Unboxing Relational Capabilities for Innovation

Research has shown that firms’ relational capabilities, a byproduct of experience in managing interorganizational relationships (IORs), positively impact the propensity to innovate. The literature shows that firms benefit from the selective use of governance mechanisms (formal or informal) in the management of their IORs. Hence, there is a tension between replicating, i.e., the leveraging and exploiting of experience and varying the governance to match the idiosyncrasies of specific IORs. As the literature does not provide systematic evidence on such a tension, our understanding of the relational capabilities needed for innovation remains black-boxed. Thus, using a unique survey of Italian automotive suppliers, we create a dataset to test the relationship between the replication of governance mechanisms across IORs – a proxy for relational capabilities – and firms’ propensity to innovate. We find that this relationship is contingent on the use (or nonuse) of formal and informal governance such that a broader replication of formal governance mechanisms across a firm’s portfolio of IORs reduces its propensity to innovate, and such a replication of informality increases the firm’s likelihood of innovating. One noteworthy implication of this result is a more nuanced conception of relational capabilities that goes beyond the mere replication of proven effective governance practices and encompasses the capacity to mix and match them.