Organisational Buying: A Multidisciplinary Perspective 3030674134, 9783030674137

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Daniel D Prior

ORGANISATIONAL

BUYING A Multidisciplinary Perspective

Organisational Buying

Daniel D Prior

Organisational Buying A Multidisciplinary Perspective

Daniel D Prior University of New South Wales Canberra, Australia

ISBN 978-3-030-67413-7    ISBN 978-3-030-67414-4 (eBook) https://doi.org/10.1007/978-3-030-67414-4 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

For Sarah, Mark, Rachel, and Robyn

Preface

This book brings together a diverse set of organisational buying perspectives into a single resource. Adopting a holistic view of organisations is often the key to achieving efficiency and effectiveness. Holistic thinking is an important asset particularly for those of us that occupy mid- and senior-level positions in organisations. For individuals early in their careers, understanding the need for holistic approaches is an important asset that can lead to greater influence. An organisation-wide view increases the chances that we are aware of cause-effect sequences between the actions of individuals in one part of the organisation and their impacts on other parts of the organisation. A holistic view also allows us to consider developments beyond the organisation’s boundaries, thus enabling the organisation to recognise its place within a broader network or ecosystem. Organisational buying sits at the nexus of a range of different organisational units, each with their own roles. If you hold roles in sales, marketing, operations management, production, procurement, supply chain management, project management, and/or finance, chances are you have regular interactions with organisational buying-related activities. You may start a purchase process by recognising and communicating a need. You may have a role in defining or refining the nature of that need. You may have a role in describing that need. You may have a role in interacting with suppliers. You may have a role in ensuring the fulfilment of a given order. You may have a role in paying the invoice. You may have a role in integrating the new purchase into a broader pattern of activity across the organisation. It is the accumulation of multiple small activities across different organisational units that necessitates a holistic view of organisational buying since it is common for each individual to only see as far as the scope of their own role and, potentially, the role of their organisational unit. This creates silos. Feelings of ‘us versus them’ do little to support an integrated approach. While organisational structures are partially to blame for this, educational programmes are also responsible. The division between academic disciplines perpetuates the idea that functional knowledge domains are useful bases for partitioning an organisation. So, an individual may study a degree in supply chain management early in their career, begin a role in the supply chain department, but find they are unable to productively engage with marketing or sales personnel due to differences in the frames of reference that inform each other’s viewpoints. Of course, this is just one example. vii

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Given the multiple touchpoints that organisational buying has across an organisation, it is unlikely that managers consider organisational buying as a distinct activity. Instead, it is often part of a set of activities in which individuals engage as part of their roles in other areas. This means that organisational buying sits in tandem with other, related subjects such as supply chain management, procurement, contract management, and purchasing. So, this book could serve as an introduction to the broad idea of organisational buying. The book alludes to other important areas but does not cover them in depth. This means they could whet one’s appetite for further study in more specialised areas. Alternatively, this book could serve as a capstone resource. After engaging with other, specialist areas, this book could help integrate multiple ideas into a cohesive whole. This might also help to highlight other areas of interest for the reader within the organisational buying domain. A book specifically on organisational buying has not been in print since Parkinson et al.’s (1986) book bearing the same name. Hence, there is a need to update the coverage of this field to reflect changes in organisations and their contexts, and to address advances in technology. Research in a range of cognate fields has also seen considerable progress over the years, albeit in contexts of increasingly specialised academic disciplines. This constrains the relevance and impact of such studies for practising managers. As such, a resource that presents a curated set of key ideas in a manner that has direct, practical relevance is also prescient. It is therefore the mission of this book to develop a holistic, multidisciplinary view of organisational buying that is both current and managerially relevant. The book integrates ideas from a range of academic disciplines, to encourage greater empathy between individuals working across organisational boundaries on organisational buying-related issues. The book aspires to become a common frame of reference about organisational buying that crosses the boundaries between functional silos in organisations and the barriers between academic disciplines. The content that appears in the following pages is most likely to interest mid- and senior-level managers or those people that aspire to hold such roles. Each chapter has practical examples to help ground concepts. Most chapters also include tools and frameworks useful for appraising organisational buying-related phenomena, as they apply to your organisation. The book is useful for education programmes. It could serve as the primary resource, or as recommended reading, for a variety of courses. The tools and frameworks throughout the book would serve as useful exercises for individuals or teams in executive or professional education courses, as well as in MBA, master’s, and upper-level undergraduate courses that focus on areas such as marketing, procurement, supply chain management, project management, operations management, and production management.

Preface

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The book is also a useful resource for scholars in cognate fields. Each chapter has a set of references and/or recommended reading that could help influence a research process. As a consolidated organisational buying tome, the book could also act as a broad-based literature review on organisational buying. Canberra, Australia

Daniel D. Prior

Acknowledgements

I would like to thank the team at Palgrave for their support in producing this book. Their help was invaluable when engaging in the drafting and editing process. I would particularly like to thank Sam Stocker for his consistent and valuable feedback on drafts and for chaperoning the book through the publication process. I would also like to thank Liz Barlow for her advocacy for the book. Her support led to the initiation of the book and the support from Palgrave. Joseph Johnson also played an important role in the final stages of editing this book. I would like to thank colleagues that reviewed early proposals of this book and made helpful suggestions for its improvement. This includes Professor Martin Hingley, who generously offered feedback as to the positioning of the book and its contents. Dr Sergio Biggemen also made helpful comments and suggestions on the initial ideas for the book, as did Associate Professor Erik Mooi and Professor Richard Wilding OBE. I would like to thank Professor Stan Maklan, my dear colleague, who served with me as Co-Director of the Cranfield University Centre for Strategic Marketing and Sales in 2018 and 2019. His support as a colleague, mentor, and friend was invaluable particularly during the preliminary stages of this project. Colleagues at Cranfield have also been incredibly supportive and, for that, I am grateful. Dr Sue Holt and Associate Professor Javier Marcos have been particularly supportive, as have Cranfield Visiting Fellows such as Richard Vincent and Matt Wilkinson. The initial idea for this book emerged during a session, organised by Mark Davies, on procurement for the Cranfield Key Account Management Forum in 2019. Mark’s ability to reconcile the interests of business and academia is impressive. My return to the University of New South Wales in a full-time capacity in 2020 has brought into focus the range of supportive colleagues I have here as well. Professor Michael O’Donnell has been supportive of my career as a scholar for a long time, and I am grateful for this. Associate Professor Omar Hussein and Professor Elizabeth Chang are continuing pillars of support, and more recently, Professor Deborah Blackman has helped me maintain the time and space necessary to complete this work. More broadly, I have benefited from the insights of colleagues such as Associate Professor Joona Keränen, my long-time friend and collaborator in organisational buying-relevant research, Professor Adrian Payne, an ongoing source of inspiration, and Professor Pennie Frow. I have also benefited from the insights of Professor xi

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Acknowledgements

Hugh Wilson, Professor Emma MacDonald, Professor Byron Keating, Professor Francis Buttle, and Emeritus Professor Malcolm McDonald (aka ‘Uncle Malcolm’). I would like to thank Dr Lakshi P.H. Mudiyanselage for the inspiration behind some of the content in Chap. 3, as well as Dr Leila Alinaghian and Dr Anthea McCarthy-Jones for help with the network diagrams in Chap. 11. Of course, authoring a book is always a labour of love and one that exerts pressure on one’s family. So, I would like to also acknowledge the help and support of my wonderful wife Robyn, and my daughters Sarah and Rachel. Daniel D Prior, Canberra, Australia, September 2020.

Contents

1

Organisational Buying: Accepted Wisdom����������������������������������������������   1

2

Mapping Purchase Situations ������������������������������������������������������������������  21

3

The Organisational Buying Process Revisited����������������������������������������  41

4

The Purchase Decision and the Value Proposition����������������������������������  59

5

Communications and Organisational Buying ����������������������������������������  79

6

Relationships, Relationships, Relationships��������������������������������������������  93

7

Organisational Buying Capabilities �������������������������������������������������������� 109

8

Organisational Buying Culture���������������������������������������������������������������� 125

9

Designing the Organisational Buying Approach������������������������������������ 141

10 Channels of Supply������������������������������������������������������������������������������������ 157 11 Networks and Organisational Buying������������������������������������������������������ 171 12 Information Technology Developments and Organisational Buying���� 189 13 Conclusion�������������������������������������������������������������������������������������������������� 205 Index�������������������������������������������������������������������������������������������������������������������� 215

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About the Author

Daniel  D.  Prior  is Senior Lecturer in Management at the University of New South Wales (UNSW), Australia, based at the UNSW Canberra campus. He also serves as Chief Customer Engagement Officer at Qirx Pty Ltd, an IT Professional and Managed Services company. Between August 2017 and January 2020, Daniel was Professor of Strategic Sales Management at Cranfield University, UK. While at Cranfield, he was the Co-director of the Centre for Strategic Marketing and Sales, Director of the Key Account Management Best Practice Forum, and Director of the Cranfield Executive MBA. Prior to re-joining academia in 2009, he held roles in industries such as IT, Defence, and Professional Services, working for companies such as Acer Computer Australia, Tenix Defence, KPMG Australia, and Orima Research. He is a past board member of SIDS and Kids ACT and Red Nose Ltd, both charities concerned with sudden infant death and infant loss. Daniel has been a member of the UNSW Academic Board and the UNSW Canberra Board. His teaching and research focus on the conditions, the factors and the dynamics that influence and affect buyer-supplier relationship integrity (i.e., the ability for the relationship to endure indefinitely). His research appears in academic journals such as Industrial Marketing Management, the Journal of Business Research, Marketing Theory, the Journal of Business & Industrial Marketing, and the Journal of General Management. Daniel is Senior Fellow of the Higher Education Academy (UK), as well as a Fellow and Certified Practicing Marketer of the Australian Marketing Institute, a Fellow of the Academy of Marketing Science, a Member of the American Marketing Association, and a Member of the Academy of Management (USA). He obtained his PhD in 2008 from Macquarie Graduate School of Management at Macquarie University, Australia.

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List of Figures

Fig. 1.1 Fig. 2.1 Fig. 2.2 Fig. 2.3 Fig. 2.4 Fig. 3.1 Fig. 3.2 Fig. 3.3 Fig. 4.1 Fig. 5.1 Fig. 5.2 Fig. 5.3 Fig. 8.1 Fig. 9.1 Fig. 9.2 Fig. 9.3 Fig. 9.4 Fig. 9.5 Fig. 9.6 Fig. 11.1 Fig. 11.2 Fig. 11.3 Fig. 13.1

A simple framework to define organisational buying����������������������   11 A combined relationship continuum�����������������������������������������������   29 Plotting the relationship profile�������������������������������������������������������   36 Worked example #1—Relationship breadth = 7.5, Exchange frequency = 2.5��������������������������������������������������������������������������������   37 Worked example #2—Relationship breadth = 1.5, Exchange frequency = 8.1��������������������������������������������������������������������������������   38 Assessing customer solutions compatibility������������������������������������   52 Worked example # 1—buyer firm readiness = 2.2, supplier firm propensity = 2.1�������������������������������������������������������������������������������   52 Worked example # 2—buyer firm readiness = 4.2, supplier firm propensity = 4.1�������������������������������������������������������������������������������   53 Likelihood of decision-making approach given the risk and complexity of the purchase situation�����������������������������������������������   63 The communications process����������������������������������������������������������   81 Plotting the power/interest of buying centre members��������������������   84 Buying centre member strategic communications approaches based on relative power/interest������������������������������������������������������   88 The different contexts of culture in organisational buying��������������  128 Determining the buying approach���������������������������������������������������  145 Plotting organisational buying ambidexterity����������������������������������  148 Plotting organisational buying ambidexterity scenarios������������������  149 A buyer firm’s portfolio of transactions������������������������������������������  152 A portfolio of common purchase situations������������������������������������  153 Calibrating organisational buying approach������������������������������������  154 A coherent network�������������������������������������������������������������������������  174 A network with multiple clusters����������������������������������������������������  175 A network with a major dominant player����������������������������������������  176 A holistic conceptual framework of organisational buying�������������  206

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List of Tables

Table 1.1 Table 2.1 Table 3.1 Table 3.2 Table 3.3 Table 4.1 Table 4.2 Table 5.1 Table 5.2 Table 6.1 Table 6.2 Table 7.1 Table 7.2 Table 8.1 Table 9.1 Table 10.1 Table 10.2 Table 11.1 Table 11.2 Table 12.1

A comparison of different organisational buying views���������������    6 A comparison of different organisational purchase situations������   25 Interpretations of the organisational buying process��������������������   43 Applicability of organisational buying ‘as a process’������������������   46 Agile methodologies vs. conventional organisational buying processes���������������������������������������������������������������������������������������   54 Didactic versus communicative value propositions����������������������   67 Customer perceived value dimensions according to Sheth et al. (1991)�������������������������������������������������������������������������   73 A power/interest matrix for buying centre members��������������������   84 Assessing motivators and hygiene factors for buying centre members for a new corporate headquarters building���������   86 Advantages and disadvantages of close relationships������������������   99 A summary of reasons for relationship dissolution����������������������  105 Ordinary capabilities necessary for organisational buying�����������  113 Dynamic capabilities necessary for organisational buying�����������  114 Geert Hofstede’s cultural dimensions (Hofstede 1980, 1985; Hofstede et al. 1990)���������������������������������������������������������������������  133 Buying approach considerations���������������������������������������������������  145 A comparison of supply options���������������������������������������������������  163 Matching supply options with buyer firm considerations�������������  166 Networks versus ecosystems��������������������������������������������������������  177 B2B versus B2G networks������������������������������������������������������������  184 Inbound, throughput, and outbound activities and their data sources������������������������������������������������������������������������������������������  195

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Organisational Buying: Accepted Wisdom

Learning Objectives

Upon completion of the chapter, you should be able to: 1. Evaluate organisational buying from multiple perspectives. 2. Describe the four main parameters that shape organisational buying views. 3. Define organisational buying. 4. Describe the seven myths that delineate business markets from consumer markets.

Introduction This chapter defines organisational buying and serves as a background to the book. The chapter argues that organisational buying has a much more significant role in the daily operations of most organisations than people realise. Indeed, the Chartered Institute for Procurement and Supply estimates that organisations can spend more than two-thirds of their revenue on organisational buying and related activities (see https://www.cips.org.uk). Understanding organisational buying can help managers identify nefarious practices in their supply chains. Corruption has become a major concern. The Independent Broad-based Anti-Corruption Commission, a department of the Victorian State Government in Australia (see https://www.ibac.vic.gov.au) suggests that the most common form of corruption is where a supplier firm collaborates with the buyer firm to specify tender requirements. However, this is one of a range of possible corrupt practices. Understanding organisational buying can help protect the organisation’s reputation. Nike famously withdrew from its use of sweatshops in Indonesia due to the intense public campaigns condemning the poor conditions and low wages facing © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 D. D. Prior, Organisational Buying, https://doi.org/10.1007/978-3-030-67414-4_1

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workers. More recently, Nike has severed its partnership with Amazon due to disputes about Amazon’s facilitation of counterfeit Nike products. Both examples here show that Nike realises the potential impact that organisational buying practices have on its reputation. Cost control, avoidance of nefarious practices, and protecting corporate reputation are all important organisational buying concerns. They each have important strategic impacts on the organisation. Senior executives can experience consequences on a personal level, such as pressure to resign or take pay cuts in the wake of an organisational buying-related scandal or issue. The organisation itself also faces potential consequences through stakeholder disquiet and resentment. It is for these reasons that managers in procurement, supply chain management, operations, production, and other internal activities must monitor organisational buying activities vigilantly. In an age where the effectiveness of traditional marketing and sales activities continues to wane, and where the cost of such activities continues to increase, any advantage is important. An in-depth understanding of organisational buying can help improve the efficiency and effectiveness of marketing and sales activities. On the one hand, professionals that work in these areas can calibrate their marketing communications to align with the information search activities of the buyer firm. On the other hand, there are also opportunities to use sales techniques that accommodate organisational buying approaches that buyer firms use. Consequently, marketing and sales professionals are more likely to generate positive results.

 efining Organisational Buying: D A Multidisciplinary Perspective An important starting point for a book on organisational buying is a definition. There have been a range of attempts to do so since the 1970s. So, it is possible to articulate, or to infer, organisational buying interpretations from a variety of academic discipline areas (which also align to traditional functional units within organisations). This process reveals crucial differences and similarities. Those fields that offer the strongest direct definitions of organisational buying include marketing and procurement. Supply chain management also deals with organisational buying, as does project management. There is also a more casual interpretation worth consideration, the ‘business-as-usual’ view.

The Marketing View Some of the earliest attempts to define organisational buying date back to 1972. Webster Jr and Wind (1972) define organisational buying as ‘a decision-making process carried out by individuals, in interaction with other people, in the context of a formal organisation’. This is typical of definitions of organisational buying that permeate much of the marketing and sales literature.

Defining Organisational Buying: A Multidisciplinary Perspective

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There are some common elements of organisational buying from this perspective. First, organisational buying is about decision-making or, more specifically, the decision to buy a product or service. Second, organisational buying is a process. Rather than relying on impulses or hunches, there is a deliberate set of activities that facilitate consent or agreement about the nature of the buyer firm’s problems, their requirements, and the means to achieve desirable outcomes. Third, organisational buying requires the engagement of a collection of individuals, each with their own expertise, viewpoints, and requirements, to arrive at a purchase decision. The ‘buying centre’ includes the key individuals with involvement as the lead representatives from both within the buyer firm and beyond it that contribute to the final purchase decision. Marketers and sales personnel have a common interest in understanding how to shape or influence the nature of purchase decisions in their favour. This has led to an emphasis on promoting or shaping product/service offerings to address buyer requirements. It also means that the purchase decision equates to the end of the organisational buying process from the perspectives of marketing and sales professionals. Indeed, marketing and sales-related approaches to defining organisational buying tend not to consider what happens beyond contract signing. While we may be able to identify colleagues with marketing and sales roles that do continue their buyer firm engagement beyond contract signing, the current approaches to defining organisational buying from these discipline areas do not consider post-­purchase behaviour as crucial.

The Procurement View The procurement view of organisational buying is slightly different. Procurement is ‘the process of finding and agreeing to terms, and acquiring goods, services, or works from an external source, often via a tendering or competitive bidding process’. This view is more explicit in terms of the specific activities that organisational buying entails. It involves finding alternative offerings available in the marketplace. The implication of this is that a buyer firm looks to maximise its options, rather than relying on a single source (unless it must). The procurement view also raises the prospect of agreeing to terms. This highlights contract negotiations and finalisation as important aspects of the organisational buying process.

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The acquisition of goods, services, or works also suggests that buyer firms seek a variety of different inputs and that each one calls for distinct consideration. This implies that the buyer firm faces nuances that require different usage approaches to their inputs. A tendering or competitive bidding process is often necessary to comply with legislative requirements (particularly in the case of government organisations) and/ or to demonstrate an auditable trail of decision inputs (such as market-based information) as well as the resulting purchase decisions, to promote transparency and accountability. Considering the procurement view highlights impacts that organisational buying processes have on a buyer firm prior to the purchase itself.

The Supply Chain Management View While both the marketing and procurement views focus on organisational buying as a process that concludes with contract agreement, the supply chain management view focuses on order fulfilment and, consequently, takes a supplier firm network perspective. In simple terms, order fulfilment refers to all the activities necessary to take a buyer firm’s order and to meet the requirements for that order. Such activities require supplier firm capabilities in order taking, logistics, warehouse management, inventory management, order tracking, returns handling, and complaints management. Order fulfilment refers to all the activities necessary to take a buyer firm’s order and to meet the requirements for that order. It is more often the case that orders relate to discrete products or services in supply chain management rather than large-scale single purchases. Therefore, order fulfilment requires managing a diverse network of actors to fulfil customer orders that tend to entail discrete transactions.

The Project Management View The receipt of a product or service can have profound effects on a buyer firm. This is particularly the case for large-scale capital acquisitions such as the installation of a new IT system. For example, the Canadian Defence Force continues its installation of SAP, an enterprise resource planning system designed to manage inputs towards desirable outcomes. Rather than simply installing the software and running it, SAP installations often require the reconfiguration of multiple processes and procedures. It is sometimes necessary to reconfigure or restructure an organisation that undergoes such profound change.

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It then follows that project management, as a means of change management, is also a consideration in organisational buying. For a project such as the SAP installation in the Canadian Defence Force, it is necessary for the buyer firm to assemble a team of people to help lead, and contribute to, the implementation process. The implementation process involves achieving milestones over a prolonged period. Milestone completion determines the payment cycle. Along the way, the project team often discovers needs for more purchases to address emerging problems or issues. New purchases then promote a new stream of organisational buying activities, many of which are not subject to rigorous information search and decision-making processes. The project management view often does not receive consideration as an organisational buying perspective. This is because project management is a profession as well as an independent academic discipline. Yet, the majority of project management work involves the integration of new products or services into the activities of the buyer firm. This then sees project management professionals as crucial contributors to organisational buying.

The Business-as-Usual View A perspective that also receives limited attention as a distinct organisational buying perspective is the ‘business-as-usual’ view. Business-as-usual tends to involve regular activities that most people do not think of as organisational buying activities. The regular purchase of standard inputs to the production process is a good example. The organisational buying process that accompanies the decision to place regular orders with the same supplier may not require an extensive deliberation and decision-making process. Electricity supply, water supply, and cleaning services are examples of regular, predictable business needs that require ongoing purchases, through a contractual agreement fall within the domain of business-as-usual. Business-as-usual can also involve unplanned and sporadic purchases to address an immediate need. For example, the need to replace a laptop for a staff member who left theirs on a plane accidently can lead to a manager signing off a new laptop purchase from their discretionary budget. Again, this purchase situation does not involve an extensive deliberation and decision-making process. It is for this reason that the business-as-usual view explains a considerable number of purchases. Managers often use their own discretionary budgets to enact such purchases. Entertainment expenses, reactive recruitment expenses, travel expenses, hosting guests, replacing broken equipment or furniture, and, sometimes, larger items can all fall into this category.

Comparing Different Organisational Buying Views A direct comparison of each organisational buying view reveals some interesting insights. Table 1.1 has a summary of the major organisational buying views.

Marketing Supplier firm  • Purchase decision  • Group involvement  • Decision-­making process

Primary  • All purchase context

Perspective Core activities

Supply chain management Supplier firm network  • Order taking  • Inventory management  • Logistics management  • Order fulfilment  • Complaints handling

 • Large-scale capital goods  • Discrete transactions  • Formation of multi-use lists or supplier panels  • Ongoing contracts for long-term suppliers

Procurement Buyer firm  • Identifying suppliers  • Evaluating purchase options  • Agreeing to contract terms  • Bidding/tendering process

Table 1.1  A comparison of different organisational buying views Project management Business-as-usual Buyer firm Buyer firm  • Change management  • Making the  • Restructuring purchase  • Process (re) (sometimes engineering through purchase order)  • Receiving the order  • Large-scale capital  • Discrete goods transactions

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Defining Organisational Buying: A Multidisciplinary Perspective

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Each organisational buying view relates more to certain purchase situations than to others. The marketing view has become a ‘catch-all’ interpretation of organisational buying relevant to that field. Advances in the marketing field over the past forty-or-so years, however, highlight the differences in purchase situation (which we discuss in Chap. 2) as important influences on marketing and sales approaches. While the marketing view can accommodate different purchase situations, its focus tends to emphasise promotions, communications, and relationships more so than other activities. The procurement view centres on organisational buying situations that require extensive consideration through a formal procurement process. This implies they are worth investing the time and effort necessary to consider procurement options carefully prior to committing to a purchase. This means that the procurement view is more relevant to high-risk, high-cost decisions such as large-scale project implementations, long-term contractual commitments, and/or the formation of panels or multi-use lists that pre-qualify a set of suppliers for ongoing purchase opportunities from the buyer firm. The supply chain management view, with its focus on order fulfilment, is more amenable to situations where a discrete product is the subject of purchase. Discrete products have standard formats. This allows them to pass from one actor to another actor along the supply chain. Most products are tangible and do not often include service components. This also limits the opportunities for differentiation between product offerings. The project management view tends to refer to capital goods procurements or to other purchases that require a discrete project to implement the product/service in the buyer firm. The project management view focuses on purchase activities that occur during the lead-up to the project (so, they coincide with the procurement view to some extent) as well as those activities that occur during project implementation. The business-as-usual view has a similar emphasis to the supply chain management view. The business-as-usual view also concentrates on discrete transactions. Business-as-usual purchases can be either to approve an existing, ongoing purchase arrangement or to fulfil sporadic, unplanned needs that emerge during the normal course of business. Table 1.1 captures the various organisational buying interpretations. It considers the primary perspective embedded in each interpretation in terms of whether it relates to the supplier firm, the buyer firm, or the supplier firm network. Table 1.1 also outlines the core activities that each viewpoint considers, which all relate to the relevant perspective, as well as the main purchase contexts where the perspective of organisational buying concentrates.

Towards a Consolidated Definition of Organisational Buying The variance in organisational buying views reflects the different perspectives present across many organisations. For individuals with high involvement, such as marketing, sales, and procurement professionals, organisational buying receives

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relatively high attention. For individuals in other areas, organisational buying receives less attention. This means that there is considerable scope for different interpretations across the buyer firm. Without a mutual understanding, it is difficult to manage organisational buying efficiently and effectively. So, it is important to develop a consolidated view of organisational buying, which is more broadly applicable. We can start by considering a simplistic view, where organisational buying amounts to a purchase made by one or more representatives of a buyer firm for the benefit of that organisation. In its simplest form, organisational buying amounts to a purchase made by one or more representatives of a buyer firm for the benefit of that organisation. Organisational buying becomes more complicated when (i) the nature of the buyer firm’s purchase requirements is ambiguous and/or diverse, (ii) the purchase requirement involves higher customisation to the buyer firm’s idiosyncrasies, (iii) the requirement is of high importance to the buyer firm, and/or (iv) the requirement necessitates significant change to the buyer firm. Each of these complicating factors affects the need to emphasise or include activities beyond the purchase itself in any definition. So, it is useful to consider each of these factors in turn.

Buyer Firm Purchase Requirements Buyer firm purchase requirements encompass a set of needs and/or wants that the buyer firm has that reflect one or more problems or issues that it seeks to address through a purchase. Buyer firms engage in purchases to address at least one problem. Problems can take many forms, and this then leads to diverse purchase requirements. For discrete transactions, the nature of the problem in question is often easier to define. For example, the announcement of an employee of their intention to resign leads to the realisation of an impending gap in capability. This recognition can then support a need to source the services of a recruitment agency to help fill the vacancy. It is often the case, however, that a buyer firm articulates problems in ambiguous ways or does not articulate them at all. The adage of ‘I don’t know what I want until I see it’ can come into play here. In the recruitment scenario above, it may be the case that the organisation is facing momentous change. This then leads to an uncertain idea of the future. The advent of Artificial Intelligence (AI), for example, has led to questions as to the viability of a suite of different professions. When recruiting, the buyer firm may want someone with ‘AI skills’, but not really know what this means specifically. This leads to confusion as to who might be an ideal candidate due to the ambiguity in the requirement.

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The buyer firm often has a diverse set of requirements. This is common when implementing large-scale, variable product/service combinations. In these cases, a purchase must satisfy a suite of stakeholders’ requirements. Articulating these requirements is challenging. Business analysts, project managers, and digital transformation managers often spend considerable amounts of time collating and analysing the diverse requirements. This often leads to confusion through the prioritisation (or re-prioritisation) of different stakeholder requirements to accommodate constraints such as budget, time availability, and resource availability.

 he Need for Customisation T If a buyer firm settles on buying a standard product offering, the purchase process is relatively straightforward. Most consistent with the supply chain view or the business-­as-usual view, there is not a significant need for the buyer firm to engage with suppliers and it is clear as to what the purchase options are. For example, buying a laptop involves consideration of the laptops available with desirable specifications and price. The individual then enacts the purchase through an online channel and the laptop arrives within a few business days. For the procurement and project management views, however, there is a need for higher levels of customisation. Organisational buyers often like the idea of a product/ service bundle that accommodates their specific requirements, context, and constraints to address their idiosyncratic needs. The buyer firm, however, typically faces a much higher cost as a result. This emerges through the additional efforts of the supplier to understand and accommodate the buyer firm’s purchase requirements. To achieve full customisation, the supplier must engage in an extended consultation and implementation process that accommodates the requirements of diverse stakeholders. A common way to ‘satisfice’ buyer firm’s needs to manage costs while also catering to specific requirements is through mass customisation. In this case, a supplier creates a product/service bundle with a standard set of characteristics and several that are adjustable. This allows them to offer a product/service bundle that is cost effective while also partially customised to the buyer firm’s specific purchase requirements. Purchase Importance The relative importance of the purchase can also influence the degree of complexity. Where a given good or service is inexpensive, it usually does not raise much interest from the buyer firm. Arranging corporate travel often falls to the individual (although this has changed during the COVID-19 pandemic). The individual has delegated authority to find and make the appropriate travel arrangements, so long as they do not exceed a certain monetary value. This is common in industries and for professions that require frequent travel, such as for sales professionals and management consultants. This devolution of responsibility reduces the need for involvement by senior management or other individuals throughout the organisation. Where a given good or service is expensive, there is often a higher degree of interest and involvement from members of the buyer firm at multiple levels. For example, the Australian Government’s procurement of two Landing Helicopter Deck (LHD) warships involved a final cost of about $3 billion. This process involved

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extensive consultations across the Royal Australian Navy, the government, the Department of Defence and with a range of suppliers. The LHD procurement is a major investment of time and effort for several thousand individuals, and its price tag means that the Australian Government considers it very important.

 uyer Firm Impact B The degree of importance also links to the extent to which the purchase affects the buyer firm. For a simple laptop purchase, this has the most impact on the individual who benefits from its capabilities as a tool that enables them to do their job. Therefore, a laptop purchase has limited impacts beyond the individual. If, however, the laptop purchase was part of a much larger IT upgrade across the organisation, the organisational impact would be considerable. In this case, many individuals would have to set up their laptops so that they were ready for use and this might place high demand on the IT department to assist with problems and issues that emerge throughout the upgrade process. Where the impact affects the working lives of many people, a purchase process has a greater impact and, therefore, it requires a broader perspective than that of a given individual.  Consolidated Definition of Organisational Buying A In considering each dimension of the purchase situation, it appears the simple definition of organisational buying earlier in the chapter does not capture all elements of organisational buying. The additional viewpoints that the chapter covers highlight organisational buying as a topic that is open to a wide set of interpretations. The specific dimensions of each purchase situation also suggest a need to accommodate a broader set of buying circumstances. Accordingly, it is possible to synthesise a definition from the existing interpretations of organisational buying that accommodates the variance in buying circumstances that exist across different purchase situations. cc A Consolidated Definition of Organisational Buying  Organisational buying is the purchase of goods and/or services, by one or more individuals acting on behalf of the buyer firm, after a formal or informal consideration of purchase alternatives, and the integration or use of those goods and/or services to address one or more buyer firm problems or issues. With this definition in mind, it is useful to reflect on the scope of organisational buying and how each concept fits together. For this purpose, a simple framework such as the one in Fig. 1.1 is appropriate. It suggests, as is consistent with the definition above, that organisational buying consists of three main sets of activities. These include (i) pre-purchase activities, (ii) the purchase decision, and (iii) integration. Pre-purchase activities include all those activities that relate to the organisational buying task at hand that occur prior to the purchase decision. The purchase decision itself occurs as a next step and involves an agreement between members of the

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Fig. 1.1  A simple framework to define organisational buying

buying centre as to the preferred option. The last step, integration, involves all activities necessary to integrate the new product/service into the activities of the buying firm. We cover traditional organisational buying processes in much more detail in Chap. 2.

Considering the Vested Interests Behind Each Viewpoint The consolidated definition of organisational buying represents an attempt to incorporate interpretations of organisational buying that originate from different perspectives. It may help to ascertain how such a consolidated approach may play out when considering the respective vested interests at play in organisational buying. For the sake of simplicity, we concentrate on the viewpoints likely from the buyer firm and from the supplier firm. Representatives from the buyer firm focus on achieving the best value for money (with this having many different meanings, depending on the buyer firm and the purchase situation). Buyer firms seek to address the problem or issues they experience, and to do so cost effectively. To commit to a purchase, the buyer firm must accept that the best option is to source a solution from the market. Buyer firms often assume that supplier firms and their representatives do not genuinely focus on the interests of the buyer firm. Aggressive sales and marketing techniques can lead buyer firms to this conclusion. Therefore, the buyer firm must find constructive ways of sorting through the various options available. For the buyer firm, it is ideal to retain ‘the upper hand’ in a purchase situation. As we explore in Chap. 5, this can create the impression that the supplier firm must yield to their demands. Buyer firms are more likely to extract favourable terms of trade if they have a large resource base, and are one of few customers for a specific product/service offering. Buyer firms prefer many options and desire transparency so that they can account for decisions. Buyer firms have a wide array of considerations, particularly in terms of the integration activities that are part of the organisational buying process. Supplier firms tend to focus on generating profitability. This means supplier firms actively hunt for new market opportunities. This ongoing pressure can reduce their focus on any given buyer firm, and this can have undesirable outcomes for those buyer firms affected. An understanding of organisational buying for supplier firms provides a tool to help them identify and pursue opportunities. When they are successful, this can end their interest in the buyer firm. However, there are also

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occasions where supplier firm representatives seek a strong, ongoing relationship with the buyer firm. A relationship reduces the time and effort necessary to identify new sales opportunities, and the buyer firm benefits from a richer engagement with the supplier. The term ‘trusted advisor’ is in common use, especially in service-­ based industries, as an aspiration of sales professionals. This status reflects a high level of buyer trust in the sales professional, which enables them to develop deeper relationships.

Common Organisational Buying Ideas Organisational buying activities take place within the context of a broader market. Each market involves a collection of buyer firms and supplier firms that interact with one another to address problems and issues that they face. Buyer firms and supplier firms include for-profit companies, not-for-profit organisations, and government organisations. Where two for-profit companies fill the roles of buyer firm and supplier firm, a common way to describe that market is as a ‘business-to-business’ (B2B) market. This is a generic term, so it can also include not-for-profit organisations. Where a for-profit company, or not-for-profit organisation, acts as a supplier to a buyer firm that is a government department, this is known as a ‘business-to-government’ (B2G) market. While B2B and B2G markets have many similarities, there are also some important differences (see the Further Reading list in this chapter for a reference to a recent study on this). We can use the term ‘business markets’ to describe B2B and B2G markets collectively. Business-to-consumer (B2C) markets, on the other hand, involve suppliers selling to buyers who are the final point of consumption. There are a set of characteristics that differentiate business markets from consumer markets. However, they have not had any recent revisions in the literature. In many respects, the common differences are lore. A closer observation, however, suggests the difference between business markets and consumer markets is not as profound as in the lore. There is no real acknowledgement of the changes that developments in technology and companies such as Amazon, Google, and Alibaba have had when defining business market characteristics. The viability and relevance of the common bases for differentiating between business markets and consumer markets would benefit from some reconsideration. Accordingly, there are a series of ‘myths’ that deserve questioning.

Myth # 1: Fewer, Larger Buyers (and Suppliers) A common observation is that business markets involve fewer, larger buyers than consumer markets. This is more obviously the case for industrial products and services. For example, jet engine suppliers such as Rolls Royce can only deal with

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aircraft manufacturers such as Boeing, Airbus, Lockheed Martin, and a handful of other buyer firms. In this situation, the need for jet engines is quite specific—it is only of interest to a narrow group of buyer firms. To have this interest, buyer firms must have the capability and supporting infrastructure to use the jet engine as an input. Developing the infrastructure and capability typically requires significant investments over protracted periods. Situations like these are the typical emphasis in most definitions of business markets. However, many more organisational buying situations in business markets do not have the same characteristics. Consider a mechanic who requires a specific part for an automobile under repair. Whereas they may have had to deal only with one or two suppliers of the part in the past, they are now able to access online marketplaces such as Alibaba to find the relevant part globally. This allows them to compare multiple options for the part and their associated prices. Instead of dealing with a narrow supplier list, they are now able to deal with many suppliers globally. This scenario has become common in industries that involve multiple suppliers of comparable goods and/or services. Examples include insurance, manufacturing supplies, transportation and logistics, office management, IT, travel, and accommodation as well as many others. So, the contention that all business markets involve fewer, larger buyers is not entirely correct. It depends on the degree of specialisation that a supplier’s outputs incorporate, the volume of demand for that output (including the ability for a buyer firm to utilise the supplier’s output), and the availability of substitutes (globally). These parameters then determine the relative number of available suppliers and buying firms, and this also means that they might not all be large. Indeed, small-to-­ medium enterprises (SMEs) comprise as much as 80% of all businesses with employees, and account for a sizeable portion of demand in business markets. Interestingly, consumer markets may also involve situations where there are fewer, larger, buyers. For example, an $80 million mansion in Malibu will only have a few buyers with the means to purchase such a property and that portion of the market represents only a fraction of the overall market. So, it is possible to conclude that ‘fewer, larger buyers (and suppliers)’ is not a characteristic that can differentiate business and consumer markets in every circumstance.

Myth # 2: Using Buying Centres for All Purchases Traditional organisational buying definitions suggest that buying centres are the primary vehicles that enact buying decisions on behalf of the buyer firm. Again, this is only sometimes the case. The procurement and project management views of organisational buying do imply the need for a buying centre, and that the purchase decision involves a diligent consideration of multiple supplier firm offers as well as a rigorous decision-making process to select the optimal supplier offer. The formation of panels and multi-use lists also requires buying centre involvement in a rigorous decision-making process.

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There are many purchases, however, that only involve an individual or a small number of individuals. Examples include travel and accommodation, and laptops that have a limited impact on the buyer firm. Business-as-usual purchase situations are more likely to reflect the whims, emotions, and habits of individuals and, in this, have greater similarity with purchases in consumer markets. As we discussed earlier in the chapter, people tend not to consider business-as-­ usual purchases as forms of organisational buying. The considerable number of purchases that fit into this category suggests a need to reconsider this position. Indeed, they may be most purchases for some buyer firms. It is for this reason that the use of buying centres is not a definitive feature of business markets. Group-­ based buying decisions are also not exclusive characteristics of business markets. If you have ever taken a child shopping, you will know that your decision to buy those extra chocolates was not entirely your own—and this purchase situation occurs in a consumer market.

Myth # 3: Deliberate, Rigorous Purchase Processes Given the fact that organisational buying involves making decisions on behalf of an organisation, a common assumption is that it involves considerable deliberateness and rigour. In many cases, buyer firms do not own, or have access to, the resources and systems necessary to facilitate greater deliberateness and rigorousness. It is also possible that buyer firms choose to direct their attention and their resources to purchase situations that are riskier or pose higher costs. This means that not all buying decisions are deliberate and rigorous in business markets. The idea that many buying decisions fall to individuals is somewhat absent when discussing business markets. As the chapter outlines above, it is often the case that individuals are the primary decision-makers. This means that any purchase decision is subject to the whims, the bias, and the approach that the individual chooses when making the purchase decision. This is not to say that this process is not deliberate or rigorous. But it does mean that this purchase process is not distinct from one in a consumer market context. Even when a buying centre is involved with a purchase process, there are no guarantees that the purchase process is any more deliberate or rigorous than if a buying centre is not involved. There may indeed be debate about the merits of one purchase option over others within the buying centre, however, the buying centre is still subject to the cognitions and emotions of its individual members. Engaging a buying centre may also result in a less rigorous and less deliberate buying decision due to negative and destructive interactions between buying centre members. Some buying centres are also responsible for many purchase decisions, so they may only dedicate a very small amount of time to any one decision. This also erodes deliberateness and rigour. Buyer firms often draw on a set of policies and procedures that govern buying behaviours. While the underlying intention of these is to instil deliberateness and rigour, they may have the opposite effect. If buying centre members consider

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policies and procedures constrictive, ineffective, or inappropriate, they may choose to circumvent them. This may produce excessively irrational, non-deliberate purchase decisions. So, many buying decisions made in business markets may not be rigorous, deliberate, and rational. Consequently, organisational buying may not differ from consumer purchase decisions in terms of relative rigour, deliberateness, and rationality in many situations.

Myth # 4: Geographic Concentration It is historically true that members of given industries tend to congregate in close geographic proximity. Detroit is the historic home of the US automobile industry. Silicon Valley is the home of the US IT industry. There are often advantages from proximity between supplier and buyer firms. There is scope for easier knowledge exchange through personal contact. There are lower transport costs. There is considerable scope for efficient coordination. There is scope for shared infrastructure. The advantages of geographic concentration are clear. However, there are also downsides. For one, proximity can expose suppliers and buyer firms to common risks. For example, they may need to access the same talent pool for new recruits. They are also subject to the same taxation regimes. Natural disasters that centre on the one location can have more devastating effects. It is for these reasons, that a distribution of industry members across various locations can help mitigate risk. Individuals also have high mobility in the modern world and accessing suppliers in foreign markets is also easy given the prevalence of trade agreements globally. Where geographic concentration may have been a significant factor in shaping the profile of business markets historically, it is no longer necessary (or, in some cases, advisable) to have common locations. Indeed, the COVID-19 pandemic has seen the need for geographic proximity evaporate for many professions. The declining need for buyer-supplier proximity reduces the relevance of this dimension as a distinguishing feature of business markets when compared to consumer markets (particularly noting the spike in online sales that have emerged during the COVID-19 pandemic).

Myth #5: Larger Purchase Size and Value Another myth is that buyer firms tend to have greater purchase power than consumers. This tends to be the case when the buyer firm places a high-value order. For example, a buyer firm may place an order for 100 tonnes of bauxite for its aluminium smelter from a bauxite mine that only produces 110 tonnes per year. This results in high purchase power. To incentivise future purchases and to acknowledge the lower costs to the supplier firm from only having to deal with one buyer firm for most of its output, the supplier firm offers discounts and other allowances. This situation is somewhat common across many types of organisational buying situation.

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To realise the benefits of placing a high-value order, the buyer firm must place a high-value order. Unless the buyer firm does so, the supplier firm will not consider them attractive and will be less likely to shower the buyer firm with benefits. If we consider the large proportion of low-value orders that buyer firms often place, they may only experience benefits from the supplier firm on a handful of such purchases. This is because it is not actually leveraging higher buying power. For example, an employee of the buyer firm may book a hotel room for a single night as part of a business trip for themselves. If this is a one-off transaction, it is unlikely that the hotel will provide any additional benefits to the buyer firm. If the employee returns to the same hotel on multiple occasions for business, this might start to look more attractive to the hotel. In this case, the hotel may start providing additional benefits. Where the hotel is part of a chain that is in common use by the buyer firm, even more scope exists for the buyer firm to leverage its relative buying position to extract benefits from the supplier (i.e. the hotel chain). We can see the same principle in play in consumer markets. Think ‘frequent sipper’ cards from cafes, where every tenth coffee is free. The same sorts of loyalty programmes are common across multiple consumer market purchase situations (e.g. frequent flyer miles, frequent buyer clubs). It may be the case that buyer firms have the capacity to make high-value purchases through larger volumes, but the benefits from supplier firms only kick in if buyer firms choose to do so. The same principle also applies in consumer market contexts.

Myth # 6: Demand Derives from Consumers A core feature of business markets is that they exist based on derived demand. That is, organisations exist to meet the ultimate demand of the end consumer. For example, oil companies exist to extract oil, refine it into petroleum, and then sell or distribute through a network of wholesalers and retailers until it reaches the consumer, who uses it to fuel their automobiles. The actual boundary between business use and consumer use for products and services is, however, unclear. In the oil example above, an individual may choose to use the petroleum to fuel a work vehicle. A travelling sales person, for example, may need access to a working vehicle to do their job. This means the vehicle fits within the domain of a business market, according to traditional lore. Yet, the same sales person may take the vehicle home and use it as their primary means of transport as well. Whether it be for taking the kids to school, or for a trip away, the sales person still uses the same vehicle and the same petrol. The example shows that it is possible for products and services to have both business and consumer uses simultaneously. Some products and services do, however, fit more neatly into a distinction between business use and consumer use. Take clothing. Most of the time individuals buy clothing for themselves for their own personal use, but, during the work week, individuals primarily dress themselves with ‘work clothes’.

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It may be better to say that all demand derives from a need or a want that someone has. It is not necessarily a need or want that derives exclusively from a business market or from a consumer market. So, defining business markets as such is problematic and not necessarily a distinguishing feature of business markets when compared to consumer markets.

 yth # 7: Business Markets Involve Closer, Enduring M Buyer-Supplier Relationships We often think of buyer-supplier relationships as distinct characteristics of business markets. However, this is not the case. Buyer-supplier relationships are now in effect across many purchase situations, regardless of whether they occur in business markets or consumer markets. It makes sense to pursue ongoing relationships if both parties perceive benefit from doing so and if benefits outweigh costs. We discuss the motivations for relationships in Chap. 6. A buyer-supplier relationship amounts to a ‘series of repeat transactions’. Examples of buyer-supplier relationships are common in both business markets and consumer markets. In terms of business markets, a buyer firm may choose to place repeat orders for the same product or service from the same supplier. This is a relationship in a strict sense. For example, a hospital may place the same order for personal protective equipment from the same supplier on a regular basis. In terms of consumer markets, individuals may choose to frequent the same outlet on multiple occasions. For example, individuals may choose to have their regular coffee at the same café since they know the owner and they like the ambience of the café. In both scenarios, the buyer receives benefits in that they like the product or service on offer and it is at an appropriate cost point. The circumstances that shape the relationship also are conducive to the survival of the relationship. There are no real differences between the prevalence or function of buyer-supplier relationships when comparing business markets and consumer markets except to say that there is greater scope for group-to-group relationships in business markets due to the nature of purchase situations. It is also worth noting that with the increasing sophistication of customer insight and business intelligence that supplier firms can calibrate their offers means it is now more cost effective to create the perception of relationships with buyers, regardless of whether they are organisations or individuals. Buyers tend to respond to offers that accommodate their specific needs, and this is now easier through customer insight and business intelligence. These developments suggest that buyer-­ supplier relationships are now more common than ever.

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Conclusion This chapter explores organisational buying as an idea that has different meanings, depending on the nature of the buying activity and the vantage point of the individual. A first step towards developing a holistic view of organisational buying is to acknowledge the different interpretations that exist. This provides a basis to help individuals gain greater empathy for their colleagues with different organisational buying-related roles. The chapter discusses the marketing view, the procurement view, the supply chain management view, the project management view, and the business-as-usual view. Each reflects a unique perspective, and accordingly, the goals of individuals differ, as do the core characteristics and the applicability of each view. By acknowledging the different organisational buying views, this also supports a consolidated definition—which accounts for variance in buyer firm purchase requirements, the need for customisation, purchase importance, and buyer firm impact. It therefore incorporates the main considerations that explain the differentiation between organisational buying views. A consolidated definition should function as a catalyst to promote more holistic interpretations of organisational buying and one that supports greater collaboration. The chapter also considers seven ‘myths’ that distinguish business markets and consumer markets. Each myth reflects a set of observations as to the nature of business markets relative to consumer markets that may have been true historically, but appear less relevant more recently. Business markets have become far more like those of consumer markets over the past decade or so due to the advent of IT-based buyer-supplier exchange. There is also evidence to show that a more nuanced view of business markets is necessary to account for the bulk of transactions that ultimately rest on the shoulders of individuals that act on behalf of the buyer firm. Discussion Questions

1. What are the five main views of organisational buying? What are the key differences and similarities between extant views? 2. Achieving a consensus can be difficult in organisational buying. Knowing what you do now about the different organisational buying views, how might you establish consensus if you were, say, a sales manager from a supplier? What if you were a procurement manager for the buyer firm? 3. Given the breadth of possible activities involved in organisational buying situations, what might be some considerations for the purchasing approach? How might these affect decisions regarding the composition of the buying centre and its role? 4. Given the four main types of complicating factors that shape organisational buying (buyer firm purchase requirements, the need for customisation, purchase importance, and buyer firm impact), how might these factors shape a buyer firm’s buying approach? How can a buyer firm optimise its need for cost maintenance and its need for customisation?

References

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5. What are the seven major ‘myths’ of business markets? How might they each affect buyer firm’s approach to organisational buying?

References Webster Jr, F.E. and Wind, Y. (1972), “A general model for understanding organisational buying behavior”, Journal of Marketing, Vol. 36, No. April, pp. 12–19.

Further Reading Josephson, B.  W., Lee, J-Y., Mariadoss, B.  J. and Johnson, J.  J. (2019), “Uncle sam rising: Performance implications of business-to-government relationships”, Journal of Marketing, Vol. 83, No. 1, pp. 51–72.

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Mapping Purchase Situations

Learning Objectives 

Upon completion of the chapter, you should be able to: 1. Describe the three traditional notions of organisational buying. 2. Describe the differences between spot transactions and relationships. 3. Articulate how exchange frequency and relationship breadth help to categorise purchase situations. 4. Evaluate how different relationship profiles emerge through varying combinations of exchange frequency and relationship breadth. 5. Describe the different approaches to purchase situation governance and recommend the best approach given the purchase situation.

Introduction This chapter begins with an outline of the traditional notions of organisational buying that cater to different purchase situations. Each notion differs in terms of the nature of the purchase requirement and the regularity of its occurrence. Recognition of the differences in purchase situations is essential to understanding organisational buying. The chapter next highlights two key criteria that are useful in explaining the differences in the nature of the buyer-supplier engagement, as this reflects different purchase situations: exchange frequency and relationship breadth. Exchange frequency and relationship breadth form the basis of two continuums that, when combined, form a useful taxonomy to assess buyer-supplier engagements relevant to various purchase situations. Given the interaction between purchase situations and buyer-supplier engagement dimensions, it is also important to consider ‘the rules’ that govern each © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 D. D. Prior, Organisational Buying, https://doi.org/10.1007/978-3-030-67414-4_2

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purchase situation. The chapter considers the governance approaches useful in managing buyer-supplier exchange and explores the appropriateness of each approach to each purchase situation.

Traditional Notions of Organisational Buying Traditional notions of organisational buying adopt the supplier firm’s perspective. This is useful when developing marketing and sales approaches. Two main parameters help supplier firms differentiate between different purchase situations: the relative frequency of the purchase situation and the degree to which the buyer firm changes its purchase requirements (or has new ones) for each purchase situation. The relative frequency of the purchase situation refers to how often the buyer firm places an order when compared to other, similar purchases. Frequent orders can occur daily or weekly, while less frequent orders may be biannual or even further apart. Importantly, the frequency of the order cycle differs between the type of order requirement. For example, placing an order for liquid petroleum gas to power turbines to produce electricity from power stations that supply an electricity grid may be more frequent in summer and winter due to the higher demand for cooling and heating. The frequency of purchase impacts the predictability of the purchase. Due to the lead times that often characterise the availability of input materials, there is often a need to understand the demand for a product well in advance. This enables more exact and reliable planning, which contributes to greater efficiency and lower cost. More sporadic or less reliable demand patterns often place supply chains under greater pressure and, therefore, are more costly. High purchase predictability can promote more efficient and cost-effective order fulfilment. The degree to which the buyer firm changes its purchase requirements (or has new ones) refers to how different the nature of demand has become in comparison to earlier purchases (if applicable). If there is a minor variation in the buyer firm’s requirements, these are often easier to address than situations where there is a dramatic change. For example, an automotive manufacturer may only request a slight alteration to the dimensions of the tyres it fits to the automobiles it produces. This may only require a slight re-­ tooling and some additional materials from the supplier’s perspective. The change, in this case, is unlikely to impact costs greatly. On the other hand, a dramatic change forces a supplier to invest significantly in re-tooling, re-design, new sourcing arrangements, and other arrangements. This

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then poses a significant cost to the supplier, which it will attempt to pass onto the buyer firm. If the buyer firm does not consent to this, it is likely the supplier will be unable to address the new purchase requirements from the buyer firm so must choose to forfeit the business or to accept the additional costs itself. The supplier may be able to recoup costs in other ways through its interactions with the buyer firm. Brand new purchase requirements may also make a given supplier obsolescent. If that supplier does not produce a product or service that addresses the new purchase requirement, then they will simply have to forego the business opportunity. For example, an automotive manufacturer may choose to invest in electric vehicles, which then eliminates their need for petroleum-driven engine parts. Suppliers for such parts will then see their business evaporate. Savvy suppliers, however, often shape the purchase requirement to suit themselves, or they partner with other suppliers to accommodate the new requirement. The terms to describe traditional notions of organisational buying according to purchase situations include: straight rebuy, modified rebuy, and new task.

Straight Rebuy Straight rebuys refer to the regular or routine repurchase of goods or services that are either the same or like earlier purchases. In this purchase situation, the buyer firm simply places an order to re-stock the same items. For example, a grocery retailer may run out of breakfast cereal stock. The grocery retailer simply places an order to replace the stock so that they can continue to sell the same breakfast cereal. End consumers’ demand for breakfast cereals often derives from their habits—they normally buy the same cereal each week as part of a regular shop. This means that demand is regular and predictable. This, in turn, allows suppliers to the grocery retailer (and the grocery retailer themselves) to predict demand well in advance and plan for it. Straight rebuys are often part of business-as-usual. It is for this reason that the buyer firm typically invests little time or effort in straight rebuys, so when circumstances change quickly and dramatically, suppliers and buyer firms face significant challenges. For example, the demand on toilet tissue in the wake of COVID-19 has had a significant impact on suppliers, particularly since this involves a global supply chain. The main involvement of buying centre members is in contract negotiation and in subsequent contract renegotiations or renewals. It is common for the buyer firm to consider the same suppliers at each contract (re)negotiation. For a prospective new supplier, it can be difficult to capture business opportunities under these circumstances.

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Modified Rebuy Modified rebuys refer to the regular or routine repurchase of goods or services that involve a significant alteration or adaptation when compared to earlier purchases. In this situation, the buyer firm notifies suppliers of their requirements. Indeed, the suppliers themselves may push the buyer firm to adopt a new model or product variant to accommodate an alteration in an ongoing need. In the grocery retailer example, the need for a modified rebuy may appear if consumer preferences change. If end consumers become more health conscious, the demand for breakfast cereals with higher fibre and lower sugar content may increase. This means that the breakfast cereal supplier must calibrate its product offering to accommodate the differences in end consumer demand. Buyer firms often consider modified rebuys as business-as-usual. They may occur within the context of an ongoing supplier contract. Provisions within the contract may allow the buyer firm to update their requirements periodically. For the supplier firm, there may be some pressure to evaluate a new product variant or to increase sales for an alternative product offering. Under these circumstances, a supplier may also drive the buyer firm’s requirements. Modified rebuys are the most frequent purchase type made by organisational buyers since it is uncommon for buyer firms to always have the same preferences. Product upgrades, discounts, offers on substitute products, and changing compatibilities with purchases of other complementary products may all drive the need for modified rebuys.

New Task New tasks refer to the irregular, often sporadic, purchase of goods and services to address emergent business needs. In this situation, the buyer firm experiences a major shift in the way it does business (e.g. a merger, an acquisition, a major expansion programme, a major downsizing programme) or the need to replace ageing infrastructure. A major shift in the way a buyer firm does business can give rise to a wide array of new requirements. For example, foreign expansion sees the buyer firm requiring new office accommodation, new IT equipment, new employees, and new advertising services. Many of these requirements are new and significant to the buyer firm and this gives rise to considerable investments in the purchasing process. Replacing ageing infrastructure creates similar circumstances. An office block may have a forty-year lifespan. When

25

Summary: Straight Rebuy, Modified Rebuy, New Task

the need comes to replace it, few people still working in the buyer firm have any experience in buying a new building. While major shifts in the way the buyer firm does business help explain new task purchase situations, there are other occasions that also involve new task purchases. A classic example is when the buyer firm decides to launch a new product or service that sees an expansion of its existing capabilities. In this case, the buyer firm does not deviate significantly from its standard operating approach, but expands its market offering (either through a broader range of products/services or by diversifying its customer base). For example, a financial services firm that specialises in insurance management could expand into risk management advice. The financial services firm can utilise many of its existing resources, but the provision of risk management advice requires new employees in that area with specialist skills and experience. Due to their potential diversity, new task purchase situations pose a double-edged sword for both suppliers and buyer firms. For suppliers, the wide range of possibilities means there are many business opportunities. Understanding how to address these business opportunities can prove challenging. For buyer firms, new tasks can emerge through significant internal change, which is often painful. New tasks can also yield new hope for the buyer firm through its pursuit of a new direction, and this leads to significant upgrades in its capabilities.

Summary: Straight Rebuy, Modified Rebuy, New Task Table 2.1 presents a summary of the three major organisational buying situations. The core differentiator between the three main types of organisational buying situations is the nature of buyer firm purchase requirement changes. Straight rebuys involve minimal change and are, therefore easier to predict. For modified rebuys, the nature of buyer firm requirements changes can vary. Suppliers consider a purchase a modified rebuy if it involves the same or remarkably similar basic product or service features and incorporates minor changes. This means that suppliers can use their existing production and service approaches while introducing relatively small adaptations that do not pose significant risk. Once there is a need to alter its Table 2.1  A comparison of different organisational purchase situations Purchase frequency Purchase pattern Buyer firm requirement change Degree of uncertainty/ ambiguity Nature of supplier relationships Indicative example

Straight rebuy Frequent Regular Minimal

Modified rebuy Somewhat frequent Somewhat regular Moderate

New task Infrequent Irregular Significant (or new)

Minimal

Moderate

High

Repeat business

Somewhat consistent

Sporadic, but contextualised in a broader network Placing a repeat Placing an order for a Placing an order for a new order for engine different type of production plant, where one fuel engine fuel has not been purchased before

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2  Mapping Purchase Situations

products/services more fundamentally (i.e. through significant adaptations to business processes, capabilities, resources, or other dimensions of the supplier firm), then it becomes a new task purchase situation. The differentiation between straight rebuy, modified rebuy, and new task purchase situations is of most interest to suppliers. Under each scenario, the supplier must calibrate its approach differently. Straight rebuys enable a simpler approach that focuses mostly on efficiency. Modified rebuys maintain similar characteristics across most major dimensions, but do  require adaptions to other elements. New tasks can vary considerably. This means that they require business models that are adaptable. Such business models tend to involve a temporary assembly of employees from a broader network. Such temporary employees have specialist skills and knowledge that are crucial to producing the outcome. New tasks are more amenable to customised solutions, and therefore, there is a greater emphasis on quality rather than efficiency. The extent to which the buyer firm must change is also meaningful consideration for the buyer firm, as this influences the organisational buying process. The more dramatic or new the requirement, the more of an impact this has on the buyer firm.

 rom Spot Transactions to Relationships: Along F Two Continuums Recognition that purchase situations reflect the nature of a buyer-supplier interaction has led to the idea that buyer-supplier interactions reflect ‘spot’ transactions, or a broader relationship. If a buyer-supplier exchange takes place on a one-off basis, and neither party has an intention to continue a relationship beyond the specific transaction, this constitutes a spot transaction. For example, a buyer firm may seek a specialist piece of financial advice in the wake of an upcoming foreign market entry. There is no need for further advice, so once the buyer firm receives the advice there is no longer a need to engage with the supplier. To obtain this advice, the buyer firm solicits proposals from the open market. A buyer-supplier relationship amounts to a ‘series of repeat transactions’. If, on the other hand, transactions take place more than once between the same buyer firm and the same supplier firm, this constitutes a relationship. For example, an IT company may require regular software licence renewals from the same software supplier firm. The need for multiple transactions over time suggests this is a relationship, according to the definition above. This interpretation of the continuum between spot transactions and buyer-­supplier relationships is simplistic. It does not account for the nuances that characterise

Relationship Continuum #2: Relationship Breadth

27

buyer-supplier engagement. It does not consider the social and emotional nature of relationships since it focuses on the frequency of economic exchanges. Therefore, it is useful to explore a more comprehensive notion of buyer-supplier relationships. Considering exchange frequency and relationship breadth is a useful way to understand the economic and the non-economic nature of buyer-supplier relationships while also understanding the composition of buyer-supplier relationships at a micro level, where interpersonal interactions are visible. We delve into these ideas below.

Relationship Continuum #1: Exchange Frequency If we consider the relative frequency of transactions as a measure of buyer-supplier exchange (i.e. where the buyer firm and the supplier firm exchange information in addition to, or as an alternative to, conducting the economic transaction), it is possible to see a set of scenarios that describe different types of buyer-supplier relationship. Exchange frequency refers to the regularity and incidence of transactions and/or information sharing that occurs between a buyer firm and a supplier firm. Spot transactions anchor one extreme on a continuum, as independent, discrete buyer-supplier exchanges. At the other extreme, the buyer firm and the supplier firm engage in a comprehensive and extensive relationship. There are four main buyer-­ supplier relationship profiles that represent different levels of exchange frequency: • One-off ‘spot’ transactions. These occur when both exchange parties have no interest in a longer-term engagement. The core purpose of the exchange is to fulfil an economic need for the buyer firm. The supplier is agnostic who purchases its products or services. • Ongoing relationship. These occur through a recurrent need that the buyer firm faces. The core purpose of the exchange is also to fulfil an economic need for the buyer firm. The supplier has some interest in the prospects of the buyer firm as a source of repeat business. • Close relationship. These occur through a recurrent need that the buyer firm faces and addresses a more comprehensive set of issues that the buyer firm faces. In addition to satisfying economic needs, the exchange also involves some exchange of information, knowledge, and resources. The supplier has a high interest in the prospects of the buyer firm as a source of repeat business and as an organisation that has some impact on its future. • Crucial relationship. These occur to fulfil a wide range of needs facing the buyer firm, many of which are recurrent. There is a close alignment between exchange partners to the point that they have a high degree of integration and are mutually dependent. Both the buyer firm and the supplier firm pursue joint opportunities and attempt to cater to each other in strategic decision-making.

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While understanding the degree of exchange frequency can help to infer the properties of a buyer-supplier relationship, it is also useful to consider relationship breadth.

Relationship Continuum #2: Relationship Breadth It is common to consider relationship as something that exists between the buyer firm and the supplier firm. This implies that each firm is the relevant exchange party. This might be the case from a legal perspective (i.e. where a contract exists between both firms), or when conducting evaluations of the activities of the firm, or when considering the capabilities of the firm. Yet, a firm-level notion of buyer-supplier relationships is often not practical or relevant to the individual employees that engage in the interactions on behalf of both buyer firm and the supplier firm. The buyer-supplier relationship at the firm level merely serves as a backdrop. Relationships are fundamentally interpersonal. They require human-to-human interaction (although, an increasing portion of human-to-human interaction occurs through online media). The buyer firm and the supplier firm both rely on a series of representatives whose actions constitute the substance of the relationship and whose cognitions and emotions determine the nature of the relationship. It is therefore necessary to consider the nature of interpersonal relationships as the true indicators of the breadth of the buyer-supplier relationship that exists at the inter-firm level. Relationship breadth refers to the incidence of interpersonal relationships between counterparts that represent the buyer firm and the supplier firm, respectively. Notwithstanding the specific nature of interpersonal interactions, a simple approach to understanding the nature of the buyer-supplier relationship is to consider the relative proportion of individuals in both organisations that interact regularly. Again, it is possible to define four scenarios, which amount to different points along a relationship breadth continuum: • Narrow breadth. This involves interactions between relatively few individuals across the buyer-supplier dyad. • Confined breadth. This involves interactions between individuals across the buyer-supplier dyad with respect to a given purpose or domain. For example, sales, finance, and production personnel from the supplier firm may interact with a procurement manager in the buyer firm only. • Nebulous breadth. This involves interactions between a range of individuals across the buyer-supplier dyad with respect to several purposes or domains. For example, sales, finance, and production personnel from the supplier firm may interact with their counterparts in the buyer firm in addition to the procurement manager. • Pervasive breadth. This involves interactions between a range of individuals across the buyer-supplier dyad, including senior management, to promote the strategic engagement of both organisations.

A Relationship Taxonomy

29

A Relationship Taxonomy In reflecting on the two relationship continuums, it can be useful to combine them to gain insight into the status of a given buyer-supplier relationship. For this purpose, a taxonomy is a useful tool. Figure 2.1 illustrates the two relationship continuums along two axes. With each continuum overlaid, the nature of a buyer-supplier relationship becomes clearer. If we consider each of the points that appear in Fig. 2.1, a set of buyer-supplier relationship profiles appear. • Point A involves a discrete, but pervasive relationship. This is common in capital goods procurements. In this situation, the buyer firm seeks a large-scale implementation of a system or solution. This requires a broad set of relationships to ensue for a discrete period to procure and implement a major piece of equipment and/or to install major pieces of infrastructure such as an IT system. • Point B involves a one-off spot transaction involving very few members of the buyer firm. This is a classic market-based transaction. A typical scenario is where an individual seeks to address an emergent need but does not have interest in a lengthier engagement with the supplier firm. For example, the purchase of a laptop computer for a single employee. • Point C involves an ongoing or close relationship between a moderate number of the buyer firm’s representatives, and their counterparts in the supplier firm. In this case, the buyer firm recognises an ongoing need, and this requires regular interaction between representatives of both the supplier firm and the buyer firm. This might be the case where the buyer firm embeds continuous improvement

A

Pervasive

D

Nebulous High

Relationship breadth

High

Low

Exchange frequency

C one-off ‘spot transactions

Ongoing relationship

B

Confined Close relationship

E Narrow Low

Fig. 2.1  A combined relationship continuum

Crucial relationship

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2  Mapping Purchase Situations

into its operations. The buyer firm routinely identifies areas for improvement and regularly consults with the supplier firm to help it implement the necessary changes. • Point D involves pervasive relationship breadth, typically for a crucial purpose. In this, both the buyer firm and the supplier firm have a strategic partnership, where both partners have a profound effect on each other over time. This scenario is common when a supplier firm has an equity stake in the buyer firm (or vice versa). For example, Toyota has historically owned much of its supply chain, and this creates a situation where multiple organisations have pervasive, crucial relationships with one another. • Point E involves a crucial relationship with relatively few members of the buyer firm. This is most common when members of the C-suite in both the supplier firm and the buyer firm engage in an exclusive manner. Conversations that stem from such meetings can have profound effects on both the buyer firm and the supplier firm. For example, there may be a decision to implement a merger between the two organisations. An awareness of the relationship profiles in Fig. 2.1 can help buyer firms and supplier firms in two ways. First, they support a greater awareness of the state of a current relationship. This allows both organisations to take stock of the current situation. Second, an awareness of the relationship profiles can help support planning for a desirable relationship state if this differs from the current situation. To enable this strategic thinking, this chapter includes a self-reflection exercise after the discussion questions.

Buyer-Supplier Relationship Governance Transactions that involve the exchange of products or services for financial compensation are susceptible to nefarious practices by the parties to the exchange. For example, a supplier firm may sell a faulty item to the buyer firm and refuse to address the problem. A buyer firm may refuse to pay the supplier firm for the product or service. Such situations are problematic. Where exchange parties have negative experiences, they are less likely to engage in future exchanges. This means that buyer firms are unable to address the problem or issue they face, and supplier firms eventually go bankrupt (or operate illegally). So, there is a need for a set of rules to govern economic exchange. At one level, rules are important in a legal sense. Most developed economies have legislation and/or a body of common law that outlines a set of acceptable and/ or unacceptable practices that relate to economic exchange. Some of the more pertinent are legal frameworks that outline the standards that suppliers must adhere to when offering a product or service for sale. Legal frameworks of this nature provision for managing poor quality and faulty offerings. Other legal frameworks of interest include those that outline acceptable competitive practices between suppliers, as well as the management of waste and/or environmental pollution. Contract

Formal Governance

31

law is particularly important in buyer-supplier relationship governance, as we discuss below. In addition to the legal frameworks that regulate economic exchange, buyer firms and supplier firms also develop a set of implicit expectations that influence their perceptions of whether their counterparts are acting reasonably. Social norms regulate the behaviours of the application of incentives and penalties. Social norms inform the expectations that buyer firms have with respect to the behaviours of the supplier firm. Social norms amount to a set of implicit rules that members of a social group hold collectively, against which they evaluate the actions of a given actor. For each relationship profile in Fig.  2.1, the relevance of legal frameworks is consistent, yet the relevance and application of social norms, as regulatory devices, differ. Where the exchange is like the sort specified on Point B in Fig. 2.1 (a one-off spot transaction involving few members of the supplier firm or buyer firm and no long-term relationship), the rules of market-based exchange apply. This means that buyer firms expect supplier firms to offer a product or service that is consistent with their specified quality, where the price is clear, and when the purchase occurs, the supplier firm delivers the product or service in a timely fashion. For the supplier firm, they expect prompt payment and reasonable buyer firm behaviours. As the buyer-supplier relationship profile changes, the application of social norms differs. A basic expectation that buyer firms and supplier firms behave reasonably towards one another represents a set of social norms that are widely applicable. As the relationship becomes more intense and more crucial to either one or both exchange parties, the nature of social norms applicable varies to accommodate the idiosyncrasies of the relationship. Where a more enduring relationship takes place, it becomes susceptible to more specific contracts and different contractual forms which, collectively comprise the governance regime that regulates the relationship. A contract is an explicit or implicit agreement between the buyer firm and the supplier firm that obliges each party to meet a set of commitments that benefit the other party.

Formal Governance Formal governance involves the implementation of an explicit contract that outlines the terms and conditions that govern the buyer-supplier exchange.

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2  Mapping Purchase Situations

The primary goal of formal governance is to ensure clarity as to the nature of the exchange. Explicit contracts are useful for this purpose. They help to set out the major commitments that the buyer firm and the supplier firm agree to, as well as the penalties applicable to a party should it not meet its obligations. Where exchange frequency is relatively low and/or where relationship breadth is relatively narrow, a standard contract is normally appropriate, although there can be a need for some adaptations to suit specific circumstances. Where exchange frequency is high and/or where relationship breadth is wide, the need for more comprehensive contracts becomes apparent. Relationship profiles with these attributes tend to pose higher risk to both the buyer firm and the supplier firm. This means there is a need to account for risk, which may be more diverse and complex than it is in other relationship profiles. An explicit contract can improve the chances that the exchange parties identify risks and implement risk mitigation provisions. More complex relationship profiles also imply a more comprehensive relationship, more sophisticated products and services, and a need for greater innovation and problem-solving. Capturing these additional dimensions can prove challenging when drafting and negotiating a formal contract. The primary risk that exchange parties face is describable as ‘opportunism’, where one exchange party behaves in its own self-interest at the expense of the other party. This means one exchange party identifies a new opportunity which it considers more attractive to the current relationship and decides to pursue it. It could also mean that one exchange party simply chooses not to invest in the maintenance or development of the current relationship. This logic makes it difficult to maximise the benefits of an exchange relationships and therefore formal contracts attempt to capture many of the forms of opportunism relevant to a given relationship and assign appropriate penalties for them. Opportunism refers to the tendency of one exchange party acting in its own self-interest at the expense of the interests of the other exchange party.

Relational Governance Relational governance refers to the use of trust as a mechanism to regulate the behaviours of exchange partners. The existence of trust derives from both exchange partners’ adherence to a set of implicit social rules that amount to a social contract. Relational governance is an opposite to formal governance. Rather than rely on an explicit contract, exchange partners trust their counterparts to act with integrity and benevolence  when using relational governance. This forms the basis of an implicit contract that draws on social norms as they relate to the specific contract.

Plural Governance

33

Social norms still amount to the subtle expectations that exchange parties hold with respect to one another, but the pursuit of a relationship increases the relevance of some social norms as they relate to the specific exchange. Relational governance is often preferable to formal governance since it can accommodate unexpected circumstances more easily. This is because social rules are subject to regular negotiation. They rely on the agreements that develop between individuals during the relationship. They require mutual understanding and a shared sense of purpose. This makes relational governance approaches good at supporting innovation, knowledge exchange, and problem-solving without the need for a formal, explicit contract. The issue with relational governance is that there is still a chance of opportunism. Exchange partners may feel less of an obligation to honour the social contract due to its implicitness. This may reduce the likelihood that a contract is enforceable. It also makes the contract difficult to track, thus reducing accountability. Relational governance often develops where there is no explicit provision in a formal contract. This could result in substantial deviations from the intention of the buyer-supplier exchange, which may lead to undesirable outcomes.

Plural Governance Plural governance involves combining elements of formal and relational governance to manage a buyer-supplier engagement. The obvious way to address the shortcomings of formal and relational governance mechanisms while maximising the potential benefits of both, is to blend them. Many variants are possible. For example, an explicit contract may not provision for all possible scenarios, but may include clauses that allow the exchange parties to negotiate or communicate if unexpected circumstances arise. This sort of approach could be useful when a buyer firm and a supplier firm commence an engagement that will involve high exchange frequency and broad relationship depth. It can also facilitate pragmatic problem-solving and innovation while also offering the security of a formal contract. It may also be the case that an existing relationship develops organically to rely on relational governance. A relationship may involve a stream of repeat transactions over time. Exchange parties may not see the need for a formal contract. However, an incident might emerge that encourages the exchange parties to develop and implement a formal contract. For example, a buyer firm may choose to implement a more extensive change management process that involves a supplier firm, where the previous relationship was simple, repeat business for the same products. This change in the relationship could force both parties to reconsider their positions. Adopting some form of plural governance regime can promote a balance between the formality of an explicit contract while also encouraging the adaptability of relational governance in parallel.

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Applying Plural Governance in the Infrastructure Industry: The Case of the WestConnex Motorway

The WestConnex motorway is a 33 km section of road that will connect western and south-western Sydney with the city, Kingsford Smith Airport and Port Botany precincts. Due for completion in 2023 at a predicted cost of about $1.5 billion. Several formal mechanisms help govern this project. There is an agreement between the Commonwealth and New South Wales state governments for the provision of funding for the project. A formal contract also exists between Transurban, the supplier, and the Commonwealth and New South Wales state governments. This contract is subject to regular monitoring through formal reporting. WestConnex also has its own board of directors, which comprise an additional level of formal governance. However, the WestConnex project also utilises relational governance mechanisms. There have been several instances where residents of the communities closest to the motorway pathway were not happy with the implementation of the construction plan. This is due to excessive noise or pollution, and drilling under residencies where there were already existing but unknown pipes. This has led to community backlash. Subsequently, this forced Transurban to change its implementation approach through negotiation with local community representatives and other government stakeholders.

Conclusion This chapter begins with an outline of the traditional notions of organisational buying that cater to different purchase situations. Straight rebuys involve repeat purchases of the same item from the same supplier. Modified rebuys involve purchases of slightly altered items from the same supplier, when compared to previous purchases. New tasks involve the purchase of a completely new item. Each of these notions of organisational buying represents variance in terms of the nature of the purchase requirement and the regularity of its occurrence. The chapter also highlights the differences between spot transactions and relationships. To provide additional granularity, the chapter also considers two key criteria that are useful in explaining the differences in the nature of the buyer-supplier engagement, as this reflects different purchase situations: exchange frequency and relationship breadth. Exchange frequency and relationship breadth form the basis of two continuums that, when combined, form a useful taxonomy to assess buyer-­ supplier engagements relevant to various purchase situations. The chapter also considers the ‘rules’ that govern buyer-supplier relationships. Legal frameworks and social norms account for a large portion of the regulations that apply to buyer-supplier relationships. As the relationship develops, buyer firms and supplier firms need to consider additional forms of contractual governance.

Conclusion

35

Discussion Questions

1. What are the two main dimensions that differentiate the traditional notions of organisational buying from one another? 2. Define and describe the three traditional notions of organisational buying. What might a supplier firm need to consider in each scenario? What might a buyer firm need to consider in each scenario? 3. Describe the two relationship continuums. How can they be combined to help both suppliers and buyer firms understand the implications of their relationships? 4. What is ‘purchase situation governance’? How does it affect the purchase situation? What are the three main forms of purchase situation governance? 5. Of the forms of purchase situation governance that the chapter covers, which would be more appropriate for each of the Points A–E in Fig. 2.1? cc

Self-Reflection Exercise: Planning Relationship Profiles  There are many reasons why an organisation may wish to change its relationship profile with a counterpart. Buyer firms may seek a different relationship profile with a supplier firm to reduce their dependency on that supplier firm. Supplier firms often seek more profound relationships with buyer firms since this allows them to gain more repeat business. This exercise is useful in helping to plot a useful trajectory to help shift one relationship profile to another. Step 1: Assessing Current Relationship Profile Consider a given organisation and its relationship profile with another organisation. For supplier firms, this is usually a target (or current) buyer firm. For buyer firms, this is a specific supplier firm. With this organisation in mind, give your organisation a rating: (1) Relative to other organisations with whom your organisation has contact, how often would you say representatives from both organisations have contact with one another? (out of 10—with 1 being ‘never’ and 10 being ‘very often’) (2) Relative to other organisations with whom your organisation has contact, rate the breadth of contact your representatives have with representatives from the other organisation (out of 10—with 1 being ‘very low’ and 10 being ‘very high’) (3) Indicate to what extent you agree with the following statements: (a) Only a few select individuals from both organisations have contact with one another (out of 10—with 1 being ‘strongly disagree’ and 10 being ‘strongly agree’) (b) Our organisation has only a single point of contact to deal with the other organisation (out of 10—with 1 being ‘strongly disagree’ and 10 being ‘strongly agree’)

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2  Mapping Purchase Situations



(c) The other organisation has only a single point of contact to deal with our organisation (out of 10—with 1 being ‘strongly disagree’ and 10 being ‘strongly agree’) (d) Both organisations have a comprehensive set of people that deal with and manage our relationship (out of 10—with 1 being ‘strongly disagree’ and 10 being ‘strongly agree’)

Step 2: Calculating Relative Exchange Frequency and Relative Relationship Breadth Scores Now, it’s time to calculate the relative exchange frequency and the relative relationship breadth scores. To calculate the relative exchange frequency, add the scores that you recorded for questions 1 and 2 above. Now, divide the outcome by 2 to calculate a mean score. To calculate the relative relationship breadth, add the scores that you recorded for questions 3a–d above. Now, divide the outcome by 4 to calculate a mean score. You should now have a relative exchange frequency score and a relative relationship breadth score. Step 3: Plotting the Relationship Profile Take the two axes in Fig. 2.1 (or draw them) so that you have a graph like the one below (see Fig. 2.2). Now, take your exchange frequency score and mark where it sits along the x axis. Now, do the same with the relationship breadth score, marking it along the y axis. Find where both points intersect and mark this location on the plot.

Pervasive

Nebulous

Exchange frequency 5

one-off ‘spot transactions

Ongoing relationship

Confined Close relationship

Narrow Low - 1

Fig. 2.2  Plotting the relationship profile

High - 10

Low - 1

Relationship breadth

High - 10

Crucial relationship

Conclusion

Step 4: Considering the Implications Once you have the plot marked up, you should have a close approximation of the relationship profile for the organisation under consideration. If we look back to Fig. 2.1 and the relationship profiles it leads to, this offers some insight as to the relationship profile under consideration. Worked examples: If we consider the scenario in Fig. 2.3, where the relationship breadth score is 7.5 and the exchange frequency score is 2.5, this relationship profile is close to Point A in Fig. 2.1. This means that this relationship probably involves the implementation of a large-scale, discrete system or product. If we consider the scenario in Fig. 2.4, where the relationship breadth score is 1.5 and the exchange frequency score is 8.1, this relationship profile is close to Point E in Fig. 2.1. This means that this relationship involves a set of relationships, probably between members of the C-suite in both organisations and that the outcomes of such a relationship have significant impacts on the prospects of both organisations. Step 5: Planning It is often desirable to shift the relationship over time. This allows organisations to adapt to emerging circumstances while also accommodating their business goals. Using the plot above, it is useful to begin with an understanding of how close the specified relationship is close to Points A–E in Fig. 2.1.

Fig. 2.3  Worked example #1—Relationship breadth = 7.5, Exchange frequency = 2.5

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2  Mapping Purchase Situations

Fig. 2.4  Worked example #2—Relationship breadth = 1.5, Exchange frequency = 8.1

The next step is to consider a more desirable position. For supplier firms, they may want to move from Point B to Point C, for example. This amounts to an effort to expand both the exchange frequency and the relationship depth with a target buyer firm. In this case, the supplier firm needs to find ways in which to achieve this expansion of the relationship. Techniques that involve heavy promotions for the supplier’s existing product suite might increase exchange frequency. Offering a wider range of products and services might broaden the supplier’s relationship breadth. In both cases, there is a need for considerable investments in a directed attempt by the supplier firm’s representatives to engage their buyer firm counterparts often. In another situation, a buyer firm, for example, may want to reduce its involvement with a supplier firm. This might mean shifting from Point A to Point B in Fig. 2.1. In this case, the buyer firm sees that it is spending too much time and effort in engaging with a given supplier. The low exchange frequency means that a more pervasive relationship is not necessary, in the eyes of the buyer firm. Consequently, the buyer firm decides to reduce its investment in the relationship with the supplier firm. This could involve limiting their employees’ time commitment to their counterparts in the supplier firm. It could also mean shifting the interaction with the supplier firm to an online portal. It is worth noting, however, that certain situations may make it difficult, unnecessary, or risky to make such a profound shift in the relationship.

Further Reading

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Further Reading For further reading on purchase situations, consider any recent books by Hutt and Speh, such as Hutt, M. D., & Speh, T. W. (2007), Business Marketing Management: B2B (12th ed.). Cengage Learning: Boston, MA.

For further reading on relationship definitions, consider Dwyer, F. R., Schurr, P. H., and Oh, S. (1987), “Developing buyer-seller relationships”, Journal of Marketing, Vol. 51 No. 2, pp. 11–21. Palmatier, R. W., Dant, R. P., and Grewal, D. (2007), “A comparative longitudinal analysis of theoretical perspectives of interorganizational relationship performance”, Journal of Marketing, Vol. 71 No. October, pp. 172–194.

For further reading on Transaction Cost Economics, consider works by Oliver Williamson such as Williamson, O. E. (1979), “Transaction cost economics. The governance of contractual relations”, Journal of Law and Economics, Vol. 22 No. 3, pp. 233–261. Williamson, O. E. (1988), “The logic of economic organisation”, Journal of Law, Economics, and Organisation, Vol. 4 No. 1, pp. 65–93. Williamson, O. E. (1991), “Comparative economic organisation: The analysis of discrete structural alternatives”, Administrative Science Quarterly, Vol. 36 No. 2, pp. 269–281.

… And works by Jan Heide, George John and Ken Wathne, such as Heide, J. B., Wathne, K. H., and Rokkan, A. I. (2007), “Interfirm monitoring, social contracts, and relationship outcomes”, Journal of Marketing Research, Vol. 44 No. 3, pp. 425–433. Heide, J.  B., & John, G. (1992), “Do norms matter in marketing relationships?”, Journal of Marketing, Vol. 56 No. 2, pp. 32–52. Heide, J. B. (2003), “Plural governance in industrial purchasing”, Journal of Marketing, Vol. 67 No. 4, pp. 18–29. Wathne, K. H., & Heide, J. B. (2000), “Opportunism in interfirm relationships: Forms, outcomes, and solutions”, Journal of Marketing, Vol. 64 No. 4, pp. 36–51.

… And works of Fabrice Lumineau, such as Cao, Z., & Lumineau, F. (2015). Revisiting the interplay between contractual and relational governance: A qualitative and meta-analytic investigation. Journal of Operations Management, Vol. 33–34, pp. 15–42. Lumineau, F. (2017). How contracts influence trust and distrust. Journal of Management, Vol. 43 No. (5), pp. 1553–1577.

3

The Organisational Buying Process Revisited

Learning Objectives

Upon completion of the chapter, you should be able to: 1. Define the organisational buying process. 2. Describe the five main steps in the organisational buying process. 3. Critique traditional notions of the organisational buying process. 4. Describe customer solutions in terms of how they affect the organisational buying process. 5. Describe how agile techniques can be used to increase organisational buying process adaptability. 6. Describe five scenarios as to how buyer firms use and integrate their purchase after the conclusion of the traditional organisational buying process.

Introduction This chapter begins by defining organisational buying as a process. It synthesises seven popular interpretations of the organisational buying process to distil five main steps: needs/ problems identification, establishment of specifications, identification and evaluation of sources, selection of sources, and post-purchase evaluation. Importantly, these steps do not include post-purchase integration. The chapter also offers criticisms of the traditional view of the organisational buying process, which derive from a set of apparent assumptions that relate to its consultativeness, linearity, adherence to process, resource availability, and its conclusion. These criticisms support a need to ensure context is a key consideration when describing the organisational buying process. The chapter draws on the duel dimensions of exchange frequency and relationship breath (that appear in Chap. 2) as means to highlight key differences in the organisational buying process according to relationship profile. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 D. D. Prior, Organisational Buying, https://doi.org/10.1007/978-3-030-67414-4_3

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The chapter goes on to describe customer solutions. The chapter considers key benefits and costs for customer solutions adoption. It also articulates key differences in the organisational buying process that emerge through customer solutions adoption. The chapter includes a self-evaluation exercise to allow representatives from buyer firms and representatives from supplier firms to evaluate the appropriateness of customer solutions given the purchase situation. The chapter suggests agile methodologies could be an important incorporation into organisational buying processes, due to their ability to encourage adaptability and responsiveness in team-based projects. The chapter argues for a broader conceptualisation of the organisational buying process. Where traditional organisational buying process models conclude with postpurchase evaluation, there is a need to consider the broader implications of the purchase outcome. There are five main scenarios worth considering to understand how the organisational buying process affects the buyer firm after the purchase decision.

The Organisational Buying Process The organisational buying process refers to a series of related actions that buying centre members undertake to select an appropriate good or service from a supplier (or from multiple supplier(s)) and to execute the purchase on behalf of the buyer firm. The idea of organisational buying as a process has its origins in the late 1960s. Over the ensuing years, at least seven variants have emerged (see Table 3.1).

A Consolidated View of the Organisational Buying Process An evaluation of the different views of the organisational buying process reveals a set of striking similarities between the steps, and their meanings, in the organisational buying process. This makes it possible to develop a synthesis that consolidates different views. A consolidated view of the organisational buying process includes the following steps: 1. Needs/ problems identification. This step focuses on the articulation of the specific needs and/ or wants of the buyer firm for a given purchase. Such needs/ wants derive from an identifiable problem (or a series of related problems) that affects the buyer firm. For example, a need to replace spent fuel rods in a nuclear reactor is the result of the expiry of the current fuel rods. 2. Establishment of specifications. Once the buyer firm has a reasonably clear idea of its needs, wants, and/ or the problems that shape them, the buying centre is in a position to develop a clear statement of both the essential and desirable characteristics of a product or service. For example, spent nuclear fuel rods require suitable disposal while new fuel rods must comply with the specifications that

Webster and Wind (1972) Identification of needs

Feedback and performance assessment

Bellizzi (1979) Anticipation/ recognition of problem or need; An initial solution Establishment Determination of of general characteristics specifications and quantity needed; A description of required characteristics and quantity Search for and Identification Search and qualification of of alternatives; qualification of potential sources; Evaluation of potential sources; Acquisition and alternatives Collection of analysis of information and proposals proposal acquisition; Analysis of information and proposals Evaluation and Supplier Evaluation and supplier selection of selection selection; suppliers; Selection of an order Selection of an routine order routine

5. Post-purchase Performance evaluation feedback and evaluation

4. Selection of Sources

3. Identification and evaluation of sources

Steps in the buying process 1. Needs/ problems identification

Robinson, Faris and Wind (1967) Recognition of organisational problems or needs 2. Establishment Determination of of characteristics of specifications the item and the quantity needed

Table 3.1  Interpretations of the organisational buying process Johnston and Lewin (1996) Needs recognition

Identification/ evaluation of buying alternatives

Post-purchase evaluation

Supplier selection

Identification of potential sources; Request proposal; Evaluate proposal

Establishment Determination of of specifications characteristics; Establishment of specifications

McWilliams, Naumann, and Scott (1992) Needs identification

Selecting specific Supplier suppliers; selection Determining the amount of expenditure; Giving final authorisation for the purchase

Determining the type of equipment or material for purchase; Developing detailed specifications Evaluating the sources of supply

Lilien and Wong (1984) Initiating the purchase

General description of the needed item; Precise buying specifications developed Vendor search and qualification; Vendor interactions and proposals; Evaluation of alternative vendors Supplier selection

Ghingold and Wilson (1998) Need recognition, purchase initiation and approval

A Consolidated View of the Organisational Buying Process 43

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will enable their use in a particular reactor, which may only be able to accommodate certain types of fuel rods. 3. Identification and evaluation of sources. Once the buying centre defines the specifications for the purchase requirement, this gives rise to the identification of possible suppliers. In the nuclear fuel rod example, this means the identification of all possible suppliers of nuclear fuel rods. Next, the buying centre evaluates each supplier to determine if it has the potential to address the purchase requirements. In the nuclear fuel rod example, this may include identifying those suppliers that can offer the correct type of fuel rod at an appropriate price, ensuring potential suppliers are compliant with the regulations that govern the handling of nuclear materials. 4. Selection of sources. Once the buying centre is aware of the suite of available, appropriate suppliers, it is then in a position to make the purchase decision. This normally requires the consent of senior managers to proceed with the purchase. In the nuclear fuel rod example, this would see the buying centre agree to the purchase of one supplier’s offer or bid and its implementation. 5. Post-purchase evaluation. Once the purchase has occurred, the buying centre may conduct an evaluation as to how well it went and whether it met the buyer firm’s requirements. This process can shape future purchase situations. For example, if the buyer firm discovered that the nuclear fuel rods were obtained illegally, this would reduce the likelihood that the supplier in question receives further business.

A Critique of the Organisational Buying Process The conceptualisations of the organisational buying process in Table 3.1 are indicative of some common assumptions. The first assumption is that organisational buying is necessarily consultative in that it involves all members of the buying centre along each step. The ability to incorporate diverse stakeholders is important, particularly when purchase decisions have major potential impacts on the buyer firm. However, it may be unnecessary or even undesirable to engage in a consultative process. Where there is a need for quick decision-making, where the potential impact is small, and/ or where the good or service requires highly specialised knowledge, high levels of consultation may not be a desirable characteristic of the organisational buying process. The second assumption is that the organisational buying process is linear in that each step follows sequentially from the outcome of the prior step. This makes sense in relatively stable contexts. A stable environment allows the buyer firm to anticipate that future develops with reasonable accuracy. A stable environment is a context where possible suppliers are known, where the nature of demand is predictable, and where buyer firm purchase requirements are static. Where there is greater environmental dynamism, it is more difficult to use linear and highly structured organisational buying processes. For example, an unexpected spike in demand may create panic in the buying centre. Panic is more likely to force rushed decisions and may even contort an organisational buying process to reorganise the sequence of steps. It may be the case that the buying centre undertakes needs/ problems identification after it has selected a supplier, particularly if the supplier helps the buyer firm recognise an unmet need that it was previously not aware of.

Contextualising the Organisational Buying Process

45

The third assumption is that the buying centre follows the organisational buying process to the letter. In some circumstances, such as in government buying, there is a need for members of the buying centre to record the details of each meeting and each decision as it takes place. This is important for transparency purposes and allows auditing by third parties to identify any undesirable practices or outcomes. In other circumstances, there is less of a need to comply with all the steps in the organisational process. For example, there may only be a single supplier for a specialised good or service, so there is no need to identify further suppliers. The nature of the purchase situation may also reduce the need to pass through each step. For example, an individual employee purchasing a laptop for their own use may not need to convene an entire buying centre for this purpose. A formal organisational buying process may not be necessary in this case. The fourth assumption is that a buying centre has access to all the necessary resources and information necessary to conduct the organisational buying process. Where there are resource limitations, it may not be possible to conduct the organisational buying process to its full extent. For example, there may be situations where individuals with substantial domain expertise are in demand for other tasks, which reduces their ability to engage with the organisational buying process. In this situation, it may be that other buying centre members are not able to substitute for the expertise that the individual offers and, as such, make a poor purchase decision. The fifth assumption is that the organisational buying process concludes with the post-purchase evaluation. As we have already seen, the post-purchase impact on the buyer firm can be more pervasive than a simple post-purchase evaluation. The follow-­on effects of a purchase decision can impact the buyer firm’s customers in that they are recipients of the products/ services that the buyer firm produces. The buyer firm relies on its own suppliers to provide the inputs it requires to produce its products/ services. So, there is a chain of effects that emerge from a purchase decision that traditional organisational buying process models do not account for easily. While the organisational buying process is a useful device, its relevance to modern organisational buying is now less apparent. Recognition of more dynamic business environments and of the broader impacts of organisational buying has led to situations where a structured, linear process is not always applicable. It is also noteworthy that the organisational buying process concludes with post-purchase evaluation. While some organisational buying process models also include performance evaluation, there is an assumption that the organisational buying process is finite and discrete, rather than being more pervasive.

Contextualising the Organisational Buying Process Recognition of different purchase situations (such as those that appear in Chap. 2, particularly in Fig. 2.1) has led to greater acknowledgement that one organisational buying process does not fit all situations. Each of the relationship profiles in Fig. 2.1 suggests different emphases in terms of organisational buying process parameters. Table 3.2 draws on the major criticisms of the organisational buying process from

High/ High

High/ Low

Low/ High

Exchange frequency/ Relationship breath Low/ Low

Linearity Low

Adherence to process Low

Resource availability Low

Process conclusion Purchase

Indicative example Purchase of a laptop for an individual employee High Moderate High High Implementation Purchase of a new reactor for a nuclear power plant High at initiation; High at initiation; High at initiation; High at initiation; Contract Purchase of a contract to supply tyre Low ongoing Moderate ongoing High ongoing Low ongoing (re)negotiation replacements for a trucking company High Moderate Moderate High Contract Entering a supply partnership for jet (re)negotiation engine maintenance

Consultativeness Low

Table 3.2  Applicability of organisational buying ‘as a process’

46 3  The Organisational Buying Process Revisited

Contextualising the Organisational Buying Process

47

the previous section and assesses them in terms of four main scenarios that derive from the relationship profiles in the previous chapter. Where exchange frequency is relatively low and relationship breadth is relatively low, it is unlikely that the buyer firm will engage in the full extent of a formal organisational buying process. In this case, it is likely that the subject of the purchase is relatively unimportant to most individuals within the buyer firm. In this case, there is no real need for consultation and the decision-making process generally resides with the individual employee and their line manager. The purchase process is unlikely to be a strict, linear sequence. The individual only needs to adhere to the buyer firm’s purchase policy. Where exchange frequency is low, but relationship breadth is high, this suggests a more important, discrete purchase situation from the buyer firm’s perspective. This could characterise a capital procurement scenario, such as IT system. There is a high likelihood that the new IT system will influence multiple employees’ abilities to engage in their work responsibilities. An IT system often represents a significant investment for a buyer firm, and one that necessitates significant change. In this case, the organisational buying process is more likely to involve greater consultation, it is likely to follow a relatively linear path, and it is likely to adhere to a standard process. This sort of situation is more appropriate for a comprehensive enactment of an organisational buying process. Where exchange frequency is high, but relationship breadth is low, it is likely that the purchase requires an initial contract that outlines the commitments between the buyer firm and the supplier firm. The contract outlines the arrangements for order placing and fulfilment, as well as the pricing, and other relevant parameters that allow a long-term series of straight rebuys or modified rebuys. For example, the regular supply of spare parts for trucking companies is often the result of an initial contract negotiation and the application of the contract over a defined period. A scenario such as this involves the use of a traditional organisational buying process which terminates with the signing of the contract. From there, ongoing purchase activities commence, and each individual purchase usually does not require an additional organisational buying process to take place. Where exchange frequency is high and relationship breadth is high, it is likely that the supplier and the buyer firm have a complex, ongoing business relationship such as a joint venture or partnership. For example, Rolls Royce supplies jet engines for use in aircraft, but its shift towards ‘selling by the hour’ means it must engage with partners to regularly offer or renew tailored maintenance and repair services to customers. Arrangements such as these tend to involve an initial organisational buying process to identify, screen, and conclude contracts with suppliers. After this, they revert into an ongoing arrangement that involves high degrees of collaboration and the integration of services. This necessitates the coexistence of linear, formal processes with non-linear, informal ones. There is also a relatively high resource commitment necessary for suppliers and the buyer firm. The contract between the two parties is the subject of regular reviews and can change, depending on emergent circumstances. So, a traditional organisational buying process reverts to an ongoing series of interactions once the contract is finalised.

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 ustomer Solutions: A More Tailored Organisational C Buying Process

Customer solutions involve attempts by suppliers to address the specific needs, wants, and problems of a buyer firm through a customised offering that caters to the buyer firm’s precise requirements. Sometimes there is a need for a high degree of customisation to suit the specific requirements of the buyer firm. Where the situation is highly competitive, or where a supplier firm is in a weaker bargaining position than the buyer firm, one option is to offer a ‘customer solution’. Customer solutions involve attempts by suppliers to address the specific needs, wants, and problems of a buyer firm through a customised offering that caters to the buyer firm’s precise requirements. Customer solutions have impacts on the organisational buying process. In addition to the traditional aspects of the organisational buying process, customer solutions require extensive integration into the buyer firm. This necessitates a series of interactions between representatives of the buyer firm and representatives of the supplier firm. The purpose of these interactions is to implement the customer solution. Several authors suggest the series of interactions between representatives of the buyer firm and representatives of the supplier firm amount to relational processes (Töllner et al. 2011; Tuli et al. 2007). Each relational process involves extensive collaboration and coordination. Activities such as these enable customisation, integration, deployment, and post-­ implementation support. The idiosyncratic nature of the interactions between representatives of the buyer firm and representatives of the supplier firm makes it necessary to ensure smooth inter-process management.

Advantages of Customer Solutions Offering customer solutions can be very attractive to supplier firms. The provision of customer solutions can involve an opportunity to capture a greater share of the buyer firm expenditure than would otherwise have been the case. For example, mining for many types of mineral requires a dewatering process. This involves the raw extract passing through a series of steps that lead to the purification of the raw extract into an ore. By providing a design for such a process, the supplier firm only addresses part of the customer problem. By providing the design, the plan, and the implementation services, a supplier addresses a greater portion of the customer problem. This allows them to capture a larger portion of the buyer firm’s budget allocation for the project. In this case, the supplier firm offers a more comprehensive customer solution rather than a simple product or service. Supplier firms also stand to benefit through the creation of deeper, more pervasive relationships with the buyer firm. Such relationships allow the supplier firm to

Disadvantages of Customer Solutions

49

identify and pursue a greater variety of opportunities with the buyer firm since they can glean a deeper understanding of the problems and issues the buyer firm faces. Supplier firms can also actively shape the buyer firm’s strategy. This allows the supplier firm to position itself to become the supplier of choice for future offerings. The buyer firm also benefits from the provision of customer solutions by supplier firms. Since a customer solution caters specifically to the needs, wants, and problems facing the buyer firm, it stands to gain outcomes that address purchase requirements with precision. This means the customer firm gains benefits that it requires that are ‘just right’ for them. The buyer firm also stands to develop a close supplier relationship that allows that supplier to offer insight as to relevant decisions. This means the buyer firm has a broader base to draw on when developing future direction. The buyer firm also has a willing and eager supplier. The provision of customer solutions often represents a significant investment on behalf of the supplier firm, much of which is specific to the buyer firm’s requirements. This means the buyer firm has greater scope to leverage the relationship with the supplier firm. Caterpillar and Its Approach to Customer Solutions

Caterpillar famously shifted towards customer solutions through the introduction of its ‘pay for the hour’ programme. Following the lead of companies such as Rolls Royce, Caterpillar introduced Flexible Leasing as a means of addressing their customers’ main problem—the supply of heavy lift construction services. Rather than buying an excavator or grader outright, Caterpillar realised its customers did not see value in owning heavy lift equipment. Instead, customers valued the services, or outcomes that the heavy lift equipment offers, such as the excavation of roads or construction sites. Through the innovative use of leasing and novel ways to track vehicle use to predict maintenance requirements more accurately, Caterpillar found ways to reduce costs, to increase customer value, and to build more meaningful relationships with its customers. This approach represents a customer solution since Caterpillar recognised the actual needs of customers and developed an approach to address them specifically, all through an innovative approach to product/ service design and delivery. ◄

Disadvantages of Customer Solutions Many supplier firms believe they offer customer solutions. It is a frequent claim that appears on their marketing and promotional material. Yet, this is rarely the case, at least not in the strictest sense. Instead, supplier firms normally offer a combination of products and/ or services that may make sense for them, and may lead to a greater share of buyer firm expenditure. If we consider customer solutions in a strict sense, the primary focus should be on addressing the buyer firm’s needs, wants, and problems while also accommodating their specific circumstances. Therefore, most supplier firms do not offer customer solutions in a strict sense—they are normally unwilling or unable to address all the aspects of a customer solution with precision.

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The different nature of customer solutions, in their true sense, leads many suppliers to evaluate whether customer solutions are worthwhile. The considerable time and effort necessary to implement a customer solution can place significant stress on supplier resources. If there is an incorrect or incomplete interpretation of buyer firm requirements, this can be catastrophic. There is a high risk of higher costs through a need to repurpose or reconfigure a system. If the buyer firm does not respond well to the supplier, there is also a risk of supplier exploitation. For buyer firms, customer solutions are attractive if a supplier is capable of delivery and understands the delivery context. Customer solution implementations fail when communication is poor. They also fail if attempts to collaborate or coordinate are insincere. Buyer firms also face significant financial and other costs for customer solutions since they involve the development of a bespoke product/ service offering and its specific implementation. Buyer firms can also become victims to supplier firm expertise in an area, and this could see them accepting products or services that may not fit their business well. Implementing customer solutions can also pose significant risk. Are Customer Solutions Right for Your Business?

To help evaluate whether customer solutions are appropriate for your organisation, there are two sets of questions worth considering—one set for buyer firms, one set for supplier firms. For buyer firms: Give your organisation a score out of 5 (1 = ‘strongly disagree’, 5 = ‘strongly agree’) for the following questions: 1. My organisation is willing and able to work productively with suppliers to achieve outcomes that address our specific problems closely; 2. My organisation places a high value on suppliers that are willing and able to invest the time and effort to achieve outcomes that address our specific problems closely, so much so that we are willing to pay higher prices; 3. My organisation acknowledges that there is a need to adapt to emerging circumstances and that this affects outcomes; 4. My organisation openly shares information and knowledge that can help suppliers achieve outcomes that address our specific problems closely; 5. My organisation readily provides access to resources and facilities to our suppliers that allow them to achieve outcomes that address our specific problems closely; 6. My organisation believes that the likelihood of achieving outcomes that address our specific problems closely is higher if we accept joint responsibility, along with our suppliers. Once you have noted your score for each question, calculate a mean score for all six responses. If the mean score is >4, then your organisation is relatively well-placed as a recipient of true customer solutions. If the score is 4, then your organisation is relatively well-placed to offer and deliver true customer solutions. If the score is 3, the purchase is important enough to your organisation to warrant some additional consideration since it is likely to require significant investment, have significant impacts, and pose significant risks. Value Proposition Characteristics Key questions to consider (give the focal good/service a rating between 1 and 5, with 1 = ‘strongly disagree’ and 5 = ‘strongly agree’): 1. The value proposition is very difficult to use. 2. The value proposition is designed to address a requirement that affects multiple individuals, teams, and/or business units across the organisation. 3. The value proposition involves a high degree of customisation to the requirements of our organisation. Now, calculate a mean score for your responses. If the score is >3, the value proposition is relatively complex. This means it is likely to have a greater impact across the buyer firm than if it were relatively simple. The Capacity of Internal Systems, Processes, and Procedures Key questions to consider (give the buyer firm’s internal systems, processes, and procedures a rating between 1 and 5, with 1  =  ‘strongly disagree’ and 5 = ‘strongly agree’): 1. My organisation considers this purchase a ‘new task’ in that it has not had need for the same or similar value propositions in living memory. 2. My organisation focuses on efficiency as its primary means of driving profitability and/or other desirable outcomes. 3. My organisation is very conservative in its values and, consequently, does not adapt to change well. 4. My organisation does not coordinate internal processes or procedures particularly well. Now, calculate a mean score for your responses. If the score is >3, the capacity of internal systems, processes, and procedures will require significant

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attention during the purchase and implementation process to accommodate the significant change. The Nature of Logistical Arrangements Necessary Key questions to consider (give the intended logistical approach a rating between 1 and 5, with 1 = ‘strongly disagree’ and 5 = ‘strongly agree’): 1. The logistics necessary to ensure timely, safe, and cost-effective order fulfilment are complex. 2. The planned approach for transportation of the value proposition (and its respective components, if applicable) requires many suppliers to work collaboratively. 3. My organisation does not have much control over the logistics and transportation systems necessary to fulfil this purchase. Now, calculate a mean score for your responses. If the score is >3, the planned logistical approach may not be capable of fulfilling the order in a timely, cost-­ effective manner. Using the Results to Calibrate the Supply Approach An important point to consider is whether the buyer firm’s purchase approach matches the chosen supply option. To illustrate, consider some examples (see Table 10.2). Taking the four mean scores from the calculations above, we can compare three fictitious buyer firms. Buyer firm A is considering a purchase of an unimportant, moderately complex value proposition. However, its internal systems, processes, and procedures are poorly suited to the task, and the logistical capability is also poor. This situation will probably create unnecessary headaches for the buyer firm through the mismatch between the four dimensions. Buyer firm B is in a much better position. While the purchase importance is very high, as is the value proposition complexity, its internal systems, processes, and procedures are well-suited to the task and the logistical capability it can access is also relatively good. This purchase will probably go very smoothly. Buyer firm C faces a mixed situation. While purchase importance is moderate, the value proposition is not particularly complex. Its internal systems, processes and procedures are poorly suited to the task, but the logistical capability it can access is good. This situation illustrates a need to invest in internal systems, processes, and procedures prior to the purchase. Doing this sort of exercise can help buyer firms calibrate their supply options with the ability to absorb and manage the purchase. Understanding where key Table 10.2  Matching supply options with buyer firm considerations Purchase importance Value proposition complexity Internal systems, processes, and procedures capacity Logistical capability

Buyer firm A 1 3 5 4

Buyer firm B 5 4 2 1

Buyer firm C 3 2 4 2

The Make or Buy Decision

167

weaknesses lay can motivate a deeper assessment of the purchase situation, particularly where the purchase has the potential to affect the buyer firm in multiple ways.

The Make or Buy Decision A fundamental question for a buyer firm is whether to ‘make or buy’ the good that they are considering for purchase.1 Transaction cost economics is a body of theory based on the pioneering work of Ronald Coase (1937) and Oliver Williamson (1971, 1993, 2010). Oliver Williamson received the Nobel Prize in Economics in 2009 for his work in this area. Transaction cost economics considers the decision as to which organisational form should be used to produce a good. The primary consideration is the relative cost of production. If it costs more for the firm to produce the good than it would if it were to purchase it through the market, then the production should occur ‘in-­ house’. If the reverse is true, that the firm produces the good more cheaply itself than if it were to purchase the good on the open market, then the firm should produce the good itself. The decision as to whether to make or buy has a series of implications for buyer firms. Since costs can occur in terms of the price of the good subject to purchase as well as those that the buyer firm incurs through information search, decision-­ making, implementation of the purchase decision, and through disposal, there are a range of possible considerations necessary when determining what costs to consider. Undertaking assessments of this nature can pose significant costs in themselves. Assessing relative costs is only possible if the buyer firm has access to complete information. In most cases, this is not possible. It is unlikely that a buyer firm can access all costing information easily and efficiently in many cases, although online platforms are improving transparency in this regard. Costs may also arise through unexpected circumstances. This gives rise to substantial, unplanned costs. This could tip the make or buy decision in favour of the option not selected by the buyer firm. The decision to locate production either within the boundaries of the firm or to source the good from the market may not be a simple dichotomy. Making the good involves using the internal systems, capabilities, and processes available through the hierarchy. Purchasing the good involves finding alternative offers on the open market. However, there is scope to combine elements from both domains. The firm may choose to produce some of the good itself and to source other elements of the good from the open market. Indeed, there is scope for networks to emerge between the firm and a series of suppliers. The network, therefore, becomes an alternative form of organisation that still achieves the same outcomes of economic production.

 N.B. Transaction cost economics doesn’t explicitly acknowledge services.

1

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Should We Make or Buy?

So, for buyer firms, there are several sets of questions to consider: 1. Given our current capabilities, do we have the capability to produce the good ourselves? If so, what do we expect the cost to be? 2. Are there available alternatives on the open market? If so, what are the likely costs? 3. If it will be too costly for the buyer firm to produce the good itself and there are no viable alternatives on the open market, can we build or leverage a network of suppliers to produce the product? Pondering these questions can help buyer firms determine the need for, and the relative costs of, different purchase approaches. The principles of transaction costs economics, however, can be difficult to apply in practice. Without full costing information, it can be difficult to make an accurate decision. If there are no viable options on the open market, the buyer firm will have no alternative but to make the good itself. If there are no comparable options, the ability to engage in a market-based transaction is not available. The outcomes of the make or buy decision have implications for economic organisation (as Williamson puts it). Making a good provides a rationale for the buyer firm to invest in systems, processes, and capabilities that enable production. There is less of a need for the market or network. However, the buyer firm may be unable to produce a good of the same quality as alternative suppliers can. Buying a good on the open market does allow the buyer firm to concentrate on developing its own core competencies. This allows the buyer firm to remain competitive in its own markets. Drawing on a broader network can allow the buyer firm to get the best of both worlds; however, the ability to do this successfully rests on a range of factors, such as how well the network engagement approach is executed, how willing/able the buyer firm is to engage with external suppliers, and the nature of the good/service in question.

Conclusion This chapter describes channels of supply as an important consideration in the buying decision process. As we have seen, there are a variety of considerations that relate to channels of supply. The buyer firm faces four main supply options: buying direct from the manufacturer, buying direct from the service provider, buying from an integrator, and buying from an agnostic intermediary. Each option has its own advantages and disadvantages, so the chapter considers these in turn. In most cases, placing and managing an order using online platforms have become the most common means for interacting with suppliers, with some supply options necessitating more interpersonal interaction than others.

References

169

The chapter also considers the implications of each supply option for the buyer firm. Not all supply options are ideal, so the chapter includes a checklist that can be helpful for buyer firms when assessing the buyer firm’s ability to cope with a given purchase. Key considerations include purchase importance, value proposition complexity, internal systems, processes and procedures capacity, and logistical capability. The chapter includes a checklist for buyer firms to help calibrate their purchase approach. Lastly, the chapter explores some considerations for buyer firms as to how to approach the ‘make or buy’ decision. Determining when to produce or when to purchase a good can have significant impacts on the buyer firm. Discussion Questions

1. Define a channel of supply. What is it that differentiates a channel of supply from a supplier? What are the advantages and disadvantages of considering a channel of supply when compared to a given supplier only? 2. Describe the four main supply options available to buyer firms. Give examples of each. 3. What are the relative advantages and disadvantages of each supply option given the specific needs and circumstances that characterise a purchase situation? Give examples to support your answer. 4. How would you recommend an appropriate approach to managing supply options to a buyer firm? What are the key considerations for the buyer firm? 5. What structural considerations might a buyer firm want to consider when structuring its channels of supply?

References Coase, R.H. (1937), “The Nature of the Firm”, Economica, Vol. 4, No. 16, pp. 386–405. Williamson, O.E. (1971), “The vertical integration of production: Market failure considerations”, The American Economic Review, Vol. 61, No. 2, pp. 112–123. Williamson, O.E. (1993), “Transaction cost economics and organisation theory”, Industrial and Corporate Change, Vol. 2, No. 2, pp. 219–249. Williamson, O.E. (2010), “Transaction cost economics: The origins”, Journal of Retailing, Vol. 86, No. 3, pp. 227–231.

Further Reading For Some Additional Reading on Transaction Cost Economics, Consider the Following Volumes Williamson, O.E. (1985), “Markets and Hierarchies: A Study in the Internal organisations”, The Free Press: New York. Williamson, O.E. (1985), “The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting”, The Free Press: New York.

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For a Critique of Transaction Cost Economics, Consider Ghoshal, S. and Moran, P. (1996), “Bad for practice: A critique of the Transaction Cost Theory.” Academy of Management Review 21 (1). pp. 13–47.

Networks and Organisational Buying

11

Learning Objectives

Upon completion of the chapter, you should be able to: 1. Define a ‘network’ as this relates to organisational buying. 2. Describe different network structures and how they might influence organisational buying. 3. Describe the differences and similarities between ‘networks’ and ‘ecosystems’. 4. Describe network dynamics as an important consideration in organisational buying. 5. Describe how organisational buying affects networks. 6. Describe the forces that shape networks. 7. Describe the role of network resources in organisational buying.

Introduction This chapter explores the idea of the broader social network as this relates to organisational buying. While we discuss the importance of relationships in earlier chapters, considering the network perspective forces us to aggregate multiple relationships to understand how multiple connections relate to one another. As we will see, this is particularly useful in purchase situations. Understanding the constellation of ties that exist helps us to determine who has influence, what value proposition options are available, and the accessibility of network resources. This awareness is helpful when determining an appropriate strategy to navigate potentially complex social processes. The chapter begins by defining networks as these relate to organisational buying. As always, defining core concepts is an important starting point. The chapter goes © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 D. D. Prior, Organisational Buying, https://doi.org/10.1007/978-3-030-67414-4_11

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on to discuss network structure. Drawing on social network analysis, the chapter outlines different network profiles and reflects on them in terms of purchase situations. The chapter also differentiates between ‘networks’ and ‘ecosystems’. This is important when considering the nature of the network in question. Where a network implies a set of social connections, ecosystems operate more as a context. The chapter goes on to discuss the effects of organisational buying on networks. As we will see, the choices that buyer firms make often influence other network members. The chapter also discusses the forces that shape networks as well as network resources, which are often the objects of individuals’ goals for their respective network interactions.

Defining Networks A network, as this relates to organisational buying, refers to the set of social connections between buying centre members and to the social connections that individual buying centre members have beyond the buying centre with a broader set of stakeholders that influence organisational buying activities. There is a tendency to think of networks from the perspective of the individual. These ‘focal’ networks involve the individual considering their various social contacts in terms of the specific relationships that they have with other individuals. This is relatively easy for individuals to grasp since it involves reflecting on personal experience and connections. Considering the people that an individual buying centre member ‘knows’ is an easy way to operate. In this sense, a social network is tangible and is something an individual can influence. It is also common for individuals to seek expansion of their social networks through networking activities. The main issue with considering an individual’s social network is that it is subject to constraints. Dunbar’s number (see Dunbar, 1992) suggests that individuals face a cognitive constraint that means they can only expect to maintain meaningful relationships with about 150 people. This recognises limitations in time availability as well as other constraints, such as cognitive capacity. It follows that individuals also triage relationships in terms of individuals to whom they dedicate the most time and attention, as opposed to those that are not as intimate. So, there is typically a disproportionate impact on individuals based on their ability to engage, meaningfully, with others. If we were to focus on an individual’s focal network as the main unit of analysis for organisational buying, there is less consideration of the broader social network. Indeed, a major reason for asking someone to join as a buying centre member is due to the diversity this offers in the decision-making and implementation process. At least some of the perspectives that individuals offer derive from their respective social networks. A buying centre, therefore, offers an opportunity to overlay not just diverse perspectives, but to harness the collective knowledge of a set of social networks.

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Understanding that the respective social networks of buying centre members are important considerations in the buying process is useful for members of the buyer firm as well as for representatives of the supplier firm. For supplier firms, recognition that a broader social network exists offers other avenues to influence the organisational buying process. Understanding the composition and function of the social networks that surround and affect the buying centre can help in determining appropriate network members to target promotional activities and/or to pre-empt major issues or concerns that they may raise.

Network Structure Not all networks are the same. Indeed, there are many different network configurations that are worth considering. To understand this, it is worth exploring the world of social network analysis. Social network analysis involves considering the nature of ties between individuals to ascertain the degree of connectedness that exists between them. A key objective of social network analysis is to visualise the connections that exist between individuals in aggregate terms. Social network analysis allows us to map connections between individuals. In simple terms, this allows us to see ‘who knows who’ and how well individuals know each other. By mapping connections, social network analysis outcomes can also reveal network structure. Figures 11.1, 11.2, and 11.3 reveal different types of social network structure. Each node represents an individual and the lines that connect individuals represent ties. The closer individuals appear together the stronger ties they have with one another. The more distant individuals are from one another, the weaker their ties. The larger the circles that represent each node, the higher the number of connections that individual has. Figure 11.1 depicts a network that is reasonably coherent. There is a relatively strong set of connections between the individuals in the network. There are few weak ties. This sort of network structure may appear as a ‘bubble’ in that there are relatively clear boundaries that define the network. It is also likely that this network is relatively well-established and mature. There has been a convalescence around a core set of ideas, principles, and functions. Figure 11.2 depicts a network that has at least five major clusters, as well as a central conduit. Each of the clusters represents a different assembly of people, with their own distinct ideas, principles, and functions. Yet, each group also has a common purpose or need to interact. This sort of network structure may be more common in an industry context that sees at least five major competitors, but with a central industry body that upholds professional standards. For example, the accounting profession sees the ‘big four’ accounting firms (KPMG, Deloitte, EY, and PwC) in competition, but most of the accountants that these firms employ are members of the Association for Certified Practicing Accountants or the Association for Chartered Accountants, which represent network hubs. Figure 11.3 depicts a network with one major, dominant player that houses most of the individuals in the network and several smaller players that house the other

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Fig. 11.1  A coherent network

individuals in the network. This network structure suggests a situation where the dominant player has a long-held network position and, consequently, determines many of the ways in which the network functions. The smaller players may be ambitious start-ups, or smaller competitors that have chosen to specialise on a niche in the market. Understanding different network structures can help plan an organisational buying process. As a supply chain or procurement manager, an awareness of the supply network structure may help in determining who to support and how to support them. It might also encourage a wider search process, to identify those players that are able to accommodate specific needs. It may also encourage wariness, particularly if a supply network has a dominant player that exerts excessive influence on the network. As a marketing or sales manager, an awareness of the structure of a social network that relates to a specific organisational buying process can help in several ways. First, it can help anticipate possible competitors. By identifying who is likely to pursue the same/similar opportunities within the network, marketing and sales

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Fig. 11.2  A network with multiple clusters

managers have greater ability to plan accordingly to mitigate the threat. Second, an awareness of the social network can also help in the identification and pursuit of potential partners and collaborators. This can be a useful way to boost capacity or to support innovation. Third, an awareness of the social network can help when conducting more specific stakeholder analysis in the wake of a bidding process. By understanding who knows who and in what ways, it is possible to anticipate who will influence an organisational buying process and how they will do it.

Strength of Ties Strength of ties refers to the degree of connectedness between individuals, as is evident through the relative time allocation to the relationship by both individuals, the emotional intensity, the intimacy, and the degree of reciprocity.

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Fig. 11.3  A network with a major dominant player

Weak ties refer to relationships that receive relatively little time, have low emotional intensity, low intimacy, and little reciprocity.

Strong ties refer to relationships that receive relatively high time allocations, have high emotional intensity, high intimacy, and high reciprocity. All social networks involve a combination of weak and strong ties. Indeed, the strength of ties is an important way to understand the nature of the connections within a network. As with Dunbar’s number, there are relatively few strong ties possible for a given individual due to the cognitive and other limitations they face. The majority of ties an individual can access are, therefore, weak ties. The origins of creativity and innovation often emerge through weak ties. Connections to individuals that are outsider the individual’s inner circle are more

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likely to produce a different perspective. New perspectives may help to challenge the assumptions of the individual. New perspectives may also help to solve problems or address ongoing issues in novel and unique ways. It is for these reasons that weak ties are often useful in situations that require considerable adaptation. When considering the composition of ties that relate to organisational buying, there are several sets of issues. For supply chain and procurement managers, it is often easer to deal with the same suppliers for repeat purchases. This means it can be difficult to shift to alternatives (as we discussed in Chap. 4). Where exchange processes are more transactional in nature—that is, the buyer firm understands the value proposition relatively well and requires little assistance in its use—the exchange process relies on relatively few strong ties with key supplier representatives. As the relationship breadth expands and the exchange frequency increases, strong ties are more likely between a greater variety of supplier representatives and their counterparts in the buyer firm. It is only when something unexpected occurs, such as an unforeseen event or circumstance, that weak ties become important means to adapt quickly and to address problems through innovative ideas and creativity. As a marketing or sales manager, the ability to adapt quickly to address an unexpected or emergent need facing the buyer firm, is an important way to ‘break in’ to an opportunity. By presenting something that is completely novel to the buyer firm, marketing and sales managers have a greater chance of success. If we consider the social network structures in Figs. 11.1, 11.2, and 11.3, this ability to adapt quickly will probably have a greater impact in networks that look like Fig. 11.2 or Fig. 11.3. In both network structures, there are clearer gaps between clusters or dominant and niche players. This suggests a need to overcome a broader expanse of the network, also known as a ‘network void’. This exercise is challenging due to a lack of ties. Broaching the network void is more likely, however, if the supplier offers truly innovative or creative solutions.

Networks Versus Ecosystems Two terms appear in the popular media to describe largely similar phenomena: ‘networks’ and ‘ecosystems’. It is worth contrasting the two ideas to ensure clarity. Table 11.1 summarises the key differences between both concepts. First, both networks and ecosystems concentrate on interpersonal connections. Interactions vary in their frequency and their importance. Second, there is a tendency to differentiate the nature of ties between individuals. Whereas social network analysis describes ‘hard’ versus ‘soft’ ties between Table 11.1  Networks versus ecosystems Attribute Connections Nature of ties Role of context Purpose

Network Interpersonal Hard and soft Not a core concept Social connection

Ecosystem Interpersonal Mutual dependencies Central, important Fulfil individuals’ goals

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individuals, ecosystems focus more on the nature of mutual dependencies or interdependencies. There is an assumption that within ecosystems, everyone has something meaningful to contribute to others in the ecosystem. Third, networks are merely a series of connections between individuals. This does not acknowledge the potential for the network to constitute a context. Ecosystems themselves act as a context that exerts influence on individuals within the ecosystem. This is, perhaps, the most important difference between networks and ecosystems. Fourth, the purpose of a network is social connection. A network is, ultimately, an assembly of social ties between individuals. Ecosystems exist to fulfil the goals of individuals. Given that individuals actively pursue goals, the ecosystem can help in goal fulfilment by acknowledging the dependencies between individuals. In considering networks and ecosystems, it is important to acknowledge both their differences and similarities. A network is useful when understanding connections whereas an ecosystem is helpful when individuals have interdependencies and aim to fulfil goals.

Networks as Dynamic Networks are rarely static. As with relationships, there is a tendency to pass through lifecycles that emerge through the formation and cessation of ties between individuals. There are many possible reasons for the changes in interpersonal ties over time. One line of thought is that shifts in interpersonal ties reflect the emotional or psychological connections that individuals feel for one another. A classic example is when people leave school. While they may have spent ten or twelve years near another individual, once the reason (i.e. schooling) for the association is no longer present, those individuals may not find a need exists to maintain the contact. This also happens in professional networks. When people shift jobs or relocate, the earlier contacts they have can dissipate unless there is some other attractant that helps maintain the relationship. Another line of thought is that network dynamics reflect economic developments. To address the ultimate need of a major customer or customer group, there is a need for a supply chain. The firms that operate within the supply chain do so due to the persistence of the ultimate customer’s need. For example, the dairy supply chain has, in many respects, remained unchanged for decades since it addresses the same persistent end customer need. Were customer needs to shift dramatically, this would then influence the need for the network or network configuration. Network resilience refers to the ability of an existing network to accommodate change, whether this is expected or not. A combination of both social and economic rationales for network dynamics might see the emergence of some new development that has the potential to disrupt

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the dominant network structure and paradigm. Where a network remains largely unchanged, it is likely that it has high network resilience. This occurs when the fundamental customer need remains unchanged and the dominant players in the network can absorb shock relatively easily through quick network reconfiguration. For example, the COVID-19 situation has eliminated a need for many types of products or services. Those suppliers that continue to perform well now sell primarily through online means while also delivering to a customer’s door. If, however, a customer need shifts suddenly (i.e. in the case of a ‘disruption’), then the network may cease to exist. The decline of Kodak, the world-famous film manufacturer, meant that a large supply chain became obsolescent virtually overnight. As a member of a buyer firm, it can be helpful to understand network dynamics. If a network is relatively stable, it is less likely that the buyer firm will face major supply problems. It is also more likely that the supply network operates with high efficiency. Unstable networks can yield the opposite conditions. As a member of a supplier firm, dynamic networks can be ripe with opportunities. There may be more scope to address problems that emerge from the unstable network. The supplier firm may also want to create unstable networks through the introduction of revolutionary new products or services. For example, Amazon disrupted the publishing industry by creating a means to distribute published volumes to consumers without the need for the traditional supply chain necessary to distribute hardcover or paperback books. Amazon is now one of the most valuable companies in the world.

The Effects of Organisational Buying on Networks Organisational buying can have major impacts on networks. The economic outcomes that supplier firms desire result from satisfying buyer firms with their value propositions. This drives a range of decisions for supplier firms. The location of plant and facilities, production planning, task coordination, as well as many other activities all derive, at least in part, from supplier firms’ choices to target specific market opportunities. The relative importance and scope of the market opportunity to the supplier firm also determines how they engage in the market opportunity. For simple transactions, the nature of the processes, systems, and procedures that characterise the supplier’s market engagement is likely to prioritise efficiency, speed, and cost reduction, while also being able to cater to a relatively broad slice of the market. Under such circumstances, there is relatively little relationship breadth but high exchange frequency. A supplier network that accommodates this sort of organisational buying behaviour is more likely to focus on repeat contact between relatively few individuals acting on behalf of both the supplier firm and the buyer firm. This is true when considering multiple sets of buyer-supplier interactions. Across a broad market, supplier representatives pursue relationships with the representatives of multiple buying firms. A network profile that accommodates this sort of activity is, therefore, broad. For more complex transactions (i.e. those that require different levels of exchange frequency, but greater relationship depth), it is likely that a network galvanises

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around a dominant player. For example, Lockheed Martin, the global aerospace manufacturer, has led the development of the Joint Strike Fighter over the past twenty or so years. This programme has seen involvement by multiple countries, by their defence forces, and from suppliers that contribute to the process. It is fair to say that the Joint Strike Fighter programme resembles a concentration of aerospace manufacturing capabilities, and this has seen involvement of many thousands of individuals across the world.

Network Temporality The economic imperative that normally drives network formation and maintenance is sometimes temporary. Where there is a specific project that drives the organisational buying process, it is common for buyer firms to develop a project team, initially as core members of a buying centre, and then as members of the implementation team. The need for the project team lasts for the duration of the project. So, this has impacts on the nature of the network. While project teams generally retain the same management (e.g. project managers, project directors), the need for specific individuals changes at each project stage. For IT projects, it is common to begin with business analysis activities, where an individual is often employed to conduct an analysis of the organisation to understand the nature of its requirements for a new IT system, as well as the constraints it faces. So, this drives a need for business analysts. As the project moves into the tendering process, the need for business analysts tends to subside (which coincides with their contract completions). Instead, procurement managers or contract managers become more crucial, and this leads to the initiation of their contracts. Once the procurement is complete, there is more a need for individuals with implementation-­related expertise. This is a common story in many industries and is a rationale for what some people call ‘the gig economy’, whereby individuals with specific skill sets move from project to project and undertake a set of specific tasks that fit within the broader agenda of the project. This pattern of work is now relatively common. The gig economy results in a set of relatively free agents that act on their own behalves. While individuals that operate in the gig economy may prefer to work this way, it does raise questions about their interest in respective projects. Since they are involved for a specific period and they have specific objectives to complete during this time, they may not have an interest beyond this. Indeed, this means it is likely they may not invest the time and effort in building strong ties with project team members. Part of this is due to the need for individuals to constantly identify and pursue their next contract opportunity. It may be true that individuals operating in the gig economy are less likely to invest in a specific project. However, they risk their own professional reputation if they perform poorly. Contract terms are also often favourable to the buyer firm in that it is relatively easy to cease employment of an individual that performs poorly.

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From an organisational buying perspective, the gig economy has led to a network configuration that is highly dynamic, but largely stable. Where collections of individuals all have specialist skills, it is most efficient to engage in a network context that values such skills. This network context becomes the source of new contract opportunities while also being the basis for ongoing professional interactions.

The Forces that Shape Networks Networks are subject to a range of forces that determine the behaviours of the network, as well as groups and individuals that are members of the network. In a simple sense, these forces constitute motivators for actions or inaction. Network forces also shape the cognitions of individuals within the network.

Regulations Regulations refer to the legal parameters, through government legislation and case law, that affect network structures and behaviours. Laws of the land determine how networks function through the enforcement of penalties for non-compliance. Since different locations are often subject to different legal jurisdictions, there is scope for large networks to be subject to a range of regulatory frameworks. This can see networks gravitate to locations where the regulatory framework and its enforcement are less strict than in other locations. Perhaps the best example is where a country adopts relatively lax regulation to encourage commercial investment. For example, Ireland relaxed its regulatory regime in the mid-2000s to encourage overseas investment. This led to many global corporations locating their European offices in Ireland, leading to economic stimulus for the country. While Ireland’s initiatives were the source of economic progress, they also led to significant problems years later. The Irish decision to relax regulations to favour commercial investment led to the formation of new networks in that country or the reconfiguration of existing networks to include Ireland as one of the more important centres of activity.

Network Interventions Network interventions refer to the active attempts by powerful parties to initiate a new network or to substantially alter the trajectory of a current network.

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Powerful network players sometimes decide that it is worthwhile to establish a new network or to substantially alter a current network. A good example is when local, state, and/or federal governments decide to create an innovation cluster. This typically sees them initiate a new network hub with the primary responsibility for harnessing and promoting start-up businesses. Often, governments co-locate innovation hubs with universities to try and promote cross-pollination of ideas. University scholars can find avenues to convert new discoveries into commercial ventures, and an innovation hub offers a means to do this through access to venture capital and business subject matter experts. The innovation hub then becomes the centre of a network that comprises scholars, business start-ups, venture capitalists, and government support mechanisms. Innovation hubs are prevalent globally, with notable examples in Tel Aviv, Austin, Cambridge, Palo Alto, and Warsaw. While governments are notable for their record in network interventions, commercial players may have similar interests. Where there is a natural convergence between individuals that possess relevant skills, a natural attractant (such as a natural resource), and a regulatory framework that is conducive to commercial success, it is not surprising to find a commercial cluster or hub. For example, research and teaching hospitals are often proximate to major pharmaceutical companies’ research and development labs. This closeness allows new drugs, vaccines, and medical treatments to undergo trials in a manner that is convenient and cost effective. Such arrangements tend to involve close partnerships between the pharmaceutical companies and the medical practitioners responsible for implementing and evaluating the trials.

Exchange Logics Exchange logics refer to the standard approaches that supplier firms use to offer a value proposition for sale, to engage with the buying centre, and to fulfil orders. Exchange logics resemble a set of standard operating procedures that supplier firms use to engage buyer firms and to fulfil orders. Exchange logics reflect a set of core beliefs as to the importance of the opportunity, the optimum means to address the opportunity, and the acceptable standards of service that the supplier firm offers. For example, Rolls Royce utilises an exchange logic that reflects its belief that its customers are affluent, that they expect high levels of service, and that they are highly influential. This means that Rolls Royce invests in a highly tailored, customised process to engage potential customers and to escort them through the buying process. This contrasts with, say, Toyota, for example. Toyota attempts to maximise its profits through sales volume maximisation, so, each individual sale is not as important, in relative terms, to those for Rolls Royce. This affects their approach to market as well as a variety of other parameters, which ultimately result in a lower service standard for Toyota customers, as well as relatively lower service costs for Toyota.

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Different exchange logics, therefore, lead to different network configurations. If, as Rolls Royce does, there is a need to cater to a sophisticated but needy affluent customer, this produces a need for a relatively small network, but one that can deliver on this exchange logic. Toyota, on the other hand, requires a much more extensive network to deliver on its exchange logic. This allows them to cater to a broader group of customers and to do so efficiently and for relatively little cost.

Social Norms Social norms refer to the implicit ‘rules’ that exist in social networks, held by individuals, that govern the expectations that individuals hold for one another, as well as their perceptions. Social norms reflect the unspoken beliefs that individuals develop as to what behaviours are acceptable or not. Where a violation of a social norm takes place, an individual risks the imposition of social penalties from other individuals in the network. This can include the spread of vicious rumours, ostracism from the network (or from certain clusters within the network), and/or other penalties. Where an individual is compliant with social norms, they often experience a much easier set of interactions with other individuals in the network. This can also lead to rewards for their fealty. The issue with social norms is that, although they govern network interactions, they are normally implicit. This means that there is considerable scope for individuals within the same network to hold different beliefs and expectations. Misunderstandings are normally the result. Where a network is relatively mature and/or where there is a dominant player that determines acceptable social norms, as well as the penalties/rewards for non-compliance/compliance, there is less scope for misunderstanding.

Network Culture Network culture refers to the shared beliefs and values that network members hold, as evident in rituals, stories, and lore held within the network. It follows, then, that network culture is worth considering. Some network cultures are more obvious than others. For example, individuals that are members of networks in the defence sector often have military backgrounds. The military culture is potent in the defence sector and results in shared rituals such as air shows and industry conferences, and a series of common interests that are more likely in military personnel (e.g. hunting). A culture such as this also means it is clear who belongs and who does not.

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Network culture is an important influence on networks. Culture relates to social norms in that it amounts to a set of implicit expectations that determine individuals’ perceptions about the behaviours of others in the network. The rewards and penalties for (non)compliance. Yet, culture is more subtle since it also helps determine what individuals feel, so acts as an emotional heuristic.

B2B Versus B2G: Differences and Similarities There is sometimes a distinction between B2B (business-to-business) and B2G (business-to-government) markets. Where B2B involves buyer-supplier exchange between commercial entities, B2G involves buyer-supplier exchange between commercial entities and government entities. It is worth considering the similarities and differences here (see Table 11.2). It is true to say that many of the topics that the book covers thus far are equally relevant and applicable to both B2B and B2G contexts. The ways in which both relationships and networks function are largely similar. The properties of economic exchange are also similar. If we consider each of the forces that shape networks, we do see some differences, however. In terms of regulations, B2B exchange simply needs to adhere to the stipulations in the laws of the land. B2G exchanges, however, also involve the application of additional parameters that require supplier firm compliance. These include the need to hold specified amounts of insurances (such as those that relate to workplace health and safety and professional indemnity), to have personnel that are eligible for government security clearances, to have a healthy financial position, as well as a range of other requirements. In terms of network interventions, B2G purchases are more likely to address political considerations than B2B exchanges. Governments are often aware of their ability to influence networks through interventions. As we saw above, this can include the initiation of new network innovation hubs and/or the substantial reconfiguration of existing networks. The impetus for doing so often stems from political concerns, where many governments win office on the basis that they will be able to create jobs. In terms of exchange logics, B2B exchanges occur for standard commercial purposes, so tend to focus on addressing the buyer firm’s requirement. B2G exchanges involve an additional need to demonstrate due diligence in their buying processes. Table 11.2  B2B versus B2G networks Attribute Regulations

B2B Standard

Network interventions Exchange logics

Done to address commercial purposes Done to address commercial purposes Growth-oriented

Network culture

B2G Standard + government procurement-related Done to address political purposes Prioritise transparency Conservative

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This leads to a higher need to promote transparency, particularly in a form that is useful to members of the electorate that the government serves. In terms of network culture, B2B exchanges often centre on increasing the growth and profitability of the supplier firm. B2G exchanges tend to see this as a secondary consideration. Instead, there is often limited interest in new and innovative products or services. It requires a concerted and extensive effort on behalf of supplier firms to convince governments that an alternative solution is a better fit to the one they have in mind. In summary, a comparison of B2B and B2G networks shows that B2G networks face a suite of additional constraints. This means that B2G networks are often more rigid in their composition and are normally less dynamic than their B2B counterparts. It also means that supplier firms that engage in B2G opportunities successfully are part of a relatively protected group. This may not be a concern since B2G opportunities are often not as widely available or commercially attractive as B2B opportunities in most sectors.

Network Resources Network resources refer to the tangible and intangible sources of value that individuals seek to utilise that exist beyond the boundaries of the buyer firm, so that they can create and capture new and valuable outcomes. Individuals primarily engage in networks so that they can identify resources, obtain those resources, and utilise those resources in a way that allows them to create value for other individuals in the network. Individuals can have interest in a wide variety of resources. Human resources, knowledge/information, finances, infrastructure, production materials, plant and equipment, as well as many other types of resources all have the ability to create benefits for individuals and buyer firms. Networks are the source of resources. Exploration of the various nodes within the network will reveal who controls or who can access various resources. This is useful for individuals with a clear goal in mind. For sales or marketing managers, this can involve a search for partners to help produce a value proposition that is of interest to buyer firms. For supply chain managers, procurement managers, and operations managers, networks are the source of individuals that possess the relevant skills and experience that can help affect the implementation of the buying process. Resource integration refers to the combination of a suite of resources to create a new source of value.

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In a generic sense, individuals engage in resource integration. Individuals draw on a diverse set of resources and then combine them in some way to create benefits for other individuals. For supplier firms, this is most noticeable as new product or service offerings. For buyer firms, resource integration often involves the combination of the new purchase with an existing set of resources so that the buyer firm can pursue its goals. For example, the buyer firm will normally require order-placing processes and individual employees that place the order. Once the buyer firm receives the order, there is then a need to incorporate it into the activities of the buyer firm.

Conclusion This chapter introduces networks (social networks, specifically) as important considerations in organisational buying. The buyer firm both shapes the network and is subject to the norms, institutions, and other forces that affect the network. This realisation highlights the importance not just of supplier firm-buyer firm interactions, but of a suite of stakeholder relations that remain invisible without a greater awareness of the network that envelopes the buying process. The chapter highlights a series of network structures that are useful when considering organisational buying processes. Networks with high centrality and maturity are more rigid than those that are more fragmented and less mature. Both scenarios give rise to different strategic approaches that supplier firms and buyer firms may wish to consider, respectively. There are also important differences when considering ‘networks’ and ‘ecosystems’. Where networks do not necessarily consider the broader context in which organisational buying takes place, ecosystems see this as their focus. This is interesting, particularly when considering the nature of network forces that shape networks/ecosystems. Discussion Questions

1. What is a ‘network’ as this relates to organisational buying? What might marketing and sales personnel want to consider when pursuing market opportunities? How might supply chain managers, procurement managers, operations managers, and other representatives from the buyer firm use networks to fulfil organisational purchase requirements? 2. How might an analysis of strength of ties help us to determine an appropriate pathway through a network to achieve organisational buying goals? 3. What are the differences and similarities between ‘networks’ and ‘ecosystems? How might one concept be more useful over the other when considering organisational buying situations? 4. What are the forces that shape networks? How might these affect network dynamics? What might we want to consider when considering organisational buying situations?

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5. What is the role of network resources in shaping organisational buying? Consider different organisational buying scenarios.

Reference Dunbar, R. I. M (1992), “Neocortex size as a constraint on group size in primates”, Journal of Human Evolution, Vol. 22, No. 6, pp. 469–493

Information Technology Developments and Organisational Buying

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Learning Objectives

Upon completion of the chapter, you should be able to: 1. Describe the key technological issues affecting organisational buying. 2. Identify areas where advances in information technology can benefit organisational buying. 3. Appraise the degree of preparedness an organisation has for emerging advances in information technology.

Introduction Passing information between supplier firms and buyer firms is synonymous with the exchange process. For an exchange to take place, members of the buyer firm need to determine their purchase requirements and to communicate them to a supplier firm. Supplier firms, on the other hand, need to communicate their value propositions and to engage in order-taking and fulfilment processes. All of this creates data, which requires processing, analysis, storage, and maintenance. It is fair to say that the volume, variety, and speed of information exchange continue to increase. The incorporation of greater processing and analytical powers allows supplier firms and buyer firms to manage the additional demand on their information processing capacity. However, concerns continue to emerge as to the viability of business models that adhere to logics that largely derive from industrial revolution principles. This chapter considers some key technological issues facing organisational buying. Among them are the need to manage legacy systems, big data, the Internet of Things (IoT), data processing capacity, cyber security, and Artificial Intelligence (AI).

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 D. D. Prior, Organisational Buying, https://doi.org/10.1007/978-3-030-67414-4_12

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The chapter also considers some ways in which organisations can take advantage of advances in information technology. The chapter explores business intelligence, analytics, and insight with respect to organisational buying. It also considers how online purchases shape organisational buying. Lastly, the chapter explores some considerations regarding an organisation’s preparedness for the emerging advances in information technology.

Some Key Technological Issues Affecting Organisation Buying The use of information technology to convey exchange-related information between supplier firms and buyer firms had its advent in the 1970s. Companies made use of electronic data interchange (EDI) to improve the efficiency of information exchange. The limitations in processing power, and its significant cost, were prohibitive for most companies. EDI involved closed information systems between supplier firms and buyer firms to accommodate order fulfilment, largely for repeat purchase situations. Data exchange, analysis, and processing continue to improve in terms of capacity, speed, and accuracy. Moore’s law—that information technology processing capacity doubles every eighteen months or so—has had its effects in organisational buying. Now, more than ever, it is easier to collate, process, and utilise data from many sources, and this has implications across multiple facets of organisational buying. So, let us consider a few of the more pertinent ones.

Managing Legacy A problem that has become more obvious over time amounts to dealing with the legacy of outdated systems and data. Buyer firms invest in information technology to help them manage exchange processes. The designs of earlier systems, however, may limit the ability of current or future systems to realise their potential. This is particularly the case where an earlier system uses one approach to managing data that is incompatible for a preferable future approach. For example, a large buyer firm in the marine sector invested in an inventory management database in the 1990s. For the database to remain current, it requires manual data entry through a process that is not user-friendly. This led to missing data, duplicate data, and inaccurate data. It also had an architecture that meant data were stored in about 600 separate locations. So, this led to a need to remediate the situation to address multiple issues when this buyer firm sought to upgrade its systems in the 2000s. Many buyer firms now see opportunities to improve their efficiency and effectiveness through the introduction of new technologies. The use of dashboards is a popular means to gain a ‘quick snapshot’ of the current situation. This then helps to promote real-time decision-making and empowers users in that they have higher

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awareness of their supply chains. Setting up a dashboard, however, requires considerable structuring of data flows and the use of a range of new technologies (such as elastic search to integrate real-time searches across multiple datasets, behavioural modelling to calibrate dashboard behaviours to user-specific actions, and recommender systems to improve decision-making speed). Each new technology requires its own support and considerable time and effort to integrate with current workflows.

Big Data The higher scope for data collection has meant that buyer firms now have access to potentially useful information resources, more so than in the late 1990s. The data that buying processes create and that they require as inputs can be voluminous. When data accumulates from many sources over extended periods, it becomes ‘big data’. While this term has begun to decline in its popularity, it is still a meaningful and worthwhile consideration. The profusion of data—from multiple sources and across multiple timeframes— requires careful consideration in terms of its storage. Cloud computing has become a popular means to do this. By harnessing servers across multiple locations through online channels, there is now greater scope to store more data for use. This can require some investment, which may be worthwhile if it enables deep insight through the analysis of the large amount of data. The ability to utilise big data requires several considerations. First, preparing the data for use involves ‘cleaning’ whereby a user scrutinises the data to identify anomalies, duplication, and other errors, while eliminating these from the dataset prior to its use. Second, the user decides on how to use the data—which normally involves the need to address a problem of some kind. Third, the user conducts the analysis and/or integrates the outcomes of the analysis in other business processes. This process can result in novel insights, even with impure data gathered for unrelated purposes. Harnessing big data, while it is now relatively easy given the advances in systems and processes, still requires professionals with high skill levels. It also requires integration with other areas of the business for it to be useful. This can pose significant risks, particularly where new applications are necessary to address a given problem and/or where the organisation is unfamiliar with big data utilisation.

Internet of Things The recognition of big data as a phenomenon that warrants business attention acknowledges a wide variety of possible data sources. An emerging set of sources that promises to widen the possible channels for data creation and flow is through the Internet of things (IoT). IoT highlights the importance of data sources that do not fall within the domain of traditional systems. IoT involves a variety of devices that are accessible via the internet for the purposes of data collection.

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Security cameras, mobile devices, scanning devices in buildings, facial and voice recognition devices, smart TVs, home audio assistants, and even smart refrigerators are all examples of possible data sources. The widespread use of such systems allows users to harness them for purposes broader in intent that their original design allows for. For example, the integration of facial recognition, voice recognition, RFID scanning, and manual searches means that border control authorities now have a much more effective security capability than is the case if they relied on manual searches alone. Organisational buying also benefits from the integration of a diverse set of data creation technologies. Of note are those that allow the real-time monitoring of shipments across many locations. Supplier firms can now use GPS monitoring of trucks, RFID chips to track stock in warehouses, and digital scanning to ensure accurate inventory tracking. Such technologies are also useful in warehouse automation. Amazon, for example, integrates all these technologies with automated warehouses that involve robotic inventory receipt, warehouse storage, order picking, order allocation, and off-loading/loading onto trucks and other vehicles.

Data Processing Capacity There has been a dramatic increase in information processing capabilities over the past twenty years. Data storage options are now relatively plentiful. There has been a series of advances in the type and variety of data processing available, and this has led to a wider range of possible uses for data. There has also been dramatic improvement in the user-friendliness of data processing systems, and user skills continue to improve. The escalation in data processing capacity has meant that there are now many possible options when an information-based problem emerges. Now, more than ever, there is scope to either perform data processing tasks internally or find a relatively inexpensive outsourcing option. The net result is greater user empowerment to address data challenges, to do so inexpensively, and to draw on a growing, dynamic ecosystem of possible suppliers, partners, and collaborators to do so. Indeed, the trend towards ease-of-use and accessibility continues to fuel the explosion of data processing-relevant suppliers. It has also led to the emergence of different business models, such as those that involve free access to options with low functionality and those that offer a subscription service rather than asking for a complete upfront payment.

Cyber Security For as long as there has been trade, there have been attempts by individuals to profiteer off imperfect processes and systems that supplier firms and buyer firms use to manage exchange processes. The modern-day version of this tends to centre on weaknesses in the online systems that facilitate the exchange process. A hacker is

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normally interested in identifying systemic weaknesses and exploiting them for their own gain. Online systems can be susceptible to malware and to viruses. Malware spreads the infection to other systems and can alter the use of existing software packages from the initial design intentions. For example, a piece of malware can take control of a user’s webcam, activate its recording functionality, and send the content to an unknown, remote user. Viruses also involve malicious intent, although they tend to focus on destroying data or on altering the properties of the system. ‘Zero days’ are weaknesses in the code of a software package in common use that is amenable to the implantation and spread of malware and viruses on a large scale. The technical composition of online systems is often beyond the skill sets of the individuals that use the systems. Instead, they are normally content with a user-­ friendly design that accommodates their needs. However, this does expose online systems to cyber threats. Human use of online systems is often the major reason for cyber security breaches. For example, a major university in Australia lost a considerable amount of student data since several systems were subject to a breach. The origin of this was an email sent to a personal assistant. The PA opened the email and thought it was legitimate, so sent it to the divisional director, who went on to open the attachment on a work terminal. The attachment contained a virus, which quickly spread. Phishing scams, blackmailing, threats, extortion, and, even, love scams (where a hacker convinces a user that they have a serious relationship) lead to human behaviours that violate online systems integrity. While many cyber-attacks are the result of nefarious, state-sponsored actions, their relatively low cost, and their ability to protect identities easily, means that cyber-attacks are now an easy means to cause damage to an organisation. In organisational buying, there is no reason to suspect that respective actors involved in the exchange process, their organisations, and/or the online exchange media they use are not targets for cyber-attacks.

AI AI has become a popular, catch-all term to describe when machines mimic intelligent human behaviours. This includes understanding and interpreting data, performing analysis, decision-making, and executing tasks. The possible scope of AI is vast, so it is beyond the remit of the current chapter to explore AI in all its manifestations. AI, however, does warrant attention across several domains. AI can help automate data collection, cleaning, and storage. Web scraping has become a popular tool for data collection, for example. Web scrapers amount to a piece of computer code that automates the search process when a user seeks information about a certain topic. A web scraper could be a useful means to identify suppliers with an online presence. AI also includes recommendation systems, which amount to algorithms that highlight possible buying options to a user that executes an online purchase.

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Recommender systems use machine learning to guess the likely purchases of a given user, based on those it has seen from a vast array of other users. The results are becoming more accurate and helpful. AI can also help clean data. Through the specification of algorithms, it is now possible to search through datasets for missing, duplicate, or erroneous data, and to manage these problems automatically. All of these applications of AI can enhance organisational buying, but also increase the dependence of buyer firms on AI (which is sometimes undesirable).

 aking Advantage of New Information T Technology Developments The manifold technological developments lead to questions as to how a supplier firm or a buyer firm may position itself to capitalise on them and/or how it might manage if they become a victim of one or more of them. So, it might be helpful to consider some of the more common and emerging applications relevant to organisational buying.

Business Intelligence, Analytics, and Insight Business Intelligence (BI) is a technology-driven process for analysing data and presenting actionable information, which helps executives, managers, and other corporate end users make informed business decisions (see www. searchbusinessanalytics.techtarget.com).

Analytics refers to the systematic assessment of raw data, often through statistical computation, observations of data features, and the identification of trends in the data, with the intention of addressing a question, problem, or issue.

Insight refers to the unique and/or novel perspective that arises through analytics and other critical thinking processes, to address a question, problem, or issue. BI, and its closely related sub-elements analytics and insight, have become popular across multiple domains. The manifestations of BI vary widely, but all share a common goal of using datasets (often ‘big’ datasets) to gain a unique perspective with respect to a question, problem, or issue that the organisation faces.

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BI has become a source of competitive advantage. The world BI market is set to grow from about $17 billion USD in 2016 to around $27 billion USD in 2021 according to some industry reports (www.marketsandmarkets.com). This is indicative of the value that organisations continue to place on BI. Unique insights have a long history of providing competitive advantage. This principally relates to the link between insights into customer needs, preferences, usage, purchase situations, and other relevant information, and the ability of the organisation to use this information to create market offerings, to communicate them, and to deliver them in a manner that is consistent with the customer insights available. However, Andrei Hagiu and Julian Wright (2020), in their recent Harvard Business Review Article ‘When Data Creates Competitive Advantage’ argue that data can only create competitive advantage under certain conditions. Organisations need to consider the cost of data acquisition and analysis relative to its contribution to profitability. Data needs to be current, as well as protectable from competitive threats. The BI that emerges through the data needs to contribute meaningfully to customer outcomes. Concerns such as these reflect the nuance that organisations need to consider. It is worth pondering the different origins of data as well as their potential implications from an organisational buying perspective (see Table 12.1). Inbound activities refer to the initiation and execution of a purchase. The primary data that emerge through these activities relate to order placing/receiving, inventory/warehousing data, and budget/finance. Throughput refers to the normal operations of the organisation, particularly in terms of purchase integration activities. The primary data that emerge through these activities relate to operational requirements and budget/ finance. Output activities relate to customer engagement. They include data from sales, marketing, and customer service activities. Once we understand the nature of the data available, the organisation can then apply analytics to generate insights. While there are similarities in the types of techniques available, their applications can differ significantly. In all circumstances, there is a need to obtain data, to prepare it for analysis (i.e. to ‘clean’ it), to apply relevant and appropriate analytical techniques, and to generate reports that convey the key insights. Some of the more popular forms of AI relevant for BI appear in a table in the Glossary to this chapter. An example application of BI in organisational buying is when a buyer firm attempts to optimise its supply chain. A buyer firm could begin by examining Table 12.1  Inbound, throughput, and outbound activities and their data sources Inbound

Description Data that derives from the organisation’s buying activities.

Throughput Data that derives from the organisation’s purchase integration activities. Outbound Data that derives from the organisation’s sales, marketing, and customer engagement activities.

Example data types  •  Order placing/receiving data  •  Inventory/warehousing data  •  Budget/finance data  •  Operational requirements data  •  Budget/finance data  •  Customer data  •  Competitor data  •  Market data  •  Sales data

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inventory data, order placement data, delivery data, costing data, and operational data. By integrating these data into a single dataset, the buyer firm can observe trends over time and relationships between different variables, and identify causal chains which may contribute to high costs and/or delivery delays. If the buyer firm assembled these data into a real-time data flow, it is possible to view multiple data points on a single dashboard. This enables real-time problem-solving. Overall, the potential applications for BI are numerous. The organisation needs to determine what role, if any, BI will play in its overall operations.

Emerging Channels and Forms of Supply As previous chapters mention, advances in information technology allow for different approaches to sourcing. Rather than replacing the need for an organisational buying function, online ordering can increase the speed and accuracy of organisational buying, while also reducing the cost of this process. Online ordering can also create competitive advantages for supplier firms that learn to harness this power. There are two main approaches for online purchasing. One is for the buyer firm to go directly to the supplier’s website and place an order. This allows the supplier to ship an order directly to a buyer firm without the use of multiple intermediaries. A second option involves purchasing from an online hub. Alibaba.com, Amazon. com, and eBay.com are examples of online hubs. An online hub acts as a marketplace in that it displays the offerings of multiple suppliers that customers can choose from and compare. Online ordering is a convenient and cost-effective way to order products and services that are relatively discrete. AI is necessary for this to work, however. E-commerce requires the integration of multiple systems that allow it to function. The online ordering system requires a software platform that enables the order-taking and fulfilment process. Within this platform are multiple forms of algorithms. For example, an intelligent recommender system draws on machine learning across multiple customer orders to identify options that a given customer is likely to prefer, based on their similarity with existing customers. Blockchain technology can enable to order placing and fulfilment process. Blockchains involve a series of information links between members of a supply chain, where each party agrees to the authenticity of the information conveyed within the link. This allows a process of verification along a longer chain of actors. Through the verification across multiple links, the blockchain establishes a consensus of the accuracy, validity, and reliability of the information within the blockchain. This process is useful in supply chains since it acts to ensure trustworthiness between multiple actors that engage with one another to promote commerce. Where orders are repeat buys, there is now scope to automate the order placement and fulfilment process. The International Association for Contract and Commercial Management (www.iaccm.com) shows that contract automation is becoming simpler. There is now less need for human involvement in the contracting and fulfilment process across multiple product categories. While contract automation is an emerging field, it is likely to continue its growth trajectory due to the benefits of contract automation.

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Are You Prepared? A common concern for many people is that machines will replace their jobs, if not the companies they work for. In his book Rise of the Robots: Technology and the Threat of a Jobless Future, Martin Ford predicts a future where robots replace the need for humans across many employment categories. He traces a longer-term trend where machines replace humans to perform relatively simple tasks. Since the industrial revolution, many blue-collar jobs have seen this fate. Take the automotive industry. Advances in robotics allow manufacturers to replace workers (who require breaks, replenishment, and motivation) with machines that do the same job, only faster, twenty-four hours a day, and free from emotional needs. Similar trends are observable across many industries. In his book A World Without Work: Technology, Automation and How We Should Respond, Daniel Susskind highlights a range of jobs most susceptible to automation. Those jobs with the highest risk include those in food preparation, construction, cleaning, driving, agricultural labour, and garment manufacturing. These jobs all involve significant repetition of discrete tasks and do not require significant education or expertise. In a scarier predication, both Martin Ford and Daniel Susskind show that advances in AI mean that many traditionally white-collar jobs are becoming more susceptible to automation than any time in history. AI is now advancing at such a rapid rate, that it can mimic many higher-order thought processes that were, until recently, considered the exclusive domain of the human brain. Indeed, the OECD (Nedelkoska and Quintini 2018) suggests that jobs in information technology, science and engineering, upper management, and politics, all have at least a 25% chance of automation. The rate of progress could produce a situation where many people are unemployed in the future. The main concern here is that unemployment will produce uneven and mixed effects. Those people who can identify ways to benefit from the development of AI will probably end up best off, but this will require the investment of capital. There is considerable scope for significantly more inequality and social stratification—and this can yield significant increases in societal problems. Understandably, predictions such as these raise concerns for organisational buying professionals. On the one hand, there is scope for the automation of many sales processes. The integration of technology in sales dates to at least the mid-1990s. The advent of customer relationship management (CRM) has led to the ability to generate business intelligence and insight that shapes marketing and sales strategy. Account-based marketing (ABM) takes CRM to the next level, by focusing clearly on a specific client account and, through insight, developing customised approaches for that account. There has also been a range of other uses for information technology in the sales process, such as email automation, social media content generation, and blog posts. For sales professionals, the increasing capabilities of AI are leading to a world where it makes marketing and sales decisions and implements them without the need for human intervention. This means that advances in AI reduce the need for sales and marketing professionals. Instead, programmers, developers, and analysts

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will become the marketing and sales professionals of the future. The biggest issue with this is that it will reduce the need for junior and entry-level positions. Senior level roles, that is, those that focus on strategic relationship development will be more important and lucrative, however, since these require different skills and experience. So, there is likely to be fewer sales and marketing professionals in the future. For professionals that deal with the inbound elements of organisational buying, such as supply chain managers, procurement managers, finance managers, and contract managers, advances in AI also pose challenges. The availability of online sales portals means that there is less need to comb through print catalogues and their online equivalents, thus reducing the need for information search behaviours. Advances in ERP, production planning, and other enterprise management systems also reduce the need to invest time and effort in collating and coordinating the production of a diverse set of information in support of the organisational buying process. Trends towards the consolidation of the organisational buying process are evident across many sectors. It is now possible to automate most tasks in a manufacturing facility, particularly those that produce the same, or very similar, outputs repeatedly. Some examples are apparent in agriculture. It is now possible to manage crops by combining satellite monitoring, automated fertilising, and remotely driven harvesters, thus reducing the need for multiple individuals involved in each task, to one person that oversees all elements. Similar examples are apparent in global shipping. A single operator can now direct the movements of an entire fleet of container ships across the globe, a process impossible ten years ago.

What We Can Do About It With greater recognition of the impacts of technological developments on aspects of organisational buying, it is worth considering how individuals and organisations can, and should, react. It is obvious that developing greater skills and experience with information technology is essential. This allows individuals to harness the technology in such a way that it complements, rather than replaces, their roles. For example, a new CRM system could help promote better sales success rates, while also reducing the tedium of populating CRM databases with customer data. This sort of change is beneficial to the sales manager, and the supplier firm also benefits. Buyer firms can experience similar sorts of benefits, through the greater automation of purchase process elements. To ascertain whether the encroaching improvements in AI and information technology should be causes for concern, there are some simple questions to consider.

Is This Process Well-Defined? The easier it is to define the core elements of a process, the more amenable it is to automation. There are several important elements to consider.

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The objective of the process should be the same for each iteration. For example, producing a component of the gearbox assembly of a given type of automobile has the same objective on each occasion. A process should involve the same series of steps. The process should use the same software and hardware. The process should have a definable set of inputs and outputs that do not vary. All elements of the process should not vary, or if they need to, there is a negligible impact on the other elements of the process. The mechanisms that support the process should be in place consistently. To facilitate the process, it is often necessary for some form of human oversight. There is also a need to maintain the plant and equipment where the process takes place. For example, there is normally need for a facilities manager to oversee a production plant. The support mechanisms allow the process to take place by ensuring the necessary inputs and outputs are in place, while also maintaining the elements that support the process. Developments in AI are on the verge of reducing the need for consistency in process objectives, the means to achieve objectives, and the nature of support necessary. Machine learning, for example, can help in terms of problem identification and, when coupled with AI-based algorithms, may even enable automatic problem-solving. While AI-based developments are currently emerging, processes that are dynamic and creative and that have unclear objectives have a higher immunity to AI-based replacement than processes with greater standardisation.

I s This Process Repeated Often? The more regularly a process takes place, the more attractive it is for automation. Processes that occur regularly require clear articulation since this is necessary to ensure their easy repetition. The fact that the process takes place regularly also means that a firm must invest resources in its ongoing execution. This means that it is a cost consideration. In comparison to processes that take place sporadically, regular processes tend to account for a larger percentage of expenditure. This makes them attractive targets for cost reduction. An often-repeated process means that it is an obvious target for automation since a key motivation for automation is cost reduction. I s This Process Knowledge Intensive? If the process focuses on knowledge creation, it is less likely that it will be susceptible to automation. The need for knowledge creation means that it is normally necessary for human engagement in the process. Humans can understand context better than AI, and this allows them to communicate insights more effectively. Humans can also empathise with other humans better, which allows them to address hidden or latent concerns. AI now augments many creative processes. Business intelligence and insight involve the analysis of large datasets. AI-based processes can help to increase the speed of analyses while also allowing an individual to present it in a visually

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attractive manner. Essential to each element of business intelligence and insight, however, is human engagement. Indeed, the purpose of business intelligence and insight is to improve human decision-making. Estimating the Scope for Automation

It can be helpful to calculate the likelihood of automation for a given process (although a similar set of considerations are also relevant for individuals’ jobs or occupations). The key questions to consider are (‘strongly disagree’ (1)—‘strongly agree’ (5)): 1. This process is clearly defined (e.g. through considerable documentation, common information libraries). 2. The process is repeated often. 3. This process is knowledge intensive. Once you have your responses, add those for questions 1 and 2. Now, subtract your response for question 3 (since it is reverse-coded). Now divide by 3. If your response is 2 or lower, the process you consider in your responses is not particularly susceptible to automation in the short term. If your response is greater than 2, but less than 4, the process is moderately susceptible to automation. If your response is 4 or greater, the process is very susceptible to automation. You can repeat the same analysis for your job, or even your occupation, by replacing the references to ‘process’ in the questions above with ‘my job’ or ‘my occupation’. Understanding how susceptible a process, job, or occupation is to automation can help anticipate this. For those that are most susceptible, it can allow you to plan, and this could involve positioning yourself to take the most advantage of any process automations and/or upskilling/reskilling where your employment is vulnerable.

The Human-Machine Singularity Authors such as Ray Kurzweil (2006) and Sean Culley (2018) describe a ‘singularity’, where the human mind merges with technology so that it becomes a single consciousness. Exponential increases in computing power, along with similar rates of advance in genetics, nanotechnology, robotics, and AI, all support a conclusion that human augmentation is a real possibility in the medium term. There is already evidence that the singularity is not an unrealistic future. For example, continual glucose monitors involve a sensor with a needle that is affixed to the skin of a diabetic person. The sensor relays information to a unit that reads the data, analyses it, and displays it on screen. This enables the wearer to continually monitor their blood glucose. Integration with an app on a smart phone can allow this

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information to display on screen. It is also possible to link this with an automatic insulin pump, thus completing a circular relationship that replaces, in large part, the need for a pancreas. While this is one example, it gives you a sense of the sort of innovations possible. Imagine a world where sensors can detect hunger, receive a message from the human brain as to the nature of a food preference, and generate an order for delivery—all automatically. While this sounds innovative, it also reduces the need for a range of jobs (such as the front-line service personnel responsible for ordertaking in a restaurant) and replaces them with other jobs (such as the programmers and developers necessary to develop the technology and the support that enables this degree of automation). From an organisational buying perspective, the encroaching singularity could have pervasive effects. From requirements definition, to options analysis, to decision-making, to implementation, there is scope for a series of changes which are currently unknown. Developments in related technologies such as driverless transport, 3D printing, robotic warehousing, automated manufacturing, and customer service automation could have profound impacts on organisational buyers. That is if they are even necessary. Developments currently underway could also lead to automatic contracting, which will reduce the need to human-to-human interaction at all. This means that the nature of buying processes will also change dramatically.

Conclusion Advances in information technology mean that organisational buying processes now need to incorporate means to overcome legacy issues, while also accommodating big data, the Internet of Things (IoT), data processing capacity, cyber security, and AI.  Rather than posing an unimaginable challenge, advances in information technology offer many benefits, including the ability to create better business intelligence through analytics and insight, while also offering new avenues for online purchases. Organisations need to consider their degree of preparedness for the emerging advances in information technology. The chapter also considers some ways in which organisations can take advantage of advances in information technology. The chapter explores, with respect to organisational buying. It also considers how online purchases shape organisational buying. Discussion Questions

1 . What are the key technological issues affecting organisational buying? 2. What are the areas where advances in information technology can benefit organisational buying? What might be some of the costs? 3. What would you recommend to an organisation that seeks to understand its degree of preparedness for emerging advances in information technology?

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Glossary: Some Common Forms of AI AI Element Artificial neural networks Behavioural modelling

Definition A related set of machine learning algorithms that allow computer systems to process large amounts of data and to categorise data in terms of pre-­determined (supervised) or emergent (unsupervised) categories. The tracking of human-machine interactions to develop models of human behaviour. This is used to infer cognitive processes and to anticipate appropriate computer systems design parameters. Blockchain An open, distributed, computerised ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. Cloud A large-scale distributed computing paradigm in which a pool of abstracted, computing virtualised, dynamically scalable, managed computing power, storage, platforms, and services are delivered on demand to external customers over the internet. Data fusion ‘the process of fusing multiple records representing the same real-world object into a single, consistent, and clean representation’. Data Data integration involves data mapping and conversion among different data integration towards a targeted data schema (i.e. a consolidated representation of multiple data sources according to a common set of themes). Data mining A search for a new, valuable, and non-trivial information in large volumes of information generally through some form of algorithm that determines the parameters of the search process. Data streams A computational model designed for handling large amounts of data flows in a processing parallel and in a distributed manner. Data The presentation of data in a pictorial or graphical format to promote better visualisation human understanding of data content. Descriptive Descriptive analytics, also called business reporting, uses the data to answer the analytics question of ‘what happened and/or what is happening?’ It includes simple standard/periodic business reporting, ad-hoc/on-demand reporting, as well as dynamic/interactive reporting. The main output of descriptive analytics is the identification of business opportunities and problems. Fuzzy set Fuzzy set theory provides a strict mathematical in which vague conceptual theory phenomena can be precisely and rigorously studied. It can also be considered as a modelling language, well suited for situations in which fuzzy relations, criteria, and phenomena exist. A recommender system aims to provide users with personalised online product Intelligent recommender or service recommendations to handle the increasing online information overload problem and improve customer relationship management. systems Natural Language Processing (NLP) explores how computers can be used to Natural understand and manipulate natural language text or speech to do useful things. language processing Ontology A specification of a representational vocabulary for a shared domain of development discourse—definitions of classes, relations, functions, and other objects—is called an ontology. This normally involves consultations with domain experts to determine the appropriate meanings for terms used to describe importance phenomenon. These become a baseline for comparisons of differences between incoming data. (continued )

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(continued) AI Element Prescriptive analytics

Definition Prescriptive analytics uses data and mathematical algorithms to determine a set of high-value alternative courses-of-actions or decisions given a complex set of objectives, requirements, and constraints, with the goal of improving business performance. These algorithms may rely solely on data, solely on expert knowledge, or a combination of both. Intrusion detection is the process of monitoring the events occurring in a Threat computer system or network and analysing them for signs of possible incidents, detection/ which are violations or imminent threats of violation of computer security prevention policies, acceptable use policies, or standard security practices. Intrusion prevention is the process of performing intrusion detection and attempting to stop detected possible incidents. Intrusion detection and prevention systems (IDPS) are primarily focused on identifying possible incidents, logging information about them, attempting to stop them, and reporting them to security administrators. Web scraping ‘Web scraping is a computer software technique of extracting information from websites. This technique mostly focuses on the transformation of unstructured data (HTML/XML format) on the web into structured data (database).’

Further Reading Buttle, F., and Maklan, S. (2019), “Customer Relationship Management: Concepts and Technologies”, Routledge: UK. Burgess, B., and Munn, D. (2017), “A Practitioner's Guide to Account-Based Marketing: Accelerating Growth in Strategic Accounts”, Kogan Page: UK. Culley, S. (2018), “Transition Point: From Steam to the Singularity”, Matador: UK. Ford, M. (2016), “Rise of the Robots: Technology and the Threat of a Jobless Future”, Basic Books: UK. Kurzweil, R. (2006), “The Singularity Is Near: When Humans Transcend Biology”, Penguin: New York. Susskind, D. (2020), “A World Without Work: Technology, Automation and How We Should Respond”, Allen Lane: New York.

References Culley, S. (2018), “Transition Point: From Steam to the Singularity”, Matador: UK. Hagiu, A., and Wright, J. (2020), “When data creates competitive advantage”, February–March, Harvard Business Review. Kurzweil, R. (2006), “The Singularity Is Near: When Humans Transcend Biology”, Penguin: New York. Nedelkoska, L., and Quintini, G. (2018), “Automation, skills use and training", OECD Social, Employment and Migration Working Papers, No. 202, OECD Publishing, Paris, https://doi. org/10.1787/2e2f4eea-­en.

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Learning Objectives

Upon completion of the chapter, you should be able to: 1. Describe organisational buying from a holistic perspective. 2. Describe organisational buying trends in sustainability, diversity and inclusion, emerging economies and demographics, and in terms of alternative ideas to resilience.

Introduction In reflecting on the content that the book covers, it is possible to draw some conclusions. This is the purpose of this chapter. By now, it is likely that you have a different perception of organisational buying, assuming you agree with the ideas contained in these pages. It can be difficult to empathise with colleagues with different backgrounds and from different units in the organisation, or from different places in the broader network. So, there is also a risk that you have reached this point with an air of confusion. Hopefully, this chapter clarifies the core ideas in the volume, particularly through the articulation of a holistic view of organisational buying that summarises the main ideas and concepts in the book. The chapter also builds on some of the observations in Chap. 12 to present four major trends likely to affect organisational buying in the near and medium terms. The chapter discusses these in terms of trends in sustainability, diversity and inclusion, emerging economies, and demographics, and in terms of alternative ideas to resilience.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 D. D. Prior, Organisational Buying, https://doi.org/10.1007/978-3-030-67414-4_13

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A Holistic Notion of Organisational Buying The book starts by advocating a need for a holistic notion of organisational buying. A view that blends ideas from domains such as marketing, procurement, supply chain management, and the business-as-usual can be helpful to that end. Figure 13.1 captures some of the more prominent concepts that the book covers, so seeks to represent a holistic notion of organisational buying. You might recall: • Chapter 2 covers purchase situations. In Fig. 13.1, we can see where these occur in terms of the interaction between buyer firm and supplier firm. • Chapter 3 covers the organisational buying process. In Fig. 13.1, we can see this in terms of a process that occurs within the buying centre. • Chapter 4 covers the purchase decision and the value proposition. In Fig. 13.1, we can see the purchase decision as a yellow star whereas we also see both didactic and communicative value propositions as arrows between the buyer firm and the supplier firm. • Chapter 5 covers communications in organisational buying. In Fig. 13.1, we can see this represented towards the base of the figure. • Chapter 6 covers relationships. In Fig. 13.1, we can see this as arrows between the buyer firm and supplier firm. • Chapter 7 covers organisational buying capabilities. In Fig. 13.1, we can see both ordinary and dynamic capabilities inside the buyer firm. • Chapter 8 covers organisational buying culture. In Fig. 13.1, we can see this as text to indicate culture and leadership in the buyer firm. • Chapter 9 covers organisational buying approach design. In Fig. 13.1, we can see this as an activity of the buyer firm.

Fig. 13.1  A holistic conceptual framework of organisational buying

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• Chapter 10 covers channels of supply. In terms of Fig. 13.1, these are part of the value proposition. • Chapter 11 covers networks and organisational buying. In Fig. 13.1, we can see this as a peach-coloured star to show that the buyer firm interacts with networks. Chapter 12 discusses information technology (IT) developments in organisational buying, so is a fundamental part of organisational buying. In essence, Fig. 13.1 is an illustration of organisational buying ‘in a nutshell’. Figure 13.1 should demonstrate how pervasive organisational buying is as a concept. As we cover in Chap. 1, organisational buying represents a series of activities that members of the buyer firm undertake, along with members of a specific buying centre (if necessary) and members of the supplier firm. People occupy roles in marketing, sales, procurement, contract management, supply chain management, finance, operations, production, IT, and many other areas. Hopefully, Fig. 13.1 goes some way to illustrate the inter-relationships between organisational buying activities and how they affect the working lives of many individuals beyond functional areas.

Additional Organisational Buying Trends Predicting the future is fraught with danger. It is inevitable that any prediction has only a small chance of eventuating. In this section, I highlight four trends to supplement the discussion in Chap. 12 (which concentrates on information technology trends in organisational buying).

Trend #1: Sustainability Sustainability is an ongoing concern, and given that organisational buying drives a large portion of economic activity, organisational buying activities have important impacts on sustainability. Global agreements on emissions reduction, such as the Kyoto Protocol, the Copenhagen Agreement, the Paris Climate Agreement, and other, similar agreements, place environmental sustainability at the centre of efforts towards sustainability. The United Nations, through its Millennium Development Goals, also advocates environmental sustainability. Supply chain, procurement, and/or operations managers, in addition to individual employees making purchase decisions on behalf of the buyer firm, often have options to purchase ‘green’ products. Green products are those with at least some properties that boost their credentials as having either negligible or, even, positive environmental effects. For example, products made from recycled waste or those that result in lower carbon emissions are considered ‘green’. While many buyer firms may hold sustainability as an important value, the decision to ‘buy green’ often involves a trade-off between economic viability and environmental sustainability. Economic viability normally wins. Even for companies

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that have a reputation as keen advocates for environmental sustainability may, in fact, prioritise economic viability. By focusing on waste reduction, for example, it may be possible for such companies to reduce costs substantially. Lower resource consumption is a welcome byproduct. The drive towards sustainability usually does not have its origins from sources internal to company. Instead, there are normally external drivers that, in effect, force the company to adopt sustainable practices. It is more common for customers to demand more sustainable products and services than the firm’s managers. Tight recruitment markets, particularly for millennials, also put pressure on companies to adopt sustainable practices since millennials often cherish sustainability as an important value. Emissions trading schemes imposed by national governments are also important incentives. Many buyer firms now oblige suppliers to complete a declaration as part of their response to a tender. Supplier firms must declare that they are compliant with a series of sustainability-related parameters. This is a mandatory declaration. Of course, this sort of approach is not possible unless the buyer firm is a large, powerful organisation. Even then, it can be difficult to verify a supplier firm’s sustainability claims. The Triple Bottom Line (TBL) (Elkington 1999) has become the pre-eminent way to assess the sustainability of business practices. The TBL advocates a balance between economic, environmental, and social sustainability. As the logic goes, without economic sustainability, neither environmental nor social sustainability is possible. However, there is a mutual dependency between all three dimensions of sustainability. Both environmental and social sustainability, however, are difficult to associate with the direct actions of the firm due to limited transparency. Social sustainability is more difficult than the other forms of sustainability to trace. Where economic sustainability is observable through quarterly earnings reports, and environmental sustainability is more obvious through lower waste or carbon emissions, social sustainability amounts to ‘stakeholder wellbeing’. Wellbeing is difficult to measure in a genuine sense since it is a subjective state— only an individual can assess or understand their own wellbeing. This problem is acute in developed economies, where objective measures such as income per capita, unemployment rate, the instance of human rights abuses, and so on are easier to appraise and, when compared to less developed countries, appear largely positive. Social sustainability may also force a firm to ‘take sides’. A large multinational such as BP, for example, faced massive environmental clean-up costs in the wake of the Deepwater Horizon oil spill in 2010. While this process involved extensive community engagement, many of the communities affected have still not fully recovered. Moreover, the need to commit millions of dollars in the clean-up effort had negative effects on employees in other parts of the company, all around the world through reduced employment benefits, layoffs, and other provisions. This example shows that achieving sustainability across the TBL dimensions requires a balancing act, not just across TBL dimensions, but within each one as well. Whether firms genuinely contribute to sustainability is subject to debate. In many respects, there is still a lack of convincing evidence that most firms do. Indeed, there is often focus on engaging in activities that seek to promote sustainability, but little

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evidence that such activities have meaningful impacts on actual sustainability outcomes. There is the added difficulty that to demonstrate sustainability, firms can source reviews and reports from independent experts, yet, even these are not necessarily convincing if the firms pay for the reports themselves. While this perspective is somewhat gloomy, if not sceptical, there are some examples of firms that engage in genuine efforts towards sustainability. Such efforts are commendable. However, it is important to recognise the nuance that goes with sustainability. This amounts to ensuring that sustainability measures are appropriate, that sustainability trade-offs are apparent, and, most importantly, that there is clear evidence of sustainability outcomes. So, the key trends that reflect an impetus for sustainability in organisational buying include: • Higher pressure to purchase ‘green’ and/or sustainable inputs for buyer firms, particularly due to pressure from new employees, governments, and customers. • A tendency to feign sustainability by presenting activities as ‘sustainable’ despite limited evidence to support this claim. • An ongoing emphasis on economic sustainability as the main driver.

Trend #2: Diversity and Inclusion As with every modern workplace, diversity and inclusion is important. At one level, diversity and inclusion has the potential to contribute to greater social harmony at the societal level. The ability to harness the net experience of a diverse group of individuals is essential to the productive function of society, as well as in the reduction or elimination of many societal curses (e.g. suicide, drug addition, depression, anxiety). At another level, diversity has the potential to contribute greater innovativeness to firms that recognise its benefits and take provisions for its adoption. While there are debates as to how to consider or conceptualise diversity, the basic premise that diversity equates to better organisational performance appears to hold true. The Chartered Institute for Procurement and Supply (www.cips.org) has a series of interesting and relevant resources on diversity and inclusion specifically tailored for organisational buying professionals. Those resources include a series of tips for the adoption of diversity and inclusion practices as well as the results of a recent survey they did, in collaboration with Hays, the recruitment firm. The key trends relevant to organisational buying include: • While organisational buying-related professions still largely comprise men, there is increasing scope, and impetus, for the greater inclusion of women. • There is also a drive, more universally, for the inclusion of culturally, linguistically, sexual, and gender diverse backgrounds. The benefits of such steps are imminent.

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Trend #3: Emerging Economies and Shifting Demographics The United Nations (www.un.org) predicts the world population to peak at about 11.2 billion in 2100. The peak population growth rate in human history was 2.1%, which occurred in 1968. Since then, the population growth rate has declined. The UN expects this growth rate to be about 0.1% in 2100. These numbers show that, for the remainder of my lifetime, demand for resources will continue to increase and, accordingly, so will the pressure on global ecosystems. The regions with the highest population growth expectancies to 2100 include Africa (from 1.3 billion in 2019 to 4.3 billion in 2021), and Asia (from 4.6 billion in 2019 to 5.3 billion in 2021). Europe and North America are, however, expected to grow much more slowly. The implications of this are that many organisational buying activates now involve interactions with emerging economies in Africa and/or Asia. Interactions with emerging economies will continue to increase. The impacts on global ecosystems and networks will become more apparent. Perhaps the most striking issues this gives rise to relate to the disparities between the developed and emerging economies. Given the increasing impetus to use information technology to execute organisational buying tasks, a couple of possibilities could emerge. The disparity between the capabilities of a supplier or buyer firm from an emerging economy may be incompatible with those with firms from a developed economy. On the one hand, this might reduce the inclination for firms from developed economies to deal with those from emerging economies since the cost of addressing this is too great. This may well be part of an unconscious bias inherent in contract automation systems, for example. On the other hand, the additional human capital available in emerging economies may lead to more innovative solutions or to a reversion back to non-IT-­ centric organisational buying methods. There is also growing scope for more organisational buying activities to take place in emerging economies. This could represent new business opportunities for suppliers, while also providing potentially cheaper resources for buyer firms. History shows us that economic cost is a primary consideration for the location of economic activities. For example, the high standard of IT-based education in India, the wide use of English as a major language, and the large population meant that Western firms could access highly skilled, relatively cheap IT labour during the 1980s to the 2000s. This was also the case for the Chinese, but in the case of manufacturing from the 1970s to the 2000s. Labour costs continue to increase in line with higher living standards, thus making outsourcing to countries like India and China less attractive. The utilisation of emerging economies as sources of cheap labour is likely to continue, but as the standard of education increases, along with a general improvement in living standards, outsourcing to countries located in Africa or Asia will likely face the same fate. In summary, some trends relevant to organisational buying include: • A shift of organisational buying activities towards countries based in Africa and Asia, and away from Western countries. • An increasing reliance on automation of organisational buying activities.

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Trend #4: Alternative Ideas on Resilience As we have seen, organisational buying does not always amount to a smooth and predictable set of activities. Indeed, there are many circumstances that give risk to disruptions and unexpected circumstances. At the time of writing, there are also three sets of major disruptions in play at a global level (although many others also exist). COVID-19 is currently the most pervasive factor influencing global supply chains. Restrictions on movement make it difficult for transport to take place, with this particularly affecting international passenger travel. So, taking advantage of international market opportunities is now more difficult. COVID-19 has also led to a decline in demand for multiple categories of products and services, particularly those offered through traditional retail outlets. There has also been a sudden surge in demand for other types of products and services, such as home office equipment and IT infrastructure to support remote working. The sudden shift has put excessive pressure on businesses such as airlines to downsize, whereas many IT companies are actively recruiting staff. The fact that many people did not anticipate the scale and suddenness of the effects of COVID-19 has meant that it is the most impactful disruption to organisational buying practices since the Global Financial Crisis of 2008–2010. Climate change also continues to affect organisational buying at a global level. While most major news outlets shifted their coverage to COVID-19 as soon as it broke, the advent and impacts of climate change have been known since the 1970s. Climate change, and humans’ treatment of the environment more broadly, continues to influence organisational buying. This is evident through changes in weather patterns, resulting in changes to natural resource availability, the degradation of infrastructure, and so forth. While many of these issues may not be ‘sudden’, they do yield events or circumstances that are. For example, the Australian bushfires in the summer of 2019/2020 burnt a massive amount of bushland on the eastern seaboard of the continent. The forest fires on the west coast of the US in the summer of 2020 are a continuation of this trend. This meant that there was little possibility that economic activity could continue during this time and led to the widespread destruction of significant amounts of natural resources and infrastructure. As we discuss in earlier chapters, cyber security is also a prescient concern. The growing sophistication of cyber-attacks, the likely ignorance of cyber security weaknesses, and the increasing breadth of global supply networks pose higher risks for firms. The relatively low entry barriers to engage in cybercrime, and the often-­ high incentives, mean that various groups are likely to continue engaging in cybercrime and more will emerge. Andy Greenburg in his 2019 book Sandworm shows that cybercrime and cyber warfare are important concerns for firms moving forward, as is evident in a suite of recent incidents. One that he concentrates on is the cyberwarfare targeted at the Ukraine in 2017. Cyberwarfare efforts led to the shut-­ down of a large percentage of the country’s electricity infrastructure, as well as the national postal service and others. At the time, there was a need to rely on methods that pre-date the information age.

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Citing factors such as these illustrate the need to ensure resilience in organisational buying. This means actively and honestly identifying and anticipating risks. It also means developing and implementing risk mitigation provisions. For example, many companies have had to switch from global suppliers to local ones to overcome the impacts of COVID-19. A large part of a firm’s ability to successfully implement a risk management strategy is the degree of awareness of risks. Actively engaging in the plethora of information available that could help firms understand risk will, more likely, increase their resilience. A large part of this also relates to network dynamics and function, as we discuss in earlier chapters. In summary, trends affecting organisational buying include: • Climate change, through its impacts on the availability of products and services, and on the viability of conventional business models. • A socially distanced world that drives organisational buying behaviour, as well as societal behaviour more broadly. • Greater susceptibility to cyber security breaches through greater reliance on IT systems in organisational buying. • A possible de-globalisation, where countries prioritise their own domestic economies for recovery from COVID-19.

Some Final Thoughts I hope this book has been useful for you. Having said that, it is appropriate to recap the positioning of this book at this stage. The book is a broad overview of concepts from a suite of different organisational buying domains. The fundamental thesis of this book is that through the adoption of a holistic view of organisational buying, you will be able to contribute to decision-making that is more strategic in nature. Rather than concentrate on the minutiae in each domain, the intention behind this book is to help you connect some dots from a variety of domains. This should promote greater empathy for colleagues working in different roles and contexts. For people that like lots of details, this book does not offer a great deal. Having said that, the book may serve as a starting point for a longer journey into organisational buying. Hopefully the contents of the book, as Fig. 13.1 summarises, help as an initial survey of the field. It would be useful to concentrate on each aspect in more explicit detail to gain a more complete understanding of each topic.

Conclusion Overall, this book is a deviation from a more traditional textbook. For this reason, I hope it has been a more readable volume and one that, particularly through the exercises, you have been able to engage in productively. The value of this book is not only its advocacy of holistic thinking, but also in mapping out a diverse set of organisational buying-relevant concepts and ideas. Ideally, this allows the book to serve

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as a resource that sits on your desk, on your bookshelf, in your e-reading device, or in your draw, as a source of reference for those conversations when you might have to interact with someone with a different background or disposition when it comes to organisational buying. Discussion Questions

1. How would you describe organisational buying to someone from a different background to yours? For example, if you are a marketing manager, how would you describe organisational buying to a finance manager? 2. Describe some of the trends affecting organisational buying at the global level. Which of these are most important to your industry (or one which you are familiar with)?

Further Reading Elkington, J. (June 25, 2018), “25 years ago I coined the phrase “Triple Bottom Line.” Here’s why it’s time to rethink it”. Harvard Business Review. Greenberg, A. (2019), “Sandworm A New Era of Cyberwar and The Hunt for The Kremlin’s Most Dangerous Hackers”, Random House: USA.

References Elkington, J. (1999), “Cannibals with Forks: The Triple Bottom Line of 21st Century Business”, Capstone: Oxford.

Index

A Activity links, 97 Actor ties, 97 Advantages and disadvantages of relationships, 98 Advantages of customer solutions, 48–49 Agile, 53–56 Ambidexterity, 142, 146–149 Analysing buying centre member power/ interest, 83–84 Analytics, 194 Artificial Intelligence (AI), 8, 189, 193–194 Attitudes, 125, 126, 128, 129, 131, 132, 138 B Beliefs, 129 Big data, 191 Bounded reliability, 129, 130 B2B vs. B2G, 184–185 Business-as-usual, 2, 5, 7, 9, 18, 23, 24, 100, 127, 143 Business intelligence, 194–196, 199 Buyer firm environment, 127 Buyer-supplier relationship, 17, 26–29, 31, 94, 102, 106 Buyer-supplier relationship governance, 30–31 Buying direct from the manufacturer, 159, 162 Buying direct from the service provider, 159–160 Buying from an integrator, 160, 162, 163 Buying task environment, 127, 128 Buying through an agnostic intermediary, 160–161 C Capabilities, 109–122 Change management, 126, 135–136

Channel of supply, 157, 158, 169 Cognition, 129–131 Commitment, 95 Communications process, 79–83, 91, 135 Communicative value proposition, 67, 68, 82 Conditional value, 73 Customer perceived value, 71, 73 Customer solutions, 48 Cybersecurity, 192–193 D Data processing capacity, 192 Didactic value proposition, 66 Disadvantages of customer solutions, 49–53 Diversity and inclusion, 209 Dynamic capabilities, 111–114 E Early relationship, 100 Ecosystem, vii, 178, 192 Emerging economies, 210 Emotional value, 73 Epistemic value, 73 Establishment of specifications, 42, 43 Exchange frequency, 21, 27–28, 34, 37, 38, 46, 100, 143 Exchange logics, 182–184 Exploitative organisational buying approaches, 146 Explorative organisational buying approaches, 146 F Formal governance, 31–32 Functional value, 73

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 D. D. Prior, Organisational Buying, https://doi.org/10.1007/978-3-030-67414-4

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216 H Habitual buying, 62 Holistic notion of organisational buying, 206–207 I Identification and evaluation of sources, 43, 44 Identifying the Preferred Supply Option, 162–167 Importance of the purchase, 165 Impulse buying, 61 Influence, 137–138 Influences on negotiations, 89–90 Insight, 194 Internet of things, 191–192 L Leadership, 136–137 Linear, 53–55 M Managing legacy, 190–191 Marketing, vii, 2–4, 7, 18, 23, 100, 119, 174, 177, 185, 186, 195, 197 Mature relationship, 101 Means to ends, 72 Mental models, 130, 131 Mid relationship, 100–101 Modified rebuys, 24, 26 Motivators, 86 N Needs/problems identification, 42, 43 Negotiation, 23, 33, 46, 47, 89, 90, 121 Negotiation outcomes, 90 Net benefits, 71, 72 Network, vii, 4, 6, 16, 25, 26, 55, 120–122, 125, 128, 133–134, 138, 152, 160, 167, 168, 171–174, 176–187, 203 Network capabilities, 120 Network culture, 121, 183–184 Network environment, 127, 133–134 Network interventions, 181–182, 184 Network resilience, 178 Network resources, 185 Network temporality, 180–181 New tasks, 24–26

Index O Opportunism, 32 Ordinary capabilities, 111–113 Organisational buying, vii, viii, 1–11, 13, 15, 18, 19, 21, 25, 26, 34, 35, 41–45, 47, 48, 53–57, 75, 93, 97, 99, 109–119, 121, 122, 125–130, 132, 133, 135–138, 141–155, 157, 161, 171, 172, 174, 177, 179–181, 186, 187, 189, 190, 193–198, 201, 205 Organisational buying approach design, 142–146 Organisational buying capabilities, 110, 151 Organisational buying culture, 126–128, 138 Organisational buying process, 42, 43, 45–47 P Plural governance, 33–34 Portfolio of purchase situations, 151–153 Post-purchase evaluation, 43, 44 Price and cost, 73–75 Procurement, vii, 2–4, 7, 9, 13, 18, 28, 47, 72, 76, 111, 113, 119, 126, 127, 142, 147, 149, 152, 174, 177, 180, 184–186, 198 Project management, vii, 2, 4–5, 7, 9, 13, 18, 53, 55, 164 Purchase decision, 3, 10, 13, 14, 42, 44, 45, 54–56, 59–61, 63–65, 72, 75, 76, 79, 80, 83–85, 87, 93, 105, 157, 167, 206 Purchase for augmentation then on-selling, 55 Purchase for buyer firm transformation, 55 Purchase for complementing then on-­selling, 55 Purchase for final consumption, 55 Purchase for straight on-selling, 55 Purchase situations, 7, 10, 14, 16, 17, 21–23, 25, 26, 34, 44, 45, 60–62, 79, 83, 89, 91, 93, 105, 110, 112, 141–146, 149–155, 162, 171, 172, 190, 195, 206 R Rational buying, 61 Regular task environment, 127 Regulations, 181, 184 Relational governance, 32–33 Relationship breadth, 28, 37, 38, 100, 144 Relationship dissolution, 101–105 Relationship initiation, 99

Index The Relationship Lifecycle, 99–101 Relative frequency, 22 Resilience, 55, 179, 205, 211–212 Resource commitments, 143 Resource integration, 185 Resource ties, 98 S Selection of sources, 44 Shifting demographics, 210 Social exchange theory, 94 Social identity, 131 Social norms, 183 Social value, 73 Spot transaction, 26, 29, 31 Straight rebuys, 23, 25, 26 Strength of ties, 175–177 Strong ties, 176 Supply chain management, vii, 2, 4, 7, 18, 113, 142 Supply option implications, 162–163 Supply options, 157, 158, 162–169 Sustainability, 207–209 Switching costs, 64–65

217 T Targeting the communications approach, 87–88 Task environment, 127–131 Total cost of ownership, 74 Transaction cost economics, 167 Triple Bottom Line, 208 Trust, 95–97 U Unique selling proposition, 59, 66, 76 V Value proposition, 65, 66, 70, 75, 86, 102, 105 W Weak ties, 176 When there is a better option, 102–103, 105 When there is a major falling out, 104, 105 When there is no longer a need, 103–105 When the relationship paradigm shifts, 102, 105