Assessing Inter Organisational Innovation

Supply Chain Management: An International Journal
Assessing inter-organizational innovation performance through relational governance and dynamic capabilities in supply
chains
Jao-Hong Cheng Mu-Chung Chen Chung-Ming Huang
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Assessing inter-organizational innovation

performance through relational governance
and dynamic capabilities in supply chains
Jao-Hong Cheng and Mu-Chung Chen
Department of Information Management, National Yunlin University of Science and Technology, Douliou, Taiwan, and
Chung-Ming Huang
Department of Engineering & Management of Advanced Technology, Chang Jung Christian University, Tainan, Taiwan
Abstract
Purpose This paper aims to examine the factors influencing innovation performance and implementation in inter-organizational relationships.
Design/methodology/approach A novel research model comprises five research hypotheses with four constructs, including information technology
infrastructure flexibility, institutional orientation, dynamic capabilities and innovation performance. The hypotheses are tested on data collected from
260 of the top 1,000 Taiwanese manufacturing firms in 2011 listed by Business Weekly in Taiwan, using structural equation modeling.
Findings The study provides insight into how supply chain members should reinforce their dynamic capabilities and relational and institutional view
of relational governance so as to improve their value-based relationships and in turn enhance innovation performance.
Research limitations/implications The empirical study is conducted on supply chains, with data collected from Taiwans manufacturing firms. With
the research model developed, cross-industrial studies can be conducted to investigate whether differences exist in relation to the inter-relationship
effects that affect inter-organizational innovation performance.
Practical implications The study provides useful insights into how supply chain members should reinforce their value-based relationships by
focusing on activities that would enhance information technology infrastructure flexibility and institutional orientation, and improve activities that
would reinforce the activities of dynamic capabilities, in order to achieve the competitive advantage of inter-organizational innovation performance.
Originality/value The novel research model developed may serve as a starting point for future theoretical and empirical research and measures for
describing and modeling the role of value-based relationships from the relational and institutional view of relational governance and dynamic
capabilities, which is not dealt with in previous studies.
Keywords Dynamic capabilities, Innovation performance, Information technology infrastructure flexibility, Institutional orientation
Paper type Research paper
To enhance the advantages of innovation performance, it is

of strategic importance for the manufacturing firms of supply
chains to understand the factors that influence interorganizational innovation performance. A review of the
inter-organizational literature reveals that existing research
on this important issue has paid little attention to the causes
of the innovation performance in an inter-organizational
context, as shown in Table I. Research on inter-organizational
innovation performance has examined supply chain
management practices (Chong et al., 2011) and trust and
contract (Wang et al., 2011), among other factors. In
particular, little research has examined the relational
governance and dynamic capabilities perspectives that affect
innovation performance and these relationships. To achieve
the benefits of inter-organizational innovation performance, it
is essential for all parties involved to exhibit cooperative
behaviors. With collaborations between manufacturing firms
and their members, a base of jointly held abilities can be
1. Introduction
Innovation performance is one means of enhancing
competitive advantages for all members in supply chains
(Wagner et al., 2002; Chapman et al., 2003; Roy et al., 2004;
Song et al., 2006). For a supply chain to be successful,
manufacturing firms and their supply chain partners often
depend on innovation performance, which is encouraged to
use internal and external ideas or paths to demand changes as
the relevant parties look to advance their technology (Chong
et al., 2011). Companies should focus on the interactive
effects that affect innovation performance and these
relationships among collaborative members (Soosay et al.,
2008). Inter-organizational innovation performance within a
supply chain has become a common practice, because it
contributes vitally to sustaining the competitive advantage of
the supply chain as a whole (Rowley et al., 2011).
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-8546.htm
This research was supported by the National Science Council of Taiwan,

ROC, under contract NSC 99-2410-H-224-010-MY3.
Received 17 May 2013
Revised 14 September 2013
28 November 2013
Accepted 2 December 2013

19/2 (2014) 173 186
q Emerald Group Publishing Limited [ISSN 1359-8546]
[DOI 10.1108/SCM-05-2013-0162]
173
Assessing inter-organizational innovation performance
Jao-Hong Cheng et al.
Volume 19 Number 2 2014 173 186
Table I Illustrative research summarizing the antecedents to innovation performance in supply chains
Illustrative research Context

Chong et al. (2011)
Wang et al. (2011)
Antecedents to innovation
performance in supply
chains
Key findings or propositions
Theoretical basis
Between supply chain This study employed several possible Supply chain management
partners
theoretical lenses that focused on the practices
antecedents of innovation
performance and the effect of
innovation performance on
organizational performance
Between supply chain Contingency theory (Woodward,
Trust and contract
partners
1958)
The results show that SCM practices

have a direct and significant impact
on organizational and innovation
performance of Malaysian firms in
supply chains
The findings suggest that
environmental uncertainty enhances
the effects of trust, but does not
influence the impact of contracts on
innovation performance
advancing the effect of innovation performance in supply

chains.
To examine the novel research model, we conduct an
empirical study on manufacturing firms and their partners in
supply chains in Taiwan. With the novel research model, we
will examine the roles that information technology
infrastructure flexibility, institutional orientation and
dynamic capabilities play in inter-organizational innovation
performance with a view to providing insights into how
effective innovation performance can be facilitated in supply
chains.
The rest of this paper is organized as follows. Section 2
provides a brief review of inter-organizational innovation in
supply chains, and Section 3 presents the research model and
hypotheses development. The data collection method and
research design are described in Section 4, and the study
results are presented in Section 5. Section 6 provides a
discussion of the results, and Section 7 concludes the paper
and offers directions for future research.
maintained and promoted through innovation performance,

thus enhancing their competitive advantages.
Relational governance and dynamic capabilities are major
perspectives for competitive advantage and are important for
the improvement of innovation performance in supply chains.
In a supply chain, it is generally believed that there will be a
willingness to band together if firms perceive that their
collaborations will promote their innovation performance.
Because partners that deliver superior value will be highly
valued, firms will commit themselves to establishing,
developing, and maintaining relationships with such
partners (Wagner and Svensson, 2010). Thus, both partners
in a relationship begin to value the relationships and will
maintain good relationships for enhancing their competitive
advantage in supply chains (Boddy et al., 2000; Biggemann
and Buttle, 2012). Dynamic capabilities are to integrate or
recombine important resources (such as new knowledge) that
will support a firms performance in responding to customer
needs quickly (Teece et al., 1997). Dynamic capabilities are
extending the resource-based view (RBV), which concentrates
on specific capabilities and can be measured based on the
benefits gained through relationships. The dynamic
capabilities approach provides a coherent framework that
can facilitate prescription responding to face rapidly changing
environments and integrate existing conceptual and empirical
knowledge (Teece and Pisano, 1994; Hyland et al., 2003).
From the relational view of relational governance, information
technology infrastructure flexibility is essential in enabling the
innovative redesign of core business processes (Broadbent
et al., 1999), having a critical impact on the firms ability to
use IT competitively (Duncan, 1995) and facilitating dynamic
capabilities (Roberts and Grover, 2012). In this context,
information technology infrastructure flexibility is regarded as
the set of resources for science and technology enterprises to
provide rapid development and into the future application of
information technology (Bharadwaj, 2000; Ravichandran and
Lertwongsatiem, 2005; Ray et al., 2005). Institutional theory
concentrates on the social environment, which can be
measured based on the value gained through cooperative
relationships, among other factors. Consequently, this study
draws on the relational view of relational governance,
supplemented by the institutional view of the relational
governance and dynamic capabilities perspectives, to examine
2. Relational governance and dynamic

capabilities in inter-organizational innovation
performance
To improve the competitive advantage of supply chains,
manufacturing firms often demand that their supply chain
partners such as subcontractors or suppliers implement
common processes for innovation performance. Primary
objectives of innovation performance include sustainable
development, improving the efficiency and effectiveness of the
supply chains, and responding to the changing needs of
customers more quickly among inter-organizational members
(Li and Lin, 2006). To achieve the benefits of interorganizational innovation performance, it is essential for all
parties involved to be in collaborative relationships.
Collaborations and dynamic capabilities between partners
enable superior innovation performance and, as a result,
greater competitive advantages for each firm.
Relational governance and dynamic capabilities
perspectives are key determinants of competitive advantage
that concern maintenance of the partners relationship (Wang
and Wei, 2007) and capture market opportunities created in
contemporary business environments, respectively. When
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Volume 19 Number 2 2014 173 186
there are exchange opportunities between partners, relational

governance has been shown to solve exchange problems and
enhance performance (Heide and John, 1988). Several
prevailing theories have recommended relational governance
and dynamic capabilities for managing inter-organizational
relationships in supply chains. RBV and institutional theory
are related to theories of the relational and institutional view.
RBV and institutional theory emphasize collaboration for
generating value from the resource-based and social
environments, and the others concentrate on dynamic
capabilities from extension of the RBV. The establishment
of a high level of innovation performance through close
relationships among supply chain partners enhances the
competitive advantage of the supply chain as a whole
(Holland, 1995).
RBV is a major theoretical perspective for analyzing specific
relational resources in supply chains (Subramani, 2004). The
RBV of the organization connects organizational performance,
resources and abilities (Penrose, 1959). The RBV has also
been used to solve the productivity paradox and to address
how inter-organizational members create performance and
use IT resources from organizational skills and IT assets
(Clemons and Row, 1991; Jarvenpaa and Leidner, 1998).
According to RBV, information technology infrastructure
flexibility creates business value (Li and Ye, 1999; Bharadwaj,
2000; Byrd and Turner, 2001; Bhatt et al., 2010) and it
encourages members of supply chain to integrate
geographically separated systems and share resources.
Information technology infrastructure flexibility based on
the degree of information technology infrastructure flexibility
including extended, consistent, and can support across
business applications (Byrd and Turner, 2001; Bhatt et al.,
2010).
Dynamic capabilities are strategic tasks and supply chain
members exchange their own resources to integrate or
recombine them and then to form new value of competitive
advantage (Pisano, 1994; Teece et al., 1997). As such,
dynamic capabilities belong to an extension of the RBV which
represent that supply chain members own a tangible and
intangible different resources and capabilities (Wu, 2010).
These different organizational own resources explain for
variations in organizational competitive capabilities and their
advantage (Penrose, 1959; Rumelt, 1984; Zhou and Li,
2010).
Institutional theory is a no economic motivations
perspective for analyzing legitimacy and recognition drives
partners to adopt inter-organizational relationships in supply
chains (McFarland et al., 2008; Deligonul et al., 2013). The
legitimacy and recognition refer to the expectations which act
as unwritten rules of proper social conduct (McGuire, 1988;
Ke et al., 2009; Gielnik et al., 2012). According to
institutional theory, institutional orientation implies that a
strong pressure or motive behind a firms behaviors are
socially based and that it is designed for human devised
constraints that structure human interaction (North, 1990).
In a supply chain, a strong institutional orientation indicates
that a firm wants to keep existing partnerships with its
partners. The establishment of a high level of innovation
performance through close relationships among supply chain
partners enhances the competitive advantage of the supply
chain as a whole.
With respect to inter-organizational innovation
development, cooperation has the potential to increase each
partys information base and consequently competitiveness

(Mentzer et al., 2000). Organizations tend to band together if
they perceive that cooperation with each other will bring
benefits to the inter-organizational relationships. To address
this issue in supply chains and to investigate factors
influencing inter-organizational innovation performance, we
develop a novel research model to examine how interorganizational information technology infrastructure
flexibility and institutional orientation through dynamic
capabilities affect innovation performance in supply chains.
The constructs and hypotheses of the research model are
discussed in the following section.
3. The research model and hypotheses

Figure 1 shows the research model with the factors. It begins
with
inter-organizational
information
technology
infrastructure flexibility and institutional orientation and
then proceeds on to the mediating variable which also affects
innovation performance. As already mentioned, the mediating
variable is dynamic capabilities. Five hypotheses were tested
with respect to this model. Each hypothesis is indicated by the
letter H and a number. The arrows explain the
hypothesized relationships and the plus signs represent
positive relationships.
3.1 Information technology infrastructure flexibility
Information technology infrastructure flexibility is defined as
the set of resources for science and technology enterprises to
provide rapid development and into the future application of
information technology (Bharadwaj, 2000; Ravichandran and
Lertwongsatiem, 2005; Ray et al., 2005). It can speed up
information flow for information technology infrastructure.
Armstrong and Sambamurthy (1999) indicate that the
flexibility of information technology infrastructure can
improve the assimilation of information technology
integration capabilities. It also enables enterprises to
strengthen inter-organizational connections and to change
the competitive strategies and then to promote the
development of high-level technical knowledge. The
flexibility of information technology infrastructure enables
businesses to improve all components as infrastructure
standardization (Ray et al., 2005). These standardized interorganizational information systems will help enterprises to
expand the scope of information and knowledge, and then
supply chain members will be able to easily pass between the
required information (Byrd and Turner, 2001; Ray et al.,
2005), and can effectively reduce operating costs.
Bowman and Hurry (1993) explain that the information
technology infrastructure assets of the enterprise will be
regarded as an important development orientation, and they
enable businesses to obtain greater advantage, and then create
high-quality products and services. Ray et al. (2005) mention
that flexible information technology infrastructure can help
companies to develop information technology quickly in the
customer service process and grasp new market opportunities
more quickly. Information technology infrastructure flexibility
can help companies into immediate and effective application
of relevant technology innovations (Bharadwaj, 2000). In
other words, these parties will purchase a new technology or
combination of technologies introduced commercially to meet
market changes and customer needs (Chong et al., 2011). To
facilitate innovation performance, information technology
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Volume 19 Number 2 2014 173 186
Figure 1 The research model
infrastructure flexibility is very important because it allows the

use of information technology to bring the value that can be
used in business processes and to better improve the overall
operation of the commercial value (Tarafdar and Gordon,
2007). It is also found that information technology
infrastructure flexibility can facilitate the communication
structure to enhance innovation performance (Liu et al.,
2013). Information technology infrastructure flexibility
between partners will improve inter-organizational
innovation performance. It is thus hypothesized that:
adopt similar cognitive frameworks (Granovetter, 1992). In a

supply chain, a strong social tie means that a firm wants to
maintain cooperative relationships with its partners.
Institutionalization may facilitate interaction and dynamic
capabilities with collaborations between partners
(Nooteboom et al., 1997). Thus, it is reasonable to propose
that a higher institutional orientation between partners
improves dynamic capabilities. Here, we propose:
Information technology infrastructure flexibility is

positively related to innovation performance.
In a supply chain, a strong institutional orientation means that

the willingness of a firm to build and maintain positive
relationships with its partners is enhanced (McFarland et al.,
2008). The firm will choose to conform to the rules of the
game to avoid being locked out of cooperative relationships
and to ensure access to relational resources (DiMaggio and
Powell, 1983; North, 1990; Liang et al., 2007). Due to the
ongoing development of technologies and regulations, sharing
experience and up-to-date knowledge between manufacturing
firms and their supply chain partners has become a necessity
(Kale et al., 2000; Cheng, 2011). With collaborations
between partners, knowledge, ideas and information can
flow smoothly to boost innovation performance (Wang et al.,
2011). Thus, it is reasonable to propose that a higher
institutional orientation between partners improves interorganizational innovation performance. It is thus
hypothesized that:
H1.
H3.
Information technology infrastructure flexibility is a key factor

in enhancing dynamic capabilities (Swafford et al., 2006; Rai
et al., 2006). In the rapidly changing business environment, a
flexible information technology infrastructure is important
(Byrd and Turner, 2001; Ravichandran and Lertwongsatiem,
2005). Good information technology infrastructure flexibility
can help build strong dynamic capabilities and can facilitate
the communication structure to enhance the dynamic
capacity. Information technology infrastructure flexibility
provides a reliable and consistent information platform to
support enterprises in a very short period of time and to
develop new business processes (Ray et al., 2005). Thus,
information technology infrastructure flexibility can help
enterprises to explore and use internal and external
information and knowledge to enhance dynamic capacity. It
is thus hypothesized that:
H2.
H4.
Information technology infrastructure flexibility is

positively related to dynamic capabilities.
Institutional orientation is positively related to dynamic

capabilities.
Institutional orientation is positively related to

innovation performance.
3.3 Dynamic capabilities

By dynamic capabilities we mean adopting new knowledge
that will promote the performance of enterprise in responding
to customers and mastering market turmoil. McDonough
(1993) shows that if the enterprise uses external imported
technology, this will be quicker than self-developing the
technology internally. Karagozoglu and Brown (1993) also
point out that if the enterprise can take advantage of external
technology, this will help shorten development time and
reduce costs.
Many studies have argued that dynamic capabilities can
optimize overall supply chain performance, including the
development of new market opportunities for innovative
performance (Van Hoek et al., 2001; Marz et al., 2006;
Swafford et al., 2008; Liu et al., 2013). Tsai (2001) identifies
that the organizations dynamic capabilities have a positive
3.2 Institutional orientation

Institutional orientation provides a convincing explanation for
the effects of the social environment on the behavior of firms
in supply chains. In other words, supply chain members
behaviors are influenced by formal and/or informal
procedures, routines, norms and conventions (Howell and
Annansingh, 2012). In a supply chain, a strong institutional
orientation means that the willingness of a firm to build and
to maintain positive relationships with its partners is enhanced
by its social ties (McFarland et al., 2008). The social ties
between dyads are conducive to the generation of a common
set of norms, conventions, cultures, rules and routines
(Granovetter, 1973, 1985, 1992; Granovetter and
Swedberg, 2001). This exposure increases the likelihood
that collaborating members will behave in a similar way and
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Volume 19 Number 2 2014 173 186
relationship with the degree of innovation and enterprise.

Research has found that dynamic capabilities are a necessary
condition for enhancing inter-organizational knowledge
learning and dynamic capacity (Cohen and Levinthal, 1990;
Malhotra et al., 2005). Supply chain members have the scope
and richness of knowledge that can be properly managed to
grasp new market opportunities quickly (Sambamurthy et al.,
2003). In a supply chain, partners have good dynamic
capabilities, and supply chain members are able to respond
quickly to customer needs and improve innovation
performance (Marz et al., 2006; Swafford et al., 2008; Liu
et al., 2013). In other words, superior dynamic capabilities
can enhance new products or technological innovation
performance in a highly competitive market. It is thus
hypothesized that:
among the top 1,000 Taiwanese manufacturing firms of 2011

listed by Business Weekly (Taiwans leading business
magazine). This resulted in 260 effective responses and a
total response rate of 26 percent.
A x2 analysis of the industry distribution of the respondents
showed no difference from the industry distribution of all the
firms used in the survey. This suggested no non-response bias
in the returned questionnaires. Table III shows the
demographic and characteristic profiles of participating firms.
H5.
5. Results
Structural equation modeling (SEM) with AMOS 17.02 was
used to test and analyze the hypothesized relationships of the
research model. SEM aims to examine interrelated
relationships simultaneously between a set of posited
constructs, each of which is measured by one or more
observed items. SEM involves the analysis of two models:
1 a measurement model; and
2 a structural model (Anderson and Gerbing, 1988).
Dynamic capabilities are positively related to

4. Research method
The measurement model specifies the relationships between

the observed measures and their underlying constructs, which
allows inter-correlation, and the structural model specifies the
posited causal relationships among the constructs.
To develop the survey instrument, a pool of items was

identified from the literature for measuring the constructs of
the research model. Data from a survey sample were used to
assess the instruments validity and reliability, and to test the
hypothesized relationships of the research model.
5.1 Assessment of the measurement model

With the measures and their underlying constructs shown in
Table II, the measurement model specified for the research
model was assessed to ascertain the extent to which the
observed measures were actually measuring their
corresponding constructs. The 27 items of the survey
instrument were first analyzed to assess their dimensionality
and measurement properties. All items loaded significantly
and substantially on their underlying constructs, thus
providing evidence of convergent validity. Using
confirmatory factor analysis, all items were found to
perform well and were thus retained in the model.
The x2 of the measurement model was significant
2
(x 350.991, df 226, p , 0.001); with the value of x2/df
being smaller than 2, indicating ideal fit (Bentler, 1990). The
large x2 value was not surprising since the x2 statistic has been
shown to be directly related to sample size (Joreskog and
Sorbom, 1993). To assess the overall model fit without the
effected of sample size, alternative stand-alone fit indices less
sensitive to sample size were used. These indices included the
goodness-of-fit index (GFI), the adjusted goodness-of-fit
index (AGFI), the comparative fit index (CFI), and the root
mean square error of approximation (RMSEA) (Joreskog and
Sorbom, 1993). For a good model fit, the GFI should be close
to 0.90, AGFI more than 0.80, CFI more than 0.9, and
RMSEA less than 0.06 (Joreskog and Sorbom, 1993; Hair
et al., 1998). An assessment of the measurement model
suggested an acceptable model fit (GFI 0.912;
AGFI 0.852;
CFI 0.98;
NFI 0.948;
RMSEA 0.046).
To assess the reliability of the constructs, composite
reliability (CR) was used. All of the composite reliability
values, ranging from a low of 0.848 to a high of 0.952,
exceeded the recommended cut-off value of 0.7. A variables
squared multiple correlation (SMC) is the proportion of its
variance that is accounted for by its predictors. The average
variance extracted (AVE) was greater than 0.5 in all cases,
meaning that the variance accounted for by each of the
4.1 Content validity

All of the measures of the survey instrument were developed
from the literature. The wording of the items was adjusted,
where appropriate, to the context of supply chains, as shown
in Table II. The items were measured on a seven-point Likert
scale, ranging from strongly disagree to strongly agree
(7).
4.2 Pre-test and pilot-test
A pre-test was performed with three expert academics and
four PhD students on a questionnaire consisting of 27 items
of the survey instrument to improve its content and
appearance. Several large manufacturing firms were
contacted to help with the pilot-testing of the instrument. A
survey packet including a cover letter explaining the research
objectives, the questionnaire, and a stamped, returnaddressed envelope was distributed to production managers
of each participating firm. The respondents were asked to
complete the questionnaire and provide comments on the
wording, understandability and clarity of the items; in
addition, the overall appearance and content of the
instrument were also taken into account in the pilot test.
Only minor changes were suggested from the responses of
the pre-test and the pilot test, and no statements were
removed. After making these minor changes and further
review of the questionnaire by two other expert academics,
the instrument was ready to be sent in a large sample for the
purpose of data collection for the examination of our research
model. Table II shows the 27 items together with the
corresponding constructs to be measured.
4.3 Data collection
The data were collected by distributing the survey instrument
in the form of a questionnaire to senior managers, purchasing
managers or experienced managers of 1,000 manufacturing
firms in Taiwan. These firms were selected because they were
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Volume 19 Number 2 2014 173 186
Table II Constructs and measures of the research model
Construct
Source
Information technology infrastructure flexibility

Ray et al. (2005), Saraf et al. (2007)
ITIF1
You and your partner have established rules and standards for hardware and operating systems to ensure
platform compatibility
ITIF2
You and your partner have identified and standardized data to be shared across systems and business units
ITIF3
Customer service representatives and agents can access all data pertinent to a customer through a single
interface
ITIF4
The manner in which the components of information systems between you and your partner are organized and
integrated allows for rapid changes
ITIF5
Information system between you and your partner is designed to support new business relationships easily
ITIF6
Information systems between you and your partner are designed to accommodate changes in business
requirements quickly
Institutional orientation
Li et al. (2010)
IO1
You and your partner have a comprehensive set of norms of action which has been well developed in the
cooperation
IO2
You and your partner have a binding set of rules for both firms which has been created
IO3
You and your partner have a mutual understanding of each others organizational culture, values, and operations
Dynamic capabilities
DC1
You and your partner are quick to discuss changes in customers product preferences
Pavlou and El Sawy (2006)
DC2
You and your partner are successful in learning new things within this group
DC3
You and your partner are effective in developing new knowledge or insights that have the potential to influence
product development
DC4
You and your partner have effective routines to identify, value, and import new information and knowledge
DC5
You and your partner can successfully integrate each others existing knowledge with the new information and
knowledge acquired
DC6
You and your partner are effective in transforming existing information into new knowledge
DC7
You and your partner are effective in utilizing knowledge into new products
DC8
You and your partner ensure that there is compatibility between group members expertise and work processes
DC9
You and your partner effectively interrelate each others activities to manage rapidly changing conditions
Innovation performance
IP1
Cooperative behaviors between you and your partner are efficient
Roy et al. (2004), Song et al. (2006)
IP2
It is value to promote and keep relationships with your partners
IP3
The overall performance of your new product development program has met each others objectives
IP4
From an overall profitability standpoint, each others new product development program has been successful
IP5
Compared with our major competitors, each others overall new product development program is far more
successful
IP6
Time taken to achieve product adaptations/improvements
IP7
Number of product adaptations/improvements during a given time period
IP8
Presence of drastic changes in technology platform or production processes
IP9
Speed of introduction of new technology
GFI 0.912; AGFI 0.852; CFI 0.98; NFI 0.948;

RMSEA 0.046).
constructs was greater than the variance accounted for by the

measurement error (Fornell and Larcker, 1981; Joreskog and
Sorbom, 1993; Hair et al., 1998). In addition, an assessment
of discriminant validity between the constructs supported the
model fit. Table IV summarizes the assessment results of the
measurement model.
5.3 Common method bias

Following the suggestion of Podsakoff and Organ (1986),
Harmons one-factor test was run to ensure that common
method variance did not account for our findings. Unrotated
principal components analysis revealed four factors with
eigenvalues greater than 1, which accounted for 68.9 percent
of the total variance. The first factor did not account for the
majority of the variance (25.0 percent). As no single factor
emerged that accounted for most of the variance, common
method bias does not appear to be a problem in the study.
5.2 Assessment of the structural model

Table V shows the inter-correlations between the four
constructs of the structural model. The overall fit of the
structural model is acceptable, since all measures of fit reach
an acceptable level (x2 350.991, df 226, a 0.01;
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Volume 19 Number 2 2014 173 186
as the input data. The ML estimation method has been

described as being well suited to theory testing and
development (Anderson and Gerbing, 1988; Joreskog and
Sorbom, 1993; Hair et al., 1998). Figure 2 shows the
structural model with the coefficients for each path
(hypothesized relationship), and with solid and dashed lines
indicating supported and unsupported relationships,
respectively. All hypothesized relationships are supported.
Information technology infrastructure flexibility (H1:
g 0.281, t 5.28, p , 0.001) is significantly associated
with innovation performance. Information technology
infrastructure flexibility (H2: g 0.295, t 4.464,
p , 0.001) is significantly associated with dynamic
capabilities. Institutional orientation (H3: g 0.478,
t 6.655, p , 0.001) is significantly associated with
dynamic capabilities. Institutional orientation (H4:
g 0.159, t 2.831, p , 0.01) is significantly associated
with innovation performance. Dynamic capabilities (H5:
g 0.558, t 8.206, p , 0.001) are significantly associated
with innovation performance. Overall, the model explains
45.1 percent of the variance in dynamic capabilities and 73.2
percent of the variance in innovation performance.
Table III Profiles of participating manufacturing firms

Number
of firms
Percentage
8
8
7
32
5
34
3.1
3.1
2.7
12.3
1.9
13.1
21
87
17
23
18
8.1
33.5
6.5
8.8
6.9
Annual sales revenue (New Taiwan $)

Below $1 billion
$1.1 billion to below $2 billion
$50.1 billion and above
61
50
31
16
15
22
20
22
23
23.5
19.2
11.9
6.1
5.8
8.5
7.7
8.5
8.8
Years established
Less than five years
6-10 years
11-15 years
16-20 years
21-25 years
26-30 years
Over 31 years
7
31
43
26
34
30
89
2.7
11.9
16.6
10.0
13.1
11.5
34.2
25
235
9.6
90.4
Demographic profile
Industry type
Food/beverage
Textiles/fiber
Printing and related support activities
Chemical/plastics
Non-metallic mineral products
Basic metal industries
Electrical machinery/machinery and
equipment
Electronics/communication
Transport equipment
Electronic parts and components
Others
Position of respondent
Top managers
Function managers
5.5 Test of mediating effects

This paper followed the procedure suggested by (Ke et al.,
2009) and tested the mediating effects of the model, as shown
in Table VI. The direct links between information technology
infrastructure flexibility and innovation performance, and
between institutional orientation and innovation performance,
were significant and thus satisfied the first condition for
mediating effect. In contrast, the links between information
technology infrastructure flexibility and dynamic capabilities
and between institutional orientation and dynamic capabilities
were all significant. As such, they satisfied the second
condition for the existence of mediating effects. Furthermore,
the direct relationships between information technology
infrastructure flexibility and innovation performance and
between institutional orientation and innovation performance
became insignificant when we added the link between
information technology infrastructure flexibility and
dynamic capabilities and between institutional orientation
and dynamic capabilities, respectively, while the latter links
were significant. Therefore, the results show that dynamic
capabilities partially mediated the relationship between
innovation performance and between institutional
orientation and innovation performance.
We also examined the data for empirical evidence of common

methods bias by conducting a confirmatory factor analysis
(CFA) that included a construct representing an unmeasured
methods factor. It is assumed that common method variance
is not a serious threat if the one-factor model has a poor fit
with the data (Handley and Benton, 2012). To develop the
one-factor model, we loaded all of the measurement items
into a single factor. The CFA results indicated that the onefactor model did not fit the data (x2 2,396.079, df 323;
GFI 0.52; AGFI 0.43; CFI 0.675; NFI 0.644;
RMSEA 0.157). Thus, we concluded that common
method bias does not appear to be a problem in the study.
5.6 Multi-group analysis

As an initial assessment of relational governance and dynamic
capabilities influencing inter-organizational innovation
performance, we assessed the structural model via multigroup analysis. The 260 usable responses were divided into
two groups based on the median score (Germain et al., 2008)
of firm size, as measured by annual sales revenue (Harris and
Katz, 1991; King and Teo, 2000). Group 1 is smaller sized
firms and Group 2 is larger sized firms. To examine the
differences between the parameters of the two groups,
statistical comparison is made following the multi-group
procedure suggested by Joreskog and Sorbom (1993). In this
procedure individual paths are examined separately across
groups and we test whether the estimated coefficients for each
group are equal using a x2 difference test. The path
5.4 Hypothesis testing

In SEM analysis, the relationships among independent and
dependent variables are assessed simultaneously via
covariance analysis. Maximum likelihood (ML) estimation is
used to estimate model parameters with the covariance matrix
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Volume 19 Number 2 2014 173 186
Table IV Assessment results of the measurement model

Construct
IT infrastructure flexibility
Institutional orientation
Dynamic capabilities
Innovation performance
Items
Standardised loading
ITIF1
ITIF2
ITIF3
ITIF4
ITIF5
ITIF6
IO1
IO2
IO3
DC1
DC2
DC3
DC4
DC5
DC6
DC7
DC8
DC9
IP1
IP2
IP3
IP4
IP5
IP6
IP7
IP8
IP9
0.89
0.84
0.80
0.95
0.83
0.95
0.80
0.89
0.73
0.71
0.76
0.77
0.82
0.87
0.87
0.88
0.76
0.70
0.70
0.77
0.75
0.83
0.82
0.96
0.90
0.75
0.86
Standardised error
t-value
SMC
CR
AVE
0.03
0.03
0.05
0.02
0.04
0.05
0.03
0.05
0.04
0.03
0.03
0.03
0.03
0.02
0.02
0.02
0.03
0.03
0.03
0.03
0.03
0.03
0.03
0.02
0.02
0.03
0.03
8.88 * * *
0.79
0.70
0.64
0.90
0.70
0.90
0.64
0.79
0.53
0.51
0.58
0.59
0.67
0.75
0.75
0.78
0.57
0.50
0.50
0.59
0.56
0.69
0.67
0.91
0.80
0.57
0.75
0.95
0.77
0.85
0.65
0.94
0.63
0.95
0.67
11.20 * * *
10.14 * * *
6.04 * * *
10.42 * * *
9.36 * * *
9.39 * * *
5.64 * * *
9.79 * * *
10.65 * * *
11.16 * * *
10.79 * * *
8.80 * * *
9.14 * * *
9.35 * * *
8.26 * * *
10.48 * * *
11.13 * * *
10.54 * * *
10.79 * * *
10.85 * * *
10.38 * * *
10.23 * * *
9.34 * * *
8.55 * * *
10.92 * * *
9.92 * * *
Note: * * *Denotes significance at a=0.001
coefficients of both groups were analyzed separately using a

multiple group analysis, assuring that the models goodness of
fit is similar for both. For Group 1, the fit indices were
acceptable ( x2/df 0.77, GFI 0.902; AGFI 0.836;
CFI 0.099; NFI 0.947; RMSEA 0.045). For another
group, the fit indices were also acceptable (x2/df 0.758,
GFI 0.901; AGFI 0.808; CFI 0.097; NFI 0.946;
RMSEA 0.047). The estimation results show that the
differences between the parameters of the two groups are
Table V Correlation matrix of constructs

(A)
(B)
(C)
(D)
(A) IT infrastructure flexibility (ITIF) 1.000

(B) Institutional orientation (IO)
0.45 * * * 1.000
(C) Dynamic capabilities (DC)
0.56 * * * 0.58 * * * 1.000
(D) Innovation performance (IP)
0.59 * * * 0.59 * * * 0.59 * * * 1.000
Note: * * *Denotes significance at a=0.001
Figure 2 The structural model
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Volume 19 Number 2 2014 173 186
Table VI Results of mediating effect tests

Coefficient in regressions
IV
DV
IV ! DV
IV ! M
IV 1 M ! DV
IV ! DV
M ! DV
Mediating
ITIF
IO
DC
DC
IP
IP
0.48 * * *
0.47 * * *
0.30 * * *
0.48 * * *
0.28 * * *
0.16 * * *
Partial
Partial
0.56 * * *
0.56 * * *
Notes: IV, independent variable; M, mediator; DV, dependent variable; Step 1, IV ! DV is significant; Step 2, IV ! M is significant; Step 3, IV+M ! DV; if M is
significant and IV is not significant, then M has full mediating effects; if both M and IV are significant, then M has partial mediating effects; * *denotes
significance at a=0.01; * * *denotes significance at a=0.001
significant. The findings reveal that institutional orientation is

less significantly associated with inter-organizational
innovation performance in Group 1 (g 0.087, t 1.055,
p . 0.05), but is significantly associated in Group 2
(g 0.393, t 4.036, p , 0.001). Information technology
infrastructure flexibility has a significant impact on interorganizational innovation performance in Group 1
(g 0.333, t 4.343, p , 0.001), while less significant
impact is found in Group 2 (g 0.115, t 1.232,
p . 0.05). Information technology infrastructure flexibility
and institutional orientation are significantly associated with
inter-organizational dynamic capabilities in Group 1
(g 0.285, t 3.665, p , 0.001; g 0.517, t 6.063,
p , 0.001) and Group 2 (g 0.370, t 2.843, p , 0.01;
g 0.386, t 3.014, p , 0.01), and dynamic capabilities are
also significantly associated with innovation performance in
Group 1 (g 0.577, t 5.456, p , 0.001) and Group 2
(g 0.467, t 5.314, p , 0.001).
institutional orientation can impact partners ability to

rationalize processes and exercise discretion in interorganizational innovation performance. This suggests that
an institutional orientation among supply chain members can
ensure the advantages of inter-organizational collaboration
and in turn enhance inter-organizational innovation
performance.
Conforming to the hypothesis, both information technology
infrastructure flexibility and institutional orientation have a
positive influence on inter-organizational dynamic
capabilities. This finding is in line with previous research on
the subject. This may reflect that firms can promote the
effects of dynamic capabilities through both information
technology infrastructure flexibility and the institutional
orientation of the supply chain. According to institutional
orientation, supply chain members can imitate each other to
enhance their dynamic capabilities. Inter-organizational
information technology infrastructure flexibility is an
important key to keep dynamic capabilities between supply
chain members. This finding suggests that a good practice in
forming an inter-organizational relationship in supply chains
is to reinforce their information technology infrastructure
flexibility and institutional orientation and thus encourage
dynamic capabilities activities.
As hypothesized, dynamic capabilities have a positive
impact on inter-organizational innovation performance,
which is consistent with the findings of Tsai (2001) and
Marz et al. (2006). This is when companies have better
dynamic capabilities, and then more efficient management
can obtain new knowledge from other organizational units to
promote innovation performance. The dynamic capabilities
activities of supply chains on innovation performance showed
a significant positive impact. This suggests that dynamic
capabilities play a significant role in the innovation
performance of supply chains when members are in a highly
competitive market. To respond to market opportunities and
achieve effective innovation performance, the relevant parties
should reinforce their collaborative behaviors and activities in
relation to the factors that would enhance the value-based
relationships.
6. Discussion
Conforming to the hypothesis, information technology
infrastructure flexibility has a positive influence on interorganizational innovation performance. This finding is
consistent with the findings of Bharadwaj (2000) that it is
important to implement the application of relevant
technological innovation and those of Ray et al. (2005) and
Bowman and Hurry (1993) that flexible information
technology infrastructure leads to the creation of highquality products and customer services. In Taiwans supply
chains, this factor plays a significant role in effecting
innovation
performance.
Information
technology
infrastructure flexibility can help innovation formation and
leads to better information flow between supply chain
members. Thus, the members of the supply chain should
ensure that value-based relationships are well defined when
establishing a partnership so that information technology
infrastructure flexibility can help to enhance dynamic
capabilities or future innovation performance.
Institutional orientation is positively associated with the
relationship on innovation performance, which consistent
with the finding of Wang et al. (2011) that collaborations
between partners have a significant positive effect on
innovation performance. In Taiwans supply chains,
collaborations between partners play a critical factor in
innovation performance between organizations. Institutional
orientation means there are ties, either formally through rules
or laws or informally through certain cultural expectations,
between supply chain members. Violating these rules may
bring a firms legitimacy into question and jeopardize its
access to valuable and/or scarce knowledge. Thus,
7. Conclusion
It is of strategic importance for partners to understand the
factors influencing the development and implementation of
innovation performance. In this study of Taiwans supply
chains, we have developed a novel research model to
understand the factors influencing inter-organizational
innovation performance. Inter-organizational partners build
good relationship through institutional orientation and
information technology infrastructure flexibility to enhance
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Volume 19 Number 2 2014 173 186
inter-organizational dynamic capabilities, and then to improve

the innovation performance of the supply chain. Therefore, in
this paper we find that both dynamic capabilities and the
relational and institutional views of relational governance
between supply chain members encourage the preference to
build or enhance value-based relationships to improve
innovation performance. When both sides of a supply chain
perceive that cooperation with each other will bring benefits,
organizations tend to increase the closeness of the relationship
and in turn achieve the competitive advantage of innovation
performance for the supply chain as a whole. The findings of
the study provide practical insights in understanding how
enhanced the relational and institutional views of relational
governance and dynamic capabilities can help enhance interorganizational innovation performance for achieving the
competitive advantage of supply chains.
One possible explanation is that partners are subject to more

predictable changes in larger sized firms. An institutional view
of relational governance can be implemented more effectively
in such an environment. According to institutional theory,
managers ability to process innovation in their decisionmaking processes can be impacted by the institutional
environments, either formally through rules or laws or
informally through certain cultural expectations. Partners
will choose to conform to these rules or laws to avoid being
locked out of cooperative relationships and jeopardizing their
access to scarce resources and social support. Moreover,
dynamic capabilities significantly and similarly affect interorganizational innovation performance in both groups.
Dynamic capabilities can help parties to respond quickly to
customer needs and, as a result, innovation performance.
Thus, partners should ensure that cooperative activities of
institutional orientation are well defined when establishing a
partnership so as to improve dynamic capabilities and in turn
enhance inter-organizational innovation performance.
Another possible explanation is that information technology
infrastructure flexibility is one way to acquire importance
resources. The requirements of key resources in a dynamic
environment create superior value, especially in smaller sized
firms. In smaller sized firms, the party perceives that, through
enhancing information technology infrastructure flexibility, it
can be a net gainer and that gains can be achieved in the
future. As suggested by previous studies (Li and Ye, 1999;
Bharadwaj, 2000; Byrd and Turner, 2001; Bhatt et al., 2010),
when there is stronger information technology infrastructure
flexibility within the supply chain, this encourages the
members of the supply chain to integrate geographically
separated systems and share resources, and the degree of
innovation performance will also be elevated.
7.1 Theoretical implications

With the development of the novel research model, the
theoretical contributions of this paper to the literature are
described as follows. First, the results from our study
contribute to the inter-organizational innovation
performance literature. Specifically, although relational
governance and dynamic capabilities are central notions in
the literature, notable gaps remain in understanding their
impact on inter-organizational innovation performance
(Chong et al., 2011; Wang et al., 2011). This paper
attempted to fill the gaps by identifying the relationships
between relational governance and dynamic capabilities and
investigating their influences in inter-organizational
innovation performance. For instance, this study makes a
theoretical contribution in linking information technology
infrastructure flexibility and institutional orientation with
dynamic capabilities and inter-organizational innovation
performance for exploring the inter-organizational
relationships between supply chain members. The
theoretical framework of the model can be applied to other
forms of inter-organizational relationships involving
Secondly, the multi-group analysis of relational governance
and dynamic capabilities is a direct extension of the literature.
As shown in Table VII, the total effect of institutional
orientation on dynamic capabilities and inter-organizational
innovation performance is more intense in larger sized firms
than in smaller sized firms. In contrast, the total effect of
information technology infrastructure flexibility on dynamic
capabilities and inter-organizational innovation performance
is more intense in smaller sized firms. These findings of the
multi-group analysis are noteworthy.
7.2 Managerial and practical implications

This study provides multiple insights for managers and
practices seeking to improve inter-organizational innovation
performance in supply chains. To managers, because business
relationships are enhanced to achieve corporate goals and
facilitate sustain competitive advantage, inter-organizational
innovation performance is increasingly popular (Chong et al.,
2011; Wang et al., 2011). Our findings on the effects of
information technology infrastructure flexibility, institutional
orientation and dynamic capabilities are not only consistent
with prior studies, but also examine how innovation
performance is significantly affected by information
technology infrastructure flexibility and institutional
orientation through other mediating variables such as
dynamic
capabilities.
Inter-organizational
partners
implement relationships of institutional orientation and then
Table VII Direct and indirect effect of information technology infrastructure flexibility, institutional orientation, dynamic capabilities, and innovation
performance
Effect on Innovation performance
Group 1 (smaller sized firms)
Group 2 (larger sized firms)
Direct effect Indirect effect Total effect Direct effect Indirect effect Total effect
Effect of information technology infrastructure
flexibility
Effect of institutional orientation
Effect of dynamic capabilities
0.333
0.164
0.298
0.577
182
0.497
0.298
0.577
0.393
0.467
0.173
0.180
0.173
0.573
0.467
Volume 19 Number 2 2014 173 186
build closer collaboration through learning about each other

and the exchange of extra effort given voluntarily and
reciprocated. Building and improving information technology
infrastructure flexibility promotes information flow to boost
quick responses to customers. The willingness of members in
supply chains provides first-hand knowledge through interorganizational confidence to increase inter-organizational
dynamic capabilities, and can promote the innovation
performance of the supply chain as a whole.
The most important managerial implication and practical
insights from this paper are that developing positive and
strong value-based relationships is key to enhancing interorganizational innovation performance in supply chains.
Therein, relevant parties can develop value-based
relationships by focusing on activities that would enhance
institutional orientation, and improve activities that would
reinforce the activities of dynamic capabilities. The
improvement of innovation performance via enhancing the
relational and institutional views of relational governance and
dynamic capabilities can then be achieved, efficiently and
effectively, leading to the sustainability of supply chain
relationships.
Specifically, our multi-group analysis results provide
insights to understand inter-organizational governance
through the examination of the dynamic interactions
between relational governance and dynamic capabilities. If
their firm size is smaller, managers should consider facilitating
information technology infrastructure flexibility and dynamic
capabilities to enhance inter-organizational innovation
performance. In other words, the supply chain members,
having information technology infrastructure flexibility and
acquiring importance resources as a source of competitive
advantage, will improve their innovation performance. In
particular, if managers use institutional orientation and
dynamic capabilities, some partners with a larger firm size
can result in a better inter-organizational innovation
performance. Institutional views of relational governance
can function as a structural bond to their established
relationships and to improve the positive impact of dynamic
capabilities on inter-organizational innovation performance.
antecedents of the institutional or relational view of

relational governance, such as mimetic, coercive and
normative institutional pressures, organizational culture, or
trust in supply chains. Future theoretical and empirical
research could explore whether alternative constructs affect
inter-organizational relationships among information
technology infrastructure flexibility, institutional orientation,
dynamic capabilities, and inter-organizational innovation
performance.
As a novel research in addressing the innovation
performance improvement between supply chain members
from the perspectives of relational governance and dynamic
capabilities, the study looks into how relational and
institutional views of relational governance affects the
connection between dynamic capabilities and interorganizational innovation performance. The theoretical
framework of the research model may serve as a starting
point for future theoretical and empirical research in
exploring alternative constructs and measures for describing
and modeling the role of value-based relationships from the
relational and institutional view of relational governance and
dynamic capabilities.
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Corresponding author
Jao-Hong Cheng
yuntech.edu.tw
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Assessing inter-organizational innovation

To enhance the advantages of innovation performance, it is

This research was supported by the National Science Council of Taiwan,

Supply Chain Management: An International Journal

Assessing inter-organizational innovation performance

Supply Chain Management: An International Journal

Jao-Hong Cheng et al.

Volume 19 Number 2 2014 173 186

Illustrative research Context

Wang et al. (2011)

The results show that SCM practices

advancing the effect of innovation performance in supply

maintained and promoted through innovation performance,

2. Relational governance and dynamic

Assessing inter-organizational innovation performance

Supply Chain Management: An International Journal

Jao-Hong Cheng et al.

Volume 19 Number 2 2014 173 186

there are exchange opportunities between partners, relational

partys information base and consequently competitiveness

3. The research model and hypotheses

Assessing inter-organizational innovation performance

Supply Chain Management: An International Journal

Jao-Hong Cheng et al.

Volume 19 Number 2 2014 173 186

Figure 1 The research model

infrastructure flexibility is very important because it allows the

adopt similar cognitive frameworks (Granovetter, 1992). In a

Information technology infrastructure flexibility is

In a supply chain, a strong institutional orientation means that

Information technology infrastructure flexibility is a key factor

Information technology infrastructure flexibility is

Institutional orientation is positively related to dynamic

Institutional orientation is positively related to

3.3 Dynamic capabilities

3.2 Institutional orientation

Assessing inter-organizational innovation performance

Supply Chain Management: An International Journal

Jao-Hong Cheng et al.

Volume 19 Number 2 2014 173 186

relationship with the degree of innovation and enterprise.

among the top 1,000 Taiwanese manufacturing firms of 2011

Dynamic capabilities are positively related to

The measurement model specifies the relationships between

To develop the survey instrument, a pool of items was

5.1 Assessment of the measurement model

4.1 Content validity

Assessing inter-organizational innovation performance

Supply Chain Management: An International Journal

Jao-Hong Cheng et al.

Volume 19 Number 2 2014 173 186

Table II Constructs and measures of the research model

Information technology infrastructure flexibility

GFI 0.912; AGFI 0.852; CFI 0.98; NFI 0.948;

constructs was greater than the variance accounted for by the

5.3 Common method bias

5.2 Assessment of the structural model

Assessing inter-organizational innovation performance

Supply Chain Management: An International Journal