity
performed within the relationship.
“Integrated subcontracting” parts show the low-
est value, clearly indicating an impact on the final
outcome of the relationship of the repetitive inter-
action patterns highlighted before, mainly generated
by the need to correct through trial-and-error pro-
cesses the problems generated by initial mispeci-
fications. On the contrary, relationships based on
“advanced subcontracting” parts and “black box”
parts are characterized by above average levels of
efficiency, showing a more appropriate combination of
the type of activity performed by the partners and the
organization of their interaction.
The leverage of supplier competencies is best
achieved for “advanced subcontracting” parts, when
the knowledge specificity associated with the design
of the new solution suggests granting complete free-
dom to the partner involved, but the limited need of
177
Supply type Kruskal–Wallis χ 2
Advanced Black box
0.993 0.246 14.411∗∗∗
0.737 0.961 20.338∗∗∗
integration of the component in the overall project
does not require particular investments in the design
of its interface. On the contrary, these specific design
requirement lower on average the overall efficiency of
interaction focused on “black box” parts, where the
interaction must be more intense to co-ordinate the
integration of the subsystem in the product archi-
tecture, requiring specific joint efforts in the design
and problem solving activities dedicated to the def-
inition of the technical interface. Average levels of
efficiency result from interactions on “traditional
subcontracting” parts, where suppliers’ contributions
are reflected in asymmetric cost structures. While
there seem to be some opportunities to benefit from
the cost advantages provided by external partners in
the engineering phase of the development process,
the internalization of the detailed definition of com-
ponents design specifications clearly limit the oppor-
tunities to compress component development costs.
The same conditions favoring higher levels of effi-
ciency in the relationships outcome, however, seem to
be acting in a reverse manner towards the emergence
of learning effects. The “learning” indicators asso-
ciated with the different types of relationships show
increasing values for more complex and articulated
interactions. Suppliers’ involvement in the project
for “traditional subcontracting” parts and “integrated
subcontracting” parts show below average or average
opportunities to foster the accumulation and transfer
of new knowledge through the relationship. On the
contrary, relationships with suppliers responsible for
“advanced subcontracting” parts, and even more so
relationships with suppliers responsible for “black
box” parts, provide more opportunities to stimulate
internal learning processes.
Once more, the results reflect the differential
investments in procedural coordination mechanisms.
A higher level of involvement of external actors in
the process generate higher coordination costs, as
178 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
noted in the analysis of the “efficiency” indicator, but
also create the conditions for an effective information
transfer process to occur. The theoretical requirements
for facilitating the exchange of invisible assets such
as knowledge and competencies are operationalized
in specific structuring arrangements chosen to govern
the interaction between the two partners. An earlier
involvement in the project, coupled with more elab-
orated communication structures and an overlapping
approach to problem solving activities are necessary
conditions to foster inter-partner learning.
These investments on the procedural coordina-
tion side, however, are costly. Clearly, they are more
demanding in terms of coordination time, as well as
resource allocation to the management of the relation-
ship. A comparison of the trends of “efficiency” and
“learning” indicators is informative in this sense. On
the one hand, there seems to be a trade-off between
the two different types of outcome. On the other hand,
a closer look at the data suggest that we rethink the
whole problem of inter-organizational relationships
in new product development as a set of comple-
mentary decisions involving coherent choices on the
characteristics of the interaction and its structuring
arrangements to achieve the desired outcome. Unless
the involvement of external actors goes beyond a mere
subcontracting of part of the development process, any
potential effect can at best be limited to a partial reduc-
tion of overall development cost. Yet it can also gen-
erate severe sources of inefficiency if the nature of the
general definition of the problem solving domain can-
not be effectively approached using internal resources.
More articulated types of relationships, on the con-
trary, offer the opportunity for limiting these risks by
a proper allocation of the design responsibilities to
the owner of the relevant knowledge. The apparently
higher coordination costs faced during the project to
structure and manage these relationships are compen-
sated in the end by the avoidance of negative loops
generated by initially weak definitions of the problem
to be solved, and by the emergence of opportunities to
generate variance in the internal resource set with the
exposure to new ideas and solutions. Initially greater
investments are therefore to be compared to the pos-
sible alternatives focusing on the characteristics of
the information exchange process that will emerge
from the use of different procedural coordination
mechanisms.
5. Conclusions
This paper contributes to the debate on the analysis
of inter-organizational relationships in the develop-
ment of innovations with the recomposition of institu-
tional decisions driving the governance of inter-firm
relations and their organizational implementation.
Building on previous works in economics, strategy
and organizational design, the framework developed
considers as fundamental elements for the effective-
ness of inter-firm relations both status variables (e.g.
determinants of cooperation) and process variables
(e.g. procedural mechanisms to coordinate the rela-
tion). It links inter-organizational structures to the
nature of the task being performed and articulates
such structures into contractual and procedural co-
ordination mechanisms, distinguishing between the
institutional definition of the legal boundaries of the
transaction, and the information transfer mechanisms
needed to achieve an effective transfer. Finally, it
shows the theoretical relevance of distinguishing
between these two complementary dimensions to
ascertain the implications for individual partners’
outcome of the activation of external relationships.
Using a multi-case multi-level analysis approach
to the study of 50 supplier–manufacturer relationships
in new product development, the empirical results
show that, indeed, the leverage on contractual coor-
dination mechanisms can be fairly limited, and so
will be its impact on the relationship outcome. On
the contrary, procedural coordination mechanisms
offer more opportunities to differentiate the struc-
turing mechanisms used to manage the interaction
among the partners.
In addition to that, with different formulations
of the outcome variable, similar choices along the
structuring dimensions generate different results,
depending on the characteristics of the joint problem
solving. Higher investments in procedural coordi-
nation mechanisms are costly to set up and offer
opportunities to pay back as long as they are used to
nurture the manufacturer’s knowledge base, rather
than merely reduce internal development costs through
sub-contracting. On the contrary, whenever short term
efficiency is the goal of the interaction, suppliers
should be given full responsibilities, limiting the in-
teractions with the manufacturer and its investments
in procedural coordination mechanisms.
 M. Sobrero, E.B. Roberts / Research Policy 31 (2002) 159–182
Several implications can be derived from these
results for an analysis of the strategic impact of
relational activities. First, planning and implement-
ing ties and connections with other actors goes well
beyond the definition of the contractual coordination
mechanisms chosen to govern the relation. Although
frequently considered as a fundamental aspect, the
definition of the legal boundaries of the agreement is
not sufficient to obtain the desired outcome. External
conditions such as local systems of norms and prac-
tices might even question the necessity of specific in-
vestments in the contractual coordination side. While
still a key component of the decisions over alterna-
tive structuring arrangements of inter-organizational
relations, the research presented in this paper sug-
gests that manufacturers not overlook the procedural
coordination side by placing an excessive emphasis
on the contractual coordination side, at the expenses
of the final outcome of the relation.
Second, the impact on the performance of the ac-
tors is strictly linked with the structuring decision
taken with respect to the procedural coordination
mechanisms used to make the relationship work. The
effect of alternative choices on how to implement
the exchange among the parties attracts the attention
to the relevance of inter-organizational structuring
decisions.
Similar structures, however, might be economically
justified only in certain cases, considering the coordi-
nation costs associated with more articulated relational
options. Indeed, the empirical results show that for
investments in relational activities to generate attrac-
tive returns they need to be congruent with the type of
task jointly performed. Depending on the characteris-
tics of the task at hand therefore different procedural
coordination mechanisms can have very different im-
pact on the outcome of the subjects involved. On the
one hand, a pure financial evaluation based on short
term observations of such impact might underestimate
the effect deriving from changes in the competence
set which need longer time spans to become visible.
On the other hand, leaner structures might generate
a positive impact on the overall cost structure of the
focal firm, but could not be exploited to affect its
competence base.
Differences in the observed outcome of alternative
procedural coordination mechanisms reflect their ap-
propriateness to achieve different outcomes. Invest-
179
ments in dense and differentiated relational arrange-
ments are certainly increasing the opportunities for
exchanges, but the related costs are also increasing.
Depending on the expected outcome therefore the
choice of the corresponding set of procedural coordi-
nation mechanisms should be made accordingly.
In this paper, we have discussed how inter-organiza-
tional structuring decisions can impact the innovative
outcome of new product development projects, while
we have not collected data on process innovation.
Closer and denser interactions with suppliers, how-
ever, have emerged in different studies as powerful
sources of continuous improvements also on the shop
floor. More generally, it can be argued that such op-
portunities could be multiple, depending on all the
opportunities that the partners have to interact. Future
research could be directed to mapping and assess-
ing the connections between the different relational
sets activated by the partners, and the impact of such
spillovers on innovation. Finally, while we have de-
cided to focus on one specific actor along the value
system (the manufacturer) we believe that the issues
raised in the paper could be useful and transferable all
along the chain. The well-established concept of orga-
nizing suppliers in multiple level tiers, which as been
widely explored in the automobile industry, is quickly
migrating to other industries, from aerospace to
packaging machinery. Managing inter-organizational
relationship therefore becomes a key aspect of more
advanced approaches to the extended supply chain, re-
quiring the development of specific relational capabil-
ities not only at the manufacturer level, but also at the
supplier level.
Acknowledgements
Partial support from MIT Industrial Performance
center, MIT International Center for Research on the
Management of Technology, and MURST ex-40%
#9913628915-003.
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