Purpose The purpose of this study is to examine the relationship between supply chain collaboration and innovation. It particularly investigates the effect of collaboration on radical innovation and highlights the positive impact of innovation, both radical and incremental, on business performance. Design/methodology/approach A survey of 230 Indonesian firms was conducted and the instrument was tested for reliability and validity to warrant its psychometric properties. The data were analyzed using structural equation modeling. Findings This study reveals that collaboration with suppliers brings radical innovation, while collaboration with customers brings incremental innovation. Contrary to this study’s conjecture, albeit interesting, collaboration with customers negatively affects radical innovation. Both radical and incremental innovations further exert a positive influence over firm performance. Research limitations/implications This study focuses on the relationships between supply chain collaboration, innovation and firm performance. The results enhance our understanding of types of innovation that are promoted by each dimension of collaboration. Further studies could extend the research by using a more elaborate measure of innovation or perform a longitudinal examination. Practical implications Managers are encouraged to pursue innovation as it improves firm performance. They could exploit their current partnership with customers to generate incremental innovation or leverage their supplier network to develop radical innovation. Originality/value Studies that specifically investigate the impact of firms’ collaboration with their supply chain partners on radical innovation are quite scarce. This empirical study is among the very few to fill this void by providing an integrative assessment of customer, supplier and internal collaborations and their impact on both radical and incremental innovation.
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