Suppliers Versus Lead Users: Examining Their Relative Impact On Product Variety

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See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
J PROD INNOV MANAG 2012;29(4):667–680
© 2012 Product Development & Management Association
DOI: 10.1111/j.1540-5885.2012.00932.x
Suppliers versus Lead Users: Examining Their Relative Impact

on Product Variety
Zu’bi M. F. Al-Zu’bi and Christos Tsinopoulos
Collaboration with parties external to the new product development (NPD) process is seen as a means to reduce costs
and improve the product offering to customers. On the suppliers’ side, collaboration during the NPD process may lead
to a faster and more efficient process. On the users’ or customers’ side, collaboration may provide ideas for entirely
new products and/or modifications to existing ones. This paper examines how collaboration with suppliers and a group
of users that experience needs unknown to the public, the so-called lead users, affects the resulting variety of the
products offered. The paper focuses on product variety because of its increasing perceived importance in the satisfac-
tion of changing customer needs. Hierarchical regression analysis of survey data collected from 313 U.K. manufac-
turers revealed a significant positive relationship between collaboration and product variety. The key findings are that
increasing the extent of collaboration with lead users and with suppliers during the NPD process will increase the
variety of products offered to customers, and that lead users have a higher impact on product variety to suppliers.
Previous studies have found that collaboration increases NPD performance, but to the best of the authors’ knowledge,
this is the first to explicitly explore the link with product variety. The paper concludes by discussing the findings’
practical implications, limitations, and recommendations for future studies.
Introduction of new ideas into their new product development (NPD)

process, which in turn will lead to new products.
T
he realization over the past 30 years that the New product ideas originate both from internal (such
production of large volumes of standardized as other divisions of the same company—research and
products can no longer lead to increased market development staff, etc.) and external (e.g., customers,
share and profits has led many manufacturing companies suppliers, competitors, universities) parties (Salter and
to increase the variety of the products they offer to their Gann, 2003; Tidd, Bessant, and Pavitt, 2005). Both exter-
customers (MacDuffie and Sethuraman, 1996). Increased nal and internal sources of innovation have been found to
product variety increases the chances that a customer will be very important in the overall success of the product
find something that matches his/her preferences (Dowell, development process (Cooper, 2001; Cooper and Klein-
2006; Kai-Lung, 2004; Kekre and Srinivasan, 1990), and schmidt, 1993). Consequently, various collaborative
thus may assist an organization to gain a competitive product development models have been developed in an
advantage. Furthermore, product variety provides a good attempt to encourage the effective generation and imple-
measure of an operation’s flexibility, which, along with mentation of such ideas into the NPD process (Cooper,
quality, cost, and speed of delivery, is a key operational 2001; Cooper and Kleinschmidt, 1987; Crawford and Di
capability (Da Silveira and Cagliano, 2006; Devaraj, Benedetto, 2005). The promised merits of these models
Hollingworth, and Schroeder, 2004; Hayes, Pisano, (e.g., more successful products, reduced product devel-
Upton, and Wheelwright, 2005; Slack, Chambers, and opment costs and time, and increased productivity
Johnston, 2005). As a consequence, companies often seek [Sanchez and Mahoney, 1996]) have encouraged many
ways to increase the variety of their products, mainly in firms to explore the implementation of such approaches
terms of product lines and product variants (Cottrell and to develop their products and to catalyze innovation.
Nault, 2004). To achieve sufficiently high variety, and thus The nature and extent of collaborators’ input to the
to fulfill customer requirements and improve the business NPD process has been the subject of several studies as
profitability (Quelch and Kenny, 1994), manufacturers such input has been heralded as a critical strategy for the
have traditionally attempted to introduce a constant stream successful introduction of new products (Day, 1994).
With a few notable exceptions (discussed below), these
studies have generally found that increased collaboration
Address correspondence to: Christos Tsinopoulos, Durham Business
School, Durham University, Durham DH7 7TQ, UK. E-mail: chris. is beneficial to the collaborating companies. The benefits
[email protected]. Tel: +44 (0) 191 3345555. that accrue from collaboration include financial, techno-
15405885, 2012, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/j.1540-5885.2012.00932.x by Norwegian School Of Economics, Wiley Online Library on [10/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
668 J PROD INNOV MANAG Z. M. F. AL-ZU’BI AND C. TSINOPOULOS
2012;29(4):667–680
logical, managerial, and strategic (Ellram, 1991; Ellram company in knowledge management, whereby internal
and Cooper, 1990). Financial benefits relate to the reduc- implicit and explicit knowledge might become vulnerable
tion of cost, due to factors such as the elimination of for imitation by rivals. Furthermore, increased standard-
duplication in the manufacturing and development pro- ization of components through the specified interfaces,
cesses, and price reductions throughout the supply chain. and the risk of reducing internal competencies are pos-
Technological benefits relate to the sharing of technologi- sible drawbacks (Mikkola, 2003). Despite these potential
cal advances and knowledge across the supply chain limitations, several models have been developed that aim
(McCarthy, Tsinopoulos, Allen, and Rose-Anderssen, to improve collaboration with external parties.
2006; McFarlan and Nolan, 1995; Tsinopoulos, 2007; von In tandem with the development and implementation
Hippel, 1988). Management benefits relate to the simpli- of models that enhance collaboration, research studies
fication and increased loyalty that may result from the have examined the motivations for collaboration and the
reduction of the numbers of suppliers (Christopher and nature of the influence of external parties on the product
Towill, 2000; Rackham, Friedman, and Ruff, 1996). development process (Cooper, 1984; Rothwell, 1994).
Finally, strategic benefits relate to the potential of improv- The literature surrounding this subject confirms that
ing the core competencies through an enhanced product increased collaboration across the supply chain leads to
development process (Lei, 1993). These benefits can be increased performance of the NPD processes (Frohlich
achieved through collaborations on both sides of an orga- and Westbrook, 2001; Petersen, Handfield, and Ragatz,
nization’s supply network—users and suppliers. 2005). In this study, new product development is defined
However, some studies have argued that, in some situ- as the entire process of generating and bringing to the
ations, collaboration, particularly with suppliers, may be market both entirely new products and variations to exist-
problematic, as weaknesses of product grade, technology, ing ones. Previous studies have examined how collabo-
or availability can become a burden to the buyer company ration with various parties at different stages of the NPD
(Wasti and Liker, 1997). Furthermore, failure of the pur- process can lead to increased market success (Petersen
chasing company to provide a finished product for deci- et al., 2005). Among the collaborating parties that have
sion and design processes can affect the collaboration been examined are suppliers (Petersen et al., 2005; Song
(Wynstra, Van, and Weggemann, 2001). Veloso and and Di Benedetto, 2008), competitors, and universities
Fixson (2001) warned that increased dependence on stra- (Deeds, Decarolis, and Coombs, 2000). Customers have
tegic suppliers might affect the performance of the buyer long been identified as valuable collaborative partners,
company and have a negative impact in the long term. In with recent work extolling the value of the specialized
addition, they outlined the risks faced by a collaborating group of lead users (von Hippel, 1988). These studies
have largely focused on how varying degrees of collabo-
ration impact NPD performance in terms of costs, time,
BIOGRAPHICAL SKETCHES and product quality, but not product variety.
Dr. Zu’bi M. F. Al Zu’bi is an assistant professor of operations and Product variety relates to the mixture of products
supply chain management with more than ten years of experience in
offered by an organization to the marketplace (Randall
consultation, training, and academia. He has lectured at several univer-
sities in the United Kingdom and Jordan, where he currently holds the and Ulrich, 2001), and is manifested across several
position of Chairman of the Business Management Department at the dimensions (Dowell, 2006; MacDuffie and Sethuraman,
University of Jordan. He completed his B.Sc. and M.B.A. degrees in 1996). Kotler and Keller (2006) identified four product
Jordan, and then traveled to Durham University in the United Kingdom,
where he presided over the Ustinov College Graduate Common Room
variety dimensions: width (number of product lines),
for two years and completed his Ph.D. in operations management at length (items in the mix), depth (variants of each
Durham Business School. He has also served as a consultant for many product), and consistency (closeness of relationship
prestigious multinational corporations operating in the Middle East, and between products). MacDuffie and Sethuraman (1996),
for the United Nations in Jordan.
who studied the international automotive industry, iden-
Dr. Christos Tsinopoulos is a Senior Lecturer in operations and project tified two dimensions: fundamental and peripheral. Fun-
management at the United Kingdom’s Durham Business School. Chris-
tos has a Ph.D. from the University of Warwick, as well as bachelor and
damental variety refers to inherently different models
master’s degrees in Mechanical Engineering from the University of (e.g., a Honda Accord versus a Honda Civic). Peripheral
Sheffield. Christos is an assessor of the Institution of Mechanical Engi- variety refers to the options offered for the same core
neers’ Manufacturing Excellence awards. He has been a research fellow
design (e.g., satellite navigation and electronic stability
in new product development at the Warwick Manufacturing Group, as
well as a quality and maintenance engineer for copper and aluminum control on a Ford Focus).
industries in Greece. These two popular classifications of product variety
do, of course, overlap. For instance, fundamental variety
SUPPLIERS VERSUS LEAD USERS J PROD INNOV MANAG 669
2012;29(4):667–680
would include different product lines (width) and items in impact. Finally, it discusses some additional factors
the mix (length), whereas peripheral would include examined in previous studies that may also impact
product variants (depth) and relationship of products product variety.
(consistency). As MacDuffie and Sethuraman’s classifi-
cation is broader, in this paper, product variety is defined The Effect of Collaboration with Suppliers on
along these two dimensions. These two dimensions of Product Variety
product variety were, therefore, used to develop the
measure of product variety, which will be explained and The impact of suppliers’ collaboration during the NPD
used later in the paper. process on a company’s product variety stems from two
The aim of this paper is to examine how collaboration key premises: that they can provide technical knowledge
during NPD with two external parties, suppliers and lead for improvement, and that they are more likely to commit
users, can increase an organization’s ability to develop a to the success of the products they have helped develop.
high variety of products. The focus is on suppliers and On the technical side, closer collaboration with key
lead users for two reasons. First, both partners are being suppliers can provide a forum for the evaluation and
increasingly viewed both by practitioners and theoreti- improvement of ideas and products during both the early
cians as key stakeholders in the NPD process (Handfield, and late stages of the NPD process. Key suppliers are
Ragatz, Petersen, and Monczka, 1999; Olson and Bakke, those with similar or superior capability whose objectives
2001; Petersen et al., 2005; von Hippel, 1986). Accord- do not conflict with those of the buyer company (Littler,
ingly, this study will contribute to this line of research by Leverick, and Bruce, 1995; Sako and Helper, 1998). Key
explicitly exploring the relationship between the extent of suppliers can, therefore, provide the technical expertise to
involvement of these parties and a firm’s ability to evaluate the feasibility of new product ideas during the
develop a wide variety of products. To the authors’ early stages of NPD before large financial investments
knowledge, such links have not previously been explored. have been made. This expertise can be valuable in avoid-
Second, a firm directly collaborates with both suppliers ing costlier modification at later stages (Crawford and Di
and customers, and an examination and comparison of Benedetto, 2005; Song and Di Benedetto, 2008). During
their impacts on product variety will, therefore, provide the middle and later stages of the development process,
useful guidance to practitioners looking to develop long- suppliers can be involved in designing and testing the
term strategic alliances in order to increase the variety of manufacturing processes (Millson, Raj, and Wilemon,
products offered to the market. 1992), which in turn may provide the greater flexibility
The paper is structured as follows. The following necessary to improve a company’s ability to provide
section reviews the literature concerned with collabora- higher product variety.
tion with suppliers and lead users, and develops a con- Close collaboration gives suppliers the technical
ceptual framework and three hypothesized relationships autonomy to invest in and develop subsystems that can
with product variety. Then, the measures developed to then be used by a buyer during the final assembly
assess product variety and the extent of collaboration (Kamath and Liker, 1994). Larger manufacturers are, in
with lead users and suppliers are explained, followed by fact, increasingly depending on their suppliers to deliver
a description of the process of data collection and analy- large modules to simplify the assembly process (Alford,
sis. The final section outlines the implications of this Sackett, and Nelder, 2000; Perez and Sanchez, 2001).
study for practice, and discusses the limitations and direc- Modularity enables standard and common parts to be
tions for future research. combined in various ways that can then form the basis for
a product family (Ramdas and Sawhney, 2001; Sawhney,
Conceptual Framework 1998). Increased modularity should lead to a higher
number of products in a product family (Alford et al.,
As argued in the introduction, the impact of collaborative 2000; Halman, Hofer, and van Vuuren, 2003), and thus
product development on product variety is relatively increased product variety.
unexamined. This section examines the theoretical With respect to a greater commitment to the develop-
reasons for expecting a link. It first explains how collabo- ment of new products, closer involvement with suppliers
ration during the NPD process with suppliers and lead may imply mutual investment and sharing of risk. Joint
users can affect a company’s product variety. Then, it development efforts for new products increase the market
discusses the relative contribution of the two collaborat- orientation of both the supplier and the buyer. When a
ing parties to argue that lead users should have a greater supplier and a buyer work together more closely, they are
2012;29(4):667–680
more likely to develop close communication, joint should, in theory, result in products that are more likely to
problem-solving techniques, and to better coordinate succeed. This approach flourished in the 1980s and 1990s
their activities in response to changing market needs. (Cooper and Kleinschmidt, 1987, 1993), and has per-
Buyers can easily communicate the changing market sisted until the present (Callahan and Lasry, 2004; Enkel,
needs, and consequently, in a market environment where Perez-Freije, and Gassmann, 2005; Salter and Gann,
customers have more fine-grained preferences (Dowell, 2003). However, critics of this process argue that it may
2006), both will respond to the market needs by increas- lead to decreased creativity and the introduction of prod-
ing product variety. Finally, close collaboration with sup- ucts that only improve existing lines, to the exclusion of
pliers may lead to long-term commitment of a supplier to entirely novel products (e.g., Bonner, Ruekert, and
a buyer. This commitment may, in turn, lead to openness Walker, 2002).
to adaptation as circumstances change (Heide and Miner, More recently, an alternative user collaboration
1992), which should lead to higher product variety. approach has been developed involving the concept of
The investment of time, effort, and funding from both lead users, that is, users of a product who experience
companies (suppliers and buyers) should reduce the risk needs unknown to the public, who also benefit greatly if
of knowledge sharing with competitors (Petersen et al., they obtain a solution to these needs (von Hippel, 1988).
2005), although it may increase the overall product devel- Research on lead users has identified them as individuals
opment time (Eisenhardt and Tabrizi, 1995). In addition, who possess greater consumer knowledge and user expe-
early supplier involvement can ensure that suppliers will rience in the underlying field, with the tendency to exhibit
be able to provide any specified components (Dowlat- “innovative personalities” (Schreier and Prugl, 2008).
shahi, 1997), and consequently make any appropriate They will, therefore, use their own innovative approach to
investments in equipment, tools, and training (Song and provide new solutions, often unknown to the manufac-
Di Benedetto, 2008). If suppliers invest resources in the turer (Luthje and Herstatt, 2004; Morrison, Roberts, and
development of new products with specific buyers, they Von Hippel, 2000).
are more likely to commit to these firms, and thus they The lead user approach to NPD collects information
will be less likely to share product knowledge with other about both the needs and solutions of users (Schreier and
competing parties (Dyer and Singh, 1998). Furthermore, Prugl, 2008). Lead users demand unique solutions to their
suppliers who are more involved in the NPD process are needs, and as a result, they devise attractive user innova-
more likely to be committed to the buyer company for tions (von Hippel, 1986). They identify a new set of
future business (Gassenheimer, Calantone, and Scully, design possibilities and begin to explore them (Baldwin,
1995). Hienerth, and von Hippel, 2006). This is possible because
Therefore, from the above arguments, the first hypoth- lead users often have more knowledge about the product
esis is: attributes and have experience of using the relevant prod-
H1: Higher collaboration with suppliers during the
ucts (Schreier and Prugl, 2008). The task of a firm’s NPD
NPD process will lead to higher product variety. team is to identify this group of users from their customer
base, and work with them to develop their solutions to
complete products.
The Effect of Collaboration with Lead Users on Advocates of the formal integration of lead users into
Product Variety the NPD process argue for a four-stage process, which
comprises goal generation and team formation, trend
The value of collaboration with general users during NPD research, pyramid networking, and workshop and idea
stems from the fact that they can provide ideas for new generation (Lilien, Morrison, Searls, Sonnack, and Von
products or modifications to existing ones, and can test Hippel, 2002). Although the development and integration
their functionality and durability. of such a formal process with current NPD processes is
The traditional view of users’ involvement is that users relatively rare (Olson and Bakke, 2001), informal pro-
have needs that can be satisfied by new products. Accord- cesses for identifying and integrating ideas from this
ingly, identification of these needs can lead to new ideas group of users are frequently employed, as evidenced by
that can feed into the NPD process. For this purpose, user several studies that have explored these groups in various
input is often encouraged at the beginning and end of the industrial contexts (Franke and von Hippel 2003; Franke,
process. In the early stages, users express their needs, von Hippel, and Schreier, 2006; Herstatt and von Hippel
while in the final stages, they test the end product to 1992; Luthje, Herstatt, and von Hippel, 2002; Morrison,
confirm that it meets their needs. Such an approach Roberts, and Midgley, 2004). Such studies have also
2012;29(4):667–680
examined the performance of product ideas that originate (Monczka, Petersen, Handfield, and Ragatz, 1998) that
from lead users, and have consistently found that success have promising applications. To benefit from these,
rates are higher in terms of product attractiveness (Foxall buyer firms collaborate with the owners of these tech-
and Johnston, 1987; Lilien et al., 2002) but not product nologies. As the core competencies of the collaborating
variety. suppliers are often closely associated with these tech-
Involvement of lead users during the NPD process nologies, their knowledge and experience can also be
assists in the identification of newer consumer needs used to evaluate what is feasible from a technology per-
while simultaneously increasing the chances of introduc- spective (Petersen et al., 2005). As a result, collaboration
ing a new product line (Lilien et al., 2002) that will with suppliers provides buyers with a selection of
become a commercial success (Hienerth, 2006). On a promising technologies and relevant expertise, which
smaller scale, lead users provide ideas for modifications helps them deal with technology uncertainty and asso-
to existing products to meet their new needs (e.g., adding ciated risks.
foot straps to standard windsurfing equipment to enable Lead users, by definition, are a special group of cus-
windsurfers to perform aerial tricks [Shah, 2000]), and tomers that experience needs unknown to the public,
thus they extend the current product family of a company. which they address by creatively using their technical
In both cases of novel products and improvements to expertise (Luthje et al., 2002; von Hippel, 1988). As they
existing products, it is reasonable to expect that lead user are the first to experience these new needs, they can
involvement in the NPD will increase the number of provide more accurate knowledge of the changing cus-
product variants offered by a company. tomer trends than that provided by suppliers. As these
The above arguments lead to the second hypothesis: trends are often associated with modifications to existing
H2: Higher collaboration with lead users during the
product lines (e.g., new applications for the iPhone), col-
NPD process will lead to higher product variety. laboration with lead users is likely to increase the periph-
eral dimension of product variety more than collaboration
The Relative Effect of Collaboration with Suppliers with suppliers.
and Lead Users on Product Variety As found by several empirical studies, lead users are,
in general, “ahead of the field” in the use and adoption of
The final hypothesis relates to the comparison of the new technology compared with nonlead users (Morrison
relative impacts of the two parties on product variety. The et al., 2004; Urban and Von Hippel, 1988). This tendency
comparative effect of each party will, of course, vary for early adoption makes them aware of new and emerg-
across industrial sectors. The development of new prod- ing technologies. Similar to the suppliers, this knowledge
ucts in the pharmaceutical sector is more likely to be makes them able to assess the technical feasibility of new
influenced by suppliers (Tsinopoulos, 2007) than, for ideas. Therefore, collaboration with lead users provides
example, in the sports equipment sector, which is often companies with expertise that is often similar to that of
dominated by lead users (Schreier and Prugl, 2008). As the suppliers, and an in-depth knowledge of emerging
explained in this section, however, there are good theo- customer trends. This combination may, therefore, lead to
retical and intuitive reasons to expect that, in general, the the introduction of entirely new products using these
influence on product variety of the latter is higher than technologies, increasing the fundamental dimension of
that of the former. product variety.
For most industrial sectors, the rapid changes in cus- From the above discourse, it can be deduced that both
tomer needs (Flynn, Huo, and Zhao, 2010) and the users and suppliers are likely to have a profound impact
uncertainty of emerging technologies (Petersen et al., on the final outcome of the NPD process. Lead users,
2005) are given. To deal with the former, closer collabo- however, combine technical expertise (often associated
ration on the customer side has often been advocated. A with suppliers) with accurate and prompt knowledge of
close relationship between customers and manufacturers new customer trends, and consequently, it would be
improves the accuracy of demand information, which in expected that collaboration with them will increase
turn reduces the response time both in terms of produc- product variety to a greater extent than with suppliers.
tion and NPD (Flynn, Sakakibara, Schroeder, Bates, and Therefore the third and final hypothesis is:
Flynn, 1990). Therefore, closer integration with custom-
ers makes manufacturers more responsive to their needs. H3: Collaboration with lead users during the NPD
To deal with the latter, many companies monitor or scan process will lead to greater product variety than with
the market for the development of new technologies suppliers.
2012;29(4):667–680
the past have also employed questionnaire surveys, and

Supplier
Collaboration H1 are increasingly seen as an established research technique
(+)
in NPD for operations and technology management studies (e.g.,
Product Variety Da Silveira and Cagliano, 2006; Frohlich and Westbrook,
(+) 2001; Leenders, van Engelen, and Kratzer, 2007).
H2
Lead Users’
The conceptual framework developed and tested in
New Ideas this paper concerns the collaboration of lead users and
suppliers with a company during the NPD process.
Figure 1. Suppliers and Lead Users’ Impact on Product Accordingly, the unit of analysis is the company, and data
Variety (The Thicker Line Depicts the Higher Hypothesized have been collected at the company level as explained
Impact)
below. To avoid any confusion and any problems of infer-
ence arising from collecting data at levels inappropriate
Other Factors That May Affect Product Variety to the theoretical propositions under study (Markus and
Robey, 1988), the control (see below), dependent, and
The extent of product variety is also affected by industry- independent variables were all measured at the company
related factors and customer expectations. First, the level level. Furthermore, to ensure that the responses received
of technological turbulence will affect the rate of new were all at the company level, in the introductory text sent
product introductions (Buganza, Dell’Era, and Verganti, with the questionnaire, it was explained that “[the study
2009; Slater and Narver, 1994). As found by Pavitt (1984) focuses] on the collaboration between companies and
and confirmed by several later studies (de Jong and their suppliers and/or lead users in the new product
Marsili, 2006; Klepper, 1996; Souitaris, 2002), compa- development process.”
nies that belong to different technological trajectories The scales used in the survey were found in the litera-
will have different rates of innovation. Companies in ture (e.g., Mikkola, 2003; Welborn, 1988) but were later
industries with higher technological turbulence may more modified to measure the variables of the study. To ensure
frequently develop new products with more options, and that the scale modifications did not affect the validity of
therefore both dimensions of product variety may be the measures, they were subjected to a review by a panel
higher. Similarly, the nature and extent of collaboration of experts consisting of operations managers, NPD man-
may vary across different industrial sectors and across agers, and academics. This process resulted in some
different tiers of the supply chain. For instance, manufac- minor modifications and clarifications. Several statistical
turers in the automotive industry have been accustomed validity and reliability tests were also conducted,
to significant input from their suppliers across the supply explained in the next section.
chain, whereas the input of lead users is a relatively
common phenomenon in the software industry. The open
Collaboration Measures
software revolution, for example, has often been attrib-
uted to the enthusiasm of lead users. A company’s product development process typically
The age and size of the organization may also affect consists of several activities that span the areas from
the resulting product variety. Older and larger organiza- product definition to launching the product to the
tions may have the ability to develop more products for
longer periods of time. The methodology section of this
paper explains the actions taken to control the effect of Table 1. Collaboration Measures for Suppliers and
these factors on the measurement of product variety. Lead Users
A summary of the hypotheses developed in this section Please rate the extent to which your suppliers/lead users are involved
are shown in Figure 1. in the following activities: (1 = Very Low, 2 = Low, 3 = Medium,
4 = High, 5 = Very High)
1. Setting general product definition
Methodology 2. Setting lead time requirements
3. Setting product specifications
The aim of this paper is to examine the relative impacts of 4. Generating products’ blueprints/drawings
collaboration with suppliers and lead users during the 5. Designing product detailed component specifications
NPD process on a company’s product variety. To meet 6. Product prototyping
7. Product testing
this aim and to ensure the generalizability of the findings,
8. Overall new product development process
a questionnaire survey was conducted. Similar studies in
2012;29(4):667–680
market. The construct used to measure the extent of col- Table 2. Product Variety Measure
laboration consists of eight items that assess the respon-
Please indicate your opinion of how your company compares to its
dent’s perception of the involvement of suppliers and competitors in your industry in terms of: (1 = Poor, 2 = below
lead users in the company’s NPD process. This construct competition, 3 = equal to competition, 4 = better than competition,
is shown in Table 1. The first three activities—setting a 5 = superior)
product’s definition, specifications, and the general lead Range of products produced by existing facilities
Scope of features offered to final customers
times of the development process—focus on the front Number of product lines
end of the NPD process. The second group of activities
(4 and 5) focuses on the detailed specification of the
project and the development of any drawings or blue-
prints. The third group of activities focuses on the pro-
totyping and testing of the product. These activities are Several concerns have previously been expressed for
usually found at the later stages of the NPD process. the use of perceptual measures that require respondents to
Finally, a question was included to capture the percep- compare themselves against competition (e.g., Ketokivi
tion of the overall collaboration of suppliers and lead and Schroeder, 2004). The key issues center on the use of
users during the company’s NPD process. a single informant, which is the case in this study. When
The validity and reliability tests for this measure are relying on only one informant, there is a risk of underes-
shown later in the paper. In the instrument, the eight-item timating the true parameters due to dishonesty and/or
construct appeared twice. The first time, respondents systematic bias (Ketokivi and Schroeder, 2004). Although
were asked to rate their perceptions in relation to supplier it is acknowledged that there is such a risk in this study, and
collaboration, and in the second instance, they were asked thus this is a potential limitation, any risk of bias has been
about their perceptions in relation to the lead user col- minimized for the following two reasons. First, the ques-
laboration. To ensure that the concept of lead users was tionnaire was answered by someone in charge of product
understood, a short description was provided at the begin- development activities. As explained later in the paper, the
ning of the questionnaire, which explained their key char- questionnaire was sent to named individuals who had been
acteristics. In addition, the concept of lead users was identified prior to the distribution of the survey. A person in
verbally discussed with 65 respondents who were con- charge of product development should know how the
tacted for missing information, to ascertain their under- product variety of their company compares with that of
standing of the concept. In each case, the respondent competition because the number of different products
indicated that the questionnaire provided a very clear idea produced by an operation can be easily measured. Second,
of the nature of lead users, and confirmed that it was in higher product variety is not an explicit indicator of good
agreement with any existing understanding of the performance, and thus respondents are less likely to be
concept. dishonest when providing a comparison (see, for instance,
Quelch and Kenny [1994] for arguments against focusing
on product variety). The second argument is also sup-
Product Variety Measure ported by the descriptive statistics (Table 3), which show
that the average score of the summated variable of product
As explained earlier, product variety relates to the variety across the sample is 3.6, with a standard deviation
mixture of products offered by an organization to the of .9. That is, the mean product variety of the sample is
marketplace, and is manifested across several dimen- close to equality with the competition. As with the items
sions. The product variety measure used (also the depen- explained above, validity and reliability tests for this
dent variable) focused on capturing the two dimensions measure are discussed later.
of fundamental and peripheral variety explained earlier in
the paper (MacDuffie and Sethuraman, 1996) at the Control Variables
company level. To do so, respondents were asked to
compare their operations relative to competition in terms As discussed earlier, there are several industry-related
of the number of product lines (fundamental variety) and variables that could affect product variety. The first
the scope of features offered (peripheral variety). Finally, relates to the different technological trajectories and
they were asked to provide an overall comparison of the industrial sectors. To capture any effect this may have on
range of products offered. The product variety construct product variety, respondents were classified using Pav-
is shown in Table 2. itt’s (1984) sectoral technological trajectories—supplier-
2012;29(4):667–680
dominated, production-intensive, and science-based. This research (32%) and is generally considered an acceptable
classification was used because firms in different trajec- rate for such studies (Frohlich, 2002).
tories may experience different technological turbulence, Descriptive statistics and correlations between the
and consequently respond with increased product variety; variables are shown in Table 3.
and second, each trajectory includes a comprehensive list To evaluate possible nonresponse bias, the valid ques-
of core sectors (e.g., the supplier-dominated trajectory tionnaires were categorized into early and late responses
includes agriculture, housing, and traditional manufac- (Armstrong and Overton, 1977). As explained by Arm-
ture), and thus would identify any variations attributed to strong and Overton (1977), those who respond later in a
different industrial sectors. The second relates to the age survey do so because of the increased stimulus, and are
and size of the organization, which were measured in thus expected to be similar to nonrespondents. Therefore,
terms of years and number of employees, respectively. the last 40 responses were considered (all received after
the reminder e-mail was sent out) similar to nonrespon-
dents and the first 40 similar to respondents, and con-
Data and Results ducted a Kolmogorov–Smirnov test (Hair, Black, Babi,
Anderson, and Tatham, 2006; Molina, Lloréns-Montes,
A random sample of 1000 U.K. manufacturing compa-
and Ruiz-Moreno, 2007). The results indicated no signifi-
nies was selected based on the European 1992 Standard
cant difference between the two groups in terms of
Industrial Classification codes. Classification codes for
company size, company age, and industrial sector. There
manufacturing companies (code D) were included in the
is, therefore, sufficient confidence that the data are free
sample selection. Names and addresses of NPD managers
from nonresponse bias. Finally, the data were examined
and (in their stead) production/operations managers of
for outliers by visually inspecting the histograms and
the companies in this random sample were provided from
scatter plots for each of the dependent and independent
a U.K.-based marketing company.
variables for normality, linearity, and homoscedasticity
The 1000 companies were first contacted by phone or
(Hair et al., 2006). No violations of the key assumptions
e-mail to ascertain their interest. As a result, 603 ques-
were detected.
tionnaires were sent out to production/operations or
product development managers. Of this group, 328 com-
pleted questionnaires were returned (125 during the first Reliability and Validity Tests for
month and the remaining during the second month fol- the Measurement Model
lowing a reminder e-mail). After contacting 65 compa-
nies in person to complete missing data, 313 The reliability and validity of the measurement model
questionnaires were accepted. This represents a response were examined by calculating the Cronbach’s alpha coef-
rate of 51.9%, which is above the average in this field of ficients, and subjecting the constructs to confirmatory
Table 3. Descriptive Statistics and Correlations, Alpha Coefficients

a Mean SD CS CA I1 I2 I3 SCNPD LUCNMP PV
Company size (CS) 922 533.6 1

Company age (CA) 32.6 17 .003 1
Industry dummy 1 (I1) .17 .38 .048 .052 1
Production-intensive
Industry dummy 2 (I2) .60 .49 .096 -.122* -.560** 1
Science-based
Industry dummy 3 (I3) .23 .42 -.156* .096 -.247** -.664** 1
Supplier-dominated
Supplier collaboration in new .94 3.09 .895 .245** -.086 .004 .022 -.029 1
product development
Lead user collaboration in new .93 2.98 .999 .149** -.234** -.063 .102 -.063 .453** 1
product development
Product variety .93 3.60 .936 .128* -.002 -.053 .013 .033 .283** .350** 1
n = 313.
*Correlation is significant at the .005 level (two-tailed).
**Correlation is significant at the .01 level (two-tailed).
2012;29(4):667–680
Table 4. Confirmatory Factor Analysis

Standardized Unstandardized Critical
Variable Loadings Loadings Ratio
Supplier collaboration Setting general product definition (SC1) .812 1.000

AVE = .66 CR = .94 Setting lead time requirements (SC2) .763 .987 14.080
Setting product specifications (SC3) .852 1.081 15.958
Generating product’s blueprint/drawings (SC4) .797 1.049 12.960
Designing product detailed component specification (SC5) .864 1.120 12.207
Product prototyping (SC6) .819 1.096 11.894
Product testing (SC7) .769 1.104 12.646
Overall NPD process (suppliers) (SOVERALL) .839 1.097 14.266
Lead user collaboration Overall NPD process (lead users) (LUOVERALL) .850 1.000
AVE = .74 CR = .96 Setting lead time requirements (LUC7) .776 .940 14.929
Setting product specifications (LUC6) .877 1.062 17.702
Generating product’s blueprint/drawings (LUC5) .926 1.091 18.579
Designing product detailed component specification (LUC4) .873 1.004 16.630
Product prototyping (LUC3) .878 .933 15.004
Product testing (LUC2) .798 .884 13.459
Setting general product definition (LUC1) .888 .988 15.105
Product variety Range of items produced by existing facilities (PV2) .891 1.000
AVE = .73 CR = .89 Scope of features offered to final customers (PV3) .800 1.006 15.930
Number of products lines compared with competitors (PV1) .874 .654 17.651
Model statistics Chi-square/d.f. 1.921
GFI .912
CFI .956
RMSEA .057
N 313
All loadings are significant at p < .001.
CR = composite reliability; AVE = average variance extracted; NPD = new product development; GFI = goodness of fit index; CFI = comparative fit index;
RMSEA = root mean square error of approximation.
factor analysis, which is reported in Table 4.1 As shown in between each construct was computed. In all cases, the
Table 3, Cronbach’s alpha coefficients range from .8 to squared correlation was lower than the variance
.9, which are above the acceptable level of .7 (Hair et al., extracted, indicating convergent validity for the con-
2006). The confirmatory factor analysis results were constructs (Janssens et al., 2008). The measurement model,
sistent with the relationships expected between individual therefore, indicates acceptable convergent and discrimi-
items and their respective constructs (Gerbing and Ander- nate validity, in addition to reliability, thus allowing us to
son, 1988). proceed further with the analysis.
The overall fit of the model was satisfactory (compara-
tive fit index = .956 and root mean square error of Analysis
approximation = .057) (Hair et al., 2006). For each con-
struct, the composite reliability was calculated and the Due to the relative simplicity of the relationships under
average variance extracted, and in all cases were higher study and the need to include nonlatent control variables
than the thresholds .7 and .5, respectively (Janssens, (age and size of companies, and industry type), hierarchi-
Wijnen, De Pelsmacker, and Van Kenhove, 2008), indi- cal regression analysis was used to eliminate any alterna-
cating convergent validity and reliability of the measure- tive explanations of the model. The results of this analysis
ment model. Finally, the square of the correlations are presented in Table 5. Table 5 also reports collinearity
statistics. As shown in the table, tolerance is higher than .1,
1
The data set was divided also randomly into two halves, and subjected and the variance inflation factor is less than 10, which are
the first half to exploratory factor analysis and the second to confirmatory the commonly accepted cutoff points for accepting that
factor analysis (Gerbing and Anderson, 1988). Exploratory factor analysis
indicated that the items’ loadings on the corresponding constructs are collinearity does not impact the results (Hair et al., 2006).
satisfactory (>.7 [Hair et al., 2006]). Similar to the results for the whole data Model 1 is the baseline model with only the constant
set, the confirmatory factor analysis results were consistent with the rela-
tionships expected between individual items and their respective and the control variables industry dummies, company
constructs. size, company age. According to this model, company
2012;29(4):667–680
Table 5. Hierarchical Regression. Dependent Variable: Product Variety

Unstandardized Coefficients Standardized Coefficients Collinearity Statistics
B Standard Error Beta t Tolerance VIF
Model 1
(Constant) 3.490** .175 19.953
Company size (number of employees) .000* .000 .137 2.399 .975 1.025
Company age -.001 .003 -.004 -.070 .984 1.016
Industry dummy 1 (I1)a -.217 .170 -.088 -1.281 .676 1.480
Industry dummy 2 (I2)a -.096 .132 -.050 -.724 .663 1.509
Science-based
R .147
R2 .022
Adjusted R2 .003
Regression F-value 1.697
Model 2
2.188** .253 8.659
Company size (number of employees) .000 .000 .058 1.052 .914 1.094
Company age .004 .003 .076 1.395 .932 1.072
Industry dummy 1 (I1)a -.186 .158 -.075 -1.176 .675 1.482
Industry dummy 2 (I2)a .113 .123 -.059 -.913 .661 1.513
Science-based
Supplier collaboration .150* .063 .143 2.372 .761 1.314
Lead users collaboration .277** .057 .296 4.870 .750 1.334
R .393
R2 .154
Adjusted R2 .138
R2 change .111
Regression F-value 9.316
a
With science-based as a reference category.
*p < .05, **p < .01.
VIF = variance inflation factor.
size has a statistically significant impact on product The third hypothesized relationship predicted that lead
variety. Model 2 includes the two independent variables users’ collaboration will lead to greater product variety
supplier collaboration and lead user collaboration. Com- than suppliers. As shown in Table 5, the coefficient of
pared with the baseline model, supplier and lead user lead user collaboration is almost double that of supplier
collaboration increases the adjusted R2 from .022 to .154, collaboration, with both exhibiting statistical signifi-
while the impact of level of sales between a company and cance. To confirm that the difference between the two
the suppliers involved in the NPD process on product coefficients is statistically significant, the Wald test using
variety is no longer significant. These results indicate that STATA’s test command was performed. The results show
collaboration with external parties improves product that the null hypotheses can be rejected, that is, that
variety. B1 - B2 ⱕ 0 at p < .05 level, where B1 and B2 are the
In terms of the impact of the collaboration with each of coefficients for lead user and supplier collaboration,
the two parties, collaboration with the supplier has a respectively. Therefore, collaboration with lead users has
positive statistically significant regression coefficient as a higher impact on product variety than collaboration
hypothesized in the first hypothesis. This provides with suppliers, providing support for H3.
support for H1, which predicts that increasing the col-
laboration with suppliers can lead to increased product Discussion and Conclusions
variety. Lead user collaboration (H2) also has a positive
and statistically significant regression coefficient. Thus, Organizations often attempt to increase the variety of the
H2, which predicts that collaboration with lead users also products they offer in order to fulfill increasing customer
increases product variety, is also supported. requirements. This study has examined the effect of col-
2012;29(4):667–680
laboration during the NPD process with two key external Similar to the findings of Frohlich and Westbrook (2001),
parties (lead users and suppliers) on the resulting variety this study helps validate the metaphor of a supply “chain”
of products. Its key finding is that increasing the extent of as integration of both parties in the NPD process will lead
collaboration with both lead users and with suppliers to increased performance in terms of number of products.
during the NPD process will increase both dimensions of As a result of these findings, a key recommendation to
product variety (fundamental and peripheral) offered to the NPD practitioner who desires to increase the variety
customers. Previous studies have found that collaboration of his/her products is to implement a strategy that encour-
increases NPD performance, but this is the first study to ages the integration first of lead users and then of suppli-
explicitly explore the link with product variety. Further- ers in the NPD process. Integration with suppliers will
more, lead users were found to have a greater impact on provide the technical expertise and commitment, while
product variety than suppliers. integration with lead users will provide information about
The above findings generate some important theoreti- the new needs and ideas about the solutions to those
cal and practical implications. The first relates to collabo- needs.
ration on the suppliers’ side. This study has added to the
growing literature that advocates early collaboration of Limitations and Future Work
suppliers during the NPD process by confirming that it
leads to higher product variety. Product variety is increas- There are a few limitations that need to be considered in
ingly becoming an important strategic tool, as end users applying the findings of this study. The sample was col-
search for highly specialized products that address their lected from companies based in the United Kingdom.
unique needs. Suppliers can provide technical knowledge Companies in the United Kingdom are largely owned by
for improvement of existing products and processes, and larger companies that are not necessarily based in the
are more likely to commit to the success of the products United Kingdom, nor are their suppliers or their custom-
they have helped develop. Furthermore, adopting modern ers. Therefore, the results should be generalizable across
supply chain practices would imply that increasing col- geographical boundaries. Nevertheless, it is acknowl-
laboration would increase modularity, further increasing edged that a sample taken from manufacturing plants
the variety of new products. beyond the borders of the United Kingdom would
The second implication for product development prac- provide further support to the findings.
tice relates to collaboration with users. Lead users can The second limitation relates to the single response
provide ideas for new products and/or modifications to bias. As explained earlier, several steps were taken to
existing products to satisfy new needs. As a result, when minimize any bias arising from using only one informant
involved in the NPD process, lead users can support the from each company. However, the risk of underestimat-
development of new ideas, which in turn will lead to ing the true parameters due to dishonesty and/or system-
higher product variety, particularly in terms of higher atic bias has not been entirely eliminated (Ketokivi and
product range. Schroeder, 2004).
The final implication relates to the comparison of the
effects of the two parties. It was found that the coefficient Future Work
of the collaboration with lead users on product variety is
higher than that of suppliers. Lead users combine the Future studies can first be driven by the limitations of this
technical expertise (often associated with suppliers) with study. First, the study can be repeated with companies
accurate and prompt knowledge of new customer trends, from countries outside the United Kingdom. A confirma-
and consequently, collaboration with them increases tion of the findings would further support the importance
product variety more than with suppliers. of collaboration with suppliers and lead users on product
Previous studies have shown that increased collabora- variety. Second, the study could be repeated by collecting
tion with suppliers leads to increased flexibility (Day, data from at least two informants from each responding
1994; Gassenheimer et al., 1995; Heide and Miner, 1992; company as recommended by Ketokivi and Schroeder
Krause, Scannell, and Calantone, 2000), which, when (2004).
combined with the new product and new market ideas Future studies could also focus on some of the impli-
brought in by the lead users, leads to increased product cations of the findings. First, collaboration with suppliers
variety. It is, therefore, important to employ a combina- could increase the ability of a company to change the
tion of suppliers and lead users to achieve increased configuration of its products, as argued earlier. Therefore,
product variety, rather than focus on just one partner. future studies could explore more explicitly this link, that
2012;29(4):667–680
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Suppliers Versus Lead Users: Examining Their Relative Impact On Product Variety

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15405885, 2012, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/j.1540-5885.2012.00932.x by Norwegian School Of Economics, Wiley Online Library on [10/02/2023].

Suppliers versus Lead Users: Examining Their Relative Impact

Introduction of new ideas into their new product development (NPD)

the past have also employed questionnaire surveys, and

Table 3. Descriptive Statistics and Correlations, Alpha Coefficients

Company size (CS) 922 533.6 1

Table 4. Confirmatory Factor Analysis

Supplier collaboration Setting general product definition (SC1) .812 1.000

Table 5. Hierarchical Regression. Dependent Variable: Product Variety

B Standard Error Beta t Tolerance VIF

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