Trading‐off innovation novelty and information protection in supplier selection for a new product development project: Supplier ties as signals

Abstract A supplier's interorganizational ties can be a source of novelty as well as information leakage risk when a buyer involves suppliers in a new product development project. We use signaling theory to explain how supplier ties affect a purchasing manager's perception of suppliers. Three types of supplier ties are considered: ties with external innovation partners, with customers outside the buying firm's industry, and with the buying firm's competitors. We posit that managers use supplier ties as signals to indicate a supplier's potential in contributing to innovation novelty or information protection. Results from two scenario‐based experiments with practicing managers support most of our hypotheses. When innovation novelty is the goal, managers perceive other‐industry customer ties and external innovation ties as positive signals, while competitor ties as a negative signal. When information protection is the goal, all three types of ties are perceived negatively. When both goals are considered, information protection has a greater influence than innovation novelty on the final supplier selection likelihood.