How do innovation intermediaries

add value? Insight from new

product development in
fashion markets
Yen Tran1, Juliana Hsuan2 and Volker Mahnke3
1

Heriot-Watt University, School of Management and Languages, Edinburgh, EH14 4AS, United
Kingdom. y.tran@hw.ac.uk
2
Copenhagen Business School, Department of Operations Management, Solbjerg Plads 3,
DK- 2000 Frederiksberg, Denmark. jh.om@cbs.dk
3
Copenhagen Business School, Department of International Economics and Management,
Porcelnshaven 24A. DK - 2000 Frederiksberg. vm.int@cbs.dk

Innovation intermediaries are increasingly being used in practice, but there is little concrete
theoretical guidance on when and how they add value to clients new product development
(NPD) processes. This paper develops propositions on innovation intermediaries value-added
based on a detailed case study of an innovation intermediarys relations to three major clients
in the European apparel fashion industry. We identify key contingencies to an innovation
intermediarys value added (e.g. NDP speed and complexity of involvement). We also suggest
a framework that species when a combination of four types of specic intermediary
capabilities (best-cost capabilities, timing-capabilities, market-response capabilities, and
product solution capabilities) increases value added in clients NDP processes.

1. Introduction

he function of innovation intermediaries is

increasingly being explored (e.g. Howells,
2006; Mahnke et al., 2008; Lichtenthaler and Ernst,
2009). While their services continue to be delivered
in different forms (e.g. brokers, third parties agencies, and electronic platforms) their activities
become increasingly apparent (Howells, 2006), including, foresight, and diagnostics; scanning and
information processing; knowledge processing
and combination/recombination; gatekeeping and
brokering; commercialization of innovation; and
evaluation of outcomes. While we increasingly
understand what innovation intermediaries do,
far less is known about how they add value to a
clients new product development (NPD) process.
80

The development of product innovation increasingly requires rms to tap into networks of
external specialists (Mahnke et al., 2007). Yet, the
anticipated benets of the outsourcing effort are
often not realized, due to a number of difculties,
such as a lack of experience in using exchange
platforms (Lichtenthaler and Ernst, 2009), competency gaps between contracting partners
(Cusumano, 2006), poor relational capabilities
(Lane and Lubatkin, 1998), insufcient technological dialogue (Monteverde and Teece, 1995) as
well as technological uncertainty and cultural
distance (Mahnke et al., 2008).
Although rms are increasingly aware of the
potential benets of innovation outsourcing including access to creative input and accelerated
NPD speed, their ability to exploit them appears

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How do innovation intermediaries add value?

to be far more limited. To traverse the complications of innovation outsourcing while reaping its
benets, organizations in their NPD efforts often
turn to innovation intermediaries (e.g. Spulber,
1999; Howells, 2006; Mahnke et al., 2007), that is,
organizations that can facilitate the exchange of
NPD expertise across groups of players who hold
different design and NPD capabilities, goals, and
technical languages (Allen and Cohen, 1969;
Aldrich and Herker, 1977; Tushman and Scanlan,
1981). Howells (2006) recently suggested, in the
UK context, that the innovation intermediary
function has changed over time to increasingly
go beyond mere information provision and transaction services to also assume knowledge integration and combination functions. Yet, still little is
known on concretely when and how innovation
intermediary capabilities add value to clients
NPD processes.
This paper provides new insights into the R&D
management literature in the following ways: (1)
while prior research has stressed the importance
of innovation intermediation capabilities, this
paper makes explicit how such capabilities add
value in creative NPD processes; (2) adapting a
case study design, this paper compares instances
of intermediary value creation that are contingent
of strategic choices made by a fashion rm (e.g.
slow versus fast NPD speed; simple versus complex scope of involvement of intermediaries).
Taken together, this paper suggests an integrative
framework on how and when innovation intermediaries add value. We develop our contribution in
the context of the fashion industry, where product
development cycles are updated frequently, the
degree of outsourcing is substantial, and the use
of innovation intermediaries is persuasive (Tran,
2008).
The paper is organized as follows: in the next
section, the salient literature on innovation outsourcing and innovation intermediaries is reviewed. We outline the most pressing challenges
of outsourcing in NPD and the boundary spanning services that innovation intermediaries provide. Then we use a theory-based grounded
analysis of a Scandinavian fashion innovation
intermediary, FlexTex, and its three diverse clients operating in the increasingly fast paced
European fashion industry. Specically, we focus
on different bundles of value-adding innovation
services carried out by the innovation intermediary. We report our initial evidence on how innovation intermediaries create value in the NPD
processes of a fashion client, both with fast
and with slow NPD speeds. Next, we introduce
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a framework for classifying intermediary valueadding functions with respect to NPD speed (slow
versus fast) and the scope of intermediary involvement (simple versus complex). We conclude the
paper with a discussion of the managerial implications, the limitations of our research, and future
research.

2. Literature review
2.1. Outsourcing product innovation
The migration of innovation capabilities to external players continues, with few indications
of abatement (Mikkola, 2003; Howells, 2006;
Mahnke et al., 2007). An increasing tendency of
outsourcing innovations has been associated with
a variety of reasons including an increasingly distributed nature of innovation systems (Coombs
et al., 2003), increasingly geographically dispersed
sources of innovation (Mahnke et al., 2008), a
tendency to include a greater number of technologies per product class (Pavitt, 2000), and, most
recently, increasing product development speed
(Tran, 2008).
The supply chain management literature on
outsourcing of innovation and NPD activities
includes early supplier involvement (ESI) (cf.
Dowlatshahi, 1998; Wynstra et al., 2001; Ragatz
et al., 2002), platform strategies, and modularity
design strategies (cf. Mikkola, 2003; Mikkola and
Skjtt-Larsen, 2006). ESI, for example, refers to a
form of vertical cooperation between the rm and
its suppliers at the early stages of the NPD
process (Bidault et al., 1998). Firms increasingly
engage in ESI in order to reduce development
costs (Bonaccorsi and Lipparini, 1994), improve
performance (Hsuan, 1999), reduce lead time, and
to have access to suppliers technical expertise and
capabilities (Wasti and Liker, 1997; Ragatz et al.,
2002). Likewise, the literature on platform development often emphasizes the importance of understanding the interdependencies among all the
component suppliers embedded within a system
(e.g. Meyer and Lehnerd, 1997; Mikkola, 2006).
In fact, modularity design strategies are concerned with how product platforms can be decomposed so that different design choices can be
outsourced (Mikkola, 2003). This is especially
crucial for those components that are outsourced
to third parties for development. While the possibly of outsourcing innovation has received increasing attention, rms capabilities to reap
associated benets are far more limited, which
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Yen Tran, Juliana Hsuan and Volker Mahnke

raises the following question: how do innovation
intermediaries add value to a rms NPD process?

2.2. Innovation intermediary

The use of innovation intermediaries creates the
opportunity for rms to increase the feasibility of
outsourcing innovation while mitigating the associated costs. The subject of intermediation has
commanded most theoretical attention in the
literature on nancial transactions (Rousseau
and Wachtel, 1998). In this perspective, intermediaries are effectively middlemen, brokering
transactions between buyer and seller (Rubinstein
and Wolinsky, 1987). Intermediaries have been
heralded for their ability to aggregate supply and
demand, provide market transparency and liquidity, mitigate moral hazard and adverse selection
by clearing transactions and providing trade nancing, hold inventories to absorb variations in
supply and demand, and re-bundle portfolios of
goods and services across multiple suppliers (Rubinstein and Wolinsky, 1987; Spulber, 1999).
Consistent with traditional intermediation theory
(Rubinstein and Wolinsky, 1987; Spulber, 1999),
our argument acknowledges that in any form of
exchange, parties have the option to transact
directly with the each other, or transact through
an intermediary. However, a middleman would
want some form of economic compensation for
the services provided; hence, the value that the
innovation intermediary provides should exceed
the cost of using them. But just exactly where this
tradeoff occurs is poorly understood.
Unlike trading of nancial assets, the complex
relationships between the innovation intermediaries and the clients are not conducted via standard interfaces with structured technological
syntaxes (Monteverde and Teece, 1995; Mahnke
et al., 2008; Mahnke et al., 2006). In order to
add value, innovation intermediaries must offer a
set of capabilities that are idiosyncratic to the
clients they serve, such as knowledge-intensive
services in design, R&D, and NPD. A crucial
requirement includes establishing structured
technological dialogue that allows clients to
specify requirements and permits vendors to trace
interdependencies and impacts on overall system
performance (Monteverde and Teece, 1995).
Thus, one key task of the innovation intermediaries is to develop inter-rm social and relational capital (Nahapiet and Ghoshal, 1998), to
create interfaces between a rms NPD process
and suppliers of innovation input allowing
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R&D Management 41, 1, 2011

for inter-rm knowledge identication, sensing,

knowledge-sharing, and knowledge-combination
across company boundaries (Kogut and Zander,
1992).
Prior research also reveals that innovation
intermediary capabilities are delivered in different
forms, including intermediary rms as bridgers
(Bessant and Rush, 1995), brokers (Hargadon
and Sutton, 1997), electronic markets (Lichtenthaler and Ernst, 2009), design platforms
(Mikkola, 2003), and sourcing agents (Tran,
2008). In a most recent study of electronic innovation intermediaries in the marketing of patented technologies, Lichtenthaler and Ernst
(2009), however, assert that there is little systematic evidence on how such innovation intermediaries add value. Thus, while the empirical
literature offers substantial advance in understanding what innovation intermediaries do, there
remains a lack of empirical insights on how they
add value in particular sectors. Our empirical
investigation of this question proceeds in the
context of NPD processes in the fashion industry.
Specically, we explore the following research
questions:
 What types of value-adding services do innovation intermediaries provide to the NPD
process of fashion rms?
 How do these value-adding services vary with
the NPD speed?
 Is there a match between the NPD speed and
the capabilities of innovation intermediaries?

3. Research methodology
The literature review and insights into industrial
practices on innovation outsourcing revealed that
we need to carry out a closer investigation of the
role of innovation intermediaries in adding value
to their clients NPD processes. However, there is
a dearth of both theoretical and empirical research on this topic. Given the limited theory, a
contextualized case study (Eisenhardt, 1989;
Yin, 2004) of an innovation intermediary, FlexTex, and its clients was conducted in the fashion
industry from 2006 to 2008. Inductive case studies
are especially useful to develop theoretical insights and allow not only to explore the phenomenon of value added in its complexity but
also to identify emerging concepts and their relations as they crystallize from in-depth understanding of the research context (Miles and
Huberman, 1994).
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How do innovation intermediaries add value?

3.1. Research context

The research context of our investigation is the
NPD processes in the fashion industry. Traditionally, the European fashion industry has had a
long turnaround of introducing new products
into the markets. In the early 1990s, however,
things started to change. The NPD cycles started
to improve largely due to quick response (QR)
efforts. QR is a set of policies and practices
targeted at improving coordination between retailing and manufacturing so as to increase the
speed and exibility of responses to market shifts.
Such programs also provided more suitable
products, and reduced inventories and price reductions. However, NPD lead time still took
approximately 1 year. Since 2000, competition
in the high street segment of the fashion industry
has evolved from price based toward fast response
to constantly changing fashion trends and uctuating consumer demands within a single season.
This fast-moving environment continually adds
pressure for fashion companies to compete on
their ability to deliver newness and refreshed
look in products (Tran, 2009). If not sold in time,
items have to be marked down substantially,
often between 60% and 79%, as a means to react
to changing fashion collections introduced by
competition (Christopher et al., 2004). In such a
context, increasing the frequency and newness of
fashion collections has become increasingly crucial for the survival of many fashion companies.
Today, fast fashion has emerged as the new and
widely adopted industry trend, which means that
companies must be able to react to new and realtime fashion trends with a lead time as short as 15
days to 1 month. Many companies in the midscale fashion market segment such as Zara,
Mango, Peacock, Next, TopShop, Vero Moda,
and H&M chose to offer whatever the market
wants, and update fashionable clothes that have
high value for money with increasing introduction
frequencies. These companies have shaken the
market and have become the drivers of the
revolutionary change in the industry by intensifying the competition in a turbulent environment.
By raising consumers expectations in getting frequent new fashion styles at affordable prices, such
companies also create tremendous pressure for
other companies to change their NPD and market
response processes. As expressed by Enric Casi,
Director General of Mango: In the textile sector,
speed is everything. We need to have a strong
response to market demands (Tran, 2009). Within
such context, the role and inuence of innovation
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intermediaries in adding value for a clients NPD

process becomes very interesting to investigate.

3.2. Data collection and analysis

Value creation by innovation intermediaries was
explored in its natural setting through an investigation of an innovation intermediarys interactions with three diverse clients representing the
innovation intermediarys service portfolio. Data
were collected by two researchers from interviews
with the case company, FlexTex, the innovation
intermediary, as well as three of its major clients;
the names of the clients are withheld due to
condentiality reasons. Such interviews were triangulated with several secondary sources and
external data material. Eight informants from
the main case company included the CEO, two
designers, two project lead managers, and three
client account managers. We intentionally spoke
to informants at different levels of the organization in order to ensure data representativeness
and sampling data from stratied sources that
appropriately represented the organization or the
phenomenon studied. Toward this goal, we also
interviewed three major clients of the innovation
intermediary. Informants from each client included the CEO, designers, production managers,
marketing managers, and sourcing manager. Clients followed different product development strategies, ranging from slow, to medium, to high
speed. In addition to personal interviews, other
sources of primary data included telephone interviews and email correspondence. Finally, archival
data, such as company internal documents and
websites, were also used by the third researcher to
corroborate the ndings of the rst two researchers; the resulting case write-ups were coded separately and cross compared with control for
researcher bias.
The data gathered from the three clients enabled us to investigate the value-added inputs of
the innovation intermediary from both perspectives. The comparative analysis therefore provided a more accurate and generalizable theory,
in comparison with simply investigating from a
single perspective (Miles and Huberman, 1994;
Yin, 2004; Eisenhardt and Graebner, 2007). Our
research design uses theoretical sampling and
allows the assessment of variations and commonalities of added value through innovation intermediaries in alternatively paced product development processes. The data were coded using
guidelines from the Straussian tradition (Strauss
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Yen Tran, Juliana Hsuan and Volker Mahnke

and Corbin, 1990). This tradition encourages the
researcher to use prior knowledge and understanding (e.g. the literature from related disciplines as reviewed above) to shed light on the
phenomena being examined. In the current case,
prior understanding from the NPD and intermediation literature guided our investigation (e.g.
Howells, 2006). We converged on the following
top-level codes: (1) innovation intermediary involvement points, (2) value-added dimensions, (3)
NPD speed, (4) scope of intermediary involvement, and (5) intermediarys capabilities.

4. Findings
Based on the analysis of our case data, we identied ve key factors inuencing when and how
innovation intermediaries add value to clients
NPD processes.

4.1. Innovation intermediary involvement

points
The NPD process of a fashion design is illustrated
in Figure 1: planning, concept development, system-level design, detailed design, testing, and
production ramp-up. The planning stage is when
the fashion trends are identied, market segments
are dened, the supply chain strategy is devised,
and various design options and textile innovations are assessed. Once the planning is set, the

next stage of NPD process is the concept development. During this stage, the fashion company
is concerned with activities related to identifying
lead users, best designers, and competitors. It also
needs to investigate fashion and design concepts
vis-a`-vis material development, such as trims,
colors, coating, silhouettes, and samples. Detailed
design stage is considered to be the critical stage
of NPD process by many fashion companies. It
entails many critical processes such as developing
plan for design options for variety, setting pricing
strategy, dening modular design templates,
choosing materials, dening baseline sketch and
measurements, identifying key suppliers, and deciding on material development. After the detailed design, the new garment designs need to
go through the testing stage. It includes the
following processes: testing prototypes, translating sketch to pattern, creating 3D visualization
for virtual settings, generating physical photos,
developing promotion materials, preparing for
launch, rening quality control, and verify that
material development is in conformance to specications. The nal NPD stage is production
ramp-up. This is when the fashion companies
evaluate the production output and send early
promotion items and collections to the stores.
As Figure 1 shows, innovation intermediaries,
such as FlexTex, can be involved in any and/or all
the stages. They can provide a wide range of
services and added value depending on whether
they are involved early or late in the clients
NPD process. Depending on the urgency of

INNOVATION INTERMEDIARY INVOLVEMENT POINTS

LATE

EARLY

Planning

Concept

Detailed design

Testing

Develop plan for

design options for
variety
Set pricing strategy
Define modular
design templates
Choose materials
Define baseline sketch
and measurements
Identify key suppliers
Decide on material
development (trims,
colors, coating,
silhouettes/samples)

Test prototypes
Translate sketch to
pattern
Create 3D visualization
for virtual fittings
Generate physical
photos
Develop promotion
materials
Prepare for launch
Refine quality control
Verify material
development (trims,
colors, coating,
silhouettes/samples)

development
Identify fashion
trends
Define market
segments
Assess design options
Assess textile
innovations
Devise supply chain
strategy

Identify lead users

Identify designers
Identify competitors
Investigate fashion and
design concepts
Investigate material
development (trims,
colors, coating,
silhouettes/samples)

Production
ramp-up
Evaluate production
output
Send early promotion
items an collection to
stores

Figure 1. Innovation intermediary involvement points in the fashion NPD process.

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How do innovation intermediaries add value?

Table 1. Services provided by the innovation intermediaries and value-added dimensions
Involvement
points

Services provided by the innovation

intermediaries

Value-added dimension (key dimensions

emphasized)

Planning

Visits of fairs, shops of customer and competitors

Analysis of trends
Analysis of competition
Design of new fabrics
Research with suppliers
Analysis of customer needs and
Visits of new factories
Finding new products
Organization of information and contract
Trouble shooting of the concepts
Crisis management and conict mediation
Communication with customers and suppliers
Advice on speed

Decreasing costs of product development

Improving hit/miss rate of collections
Reducing product development risk
Enhancing product attributes
Improving fashion actuality
Increasing product development speed

Concept
development

Detailed design

Testing

Production
ramp-up

Analysis of sample requests

Registration of specications
Capacity planning
Approval of counter samples
Communication with customers and suppliers
Order tracking and control of time schedule
Checking fabric references
Order analysis
Testing colors, fabric, print and embroidery
quality
Evaluation of lab test results
Elaboration of lab test reports
Order tracking and control of time schedule
Order analysis
Control of time schedule
Approval of style
Approval of workmanship and accessories
Quality control of production
Elaboration of quality control reports
Management of claims

Decreasing costs of product development

Improving hit/miss rate of collections
Reducing product development risk
Enhancing product attributes
Improving fashion actuality
Increasing product development speed
Decreasing costs of product development
Improving hit/miss rate of collections
Reducing product development risk
Enhancing product attributes
Improving fashion actuality
Increasing product development speed
Decreasing costs of product development
Improving hit/miss rate of collections
Reducing product development risk
Enhancing product attributes
Improving fashion actuality
Increasing product development speed
Decreasing costs of product development
Improving hit/miss rate of collections
Reducing product development risk
Enhancing product attributes
Improving fashion actuality
Increasing product development speed

Bold sentence emphasize key value added dimentions.

concept-to-market lead times, clients might seek

varying complexity of services from the innovation intermediaries. For the relatively slow NPD
process, most prominent with identity-driven
rms, for example, the innovation intermediary
tends to become involved during the early stages of
the NPD process. Conversely, in the market-driven
rms that have a much faster NPD speed, ranging
from 12 to 16 collections per year, the intermediary
tends to become involved at the later stages.

actuality; and (f) increasing product development

speed.
Table 1 lists the value-added dimensions by an
innovation intermediary at various stages of fashion clients NPD processes. Investigating the
linkage and subsequent match between the services provided and value appreciated by the
clients, we gained some powerful insights into
the value-adding capabilities of the innovation
intermediary.

4.2. Value-added dimensions

4.3. NPD speed

Based on our case study with FlexTex and its

clients, we identied several value-added dimensions in the fashion clients NPD process, including (a) decreasing costs of product development;
(b) improving hit-and-miss rate of collections; (c)
reducing product development risks; (d) enhancing product attributes; (e) improving fashion

NPD speed in the fashion industry is typically

determined by the product life cycles of the
fashion items, ranging from 15 days to longer
than 1 year. Whereas items with long product life
cycles typically have a slow NPD speed, items
with short product life cycles require a fast NPD.
Fashion items can vary from basic to fast

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fashion. Basic items, such as T-shirts, socks,
generic underwear, etc., have predictable demand
patterns and can have long life cycles, often much
longer than 1 year; hence, markdowns are rarely
observed. Fast fashion items referred to the most
recent fashion trends that are designed and manufactured quickly and cheaply; hence, the customers can afford to have fashionable clothes at
cheap prices. Examples of fast fashion retailers
include H&M, Forever 21, and Zara.

involvement are two key contingencies of the

intermediarys value-added services to the clients
NPD process. Based on the NPD speed (slow and
fast) and the scope of intermediary involvement
(simple and complex), four types of value-adding
capabilities of innovation intermediaries are identied: (1) value creation through best-cost capabilities, (2) value creation through timing capabilities,
(3) value creation through product solution capabilities, and (4) value creation through market
response capabilities.

4.4. Scope of intermediary involvement

4.5.1. Value creation through best-cost capabilities

When the speed of NPD is slow and the scope of
intermediary involvement is simple, the innovation intermediarys main value-adding function
rests on best-cost capabilities. In this context, the
innovation intermediary helps the client to reach
best-cost suppliers of innovation input to serve
their basic fashion items such as T-shirt, pants,
socks, etc. A sourcing manager commented: Basic fashion items remain similar across seasons.
We order them in bulk quantity and stock them.
What we look for is the low cost of the products
and decent quality so we dont mind if the
products are delivered in a year. Today, the
suppliers of slow basic fashion items are globally
dispersed and exceed most fashion clients abilities to tap into the best cost locations. As one
clients designer put it: The fashion world has
become so competitive, that we change our supply
base every year or else have to change our market
segment. Basic collections are purchased, for

Depending on the complexity of the services

provided by the intermediary and the number of
involvement points, the scope of intermediary
involvement can either be simple or complex.
Simple scope denotes simple value-added tasks
and the intermediary is only involved in one stage
of the clients NPD process. Complex scope
denotes specialized tasks and the intermediary is
involved in multiple stages of the NPD process.
The insights from the empirical analysis induced
us to propose a theoretical framework for classifying innovation intermediarys value-adding
functions (Figure 2).

4.5. Innovation intermediary capabilities

The grounded investigation with FlexTex and its
three clients corroborated the view that the speed
of NPD and the complexity of intermediary

Scope of intermediary involvement

Slow

NPD
Speed

Fast

Simple

Complex

Best cost
Intermediaries add value through
searching best cost locations for
innovative supply

Product solution
Intermediaries add value through
providing product innovation
solutions

Key value dimension:

Key value dimension:

Decreasing costs of product

development

Offering new and enhancing

current product attributes

Timing
Intermediaries add value through
delivering fashion in time

Market response
Intermediaries add value through
providing complete innovation
solution and fashion timing

Key value dimension:

Increasing product development
and scaling speed

Key value dimensions:

Reducing hit/miss risk
Improving fashion actuality
Offering new product attributes

Figure 2. Framework for classifying intermediary value-adding functions.

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How do innovation intermediaries add value?

example, from China, India, the Baltic States in
addition to locations in closer proximity to FlexTexs European clients (e.g. Egypt, Turkey and
Portugal). By implication, the ability of fashion
rms to receive delivery in time while minimizing
costs and ensuring quality is one key value-adding
function an innovation intermediary can provide:
Fashion sensitive products are usually sourced at
closer proximity, in close cooperation with reliable and committed suppliers . . . less trend sensitive and basic fashion items can be sourced in
remote location and this is a long range process.
For basic items, we can even order all the year
round, but to nd the best cost location would be
impossible without an innovation intermediary, a
clients sourcing manager commented.
4.5.2. Value creation through timing capabilities
When the speed of NPD is fast and the scope of
intermediary involvement is simple, innovation
intermediaries main value-adding function rests
on timing capabilities. To reap the market demand at peak times, many fashion companies
seek to replenish items delivered as quickly as
possible during the season. The innovation intermediary helps the clients to replicate best-selling
innovative products with a short lead time so that
they can arrive at the stores in time for the season.
As the styles of the fashion products are repeated,
the task of the intermediary is simply to fulll the
detailed specied orders by accelerating dispersed
production and logistics of best-selling products.
In this case, an innovation intermediary does not
need to be concerned about product attributes
and the design of the products or whether the
products can be sold successfully. As a sourcing
manager of a FlexTexs client commented: Replenishment service for our innovative product
line is very important for us, you never know
what will hit the market to plan the production
volume until the rst sales record shows in the
season. In the old days, we would wait until the
next season to repeat the successful items . . . .
now with the service provided by the agent, we
can do it right away, it takes maybe one to two
weeks for the items to arrive, customers are
happy, and we earn extra! A sourcing manager
from another client engaged in both fast and slow
fashion collections added another interesting
nuance: The innovation intermediarys selection
of a blend of close to output market suppliers for
the introduction of fast collections during the
season and long distance suppliers for cheap core
and commodity items is important. As stated by
a production manager of the same company:
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Delays become truly a bottleneck for our fast

fashion strategy, especially, the delays in our
express collections put our concept shops in
jeopardy. Indeed, he continues: . . . to us, geographic dispersion of sourcing activities appears
necessary to hedge supply risk and tap into
changing comparative cost advantages of remote
locations . . . however, coordination costs also
increase, and economies of scale in sourcing are
hard to come by when coordinating globally
dispersed supplier this is why we engage an
innovation intermediary to synchronize our supply need across alternatively paced collections.
4.5.3. Value creation through product solution
capabilities
When the speed of NPD is slow and the scope of
intermediary involvement is complex, innovation
intermediarys main contribution is to possess
product solution capabilities. This is a service
sought by fashion rms in the high-end segment
who focus on product strategy of high quality and
innovative styles. These rms are constantly
searching for innovative product solutions. They
usually offer two collections per year; thus, they
do not require fast product delivery. They spend
the majority of their time on planning, concept
development, and design activities. The intermediary can, therefore, add value by offering
new materials, new product solutions, and suggesting carefully tailored production processes to
ensure high quality and high style value of the
products. As a designer of an identity-based
fashion rm comments: . . . our collection is
limited in number but very innovative: most
importantly, the quality has to be guaranteed,
because that is what we stand for. We take our
time to bring the best to the customers. The
innovation intermediary has an important role
in proposing to us new materials to add product
functionality (stain resistant or odor free or
wrinkle free) and sometimes FlexTex also helps
us to turn our design into workable production
plans and schedules. FlexTex is our innovation
partner, they understand our design concept and
business ideas and help the implementation. Their
task is quite diverse and complex.
4.5.4. Value creation through market response
capabilities
When the speed of NPD is fast and the scope of
intermediary involvement is complex, the intermediary must possess market response capabilities.
Fashion companies seeking market-responsiveness
value suppliers commitment to deliver the best
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87

Yen Tran, Juliana Hsuan and Volker Mahnke

products with good quality and innovative styles,
and at the same time to guarantee fast delivery of
their fashion to the stores to stay abreast of
emerging market trends. They offer not just timely
replenished products but also new products addressing the real-time fashion trend. This NPD
strategy helps rms to stay responsive to the
market, reduce inventory, lower mark downs,
reach higher sell-through, and eventually to avoid
hit-and-miss fashion risk. More importantly, it
also enhances the brand value of the company by
keeping customers returning to their shops to
search for updated fashion items. To support value
creation, the intermediary assumes the complex
task of servicing several involvement points simultaneously that can range from design proposal to
complete product solution delivered within a single
short-lived season cycle. In such a situation, the
innovation intermediary helps to sense the market
trend, to propose the right styles, and to take care
of the complete production and logistics. As a
fashion designer commented, they [the innovation
intermediary] offer complete solutions for the
complex development of in-season items, it saves
time and coordination. They understand our
brand identity, our styles, our products, and of
course they know what hits the markets. They also
just ll up newly demanded items for us, by
shipping the items to our shops. Even if we know
what products hit the market we could not design
them by ourselves, we need to communicate back
and forth to suppliers . . . but until then it would be
too late, thats why we cooperate with FlexTex.
The production manager of the same company
added: The innovation intermediary has a design
team too. They work like us: Sensing the market
and nalizing workable styles. But they are faster
because they are also specializing in production
and logistics so the coordination between innovation input providers does take less time, so we
delegate the total product development tasks.
From our empirically grounded theory development effort with the innovation intermediary,
FlexTex, and its three main clients, we found that
innovation intermediaries can add value to fashion rms NPD processes in a variety of ways,
including reducing the costs and risks, searching
the best cost locations, providing complex product
solutions, improving hit-and-miss rates, and increasing a fashion rms responsiveness to changing market demands. Moreover, in order to add
value, innovation intermediaries should possess
the following capabilities: best cost capabilities,
timing capabilities, product-solution capabilities,
and market response capabilities.
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R&D Management 41, 1, 2011

It is important to stress that value creation

appears to be richly interrelated with the situational contingencies such as the speed of NPD
and the scope of intermediarys involvement in
the process. When NPD proceeds in a relatively
slow-paced manner, erroneous expectations on
consumer demands can be corrected. This requires the innovation intermediary to alert the
innovator in time about the fashion risks, cost
consequences of delays, and to suggest exible
adaptation to long-term production schedules.
Things become vastly more complicated when
NPD takes place under conditions of increasing
NPD speed, where a rapid response to consumer
demands requires an integrated, synchronized,
and coordinated reaction in all involvement
points of the innovation value chain. As a consequence, the requirements for intermediary capabilities increase accordingly, as illustrated in
Table 2.
Despite its benecial deployment in a variety of
NPD contexts, innovation intermediation services
also have their costs. As a consequence, innovation intermediaries need to be carefully selected
according to the NPD needs and requirements of
the innovating rm. One key dimension in this
respect, emerging from this research, is the capability base of the innovation intermediary, which
substantiates its value-added functions. Furthermore, value-adding capabilities of an innovation
intermediary can capitalize on the combined
synergy of complex involvement in a clients
NPD process. Through such an extensive collaboration, both the client and the intermediary can
co-create new knowledge and competences that
contribute to NPD competitiveness for the innovative fashion rms.

5. Discussion and conclusion

Whenever innovation sourcing capabilities cannot be developed internally by the client of
innovation services, a third-party intermediary
might be able to add value for the rm in terms
of speeding up, increasing the quality, and improving the cost effectiveness of its NPD process.
Most prior studies on outsourcing innovation are
rooted in the supply chain management (SCM)
and innovation management literature, often
from the lenses of ESI, product platform, and
modularity. Until most recently, studies on intermediation, on the other hand, have been more
prevalent in the literature on nancial transactions and information technology. Specically,
r 2010 The Authors
R&D Management r 2010 Blackwell Publishing Ltd

How do innovation intermediaries add value?

Table 2. Services provided by the innovation intermediaries and value-added dimensions

NPD strategies

Intermediary value
adding capabilities

Basic

Ordinary fashion

Fast fashion

Long product life

cycles (41 year)
Low markdowns
as % of sales
More predictable
demand pattern
Best cost
capabilities

Shorter product life cycles

(  90 days)
Higher markdowns as % of
sales
Less predictable demand
pattern
Best cost capabilities and
product solution
capabilities

Very short product life cycles

(1530 days)
Highest markdown risk
Unpredictable demand pattern
Best cost capabilities, product
solution capabilities, and
timing and response
capabilities

NPD, new product development.

little knowledge exists on the role of intermediaries in the NPD processes. Thus, our main
contribution is through investigating how innovation intermediary do add value to clients NPD
process in the fast-paced fashion industry. We
focused on the interface between fashion intermediary and its clients where various crucial
performance issues lie, such as NPD speed, intermediary involvement points, and value-adding
activities and competence development.
This studys ndings have several implications
for management and research on outsourcing
innovation. First, prior research explored the possibility of using innovation intermediaries and
their various activities (Spulber, 1999; Howells,
2006) and illuminated the salience of innovation
intermediaries in a variety of market contexts
(Hargadon and Sutton, 1997; Spulber, 1999;
Howells, 2006; Mahnke, Wareham and Andersen,
2008; Lichtenthaler and Ernst, 2009). The current
study is among the rst to focus on the question
when and how an innovation intermediary adds
value to a clients product development processes.
Thus, this research, more generally, begins to
unpack the relation between outsourcing innovation and the protability of such efforts.
Secondly, our ndings also have implications
for research on organizational agility. Agility in
product development cannot be achieved if the
organization and its supply chain are not exible.
In the current context, agility means using emerging market knowledge and a virtual organization
to exploit protable opportunities in a volatile
market place (Naylor et al., 1999). Our study of
the fashion industry provides a rich example as to
how agility in the supply chain can be obtained
and managed by intermediaries. In other words,
as the use of intermediaries in product development processes becomes the preferred mode of
orchestrating agile supply networks, it becomes
an important issue to be addressed in future
research.
r 2010 The Authors
R&D Management r 2010 Blackwell Publishing Ltd

Furthermore, one strategy to deal with the

turbulent markets, such as the fashion industry,
is mass customization as a way to devise even
ner differentiation of market segmentation and
quick responsiveness (Pine, 1993; Mikkola and
Skjtt-Larsen, 2006; Pan and Holland, 2006).
Mass customization takes the customers as the
starting point, in the sense that product varieties
are driven by customer demand. According to
Pine (1993), the key features of mass customization include: fragmented demand, heterogeneous
niches, short product development cycles, short
product life cycles, and low cost, high quality,
customized goods and services. The ability to codesign and/or to co-produce products together
with the customers could provide the innovating
rm with the ability to capture valuable new
knowledge. However, implementing the mass
customization process into the supply chain might
be risky, expensive, and time consuming. Innovation intermediaries may have an important role in
shaping such mass customization processes. Thus,
future research can benecially explore additional
value-adding capabilities that such a strategy
requires.
More broadly, agility and mass customization
also impose a tremendous impact on how services
should be designed and congured. Based on the
conceptual development on innovation intermediary value-added and associated contingencies in
this paper, it would be interesting for future
research to consider other innovation strategies,
including those present in service sectors. Interestingly, Voss and Hsuan (2009) introduced the
concept of service architecture modularity to
investigate and measure the degree of modularity
in a service system. They state that there are three
areas that contribute to the competitiveness of
services: (1) the possession of unique services that
are not easily copied by the competitors in the
short term, (2) the ability to exploit these unique
services through replication across multiple serR&D Management 41, 1, 2011

89

Yen Tran, Juliana Hsuan and Volker Mahnke

vices or multiple sites, and (3) the possession of a
degree of modularity that supports both customization and rapid NPD. In such a context, innovation intermediarys capabilities may unfold their
value-creating impact by orchestrating and integrating a modular solution.
In sum, then, the current research on the value
added of innovation intermediaries suggests a
fresh agenda of research into the contingencies
of value added through open innovation strategies more generally, in addition and beyond
current fascination with the trend to increasingly
outsource innovation.

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Yen Tran is Assistant Professor of Innovation

Strategy and International Marketing at HeriotWatt University, Edinburgh, UK. She received
her PhD in Strategic Management from Copenhagen Business School. Her works have been
published in Thunderbird International Review,
R&D Management, Management International
Review, Industry and Innovation, and Long Range
Planning. Her current research focuses on strategic management and product development in
high-velocity environments.
Juliana Hsuan is Associate Professor of Operations Management at Copenhagen Business
School, Denmark. Her works have been published in Decision Sciences, Journal of Product
Innovation Management, IEEE Transactions on
Engineering Management, Production Planning &
Control, Technovation, R&D Management, Supply
Chain Management: An International Journal,
European Business Review, and others. Her current research focuses on platform strategies, new
service development, collaborative purchasing,
and service operations management.
Volker Mahnke is Professor of Global Strategy and
Entrepreneurship at Copenhagen Business School,
Denmark. His works have been published in International Journal of Technology Management, Journal
of Information Technology, Industry and Innovation,
Journal of Management Studies, IEEE Transactions,
R&D Management, and Management International
Review. His current research and applied work
focuses on corporate-venturing processes and the
outsourcing/offshoring of innovation.

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