Supplier Involvement and Firm Financial Performance: Bringing Strategic Fit to the Fore

Abstract While supplier involvement is largely considered an industry best practice, its financial performance implications are far from clear and remain equivocal. These disparate findings led us to shift the conversation to exploring the strategic conditions that may enhance the value of the practice. We do so by drawing on the strategic fit perspective, an underexplored perspective in supplier involvement research. We argue that the value of supplier involvement is shaped by the task priority associated with a firm's strategic orientation. Accounting for the multidimensional nature of strategic fit, we further investigate whether strategic fit is likely to be impacted by a firm's level of market competition. Using a longitudinal survey of automotive manufacturers in Brazil, we demonstrate that supplier involvement fits well with a low‐cost strategy as opposed to a differentiation strategy. However, the degree of fit varies across levels of market competition. The study's overarching contribution is that it develops a theory of how strategic factors interact to impact the financial performance implications of supplier involvement, stressing the significance of strategic fit as the underlying mechanism.