ENHANCING INNOVATION AND EFFICIENCY IN A SUPPLY CHAIN THROUGH ORGANIZATIONAL COMPATIBILITY: THE MEDIATING ROLE OF ABSORPTIVE CAPACITY M.J. SAENZ MIT-Zaragoza International Logistics Program Zaragoza Logistics Center, PLAZA, c/Bari, 55, Bl.5. 50197 Zaragoza, Spain E. REVILLA IE Business School D. KNOPPEN MIT-Zaragoza International Logistics Program ABSTRACT This study examines absorptive capacity (AC) creation in a relational supply chain (SC) context as well as its outcomes and antecedents. Data from two samples of 148 and 199 companies, operating as strategic suppliers of two focal buyers, offer strong support for the mediating role of AC between organizational compatibility and efficiency on the one hand and innovation on the other hand. INTRODUCTION Companies are increasingly aware that combining critical resources with strategic partners, such as SC partners, may provide a competitive advantage (Hardy, Lawrence, & Grant, 2005; Paulraj, Lado, & Chen, 2008). The value of involving key partners in learning is reflected in how firms like Zara, Procter & Gamble, Toyota or Dell have innovated in their SCs, using this as a competitive weapon to gain advantages over peers (Dyer & Singh, 1998; Dyer & Nobeoka, 2000; Huston & Shakkab, 2006). Nonetheless, despite the existence of successful cases, practice shows the difficulty of innovating in a relational context for reasons such as a lack of trust between trading partners (Johnston, McCutcheon, Stuart, & Kerwood, 2004) or a lack of alignment between the mental models of the partners involved (Sterman, 2000). Innovations in a relational context, including product, process and organizational innovation (March, 1991; Janssen, Van de Bosch, &Volverda, 2006), are the emergent result of the deployment of the learning capabilities of the partners involved (von Hippel, 1976; Argyris & Shon, 1978; Dyer and Hatch, 2004). Lane, Koka and Pathak (2006) pointed out that AC is comprised of three processes and that each process corresponds to a different kind of learning: exploration (recognizing and understanding potentially valuable new knowledge outside the firm), assimilation (transformative learning through the combination with existing knowledge) and exploitation (using assimilated knowledge to create new knowledge and commercial outputs). This study investigates the impact of organizational compatibility and AC on innovation in SCs, based on a strategic view of relationships, and, on efficiency in SCs. More precisely, the paper compares the mediating role of AC in the relationship between organizational compatibility and innovation with the mediating role of AC in the relationship between organizational compatibility and efficiency in a SC context. In doing so, it draws from the