Experimenting strategically: inter-firm relationships and “in the field” innovation

Kapacinskaite, A and Cunningham, C M (2019) Experimenting strategically: inter-firm relationships and “in the field” innovation. In: Academy of Management 2019 Annual Meeting, August 9-13, 2019, Boston, MA.

Abstract

Research suggests inter-firm relationships affect firm behavior and performance in various ways. Yet, we know little about the effect of such relationships on experimentation, a key precursor to innovation. In this paper, we argue that suppliers choose which buyers they experiment on strategically, targeting relationships where the risks are relatively low. Our theory is based on the idea that suppliers often experiment “in the field”, yet buyers are unlikely to want to bear the cost of experimentation. Hence, we hypothesize that supplier firms experiment with smaller buyers and within older relationships. We test and find support for our hypotheses in the US hydraulic fracturing industry, where service firms supply inputs to well completion processes for oil producing firms. Our results have implications for our understanding of inter-firm relationships and the process of invention and innovation.